Trading Update and Net Asset Value

To:  Company Announcements
Date:  26 July 2021
Company:  BMO Real Estate Investments Limited
LEI:  231801XRCB89W6XTR23

Subject:  Trading Update and Net Asset Value
 

Background

BMO Real Estate Investments Limited (“BREI” or the “Company”) provides an update on trading and the net asset value as at 30 June 2021.

Net Asset Value (‘NAV’)

The unaudited NAV per share of BREI as at 30 June 2021 was 102.1 pence. This represents an increase of 3.0 per cent from the NAV per share as at 31 March 2021 of 99.1 pence and a NAV total return for the quarter of 3.9 per cent.

The NAV is based on the external valuation of the Company's property portfolio prepared by Cushman & Wakefield.

The NAV is calculated under International Financial Reporting Standards ("IFRS").

The NAV includes all income to 30 June 2021 and is calculated after the deduction of all dividends paid prior to that date.  

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited net asset value per share calculated under IFRS over the period from 31 March 2021 to 30 June 2021.

	Pence per share	% of opening NAV
Net asset value per share as at 31 March 2021	99.1
Unrealised movement in valuation of property portfolio (including the effect of gearing)	3.0	3.0*
Realised loss on sale of property (including the effect of gearing)	(0.1)	(0.1)
Movement in revenue reserves	0.1	0.1
Net asset value per share as at 30 June 2021	102.1	3.0

* The un-geared capital return of the property portfolio over the quarter to 30 June 2021 was 2.1%.

Share Price

The share price was 71.0 pence per share as at 30 June 2021, which represented a discount of 24.3 per cent to the NAV per share announced above. The share price total return for the quarter was -3.7 per cent.

Performance

The property market continued to deliver positive total returns over Quarter 2 with the continuing success of the vaccine roll-out and further relaxation of restrictions contributing to improving consumer, business, and investor sentiment. A note of caution remains around the rising Covid-19 cases, which is continuing to weigh on the manufacturing, retailing and hospitality sectors, with isolation protocols leading to staffing shortages.

The Company portfolio has enjoyed a strong quarterly performance, generating a total return of 3.5% with capital growth of 2.2%. The capital return is after deducting major expenditure on the redevelopment of Luton and refurbishment of 14 Berkeley Street, London, as well as the impact of the disposal of a further asset from the High Street portfolio at The Parade, Sutton Coldfield for £1.5million.

As in previous quarters, performance was driven primarily by the Industrial and Distribution sectors where the weight of investor demand is continuing to generate yield compression with occupational markets offering further support to pricing through leasing activity and rental growth. Yields across all Industrial sub-sectors are trending down in the context of strong occupational fundamentals driving record low vacancy rates and correspondingly attractive rental growth. The Company’s portfolio now comprises 47.0% Industrial and Logistics properties. These assets experienced a 4.6% capital return over the quarter.

The retail sector is showing signs of some stabilisation, with opportunistic investors beginning to call the bottom of the market. There is caution however and sentiment is fragile given the likelihood of further rental decline and occupier fallout as Covid support measures unwind. While the yields are no longer falling at the same rate, valuations remain under downward pressure. The traditional High Street assets, making up 7.2% of the portfolio saw capital performance of -1.8% over the quarter. However, Retail Warehousing performance remains robust with the ‘Essential’, DIY, bulky and convenience sub-sectors in particular experiencing yield compression. The Company’s Retail Warehousing assets make up 16.6% of the portfolio and largely comprise ‘essential’ non-fashion occupiers with rent collection at 98% for the quarter and capital growth at 1.2% offering relative resilience. The Foodstore sub-sector continues to strengthen with a weight of capital chasing a limited number of quality opportunities. As a result, the supermarket-anchored redevelopment of Luton remains a key driver of performance within this part of the portfolio.

While the nature of the UK’s return to work and adoption of flexible working practices remains uncertain vacant space in the Office markets is increasingly being taken up and large corporate occupiers are beginning to move to acquire new space. However, this recovery will not be spread evenly across geographic regions and asset types, which is continuing to weigh on the Offices sector as a whole. The Company’s Office assets make up 29.2% of the portfolio and saw no capital growth over the quarter.

As at period end the portfolio had a vacancy rate of 4.1% (by ERV) and an average weighted unexpired lease term of 5.9 years (assuming tenant breaks operated).

Rent Collection

We summarise below our current rent collection outcome since the impact of Covid-19 came to bear, for Q2 2020 to Q2 2021, as well as providing an update on collection for Q3 of 2021.

Q2 2020 to Q2 2021 collection (billed between 26 March 2020 and 1 June 2021)

Overall collection over the fifteen-month period is at 96.1 per cent and the breakdown is detailed below:

	Rent Billed	Collected
	(£m)	(%)
Quarter 2 2020	4.2	93.7
Quarter 3 2020	4.1	95.2
Quarter 4 2020	4.2	97.5
Quarter 1 2021	4.2	96.3
Quarter 2 2021	4.2	97.5
Total	20.9	96.1

Collection by sector:

	Rent Billed	Collected
	(£m)	(%)
Industrial, logistics and distribution	7.8	100.0
Offices	5.7	99.3
Retail Warehouse	4.6	97.4
Retail	2.8	76.5
Total	20.9	96.1

Breakdown of uncollected rent:

Total Outstanding	Rent Billed
	(£m)	(%)
Rent waived	0.5	2.6
Unresolved / in discussion	0.1	0.3
Bad Debts	0.2	1.0
Uncollected Rent	0.8	3.9

The absence of any exposure to the shopping centre, hospitality and leisure sectors remains an important factor in the comparatively high level of rent collection achieved by the Company. The Company’s disposal of high street retail assets over the past five years and the healthy collection from the retail warehousing assets has also been helpful. The focus remains on ensuring that rental income is recovered where it is due under contract whilst continuing to work with our occupiers to deliver mutually beneficial outcomes, recognising certain occupiers are challenged in the current environment.

Quarter 3 2021 Collection (to be billed between 24 June 2021 and 1 September 2021)

The Company has billed c.£3.0m of its quarter 3 rent due from 24 June to date and has collected 84.2 per cent of this total amount. This percentage will increase as tenants with whom we have agreed monthly payment arrangements, but have been billed quarterly, pay further instalments. The total quarterly rent amounts to c.£4.2 million with further contractual billing dates during the course of July and August. Progress on collection is consistent with previous quarters with total recovery by period end expected to be in line with trend over the course of the pandemic.

Collection by sector:

	Rent Billed	Collected
	(£m)	(%)
Industrial, logistics and distribution	1.2	83.6
Offices	0.7	92.7
Retail Warehouse	0.7	83.9
Retail	0.4	72.1
Total	3.0	84.2

Breakdown of uncollected rent:

Total Outstanding	Rent Billed
	(£m)	(%)
Monthly payments*	0.1	4.1
Rent waived	0.1	4.8
Unresolved / in discussion	0.2	6.9
Uncollected Rent	0.4	15.8

*  tenants who have been billed for the quarter but are paying in monthly instalments.

Cash and Borrowings

The Company has approximately £16.6 million of available cash and an undrawn revolving credit facility of £20 million. The £90 million long-term debt with Canada Life and the undrawn loan facility with Barclays do not need to be refinanced until November 2026 and March 2025 respectively. As at 30 June 2021, the LTV was 24.4 per cent and there was significant headroom under debt covenants.

Dividend

On 19 May 2021, the Company announced a quarterly dividend payment of 0.85 pence per ordinary share in respect of the financial year ended 30 June 2021, which was paid to shareholders on 30 June 2021. The Board will continue to monitor rental receipts and earnings closely and keep the future level of dividends under review.

Portfolio Analysis	£m	% of portfolio as at 31 March 2021	% capital value movement  in quarter
Offices	95.0	29.2	0.0
· West End	27.9	8.6	0.0
· South East	40.1	12.3	0.4
· Rest of UK	27.0	8.3	(0.7)
Industrial, logistics and distribution	153.0	47.0	4.6
· South East	153.0	47.0	4.6
Standard Retail	23.5	7.2	(1.8)
· West End	6.7	2.1	(1.5)
· Rest of London	1.6	0.5	(5.9)
· South East	11.5	3.5	(1.1)
· Rest of UK	3.7	1.1	(2.9)
Retail Warehouse	54.1	16.6	1.2
Total Property	325.6	100.0	2.2

Summary Balance Sheet

	£m	Pence per share	% of Net Assets
Property Portfolio per Valuation Report	325.6	135.3	132.5
Adjustment for lease incentives	(3.7)	(1.5)	(1.5)
Fair Value of Property Portfolio	321.9	133.8	131.0
Cash	16.6	6.9	6.8
Trade and other receivables	6.7	2.8	2.7
Trade and other payables	(9.7)	(4.1)	(4.0)
Interest-bearing loans	(89.7)	(37.3)	(36.5)
Net Assets at 30 June 2021	245.8	102.1	100.0

The property portfolio will next be valued by an external valuer during September 2021 and the net asset value per share as at 30 September 2021 will be announced in October 2021.

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


Peter Lowe
Scott Macrae
BMO Investment Business Ltd
Tel: [phone]