Interim Report for the Period ended 30 June 2019

To:                    RNS

Date:                17 September 2019

From:                BMO Commercial Property Trust Limited (formerly F&C Commercial Property Trust Limited)

LEI:                  213800A2B1H4ULF3K397

(Classified Regulated Information, under DTR 6 Annex 1 Section 1.2)

Interim Report for the Period ended 30 June 2019

Highlights

• Share price total return of -8.0 per cent for the six months*
• -0.4 per cent net asset value total return*
• Maintained annualised dividend at 6.0 pence per share giving a yield of 5.4 per cent on the period end share price*

* See Alternative Performance Measures

Chairman’s Statement

Performance for the period

The first six months of 2019 has seen continued uncertainty surrounding commercial property markets in the UK, with the trading environment for retailers and the potential impact of Brexit causing particular concern. This has been challenging for the listed real estate sector with many of the large cap companies trading at significant discounts to their Net Asset Values (‘NAV’s). Against this backdrop, the Company’s share price total return to shareholders over the six-months to 30 June 2019 was -8.0 per cent. The share price at the period-end was 111.8p, representing a discount of 18.0 per cent to the NAV per share of 136.3p.

The NAV total return over the six months was -0.4 per cent. The following table provides an analysis of the movement in the NAV per share for the period:

	Pence
NAV per share as at 31 December 2018	139.8
Unrealised decrease in valuation of direct property portfolio	(2.9)
Other net revenue	2.4
Dividends paid	(3.0)
NAV per share as at 30 June 2019	136.3

The total return from the underlying portfolio was 0.5 per cent, compared with a total return of 0.9 per cent from the MSCI Quarterly Property Universe. The Income return from the portfolio over the period was 2.1 per cent, offset by negative capital returns of -1.7 per cent. Unsurprisingly the weakest sector in the MSCI Quarterly Universe was retail with the strongest returns again coming from industrials, driven by rental growth and further modest yield compression.

One of our priorities has been the selective disposal of assets which were felt to have limited future growth prospects and we were delighted to complete the sales of Thames Valley Park 1, Thames Valley Park 2 and Building A, Watchmoor Park, Camberley during the period. We will look to recycle some of this capital into a number of the advanced asset management opportunities the Manager is currently working on and where we expect the outcomes will deliver sustainable, long-term income and support future fund performance.

Another current priority is to replace the income lost or at risk at both Newbury Retail Park in Newbury and Sears Retail Park in Solihull. We have already completed a large letting to Lidl at Newbury for a 25-year lease with a break option at year 20. Beyond this, there are significant ongoing negotiations at both Parks and we hope to report on these at a later date.

St. Christopher’s Place continues to enjoy strong occupier demand although this popular West End estate has not been immune to the current challenges facing the retail sector and we expect rental growth may be muted here in the short-term.

Borrowings

The Group’s available borrowings comprise a £260 million term loan with Legal & General Pensions Limited, maturing on 31 December 2024 and a £50 million term loan facility and an undrawn £50 million revolving credit facility, both with Barclays and available until June 2021. The Group’s net gearing was 20.4 per cent at the end of the period and the weighted average interest rate on total current borrowings is 3.3 per cent.

Dividends and Dividend Cover

Monthly interim dividends of 0.5p per share continued during the period, maintaining the annual dividend of 6.0p per share paid since 2006 and providing a dividend yield of 5.4 per cent based on the period-end share price. Barring unforeseen circumstances, your Board intends that dividends will continue to be paid monthly at the same rate.

The Company’s level of dividend cover for the period was 81.7 per cent, slightly higher than the equivalent period last year (79.2 per cent). There has been a small fall in rental income compared with the same period last year due to the sale of the property at Thames Valley Park 2 and to the loss of income at Solihull and Newbury. This was more than compensated for by a fall in the level of taxation payable and a reduction in expenses, where a one-off surrender premium was paid in 2018.

REIT Conversion

Shareholders voted in favour of the REIT proposals at an extraordinary general meeting held on 30 May 2019 and the Group entered the UK REIT regime on 3 June 2019. The adoption of REIT status by the Group will alter the shareholders’ tax positions in respect of the receipt of distributions under the REIT regime, as the majority of the distributions from the Company will be property income distributions. The first distribution that the Company will make under the REIT regime will relate to profits earned from June 2019. The amount and payment date of such property income distribution will be announced in October 2019.

Board Composition

Having served nine years on the Board, Chris Russell stepped down as Chairman of the Company and retired from the Board at the annual general meeting on 30 May 2019. I became Chairman from that date and Paul Marcuse took on the role of Senior Independent Director. Chris joined the Board in 2009 and became Chairman in 2011. He excelled in this role and I would like to thank him for his significant contribution and leadership over the years.

Following the approval of the REIT conversion proposals, Peter Cornell and David Preston, both Guernsey directors, also stood down from the Board with effect from 30 May 2019. I’d like to thank them too, at the same time welcoming Linda Wilding. Linda is UK based and joined the Board on 3 June 2019.

Following these changes, the Board now consists of five Directors, three male and two female, four of whom are based in the UK and one in Guernsey.

Outlook

The property market continues to deliver positive total return, but the pace has slowed and investment activity has weakened. The market is likely to encounter continued headwinds related to Brexit and its political and economic ramifications. Slower economic growth and political uncertainties internationally are also affecting sentiment. However, post Brexit, if there is some easing in fiscal policy and interest rates are kept low, as the market expects, then this should provide some support for property, particularly from investors seeking a higher-yielding alternative to gilts.

Total returns are expected to be low single-digit and will be driven by income, with well-specified and well-let assets in established locations likely to out-perform.

Notwithstanding the short-term pressures in the retail sector, the Company has a well-positioned and resilient portfolio with exciting opportunities across many sectors to add value and deliver sustainable long-term rental income. Our efforts continue to be focused on delivering these over the months ahead.

Martin Moore
Chairman

Performance Summary

	Half year ended 30 June 2019
Total Returns for the period *
Net asset value per share	(0.4)%
Ordinary Share price	(8.0)%
Portfolio	0.5%
MSCI UK Quarterly Property Universe	0.9%
FTSE All-Share Index	13.0%
	Half year ended 30 June 2019	Year ended 31 December 2018	% change
Capital Values
Total assets less current liabilities (£’000)	1,400,346	1,427,310	(1.9)
Net asset value per share	136.3p	139.8p	(2.5)
Ordinary Share price	111.8p	124.6p	(10.3)
FTSE All-Share Index	4,056.88	3,675.06	10.4
Discount to net asset value per share*	(18.0)%	(10.9)%
Net Gearing *	20.4%	21.2%
	Half year ended 30 June 2019	Half year ended 30 June 2018
Earnings and Dividends
Earnings per Ordinary Share	(0.4)p	5.0p
Dividends per Ordinary Share	3.0p	3.0p
Annualised dividend yield *	5.4%	4.0%
Sources: BMO Investment Business, MSCI Inc and Refinitiv Eikon * See Alternative Performance Measures

Managers’ Review

Property highlights over the period

• Six-month total return of 0.5 per cent versus the MSCI UK Quarterly Property Universe (‘MSCI’) return of 0.9 per cent.
• Completed the sales of Thames Valley Park 1 & 2 and Watchmoor Park Building A, as part of the strategic office sales programme.
• Signed new lease agreements to Lidl and Hobbycraft at Newbury Retail Park and made good progress in attracting new retailers to both Newbury and Solihull retail parks.
• Completed the lease to Shore Capital who took the 4th and 5th floors at Cassini House, London SW1.

Property Market Review

The market total return for the six months to 30 June 2019, as measured by the MSCI UK Quarterly Property Universe (‘MSCI’) was 0.9 per cent. Returns, although positive, are moderating, with capital values falling by 1.3 per cent and income returns of 2.2 per cent. Rental growth was -0.2 per cent at the all-property level, although the fall was largely attributable to problems in the retail market, where rents fell by 1.9 per cent.

Performance was led by a 3.4 per cent total return for industrials. Alternatives (such as hotels and student accommodation) delivered 2.6 per cent, with offices returning 2.1 per cent and retail the weakest sector at -2.4 per cent.

Key Benchmark Metrics – All Property
	Jan-June 2019	Jan-June 2018
Total Returns	0.9	3.7
Income Return	2.2	2.2
Capital Return	(1.3)	1.5
Open Market Rental Value Growth	(0.2)	0.5
Initial Yield	4.6	4.5
Equivalent Yield	5.5	5.5

Source: MSCI Inc

The UK economy saw modest growth over the period. Monetary policy and interest rates were unchanged although gilt yields continued to fall, finishing the period below 1.0 per cent. Investor sentiment was affected by growing political uncertainty involving the lack of agreement in Brexit negotiations, which looks set to continue as we enter the autumn. The weakening in global growth prospects and the advance of protectionism globally are also areas of concern. This uncertainty has caused a sharp drop in investment activity across all sectors. Net investment from overseas buyers was still positive, demonstrating the continued attraction of UK commercial real estate. Local authorities were also net purchasers of property, whilst institutions were marginal net sellers during the period, as were listed and unlisted property companies.

CBRE market data showed yields moving higher across most parts of the retail market, with office and industrial yields broadly stable. There was some yield compression in the alternatives space, notably for student accommodation, and for properties secured on long leases with inflation linked uplifts, where investor appetite remains strong. The all-property initial yield moved higher during the period, leading to some widening in the yield gap between property and ten-year gilts. Property, measured on this basis, looks fairly priced in relation to the average margin over the longer-term.

The occupational market has been less affected, but not immune, to the political and economic climate. Offices saw 0.5 per cent rental growth and industrials 1.4 per cent in the six-month period. Occupier most affected appear to be large multi-national corporates with pan-European presence who are generally waiting until after Brexit before making any long-term strategic decisions.

The structural problems and challenges in the retail sector have continued. Although central London shops delivered a positive total return, performance has slipped compared with the same period a year ago. Most other parts of the retail market recorded a negative total return, with shopping centres and retail warehousing being particularly weak. The central London office market has remained resilient despite Brexit uncertainty, with higher than average occupancy rates and continued rental growth. Overall, property performance was driven by the strength in the industrials market with both distribution warehousing and standard industrials outperforming the all-property average.

Valuation and Portfolio

Total Portfolio Performance
	30 June 2019	Year ended 31 December 2018
No of properties	36	38
Valuation (£’000)	1,383,125	1,430,190
Average Lot Size (£’m)	38.4	37.6
Six months to 30 June 2019	Portfolio (%)	MSCI (%)
Portfolio Capital Return*	(1.7)	(1.3)
Portfolio Income Return*	2.1	2.2
Portfolio Total Return*	0.5	0.9

Source: BMO REP Asset Management plc, MSCI Inc

* See Alternative Performance Measures

The total return from the portfolio over the period was 0.5 per cent compared with the MSCI return of 0.9 per cent. The Company’s underperformance at portfolio level over the period has been driven by valuation movements of the two large retail warehouse parks, with the valuation of Newbury falling by 10.2 per cent and Solihull falling by 2.2 per cent. Despite the challenges faced in the sector the portfolio’s retail total return outperformed MSCI which was helped by the fact that the Company doesn’t hold any shopping centres which was the weakest performing retail sub-sector.

The office portfolio also outperformed MSCI with a 2.3 per cent total return versus 2.1 per cent, although industrials were lower at 1.3 per cent versus 3.4 per cent, predominantly owing to a relatively quiet period of asset management.

Geographical Analysis (% of total property portfolio)
	30 June 2019 (%)
South East	21.6
London – West End	36.0
Eastern	2.2
Midlands	11.9
Scotland	12.6
North West	11.8
Rest of London	1.5
South West	2.4

Source: BMO REP Asset Management plc

Sector Analysis (% of total property portfolio)
	30 June 2019 (%)
Offices	39.5
Retail	22.4
Retail Warehouses	10.6
Industrial	18.2
Alternative	9.3

Source: BMO REP Asset Management plc

Income Analysis

The portfolio continues to benefit from a resilient and secure income stream.  We have reduced the void rate to 5.0 per cent (31 December 2018: 8.5 per cent) through a combination of asset management initiatives, such as the letting of two floors at Cassini House, London and the sale of non-core assets which were largely vacant. Other opportunities are in hand to reduce the void level further.

Lease Expiry Profile
At 30 June 2019 the weighted average lease length for the portfolio, assuming all break options are exercised, was 6.8 years
% of leases expiring (weighted by rental value)	30 June 2019 (%)	31 December 2018 (%)
0 – 5 years	45.8	44.4
5 – 10 years	33.5	30.2
10 – 15 years	14.9	17.1
15 – 25 years	5.8	8.3

Source: BMO REP Asset Management plc

Covenant Strength (% of income by risk bands)
	30 June 2019 (%)
Unscored and ineligible	6.0
Maximum	9.9
High	1.7
Medium to High	3.1
Low to Medium	2.0
Low	18.2
Negligible and Government	59.1

Source: IRIS Report, MSCI Inc

Retail

It has been a busy period for the Company with a number of significant retail leases either completed or in negotiation. The challenges faced by UK retailers have been well documented and the Company experienced a concentrated period of defaults or Company Voluntary Arrangements (CVAs) on its two large retail parks (Newbury and Solihull) during the middle part of 2018.

Newbury

We have recently completed an important letting on the retail park to Lidl, who signed an agreement for a 25-year lease with CPI linked reviews (break at year 20) at a rent equating to £23.00 per square foot to occupy the majority of the former Homebase unit. Landlord works have commenced, and Lidl are expected to open for trade in early 2020. This follows the letting to Hobbycraft at Unit 8A (£215,578 per annum for 10 years) replacing Poundworld, who went into administration last year. We are also close to exchanging an agreement with another large retailer to occupy part of the former Mothercare store. These lettings demonstrate the resilience of the park and its attractiveness to retailers and shoppers alike. There remain two small units to let at the park and we hope to put these under offer shortly. 

Solihull

We are now under offer to a major UK retailer to occupy the former Homebase store and hope to exchange a conditional agreement for lease shortly. The store was vacated in February 2019 and will require significant capital-investment in return for a long lease commitment. The new store will be transformational for the park and, like Newbury, demonstrates that quality assets can still attract desirable retailers for whom physical real estate remains a key part of their long-term sales strategy. 

St Christopher’s Place

We believe that the long-term future of physical retail lies in experience led “destination” retailing, be that food and beverage (F&B) or traditional retailing. This is core to the strategy for St Christopher’s Place, which is the principal F&B destination for the area around the Bond Street/Oxford Street interchange.

Our asset management strategy for the mixed-use estate continues to deliver income growth through refurbishment, selective re-lettings, and the enhancement of the F&B offer on James Street. The residential element of the estate remains well occupied and progress has been made in letting recently refurbished office space, most notably to Leica Camera Ltd at 6-8 James Street on a 10-year lease.

We have recently exchanged a lease to steak restaurant Flat Iron at 42-44 James Street, starting at £240,000 per annum on a 15-year lease. This follows the lettings to Harry’s Bar, Patty & Bun and Bone Daddies which have proved popular since opening.

The estate remains a continuing source of asset management opportunity to protect and enhance income. 

There are five initiatives in progress or recently completed, with a further six that could be pursued over the next 12-24 months; a number of these requiring planning permission and redevelopment. We are carefully managing the timing of projects to ensure they are delivered to market at the optimum time to capture the most attractive lease terms possible. We are supportive of the ongoing works being considered by the New West End Company to enhance the pedestrian experience on and surrounding Oxford Street and are optimistic about the benefits following the opening of the Bond Street Elizabeth Line station (Crossrail), currently scheduled for late 2020 / early 2021.

Office

There has been progress and success with the strategic sales program to dispose of non-income producing assets with challenging re-letting prospects.  The largest of these, Thames Valley Park One and Thames Valley Park Two, exchanged in December 2018 and completed in January 2019 at a combined sale price of £24.5 million. This sale alone removed 103,900 sq. ft. of vacant office space from the portfolio, which would have required around £8 million of reinvestment to undertake refurbishment. We prefer to focus capital expenditure on opportunities that provide greater prospects of success for the Company. In April, Building A, Watchmoor Park, Camberley, sold for a net price of £3.94 million following the sale of Building B last year.

In March, two more floors at the recently refurbished Cassini House, London SW1 were let. Shore Capital took the 4^th and 5^th floors at a headline rent of £105 per sq. ft. for 10 years (with a tenant break option at the end of year 5). The letting was in line with the valuers estimated rental value (ERV) and has had an accretive impact on valuation. There is a strong level of occupier interest in the remaining un-let floor and this will complete the leasing program for the asset.

We have signed two new tenants at Building C, Watchmoor Park in Camberley in advance of Novartis vacating the building in 2020. The new rents achieved are at a headline of £22.50 per sq. ft., reflecting a significant uplift from the current passing rent of £14.00 per sq. ft. At Edinburgh Park, Diageo have now taken possession of their new Scottish headquarters at Ness & Nevis House following a significant £6.5m refurbishment by the Company. Diageo are currently fitting out their offices and aim to start operating from the building in November 2019 on a 16-year lease (break at year 10) at a rent of £21.00 per square foot. Over the summer, we have also let two further floors at 7 Birchin Lane, EC3, where all office accommodation is now fully occupied at the time of writing. The 5-yearly rent reviews of all properties at Prime Four in Aberdeen have completed at 3 per cent per annum compounded.

Industrial & logistics

The Company’s industrial portfolio is characterised by secure single-let logistics assets. Owing to the stable nature of the income, no major lease events occurred over the period.

Last year we acquired Hurricane 47, Estuary Business Park, Liverpool (a 47,500 sq. ft. logistics unit) for £3.995 million and are in advance discussions with a number of potential occupiers at rents that exceed the original underwrite. The purchase also included an adjoining 3.6-acre site for £1.080 million with the Company entering into an agreement to fund a second warehouse for an additional sum of £3.382 million. Works are likely to start on this in the second half of 2019 with completion in 2020.

The industrial market continues to see solid rental growth for existing quality assets and this was demonstrated by the recent rent review to Syncreon at 6A Hams Hall, which we settled at £6.25 per sq. ft. reflecting a notable uplift from the previous passing rent of £5.57 per sq. ft.

In July 2019, we successfully completed the sale of phase 1 of the former Ozalid Works site in Colchester to Persimmon Homes which had been conditional upon them securing a revised planning consent and agreeing the ‘Section 106’ obligations. The sale of phase 2 will now complete in July 2020, exactly 12 months after the sale of phase 1, which is an excellent result for the Company, allowing us to dispose of an obsolete light-industrial park for above valuation. We can now focus our resources on the neighbouring Cowdray Centre Trade Park, where we have recently submitted a planning application to construct a new terrace of trade units.

Alternative property sector

Following the re-classification of sector weightings at the end of 2018 (as highlighted in the 2018 Annual Report) the Company’s weighting to alternatives is c. 9 per cent. The Company’s exposure relates to the purpose-built student accommodation block in Winchester, the residential properties within St Christopher’s Place, and the leisure units at Wimbledon Broadway, which comprise an Odeon Cinema and Nuffield Health gym. The student accommodation block continues to perform well, driven by the annual RPI-linked rent reviews.

Outlook

Investment volumes have fallen by almost 50 per cent in the first half of 2019 compared to the same period last year, following the uncertainty that crept in at the end of 2018. The second half of 2019 looks set to be dominated by the potential economic and political ramifications surrounding Brexit as well as the nervousness around retail assets. Retail values have fallen steadily over the past three quarters, and we expect this to continue throughout 2019 and 2020 as rents are rebased, yields find their new longer-term discounts and occupier woes continue for many. The rise of the CVA has had a lasting effect on the risk adjusted returns required from retail assets and unless the Insolvency Act revises how CVA’s can be applied this is unlikely to change. Therefore, the importance of quality core assets cannot be underestimated.

Despite the drop off in activity, values in all sectors except for retail have held up relatively well, particularly at the prime end of the market. Yields for secondary and tertiary assets have moved out marginally after the highly bullish market of early 2018.

There may be a ‘bounce’ in investment and letting activity following Brexit, but values are likely to remain high compared to long-term levels and we consider it unlikely for pricing to increase significantly. Lending remains constrained the expected pressure on commercial property yields from future increases in interest rates is likely to curtail any medium-term capital growth.

UK commercial real estate is expected to produce positive returns, but the performance will remain muted in the short to medium term compared to long-term values and retail will be a notable drag. Despite this, UK commercial property will likely continue to offer an attractive level of income and the opportunities offered by demographic and technological change will increase in significance as the economy adapts to the post-Brexit world.

The Company continues to look at quality assets in the industrial, alternative and regional office sectors and remains focused on long-term value creation but will remain highly selective until we see better value in the market. The current uncertain economic and political climate serves to reinforce the Manager’s strategy of investing resource and capital into the existing assets; to protect, enhance and sustain income for the longer term. We have enjoyed recent successes with many more opportunities to pursue over the coming months.

Richard Kirby and Matthew Howard
Fund Managers
BMO REP Asset Management plc

Responsible Property Investment
Highlights for the period to 30 June 2019

The Company has continued to advance the implementation of its Responsible Property Investment (‘RPI’) Strategy over the period with material progress being made in a number of key areas.

• Achieved an overall score of 68 in the 2019 GRESB (Global Real Estate Sustainability Benchmark) survey, the 21-point improvement representing a 44.7% increase over the previous year’s count and enabling the Company to obtain two green star status.

• Compared with the six-month period to 30 June 2018, the Company has realised:
  • a 0.4% reduction in like-for-like energy consumption
  • a 14.7% reduction in absolute energy consumption
  • a 5.7% like-for-like reduction in carbon emissions
  • a 20% absolute reduction in carbon emissions
  • a 6kWhe/m2 reduction in energy intensity
  • a 1% reduction in like-for-like water consumption
  • an 11% reduction in absolute water consumption
  • a 0.04m3/m2 reduction in water intensity  

• Launched a major exercise to assess the exposure of the portfolio to physical climate risks through scenario-based analysis.   

• The Company attained an A rating in the GRESB Public Disclosure assessment representing the highest level of transparency for disclosure of ESG related information.

• Following submission to the minimum tier of the CDP climate change module in 2018, the Company submitted to the full tier in 2019 and expects to receive a rating by the end of this calendar year.

A considerable degree of reduction in absolute energy consumption and associated carbon emissions has been realised through the disposal of several property assets. In contrast, the reduction in like-for-like energy consumption has been tempered by increased demand driven by key property refurbishments undertaken by the Company, as well as increased demands on landlord central services from occupiers scaling up operations following occupation. Against a 2016 baseline the reduction in like-for-like energy intensity currently equates to 14%. The Company’s Property Manager continues its efforts to identify and implement further energy efficiency opportunities across its directly managed properties. Water consumption reduction and the collection and finessing of waste data remain on target.  

The distribution of Energy Performance Certificate (EPC) ratings remains broadly unchanged across the portfolio taking certificate expiry and renewal into account. The number of ‘C’ rated demises has fallen due to property sales. Using the desktop flood risk assessments undertaken in 2018, the overall flood risk profile of the portfolio has marginally improved on account of property disposals.

The Company continues to monitor its tenant mix as part of its commitment to minimising leasing exposure to organisations connected to the production, storage, distribution or use of Controversial Weapons*. At the period ending 30 June 2019 zero per cent of rental income was attributable to organisations that appear on the exclusion lists managed by BMO Global Asset Management.

* Including cluster munitions, anti-personnel mines and biochemical weapons as covered by the 1972 Biological and Toxic Weapons Convention, the 1997 Chemical Weapons Convention, the 1999 Anti-Personnel Mine Ban Convention, and the 2008 Convention on Cluster Munitions

BMO Commercial Property Trust Limited

Condensed Consolidated Statement of Comprehensive Income (unaudited)
for the six months to 30 June 2019

Notes		Six months	Six months	Year to
		to 30 June	to 30 June	31 December
		2019	2018	2018*
		£‘000	£‘000	£‘000
Revenue
Rental income		31,938	32,638	64,903
Other income		-	-	1,483
Total revenue		31,938	32,638	66,386
Gains / (losses) on investments properties
Unrealised (losses)/gains on revaluation of investment properties	5	(22,593)	20,971	(6,171)
(Loss)/gain on sale of investment properties realised	5	(316)	-	2,613
Total income		9,029	53,609	62,828
Expenditure
Investment management fee		(3,716)	(3,876)	(7,823)
Other expenses	3	(3,214)	(3,461)	(6,191)
Total expenditure		(6,930)	(7,337)	(14,014)
Operating profit before finance costs and taxation		2,099	46,272	48,814
Net finance costs
Interest receivable		1	6	6
Finance costs		(5,445)	(5,450)	(10,912)
		(5,444)	(5,444)	(10,906)
(Loss) / profit before taxation		(3,345)	40,828	37,908
Taxation		17	(871)	(1,510)
(Loss) / profit for the period		(3,328)	39,957	36,398
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss
Movement in fair value of effective interest rate swap		(350)	315	362
Total comprehensive income for the period		(3,678)	40,272	36,760
Basic and diluted earnings per share	4	(0.4)p	5.0p	4.6p

All of the profit and total comprehensive income for the period is attributable to the owners of the Group.

All items in the above statement derive from continuing operations.

* These figures are audited.

BMO Commercial Property Trust Limited

Condensed Consolidated Balance Sheet (unaudited)
as at 30 June 2019

	Notes	30 June 2019 £’000	30 June 2018 £’000	31 Dec 2018* £’000
Non-current assets
Investment properties	5	1,361,685	1,429,277	1,384,856
Trade and other receivables		20,204	19,394	19,344
Interest rate swap		-	55	102
		1,381,889	1,448,726	1,404,302
Current assets
Investment properties held for sale		-	-	23,562
Trade and other receivables		5,979	5,067	6,630
Cash and cash equivalents		29,954	19,933	10,127
		35,933	25,000	40,319
Total assets		1,417,822	1,473,726	1,444,621
Current liabilities
Trade and other payables		(17,389)	(17,608)	(16,282)
Taxation payable		(87)	(1,384)	(1,029)
		(17,476)	(18,992)	(17,311)
Non-current liabilities
Trade and other payables		(2,118)	(1,947)	(1,847)
Interest-bearing loans		(308,191)	(307,846)	(308,015)
Interest rate swap		(248)	-	-
		(310,557)	(309,793)	(309,862)
Total liabilities		(328,033)	(328,785)	(327,173)
Net assets		1,089,789	1,144,941	1,117,448
Represented by:
Share capital	6	7,994	7,994	7,994
Special reserves		589,593	589,593	589,593
Capital reserves		389,036	436,474	411,945
Hedging reserve		(248)	55	102
Revenue reserve		103,414	110,825	107,814
Equity shareholders’ funds		1,089,789	1,144,941	1,117,448
Net asset value per share	7	136.3p	143.2p	139.8p

* These figures are audited.

BMO Commercial Property Trust Limited

Condensed Consolidated Statement of Changes in Equity (unaudited)
for the six months to 30 June 2019

		Share Capital £’000	Special Reserves £’000	Capital Reserves £’000	Hedging Reserve £’000	Revenue Reserve £’000	Total £’000
	Notes
At 1 January 2019		7,994	589,593	411,945	102	107,814	1,117,448
Total comprehensive income for the period
Loss for the period		-	-	-	-	(3,328)	(3,328)
Movement in fair value of interest rate swap					(350)		(350)
Transfer in respect of unrealised losses on investment properties	5			(22,593)		22,593
Loss on sale of investment properties realised	5			(316)		316
Total comprehensive income for the period		-	-	(22,909)	(350)	19,581	(3,678)
Transactions with owners of the Company recognised directly in equity
Dividends paid	2	-	-	-	-	(23,981)	(23,981)
At 30 June 2019		7,994	589,593	389,036	(248)	103,414	1,089,789

BMO Commercial Property Trust Limited

Condensed Consolidated Statement of Changes in Equity (unaudited)

for the six months to 30 June 2018

		Share Capital £’000	Special Reserves £’000	Capital Reserves £’000	Hedging Reserve £’000	Revenue Reserve £’000	Total £’000
	Notes
At 1 January 2018		7,994	589,593	415,503	(260)	115,820	1,128,650
Total comprehensive income for the period
Profit for the period		-	-	-	-	39,957	39,957
Movement in fair value of interest rate swap					315		315
Transfer in respect of unrealised gains on investment properties	5			20,971		(20,971)
Total comprehensive income for the period		-	-	20,971	315	18,986	40,272
Transactions with owners of the Company recognised directly in equity
Dividends paid	2	-	-	-	-	(23,981)	(23,981)
At 30 June 2018		7,994	589,593	436,474	55	110,825	1,144,941

BMO Commercial Property Trust Limited

Condensed Consolidated Statement of Changes in Equity
for the year to 31 December 2018*

		Share Capital £’000	Special Reserves £’000	Capital Reserves £’000	Hedging Reserve £’000	Revenue Reserve £’000	Total £’000
	Notes
At 1 January 2018		7,994	589,593	415,503	(260)	115,820	1,128,650
Total comprehensive income for the year
Profit for the year		-	-	-	-	36,398	36,398
Movement in fair value of interest rate swaps					362		362
Transfer in respect of unrealised losses on investment properties	5			(6,171)		6,171
Gains on sale of investment properties realised	5			2,613		(2,613)
Total comprehensive income for the year				(3,558)	362	39,956	36,760
Transactions with owners of the Company recognised directly in equity
Dividends paid	2	-	-	-	-	(47,962)	(47,962)
At 31 December 2018		7,994	589,593	411,945	102	107,814	1,117,448

* These figures are audited.

BMO Commercial Property Trust Limited

Condensed Consolidated Statement of Cash Flows (unaudited)
for the six months to 30 June 2019

Notes		Six months to 30 June 2019	Six months to 30 June 2018	Year to 31 December  2018*
		£’000	£’000	£’000
Cash flows from operating activities
(Loss)/profit for the period before taxation		(3,345)	40,828	37,908
Adjustments for:
Finance costs		5,445	5,450	10,912
Interest receivable		(1)	(6)	(6)
Unrealised losses/(gains) on revaluation of investment properties	5	22,593	(20,971)	6,171
Losses/(gains) on sale of investment properties realised		316	-	(2,613)
Increase in operating trade and other receivables		(260)	(490)	(2,054)
Decrease/(increase) in operating trade and other payables		1,393	(872)	(2,317)
Cash generated from operations		26,141	23,939	48,001
Interest received		1	6	6
Interest and bank fees paid		(5,320)	(5,303)	(10,551)
Taxation paid		(918)	(227)	(1,220)
		(6,237)	(5,524)	(11,765)
Net cash inflow from operating activities		19,904	18,415	36,236
Cash flows from investing activities
Sale of investment properties	5	28,440	-	5,100
Purchase of investment properties	5	-	(5,777)	(5,754)
Capital expenditure of investment properties	5	(4,536)	(3,880)	(12,649)
Net cash inflow/(outflow) from investing activities		23,904	(9,657)	(13,303)
Cash flows from financing activities
Dividends paid	2	(23,981)	(23,981)	(47,962)
Net cash outflow from financing activities		(23,981)	(23,981)	(47,962)
Net increase/(decrease) in cash and cash equivalents		19,827	(15,223)	(25,029)
Opening cash and cash equivalents		10,127	35,156	35,156
Closing cash and cash equivalents		29,954	19,933	10,127

* These figures are audited

BMO Commercial Property Trust Limited

Notes to the Consolidated Financial Statements
for the six months to 30 June 2019

1.        General information and basis of preparation

The condensed consolidated financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom Financial Conduct Authority and IAS 34 ‘Interim Financial Reporting’. The condensed consolidated financial statements do not include all of the information required for a complete set of IFRS financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2018, which were prepared under full IFRS as adopted by the European Union requirements. The accounting policies used in the preparation of the condensed consolidated financial statements are consistent with those of the consolidated financial statements of the Group for the year ended 31 December 2018. The Group’s entry to UK REIT Regime was effective from 3 June 2019. The Group’s rental profits arising from both income and capital gains are exempt from UK corporation tax from that date, subject to the Group’s continuing compliance with the UK REIT rules. These condensed interim financial statements have been reviewed, not audited.

                        After making enquiries, and bearing in mind the nature of the Company’s business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the next twelve months. In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. They have considered the current cash position of the Group, forecast rental income and other forecast cash flows. The Group has agreements relating to its borrowing facilities with which it has complied during the period. Based on the information the Directors believe that the Group has the ability to meet its financial obligations as they fall due for the foreseeable future, which is considered to be for a period of at least twelve months from the date of approval of the accounts. For this reason they continue to adopt the going concern basis in preparing the accounts.

                        These condensed interim financial statements were approved for issue on 16 September 2019.

2.         Dividends

		Six months to 30 June 2019	Six months to 30 June 2018	Year to 31 December 2018
		£’000	£’000	£’000
	In respect of the previous period:
	Ninth interim (0.5p per share)	3,997	3,997	3,997
	Tenth interim (0.5p per share)	3,997	3,997	3,997
	Eleventh interim (0.5p per share)	3,996	3,996	3,996
	Twelfth interim (0.5p per share)	3,997	3,997	3,997
	In respect of the period under review:
	First interim (0.5p per share)	3,997	3,997	3,997
	Second interim (0.5p per share)	3,997	3,997	3,997
	Third interim (0.5p per share)	-	-	3,996
	Fourth interim (0.5p per share)	-	-	3,997
	Fifth interim (0.5p per share)	-	-	3,997
	Sixth interim (0.5p per share)	-	-	3,997
	Seventh interim (0.5p per share)	-	-	3,997
	Eighth interim (0.5p per share)	-	-	3,997
		23,981	23,981	47,962

A third interim dividend for the year to 31 December 2019, of 0.5 pence per share totalling £3,997,000 was paid on 31 July 2019. A fourth interim dividend of 0.5 pence per share was paid on 30 August 2019 to shareholders on the register on 9 August 2019. A fifth interim dividend of 0.5 pence per share will be paid on 30 September 2019 to shareholders on the register on 13 September 2019. Although these payments relate to the period ended 30 June 2019, under IFRS they will be accounted for in the period during which they are declared.

Barring unforeseen circumstances, it is the Directors’ intention that the Company will continue to pay dividends monthly.

3.         Other expenses

		Six months to 30 June 2019	Six months to 30 June 2018	Year to 31 December 2018
		£’000	£’000	£’000
	Direct operating expenses of rental property	2,114	2,069	4,017
	Surrender premium	-	613	613
	Valuation and other professional fees	243	207	399
	Professional fees for REIT conversion	314	-	-
	Directors’ fees	166	145	302
	Administration fee	76	74	151
	Depositary fee	80	86	172
	Other	221	267	537
		3,214	3,461	6,191

The basis of payment for the Directors’ and investment management fees are detailed within the consolidated financial statements of the Group for the year ended 31 December 2018.

4.         Earnings per share

The Group’s basic and diluted earnings per Ordinary Share are based on the loss for the period of £3,328,000 (period to 30 June 2018: profit £39,957,000; 31 December 2018: profit £36,398,000) and on 799,366,108 (period to 30 June 2018: 799,366,108; 31 December 2018: 799,366,108) Ordinary Shares, being the weighted average number of shares in issue during the period. Earnings for the six months to 30 June 2019 should not be taken as guide to the results for the year to 31 December 2019.

5.          Investment properties

	Six months to 30 June 2019	Six months to 30 June 2018	Year to 31 December 2018
Non-current assets – Investment properties	£’000	£’000	£’000
Freehold and leasehold properties
Opening fair value	1,384,856	1,398,894	1,398,894
Sales – proceeds	(3,940)	-	(5,100)
- loss on sale	(4,705)	-	(5,355)
Capital expenditure	4,616	3,880	12,649
Purchase of investment properties	-	5,532	5,533
Unrealised losses realised during the period	3,451	-	7,968
Unrealised gains on investment properties	7,254	31,353	37,468
Unrealised losses on investment properties	(29,847)	(10,382)	(43,639)
Transfer to asset classified as held for sale	-	-	(23,562)
Closing fair value	1,361,685	1,429,277	1,384,856
Historic cost at the end of the period	947,145	999,866	951,155
Current assets – Investment properties held for sale
Freehold properties
Opening fair value	23,562	-	-
Sales – proceeds	(24,500)	-	-
- loss on sale	(22,507)	-	-
Unrealised losses realised during the period	23,445	-	-
Closing fair value	-	-	23,562
Historic cost at the end of the period	-	-	47,026

	Six months to 30 June 2019	Six months to 30 June 2018	Year to 31 December 2018
	£’000	£’000	£’000
Losses on sale	(27,212)	-	(5,355)
Unrealised losses realised during the period	26,896	-	7,968
(Losses) / gains on sales of investment properties realised	(316)	-	2,613

The fair value of investment properties reconciled to the appraised value as follows:

	Six months to 30 June 2019	Six months to 30 June 2018	Year to 31 December 2018
	£’000	£’000	£’000
Appraised value prepared by CBRE excluding asset classified as held for sale	1,383,125	1,450,035	1,405,790
Lease incentives held as debtors	(21,440)	(20,758)	(20,934)
Closing fair value	1,361,685	1,429,277	1,384,856

The assets classified as held for sale reconciled to the appraised value as follows:

	Six months to 30 June 2019	Six months to 30 June 2018	Year to 31 December 2018
	£’000	£’000	£’000
Appraised value prepared by CBRE of asset classified as held for sale	-		24,400
Lease incentives held as debtors	-	-	(538)
Selling costs of assets held for sale	-	-	(300)
Closing fair value	-	-	23,562

There were no properties held for sale at 30 June 2019 (2018: 2 properties).

All the Group’s investment properties were valued as at 30 June 2019 by RICS Registered Valuers working for CBRE Limited (‘CBRE’), commercial real estate advisors, acting in the capacity of a valuation adviser to the AIFM. All such valuers are Chartered Surveyors, being members of the Royal Institution of Chartered Surveyors (‘RICS’).

CBRE completed the valuation of the Group’s investment properties at 30 June 2019 on a fair value basis and in accordance with The RICS Valuation – Global Standards 2017.

There were no significant changes to the valuation process, assumptions and techniques used during the period, further details on which were included in note 9 of the consolidated financial statements of the Group for the year ended 31 December 2018.

As at 30 June 2019, all of the Group’s properties are Level 3 in the fair value hierarchy as it involves the use of significant unobservable inputs and there were no transfers between levels during the period. Level 3 inputs used in valuing the properties are those which are unobservable, as opposed to Level 1 (inputs from quoted prices) and Level 2 (observable inputs either directly i.e. as priced, or indirectly, i.e. derived from prices).

6.         Share capital

			£’000
Allocated, called-up and fully paid
799,366,108 Ordinary Shares of 1p each in issue at 30 June 2019			7,994

Under the Company’s Articles of Incorporation, the Company may issue an unlimited number of Ordinary Shares. The Company issued nil Ordinary Shares during the period (2018: nil) raising net proceeds of £nil (2018: £nil).

The Company did not repurchase any Ordinary Shares during the period.

7.         Net asset value per share

The Group’s net asset value per Ordinary Share of 136.3p (30 June 2018: 143.2p; 31 December 2018: 139.8p) is based on equity shareholders’ funds of £1,089,789,000 (30 June 2018: £1,144,941,000; 31 December 2018: £1,117,448,000) and on 799,366,108 (30 June 2018: 799,366,108; 31 December 2018: 799,366,108) Ordinary Shares, being the number of shares in issue at the period end.           

8.         Related party transactions

The Directors of the Company received fees for their services and dividends from their shareholdings in the Company. No fees remained payable at the period end.

9.         Capital commitments

The Group had capital commitments totalling £2,400,000 as at 30 June 2019 (30 June 2018: £10,300,000; 31 December 2018: £3,600,000). These commitments related mainly to contracted development works at the Group’s properties at Cassini House, London SW1 and Nevis/Ness Houses, Edinburgh.

10.        List of Subsidiaries

            The Group results consolidate the results of the following companies:

-           FCPT Holdings Limited (the parent company of F&C Commercial Property Holdings Limited and Winchester Burma Limited)

-           F&C Commercial Property Holdings Limited (a company which invests in properties)

-           SCP Estate Holdings Limited (the parent company of SCP Estate Limited and Prime Four Limited)

-           SCP Estate Limited (a company which invests in properties)

-           Prime Four Limited (a company which invests in properties)

-           Winchester Burma Limited (a company which invests in properties)

-           Leonardo Crawley Limited (a company which invests in properties)

All of the above named companies are registered in Guernsey.

The Group’s ultimate parent company is BMO Commercial Property Trust Limited.

11.        Subsequent events

On 30 July 2019, the Group completed the sale of phase 1 of the former Ozalid Works site in Colchester to Persimmon Homes for a price of £6.2 million.

12.        Forward looking statements

Certain statements in this report are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. Accordingly, undue reliance should not be placed on forward looking statements.

Statement of Principal Risks and Uncertainties

The Company’s assets comprise mainly of direct investments in UK commercial property. Its principal risks are therefore related to the commercial property market in general. Other risks faced by the Company include market, geopolitical, investment and strategic, regulatory, environmental, taxation, management and control, operational, and financial risks. The Company is also exposed to risks in relation to its financial instruments. These risks, and the way in which they are managed, are described in more detail under the heading ‘Principal Risks and Risk Management’ within the Business Model and Strategy in the Company’s Annual Report for the year ended 31 December 2018. The Company’s principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remainder of the Company’s financial year.

Statement of Directors’ Responsibilities in Respect of the Interim Report

We confirm that to the best of our knowledge:

•           the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by the European Union;

•           the Chairman’s Statement and Managers’ Review (together constituting the Interim Management Report) together with the Statement of Principal Risks and Uncertainties above include a fair review of the information required by the Disclosure and Transparency Rules (‘DTR’) 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements; and

•           the Chairman’s Statement together with the condensed set of consolidated financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board
Martin Moore
Director

BMO Commercial Property Trust Limited

Independent Review Report to BMO Commercial Property Trust Limited

Our conclusion

We have reviewed the accompanying condensed consolidated interim financial information of BMO Commercial Property Trust Limited (the “Company”) and its subsidiaries (together the “Group”) as of 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

What we have reviewed

The accompanying condensed consolidated interim financial information comprise:

•           the condensed consolidated balance sheet as of 30 June 2019;

•           the condensed consolidated statement of comprehensive income for the six-month period then ended;

•           the condensed consolidated statement of changes in equity for the six-month period then ended;

•           the condensed consolidated statement of cash flows for the six-month period then ended; and

•           the notes, comprising a summary of significant accounting policies and other explanatory information.

The condensed consolidated interim financial information has been prepared in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

Our responsibilities and those of the Directors

The Directors are responsible for the preparation and presentation of this condensed consolidated interim financial information in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

Our responsibility is to express a conclusion on this condensed consolidated interim financial information based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of interim financial information performed by the independent auditor of the entity' issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers CI LLP

Chartered Accountants

Guernsey, Channel Islands

Alternative Performance Measures

The Company uses the following Alternative Performance Measures (‘APMs’). APMs do not have a standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other entities. Further details of the APMs methodology are available in the Company’s Annual Report for the year ended 31 December 2018.

Discount or Premium – the share price of an Investment Company is derived from buyers and sellers trading their shares on the stock market. If the share price is lower than the NAV per share, the shares are trading at a discount. This usually indicates that there are more sellers than buyers. Shares trading at a price above the NAV per share, are said to be at a premium.

Dividend Cover – The percentage by which Profits for the year (less gains/losses on investment properties) cover the dividend paid.

A reconciliation of dividend cover is shown below:

			30 June 2019	30 June 2018
			£’000	£’000
(Loss)/profit for the period			(3,328)	39,957
Add back:	Unrealised losses / (gains) on revaluation of investment properties		22,593	(20,971)	(20,971)
	Losses on sales of investment properties realised		316	-	-
Profit before investment gains and losses		(a)	19,581	18,986	18,986
Dividends		(b)	23,981	23,981
Dividend Cover percentage (c = a/b)		(c)	81.7	79.2	79.2

Dividend Yield – The annualised dividend divided by the share price at the period-end. An analysis of dividends is contained in note 2 to the accounts.

Net Gearing – Borrowings less cash dividend by total assets (less current liabilities and cash).

Portfolio (Property) Capital Return – The change in property value during the period after taking account of property purchase and sales and capital expenditure, calculated on a quarterly time-weighted basis.

Portfolio (Property) Income Return – The income derived from a property during the period as a percentage of the property value, taking account of direct property expenditure, calculated on a quarterly time-weighted basis.

Portfolio (Property) Total Return – Combining the Portfolio Capital Return and Portfolio Income Return over the period, calculated on a quarterly time-weighted basis.

Total Return – The theoretical return to shareholders calculated on a per share basis by adding dividends paid in the period to the increase or decrease in the Share Price or NAV. The dividends are assumed to have been reinvested in the form of Ordinary Shares or Net Assets, respectively, on the date on which they were quoted ex-dividend.

All enquiries to:

The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited        
Trafalgar Court  
Les Banques    
St. Peter Port   
Guernsey GY1 3QL       
Tel: [phone]
Fax: [phone]

Richard Kirby
BMO REP Asset Management plc
Tel: [phone]

Graeme Caton
Winterflood Securities Limited
Tel: [phone]
 

The full interim report for the period to 30 June 2019 will be sent to shareholders and will be available for inspection at Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL, the registered office of the Company, and from the Company’s website: www.bmocommercialproperty.com