The NewRiver REIT (LSE:NRR) share price is on fire this morning after the company released its half-year results. It had previously tumbled from a spike this spring and the stock remains significantly below pre-pandemic levels. It’s up almost 10% year-on-year, however, and today’s 14% jump is undoubtedly a welcome sight for shareholders.
But is the sudden jump a sign that the worst is finally over for this business? And should I be considering it for my portfolio?
The rising NewRiver share price
NewRiver is a real estate investment trust that owns and operates a diverse portfolio of shopping centres and retail parks spanning eight million square feet. The business model is quite straightforward: buy a property, then rent it out. And in a world before Covid-19, this strategy was working relatively well.
But as lockdown restrictions were brought into effect and non-essential stores closed their doors, the firm’s rental income took quite a hit. So, it’s not surprising to see that NewRiver’s share price collapsed in early 2020.
Since then, the situation has improved. And looking at the half-year earnings report, it seems the company is getting itself back on track. Over the last six months, the underlying funds from operations came in 67% higher than a year ago, reaching £15.5m. That’s still below the £26.4m achieved in 2019, but it’s moving in the right direction.
The firm is still sitting in the red. However, thanks to the improved cash flows, losses were almost cut in half from £92.3m in 2020 to £49.9m today. Meanwhile, the net debt position has also fallen from £493.3m to £276.4m, which is actually better than pre-pandemic levels.
Needless to say, falling losses combined with a reinforced balance sheet are positive signs of progress. So, I’m not surprised to see the NewRiver share price jump on this report.
Taking a step back
As encouraging as this performance is, there remains a long road ahead before the stock can return to its former glory. Even before the pandemic entered the picture, NewRiver was encountering problems with its profitability. While rent collection remained relatively high and occupancy sat above 95%, the value of its properties started to fall rapidly. Consequently, management began selling off some of its real-estate assets at a loss.
The remaining assets in its portfolio may continue to decline in value due to the headwinds being created by the rise of e-commerce. In September, online sales represented 28.1% of total retail in the UK. That’s up from 18.1% in 2019. And since NewRiver’s portfolio consists of physical retail locations, the demand for renting such properties may fall over the long term. If that’s the case, the NewRiver share price may struggle to climb.
The bottom line
Overall, this business looks like it’s in a far stronger position than a year ago. And I wouldn’t be surprised to see the NewRiver share price make a comeback over the long term. But personally, I’m not interested in investing in a REIT that doesn’t generate a profit. Dividends are still being paid, but without a positive net income, these payments are ultimately unsustainable. Therefore, I’m putting this REIT on my watchlist for now.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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