NewRiver REIT H1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
December 12, 2024

There are 3 speakers on the call.

Operator

Good morning, everyone, and welcome to our half year results presentation in what has been a transformational period for New River. Over the last two financial years, we have deliberately operated with an elevated cash position in anticipation of deploying our capital into growth opportunities. Since the start of FY 'twenty five, we have made significant progress in that regard with the acquisition of Capital Regional, which completed earlier this week. This transformational transaction gives us increased scale, debt optionality, increased liquidity in our shares and material earnings growth that will feed through to higher dividends. This acquisition was partly funded through a successful equity raise, and we are grateful to our shareholders for their strong support.

Operator

Our focus on M and A activity has not detracted from our operational performance, which has been excellent with another good period of leasing activity, high occupancy and retention rates. Our portfolio is significantly outperforming the market in terms of year on year consumer spending growth, which is supporting the success of our occupiers. We have a highly experienced asset management team, which has been further enhanced with the recent acquisition of Elandi and accelerated the growth of our capital partnership business. What happens next is what matters most, and we are confident of delivering material earnings growth from the actions that we have taken in the first half of FY 'twenty five. Earnings growth, in our opinion, will be the main driver of shareholder returns over the next few years.

Operator

And with a portfolio that is performing well, a growing capital partnership business and the realization of the significant benefits that flow from our completed M and A activities means our shareholders are set to benefit from materially higher covered dividends. The acquisition of Capital Regional, a company that we know well and have tracked for several years, is an excellent strategic fit that we believe will deliver significant operational and financial benefits. We're very excited with this acquisition as their 6 community shopping centers are highly complementary with our own portfolio with a low risk and well diversified tenant base offering excellent prospects to deliver future rental and capital growth, especially given the attractive entry point at a low point in the value cycle. In addition to their community shopping center portfolio, we now own Snow Zone, the U. K.

Operator

Largest indoor skiing operator, providing us with additional leisure capability and a positive contribution to underlying funds from operations. The transaction delivers increased scale with a combined portfolio of £890,000,000 an improved market profile, greater share liquidity and a robust capital structure with enhanced financial flexibility and a diversified debt maturity profile. It presents a unique opportunity to unlock material cost savings of £6,200,000 utilizing our existing market leading platform and deliver mid- to high teens earnings per share accretion. This slide demonstrates why Capital Regionals shopping centers are highly compatible with New Rivers portfolio in terms of both customer and tenant profile. As you would expect with community shopping centers like New Rivers portfolio, 71% of customers spending their money in Capital Regional Assets travel less than 5 miles with the majority of rent secured against tenants that are focused on value and essential goods and services, totaling 87% of the portfolio annual rent.

Operator

With a well diversified tenant base, Capital Regionals portfolio has a low probability of tenant failure rate over the next 5 years, very similar to New River and below the average for U. K. Retail and industrial tenants. Both New River and Capital Regionals portfolios have a occupational cost ratio comfortably below 10%, which demonstrates the rents that our combined tenants pay are highly affordable and therefore sustainable even when considering the increases in national insurance and the minimum living wage announced in the recent budget that occupiers must absorb. The affordability embedded within our rental cash flows is supported by year on year retail sales growth well in excess of the national average in both portfolios.

Operator

This demonstrates that we have the right assets in the right locations with the right tenants for the customers that shop in our assets. At our full year results, we talked about our marketplace being in its best position for 5 years, and that is reflective of resilient U. K. Retail sales, falling vacancies and tenant failures underpinned by shopping center market rents having been rebased by 21%. Liquidity in the shopping center capital markets has also improved, reflective of values having been rebased by 50%.

Operator

Through the extensive diligence that we have undertaken for the Capital Regional transaction, we have identified deliverable value add opportunities to enhance both income and capital returns. We already know that the portfolio has highly favorable occupational cost ratios, which should enhance the prospects of rental growth. This performance will be further improved as part of New River's market leading platform with our consistent track record of high occupancy, strong leasing performance and efficient gross to net ratios. We believe that this is an attractive entry point for the acquisition of Capital Regional at a low point in the value cycle, especially at a discount of 14% to the revised value of £350,000,000 We are confident in the future rental and capital growth prospects given the highly affordable rents and value add opportunities identified. The combination of these factors with the significant operational synergies means the transaction is set to deliver highly attractive returns.

Operator

This transaction will result in a combined portfolio valued at £890,000,000 based on a well diversified contracted rent of £90,000,000 per annum at an attractive equivalent yield of 8.5%. The composition of our portfolio has changed as a result of the acquisition with our core portfolio now accounting for 97% And geographic weighting to London and the Southeast has increased substantially post acquisition to 56% of our total portfolio and 66% of our core shopping center portfolio. Importantly, the combined convenience focused portfolio will continue to be led to tenants who have been delivering sales outperformance because they are focused on value and essential goods and services. Our M and A activity in the first half has not distracted from our operational and financial performance, which has been excellent. Rental tension is returning, and this is underpinned by a U.

Operator

K. Consumer who continues to be resilient, especially in our portfolio. As such, we have seen active demand for space, leading to another period of strong leasing performance at 5.3 percent above value as ERV and high occupancy and tenant retention rates. These operational metrics delivered underlying funds from operations of £11,500,000 delivering a half year dividend of 3p per share, 125 percent covered. Net tangible assets per share on the 30th September was 106p with most of the reduction versus FY 'twenty four due to our equity raise whilst underpinned by a stable valuation performance.

Operator

I will now hand over to Will, who will focus more on our pro form a position, taking account of the Capital Regional acquisition and what shareholders can expect in terms of earnings per share growth.

Speaker 1

Thanks, Alan, and good morning, everyone. As usual, I'll be taking you through our half year results today. But given the Capital and Regional acquisition spanned at the period end, with the equity placing to part fund the transaction completed in mid September and the transaction effective date earlier this week as well as presenting our key balance sheet measures at the period end, I'll show a pro form a for the completion of the transaction to give a clearer picture of our spot position while also providing further color on the shape and scale of our P and L from here. And I'll start with our key balance sheet and debt metrics. This slide shows our position at the 30th September as the middle of the three columns.

Speaker 1

But I'll focus my commentary on the pro form a post the acquisition of Capitalum Regional, the left hand column, which shows the pro form a impact of the transaction on key balance sheet line items and debt metrics on the basis this is more relevant to the spot position and future prospects of the enlarged business. In summary, we've increased the scale of the business with the size of the portfolio increased to just under £900,000,000 by acquiring a portfolio of complementary assets with a well diversified tenant base at an attractive entry point. Cash has tracked back down towards more normalized levels from £133,000,000 back in March to circa £70,000,000 on a pro form a basis, including the imminent repayment of €59,000,000 of Capland Regional Secured Debt Facilities. On to gross debt, where we now have a more diversified maturity profile with enhanced financial flexibility and increased scale for future financing. And we've achieved this while remaining predominantly unsecured and maintaining our investment grade credit ratings.

Speaker 1

Lastly, on the balance sheet. NTA per share reduced by 9p to 106p during the period, just under 6p of which was due to the equity raise in September and 2p was due to the Elendy acquisition, where the value of the asset management platform acquired is excluded from the EPRA NTA calculation. Pro form a NTA reduces slightly to around 102p principally due to the remaining transaction costs. Onto debt metrics. And again, I'll focus on the pro form a column because the period end metrics include the temporary benefit of the equity raise prior to deployment.

Speaker 1

You can see that our overall debt metric position across net debt to EBITDA, interest cover and loan to value remains very strong post transaction on an absolute basis, but also on a relative basis. In the context of our peer group shown as the dark blue bars on this slide and our financial policies shown as the dotted green lines. You can see both net debt to EBITDA and ICR compare very favorably to our peers and have considerable headroom to policy. LTV, although elevated to just above guidance post transaction, is still within the range of our peers and comfortably within our policy. And we are clear that we'll reduce our LTV from this point, as you can see on this slide, which starts with the LTV movement during the first half, showing a modest initial reduction due to H1 operational activity before a significant reduction in September following the equity raise to end the half at 22%.

Speaker 1

We then show the pro form a position of circa 42%, which incorporates the post period end deployment into the Capital and Regional acquisition and which is only marginally higher than our guidance of less than 40% and well below our policy of less than 50%. In recent years, we've demonstrated significant capital discipline, keeping headroom to our 40% guidance level with LTV in the low to mid-30s since March 2022, which was the right call because it ensured we were able to pursue the transformational acquisition we've just completed. We remain committed to our existing guidance. And as the slide shows, to return to 40% from the pro form a post combination level would require a modest £30,000,000 of disposals. To put this into context, over the 3 financial years ended March 24, we completed an average of £46,000,000 of disposals per annum.

Speaker 1

So we're confident we can return to the 40% level through a realistically achievable level of disposals. And in the meantime, as noted on the previous slide, considering LTV alongside our net debt to EBITDA and interest cover ratios, we're very comfortable with the strength of our financial position post acquisition. Next, debt structure, and again focusing on the pro form a position. There is no immediate impact on our existing debt, so our unsecured bond and undrawn RCF remain in place. We intend to repay the 3 smaller, generally shorter dated and more expensive capital and regional facilities imminently, totaling €59,000,000 of its total €199,000,000 of gross debt, with a blended cost of over 6% and to retain the Mal facility, which is the largest of the capital and regional facilities at £140,000,000 and has the lowest cost at 3.5% with no porting costs and a maturity in January 27.

Speaker 1

This means that post acquisition, the pro form a cost of debt remains at the current level of 3.5% compared to a pro form a portfolio net initial yield of 7.3% or equivalent yield of 8.5%. And that post acquisition, the debt structure remains predominantly unsecured. With a more diversified debt maturity profile, enhanced financial flexibility and increased scale for future financing. Features that were recognized by Fitch in September when they reaffirmed New River's investment grade rating following our successful equity raise at BBB with a stable outlook and BBB plus on the bond itself. Now on to UFFO, where first I'll focus on the performance during the half before ending with a look forward.

Speaker 1

UFFO reduced from £12,300,000 in the first half of last year to £11,500,000 this year. The key drivers of this movement are shown clearly in the bridge on the left hand side of the slide. Net property income has decreased by £1,200,000 with a reduction in income due to disposals completed over the last 18 months, principally the disposal of the Napier JV in June last year as well as the successful execution of our workout portfolio exit strategy. And importantly, the impact of this disposal activity has been partly offset by growth from our core portfolio. Admin expenses have increased by just under 4% to £5,500,000 reflecting the impact of inflation on staff related costs, which account for 70% of total admin costs, but also showing that we've continued to focus on strict cost control across the business where we can, a focus which will continue going forward with unlocking the synergies identified as part of the acquisition of Capitalum Regional being a key focus over the next 12 months.

Speaker 1

Other income in the prior year comprised the last of our COVID income disruption insurance settlements relating to commercialization income. And lastly, net finance costs, where finance income again benefited from the return we were able to generate on the majority of our cash balances. Next, our dividend. As you'll know, we pay dividends twice per annum announced within our half and full year results and based on 80% of the UFFO reported for the most recently completed 6 month period. In line with this policy, we have today declared an H1 dividend of 3p per share.

Speaker 1

You may remember that during the prior year, we made the decision to temporarily flex our dividend payout upwards by paying out 100% of the interest income earned on our significant cash holdings during the year, which resulted in a blended dividend payout during FY 2024 of 85%. This temporary top up compensated our shareholders with an enhanced dividend yield as we awaited the compelling investment opportunities we expected to materialize in the near term. We have not flexed our policy by topping up the dividend again this time because these compelling investment opportunities, principally the acquisitions of Capital and Regional and Elandi, have indeed materialized. And we expect these acquisitions to generate significant UFFO growth in the second half and beyond, which through our dividend policy will flow directly to our shareholders. And I'd like to finish by expanding on the key areas we expect to generate UFFO growth from here.

Speaker 1

On the left hand side of the slide, we start with a 3.7p per share of UFFO we've reported in the first half today. We annualize this, which gives us 7.4p per share as a start point. We then add in the annualized impact of the C and R acquisition, which we expect will increase the scale of UFFO in absolute terms as shown at the bottom of the slide as well as generating mid- to high teens accretion on a per share basis. Starting with number 1 on the slide, which shows the impact of funding the transaction on UFFO per share, being the equity placing, cash and share consideration and transaction costs. Next, number 2, which shows the day 1 impact of C and R's profit contribution.

Speaker 1

Number 3 then shows the benefit of the £6,200,000 of synergies we expect to unlock, which are a key driver of the year FFO per share accretion we expect to achieve by removing duplicate costs, principally through the consolidation of Board and other costs related to capital and regional status as a PLC and the consolidation of the asset operating platform, head office and other operating infrastructure into our well established and market leading retail asset management platform, the strength of which was bolstered further by the acquisition of the Elanda Asset Management business in July. We expect that these synergies will cost £2,900,000 to access and that they will be fully unlocked within 12 months on an annualized basis. Number 4 shows the impact of the modest disposals required to reduce LTV to within our 40% guidance level and the impact of refinancing the Mal facility, where we will initially benefit from a cost of 3.5%, which will reset to the market rate prior to its maturity in January 27. Lastly, number 5, which highlights the further growth drivers available to build earnings above and beyond the C and R acquisition, such as capital partnerships growth, which we expect to be accelerated following the Elanda acquisition like for like rental income growth, which we continue to see evidence of across our core shopping center and retail park portfolios, which in the future could feed into valuation growth, which would in turn increase our deployment capacity.

Speaker 1

We also have the potential for further capital recycling out of lower yielding assets and into higher yielding assets. And to reiterate, through our dividend policy, the impact of such UFFO per share growth will flow through to our shareholders as dividend. Thank you all for listening. I'll now hand you back to Alan.

Operator

Thanks, Will. We've consistently expressed our confidence in our portfolio, and our analysis of the Lloyds Bank spend data reinforces this. As you can see on this slide, the year on year in store spend growth through to the end of September in our portfolio was plus 4.6%, which was a significant outperformance relative to the market. With increasing occupier sales in our portfolio and an occupational cost ratio of only 8.6%, we're confident that our rental cash flows are highly sustainable, notwithstanding many occupiers are facing cost increases because of decisions made in the recent budget. Given the underlying successful trading performance in our portfolio, our tenant retention rate when it comes to lease expiry or break remained high at 98%, and occupancy also remained high at 96.5%.

Operator

We were pleased with our leasing performance with long term leasing rents agreed at +5.3 percent versus valuer ERVs, and we've now had 7 reporting periods of positive leasing spreads. An operating metric that we monitor closely is new leasing rent versus previous rent. In our view, it is critically important to understand over what time period the rent has changed, which is why we track the compound annual growth rate of our leasing transactions. What is worth noting is that over the combined last three years, our compound annual growth rate has been only minus 0.2%, which is a significant achievement given the extent of disruption in the retail markets over the last 10 years. All of this is achievable with a market leading asset management platform, which is necessary in the highly operational sector that retail real estate has become.

Operator

We continue to have low tenant concentration in our rental cash flows with no single tenant accounting for more than 4% of our total contracted rent, and this will be maintained post the acquisition of Capital and Regional. Capital partnerships are an important component of our strategy to deliver earnings growth in a capital light way, And so we were delighted to have acquired the asset and development management company Elandi in July, which brings with it a talented team with additional experience working with public sector owners to deliver regeneration. The acquisition is aligned with New River's strategy to expand our existing capital partnership business over the medium term, leveraging our position as one of the largest specialist retail real estate asset managers in the U. K. Today, our capital partnership business has genuine scale.

Operator

And when combined with our balance sheet assets post the acquisition of Capital Regional, we now have assets under management of £2,400,000,000 across a portfolio of 49 shopping centers and 29 retail parks. In total, we are collecting £225,000,000 of annual rent from 3,500 tenants, and we are active in most regions in the U. K. Investment partners are increasingly recognizing the importance of track record and specialism in this highly operational asset class, and we are partnering with a range of both new and existing owners of retail real estate across community and destination shopping centers, retail parks and regeneration assets with local authorities. The scale that we have, together with the access to extensive data and insights, is unrivaled in the U.

Operator

K. Retail real estate market, and we are well placed to continue the growth of our capital partnership activities. We are pleased to report that our ESG program has continued to deliver on our long term objectives. We have made headway on our pathway to net 0, achieving a 6% reduction in total portfolio Scope 1 and Scope 2 emissions in the first half of the year. Given the progress we have made over recent years, we are ahead of our 2,030 SBTI short term emissions target.

Operator

The success of our business comes from the people within our team, our working partnerships and the communities that we serve. And to understand our contribution to our communities, we have begun to assess the social value our assets deliver. The initial assessment suggests that our assets are delivering approximately £41,000,000 of social value to our communities. We continue to ensure that ESG is embedded across all our activities, and this was reflected in our 2024 GRESP result, which improved from 72 to 80. This year's increased score is a result of the improved access to occupier data using market leading technology to directly access the consumption data of our occupiers and gives us greater visibility of our net zero pathway.

Operator

The significance of our score improvement has also justified an additional green star, taking the total to 3, reflective of our improved overall above average position amongst Gres participants. Alongside our continued Gres success, we have also received confirmation from EPRA that we have retained our Gold Award for the transparency and consistency of the ESG performance disclosures. Our achievements across people, place, partnership, environment and governance testify how our ESG commitment is embedded throughout our business and contributing to our success as a responsible real estate investor. The benefits of the decisive actions we implemented several years ago to position New River for growth are now being realized, particularly with the acquisition of Capital and Regional. We will be applying a laser focus in the coming months to ensure a successful integration of that business and the delivery of the significant cost synergies.

Operator

Our long held view of the importance of income returns today serves us well. The portfolio is performing well, supported by a highly experienced and motivated team, underpinned by a strong balance sheet. And whilst the macro environment remains uncertain, we have a clear pathway to deliver attractive returns for our shareholders driven by material earnings growth. Thank you. We will now move to Q and A.

Speaker 2

Thank you. Good morning. We've got several questions that have come in, so I'll just kick off. We've got 2 in from Clive Buck, and the first is, congratulations on the completion of the C and I deal. I'm sure that you will wish to press on with the successful integration forthwith.

Speaker 2

But as part of your growth plans and ambitions, do you foresee future M and A as part of New River's strategy? And whilst not seeking to be silly, a good opportunity landscape?

Operator

Clive, thank you for your question. In our opinion, the future success of a company is partly determined by its capital allocation decisions. So if a future M and A opportunity offers highly accretive returns in excess of our cost of capital and is also aligned with our real estate strategy, then of course, we would be open to further M and A opportunity.

Speaker 2

Okay. The second question from Clive is, the real estate landscape for resale has notably improved. Maybe from a helicopter level, characterize how you foresee the supply of retail space in the U. K. Hereon, limited new footage with online now broadly understood, may take for rising sales and cash flow per square foot for shopkeepers.

Speaker 2

Is that the context that you are perceiving?

Operator

Thank you, Clive. I think in our full year results, we were communicating to our shareholders that, in our opinion, the retail real estate market was probably in its best shape for at least 5 years. Really in our own portfolio where the supply demand dynamic is very favorable and that's reflective of the fact that we have an occupancy of around 97%. We're seeing very strong tenant retention rate when it comes to lease expiry or break. The last what we've just reported is a 98% tenant retention rate.

Operator

So we feel very confident in our portfolio positioning and that is feeding through to another good period of leasing performance where we've been able to deliver our leasing transactions ahead of values, ERBs and indeed ahead of previous passing run.

Speaker 2

Great. Thank you. The next question is from Othman Illaraki. Would you consider issuing a new unsecured bond to repay early some of the secured debt inherited from Capital Regional?

Speaker 1

Good morning, Othman. Thank you very much for your question. We've had a great experience since issuing our debut bond in 2018, and we've enjoyed really good engagement with our bondholders subsequently, and we're really pleased that Fitch reaffirmed our investment grade credit ratings in September. One of the key benefits of the transaction is we've now increased our scale. So we have €900,000,000 of GAAP and €440,000,000 of gross debt.

Speaker 1

And we know that scale is very important to bond investors. We also have a more diversified debt maturity profile, as you've alluded to, but we do also now have a maturity in January 27. So I expect we'll be considering our refinancing options over the course of the coming 12 months or so.

Speaker 2

Othman has another question. Are you intending to actively reduce LTV in line with your 40% guidance?

Speaker 1

Yes. Hopefully, Othman, I mean, we had a slide in the deck that hopefully helps with this question. But just to kind of reinforce what that slide said, our pro form a loan to value is 42% post transaction. Our guidance remains unchanged and our guidance is that we want our loan to value to be below 40%. And we've been clear that we think we can reduce our LTV to that level with a modest level of disposals of around £30,000,000 We've also put that level of disposals into context by saying that in the 3 years ended March 'twenty four, we sold on average £46,000,000 of assets per annum.

Speaker 1

So hopefully, that answers your question. And I would also just add that when we think about the strength of our financial position, we don't just think about loan to value. We think about it in the context of net debt to EBITDA and interest cover, too.

Speaker 2

Okay. Thank you. Next question is from Andy Saunders. With headwinds of higher employment costs facing many retailers, can you outline current thoughts on tenant health and affordability in your space moving forward?

Operator

Yes. Thanks, Andrew. I mean we're very encouraged by the performance of our occupiers within our assets. As we indicated in the presentation, our assets so our occupiers within our assets have enjoyed year on year in store spend growth of around 4.6%. And then when you take account of the online spend that is connected by a customer visit to a store within our assets, that rises to 5.8%.

Operator

And that is something like 2.5 times more than the UK average. So that is feeding through to good performance for our occupiers. We think that will be helpful in absorbing some of the costs that our occupiers will be facing from national insurance increases and also an increase in the minimum living wage. But the key thing for a real estate owner is around the impact on rental cash flows. And in that regard, we feel confident about the underlying strength of our rental cash flows when we have an occupational cost ratio, I.

Operator

E. Rent, business rates and service charge at 8.6%. And our opinion around that is that, that OCR is very affordable for our tenants. So we're not expecting any disruption in our rental cash flows as we move into 2025.

Speaker 2

Next question is from Johan Zeitzman. Can you give us a sense of how scalable the Capital Partnerships business is now following the Landau acquisition? What is the current capacity to add new management agreements?

Operator

Thank you for your question, Bjorn. Well, as we mentioned in the presentation, we already have very significant scale within the Capital Partnership business. When you take account of the assets we've acquired from Capital Regional together with our balance sheet assets plus the assets that we manage on behalf of investment partners. The business today has very significant scale. We're owning and managing a portfolio of around €2,400,000,000 That comprises of 49 shopping centers, 29 retail parks.

Operator

We're collecting £225,000,000 of rent per annum from around 3,500,000 tenants. So we and we're active in most regions in the U. K. So we have scale and the access that we also have in terms of extensive data and insights, as we mentioned in the presentation, and our opinion is really unrivaled in the market. And we will we generally have expertise and experience across destination shopping centers, community shopping centers, retail parks and urban regeneration projects.

Operator

So we're very confident that we will be able to continue the growth of our capital partnership business as we move into 2025 and beyond.

Speaker 2

Next question is from Mike Prue. How do you see the EPRA cost ratio evolving given the expanded portfolio, noting managing the Galle of Edinburgh? And what will be internally managed versus outsourced, please?

Speaker 1

I would say that we would see the EPRA cost ratio reducing principally for two reasons. Number 1, obviously, we will benefit from the gross rental income from the capital and regional assets from this point going forward. And number 2, obviously, we've identified the £6,200,000 of synergies that we would like to unlock as a result of the transaction. So for those two reasons, I can see the upper cost ratio reducing from this point. In terms of your query on the guile, Mike, we will be bringing the property management of all 6 of the Capital Regional Assets in house, which is aligned with what we do across the rest of our portfolio.

Speaker 1

And what we do is so we outsource the property management in house. We do the asset management, so the leasing and the value add.

Speaker 2

Okay. Next question is from Marcus Fairmidge. Please comment on the impact of the reduction in rates relief on your tenants. What is the impact of the average?

Operator

Yes. Morning, Marcus. I would just say that the rates relief on business rates was very much focused for very small independent retailers. The vast majority of tenants we have in our portfolio are multiple retailers, So they never really benefited from that rates relief. What I would say is, as you're probably aware, that in the last rates revaluation, our tenants enjoyed a significant reduction.

Operator

I think it was around about 20%, the last point of the revaluation. And I would also just say that the government is committed to providing a permanent discount for retail, hospitality and leisure in 2026. Admittedly, that is for properties and units below a ratable value of £500,000 and the vast majority of our units within our portfolio are under that £500,000 threshold, which means that in 2026, our tenants are going to enjoy a significant reduction in their business rates.

Speaker 2

Marcus has a second question. What is a committed CapEx and where is it focused?

Operator

Yes. We have some planned CapEx over the next 12 months, Marcus, a significant amount of around about CHF 10,000,000 we're planning in terms of our repositioning of our asset in Cardiff, which is one of our workout assets. We're making excellent progress to transform that asset through a major letting to a multi entertainment center. We've now secured planning consent, and we're very, very close to finalizing the lease with an operator to take that space. It's about 80,000 square feet.

Speaker 2

Okay. Next question is from James Lowen. If we think volumes will go up due to rental income, why should we look to sell assets and take the 0.7p hit to the EPS to get LTV of 40%?

Speaker 1

I would just say, James, that the assumption in the slide is that valuations remain flat. So at this point, in order to get below 40% loan to value, assuming flat valuations, we would have to sell €30,000,000 of assets. So it's literally just the assumption that we've made in the slide. If valuations do grow from here, then the requirement to dispose reduces. I would also say the 0.7 reduction on the slide is not just because of disposals, it's also because we've made an assumption around refinancing the Mal facility in due course.

Speaker 2

Okay. Thank you. A couple of questions from Matt Spiera. On Slide 6, have all the C and R centers gone into core portfolio? Can you comment on long term plans, re ownership of these centers?

Operator

Thank you, Matt. Yes, we have placed the Capital Regional Shopping Centers within our core portfolio. We never really give a running commentary around what we might be selling in the future. There will be 1 or 2 assets that, that in due course, we'll probably plan to exit, but we'll do that in an orderly way.

Speaker 2

2nd question from Matt is, can you remind us of growth points holding in New River post deal And what restrictions will they have on their

Operator

shares? Yes. So GrowthPoint have a there's a lockup. So they're not able to sell their shares for 5 months from the completion of the transaction, which was 2 days ago. I think post transaction, their shareholding is around about 14%.

Speaker 2

Next question is from Greg. Can you explain the difference between the June 2024 valuation of CAL now at €200,000,000 and your pre acquisition valuation of €175,000,000

Operator

Yes. That was really effectively down to our independent valuation of the Capital Regional assets, which came in at €350,000,000 versus Capital Regionals valuations at June of €374,000,000

Speaker 2

Thank you. Next question from Guillaume Langhia. Do you intend to bring LTV below 40% or do you have more conservative levels back to 30s pre acquisition than equity issuance? Is your intention to refinance the Malphas facility into the unsecured format or keep it secured?

Speaker 1

So I think as we've said, our guidance has always been to be below 40% and that guidance remains in place. Post transaction, we're slightly above that level at 42%, but we've been clear that we want to return back below that level. Even including the mail, we are still majority unsecured borrower. We've really enjoyed a good experience of being unsecured and therefore it's likely in the future that we will maintain our unsecured status and potentially move up from the kind of 68% unsecured position we're in at the moment up towards a more fully unsecured structure that we had prior to the transaction.

Speaker 2

Okay. Thank you. That concludes the Q and A.

Operator

Okay. Well, thank you, Lucy. I mean, due to the Capital Region transaction, we are announcing the results in December as opposed to our normal time in November. So I'd like to just take the opportunity to thank our shareholders and our wider stakeholders for your ongoing support and wish everyone a happy Christmas when it comes. Thank you.

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Earnings Conference Call
NewRiver REIT H1 2025
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