Trading Update & Net Asset Value

To:  Company Announcements

Date:  16 April 2020

Company:  BMO Commercial Property Trust Limited

LEI:  213800A2B1H4ULF3K397

Subject:  Trading update

Background

The COVID-19 pandemic is having a dramatic effect on all of us. The purpose of this update is to explain how BMO Commercial Property Trust Limited (“the Group”) is being affected and the actions that are being taken to respond. Our priorities at this challenging time are the wellbeing of everyone working at the Investment Manager and involved with the Group, our ability to provide support to our tenants where it is most needed and preserving the financial strength of the Group for shareholders.

Operations

As we continue to monitor ongoing developments regarding the outbreak of COVID-19, both the Board and the Manager are taking every precaution to safeguard the health and wellbeing of staff, occupiers and stakeholders. The Manager has robust business continuity plans to ensure it can maintain operations in these challenging times. Although a work from home policy has been introduced across all geographies the asset and property managers are in regular contact with tenants, providing support where felt necessary. They are also ensuring that essential services are maintained across the portfolio.

The Manager will provide assistance regarding concessions or the future phasing of rent where appropriate. They are also focused on reducing operational costs and service charges where they can. Our hope is that our support, in addition to that already announced by the Government, will help place our tenants in a position to resume normal operations as swiftly as possible when conditions allow.

Net Asset Value

The unaudited net asset value (‘NAV’) per share of the Group as at 31 March 2020 was 124.3 pence. This represents a decrease of 5.0 per cent from the audited NAV per share as at 31 December 2019 of 130.9 pence and a NAV total return for the quarter of -3.9 per cent.

The NAV has been calculated under International Financial Reporting Standards (‘IFRS’). It is based on the external valuation of the Group’s direct property portfolio prepared by CBRE Limited. The valuation certificate includes a ‘material uncertainty’ clause in-line with RICS guidance.

The NAV includes all income to 31 March 2020 and is calculated after deduction of all dividends paid prior to that date. The EPRA NAV as at 31 March 2020, which is adjusted to remove the fair value of the interest rate swap was 124.4 pence. Further analysis of the movement in the NAV and portfolio details are included at the end of this statement.

Share Price

The share price was 74.5 pence per share at 31 March 2020, which represented a discount of 40.1 per cent to the NAV per share announced above. The share price total return for the quarter was -34.6 per cent.

Developments

Construction work at Newbury Retail Park is still ongoing, in accordance with the Government’s guidelines, with the contractor having taken the decision to continue. It is the intention to hand the unit over to Lidl by the end of April 2020.

Projects at St Christopher’s Place and Solihull Retail Park have been suspended. Currently our modelling assumes capital expenditure is pushed back by one quarter, but this may need to be extended.

Uncommitted capital expenditure will be deferred for the time being.

Rent Collection

During March, we witnessed many restrictions being put in place which resulted in closures for many of our retail, restaurant and leisure tenants. Although the impact of COVID-19 will be felt everywhere, rent collection from our London based retail and leisure properties is particularly difficult.

The Group has billed c.£9m of its quarter 2 rent due on 25 March and has collected 74 per cent of this amount to date (compared to 96 per cent for the same period last year). The total quarterly rent amounts to c.£16 million and a high proportion of the balance relates to rent at St. Christopher’s Place, not scheduled to be billed until 21 April. Based on dialogue with tenants at St. Christopher’s Place we would expect the overall percentage collected across the portfolio for quarter 2 to drop. We also suspect the quarter 3 rent collection commencing in June will be equally challenging.

Lease activity

During the quarter, we have let the sixth floor to Mitsui Fudosan at Cassini House, London on a new 10-year lease (break at year 5) at a rent of £106 per sq. ft. This letting completes the major refurbishment project, which commenced in early 2018 at a total cost in excess of £9 million, and which has resulted in significant valuation uplifts. Cassini House is a prime freehold office building of exceptional quality in a core St. James’ location with an attractive lease profile.

Cash and Borrowings

The Group has approximately £20 million of available cash and an undrawn revolving credit facility of £50 million. The Group's long-term debt with L&G and loan facility with Barclays do not need to be refinanced until December 2024 and June 2021 respectively. As at 31 March 2020, the Group’s loan to value (‘LTV’) was 22.6 per cent.

The Group continues to comfortably meet its covenants on the £260 million long-term loan with L&G at the current time.

There is also significant headroom on the loan to value covenant of the £50 million loan facility with Barclays, which relates to the St Christopher’s Place assets. Although the Group is not currently in breach, the interest cover test is expected to become more challenging. This particular covenant test has been discussed with Barclays, who are sympathetic given current events, and they have confirmed that they are prepared to support the business through this uncertain period.

Dividend

On 4 March 2020, the Company announced its monthly dividend payment of 0.5 pence per ordinary share in respect of the financial year ended 31 December 2019 which was paid to shareholders on 31 March 2020. 

Notwithstanding the Group's strong balance sheet and its high quality and diversified portfolio, in view of the current uncertainty the impact that COVID-19 will have on future rental receipts, particularly in relation to the Group's retail and leisure tenants, the Board considers it prudent to temporarily suspend its future monthly dividend payments in order to strengthen cash reserves and protect the long-term value of the Group. The Board currently intends to re-introduce distributions when conditions improve and believe that the portfolio is well positioned to begin its recovery once the temporary restrictions surrounding COVID-19 are lifted.

It is the intention of the Board to provide further Group updates as the situation evolves.

Analysis of Movement in NAV

The following table provides an analysis of the movement in the unaudited NAV per share for the period from 31 December 2019 to 31 March 2020 (including the effect of gearing):

	£m	Pence per share	% of opening NAV per share
NAV as at 31 December 2019	1,046.7	130.9
Unrealised decrease in valuation of property portfolio *	(51.0)	(6.4)	(4.9)
Movement in fair value of interest rate swap	(0.2)	0.0	0.0
Other net revenue	10.1	1.3	1.0
Dividends paid	(12.0)	(1.5)	(1.1)
NAV as at 31 March 2020	993.6	124.3	(5.0)

* The ungeared decrease in the valuation of the property portfolio over the quarter to 31 March 2020 was 3.8%, after allowing for capital expenditure.

Portfolio Analysis – Sector Breakdown

	Portfolio Value £m	% of portfolio as at 31 March 2020	% like for like capital value shift (excl transactions)
Offices	541.0	41.8	-1.4
West End	208.8	16.1	0.4
South East	86.8	6.7	-3.5
South West	32.5	2.5	-2.7
Rest of UK	192.6	14.9	-2.4
City	20.3	1.6	-1.7
Retail	273.4	21.1	-6.5
West End	207.2	16.0	-7.3
South East	35.0	2.7	-8.6
Rest of UK	31.2	2.4	-0.7
Industrial	227.1	17.5	-4.0
South East	28.6	2.2	-5.2
Rest of UK	198.5	15.3	-3.8
Retail Warehouse	125.1	9.7	-6.7
Alternatives	128.3	9.9	-1.7
Total Property Portfolio	1,294.9	100.0	-3.8

Portfolio Analysis – Geographic Breakdown

	Market Value £m	% of portfolio as at 31 March 2020
West End	475.9	36.8
South East	277.2	21.4
Scotland	169.6	13.1
North West	153.9	11.9
Midlands	139.4	10.7
South West	32.5	2.5
Eastern	26.1	2.0
Rest of London	20.3	1.6
Total Property Portfolio	1,294.9	100.0

Top Ten Investments

	Sector
Properties valued in excess of £250 million
London W1, St Christopher’s Place Estate *	Mixed
Properties valued between £100 million and £150 million
London SW1, Cassini House, St James’s Street	Office
Properties valued between £50 million and £70 million
Newbury, Newbury Retail Park	Retail Warehouse
London SW19, Wimbledon Broadway**	Mixed
Properties valued between £40 million and £50 million
Solihull, Sears Retail Park	Retail Warehouse
Crawley, Leonardo House, Manor Royal	Office
Winchester, Burma Road	Alternative
Manchester, 82 King St	Office
Properties valued between £30 million and £40 million
Aberdeen, Unit 2 Prime Four Business Park, Kingswells	Office
Aberdeen, Unit 1 Prime Four Business Park, Kingswells	Office

*Mixed use property of retail, office, food/beverage and residential space.

**Mixed use property of retail, food/beverage and leisure space.

Summary Balance Sheet

	£m	Pence per share	% of Net Assets
Property Portfolio	1,294.9	162.0	130.3
Adjustment for lease incentives	(22.8)	(2.8)	(2.3)
Fair Value of Property Portfolio	1,272.1	159.2	128.0
Trade and other receivables	32.2	4.0	3.2
Cash and cash equivalents	20.2	2.5	2.0
Current Liabilities	(19.9)	(2.5)	(2.0)
Total Assets (less current liabilities)	1,304.6	163.2	131.2
Non-Current liabilities	(2.1)	(0.3)	(0.2)
Interest rate swap	(0.4)	0.0	0.0
Interest-bearing loans	(308.5)	(38.6)	(31.0)
Net Assets at 31 March 2020	993.6	124.3	100.0

The next quarterly valuation of the property portfolio will be conducted by CBRE Limited during June 2020 and it is expected that the unaudited NAV per share as at 30 June 2020 will be announced in July 2020.

Important information

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.

Enquiries:

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

Graeme Caton
Winterflood Securities Limited
Tel: [phone]