Interim Results 31.12.2021

To:  RNS
Date:  31 March 2022
From:  BMO Real Estate Investments Limited
LEI:  231801XRCB89W6XTR23

Interim results in respect of the six-month period ended 31 December 2021

• Net asset value total return* of 20.6 per cent
• Share price total return* of 23.3 per cent
• Portfolio ungeared total return* of 16.3 per cent

•  Annualised dividend yield* of 4.7 per cent based on the period end share price
•  Dividend cover* of 100.5 per cent

* See Alternative Performance Measures

The Chairman, Vikram Lall, stated:

The UK real estate market enjoyed its highest total returns for seven years in 2021. Against this background, the Group has generated a very positive outcome over the last 6 months. The net asset value (‘NAV’) total return per share for the period was 20.6 per cent and the NAV per share at the period end was 121.0 pence.

Our share price increased by 20.3 per cent over the six months to 85.4 pence per share, giving a share price total return of 23.3 per cent. The discount to NAV was 29.4 per cent at the period end, compared to a discount of 30.5 per cent as at 30 June 2021. The share price subsequently increased, following the announcement of the December 2021 NAV, however, events in Ukraine have destabilised markets which are volatile. The closing share price on the day before the approval of these results was 93.8 pence per share.  A narrowing of the discount remains a key focus for the Board and Management, as we do not believe the share price movement fully reflects the strong underlying performance and quality of the portfolio.  Share buybacks remain under consideration, however, to date, cash resources have been committed to capital projects and acquisitions which have generated meaningful NAV enhancing returns.

Property Market

There was continued positive momentum during the six months with an all-property total return of 10.5 per cent, according to the MSCI UK Quarterly Property Index (‘MSCI’ or ‘the Index’). This was heavily influenced by the performance of the Industrial sector with a strong total return of 20.9 per cent.

2021 was record breaking for the Industrial, logistics and distribution warehousing assets (‘Industrials’) with leasing activity at the highest level ever reported, pushing the national vacancy rate to the lowest ever level. The strength of the occupational market and the current imbalance between supply and demand is driving positive rental growth, attracting a significant weight of money being directed towards the sector.

Retail, despite the ongoing shift to online, was perhaps surprisingly the second-best performing sector over the period, posting an 8.3 per cent total return over the six months. This was driven by the Retail Warehouse segment which proved the more resilient over the course of the pandemic in terms of footfall, rent collection and pricing.

Office letting activity has picked up, albeit from a low base, and with continued near term uncertainty around total aggregate demand. There is however a clear focus on higher quality space in central locations, as companies look to welcome employees back to a more structured, hybrid model of working. Leasing activity is being supported by job growth and pent-up demand as some corporates reactivate their office plans shelved over the past two years.

Portfolio

The six-month period has been characterised by significant transactional activity with the sale of an Office asset at a premium to valuation and the acquisition of two assets in the targeted Industrial and Retail Warehousing sectors at yields accretive to the portfolio. Alongside this, there has been the successful completion of the two major redevelopment projects in Chelmsford and Luton.

The Group’s property portfolio delivered a total return of 16.3 per cent over the six-month period, showing significant outperformance against the MSCI return of 10.5 per cent. The outperformance was largely driven by capital growth, although the portfolio also continued to maintain a yield advantage through an enhanced income return.

The outperformance can chiefly be attributed to portfolio composition, with a high allocation to the Industrial (53.2 per cent by portfolio value) and Retail Warehouse (18.1 per cent by portfolio value) sectors. Both sectors have seen significant market yield compression in recent quarters. The overall quality of the portfolio is evident from the sustained low void rate of 3.5 per cent (by Estimated Rental Value) and robust rent collection over the six months. Income growth for the portfolio remains well above the market Index.

The Company’s Industrial assets were the key driver of performance over the period, generating a total return of 26.5 per cent, with capital growth of 24.3 per cent. The capital outperformance of the Company’s industrial assets against the Index reflects the core southeast locations of the assets and was aided by a significant valuation uplift ascribed to the Heathrow Truck Centre acquisition following purchase. Alongside capital outperformance, the Industrial portfolio also delivered an income return in line with the Index of 1.8 per cent. The income return has been supported over the period by some successful asset management initiatives and lease events, most notably the conclusion of an outstanding rent review on the Booker distribution unit in Banbury (the portfolio’s largest single tenancy). This review was settled at a significant premium to both passing rent and Estimated Rental Value.

The Company’s Retail assets also generated significant outperformance posting an 11.3 per cent total return, compared to the MSCI return of 8.3 per cent. While Standard High Street assets are now seeing a marked stabilisation in both market rents and yields, the Retail Warehousing sector has been the key determinant of performance, generating a total return of 14.9 per cent, driven by capital growth of 11.8 per cent. The high weighting towards low-rented, convenience-led Retail Warehousing remains advantageous, where we continue to benefit from full occupancy, near total rent collection, and having achieved a number of leasing successes over the period, we anticipate further positive asset management outcomes. Notable activity over the period includes the regear of the B&Q lease in Nelson, terms agreed for a regear at New Malden and the successful practical completion of the pre-let food-anchored retail development at Enterprise Way, Luton.  In recent years, there has been a strategic shift away from the Standard High Street Retail sector, which now accounts for just 6.0 per cent by portfolio value, and significantly less if mixed use assets are taken into account.

Office assets saw marginal underperformance, generating a total return of 2.1 per cent against the Index at 3.6 per cent. Despite success in the redevelopment and majority reletting of County House, Chelmsford, and the disposal of Marlborough House, St Albans at an 8 per cent premium to valuation in the first half of the period, capital growth from the sector lagged the Index. This was principally driven by muted capital performance from the Berkeley Street, London building, where a challenging leasing market early in the period adversely affected efforts to secure occupiers for the final vacant suites following the extensive refurbishment. At the time of writing however, one letting at the property has now been concluded and the final suite is under offer at an encouraging rental level, following which the asset will be fully let.

Rent Collection

As the prospect of further Covid restrictions has eased, business confidence has steadily improved, despite the surge in the Omicron variant threatening further disruption towards the period close. As a result, occupier payment patterns have continued to normalise, albeit with greater focus on monthly repayment schedules. Rent collection for the period has reached 99 per cent. Collection over the 21-month period since March 2020 stands at in excess of 97 per cent, aided by near full collection from the Industrial, Office and Retail Warehousing portfolios.

Dividends

Given the improved rent collection rates, the Board took the decision to increase the level of quarterly interim dividends to 1.0 pence per share with effect from September 2021. This was an increase of 17.6 per cent on the previous quarters and is 80 per cent of the annualised pre-pandemic level and the dividend cover is now at c. 100 per cent.  Dividends prior to the pandemic were approximately 85 per cent covered. The Board will continue to monitor rental receipts and earnings closely and keep the future level of dividends under review.

Borrowings and Cash

The Group currently has borrowings of £90 million from a non-amortising term loan facility agreement with Canada Life Investments which expires in November 2026. There is also a £20 million revolving credit facility agreement with Barclays Bank plc which is available until March 2025. £10 million of this facility was drawn down at the period end. The covenants on both facilities are comfortably met. Net gearing represented 24.5 per cent of the value of investment properties of the Group as at 31 December 2021. The weighted average interest rate (including amortisation of refinancing costs) on the Group's total current borrowings is 3.2 per cent. The Company continues to maintain a prudent attitude to gearing.

The Group had £11.1 million of cash available at 31 December 2021 and £10 million of revolving credit facility remained undrawn.

Environmental, Social and Governance (‘ESG’)

As we slowly emerge from the global pandemic, the extent of interest and pace of development around the essential topic of climate change and responsible investment continues unabated. As the world contends with limiting temperature rises, the key focus for the real estate sector is around decarbonisation of both standing property portfolios and the indirect emissions associated with the wider value chain. The Company recognises the importance of engaging with its stakeholders in this regard and the Board is actively supporting the Manager in establishing a series of quantifiable and tangible targets on the journey to net zero carbon.  The Manager is undertaking energy assessments across individual assets, which will ultimately guide the portfolio pathway. The Board intends to announce the Company’s formal net zero carbon ambitions in 2022.

With continued effort on engagement and delivering social value, improving our ESG credentials remains a core aspect of the Company’s near-term strategy. We will provide a further summary of progress in our Annual Report later this year, with more detailed insights in our 2022 ESG Report by close of the calendar year.

The Manager

With effect from 8 November 2021, the business of BMO GAM in Europe, the Middle East and Africa was acquired by Ameriprise Inc. and is to be merged with that of Colombia Threadneedle Investments. There has been no change to the terms of the Company’s investment management agreement or to the corporate entity that acts as the Company’s Investment Manager and Property Manager. In due course, that entity will be required to remove the BMO prefix and will therefore change its name. The integration of the two businesses is now well underway and the Board has remained fully updated on progress, although will remain vigilant as the integration continues to take shape over the coming months. The Board’s request for continuity of service from the Manager is being prioritised in the smooth integration of the businesses.

Peter Lowe, the Company’s Lead Manager has recently decided to leave BMO to pursue other opportunities and while this is disappointing, the Property Manager has a team of property professionals supporting Peter in his role that will ensure continuity of management. Peter will remain the Company’s Lead Manager in the near term and will continue to provide the high level of service which we have come to expect. The Board are working with the Manager to ensure an orderly transition of Peter’s responsibilities and will make a further announcement once his replacement has been appointed.

Given the likely rebranding of the Manager over the course of the year, the Company will be assessing its options with regards to a name change, subject of course to shareholder approval.

Board Composition

I will have served on the Board for nine years in April this year and in accordance with good corporate governance, it is my intention to retire from the Board later this year. In addition, Rebecca Gates has recently agreed to take on a new role in her executive career which she believes conflicts with her serving as a non-executive Director of this Company. Rebecca will therefore be retiring from the Board over the course of the next two months.

A recruitment consultant has been engaged and the process to refresh the Board is well underway. We will update shareholders on the outcome of this process in the near future.

Outlook

Economic performance in 2022 will be more muted with two key markers to watch; one is the speed of further interest rate rises as the Bank of England looks to curb inflationary pressures, having recently raised the rate to 0.75 per cent, the third rate rise in a row. The second is the rate of inflation which is more than 6 per cent for the last 12 months and expected to stay above the Bank of England’s 2 per cent target for some time.

The above is likely to be exacerbated by the tragic events in Ukraine, following the Russian invasion. The situation is fast moving and unpredictable; however, the introduction of sanctions on Russia is leading to an increase in energy and food prices. This will push up inflation and is expected to be followed by a period of sustained high price rises and weakening growth prospects.

This economic uncertainty will impact the UK real estate market although the extent of this is not yet clear. In the short term, the industrial sector looks set to continue to benefit from the shift of traditional retail to e-commerce, which has seen vacancy rates in the sector fall to an all-time low. With the supply pipeline still constrained, we are likely to see continued income growth from this segment through 2022 and beyond. Opportunistic investors are seeing value in a stabilisation of the retail sector, development funding in the hospitality sector is showing green shoots of recovery, while a reversal of the work from home guidance is seeing the reoccupation of office buildings and providing a much-needed boost to city centres.

The diversification of the Company’s portfolio has proved key in driving performance over the course of the pandemic, supporting both strong rental collection and capital growth. Income growth has been above market for the portfolio, while the quality of the tenant base remains strong with lower credit risk than the Index. The current vacancy rate of 3.5 per cent continues to demonstrate good demand for the Company’s properties. The existing weighting to the key Industrial and Retail Warehousing sectors should continue to generate performance, while the realisation of active asset management initiatives offers the opportunity to enhance both the quality and duration of income from the portfolio.

BMO Real Estate Investments Limited
Condensed Consolidated Statement of Comprehensive Income

			Notes	Six months to 31 December 2021 (unaudited)			Six months to 31 December 2020 (unaudited)	Year to 30 June 2021 (audited)
				£000			£000	£000
Revenue
Rental income					8,617		8,283	16,836
Total revenue					8,617		8,283	16,836
Gains/(losses)on investment properties
Gains/(losses) on sale of investment properties realised Unrealised gains on revaluation of investment properties			6 6		572 44,892		- 2,795	(1,304) 12,926
Total income						54,081	11,078	28,458
Expenditure
Investment management fee			2			(1,119)	(974)	(1,932)
Other expenses			3			(819)	(1,323)	(2,154)
Total expenditure						(1,938)	(2,297)	(4,086)
Net operating profit before finance costs and taxation						52,143	8,781	24,372
Net finance costs
Interest receivable						-	2	2
Finance costs						(1,725)	(1,680)	(3,341)
						(1,725)	(1,678)	(3,339)
Net profit from ordinary activities before taxation						50,418	7,103	21,033
Taxation						(118)	(87)	(187)
Profit for the period						50,300	7,016	20,846
Basic and diluted earnings per share			5			20.9p	2.9p	8.7p
EPRA earnings per share						2.0p	1.8p	3.8p

BMO Real Estate Investments Limited

Condensed Consolidated Balance Sheet

	Notes	31 December 2021 (unaudited) £000	31 December 2020 (unaudited) £000	30 June  2021 (audited) £000
Non-current assets
Investment properties	6	381,459	314,368	321,886
Trade and other receivables		3,979	3,726	3,292
		385,438	318,094	325,178
Current assets
Trade and other receivables		3,139	3,113	3,431
Cash and cash equivalents		11,052	14,093	16,631
		14,191	17,206	20,062
Total assets		399,629	335,300	345,240
Non-current liabilities
Interest-bearing bank loans	7	(99,821)	(89,640)	(89,722)
Trade and other payables		(772)	(1,039)	(890)
		(100,593)	(90,679)	(90,612)
Current liabilities
Trade and other payables		(7,622)	(8,462)	(8,631)
Tax payable		(118)	(87)	(187)
		(7,740)	(8,549)	(8,818)
Total liabilities		(108,333)	(99,228)	(99,430)
Net assets		291,296	236,072	245,810
Represented by:
Share capital	9	2,407	2,407	2,407
Special distributable reserve		177,161	177,161	177,161
Capital reserve		109,208	54,917	63,744
Revenue reserve		2,520	1,587	2,498
Equity shareholders’ funds		291,296	236,072	245,810
Net asset value per share	10	121.0p	98.1p	102.1p
EPRA net tangible assets per share		121.0p	98.1p	102.1p

BMO Real Estate Investments Limited

Condensed Consolidated Statement of Changes in Equity

For the period ended 31 December 2021 (unaudited)

		Share Capital £000	Special Distributable Reserve £000	Capital Reserve £000	Revenue Reserve £000	Total £000
At 1 July 2021	Notes	2,407	177,161	63,744	2,498	245,810
Profit for the period		-	-	-	50,300	50,300
Dividends paid	4	-	-	-	(4,814)	(4,814)
Transfer in respect of gains on investment properties		-	-	45,464	(45,464)	-
At 31 December 2021		2,407	177,161	109,208	2,520	291,296

For the period ended 31 December 2020 (unaudited)

		Share Capital £000	Special Distributable Reserve £000	Capital Reserve £000	Revenue Reserve £000	Total £000
At 1 July 2020		2,407	177,161	52,122	916	232,606
Profit for the period		-	-	-	7,016	7,016
Dividends paid	4	-	-	-	(3,550)	(3,550)
Transfer in respect of gains on investment properties		-	-	2,795	(2,795)	-
At 31 December 2020		2,407	177,161	54,917	1,587	236,072

For the year ended 30 June 2021 (audited)

		Share Capital £000	Special Distributable Reserve £000	Capital Reserve £000	Revenue Reserve £000	Total £000
At 1 July 2020		2,407	177,161	52,122	916	232,606
Profit for the year		-	-	-	20,846	20,846
Dividends paid	4	-	-	-	(7,642)	(7,642)
Transfer in respect of gains on investment properties		-	-	11,622	(11,622)	-
At 30 June 2021		2,407	177,161	63,744	2,498	245,810

BMO Real Estate Investments Limited

Condensed Consolidated Statement of Cash Flows

	Notes	Six months to 31 December 2021 (unaudited)	Six months to 31 December  2020 (unaudited)	Year to  30 June 2021 (audited)
		£000	£000	£000
Cash flows from operating activities
Net profit for the period before taxation		50,418	7,103	21,033
Adjustments for:
(Gains)/losses on sale of investment properties   realised    Unrealised gains on revaluation of    investment properties	6 6	(572) (44,892)	- (2,795)	1,304 (12,926)
(Increase)/decrease in operating trade and other    receivables		(395)	386	502
(Decrease)/increase in operating trade and other    payables		(1,127)	2,221	2,241
Interest received		-	(2)	(2)
Finance costs		1,725	1,680	3,341
		5,157	8,593	15,493
Taxation paid		(187)	(258)	(258)
Net cash inflow from operating activities		4,970	8,335	15,235
Cash flows from investing activities
Capital expenditure	6	(1,129)	(2,839)	(5,816)
Purchase of investment properties	6	(20,789)	-	-
Sale of investment properties	6	7,809	-	4,287
Interest received		-	2	2
Net cash outflow from investing activities		(14,109)	(2,837)	(1,527)
Cash flows from financing activities
Dividends paid		(4,814)	(3,550)	(7,642)
Bank loan interest paid		(1,626)	(1,581)	(3,161)
Bank loan drawn down, net of costs – Barclays		10,000	-	-
Net cash inflow/(outflow) from financing activities		3,560	(5,131)	(10,803)
Net (decrease)/increase in cash and cash equivalents		(5,579)	367	2,905
Opening cash and cash equivalents		16,631	13,726	13,726
Closing cash and cash equivalents		11,052	14,093	16,631

BMO Real Estate Investments Limited

Notes to the Condensed Consolidated Financial Statements

for the six months to 31 December 2021

1.  General information

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 for the Group for the year ended 30 June 2021 which were prepared under full IFRS requirements. The accounting policies used in preparation of the condensed consolidated financial statements are consistent with those of the consolidated financial statements of the Group for the year ended 30 June 2021.

2.  Investment management fee	Six months to 31 December 2021 £000	Six months to 31 December 2020 £000	Year to 30 June 2021 £000
Investment management fee	1,119	974	1,932

3.  Other expenses	Six months to 31 December 2021 £000	Six months to 31 December 2020 £000	Year to 30 June 2021 £000
Direct operating expenses of let rental property	377	358	680
Direct operating expenses of vacant property	321	272	166
Bad debts	(358)	209	380
Valuation and other professional fees	112	132	245
Directors’ fees	82	80	159
Administration fee payable to the Manager	57	55	110
Other expenses	228	217	414
	819	1,323	2,154

4.  Dividends

	Six months to 31 December 2021		Six months to 31 December 2020		Year ended 30 June 2021
	£000	Rate (pence)	£000	Rate (pence)	£000	Rate (pence)
Property Income Distributions:
Fourth interim for the prior year	2,407	1.0	1,504	0.625	1,504	0.625
First interim	2,407	1.0	2,046	0.850	2,046	0.85
Second interim	-	-	-	-	2,046	0.85
Third interim	-	-	-	-	2,046	0.85
	4,814	2.0	3,550	1.475	7,642	3.175

A second interim dividend for the year to 30 June 2022, of 1.0 pence per share, will be paid on 31 March 2022 to shareholders on the register at close of business on 11 March 2022.

5.  Earnings per share	Six months to 31 December 2021	Six months to 31 December 2020	Year to 30 June 2021
Net profit attributable to ordinary shareholders (£000)	50,300	7,016	20,846
Weighted average of ordinary shares in issue during period	240,705,539	240,705,539	240,705,539
Earnings per share	20.9p	2.9p	8.7p

Earnings for the six months to 31 December 2021 should not be taken as a guide to the results for the year to 30 June 2022.

6.  Investment properties

		Six months to 31 December 2021 £000	Six months to 31 December 2020 £000	Year to 30 June 2021 £000
Freehold and leasehold properties Opening market value		325,575	312,285	312,285
Capital expenditure		1,129	2,839	5,816
Purchases		20,789	-	-
Sales    - net proceeds     - gains/(losses) on sales		(7,809) 2,956	- -	(4,287) (4,786)
Unrealised (gains)/losses realised during the period		(2,384)	-	3,482
Unrealised gains on investment  properties Unrealised losses on investment properties		48,754 (3,862)	10,609 (7,814)	22,407 (9,481)
Movement in lease incentive  receivable		652	(94)	139
Closing market value		385,800	317,825	325,575
Adjustment for lease incentives		(4,341)	(3,457)	(3,689)
Balance sheet fair value		381,459	314,368	321,886

	Six months to 31 December 2021 £000	Six months to 31 December 2020 £000	Year to 30 June 2021 £000
Gains/(losses) on sales	2,956	-	(4,786)
Unrealised (gains)/losses realised during the period	(2,384)	-	3,482
Gains/(losses) on sale of investment properties realised	572	-	(1,304)

	Six months to 31 December 2021 £000	Six months to 31 December 2020 £000	Year to 30 June 2021 £000
Unrealised gains on investment properties	48,754	10,609	22,407
Unrealised losses on investment properties	(3,862)	(7,814)	(9,481)
Unrealised gains on revaluation of investment properties	44,892	2,795	12,926

All the Group’s investment properties were valued as at 31 December 2021 by qualified professional valuers working in the company of Cushman & Wakefield.  All such valuers are chartered surveyors, being members of the Royal Institution of Chartered Surveyors (‘RICS’).  There were no significant changes to the valuation techniques used during the period and these valuation techniques are detailed in the consolidated financial statements as at and for the year ended 30 June 2021.  The market value of these investment properties amounted to £385,800,000 (31 December 2020: £317,825,000; 30 June 2021: £325,575,000), however an adjustment has been made for lease incentives of £4,341,000 that are already accounted for as an asset (31 December 2020: £3,457,000; 30 June 2021: £3,689,000).

7.  Interest-bearing bank loans

IRP Holdings Limited (“IRPH”) have in place a £90 million eleven year non-amortising term loan facility agreement with Canada Life.  Interest is payable on this loan, quarterly in arrears, at a fixed rate of 3.36 per cent per annum. The loan is secured by means of a fixed charge over specific properties. The loan has a maturity date of 9 November 2026.

On 27 March 2020, IPT Property Holdings Limited (“IPTH”) entered into a £20 million five year revolving credit facility (“RCF”) agreement with Barclays. The loan facility expires on 27 March 2025 and can be drawn down or repaid at anytime. Up until 28 November 2021, interest was accrued on the bank loan at a variable rate, based on 3 month LIBOR plus margin and mandatory lending costs. From 29 November 2021, the 3 month LIBOR was replaced with a SONIA Daily Compounded Rate. The margin is 1.7 per cent per annum for the duration of the loan and interest is payable quarterly. As at 31 December 2021 £10 million of the RCF was drawn down (at 30 June 2021 and 31 December 2020, none of the RCF was drawn down).

 At 31 December 2021 borrowings of £100 million were drawn down.  The balance sheet value is stated at an amortised cost of £99,821,000 (31 December 2020: £89,640,000 and 30 June 2021: £89,722,000).  Amortised cost is calculated by deducting loan arrangement costs, which are amortised back over the life of the loan.  The fair value of the Canada Life loan is shown in note 8.

8.  Fair value measurements

The fair value measurements for financial assets and financial liabilities are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. 

The different levels are defined as follows:

· Level 1 – Unadjusted, fully accessible and current quoted prices in active markets for identical assets or liabilities.  Examples of such instruments would be investments listed or quoted on any recognised stock exchange.

· Level 2 – Quoted prices for similar assets or liabilities, or other directly or indirectly observable inputs which exist for the duration of the period of investment.  Examples of such instruments would be those for which the quoted price has been suspended, forward exchange rate contracts and certain other derivative instruments. 

· Level 3 – External inputs are unobservable.  Fair value is the Directors’ best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instruments.

All of the Group’s investments in direct property are included in Level 3 as it involves the use of significant inputs. There were no transfers between levels of the fair value hierarchy during the six-month period ended 31 December 2021.

Other than the fair values stated in the table below, the fair value of all other financial assets and liabilities is not materially different from their carrying value in the financial statements.

	31 December 2021 £000		31 December 2020 £000		30 June  2021 £000
£90 million Canada Life Loan 2026*	93,997		92,584		94,291

*The fair value of the interest-bearing Canada Life Loan is based on the yield on the Treasury 2% 2025 which would be used as the basis for calculating the early repayment of such loan plus the appropriate margin. The Canada Life loan is classified as Level 2 under the hierarchy of fair value measurement.

The Group’s financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 30 June 2021.

9.  Share capital

	31 December 2021 £000	31 December 2020 £000	30 June  2021 £000
Allotted, called-up and fully paid
240,705,539 Ordinary Shares of 1 pence each in issue	2,407	2,407	2,407

The Company issued no Ordinary Shares during the period.

10. Net asset value per share

	Six months to 31 December 2021	Six months to 31 December 2020	Year ended 30 June  2021
Net asset value per ordinary share	121.0p	98.1p	102.1p
Net assets attributable at the period end (£000)	291,296	236,072	245,810
Number of ordinary shares in issue at the period end	240,705,539	240,705,539	240,705,539

11. Going concern

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, the availability of the loans and compliance with their covenants, 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 this information the Directors believe that the Group has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of the approval of the accounts.For this reason, they continue to adopt the going concern basis in preparing the accounts.

12. Related party transactions

The Directors of the Company, who are considered to be the Group’s key management personnel, received fees for their services and dividends from their shareholdings in the Company.  No fees remained payable at the period end.

13. Operating segments

The Board has considered the requirements of IFRS 8 ‘Operating Segments’.  The Board is of the view that the Group is engaged in a single segment of business, being property investment, and in one geographical area, the United Kingdom, and that therefore the Group has only a single operating segment. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Group. The key measure of performance used by the Board to assess the Group’s performance is the total return of the Group’s net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the condensed consolidated financial statements.

14. Investment in subsidiary undertakings

The Group results consolidate those of IRP Holdings Limited (‘IRPH’) and IPT Property Holdings Limited (‘IPTH’). IRPH and IPTH are companies incorporated in Guernsey whose principal business is that of a property investment company.  These companies are 100 per cent owned by the Group’s ultimate parent company, which is BMO Real Estate Investments Limited.

15. The report and accounts for the half-year ended 31 December 2021 is available on the website www.bmorealestateinvestments.com

  Statement of Principal Risks and Uncertainties

The full economic impact of the military conflict in Ukraine is as yet uncertain, however, energy and food prices are likely to increase, pushing up UK inflation leading to a period of sustained high price rises and weakening economic growth prospects. Covid-19 is still with us and the duration and consequences of the situation remain uncertain. However, at this time its impact on the real estate market have been less dramatic than initially feared with the Group's rent collection statistics being strong and capital valuations recovering. 

The Group’s assets consist of direct investments in UK commercial property. Its principal risks are therefore related to the UK commercial property market in general but also the particular circumstances of the properties in which it is invested and their tenants. Other risks faced by the Group include geopolitical, market, investment and strategic, regulatory, tax structuring and compliance, financial, reporting, credit, operational and environmental risks. The Group is also exposed to risks in relation to its financial instruments. These risks, and the way in which they are mitigated and managed, are described in more detail under the heading ‘Principal Risks and Future Prospects’ within the Strategic Report in the Group’s Annual Report for the year ended 30 June 2021. The Group’s principal risks and uncertainties have not changed materially since the date of that report and are not expected to change 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 constituting the Interim Management Report together with the Statement of Principal Risks and Uncertainties 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 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 Group 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

Vikram Lall

Chairman

30 March 2022

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.

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.

	Six months to 31 December 2021 Pence	Six months to 31 December 2020 Pence	Year to 30 June 2021 Pence
Net Asset Value per share	121.0	98.1	102.1
Share price per share	85.4	61.0	71.0
Discount	29.4%	37.8%	30.5%

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

A reconciliation of dividend cover is shown below:

	Six months to 31 December 2021 £000	Six months to 31 December 2020 £000	Year to 30 June 2021 £000
Profit for the period	50,300	7,016	20,846
Add back: Realised (gains)/losses   Unrealised gains	(572) (44,892)	- (2,795)	1,304 (12,926)
Profit before investment gains and losses	4,836	4,221	9,224
Dividends	4,814	3,550	7,642
Dividend Cover percentage	100.5%	118.9%	120.7%

Dividend Yield – The annualised dividend divided by the share price at the period end. An analysis of dividends is contained in note 4.

Net Gearing – Borrowings less net current assets divided by value of investment properties.

	Six months to 31 December 2021 £000	Six months to 31 December 2020 £000	Year to 30 June 2021 £000
Loans	99,821	89,640	89,722
Less net current assets	(6,451)	(8,657)	(11,244)
Total	93,370	80,983	78,478
Value of investment properties	381,459	314,368	321,886
Net Gearing	24.5%	25.8%	24.4%

Portfolio (Property) Capital Return – The change in property value during the period after taking account of property purchases 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 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.

	Six months to 31 December 2021	Six months to 31 December 2020	Year to 30 June 2021
NAV per share at the start of the period	102.1p	96.6p	96.6p
NAV per share at the end of the period	121.0p	98.1p	102.1p
Change in the period	+18.5%	+1.6%	+5.7%
Impact of dividend reinvestments	+2.1%	+1.5%	+3.4%
NAV total return for the period	+20.6%	+3.0%	+9.1%

	Six months to 31 December 2021	Six months to 31 December 2020	Year to 30 June 2021
Share price per share at the start of the period	71.0p	56.0p	56.0p
Share price per share at the end of the period	85.4p	61.0p	71.0p
Change in the period	+20.3%	+8.9%	+26.8%
Impact of dividend reinvestments	+3.0%	+2.6%	+6.1%
Share price total return for the period	+23.3%	+11.6%	+32.9%

EPRA Performance Measures

EPRA earnings and EPRA earnings per share – EPRA earnings represents the earnings from core operational activities, excluding investment property revaluations and gains/losses on asset disposals.  It demonstrates the extent to which dividend payments are underpinned by recurring operational activities.

	Six months to 31 December 2021 £000	Six months to 31 December 2020 £'000	Year to 30 June 2021 £'000
Earnings per IFRS income statement	50,300	7,016	20,846
Exclude:
Net change in value of investment properties	(44,892)	(2,795)	(12,926)
(Gains)/losses on disposals of investment properties	(572)	-	1,304
EPRA earnings	4,836	4,221	9,224
Weighted average number of shares in issue (000's)	240,705	240,705	240,705
EPRA earnings per share (pence per share)	2.0	1.8	3.8

EPRA Net Tangible Assets - Assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax.

	Six months to 31 December 2021 £000	Six months to 31 December 2020 £'000	Year to 30 June 2021 £'000
IFRS NAV	291,296	236,072	245,810
Net assets used in per share calculation	291,296	236,072	245,810
Shares in issue (000's)	240,705	240,705	240,705
EPRA assets per share (pence per share)	121.0	98.1	102.1

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]

P Lowe, S Macrae
BMO Investment Business Limited
Tel:  [phone]
Fax:  [phone]
 

The full interim report for the period to 31 December 2021 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.bmorealestateinvestments.com