NewRiver REIT plc – Acquisition of Hawthorn Leisure for £106.8 million

NewRiver REIT plc

(“NewRiver” or the “Company”)

Acquisition of Hawthorn Leisure Holdings Limited for £106.8 million

NewRiver is pleased to announce the acquisition of Hawthorn Leisure Holdings Limited (“Hawthorn Leisure”) from an affiliate of Avenue Capital Group for an enterprise value of £106.8 million. This represents a net initial yield based on the value of the pub portfolio of 13.6% and will be satisfied using the Company's existing resources.

As well as a portfolio of 298 high quality community pubs, the acquisition includes an established brand and pub management platform, which could be applied across the Company's existing pub portfolio, generating significant scale-based synergies. The transaction will be immediately accretive to NewRiver's Funds From Operations (“FFO”) and net assets.

NewRiver has identified the pub sector as an attractive investment to deliver on its business strategy. The sector generates high levels of low-risk, diversified cash returns and contains a number of in-built value creating asset management and development opportunities, including the potential to build convenience stores or residential units on surplus land adjacent to pubs.

Having acquired its first portfolio of 202 pubs from Marston's PLC in November 2013, NewRiver acquired its second portfolio of 158 pubs from Punch Taverns plc in 2015. The Hawthorn Leisure portfolio provides attractive scale for NewRiver, increasing the size of its estate to 629 pubs. The combined NewRiver & Hawthorn Leisure estate will target scale-based synergies and other improvements in purchasing and logistics, and the Company expects to realise synergies of at least £3 million per annum.

Allan Lockhart, Chief Executive commented: “The acquisition of Hawthorn Leisure is absolutely aligned with our strategy of investing in retail & leisure assets at the heart of the communities across the UK. The portfolio is highly complementary to our existing pub portfolio and the combined portfolio remains below 20% of our total assets. We now look forward to applying our active asset management and risk-controlled development expertise to produce profitable opportunities for our occupiers, and growing and sustainable cash returns for our shareholders.”

Mark Davies, Chief Financial Officer commented: “We are delighted to announce the acquisition of this high-quality portfolio of community pubs and a well established platform which will contribute significant funds from operations and be accretive to our net asset value.

Having acquired our first portfolio from Marston's in 2013, we are well aware of the attractiveness of the high cash returns generated by pubs, as well as their inherent active asset management and risk-controlled development opportunities. Importantly, we have also retained cost discipline on this transaction that we have tracked for some time, acquiring the portfolio at an attractive net initial yield of 13.6% and inheriting a strong brand and management platform.

Having taken over executive responsibility for our pub portfolio, I look forward to working with our experienced management teams to establish a market leading business which will deliver synergies and drive highly accretive cash returns.”

Financial information and impact of acquisition

·     In the year to 31 December 2017, Hawthorn Leisure generated an Adjusted EBITDA of £9.9 million⁽¹⁾

·     The transaction is expected to increase Funds From Operations (“FFO”) in the year to March 2019 by £7.7 million

·     On a fully annualised basis FFO is expected to increase further as the current pub portfolio EBITDA is projected to be in excess of £16 million per annum

·     In addition, the acquisition is expected to generate scale-based synergies of at least £3 million on an annualised basis

·     At 31st December 2017 Hawthorn Leisure's total assets stood at £153.0 million⁽²⁾

·     On a proforma basis, NewRiver's overall property portfolio at valuation will increase from £1.24 billion at 31 March 2018 to £1.35 billion, and the total size of the pub portfolio will increase from 331 pubs at 31 March 2018 to 629

·     On a proforma basis, NewRiver's proportionally consolidated LTV will increase from 28% at 31 March 2018 to 34%

·     The transaction increases NewRiver's pub weighting from 12% at 31 March 2018 to 19% which is within NewRiver's stated guidance of no more than 20% of the overall property portfolio

·     The consideration payable for the shares in Hawthorn Leisure will be £55.1 million, payable in cash upon completion, with the balance of the £106.8m of enterprise value principally comprising Hawthorn Leisure's net debt

·     Hawthorn Leisure's existing debt balances are being repaid on completion

The Hawthorn Leisure portfolio

The Hawthorn Leisure portfolio comprises 298 high quality community pubs. The portfolio is geographically complementary to NewRiver's existing portfolio, providing good diversification to income streams. 

The portfolio assets are extremely well located with the majority on main street and high street locations which are typically surrounded by densely populated urban communities. These locations offer good roadside visibility, often surplus land and are close to or next to good transport links such as bus and railway stations.

The portfolio has been well managed with over £11 million of capital expenditure invested since 2014. The business trades as Hawthorn Leisure which is a well recognised and highly regarded brand. Additionally Hawthorn Leisure runs a managed pub brand called “Last Orders” which can leverage off live sports and music events that will be very profitable when applied to high performing, wet led community pubs in the Hawthorn Leisure and NewRiver pub portfolios.

A further key attraction of the Hawthorn Leisure management platform is its flexible model and unique ability to switch high performing community pubs between tenanted and managed which has the potential to deliver a higher rental income.

The Hawthorn Leisure management platform

An experienced management team was selectively recruited to run the portfolio in 2014 and a head office function was established in Birmingham in 2015 to insource all key business functions. Under the direction of the management team, all key functions are now run from Hawthorn Leisure's own platform and all major supply agreements have been re-negotiated. The Management team has recruited well from a talent pool in the Birmingham area and now consists of 43 high quality people. Additionally, the Company has invested smartly in its systems and infrastructure.

Hawthorn Leisure's Senior Management Team consisting of Gerry Carroll, Mark McGinty and Matthew Ward will all remain with the Company, working closely alongside the NewRiver pub management team led by David Shipton.

Notes

(1)  In the year to 31 December 2017, Hawthorn Leisure generated an Adjusted EBITDA of £9.9 million and an IFRS profit before tax of  £1.9 million (which is stated after deducting £4.2 million of financing costs associated with the debt which is to be repaid on acquisition).

(2)  At 31st December 2017 Hawthorn Leisure's total assets stood at £153.0 million which comprised goodwill of £16.5 million, property plant and equipment of £126.3m, cash of £7.2m and other current assets of 3.0 million.

For further information

About NewRiver

NewRiver REIT plc (ticker: NRR) is a premium listed REIT on the London Stock Exchange and a constituent of the FTSE 250 and EPRA indices. The Company is a specialist real estate investor, asset manager and developer focused solely on the UK retail and leisure sector.

Founded in 2009, NewRiver is one of the UK's largest owner/managers of convenience-led community shopping centres with a property portfolio of £1.4 billion principally comprising 33 UK wide shopping centres together with further nationwide retail and leisure assets. The portfolio totals 8 million sq. ft. with over 2,000 occupiers, an annual footfall of 150 million and a retail occupancy rate of 97 per cent. Visit www.nrr.co.uk for further information.