NewRiver Retail has announced that it has exchanged contracts with Punch Taverns to acquire a portfolio of 158 pubs in England and Wales in a £53.5 million deal.
The UK REIT, which specialises in value-creating retail property investment, active asset management and development, confirmed that the deal equates to a net initial yield of 13.61 per cent.
At present, the projected annual profit before tax of the 158 strong pub portfolio stands at around £6 million, meaning that NewRiver Retail can expect its latest acquisition to generate cash on cash equity return in excess of 20 per cent.
This is not NewRiver Retail’s first foray into the pubs market, as the firm has previously acquired a portfolio of 202 pubs from Marston’s. Property Director Allan Lockhart of NewRiver Retail hopes that the latest acquisition will enjoy a similar level of success as this first venture.
He says; “We are delighted to announce the acquisition of the pub portfolio from Punch Taverns, which represents a strategic progression for NewRiver, following our acquisition of a similar portfolio from Marston’s in late 2013, the successful result of which has led us to identify similar opportunities.
“In many ways this Portfolio is similar to our Marston’s transaction, in that we expect to deliver exceptional cash on cash returns and attractive capital growth through asset management and development.
“We are confident that this acquisition will add significant long term value for our shareholders.”
The acquisition ties in with NewRiver Retail’s proven business model, which focuses upon purchasing strategically selected property assets offering high cash on equity returns. In addition, the firm seeks opportunities which would benefit from active asset management and risk-controlled development projects.
Comprising 339,866 sq ft of total internal gross area and 1,844,766 sq ft of total site area, it is clear that there are a number of options facing NewRiver Retail for the future of the portfolio.
Although it has effectively been 100 per cent let for the past four years, NewRiver Retail has already identified a number of ways in which the overall value could be raised, namely by unlocking and creating capital growth through the introduction of new and complementary uses.
Should this route be pursued, it is likely that NewRiver Retail will seek permission to make considerable alterations to the portfolio such as installing residential new builds on surplus land. In addition, it may wish to construct convenience stores on surplus land and extend or partly convert existing properties to add a residential element.
With a third party specialist pub management company already appointed to run the day to day management of the extensive portfolio, it seems that NewRiver Retail is keen to focus on the asset management and development programmes capable of unlocking the full value of this acquisition.
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