In anticipation of continued uncertainty impacting the UK retail market, the Company, holding three dominant retail assets in Burton upon Trent, Middlesbrough and Blackpool, broadened its strategy to acquire logistics/warehouse properties across mainland Europe.
“Despite tough trading conditions experienced by especially the retail sector, we are pleased with the solid performance of the portfolio, mainly as a result of continued prudent asset management initiatives and the defensive nature of the assets,” comments Mike Riley, Chief Executive of New Frontier.
Total IFRS comprehensive income for the year of GBP 2.526 million was declared, comparing well to the loss in prior financial year of GBP 6.371 million. Recurring profit was marginally down to GBP 11.007 million for the year (2016: GBP 11.679 million).
The Company reports that its Cleveland Centre in Middlesbrough was particularly impacted by these economic conditions with a number of its tenants going into receivership and resulting in a consequential fall in the value of that property.
“This was mainly counteracted by the performance of our Burton and Blackpool properties,” explains Riley.
The Company declared a final dividend of GBP 3.6 pence per share for the year under review. Combined with the interim dividend, the total dividend for the year totals GBP 7.2 pence per share, down from GBP 7.6 pence. The reduction in dividend is mainly because of the fall of property rental income over the period.
New Frontier has made progress letting vacant units in a challenging retail environment which is facing headwinds from the uncertainty around Brexit, rising inflation outpacing wage growth and subsequent reduced household spend.
“The defensive nature of our assets supported strong rental income flow, with 84.46% of our tenants comprising national retailers,” elaborates Riley.
“In the past year we concluded 54 lease renewals and new leases, 28 of which are core long-term leases with an average length of nine years. A further six units are under offer on long-term lettings with several core lease renewals ongoing.
“The consistent efforts of the team resulted in an improvement in the vacancy rate to 5.49% by ERV, down from 6.48% in the comparative period,” he adds.
The Company is undertaking a number of asset management projects across all its assets. At Blackpool, heads of terms have been agreed for a new IMAX cinema development with ancillary retail. At Burton upon Trent, Next have opened a new 25,052 sq ft store and terms have been agreed with H&M for the remaining unit. At Middlesbrough, several new lettings are being progressed which will strengthen and improve the quality of the centre’s tenants further.
“The retail sector is increasingly feeling pressure from the growth in online sales. Long-term core new lettings and lease renewals being broadly flat at -0.5% by ERV,” says Riley.
“This, together with the constrained operating environment post Brexit, necessitated the refinement of our growth strategy. Whilst we will retain our retail focus in the UK, our ambit for growth will now extend to acquisitions of property (both retail and non-retail) within mainland Europe, with a preference given to logistics/warehouse assets in the UK, Germany, Austria, Slovakia, Czech Republic, Poland, Ireland and Benelux.”
In line with this new investment strategy, the Company has explored a number of opportunities in mainland Europe and is close to executing transactions in Austria and Germany in the logistics/warehouse space. Post year-end New Frontier concluded negotiations for the acquisition of the Stadium Business Park Unit in Dublin, Ireland for EUR 8.65 million.
The Stadium Business Park Unit is let to Viking Direct (Ireland) Limited on a twenty-year full repairing and insuring lease from 24 August 2007 at a rent of EUR 743,518 per annum. The purchase price reflects a net initial yield of 8.23%.
“Similar pipeline acquisitions will not only provide us with exposure to the European logistics/warehouse market enabling us to tap into the groundswell e-retailing activity across Europe, but also broaden our hard currency exposure,” concludes Riley.