Trading Update

To:                    Company Announcements
Date:  4 August 2020
Company:  BMO Commercial Property Trust Limited
LEI:  213800A2B1H4ULF3K397

Subject:   Trading update for BMO Commercial Property Trust Ltd (the "Company”)
 

Background

This announcement provides a further update on the evolving position of the Company since the previous announcement on 16^th April 2020. The focus of the Board continues to be dominated by addressing the many challenges arising from the Covid-19 pandemic. Our priorities are the wellbeing of everyone engaged in managing the Company's portfolio and equally providing support to our tenants where needed. At the same time, the Board has also been focussed on preserving the Company's financial strength with the ambition of reintroducing a sustainable dividend at the earliest appropriate time.

Headlines

• Net Asset total return of -2.9 per cent for the quarter ended 30 June 2020

• Share Price total return of -15.4 per cent for the quarter ended 30 June 2020

• Rent collection for quarter 2 of 83.0 per cent

• Rent collection for quarter 3 to date of 68.0 per cent

• Completion of the sale of non-income producing Industrial land for c.£5.5 million

• Practical completion of a fully let foodstore development at Newbury Retail Park

• Agreed terms for the extension of a £100 million loan facility to 31 July 2022

• Reintroduction of monthly dividends of 0.25 pence per share from August 2020

Net Asset Value

The unaudited net asset value (‘NAV’) per share of the Company as at 30 June 2020 was 120.7 pence. This represents a decrease of 2.9 per cent from the unaudited NAV per share as at 31 March 2020 of 124.3 pence and a NAV total return for the quarter of -2.9 per cent.

The NAV has been calculated under International Financial Reporting Standards (‘IFRS’). It is based on the external valuation of the Company’s property portfolio which has been prepared by CBRE Limited. The valuation certificate includes a ‘material uncertainty’ clause, in-line with RICS guidance, due to the shortage of transactional evidence to inform opinions of value. Valuers are therefore exercising a higher degree of caution and giving less weight to previous market evidence for comparison purposes.

This ‘material uncertainty’ clause no longer applies to industrial, logistics and distribution assets; these account for 17.8 per cent of the Company's portfolio.

The NAV includes all income to 30 June 2020 and is calculated after deduction of all dividends paid prior to that date. The EPRA NAV as at 30 June 2020, which is adjusted to remove the fair value of the interest rate swap, was 120.7 pence.

 

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 March 2020 to 30 June 2020 (including the effect of gearing):

	£m	Pence per share	% of opening NAV per share
NAV as at 31 March 2020	993.6	124.3
Unrealised decrease in valuation of property portfolio	(38.1)	(4.7)	(3.8)
Movement in fair value of interest rate swap	(0.1)	0.0	0.0
Other net revenue	9.1	1.1	0.9
Dividends paid	-	-	-
NAV as at 30 June 2020	964.5	120.7	(2.9)

Valuation

The capital return of the Company's portfolio was -3.0 per cent for the quarter. The retail and leisure sectors continue to be marked down, most significantly Newbury Retail Park, Wimbledon Broadway and St Christopher’s Place falling by 7.6 per cent, 6.7 per cent and 3.1 per cent respectively. These decreases reflect a further outward adjustment in yields as well as an allowance for prospective rent adjustments.

The valuation of our office portfolio fell by 2.2 per cent over the quarter. The main reason for this was a material ‘one off’ adjustment of the Leonardo Building in Crawley to reflect revised lease terms agreed with Virgin Atlantic as part of their overall financial restructuring.

The industrial and logistics portfolio fell by 1.5 per cent, due to yield movement on the shorter leased properties.

Share Price

As at 30 June 2020, the share price was 63.0 pence per share, which represented a discount of 47.8 per cent to the NAV per share. The share price total return for the quarter to 30 June 2020 was -15.4 per cent.

Rent Collection

The Company has a diverse tenant base across the portfolio and its Managers have been proactively engaged with many of them, assessing and responding to requests for support on a case by case basis. We summarise below our current rent collection outcome for Quarter 2 as well as providing an update for Quarter 3.

Quarter 2 Collection (billed between 26 March 2020 and 1 June 2020)

To date the Company has collected 83.0 per cent of the rents due for Quarter 2.

Collection by sector:

	Rent Billed	Collected
	(£m)	(£m)	(%)
Industrial	3.3	3.1	92.8
Offices	6.8	6.4	94.8
Retail Warehouse	2.0	1.6	81.6
Retail	3.1	1.8	56.1
Alternatives	1.1	0.6	59.3
Total	16.3	13.5	83.0

Breakdown of uncollected rent:

Total Outstanding	Rent Billed
	(£m)	(%)
Agreed deferments	0.8	4.9
Rent waived	0.4	2.4
Monthly payments*	0.1	0.4
Unresolved / in discussion	1.5	9.3
Uncollected Rent	2.8	17.0

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

Approximately £0.9m of the £1.5m currently unresolved rental payments relate to St Christopher’s Place but advanced discussions are now underway with many tenants that have recently reopened for business and we expect this figure to improve over the coming few weeks.

Quarter 3 Collection (billed between 24 June 2020 and 1 September 2020)

The total quarterly rental payments for Quarter 3 amount to c.£16.5 million. The Company has billed £13.5m of its Quarter 3 rent due from 24 June to date and has collected 68.0 per cent of this total amount (compared to 98.5 per cent for the same period last year and 70.0 per cent after the equivalent number of days in Quarter 2). Collection patterns to date are therefore similar to those experienced last quarter. The balance of rent will be billed on the relevant due dates during the course of August.

Collection by sector:

	Rent Billed	Collected
	(£m)	(£m)	(%)
Industrial	3.2	2.7	85.9
Offices	5.0	3.9	79.1
Retail Warehouse	1.2	0.7	59.7
Retail	3.1	1.2	39.7
Alternatives	1.0	0.6	54.1
Total	13.5	9.1	68.0

Breakdown of uncollected rent:

Total Outstanding	Rent Billed
	(£m)	(%)
Agreed deferments	0.4	2.9
Rent waived	0.2	1.1
Monthly payments*	0.5	3.5
Outstanding	3.3	24.5
Uncollected Rent	4.4	32.0

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

Trading Activity

St Christopher’s Place Estate (‘SCP’)

On 15 June ‘non-essential’ retailers were allowed to reopen and approximately 80 per cent of the shops at the Estate are now trading with the number increasing steadily each week. Restaurants could reopen from 4 July and around three quarters have done so to date. Support has been offered to tenants on a case by case basis with many of the concessionary agreements expected to remain in place until at least the end of this year.

Retail Parks

The majority of retailers at the Newbury and Solihull retail parks have now reopened. At Solihull the carpark is consistently operating at 80 per cent capacity whereas at Newbury it is closer to 60 percent. Customer numbers are down but average spend is up and where our tenants have both retail park and high street stores, they are reporting stronger performance from the former.

Sales

The Company completed the contractually agreed sale of Phase 2 of the former Ozalid Works, Colchester to Persimmon Homes for c.£5.5 million on 30 July 2020. This was a disposal of non-income producing land and obsolete industrial buildings with planning consent for residential development.

Developments

The construction work at Newbury Retail Park has continued throughout the last three months in accordance with Government guidelines and all units have now achieved practical completion. The unit to be occupied by Lidl was handed over in June and the tenant is fitting out with a target opening date in early Autumn 2020.

Work at St Christopher’s Place and Solihull Retail Park did pause for a period during lockdown but has now resumed under strict safe operating practices. At Solihull we have experienced a nine week delay due to the temporary site closure and availability of building materials. Completion of the new pre-let M&S store is now programmed for February 2021.

Uncommitted capital expenditure continues to be deferred for the time being.

Cash and Borrowings

The Company had approximately £23 million of available cash as at 30 June 2020 and an undrawn revolving credit facility of £50 million. The long-term debt with L&G does not need to be refinanced until December 2024 and we have recently agreed terms to extend the existing Barclays £50 million term loan, and the £50 million revolving credit facility, previously due to expire on 21 June 2021. These will be extended to 31 July 2022, with the option of two further one-year extensions. As at 30 June 2020, the Company’s loan to value (‘LTV’) was 22.9 per cent.

The Company 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. The interest cover test is more challenging but is still being passed. This particular covenant test has been discussed with Barclays, who remain sympathetic given current events. As indicated by the agreed extension of the existing facility, they are prepared to support the business through this uncertain period.

Dividend

As announced in the Company’s previous trading update on 16 April 2020, in view of the uncertainty of the impact that Covid-19 was expected to have on future rental receipts, particularly in relation to the retail and leisure tenants, the Board has considered it prudent to temporarily suspend its future monthly dividend payments in order to strengthen cash reserves and protect the long-term value of the Company.

The Company has made good progress over the last three months with rent collection at a higher level than was originally feared. Progress has also been made in reaching agreement to restructure leases and the short-term deferral of rent for stressed tenants. The Board have therefore made the decision to reintroduce monthly dividends at 50 per cent of the previous rate, and today announces a monthly property income distribution payment in respect of the financial year ended 31 December 2019 of 0.25 pence per share as detailed in the schedule below.

Ex-Dividend Date Record Date Pay Date

13 August 2020 14 August 2020 28 August 2020

The level of monthly dividend will remain at this rate until further notice but will be kept under review in light of the significant economic risks and continuing uncertainty regarding the path of Covid-19.

Portfolio Analysis – Sector Breakdown

	Portfolio Value £m	% of portfolio as at 30 June 2020	% like for like capital value shift (excl transactions)
Offices	529.0	42.0	-2.2
West End	208.3	16.5	-0.3
South East	78.8	6.3	-9.2
South West	31.8	2.5	-2.0
Rest of UK	190.3	15.1	-1.2
City	19.8	1.6	-2.4
Retail	259.4	20.6	-5.1
West End	196.0	15.5	-5.7
South East	32.5	2.6	-7.1
Rest of UK	30.9	2.5	-0.8
Industrial	223.7	17.8	-1.5
South East	28.2	2.2	-1,1
Rest of UK	195.5	15.6	-1.6
Retail Warehouse	119.5	9.5	-4.5
Alternatives	127.7	10.1	-0.4
Total Property Portfolio	1,259.3	100.0	-3.0

Portfolio Analysis – Geographic Breakdown

	Market Value £m	% of portfolio as at 30 June 2020
West End	465.1	36.9
South East	260.5	20.7
Scotland	167.2	13.3
North West	150.8	12.0
Midlands	138.0	10.9
South West	31.8	2.5
Eastern	26.1	2.1
Rest of London	19.8	1.6
Total Property Portfolio	1,259.3	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
Winchester, Burma Road	Alternative
Manchester, 82 King St	Office
Properties valued between £30 million and £40 million
Crawley, Leonardo House, Manor Royal	Office
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	1,259.3	157.5	130.5
Adjustment for lease incentives	(22.6)	(2.8)	(2.3)
Fair Value of Property Portfolio	1,236.7	154.7	128.2
Trade and other receivables	34.2	4.3	3.5
Cash and cash equivalents	22.8	2.9	2.4
Current Liabilities	(18.6)	(2.3)	(1.9)
Total Assets (less current liabilities)	1,275.1	159.6	132.2
Non-Current liabilities	(1.7)	(0.2)	(0.2)
Interest rate swap	(0.4)	(0.1)	0.0
Interest-bearing loans	(308.5)	(38.6)	(32.0)
Net Assets at 30 June 2020	964.5	120.7	100.0

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