Newriver Reit PLC (NRR)

Newriver Reit Plc (NRR) is a leading real estate investment trust company.  It is involved in the real estate business throughout the United Kingdom. The Group focuses on managing, buying, developing and recycling convenience-led, leisure assets and community-focused retail. The Company's business is differentiated in two segments, being an investment in pubs and retail property. The Company manages or owns a portfolio of around 34 shopping centres and 23 retail parks with retail and mixed-use development prospects and an array of high street retail assets.

Recent Deals
As on September 12, 2019, the Group has announced that its joint venture with BRAVO Strategies III LLC has secured contracts to takeover Poole Retail Park in Dorset for a total consideration of £44.7m, reflecting a net initial yield of 8.0%.

Trading Update: Q1 FY20
During the quarter under consideration, the RIET group disposed an asset worth £27.5m at a blended net yield of 6.7% and 1.6% below the book value of the asset, including an Asda food store and petrol filling station, one shopping centre, six c-stores and three pubs and deployed proceeds into acquisition in BRAVO JV of four retail parks.

Retail occupancy stood high at 95.4% against 95.2% in Q4FY19, and average retail rent remained stable at £12.58/sq. ft against £12.52/sq. ft. However, the Group's well-positioned asset portfolio stood robust to CVAs and administration during the quarter at 0.5% of the gross income. However, on a like-for-like basis, footfall across the shopping centres narrowed by 2.5%, 70bps higher against the UK benchmark.
However, Group's community pub asset portfolio handed a like-for-like EBITDA per pub of 5.5% in Q1FY20, and occupancy remained steady at 97.6% against the occupancy of 97.9% reported in the quarter ended March 2019.

The Group’s ordinary dividend stood at 5.4p/share, and it was flat against the Q1 FY19 interim dividend of 5.4p/share.

Stock Performance
 
Daily Price Chart (as on September 27, 2019), before the market close. (Source: Thomson Reuters).

At the time of writing (before the market close, at 01: 49 PM GMT), shares of the NRR were trading at GBX 191.14 and 2.14 points or 1.49% higher against the previous closing level. In the year-ago period, its shares have registered a 52w high price of GBX 264.0 and a 52w low price of GBX 143.20 respectively. Share of NRR have delivered a negative price return of 27.62% in the year-ago period, declined 11.02% on a YTD basis, however in the past three months shares went up by 7% and 13% in a month time respectively.

Conclusion
At the current trading level, shares of Newriver Reit PLC were trading at a discount of approximately 27% against the FY19 EPRA (European Public Real Estate Association) NAV per share of GBX 261, where large REITs businesses of the UK were trading at steep discount of between 50-60% to their respective NAV per share, driven by challenging commercial property market in the UK, where property prices are weakening and carrying significant potential to nosedive further if a no-deal exit of the UK exercised as on October 31, 2019, also increasing number of retailers’ CVAs and administration is impacting the commercial REITs sector.

However, Newriver Reit Plc is in some better position against its peer group, as it has greater exposure to leisure businesses, also the stock is offering decent dividend yield at the current trading level, but this doesn’t mean it is not exposed to the UK’s weakening property value, shares will be hit hard if property price continues to fall further.

Also, in FY19, the Group's fund from the operation was reduced by 7% to £56.4m, and fund flow from operations per share slumped by 12% to 18.5p/share against 21.2p/share reported in the FY18 respectively.
Therefore, considering the ongoing challenges in the UK’s property market and uncertainties related to the sector in near-term, we have given a “Watch” recommendation at the current price of GBX 191.43 (as on September 27, 2019, before the market close), while we look for any upcoming catalysts in the near term.
 

Capital & Counties Properties Plc  

London, United Kingdom-headquartered, Capital & Counties Properties Plc is a real estate investment trust (REITs) business. As on May 17, 2010, shares of the Capital & Counties Properties Plc were admitted to the main market of the London Stock Exchange. Foord Asset Management Pty Ltd., Norges Bank Investment Management and Public Investment Corporation (SOC) Ltd. are the major institutional investors in the Company. (Source: Thomson Reuters).

Recent News
On September-26-2019, the Group (CAPC) announced its strategy to launch Covent Garden as a central London focused REIT through its demerger from Capco.  

Interim Results: H1 FY19

Source: Company filing.

During the period under consideration, Group’s EPRA NAV slumped by 3.3% to 315p/share against 326p/share reported at the end of H2 FY18. The Group's total property valuation declined by 2% (on a Like-for-like basis) to £3.2bn from £3.3bn reported at the end of FY18. On a YoY basis, Group's Net rental income was up 7.0 per cent (like-for-like) or 9.8 per cent in absolute terms against June 2018. At the end of H1 FY19, the Company's loan to value ratio marginally surged to 19% against 18% recorded at the end of FY18. On a like-for-like basis, the Group's Covent Garden total property value stood at £2.6 bn, up marginally by 0.5% against £2.6 bn reported at the end of FY18. At the end of H1FY19, the weighted average cost of debt increased slightly to 3% from 2.9% at the end of FY18 respectively.

The board of directors of the Company has proposed an interim dividend of 0.5p/share, in line with the interim dividend of 0.5p/share a year-ago period.

Stock Performance
 
Daily Price Chart (as on September 27, 2019), before the market close. (Source: Thomson Reuters).

At the time of writing (before the market close, at 03:28 PM GMT), shares of the CAPC were trading at GBX 234.0 and added 3.60 points or 1.57% against the previous closing level. In the year-ago period, its shares have registered a 52w high of GBX 280.60 and a 52w low of GBX 181.40 respectively. On a YoY basis, its shares have delivered a negative price return of 13.76%, however, added approximately 15% in the last one month and surged 2.2% in the past five trading session as well.

Conclusion
Since the EU Referendum, there has been ongoing heightened economic and political uncertainty. As the new date at which the UK is set to depart from the EU approaches, there may be an increased level of volatility in consumer, occupier and broader corporate behaviour and decision-making. This risk is heightened by the possibility of a disorderly Brexit.

Also, from the valuation standpoint in-terms of EV/EBITDA, shares of the CAPC were trading at a relatively higher valuation among the peer group companies, despite the fact that the property businesses in the UK as a whole witnessing the common risks related to the Brexit and at the current trading level, the dividend yield of 0.65% is significantly below the industry average dividend yield of 2.8% respectively.

Therefore, based on the above rationale, we have given a “Watch” recommendation at the current price of GBX 234.0 (as on September 27, 2019, before the market close), while we look for any upcoming catalysts in the near term.

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