Trading Update and Net Asset Value

To:  Company Announcements

Date:  27 January 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 31 December 2020.

Net Asset Value (‘NAV’)

The unaudited NAV per share of BREI as at 31 December 2020 was 98.1 pence. This represents an increase of 3.5 per cent from the NAV per share as at 30 September 2020 of 94.8 pence and a NAV total return for the quarter of 4.4 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 31 December 2020 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 30 September 2020 to 31 December 2020.

	Pence per share	% of opening NAV
Net asset value per share as at 30 September 2020	94.8
Unrealised movement in valuation of property portfolio (including the effect of gearing)	3.1	3.3*
Movement in revenue reserves	0.2	0.2
Net asset value per share as at 31 December 2020	98.1	3.5

* The un-geared increase in the valuation of the property portfolio over the quarter to 31 December 2020 was 2.4%.

Share Price

The share price was 61.0 pence per share as at 31 December 2020, which represented a discount of 37.8 per cent to the NAV per share announced above. The share price total return for the quarter was 19.8 per cent.

Performance

Overall, the property market delivered positive total returns over the quarter, largely driven by a strong performance from industrials and distribution. Performance was polarised, with town centre retail and leisure remaining under considerable pressure and offices faltering. Total return performance turned positive for retail warehousing. Despite a strong end to the year for parts of the market, buoyed by positive developments on vaccines and the resolution of Brexit, overall sentiment is cautious, with the re-imposition of lockdown restrictions towards the end of the period increasing uncertainty around the path to recovery.

Capital growth for the Company’s portfolio was 2.4 per cent over the period, driven by a 44.9 per cent weighting to Industrial and logistics properties, a sector for which investor demand strengthened still further, alongside a continuation of good news on occupational take-up. There was further downward pressure on valuations in the Company’s high street retail portfolio (weighting: 9.2 per cent), reflective of continued worsening sentiment towards the sector, linked to lower rental recovery, and further high-profile tenant failures. The retail warehouse portfolio (weighting: 16.2 per cent) continues to be less affected, being let primarily to ‘essential’, convenience, and non-fashion occupiers. Market demand for long let foodstore assets was a factor behind the significant contribution to performance made by the development to a supermarket at Enterprise Way, Luton over the period. Debate around the future shape of the office market (weighting: 29.7 per cent) continues and there has been a drop off in leasing activity, particularly in London, which has again weighed on performance for this sector.

The portfolio remains substantially let to a highly diverse tenant base. The allocation to Industrial, logistics and distribution assets in the south east and the absence of any exposure to the leisure and hospitality sectors are significant factors in the comparatively high level of the Company’s rent collection. The focus remains on ensuring that rental income is recovered where it is due and can be paid, but also in working with our occupiers to deliver constructive outcomes in what are immensely challenging times for many businesses.

Rent Collection

We summarise below our current rent collection outcome for Quarter’s 2 to 4 of 2020 as well as providing an update on collection to date for Quarter 1 2021.

Q2 to Q4 2020 collection (billed between 26 March 2020 and 1 December 2020)

Overall collection over the nine-month period is at 94.4 per cent and the breakdown is detailed below:

	Rent Billed	Collected
	(£m)	(%)
Quarter 2	4.1	93.6
Quarter 3	4.0	94.1
Quarter 4	4.3	95.5
Total	12.4	94.4

Collection by sector:

	Rent Billed	Collected
	(£m)	(%)
Industrial, logistics and distribution	4.4	100.0
Offices	3.6	100.0
Retail Warehouse	2.7	96.3
Retail	1.7	66.3
Total	12.4	94.4

Breakdown of uncollected rent:

Total Outstanding	Rent Billed
	(£m)	(%)
Agreed deferments	0.0	0.2
Rent waived	0.3	2.2
Unresolved / in discussion	0.3	2.1
Bad Debts	0.1	1.1
Uncollected Rent	0.7	5.6

Quarter 1 2021 Collection (to be billed between 25 December 2020 and 1 March 2021)

The Company has billed c.£3.6m of its quarter 1 rent due from 25 December to date and has collected 82.1 per cent of this total amount (compared to 96.8 per cent for the same period last year and 83.2 per cent after the same number of days last quarter). 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 January and February. Given early progress, collection rates are expected to be similar to those for the previous quarter with many of the retail occupiers paying monthly. Such flexible payment terms have also been granted to selected occupiers within other sectors where it continues to be appropriate to offer cashflow assistance at this time.

Collection by sector:

	Rent Billed	Collected
	(£m)	(%)
Industrial, logistics and distribution	1.5	93.0
Offices	0.8	94.2
Retail Warehouse	0.8	69.4
Retail	0.5	51.3
Total	3.6	82.1

Breakdown of uncollected rent:

Total Outstanding	Rent Billed
	(£m)	(%)
Monthly payments*	0.2	6.0
Rent waived	0.0	0.2
Unresolved / in discussion	0.4	11.7
Uncollected Rent	0.6	17.9

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

Cash and Borrowings

The Company has approximately £14.1 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 31 December 2020, the LTV was 25.8 per cent and there was significant headroom under debt covenants.

Dividend

On 2 December 2020, the Company announced an increased quarterly dividend payment of 0.85 pence per ordinary share in respect of the financial year ended 30 June 2020, which was paid to shareholders on 31 December 2020. 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 Dec 2020	% capital value movement  in quarter
Offices	94.3	29.7	0.5
West End	28.0	8.8	(1.2)
South East	39.0	12.3	2.4
Rest of UK	27.3	8.6	(0.4)
Industrial, logistics and distribution	142.7	44.9	4.9
South East	142.7	44.9	4.9
Standard Retail	29.3	9.2	(4.4)
West End	7.1	2.2	(8.7)
Rest of London	1.8	0.6	(2.8)
South East	14.9	4.7	(2.7)
Rest of UK	5.5	1.7	(3.9)
Retail Warehouse	51.5	16.2	3.3
Total Property	317.8	100.0	2.4

Summary Balance Sheet

	£m	Pence per share	% of Net Assets
Property Portfolio per Valuation Report	317.8	132.0	134.6
Adjustment for lease incentives	(3.4)	(1.4)	(1.4)
Fair Value of Property Portfolio	314.4	130.6	133.2
Cash	14.1	5.9	6.0
Trade and other receivables	6.8	2.8	2.9
Trade and other payables	(9.6)	(4.0)	(4.1)
Interest-bearing loans	(89.6)	(37.2)	(38.0)
Net Assets at 31 December 2020	236.1	98.1	100.0

The property portfolio will next be valued by an external valuer during March 2021 and the net asset value per share as at 31 March 2021 will be announced in April 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]