Final Results

RNS Number : 2897E

NewRiver Retail Limited

29 May 2012

 



NewRiver Retail Limited

("NewRiver" or "the Company")

Final Results for the 12 Months ended 31 March 2012 (Audited)

NewRiver Retail Limited (AIM: NRR), the UK REIT specialising in value-creating retail property investment and asset management, is pleased to announce annual results for the 12 months period to 31 March 2012.

Financial Highlights

§ Profit before tax of £4.0 million driven by increased EPRA recurring profits of £4.4 million (2011: £0.9 million)

§ Group revenue trebled to £15.0 million (2011: £4.8 million)

§ Increasing focus on income leading to strong EPRA earnings per share growth to 17.3p (2011: 6.3p)

§ Final dividend doubled to boost shareholder returns to 9p (2011: 4.5p), reflecting total dividend for the year of 15p (2011: 5.5p), fully covered by profits earned during the year

§ EPRA NAV per share decreased by 5.5% to 258p (2011:+4.5%), however, increased by 7.5% after accounting for one-off costs relating to equity fund raising and purchase costs of 33.5p per share during the year

§ Successful equity fund raising of £42.5 million gross, immediately deployed in completion of major portfolio acquisition. Further £47 million of new senior debt originated for acquisitions

Operational Highlights

§ Continuing robust platform delivering strong income returns

§ Acquisitions in the year totalling a net £93 million at an average initial yield of 8.5%

§ Assets under management increased to £275 million

§ Two disposals delivering an average IRR of 27%, both ahead of target IRR of 15%

§ Growing impact of active asset management strategy delivered 70 positive leasing events, 1% ahead of ERV and 92% at or above business plan

§ Low void rate across the portfolio of 4% (2011:3%)

§ Significant food anchored, risk-controlled development and refurbishment programme pipeline in excess of  500,000 sq ft

§ Appointed development manager by Scottish Widows for a second major shopping centre development

§ Focus on resilient food and value sub sectors: minimal impact in 2012 of retailer administrations of only 1.6% of gross rental income

David Lockhart, Chief Executive of NewRiver Retail Limited, commented:

"NewRiver has achieved its objective of establishing a profitable platform with a strong management team that is capable of delivering sustainable growth. Considering the challenging conditions in the wider UK retail environment we have continued to transact on attractive value creating opportunities.

Whilst investment sentiment remains cautious, we believe there continues to be highly attractive opportunities for well capitalised, specialist and proven investors in UK retail property. Through our strong relationships with retailers, wide network of contacts, market intelligence and focused business strategy we are in a strong position to build on our success and enhance our position as one of the UK's leading retail real estate investors."

For further information contact:
NewRiver Retail Limited	Tel: [phone]
David Lockhart, Chief Executive Mark Davies, Finance Director
Pelham Bell Pottinger	Tel: [phone]
David Rydell/Rosanne Perry/Guy Scarborough
Cenkos Securities	Tel: [phone]
Ian Soanes/Max Hartley

Investec Bank
Garry Levin/ Chris Sim/ David Andersen                                 Tel [phone]

Chairman's Statement

I am pleased to report NewRiver's second full year results for the 12 month period to 31 March 2012. 

The company is a recognised leader in its specialist sector and had a successful year, demonstrating the strength of both its business model and management team in a challenging environment for retailers, property investment and the economy as a whole.

NewRiver's model of active asset management and risk controlled development continues to be a robust engine for growth generating tangible cash returns to shareholders. The average purchase yield of the portfolio is 8.5% and it is the Board's view that dividends will form an increasingly important component of total shareholder returns.  The Board has approved a final dividend of 9.0p per share making 15.0p per share for the year, nearly triple our 2011 dividend.  This reflects our commitment to generating strong income returns to shareholders, whilst meeting the company's future investment needs and maintaining a cautious approach to gearing.

Our issue of new equity during the year was over-subscribed and I am delighted to welcome the new shareholders who invested in the company. We raised a total of £42.5 million of new capital, which was immediately deployed in the acquisition of four major shopping centres and I am pleased to report that these are already generating strong returns. 

NewRiver continues to pursue active and opportunistic asset management activities.  Whilst we have acquired a number of new shopping centres, rental income has been further supplemented by the profitable disposal of two properties during the year at prices which considerably exceeded our IRR hurdle rates.

Our core team has expanded alongside the size and scale of the company and I am also pleased to welcome three new members of the Board. Christopher Taylor and Kay Chaldecott, both highly respected figures in the UK commercial property arena, joined as Non Executive Directors during the financial year. On 1 April 2012, Charles Miller joined the Board as Executive Development Director. An acknowledged expert in UK retail development, Charles brings significant skills and experience to the management team. Peter Tom CBE and Susie Farnon have stood down as Non Executive Directors and I take this opportunity to thank them for their service to the Company.

Although the macro-economic and financial outlook remains uncertain, the Board is confident that NewRiver will continue to deliver strong, long term returns for shareholders and looks forward to the future with confidence.

Paul Roy

Chairman

28 May 2012

Chief Executive's Review

Our second full financial year was once again a highly active period for the Company and builds on the momentum created last year.  We completed six acquisitions totalling a net £93 million, raised a further £42.5 million of equity capital which was immediately deployed to expand the portfolio, created a new banking relationship, completed two disposals and strengthened our Board and management team.

We are particularly pleased that this high level of activity is reflected in another strong financial performance with gross revenues increasing threefold to £15.0 million, (2011: £4.8 million), recurring EPRA profits up fivefold to £4.4 million (2011: £0.9 million), EPRA earnings per share increasing almost threefold to 17.3p (2011: 6.3p) and the total dividend for the year increasing almost threefold from 5.5p last year to 15p this year.  EPRA NAV decreased by 5.5% to 258p (2011: 273p) but after accounting for exceptional costs relating to the equity fundraising and one-off purchase costs EPRA NAV per share actually grew over 7% (2011:+22%).

The key event of the year was the acquisition of a portfolio of four shopping centres for £68 million. As well as increasing the asset base, the acquisition allowed the Company to raise further equity capital, attracting new shareholders and enlarging the market capitalisation as well as entering into a new banking relationship with Clydesdale Bank which provided the debt for the acquisition. It was pleasing to report that the equity fund raise was oversubscribed and included a number of new shareholders joining the register and I welcome them as investors in NewRiver.

Assets under management increased from £166 million to £275 million, the majority of which are owned by the Company. We made two small disposals where the short term upside created was better redeployed into new projects with enhanced returns. These disposals generated returns significantly above the target business plan.  We were also appointed by Scottish Widows as development manager for a second major shopping centre and we value this growing relationship.

Whilst the UK retail sector is facing challenging headwinds it also presents opportunities and we capitalise on these opportunities by focusing on the food and value retail sub sectors which continue to outperform, and where demand from retailers exceeds supply due to the development pipeline being close to a record low.  We know from our close relationship with major retailers such as Sainsbury's, Morrisons, Tesco, Poundland and Wilkinson, there is continuing strong demand for new retail space the majority of which is focused on town centre opportunities where changes in the political and planning environment favour the NewRiver model.

Our investment strategy is focused on driving income returns and we believe that as a REIT our key performance benchmark is our ability to deliver a growing and sustainable dividend to our shareholders. This is evidenced by the significant increase in the total dividend for this period and income generation is the continuing priority for management.   We specifically target high yielding assets with affordable and sustainable rents which generate immediate cash on cash returns.  We then apply our asset management and development skills to maintain and grow the income.

Active asset management is embedded in our culture and is what enables us to consistently create value in difficult market conditions.  Since our IPO we have completed over 120 leasing events generating and maintaining c£3.7 million of income of which more than 90% have been at or above the target business plan.  We have been broadly unaffected this year by the high profile closure of a small number of retail chains and our focus on affordable and sustainable rents has resulted in almost all the affected units being retained by the new owners of the businesses.  The void rate stood at a very conservative 4%, reinforcing the low risk characteristics of our portfolio.

We now own and manage 16 shopping centres and have been rolling out multi-channel marketing campaigns across our portfolio. The rise of social media is an exciting opportunity for our centres to integrate digital media capabilities from Twitter and Facebook to mobile Apps into a programme of dynamic community events and initiatives. Locally we have been working hard with the retailers, consumers and stakeholders to deliver not just a shopping experience but also a sociable, entertaining and desirable retail destination at the heart of town.

The lack of new retail development provides NewRiver with a real market opportunity as our portfolio is positioned in town and focused on the food and value sub sectors who are actively seeking new space.  By combining our knowledge of managing assets coupled with our expertise in identifying development opportunities, we are confident our growing development programme of in excess of 500,000 sq ft can deliver significant future value.  We manage risk by controlling the majority of the development sites within our shopping centre portfolio and the Company will not embark on any development without agreed pre-lettings and local authority support to deliver on both estate and planning issues.

Considering the difficult conditions in the wider UK retail environment we have continued to transact on attractive value creating opportunities.  Whilst market conditions remain challenging we are confident we will continue to identify attractive opportunities through our strong relationships with retailers, wide network of contacts, market intelligence and focused business strategy.  We have established a strong platform for growth and are in a good position to build on our success and enhance our position as one of the UK's leading retail real estate investors. The current financial year has lost none of the momentum with a strong pipeline of opportunities and a wide ranging programme of development and refurbishment underway. We look forward to the future with confidence.

I would like to thank our shareholders who continue to support the Company and its development. It remains a privilege to be part of such a dynamic company with a dedicated and experienced management team and I would again like to thank them and our key advisers for their hard work and professionalism.

David Lockhart

Chief Executive

28 May 2012

Finance Director's Report

Performance for the year

I am pleased to present NewRiver Retail's Finance Report for the year ended 31 March 2012.

This is our second full accounting year and our business model of focussing on delivering income returns to shareholders is captured by the growth in recurring EPRA profits to £4.4 million (2011: £0.9 million). This is a near fivefold increase and achieved in a year where the economic backdrop has been challenging.

Our profit after taxation is £3.9 million (2011: £3.2 million), however our key performance indicator is EPRA profits which include recurring items only and flow straight through to the total dividend. The dividend is fully covered by profits earned and has increased significantly to 15p per share from 5.5p in 2011.

Highlights from the Statement of Comprehensive Income

Income

Gross property income for the year was £15.0 million compared to £4.8 million in 2011. The growth is a result of new acquisitions made in the year and supported by our active asset management. The Company will receive the full benefit of acquisitions completed in 2012 on a fully annualised basis in the year to 31 March 2013.

The joint venture with Morgan Stanley Real Estate contributed £0.9 million of surplus rental income during the year. The Company also received £0.2 million of asset management fees from the joint venture and a further £0.3 million of asset management fees from our joint ventures with Scottish Widows.

There were a number of retailer administrations during the year and the financial impact on the company's rental income for 2012 was a modest £0.25 million, which amounts to 1.6% of rental income. Eleven of the thirteen units affected by administration remained open and continued to trade. We are in advanced discussions to secure a new tenancy at the same passing rent in one of the remaining units.

Finance costs totalled £5.3 million (2011: £1.8 million) for the year. Borrowings were increased in line with acquisitions completed and interest cover remained very positive at over three times at the property level compared to banking covenants which range from 1.5-1.75 times.

Administrative expenses were managed to £4.0 million (2011: £3.1 million), in a year where investment was made in the Company to support future growth. This included an increase in the staff headcount to eighteen to support the significant increase in assets under management and new office space to accommodate the growth.

Capital

According to data from IPD, capital values were under pressure in this financial year, particularly in the second half. However the Company has been active in its asset management activities completing 70 leasing events which supports and enhances value. The Company was also able to make two disposals resulting in a realised profit of £0.4 million at an average IRR of 27% which was 6% above carrying value. The profit on sale is partially offset against the £0.8 million valuation movement resulting in a capital loss for the year of £0.4 million (2011: profit £4.0 million).

Consolidated Statement Of Comprehensive Income (Extract)	FY12	FY11
	£m	£m
Gross property income	15.0	4.8
Property operating expenses	-2.2	-0.3
Net property income	12.8	4.5
Joint Venture net income	0.9	1.3
Operating expenses	-4.0	-3.1
Operating profit	9.7	2.7
Net finance costs:
Senior debt	-3.7	-1.2
Convertible loan stock	-1.6	-0.6
EPRA recurring profit	4.4	0.9
Net valuation movement on properties	-0.8	4.0
Profit on sale of investment properties	0.4	-
Profit before taxation ('PBT')	4.0	4.9
Key ratios
FFO EPS (pence)	17.4	6.5
EPRA EPS (pence)	17.3	6.3
Dividend per share (pence)	15.0	5.5
Dividend cover	103%	115%

Earnings per Share ("EPS")

EPRA EPS is an important performance indicator for the Company as it relates to recurring earnings only. EPRA EPS was 17.3p per share (2011: 6.3p per share) which is a good result helped by the immediate deployment of capital raised in August 2011 into property acquisitions which have subsequently generated revenues at strong yields.

Basic EPS was 15.3p (2011: 23p) down slightly on EPRA EPS due to downward revaluation movements, and still represents strong positive returns due to this increased recurring earnings.

In addition we have taken the decision to disclose Funds From Operations ("FFO") as this is an important metric often used by the investment community when comparing the performance of International REITs. Reported FFO this year was £4.4 million (2011: £0.9 million) which amounted to 17.4p per share (2011: 6.5p).

Balance Sheet Highlights

The Company has established a financial platform that is able to support further growth and the key items in the Company's Balance Sheet are listed below:

Consolidated Balance Sheet (Extract)	2012 £m	2011 £m
Investment properties Investment in joint ventures	197.7 11.3	105.8 11.9
Other assets	12.0	12.0
Borrowings	(107.8)	(60.3)
Convertible Unsecured Loan Stock	(24.6)	(24.5)
Other liabilities	(9.5)	(6.2)
Net Assets	79.1	38.7
Total Equity	79.1	38.7
Net debt (borrowings less cash)	99.3	49.6
Net loan to value	50%	47%
EPRA NAV pence/share	258	273
Exceptional and one off Costs absorbed in EPRA NAV (pence/share)	33	37

Investment Properties

The Company was active in acquiring new investment properties of £93 million (net) during the year and this is reflected in the increase to £197.7 million (2011: £105.8 million).

Joint Ventures

Our 50% interest in the Morgan Stanley joint venture did not acquire or sell any assets this year and the carrying value reflects a slight reduction in the value of properties held.

Other assets and liabilities

The Company had £8.6 million of cash on its balance sheet at 31 March 2012 (2011: £10.6 million). Other assets include rental debtors of £2 million and prepayments of £0.5 million. Other liabilities include £3.3 million of rent received in advance, £2.4 million of accruals and a mark to mark valuation deficit of £1.4 million on interest rate hedging.

Borrowings

The Group's capital strategy is to maintain a conservative level of gearing whilst ensuring that projects generate an effective return for shareholders and the REIT gearing test is always satisfied.

During the year the Company originated £47.3 million of new senior debt facilities (2011: £55.0 million) and we continue to have good relationships with Santander, HSBC and Clydesdale Bank.

The Company has continued to benefit from these banking relationships whilst having no legacy issues to manage with its borrowings. This is reflected in our senior debt borrowing cost in the year of 4% which is currently one of the lowest in the real estate sector.

The Company continues to apply a hedging strategy which is aligned to the property strategy. Borrowings are currently 80% hedged against interest rate risk. 53% of all borrowings are fixed whilst the hedged balance of 27% is capped and 20% of borrowings are floating. This strategy provides interest rate protection and allows the Company to benefit from a low interest rate environment.

At the property level where loan covenants are tested, the net Loan to Value ("LTV") as at 31 March 2012 was 50%. The Company's targeted LTV range is 40-55%, subject to the Board's view of market conditions at the time, the prospects of and risks within the portfolio and the recurring cash flows of the business. The majority of the Company's lending is secured with LTV covenants at or above 70% so there is adequate headroom.

As at 31 March 2012 Balance Sheet gearing was 125% (2011: 128%) and more detail on the Company's borrowings is provided in note 19 to the financial statements.

Net Asset Value

The Net Asset Value ("NAV") at 31 March 2012 was £79.1 million which amounts to an EPRA NAV per share of 258p (2011: 273p).  The Company has absorbed 33.5p per share of purchase and exceptional costs during the year (2011: 37p per share) and delivered a net increase in NAV per share of 7.5% year on year (2011: +22%) when these costs are stripped out.

Assets Under Management ("AUM")

The Company has increased its assets under management during the year to £275 million and this is reconciled as follows:

	2012 £m	2011 £m
Investment properties	197.7	105.8
Morgan Stanley JV (1)	45.5	46.2
Asset Management (2)	31.8	14.0
Total AUM	275.0	166.0

(1)-NewRiver has a 50% equity interest in the Morgan Stanley JV
(2)-Approximate estimate of asset value. NewRiver has no equity interest in these assets.

Dividend

The Company paid its interim dividend in the year of 6p per share (2011: 1p) and a final dividend of 9p per share (2011: 4.5p) has been approved by the Board, resulting in a total dividend for the year of 15p per share (2011: 5.5p).  The Company's entire dividend is payable as a Property Income Distribution and is fully covered by profits earned in the year.

The final dividend will be paid on 13 July 2012 to ordinary shareholders on the register on 22 June 2012. The ex-dividend date will therefore be 20 June 2012.

Summary

The Company has produced a profitable result this year which is underpinned by revenue growth, a sensible financing strategy and recurring EPRA profits. This has enabled a high growing dividend payment to shareholders and the Board continues to believe that income returns will form the key component of total return. The Company is well placed to deliver on this strategy with the platform that has been put in place.

Mark Davies

Finance Director

28 May 2012

Property Director's Report

The last 12 months have been a successful period for the Company. Our business model and real estate portfolio are defensive and cash generative, the precise qualities required of a real estate company in the current flat economic growth environment.

Our portfolio increased to £275 million of assets under management through carefully selected acquisitions. We have recycled cash through two disposals that exceeded our minimum IRR target of 15%. We have also successfully implemented our asset management strategy for this financial reporting period and continued the excellent progress on our development programme.

The UK retail sector is traditionally stable, consistent and resilient. It is a sector that is important to the UK economy representing 8% of GDP and employs c.9% of the UK's workforce.

Despite wider economic challenges, the value of retail sales remained positive in 2011 with UK retail sales growing by 3.3%*. The subsectors that out performed and in our view will continue to do so are: food, value, health and beauty, and clothing. The retailing sub sectors that underperformed were those more reliant on discretionary spend and the home related market; electrical and white goods, furniture, carpets, home ware and  DIY. 

This retailing pattern reflects the economic environment and resultant consumer behaviour. Consumer behaviour is determined by two components; time and money, and within each component there is core time and core money and discretionary time and discretionary money. In tough economic times it is inevitable that consumers will have less discretionary time and money.

Our strategy has been to create a real estate portfolio that caters to the consumer's core time and money by focusing on value, convenience and experience. In the last 12 months the portfolio has maintained high occupancy, consistent rent collection in excess of 90% within ten days of the quarter date, modest impact of retail administrations at 1.6% of rental income and 90% of leases renewed at passing rental levels. The key retailers in the portfolio are trading well with the majority generating annual sales where the ratio of rent to sales ranges from 1.5% to 9%.

Acquisitions

In the last reporting period we concluded six acquisitions totalling c£93 million. The majority of the acquisitions were conducted off market at an attractive blended net initial yield of 8.5%. All of the acquisitions fully comply with our strict investment criteria providing high annual cash on cash returns with realisable prospects for capital growth from pre-identified asset and development management initiatives. In summary the individual acquisitions were as follows:

Shopping centre portfolio

In August, we completed the acquisition of a portfolio of four shopping centres from Zurich Insurance for a total of £68 million. The transaction was sourced off market and subject to NewRiver raising the required funding from shareholders to complete the transaction.

Approximately 94% of the passing rent was derived from multiple retailers and 60% of the income was from key sectors: food, health and beauty, clothing and discount. Given the low vacancy rate, income diversity through retailer and sector spread and the secure weighted average lease expiry, these shopping centres will provide attractive annual double digit cash on cash returns as well as capital growth through pre identified asset and development management initiatives.

The portfolio included the following shopping centres:

Merlin's Walk, Carmarthen

Merlin's Walk opened in 1998 and comprises 103,300 sq ft of sales and ancillary accommodation in 24 retail units. The centre is arranged in an open street format with ground floor retail and first floor ancillary accommodation. It is located in the heart of the town adjacent to a 350 space car park and a large Wilkinsons store. The anchor tenants for the centre are TK Maxx, Poundland, Argos and Store 21.

The Piazza Shopping Centre, Paisley

The Piazza Shopping Centre in Paisley was developed in 1968 with an extension in 1975. The centre underwent a major refurbishment in the 1990s. It provides a clean and attractive covered single level shopping centre extending to 252,000 sq ft of retail and offices in 40 units together with a 366 space multi-storey car park.

The centre is well located next to the train station and the town's principal bus station. The Piazza dominates the Paisley retail offer and is anchored by the Co-operative, New Look, and Poundland.

The Hildreds Shopping Centre, Skegness

The Hildreds Shopping Centre is a fully covered 55,000 sq ft centre that opened in 1988. The Centre comprises 30 stores including Evans, Burtons, H.Samuel, WH Smith, JD Sports and Wilkinsons. The centre, which is the town's only managed centre, is anchored by the Co-operative and Home Bargains and benefits from an adjacent 320 space car park.

The Horsefair, Wisbech

The Horsefair Shopping Centre has 26 retail units comprising 92,000 sq ft of sales and ancillary accommodation. The centre was opened in 1989 and built in a single storey open street format, with car parking for nearly 400 cars and the bus station immediately adjacent. The centre is Wisbech's only managed centre and is anchored by the Co-operative with key tenants including Boots, Poundland, Superdrug, New Look and Argos.

Other Acquisitions

23-24 Market Place, Great Yarmouth

Our second acquisition was the purchase of 23-24 Market Place, Great Yarmouth for a total consideration of £2.5 million. The property, which is located in a prime retailing position, has a total gross internal area of 41,280 sq ft. Based On our purchase price, the capital value per sq ft is £60.56 which is significantly below replacement cost.

The property was let to Life & Style Retail Ltd at £200,000 per annum, although at the time of purchase, was in administration and no longer trading from the premises.  Simultaneously with the purchase, NewRiver benefitted from a day one uplift in value through a negotiated agreement with Poundland for a new 10 year lease at £295,000 pa. The agreement reflects a net initial yield on purchase costs of 11.2%.

The Sovereign Shopping Centre, Boscombe

In August 2011, we acquired The Sovereign Shopping Centre in Boscombe, Bournemouth from UBS Global Asset Management (UK) Ltd. for £12 million reflecting a net initial yield of 9.6%.

The shopping centre provides approximately 86,000 sq ft of retailing space anchored by Sports Direct, Poundland, 99p Stores, Costa Coffee and New Look together with direct links into adjoining anchor tenants Wilkinson, Lidl and Boots. Approximately 64% of the income, including the car park is secured to non-discretionary retail traders offering defensive characteristics.

In total there are 48 tenancies and at the time of purchase the current gross rent roll was £1.6 million pa with an average weighted unexpired lease length of 10.7 years.

The Newland Shopping Centre, Witham

In November 2011 we completed the acquisition of the Newlands Shopping Centre in Witham, Essex for £5 million reflecting a net initial yield of 9.7%. The transaction emanated from a distressed debt position. The acquisition price reflects a reduction of 60% of the previously traded value in February 2007 at a price of £12.92 million.

The Newlands Shopping Centre provides approximately 66,000 sq ft of retailing and ancillary space anchored by Iceland, New Look, Card Factory, and Greggs and benefits from direct links into adjoining Newlands Street and a 200 space car park.

At the time of purchase there were 24 tenancies and the current gross rent roll was £0.58 million pa with an average weighted unexpired lease length of 4.6 years. More than 60% of the income is secured to non-discretionary retail traders such as food, value fashion, discount & health and beauty, offering defensive characteristics.

Co-operative, Skegness

The Company also acquired the Co-operative in Skegness and this is discussed further in the key asset management highlights.

60/64 Church Walk, Burgess Hill

Finally, NewRiver acquired a large space retail unit in Burgess Hill from the Co-operative for £1.32 million reflecting a net initial yield of 10%. The property, 60/64 Church Walk, which comprises c.17,000 sq ft arranged over two levels and located on the pedestrianised Church Walk, is let to Store 21 with a 10 year unexpired term at a current rent of £140,000 pa. Store 21 trades successfully from this store. Strong retailer demand for large space retail units exists in Burgess Hill.

Disposals

In line with our commitment to recycle capital, we completed two disposals generating significant IRRs ahead of our minimum corporate target of 15%.

The first disposal, completed in August 2011, was the sale of a large space retail unit in Canterbury let to Wilkinson with an unexpired term of 14 years. The property was sold to a UK institution for £5 million reflecting a net initial yield of 6.3%, generating a levered IRR of 16% and at a level that exceeded our 31 March 2011 valuation.

The property, which was originally acquired as part of the Redevco portfolio in May 2010, had an outstanding rent review at the time of purchase. NewRiver secured an uplift in rent and then took advantage of strong institutional demand for retail investments such as this.

Finally we concluded the sale of our retail investment in Great Yarmouth in October 2011, following our opportunistic purchase at £2.5 million earlier in the year and the new letting to Poundland. The property was sold for £3.38 million to a cash buyer, reflecting a net initial yield of approximately 8.25% and providing NewRiver with an unlevered IRR of 43% exceeding the Company's minimum geared target IRR of 15%.

NewRiver's objective is to initiate a sale upon the successful completion of a business plan at the asset level, although when the opportunity arises to secure a premium price at an earlier stage, or when an asset's risk profile increases to an unacceptable level, the Company will sell.

Asset Management

The retail property sector faces a challenging economic environment where consumers benefit from a range of retail channels from out of town shoping centres to online. NewRiver is therefore fully committed to pro-active asset management with the objective of improving footfall, increasing dwell time which should lead to improved retailer sales at our centres.

Beyond the core asset management focused on leasing and retail mix, NewRiver is committed to developing active asset management initiatives. Each initiative may have a modest impact on financial performance but combined makes a significant difference which we define as the accumulation of marginal gain. Examples include: increased operating efficiency in the service charge, rating appeals, rating mitigation, introduction of solar energy panels, upgrading the quality of our centre managers, free Wi Fi in our centres at no capital cost to NewRiver but receipt of an annual income, outdoor advertising, indoor digital advertising, events, promotions, drink machines, children's rides, car valeting and automatic number plate recognition. We engage in these initiatives because every £1 of revenue we generate out of an asset, we estimate, will translate into c.£12 to £15 of capital value.

As one of the leading UK owners of shopping centres we invest significant time in developing relationships with major stakeholders in the locality of our assets and, more importantly, with the consumers using our shopping centres.

NewRiver has taken a leading role in local town centre regeneration with the submission of eight of our towns to the Portas review. We are in the process of being elected to the Board of the Business Improvement District ("BID") companies in Boscombe & Erdington and have already been elected to both the Board of the Skegness Town Centre Partnership ("TCP") and the Burgess Hill Town Centre Partnership. It is our intention to promote BIDs and TCPs for all of our shopping centres.  We strongly believe that a coordinated approach between private and public stakeholders makes a significant and positive difference to town centres.

We undertake regular customer surveys to help guide the asset and development strategies. We are also at an early stage in developing our digital media capability to provide each shopping centre with an active website, Facebook page and Twitter account. Twitter provides an instant medium to communicate directly with our consumers, allowing us to play our part in driving sales for our retailers. With the growth of smart phones and the development of price comparison apps, it is vital for real estate owners of shopping centres to engage with technology and this is why we will be one of the first shopping centre owners to install free Wi Fi in all of our shopping centres.

Our key asset management highlights for this reporting period include:

Lease renewal at Northumberland Street, Newcastle Upon Tyne

We completed a new ground lease for a term of 125 years on our Northumberland Street property in Newcastle upon Tyne. The property was acquired by NewRiver in June 2010, for a total consideration of £4.2 million reflecting a net initial yield of c. 9.6%. The original ground lease was for a period of 42 years and through the successful conclusion of the new ground lease with the freeholders we have now institutionalised this asset.

Skegness - The Hildreds Shopping Centre - The Co-operative store

In February 2012, we completed one of our key short term asset management initiatives acquiring the long leasehold interest of our existing 39,500 sq ft freehold asset attached to the Hildred's Shopping Centre in Skegness. The long leasehold interest was acquired from the Co-operative Group for a total consideration of £2.9 million reflecting a net initial yield of 9.5%. The weighted average lease expiry profile is seven years as the property is let to Home Bargains, and CWS has entered into a short term lease.

This acquisition will release an immediate uplift in value through the merger of the CWS's long leasehold interest with our freehold interest. Furthermore this acquisition creates a number of asset management and redevelopment opportunities.

Unit 13 the Montague Centre, Worthing

The property was acquired as part of the Standard Life portfolio and let to TK Maxx paying a rent of £210,000 pa with a lease expiry in December 2011. At the time we purchased this asset TK Maxx traded successfully and given the size of the unit and the lack of potential relocation opportunities we were confident we would secure TK Maxx for the long term.

At the end of last year we completed the lease renewal with TK Maxx for a term of 15 years with a tenant break option in year 10 at a rent of £240,000 pa. As part of the asset management initiative, we made a capital contribution to TK Maxx linked to their intended store refurbishment

Locks Heath, Fareham

Feedback from our annual consumer survey at Locks Heath indicated a strong desire for a branded coffee operator. As a consequence, in the last 12 months we have entered into a lease agreement with Costa Coffee for a 10 year term at a commencing rent of £26,000 pa. We secured planning consent for a new coffee shop which has now been constructed and delivered to Costa Coffee for fitting.

The introduction of Costa Coffee will assist in increasing dwell time in this centre which will benefit other retailers.

Summary

It has been a highly active year, and we have concluded 70 leasing events ranging from new lettings, through to lease renewals and re gears. The total annual rent that was subject to leasing events was £1.6 million.  Furthermore, 90% of our retailers have renewed their lease at expiry or did not exercise a tenant break.

It is pleasing to note that 92% of our leasing events were concluded in excess of our business plan targets at rents 1% above ERV and our portfolio is on track to out perform the minimum geared IRR of 15%.

Risk Controlled Development

Significant progress has been made in advancing our development programme.

Currently NewRiver is engaged in eleven development projects in excess of 500,000 sq ft. The projects are at different stages in the development cycle but the majority are food anchored led and that the required land to implement these developments are either in the direct control of NewRiver or with local authority.  

Key development highlights include:

The Forum Shopping Centre, Wallsend

Following the acquisition of the former vacant Co-operative department store adjoining the Wallsend Shopping Centre, and the entering into an Option agreement with the local authority, we will be submitting a planning application in the next few months for a sub division of the former vacant Co- operative department store, a refurbishment of the shopping centre and an extension to provide for a 45,000 sq ft food store plus 300 space car park. Construction will only commence following planning and pre letting of the new retail space. 

The Martlets, Burgess Hill

Upon completion of an extensive master planning exercise and consultation, our proposals are evolving to incorporate a new 80,000 sq ft food store, 100,000 sq ft of additional comparison retailing and c.700 car parking spaces. The development will be phased with the food store plus some additional comparison retailing being in the first phase.

Extensive discussions have taken place with two of the UK's leading food retailers and we are close to finalising the layout and technical requirements of these retailers. Once leasing terms are agreed with one of these retailers we will move into the pre planning stage and aim to have secured a detailed planning consent by the first quarter of 2013.

Central Square, Erdington

We secured strong support from Asda to redevelop the 1960s shopping centre into a 55,000 sq ft food store with c.300 car parking spaces. Following consultation with the City Council earlier this year we are seeking to submit a planning application within the next three months.

Locks Heath, Fareham 

We have considered a number of development options that utilise both our land holdings and adjacent local authority land holdings. We have received strong food store demand and recently entered into an exclusivity agreement with one of the major food retailers to pursue pre letting legal negotiations to provide a 70,000 sq ft food store. Further consultation will be required with major stakeholders including the local authority prior to a planning application being submitted which we would expect in 2013.

Portfolio Metrics

NewRiver has maintained a high occupancy rate in line with IPD and some of the major REITs. We have significantly increased income diversification through an increase in the number of retailers in the portfolio and increased our exposure to the key winning retail sub sectors.

The impact of retailer administrations has been very modest. Only 13 retail units within our entire portfolio have been subject to multiple retailer administrations including Peacocks, Bon Marche, Game, and TJ Hughes. Of the 13 stores, 11 have remained open, continue to trade and are being taken out of administration. The impact to us in 2012 was just £0.25 million representing 1.6% of gross revenue. It has been widely reported that other retailers are intending a major restructuring, in administration or have announced profit warnings such as Clintons, Mothercare, HMV, JJB, Thomas Cook, Carpetright, Thorntons and Jessops. Our current rental exposure to all of the above is two retail units totalling an annual rent of £0.1m pa. We do not have any rental exposure to Clintons.

We strongly believe the defensive qualities of our portfolio fully endorses our decision to focus on retailing that is predominantly based on non-discretionary spend. We are confident that our portfolio will remain broadly immune from retailer administrations.

NewRiver, as the owner of 14 shopping centres, is one of the UKs leading shopping centre owners. This growth in our portfolio will allow us to drive through operational efficiencies within our centres but perhaps more importantly allows us to deepen even more our working relationships with our key retailers who have multiple representations within the portfolio.   

It is from these strong working relationships that our key retailers are prepared to share their confidential sales data. From this we can monitor our performance as an asset manager, establish that our rental levels within our portfolio are sustainable and receive a trading insight for future acquisitions.

From the information that we have been provided by five of our top ten retailers we know that the rent to sales ratio ranges from 1.5% to 9% with the average being 4.5%. For us thisis the most important metric and part of our stock selection criteria is to target assets where the rent to turnover ratio ranges from 3% to 10%.

Outlook

The next 12 months will be challenging for the UK consumer and the real estate market is expected to be suppressed from flat UK economic growth and a restricted credit market. Notwithstanding the tough economic circumstances, NewRiver looks forward to the next 12 months with confidence and enthusiasm. We have a strong and robust operating platform from which to continue growing our business by taking advantage of an excellent buying market against minimal competition.

Allan Lockhart

Property Director

28 May 2012

*source: ONS- sales by value excluding fuel costs

Consolidated Income Statement

For the year ended 31 March 2012

		Year ended 31 March 2012			Year ended 31 March 2011
	Notes	Income £'000	Capital £'000	Total £'000	Income £'000	Capital £'000	Total £'000
Gross property income	3	15,011	-	15,011	4,778	-	4,778
Property operating expenses	4	(2,222)	-	(2,222)	(353)	-	(353)
Net property income		12,789	-	12,789	4,425	-	4,425
Administrative expenses	5	(4,009)	-	(4,009)	(3,159)	-	(3,159)
Income from joint ventures	13	945	(560)	385	1,272	545	1,817
Net valuation movement	12	-	(274)	(274)	-	3,574	3,574
Profit on disposal of investment properties	6	-	413	413	-	-	-
Operating profit/(loss)		9,725	(421)	9,304	2,538	4,119	6,657
Net finance expense
Finance income	7	5	-	5	29	-	29
Finance costs	7	(5,339)	-	(5,339)	(1,774)	-	(1,774)
Profit/(loss) for the year before taxation		4,391	(421)	3,970	793	4,119	4,912
Current taxation	8	(120)	-	(120)	(124)	-	(124)
REIT conversion charge	8	-	-	-	-	(1,600)	(1,600)
Profit/(loss) for the year after taxation		4,271	(421)	3,850	669	2,519	3,188

All activities derive from continuing operations of the Group. The Notes form an integral part of these financial statements.                                   

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2012

	Notes	Year ended 31 March 2012 £'000	Year ended 31 March 2011 £'000
Profit for the year after taxation		3,850	3,188
Other comprehensive income
Fair value loss on interest rate swaps	19	(1,451)	(204)
Total comprehensive income for the year		2,399	2,984
Earnings per share
FFO basic (pence)	9	17.4	6.5
EPRA basic (pence)	9	17.3	6.3
Basic (pence)	9	15.3	23.1
Diluted (pence)	9	15.2	23.0

All activities derive from continuing operations of the Group. The Notes form an integral part of these financial statements

Consolidated Balance Sheet

As at 31 March 2012

	Notes	Year ended 31 March 2012 £'000	Year ended 31 March 2011 £'000
Non-current assets
Investment properties	12	197,736	105,800
Investments in joint ventures	13	11,275	11,926
Property, plant and equipment	14	404	7
Total non-current assets		209,415	117,733
Current assets
Trade and other receivables	16	3,045	1,413
Cash and cash equivalents	17	8,562	10,651
Total current assets		11,607	12,064
Total assets		221,022	129,797
Equity and liabilities
Current liabilities
Trade and other payables	18	6,908	4,140
Current taxation liabilities	18	495	840
Total current liabilities		7,403	4,980
Non-current liabilities
Non-current taxation liabilities	18	744	1,201
Derivative financial instruments	19	1,376	116
Borrowings	19	107,842	60,252
Debt instruments	19	24,581	24,474
Total non-current liabilities		134,543	86,043
Net assets		79,076	38,774
Equity
Retained earnings	21	1,936	318
Share capital and share premium	21	-	-
Other reserves	21	74,085	33,801
Hedging reserve	21	(1,701)	(250)
Share option reserve	23	187	62
Revaluation reserve	21	4,569	4,843
Total equity		79,076	38,774
Net Asset Value (NAV) per share
EPRA NAV (pence)	10	258	273
Basic (pence)	10	254	273
Diluted (pence)	10	253	272

The Notes form an integral part of these financial statements

The financial statements were approved by the Board of Directors on 28 May 2012 and were signed on its behalf by:

David Lockhart                                   Mark Davies

Chief Executive                                    Finance Director

Consolidated Cash Flow Statement

As at 31 March 2012

	Notes	31 March 2012 £'000	31 March 2011 £'000
Net cash inflow from operating activities	20	4,130	2,196
Investing activities:
Purchase and improvement of investment properties	12	(99,855)	(88,911)
Net proceeds from disposal of investment properties	6	8,058	-
Purchase of plant and equipment	14	(415)	-
Cash inflow from joint ventures	13	845	1,535
Net cash from investing activities		(91,367)	(87,376)
Financing activities:
Issue of new shares	21	40,284	9,770
Increase in bank loans		47,370	53,561
Net proceeds from issue of Convertible Unsecured Loan Stock	19	-	24,474
Dividends paid	11	(2,506)	(142)
Net cash from financing activities		85,148	87,663
Cash and cash equivalents at the beginning of the year	17	10,651	8,168
Movement during the year		(2,089)	2,483
Cash and cash equivalents at the end of the year		8,562	10,651
Cash and cash equivalents comprise:
Cash at bank and in hand	17	8,562	10,651
Cash and cash equivalents at the end of the year		8,562	10,651

The Notes form an integral part of these financial statements.

Consolidated Statement of Changes in Equity

As at 31 March 2012

	Notes	Retained earnings £'000	Share capital and share premium £'000	Other reserves £'000	Hedging reserves £'000	Share option reserves £'000	Revaluation reserves £'000	Total £'000
As at 31 March 2010		846	24,031	-	(46)	25	1,269	26,125
Net proceeds of issue from new shares	21	-	9,770	-	-	-	-	9,770
Transfer of share premium	21	-	(33,801)	33,801	-	-	-	-
Total comprehensive income for the year	21	3,188	-	-	(204)	-	-	2,984
Share-based payments	23	-	-	-	-	37	-	37
Dividend payments	11	(142)	-	-	-	-	-	(142)
Revaluation movement for the year	12	(3,574)	-	-	-	-	3,574	-
As at 31 March 2011		318	-	33,801	(250)	62	4,843	38,774
Net proceeds of issue from new shares	21	-	40,284	-	-	-	-	40,284
Transfer of share premium	21	-	(40,284)	40,284	-	-	-	-
Total comprehensive income for the year	21	3,850	-	-	(1,451)	-	-	2,399
Share-based payments	23	-	-	-	-	125	-	125
Dividend payments	11	(2,506)	-	-	-	-	-	(2,506)
Revaluation movement for the year	12	274	-	-	-	-	(274)	-
As at 31 March 2012		1,936	-	74,085	(1,701)	187	4,569	79,076

The Notes form an integral part of these financial statements.

Notes to the accounts

1 Accounting policies

General information

NewRiver Retail Limited (the 'Company') and its subsidiaries (together the 'Group') is a property investment group specialising in commercial real estate in the United Kingdom. NewRiver Retail was incorporated on 4 June 2009 in Guernsey as a registered closed-ended investment company. The Company was incorporated in Guernsey under the provisions of The Companies (Guernsey) Law, 2008. On 22 November 2010, the Company converted to a REIT and repatriated effective management and control to the United Kingdom. The Company's registered office is Isabelle Chambers, Route Isabelle, St Peter Port, Guernsey GY1 3TX and the business address is Level 1 Prince Frederick House, 37 Maddox Street London, W1S 2PP. The Company has taken advantage of the exemption conferred by the Companies (Guernsey) Law, 2008, section 244, not to prepare company only financial statements.

Going concern

The Directors of NewRiver Retail Limited have reviewed the current and projected financial position of the Group making reasonable assumptions about future trading and performance. The key areas reviewed were:

-   Value of investment property

-   Timing of property transactions

-   Capital expenditure and tenant incentive commitments

-   Forecast rental income

-   Loan covenants

The Group has cash and short-term deposits, as well as profitable rental income streams and as a consequence the Directors believe the Group is well placed to manage its business risks. Whilst the Group has borrowing facilities in place, it is currently well within prescribed financial covenants.

After making enquiries and examining major areas which could give rise to significant financial exposure the Board has a reasonable expectation that the Company and the Group have adequate resources to continue its operations for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparation of these financial statements.

Statement of compliance

These financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards, as adopted by the European Union ('IFRS'). These financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment properties, joint venture interests and derivatives which are fair valued.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company, its subsidiaries and the SPV's controlled by the Company, made up to 31 March each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The Group financial statements consolidate the financial statements of the Company and its subsidiaries. Intra group transactions are eliminated in full.

Certain new interpretations and amendments or revisions to existing standards, which may be relevant to the Group, have been published that are mandatory for later accounting periods and which have not been adopted early. These are:

IFRS 9 Financial Instruments

IFRS 10 Consolidated Financial Statements

IFRS 13 Fair Value Measurement

IAS 19 (revised) Employee Benefits

The Directors are considering whether these will have a material impact on the Group's financial statements. Whilst they believe these will not have any material impact on the carrying value of assets and liabilities, these standards may lead to additional disclosures.

Use of estimates and key sources of estimation uncertainty

The preparation of the Group's financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies at the date of the Group's financial statements, and revenue and expenses during the reporting period. Actual results could differ from estimates. Significant estimates in the Group's financial statements include the assumptions relating to the valuation of options and investment properties. By their nature these estimates and assumptions are subject to measurement uncertainty.

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, management is of the opinion that any instances of application of judgements did not have a significant effect on the amounts recognised in the financial statements.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

(i) Investment properties

The preparation of financial statements requires management to make estimates affecting the reported amounts of assets and liabilities, of revenues and expenses, and of gains and losses. As described below, the Group's investment properties are stated at estimated fair value, as accounted for by management based on an independent external appraisal. The estimated fair value may differ from the price at which the Group's assets could be sold at a particular time, since actual selling prices are negotiated between willing buyers and sellers. Also, certain estimates require an assessment of factors not within management's control, such as overall market conditions. As a result, actual results of operations and realisation of net assets could differ from the estimates set forth in these financial statements, and the difference could be significant.

(ii) Valuation of options

Management have relied on the services of external experts to determine the fair value of options at their grant date, in order to expense that value over their estimated vesting period. This requires significant estimates of a number of inputs which are used to model that fair value.

(iii) Valuation of Convertible Unsecured Loan Stock

Management was required to make estimates with the assistance of external experts to conclude on the valuation of the convertible unsecured loan stock at the date of issue. The issuance of the compound instrument was between two knowledgeable parties at arms length and at a market rate of 5.85% per annum for 5 years. Management have concluded that the value of the convertible option was negligible and the value resided in the debt portion of the instrument at the date of issue.

(iv) Impairment in investment in associates

Determining whether investments are impaired requires an estimation of the fair values less cost to sell and value in use of those investments. The process requires the Group to estimate the future cash flows expected from the cash-generating units and an appropriate discount rate in order to calculate the present value of the future cash flows. Management has evaluated the recoverability of those investments based on such estimates.

Investment property and property in the course of construction

Property held to earn rentals and for capital appreciation is classified as investment property. Investment property comprises both freehold and leasehold land and buildings.

Investment property is recognised as an asset when:

-   It is probable that the future economic benefits that are associated with the investment property will flow to the Company;

-   There are no material conditions precedent which could prevent completion; and

-   The cost of the investment property can be measured reliably.

Investment property is measured initially at its cost, including related transaction costs. After initial recognition, investment property is carried at fair value. The Group has appointed Colliers International as property valuers to prepare valuations on a semi-annual basis. Valuations are undertaken in accordance with the appropriate sections of the current Practice Statements contained in the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards, 6th Edition (the 'Red Book'). This is an internationally accepted basis of valuation. Gains or losses arising from changes in the fair value of investment property are included in the income statement in the period in which they arise and transferred to the revaluation reserve.

When the Group begins to redevelop an existing investment property for continued future use as an investment property, the property remains an investment property and is accounted for as such. When the Group begins to redevelop an existing investment property with a view to sell, the property is transferred to trading properties and held as a current asset. The property is re-measured to fair value as at the date of the transfer with any gain or loss being taken to the income statement. The re-measured amount becomes the deemed cost at which the property is then carried in trading properties.

In completing these valuations the valuer considers the following:

(i)    current prices in an active market for properties of a different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;

(ii)   recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and

(iii) discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

The cost of properties in the course of development includes attributable interest and other associated outgoings. Interest is calculated on the development expenditure by reference to specific borrowings where relevant and otherwise on the average rate applicable to the term loans. A property ceases to be treated as a development property on practical completion.

Value added tax

Revenues, expenses and assets are recognised net of the amount of value added tax except:

(i)    Where the value added tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the value added tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

(ii)   Receivables and payables that are stated with the amount of value added tax included. The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

Revenue recognition

(i) Rental income
Rental income is recognised on an accruals basis. A rent adjustment based on open market estimated rental value is recognised from the rent review date in relation to unsettled rent reviews. Where a rent-free period is included in a lease, the rental income foregone is allocated evenly over the period from the date of lease commencement to the expiry date of the lease.

Rental income from fixed and minimum guaranteed rent reviews is recognised on a straight-line basis over the entire lease term. Where such rental income is recognised ahead of the related cash flow, an adjustment is made to ensure the carrying value of the related property including the accrued rent does not exceed the external valuation. Initial direct costs incurred in negotiating and arranging a new lease are amortised on a straight-line basis over the period from the date of lease commencement to the expiry date of the lease.

Where a lease incentive payment, including surrender premiums is paid, does not enhance the value of a property, it is amortised on a straight-line basis over the period from the date of lease commencement to the expiry date of the lease. Upon receipt of a surrender premium for the early determination of a lease, the profit, net of dilapidations and non-recoverable outgoings relating to the lease concerned, is immediately reflected in income.

(ii) Interest Income
Interest income and expenses is recognised in the income statement under the effective interest method as they accrue. Interest income is recognised on a gross basis, including withholding tax, if any.

(iii) Asset management fees
Management fees are recognised in the income statement on an accruals basis.

(iv) Promote payments
Under the terms of the Limited Partnership Agreement of NewRiver Retail Investments LP, the Group is contractually entitled to receive a promote payment should the returns from the joint venture to the joint venture partner exceed a certain internal rate of return. This payment is only receivable by the Group on disposal of underlying properties held by the joint venture. Any entitlements under these arrangements are only accrued for in the financial statements once the Group believes that crystallisation of the fee is virtually certain.

Business combinations

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement. Goodwill is reviewed for impairments annually. The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of completion, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquired. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition.

Whilst a corporate acquisition would normally be accounted for under IFRS 3, there are situations where these transfers may not qualify as business combinations. This is considered on a case by case basis by management in light of the substance of the acquisition.

Acquisitions

The consideration payable in respect of each acquisition may be dependant upon certain future events. In calculating the cost of each acquisition the Group has assessed the most probable outcome as at the balance sheet date. These amounts are reconsidered annually at each year end and changes to consideration are taken to the income statement.

Joint ventures

The Group's investment properties are typically held in property specific special purpose vehicles ('SPVs'), which may be legally structured as a joint venture.

In assessing whether a particular SPV is accounted for as a subsidiary or joint venture, the Group considers all of the contractual terms of the arrangement, including the extent to which the responsibilities and parameters of the venture are determined in advance of the joint venture agreement being agreed between the two parties. The Group will then consider whether it has the power to govern the financial and operating policies of the SPV, so as to obtain benefits from its activities, and the existence of any legal disputes or challenges to this control in order to conclude on the classification of the SPV as a joint venture or subsidiary undertaking. The Group considers this position with the evidence available at the time.

The consolidated financial statements account for interests in joint ventures using the equity method of accounting. Any premium paid for an interest in a jointly controlled entity above fair value of identifiable assets, liabilities and contingent liabilities is accounted for in accordance with the goodwill accounting policy.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Convertible unsecured loan stock

Convertible unsecured loan stock consist of both a liability and equity element. On issue of convertible loan stock, management assess the fair value of the liability by reference to the cash flow to redemption associated with the instrument, discounted at a market rate of interest.  The difference between the issue proceeds and the fair value of the liability is allocated to the equity element of the instrument.

Trade and other payables

Trade and other payables are initially recognised at fair value, and subsequently where necessary re-measured at amortised cost using the effective interest method.

Trade and other receivables

Trade and other receivables are initially recognised at fair value. A provision for impairment of trade receivables is established when there is objective evidence the Group will not be able to collect all amounts due according to the original terms of the receivables.

Property, plant and equipment

Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method, on the following bases:

Fixtures and equipment 10% - 20%

The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of asset of the asset and is recognised in income.

Share based payments

Share options have been granted to key management as set out in Note 23. The cost of equity settled transactions is measured with reference to the fair value at the date at which they were granted. The Group accounts for the fair value of these options at grant date over the vesting period in the income statement, with a corresponding increase to the share based payment reserve. The fair value was calculated based on the Black Scholes Model using the following inputs:

Share price                                           £2.35 - £2.50

Exercise price                                      £2.35 - £2.71

Expected volatility                                25%* - 10%*

Risk free rate                                        1.39% - 2.60%

Expected dividends*                           4% - 3%

*based on quoted property sector average (not NewRiver Retail Limited's expected dividend)

Treasury shares

Own equity instruments which are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration is recognised in the reserves

The Group has issued a number of shares to an Employee Benefit Trust (EBT) as detailed in Note 22. As this EBT is controlled by the Group, it is consolidated in these financial statements and unallocated shares held by the EBT are shown as treasury shares.

Dividends

Dividends to the Company's shareholders are recognised when they become legally payable. In the case of interim dividends, this is when paid. In the case of final dividends, this is when approved by the Board.

Hedge accounting

Hedges of interest rate risk on firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instruments and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the 'other gains and losses' line item.

Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income at that time is accumulated in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.

Leasing (as lessors)

Leases where the Group does not transfer substantially all the risks and benefits incidental to the ownership of the assets are classified as operating leases. All of the Group's properties are leased under operating leases and included in investment properties in the balance sheet.

2 Segmental reporting

During the year the Group operated in one business segment, being property investment in the United Kingdom and as such no further information is provided.

3 Gross property income

	2012 £'000	2011 £'000
Rental and related income	14,290	4,378
Asset management fees	470	342
Surrender premiums and commissions	251	58
Gross property income	15,011	4,778

4 Property operating expenses

	2012 £'000	2011 £'000
Amortisation of tenant incentives and letting costs	204	23
Ground rent payments	553	214
Other property operating expenses	1,465	116
Property operating expenses	2,222	353

5 Administrative expenses

	2012 £'000	2011 £'000
Group staff costs	2,537	1,991
Office costs	279	177
Depreciation	11	1
Other administration costs	1,182	990
Administrative expenses	4,009	3,159

During the year a fee of £0.05m was paid to Colliers International for valuation services

	2012 £'000	2011 £'000
Auditors remuneration
Fees payable to the Company's auditor for the audit	115	88
Fees payable to the Company's auditor for the interim review	24	18
Total audit fees	139	106
Fees payable to Company's auditor for tax compliance services	-	50
Fees payable to Company's auditor for corporate finance services	100	-
Total non-audit fees	100	50

6 Profit on disposal of investment properties

	2012 £'000	2011 £'000
Gross disposal proceeds	8,380	-
Costs of disposal	(322)	-
Net disposal proceeds	8,058	-
Carrying value	(7,645)	-
Profit on disposal	413	-

7 Finance income and expense

	2012 £'000	2011 £'000
a) Finance income
Income from cash and short-term deposits	5	29
Total finance income	5	29
b) Finance costs
Interest on bank loans	3,756	1,228
Interest on debt instruments	1,583	546
Total finance costs	5,339	1,774
Net finance cost	5,334	1,745

Interest on debt instruments relates to the Convertible Unsecured Loan Stock.

More details on the Group's borrowings are provided in Note 19.

8 Taxation

The tax expense for the year comprises:

	2012 £'000	2011 £'000
Current taxation
UK Corporation Tax at 26% (2011: 28%)	120	124
Current taxation	120	124
REIT conversion charge	-	1,600
Tax charge for the year	120	1,724

The charge for the year can be reconciled to the profit per the income statement as follows:

	2012 £'000	2011 £'000
Profit before tax	3,970	4,912
Tax at the Current rate of 26% (2011: 28%)	1,032	1,375
Tax effect of profit under REIT regime	(912)	(1,251)
REIT conversion charge	-	1,600
Tax expense for the year	120	1,724

The Company entered the REIT regime on 22 November 2010 and is not exposed to tax on qualifying UK property rental income and gains arising from the disposal of exempt property assets, for this reason deferred tax has not been provided for on revaluation surpluses. At the time of the Company's conversion a provision of £1.6 million (representing a 2% charge on the assets taken into the regime) was made for the REIT conversion charge which the Company has chosen to pay over 4 years (which carries as 0.19% charge). The instalments are payable annually between June 2011 and July 2014.

9 Earning per share

The European Public Real Estate Association (EPRA) issued Best Practices Policy Recommendations in October 2010, which gives guidelines for performance measures. The EPRA earnings measure excludes investment property revaluations and gains on disposals, intangible asset movements and their related taxation and the REIT conversion charge.

The National Association of Real Estate Investment Trusts (NAREIT) Funds From Operations (FFO) measure is similar to EPRA earnings and is a performance measure used by many property analysts. The main difference to EPRA earnings with respect to the Group is that it adds back the amortisation of leasing costs and tenant incentives and is based on US GAAP.

The calculation of basic and diluted earnings per share is based on the following data:

	2012 £'000	2011 £'000
Earnings
Earnings for the purposes of basic and diluted EPS being profit after taxation	3,850	3,188
Adjustments to arrive at EPRA profit
Exceptional items:
REIT conversion charge	-	1,600
Prior year tax provision	-	36
Other exceptional items	83	165
Unrealised movement on revaluation of investment properties	274	(3,574)
Unrealised movement on revaluation of joint venture investment properties	560	(545)
Profit on disposal of investment properties	(413)	-
EPRA profit	4,354	870
Additional adjustments to arrive at NAREIT FFO
Amortisation of tenant incentives	70	23
Amortisation of rent free periods	(171)	-
Amortisation of capitalised leasing costs	134	-
NAREIT FFO	4,387	893

Number of shares	2012 No. 000's	2011 No. 000's
Weighted average number of ordinary shares for the purposes of basic EPS, basic EPRA EPS and FFO EPS	25,242	13,822
Effect of dilutive potential ordinary shares:
Options	-	21
Warrants	28	22
CULS	-	-
Weighted average number of ordinary shares for the purposes of basic diluted EPS and basic diluted EPRA EPS	25,270	13,865
EPRA EPS basic (pence)	17.3	6.3
EPRA diluted EPS (pence)	17.2	6.3
FFO EPS basic (pence)	17.4	6.5
EPS basic (pence)	15.3	23.1
Diluted EPS (pence)	15.2	23.0

Under the terms of the Limited Partnership agreement relating to NewRiver Retail Investments LP dated 28 February 2010, MSREI has been granted the right to convert its interest in the JV or part thereof on an NAV for NAV basis into shares of NewRiver Retail Limited, up to 10% of the share capital of NewRiver Retail Limited during the joint venture period. This conversion would have an dilutive effect on the Group's EPS calculation, for the current year of 0.3 pence which is not reflected in the above calculation (accretive effect for the prior year).

10 Net asset value per share

	2012	2011
Net asset value (£'000)	79,076	38,774
Number of ordinary shares EPRA*	34,333	24,467
Number of ordinary shares	31,080	14,212
Number of diluted shares	34,333	24,467
EPRA Net asset value per share (pence)	258	273
Basic Net asset value per share (pence)	254	273
Diluted Net asset value per share (pence)	253	272

*The number of shares in issue is adjusted under the EPRA calculation to assumes conversion of the warrants, options and the Convertible Unsecured Loan Stock converted to equity.

However, in the current year the conversion of the Convertible Unsecured Loan Stock would have an accretive effect on the EPRA calculation and is therefore excluded from the calculation.

11 Dividends

The following dividends were paid during the current and prior years:

	2012 Pence per share	2011 Pence per share	2012 £'000	2011 £'000
Ordinary dividends paid
2011 Interim dividend	-	1p	-	142
2011 Final dividend	-	4.5p	641	-
2012 Interim dividend	6p	-	1,865	-
	6p	5.5p	2,506	142
2012 Final dividend proposed	9p	-	2,797	-
	15p

The proposed final dividend was approved by the Board on 23 May 2012. It has not been included as a liability or deducted from retained profits in these accounts. The final dividend is payable on 13 July 2012 to ordinary shareholders on the register at the close of business on 22 June 2012 and will be recognised as an appropriation of retained earnings in 2013.

The dividend will be paid entirely as a PID (Property Income Distribution). PID dividends are paid, as required by REIT legislation, after deduction of withholding tax at the basic rate of income tax (currently 20%). However, certain classes of shareholder may be able to claim exemption from deduction of withholding tax.

12 Investment properties

	2012 £'000	2011 £'000
Opening balance	105,800	13,315
Acquisitions and improvements in the year	99,855	88,911
Disposals in the year	(7,645)	-
	198,010	102,226
Fair value (deficit)/surplus on property revaluations	(274)	3,574
Closing balance	197,736	105,800

The Group's investment properties have been valued at 31 March 2012 by independent valuers on the basis of fair value in accordance with the Appraisal and Valuation Standards of the Royal Institute of Chartered Surveyors Sixth Edition (the 'Red Book').

It is the Group's policy to carry investment properties at fair value in accordance with IAS 40 'Investment Property'. The fair value of the Group's investment properties at 31 March 2012 has been determined by the directors on the basis of open market valuations carried out by Colliers International who are the external valuers to the Group.

The basis for the valuations included in the report is based on current market rental yields, expected rental income and comparable market transactions.

13 Investments in joint ventures

2012 £'000		2011 £'000
Opening balance	11,926	11,778
Additional joint venture interests during the year (1)	-	1,440
Income from joint ventures	945	1,272
Net valuation movement	(560)	545
Distributions and dividends (1)	(695)	(2,032)
Return of capital (1)	(150)	(943)
Hedging movements	(191)	(134)
Net book value	11,275	11,926

Name	Country of incorporation	% Holding 2012
NewRiver Retail Investments LP	Guernsey	50%
NewRiver Retail Investments (GP) Ltd*	Guernsey	50%

(1) The net cash inflow during the year was £0.84 million (2011: cash inflow £1.50 million).

NewRiver Retail Investments LP (the 'JV') is an established jointly controlled limited partnership set up by NewRiver Retail Limited and Morgan Stanley Real Estate Investing ('MSREI') to invest in UK Retail property.

The JV is owned equally by NewRiver Retail Limited and MSREI. NewRiver Retail (UK) Limited is the appointed asset manager on behalf of the JV and receives asset management fees as well as performance-related return promote payments. No promote payment has been recognised during the year (2011: nil) as the Group is entitled to receive promote payments only after achieving the agreed hurdles.

Under the terms of the Limited Partnership agreement relating to NewRiver Retail Investments LP dated 28 February 2010, MSREI has been granted the right to convert its interest in the JV or part thereof on an NAV for NAV basis into shares of NewRiver Retail Limited, up to 10% of the share capital of NewRiver Retail Limited during the joint venture period, which is from 5 March 2010 and expires 5 March 2015. This conversion would have an dilutive effect on the Group's EPS calculation for the current year (accretive in the prior year).

In line with the existing NewRiver investment strategy, the JV targets UK retail property assets with the objective of delivering added value and above average returns through NewRiver's proven skills in active and entrepreneurial asset management and risk controlled development and refurbishment.

*NewRiver Retail Investments (GP) Ltd has a number of 100% owned subsidiaries which are NewRiver Retail (Finco No 1) Limited and NewRiver Retail (GP1) Limited, acting in its capacity as General Partner for NewRiver Retail (Holding No 1) LP and NewRiver Retail (Portfolio No 1) LP. These entities have been set up to facilitate the investment in retail properties in the UK by the joint venture.

The JV has a 31 December year end and the Group has applied equity accounting for its interest in the JV. The aggregate amounts recognised in the consolidated balance sheet and income statement eliminate inter company transactions and are as follows:

	2012 NewRiver Retail Investments (GP) Ltd Total £'000	2012 Group's Share 50% £'000	2011 NewRiver Retail Investments (GP) Ltd Total £'000	2011 Group's Share 50% £'000
Balance sheet
Non-current assets	45,465	22,733	46,365	23,183
Current assets	2,035	1,018	2,105	1,052
Current liabilities	(2,002)	(1,001)	(1,714)	(857)
Non-current liabilities	(22,949)	(11,475)	(22,904)	(11,452)
Net assets	22,549	11,275	23,852	11,926
Income statement
Income	3,593	1,796	4,661	2,331
Administration expenses	(784)	(392)	(1,062)	(531)
Finance costs	(919)	(459)	(1,055)	(528)
Recurring income	1,890	945	2,544	1,272
Fair value (deficit)/surplus on property revaluations	(1,121)	(560)	1,090	545
Income from joint ventures	769	385	3,634	1,817

Recurring income in the joint venture has reduced due to property sales in 2011.

The Group's share of any contingent liabilities to the JV is £nil. (2011: £nil)

14 Property, plant and equipment

	Fixtures and equipment £'000	Total £'000
Cost
At 1 April 2010	8	8
At 31 March 2011	8	8
Additions	415	415
Disposals	(8)	(8)
At 31 March 2012	415	415
Accumulated depreciation
At 1 April 2010	-	-
Charge for the year	1	1
At 31 March 2011	1	1
Charge for the year	11	11
Eliminated on disposals	(1)	(1)
At 31 March 2012	11	11
Carrying Amount
At 31 March 2012	404	404
At 31 March 2011	7	7
At 31 March 2010	8	8

15 Investment in subsidiary undertakings

Below is a list of the Group's principal subsidiaries:

Name	Country of incorporation	Activity	Proportion of ownership interest 2012
NewRiver Retail (Boscombe) Limited	United Kingdom	Real estate investments	100%
NewRiver Retail (Market Deeping No. 1) Limited	Guernsey	Real estate investments	100%
NewRiver Retail (Newcastle No. 1) Limited	Guernsey	Real estate investments	100%
NewRiver Retail (Portfolio No. 1) Limited	Guernsey	Real estate investments	100%
NewRiver Retail (Portfolio No. 2) Limited	Guernsey	Real estate investments	100%
NewRiver Retail (Portfolio No. 3) Limited	United Kingdom	Real estate investments	100%
NewRiver Retail (Portfolio No. 4) Limited	United Kingdom	Real estate investments	100%
NewRiver Retail (Portfolio No. 5) Limited	United Kingdom	Real estate investments	100%
NewRiver Retail (Portfolio No. 6) Limited*	United Kingdom	Real estate investments	100%
NewRiver Retail (UK) Limited	United Kingdom	Company operation and asset management	100%
NewRiver Retail (Witham) Limited	United Kingdom	Real estate investments	100%
NewRiver Retail (Wrexham No. 1) Limited	Guernsey	Real estate investments	100%
NewRiver Retail CUL No. 1 Limited	United Kingdom	Finance Company	100%

The Group's investment properties are held by its subsidiary undertakings.

*Incorporated after 31 March 2012.

16 Trade and other receivables

	2012 £'000	2011 £'000
Trade receivables	2,089	1,213
Prepayments and accrued income	505	200
Other receivables	451	-
	3,045	1,413

All amounts fall due for payment in less than one year.

A provision of £0.2 million (2011: £0.1 million) was made for trade receivables as at 31 March 2012.

17 Cash and cash equivalents

	2012 £'000	2011 £'000
Cash at bank	8,562	10,651
	8,562	10,651

18 Trade and other payables

	2012 £'000	2011 £'000
Trade payables	495	428
Other payables	675	-
Accruals	2,409	1,732
Rent received in advance	3,329	1,980
	6,908	4,140
Taxation - current	495	840
Current trade and other payables	7,403	4,980
Taxation - non-current	744	1,201
Non-current trade and other payables	744	1,201

19 Borrowings

	2012 £'000	2011 £'000
Secured bank loans	107,842	60,252
Convertible Unsecured Loan Stock	24,581	24,474
Total borrowings	132,423	84,726
Maturity of borrowings:
Less than 1 year	-	-
Between 1 and 2 years*	13,268	-
Between 2 and 5 years	119,155	84,726
Over 5 years	-	-
Total borrowings	132,423	84,726

* The Company has an option to extend this loan  to 4 June 2015.

Secured bank loans

Bank loans are secured by way of legal charges on properties held by the Group and a hedging policy is adopted which is aligned with the property strategy on each of its assets.

Facility and arrangement fees

	2012					2011
	Facility £'000	Fees £'000	Amortised £'000	Balance £'000		Facility £'000	Fees £'000	Amortised £'000	Balance £'000
Santander*	33,371	(327)	132	33,176		26,159	(219)	55	25,995
Clydesdale**	40,815	(539)	64	40,340		-	-	-	-
HSBC***	34,580	(346)	92	34,326		34,580	(346)	23	34,257
	108,766	(1,212)	288	107,842		60,739	(565)	78	60,252
Convertibles	25,000	(574)	155	24,581		25,000	(566)	40	24,474
	133,766	(1,786)	443	132,423		85,739	(1,131)	118	84,726

*This facility is 93% fixed by way of an interest rate swap at an average rate of 4.0%

**This facility is 81% by way of an interest rate swap at an average rate of 4.5%

***This facility is subject to an interest cap agreement and is 60% capped at 6.5% (4% cap, 2.5% bank margin)

Fair Value on Interest rate swaps

The Group recognised a mark to market fair value loss of £1.5 million (2011: £0.2 million) on its interest rate swaps as at 31 March 2012. The fair value loss recognised for on Balance Sheet hedging was £nil (2011: £0.1 million).

The carrying value of interest rate swaps in the balance sheet at 31 March 2012 was £1.376 million (2011: £0.116 million).

All borrowings are due after more than 1 year.

Convertible Unsecured Loan Stock ('CULS')

On 22 November 2011 the Group issued £25 million of CULS where the stock holder may convert all or any of the stock into ordinary shares at the rate of 1 ordinary share for every £2.80 nominal value of CULS held. The conversion price has subsequently been revised to £2.76 to reflect subsequent equity raised and dividends paid. Under the terms of the convertible, interest will accrue at 5.85% on the outstanding loan stock until 31 December 2015 when it will either be converted or repaid. The interest payable on the CULS is due biannually on the 30 June and 31 December.             

Management was required to make estimates with the assistance of external experts to conclude on the valuation of the CULS at the date of issue. The issuance of the compound instrument was between two knowledgeable parties at arms length and at a market rate of 5.85% per annum for 5 years. Management have concluded that the value of the convertible option was negligible and the value resided in the debt portion of the instrument at the date of issue.

20 Cash flow note

	2012 £'000	2011 £'000
Operating profit	9,304	6,657
Adjustments for:
Income from joint venture not received	(945)	(1,272)
Net valuation movement	274	(3,574)
Net valuation movement of joint venture investment properties	560	(545)
Profit on sale of investment properties	(413)	-
Depreciation of property, plant and equipment and goodwill	11	(1)
Amortisation of tenant incentives	70	23
Amortisation of rent-free periods	(171)	-
Amortisation of capitalised leasing costs	134	-
Share-based payments expense	125	37
Interest paid	(5,036)	(770)
Interest received	5	29
Taxation paid	(483)	(355)
Operating cash flows before movements in working capital	3,435	229
Increase in receivables	(1,633)	(1,412)
Increase in payables	2,328	3,379
Cash inflows from operations	4,130	2,196

21 Share capital and reserves

	2011 Retained Earnings £'000	2011 Other Reserves £'000	2011 Share Premium £'000	2011 Revaluation Reserve £'000	2011 Share option Reserve £'000	2011 Hedging reserve £'000	2011 Total £'000
Brought forward	846	-	24,031	1,269	25	(46)	26,125
Shares issued in year	-	-	10,531	-	-	-	10,531
Issue costs	-	-	(761)	-	-	-	(761)
Transfer to distributable reserve	-	33,801	(33,801)	-	-	-	-
Movement on revaluation	(3,574)	-	-	3,574	-	-	-
Total comprehensive income for the year	3,188	-	-	-	-	(204)	2,984
Dividends paid	(142)	-	-	-	-	-	(142)
Share-based payments	-	-	-	-	37	-	37
Balance carried forward	318	33,801	-	4,843	62	(250)	38,774

	2012 Retained Earnings £'000	2012 Other Reserves £'000	2012 Share Premium £'000	2012 Revaluation Reserve £'000	2012 Share option Reserve £'000	2012 Hedging Reserve(i) £'000	2012 Total £'000
Brought forward	318	33,801	-	4,843	62	(250)	38,774
Shares issued in year	-	-	42,500	-	-	-	42,500
Issue costs	-	-	(2,216)	-	-	-	(2,216)
Transfer to distributable reserve	-	40,284	(40,284)	-	-	-	-
Movement on revaluation	274	-	-	(274)	-	-	-
Total comprehensive income for the year	3,850	-	-	-	-	(1,451)	2,399
Dividends paid	(2,506)	-	-	-	-	-	(2,506)
Share-based payments	-	-	-	-	125	-	125
Balance carried forward	1,936	74,085	-	4,569	187	(1,701)	79,076

The authorised share capital is unlimited and there are currently 31,079,068 shares in issue (31 March 2011: 14,214,308). In addition there are 624,440 shares held in the Employee Benefit Trust (Note 22).

In the year ending 31 March 2012, 16.87 million (2011: 4.2 million) nil par value Ordinary Shares were issued for cash consideration at a price of £2.52 (2011: £2.50) resulting in an increase of the total share capital and other reserves to £74.1 million (2011: £33.8 million). Costs of £2.2 million (2011: £0.8 million) directly attributable to the issue of these shares have been set against the share premium account.

During the year the Group approved a transfer from the share premium account of £40.3 million (2011: £33.8 million) to other reserves which may be distributed in the future.

Shareholders who subscribed for Placing Shares in the initial Placing received warrants, in aggregate, to subscribe for 3% of the Fully Diluted Share Capital exercisable at the subscription price per Ordinary Share of £2.50 and all such warrants shall be fully vested and exercisable upon issuance. The subscription price was adjusted to £2.44 following the share issue in May 2010 and subsequently to £2.27 following the dividend payment in July and December 2011. During the year no (2011:2,308) warrants were exercised.(i) Includes share of joint venture hedging reserve.

22 Treasury shares

The Company has established an Employee Benefit Trust (EBT) which is registered in Jersey.

The EBT at its discretion may transfer shares held by it to Directors and employees of the Company and its subsidiaries. The maximum number of ordinary shares that may be held by the Trustee of the EBT may not exceed 10% of the Company's issued share capital at that time. It is intended that the Trustee of the EBT will not hold more ordinary shares than are required in order to satisfy awards/options granted under share incentive plans.

During the year no shares were issued to the EBT (2011: nil).

As the EBT is consolidated, these shares are treated as Treasury Shares.

No shares have been allocated by the EBT to directors or employees during the year.

	2012 000s	2011 000s
Brought forward	624	624
Issued during the year	-	-
Carried forward	624	624

23 Share-based payments

The Group provides share based payments to employees in the form of share options, all share based payment arrangements granted since the admission on 1 September 2009 have been recognised in the financial statements. The Group uses the Black Scholes Model and the resulting value is amortised through the income statement over the vesting period of the share-based payments with a corresponding credit to the share-based payments reserve.

(a) Terms

	Exercise Price £	2012 Number of Options	2011 Number of Options
Awards brought forward		886,949	660,200
Awards made during the year:	2.71	-	48,943
	2.50	-	144,973
	2.44	-	32,833
	2.35	1,585,000	-
Exercisable options at the end of the year		2,471,949	886,949

The awards granted during the period are based on a percentage of the total number of shares in issue, as a result of the new share issue the number of awards have increased.

(b) Share-based payment charge

	2012 £'000	2011 £'000
Share-based payment expense brought forward	62	25
Share-based payment expense in the year	125	37
Cumulative share based payment	187	62

24 Financial commitments and operating lease arrangements

	2012 £'000	2011 £'000
Operating leases which expire:
Within 1 year	173	55
1 to 2 years	141	-
2 to 5 years	514	-
Over 5 years	879	-
	1,707	55

Operating lease payments represent rentals payable by the Group for occupation of its office properties.

The current lease expires in November 2021 with a tenant break option in 2016.

25 Post balance sheet events

On 23 May 2012, the Board of Directors approved a final dividend of 9 pence per share which will result in a final total dividend for the year of 15 pence per share.

26 Financial instruments - risk management

The Group's activities expose it to a variety of financial risks in relation to the financial instruments it uses: market risk (including currency risk, price risk and cash flow interest rate risk), credit risk and liquidity risk. The financial risks relate to the following financial instruments: trade receivables, cash and cash equivalents, trade and other payables, borrowings and derivative financial instruments.

Risk management parameters are established by the Board on a project by project basis. Reports are provided to the Board formally on a quarterly basis and also when authorised changes are required.

a) Market risk

Currency risk

As all material transactions are in GBP the Group is not subject to any foreign currency risk.

Cash flow and fair value interest rate risk

The Group has significant interest-bearing cash resources, the majority of which are held in business accounts with its principal bankers. The Group's interest rate risk arises from long-term borrowings (Note 19), borrowings issued at variable rates expose the Group to cash flow interest rate risk, whilst borrowings issued at a fixed rate expose the Group to fair value risk. The Group's cash flow and fair value risk is reviewed quarterly by the Board.

The cash flow and fair value risk is approved quarterly by the Board. The Group analyses its interest rate exposure on a dynamic basis. It takes on exposure to mitigate the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest costs may increase as a result of such changes. They may reduce or create losses in the event that unexpected movements arise. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios the Group calculates the impact on profit and loss of a defined interest rate shift. The simulation is run on an ongoing basis to verify that the maximum potential impact is within the parameters expected by management. Formal reporting to the Board on cash flows is made on a monthly basis. To date the Group has sought to fix its exposure to interest rate risk on borrowings through the use of a variety of interest rate derivatives. At 31 March 2012, the Group (including joint ventures) had £107.7 million (2011: £71.9 million) of interest rate swaps in place, and it's net debt was 86% fixed (2011: 94%). This gives certainty over future cash flow but exposure to fair value movements, which amounted to an unrealised loss of £1.45 million at 31 March 2012 (2011: £0.2 million). Sensitivity analysis is carried out to assess the impact of an increase in interest rates on finance costs to the Group. The impact of a 2% increase in interest rates would increase the net interest payable in the income statement by £1.1 million (2011: £0.1 million).

b) Credit risk

The Group's principal financial assets are cash and short term deposits, trade and other receivables.

The credit risk on the Group's trade and other receivables is considered low due to the Group having policies in place to ensure that rental contracts are made with tenants meeting appropriate balance sheet covenants, supplemented by rental deposits or bank guarantees from international banks. The amounts presented in the Balance Sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is objective evidence that the Group will not be able to collect all amounts due according to the terms of the receivables concerned.

The Group has VAT receivable of £0.1 million (2011: £0.4 million payable). The timing of payment of these balances is subject to future revenue receipts and application to HMRC. The Group forecasts the payment of these balances based upon the timing of future revenue receipts and its experience of successful application to the HMRC.

No balances are considered passed due or impaired at 31 March 2012 based upon this assessment of the timing of future cash receipts. The Group believes its only exposure is in relation to the timing of the outstanding refund. The maximum credit risk exposure is limited to the carrying value on the balance sheet.

The credit risk on the Group's cash and short-term deposits and derivative financial instruments is limited to the Group's policy of monitoring counterparty exposures.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Board and its advisers seek to have appropriate credit facilities in place on a project by project basis, either from available cash resources or from bank facilities.

Management monitor the Group's liquidity position on a weekly basis. Formal liquidity reports are issued on a weekly basis and are reviewed quarterly by the Board, along with cash flow forecasts. A summary table with maturity of financial liabilities is presented below:

2012					2011
	Current £'000	Year 2 £'000	Years 3 to 5 £'000			Current £'000	Year 2 £'000	Years 3 to 5 £'000
Interest-bearing loans and borrowings	-	13,268*	95,498		Interest-bearing loans and borrowings	-	-	60,739
CULS	-	-	25,000		CULS	-	-	25,000
Trade and other payables	7,403	744	-		Trade and other payables	4,980	-	-
Derivative financial instruments	-	-	1,701		Derivative financial instruments	-	-	250
	7,403	14,012	122,199			4,980	-	85,989

*Option to extend by 2 years.

The Group monitors its risk to a shortage of funds by forecasting cash flow requirements for future years, including consideration of existing facilities and covenant requirements. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and other short-term borrowing facilities, bank loans and equity fund raisings.

(d) Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern to provide returns to shareholders through Property Income Distributions (PIDs) in accordance with the REIT regime and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

To maintain or adjust the capital structure the Group may return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of its gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including borrowings and trade and other payables as shown in the balance sheet) but excluding preference shares, which for capital risk management is considered to be capital rather than debt, less cash and short-term deposits. Total capital is calculated as equity, as shown in the balance sheet, plus preference shares and net debt. Where the Group has a net position, the gearing ratio will be zero. The Group is not subject to any external capital requirements.

27 Related party transactions

Group

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Director's shareholdings can be found in the Directors report.

Total emoluments of Executive Directors during the year (excluding share-based payments) was £1.5 million (2011: £1.2 million).Share-based payments of £0.13 million (2011: £0.04 million) accrued during the year.

During the year 24,250 shares (2011: nil) were acquired on the open market by Directors at market value.

28 Operating lease arrangements

The Group earns rental income by leasing its investment properties to tenants under non-cancellable operating leases.

At the balance sheet date the Group had contracted with tenants for the following future minimum lease payments on its investment properties:           

	2012 £'000	2011 £'000
Within 1 year	17,267	6,947
In the 2nd year	14,325	6,291
In the 3rd to 5th year (inclusive)	33,922	15,890
After 5 years	45,669	29,489
	111,183	58,617

Weighted Average Lease Expiry

(to expiry) of operating leases in NewRiver Retail Ltd portfolio

 

END

 

 

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