BMO Real Estate Investments Ltd Annual Report

 
TIDMBREI 
 
To:                   RNS 
 
Date:               28 September 2020 
 
From:               BMO Real Estate Investments Limited 
 
LEI:                  231801XRCB89W6XTR23 
 
 
·    Portfolio ungeared total return* of -0.6 per cent for the year 
 
·    NAV total return* of -3.7 per cent for the year 
 
·    Dividend of 4.375 pence per share for the year, giving a yield* of 7.8 per 
cent on the year-end share price 
 
·    Dividend cover decreased to 84.3 per cent for the year from 89.4 per cent 
 
* See Alternative Performance Measures 
 
 
Chairman's Statement 
 
We are reporting in the midst of the Covid-19 pandemic and the resultant 
economic disruption. The end of the Brexit transition period is also upon us, 
with no clarity on a deal. These factors have led to the U.K. commercial 
property sector having a very difficult 2020. 
 
Against this background, the Group's net asset value ('NAV') total return for 
the year ended 30 June 2020 was -3.7 per cent with a NAV per share as at 30 
June 2020 of 96.6 pence, down from 104.8 pence per share at the prior year-end. 
 
The share price total return for the year was -24.9 per cent with the shares 
trading at 56.0 pence per share at 30 June, a discount of 42.0 per cent to the 
NAV. Large discounts have been experienced across the real estate sector in a 
period of falling NAV's with many companies either cutting or suspending 
dividends in a market where rental collection has become challenging. 
 
Property Market 
 
The UK commercial property market delivered a total return of -2.7 per cent as 
measured by the MSCI UK Quarterly Property Index ('MSCI') for all assets in the 
year to 30 June 2020. Total return performance was marginally positive in the 
first half of the year, but negative returns were experienced in the second six 
months following the impact of Covid-19. The annual all-property income return 
was 4.5 per cent and capital values fell by 6.8 per cent in the year. 
 
The UK property market went into sharp reverse in March as lockdown was imposed 
but monthly total returns, although negative, have been on a consistently 
improving trend since then. A material uncertainty clause was applied by 
valuers in March, which reflects the fact that there is less certainty in the 
valuations, given the unknown future impact that Covid-19 might have on the 
real estate market. 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. 
 
The downturn has been notable for weakness in the occupational market and 
reduced rates of rent collection, as well as a decrease in property valuations 
across most sectors. The impact on performance has been particularly severe for 
retail, leisure and hospitality where reduced rates of rent collection have 
been experienced. Industrials, offices, supermarkets and residential have been 
relatively resilient. Investment activity in the final quarter dropped sharply 
as sentiment was hit by the scale of economic dislocation. There has been no 
flight of capital or mass distressed selling, but some transactions have been 
aborted, others put on long-term hold and very little new stock released. Some 
deals have gone ahead, especially for long lease indexed supermarket stock and 
industrial and distribution assets. 
 
Performance 
 
The Group's property portfolio produced an ungeared total return of -0.6 per 
cent over the year to June 2020 compared with MSCI which recorded -2.7 per cent 
over the same period. The portfolio has also outperformed MSCI over three years 
and as a result, the Manager is eligible for the maximum performance fee. The 
Board are conscious of the sensitivity of paying performance fees in a market 
of negative returns and following discussions between the Board and the 
Manager, a reduction in the performance fee for the year of 50 per cent has 
been negotiated. It has also been agreed that from 1 July 2020 performance fees 
will be removed from the investment management fee. 
 
The relative outperformance has primarily been driven by the allocation to 
industrial, logistics and distribution assets which accounted for 43.4 per cent 
of the portfolio at the year end. The portfolio continues to experience a low 
vacancy rate which currently stands at 3.3 per cent, compared to an average of 
7.5 per cent for the index as measured by MSCI. Rent collection has also 
benefited over recent quarters by the absence of shopping centre, department 
store, hotel, leisure and student accommodation exposure, and the very small 
exposure to the food and beverage sector. 
 
The Manager has been engaging with tenants given the challenges faced by many 
to meet quarterly rental commitments at this time. The trading restrictions put 
in place by the Government resulted in the closure of many of our retail units, 
although the vast majority have now commenced trading, albeit with social 
distancing measures in place. Collection rates for the last two quarters are 
ahead of expectations and currently stand at 94.1 per cent for the March to 
June quarter and 90.0 per cent for the June to September quarter. 
 
Both the office assets and the industrial, logistics and distribution assets 
delivered positive returns over the year of 6.1 per cent and 4.0 per cent 
respectively, with capital returns of 1.1 per cent for offices and -0.6 per 
cent for industrials, logistics and distribution. These two sectors now make up 
73.2 per cent of the portfolio by value. 
 
The retail market continues to suffer with the pace of valuation falls 
accelerating further, led by the anticipated rebasing of rents across much of 
the high street and shopping centre submarkets. Against this background, the 
Company's retail portfolio as a whole delivered -12.4 per cent compared to 
-12.6 per cent for MSCI. A large portion of the Company's retail exposure is 
low rented, functional, retail warehouses. The majority of the Company's 
tenants in this space were able to remain open throughout lockdown. This was 
demonstrated by the 94 per cent collection from this part of the portfolio for 
the March to June quarter, with monthly payment plans having been put in place 
to assist some tenants with cashflow where justified. 
 
Cash and Borrowings 
 
The Group has approximately GBP13.7 million of available cash and an undrawn 
revolving credit facility of GBP20 million. The Group's GBP90 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 
2020, the Group's net gearing was 25.6 per cent and there was significant 
headroom under debt covenants. The weighted average interest rate (including 
amortisation of refinancing costs) on the Group's total current borrowings was 
3.1 per cent. The Company continues to maintain a prudent attitude to gearing. 
 
Dividend 
 
Two interim dividends of 1.25 pence per share were paid during the year with a 
third interim dividend of 0.625 pence per share paid on 30 June 2020. This was 
a 50 per cent reduction on previous quarterly dividends, reflecting the fact 
that rent collection was likely to be challenging in the coming months and that 
the Group had been paying a dividend which had not been fully covered over the 
course of the financial year. The Board therefore considered it prudent to 
reduce the level of its future quarterly dividend payments in order to protect 
cash reserves and the long-term value of the Group. 
 
A fourth interim dividend of 0.625 pence per share will be paid on 30 September 
2020 and the Board will continue to monitor closely the impact of Covid-19 on 
rental receipts and earnings and keep the future level of dividends under 
review. 
 
Environmental, Social and Governance ('ESG') 
 
The Company continues to make good progress in advancing its ESG strategy with 
the improvement demonstrated in a number of key industry indicators. An 
increase in the Company's annual Global Real Estate Sustainability Benchmark 
(GRESB) score is a notable achievement this year and provides a positive 
independent assessment of the successful results our Property Manager has 
delivered across a broad array of sustainability related measures. 
 
Our portfolio level successes are driven by many and varied interventions at 
local property level where we strive for efficiency and impact. When combined, 
this has created a solid platform from which to drive further progress. As a 
Board, we continue to give considerable attention to our ESG commitments and 
support our Property Manager in responding proactively to this important 
requirement. A more detailed summary of progress is included in the Annual 
Report, and a full review will be shared in the separate 2020 ESG Report, 
available on the Company's website. 
 
Board Composition 
 
Having served 16 years on the Board, Andrew Gulliford had indicated his 
intention to retire by this year's AGM. The Board commenced its search for a 
suitable replacement, but this process was suspended as a result of the 
Covid-19 pandemic. We consider the stability of the Board to be very important 
at this time and Andrew's in-depth knowledge of the Company and its portfolio 
has been invaluable. The recruitment of a non-executive Director with the 
appropriate property experience will recommence in due course but meantime, 
Andrew has agreed to stand for re-election at this year's AGM and serve on the 
Board until a new appointment is made. As part of this process, consideration 
will also be given to the requirement to seek, where appropriate, additional 
diversity within the Board. 
 
Annual General Meeting 
 
The AGM is currently scheduled to be held on 17 November 2020 at the offices of 
BMO Global Asset Management, Quartermile 4, 7a Nightingale Way, Edinburgh, EH3 
9EG at 12.00pm. Despite the easing of some lockdown measures which were put in 
place due to Covid-19, some restrictions remain, including guidance on social 

distancing and given public health concerns, the meeting will not be held in 
the usual format. 
 
It will be restricted to the formal business of the meeting as set out in the 
Notice of the Annual General Meeting on pages 77 to 78 of the Annual Report and 
will follow the minimum legal requirements for an AGM. On this occasion the 
Fund Manager will not attend the meeting, but a presentation will be made 
available on the Company's website together with some frequently asked 
questions after the AGM. 
 
Shareholders are strongly discouraged from attending the meeting and entry may 
be restricted and/or refused in accordance with the Articles, the law and/or 
Government guidance. 
 
Your Board strongly encourage all shareholders to make use of the proxy form or 
form of direction provided in order that you can lodge your votes. Voting on 
all resolutions will be held on a poll, the results of which will be announced 
and posted on the Company's website following the meeting. 
 
In view of the revised format this year, should shareholders have any questions 
or comments in advance of the AGM these can be raised with the Company 
Secretary ([e-mail]). 
 
Outlook 
 
Although the next few months may see positive economic data as some 
restrictions ease, and growth resumes from a low base, we expect the recovery 
to be slow. There is likely to be increased unemployment as the furlough scheme 
ends, which could delay recovery, and further waves of infection and lockdowns 
cannot be ruled out. It looks probable that there will be a permanent shift in 
the property market, particularly in retail where online shopping has 
accelerated and in the office sector where there are and will be increasing 
numbers working from home. 
 
Although the lockdown measures began to be eased towards the end of our 
financial year, the economic outlook remains highly uncertain and the trading 
position of many occupiers is extremely challenged. It will take time for 
output to return to pre Covid-19 levels and for many businesses the new 
economic reality will look very different to that prior to the outbreak. 
 
In the short term, securing income due under existing lease contracts remains 
the Manager's primary focus. The Company's diverse occupier base offers some 
defence in this regard as does the weighting towards industrial, logistics and 
distribution and offices. 
 
We expect that the Company will continue to be impacted by current uncertain 
markets for the rest of 2020 and into 2021 and at the time of writing further 
restrictions have been put in place by the government. However, the portfolio 
is well balanced in terms of quality, sector and geography. This, combined 
with sufficient cash resources and comparatively strong rental collection, 
provides resilience during this difficult period. 
 
We wish our shareholders well during the coming difficult months. 
 
Vikram Lall 
Chairman 
 
 
Manager's Review 
 
Portfolio headlines over the year 
 
·    The Company portfolio delivered an ungeared total return of -0.6 per cent 
over the year. 
 
·    Outperformance against the MSCI Quarterly Property Universe ("MSCI or 'the 
index") over the year, as well as over the three and five years to June 2020. 
The portfolio has outperformed the index over the 16 years since inception. 
 
·    Outperformance driven by a relatively high income return and weighting to 
Industrials. 
 
·    Income return of 5.2 per cent over the year to June 2020. 
 
·    Further sales from the retail portfolio demonstrate the liquidity of the 
Company asset base. 
 
·    Successful completion of asset management initiatives over the year and 
continued demand for the Company's properties have held the vacancy rate at 3.3 
per cent, well below the MSCI average of 7.6 per cent. 
 
·    The structural overweight to Industrials (43 per cent by capital value) 
and the South East (65 per cent) has been preserved. 
 
·    Rental collection for the March-June Quarter of 94.1 per cent with further 
sums expected. Collection rates to date are in line for the June-September 
period. 
 
Property Market 
 
The UK commercial property market delivered a total return of -2.7 per cent in 
the year to June 2020 as measured by the MSCI UK Quarterly Property Universe 
("MSCI"). Performance was driven by an annual income return of 4.5 per cent, 
with capital values falling by 6.8 per cent. 
 
The market was characterised by muted but positive total returns for the 
majority of the year, with the all-property average dragged lower by weakness 
in the retail sector. Performance in the final third of the year was hit by the 
impact of economic lockdown imposed in March 2020, due to the coronavirus 
pandemic. This produced a deterioration in performance across all sectors of 
the market and affected both occupier and investment demand. As a result, total 
returns at the all-property level fell into negative territory by the end of 
the reporting period. 
 
The global nature of the pandemic has plunged the world economy into recession. 
The UK economy was delivering muted growth before lockdown was imposed, 
affected by Brexit concerns. Since then, UK GDP has fallen sharply, and 
although there was some modest monthly improvement towards the end of the 
period, as some restrictions were eased, the economy has still recorded a 
massive loss in output. The downturn is significantly worse than the recession 
seen during the global financial crisis. Fiscal and monetary policies have been 
eased dramatically to try to moderate the impact of lockdown on businesses, 
workers and consumers. The implementation of the job furlough scheme has 
limited the impact on employment to date. Consumer price inflation decelerated 
over the course of the year to 0.6 per cent by year-end and interest rates were 
reduced. The ten-year gilt rate fell to 0.2 per cent by end-June 2020. 
 
There were tentative signs of an improvement in investor sentiment at the start 
of 2020, following the decisive election result and some emerging clarity on 
Brexit, and the year has seen major deals complete for industrials, offices, 
hotels, healthcare and student accommodation. The year to June 2020 saw GBP51 
billion invested in property versus GBP56 billion in the previous year. This 
masks a sharp drop in the final quarter of the reporting period. In March 2020, 
valuers invoked the material uncertainty clause for all property, although 
there has been some easing subsequently. Open-ended funds have been closed to 
subscriptions and redemptions and property company dividend payments were in 
many cases cut or suspended. Some transactions, notably for industrials and 
long-lease indexed supermarkets have progressed. There has been little sign of 
distressed selling or a flight of capital from property but many transactions 
have been put on hold, aborted or subjected to price reductions. Overseas 
buyers remain net investors in property, while local authorities have been 
reducing their rate of net investment following public scrutiny of some recent 
acquisitions. Most sectors recorded lower investment activity compared with the 
previous year, with alternatives a notable exception. The banks have remained 
net lenders to commercial property, but there are signs of stress particularly 
in the retail sector. 
 
Total return performance by segment has generally been lower than in the 
preceding year but continuing the trend established over recent past reporting 
periods, remains highly polarised. Industrial and distribution property 
continued to drive performance delivering a 4.0 per cent benchmark total return 
and with south-east industrials out-performing at 4.8 per cent. Offices also 
delivered a positive performance, at 1.4 per cent, led by City offices. All the 
office segments delivered a positive annual total return. The retail market 
weakened further over the year to deliver a -12.6 per cent total return. 
Shopping centres fared worst with a -22.0 per cent total return but retail 
warehouses also struggled at -14.9 per cent. Standard retail, both in the south 
east and other regions, saw negative total returns, but to a lesser degree. The 
Alternatives sector saw a marginally negative total return of -0.1 per cent. In 
the final three-month period, south east industrials delivered positive total 
returns, but this was the only standard segment to do so. Even greater pressure 
has been placed on the retail sector, while Alternative sector performance has 
been hit by weakness in the leisure and hospitality markets. 
 
The current crisis has been marked by stress in the occupational market and 
rent collection rates dropped in the latter half of the period, most noticeably 
for retail and leisure. Rent collection has been impeded by Government 
emergency legislation. Annual net operating income growth was -1.1 per cent at 
the all-property level, reflecting a 7.1 per cent fall in the June quarter. 
 
Towards the very end of the period, there have been signs of an easing in 
lockdown, more businesses opening, valuation constraints easing and some 
improvement in investment deal flow but considerable uncertainty remains. 
 
Portfolio 
 
Against this backdrop the Company portfolio delivered an ungeared return of 
-0.6 per cent over the 12 months to June versus the Index of -2.7 per cent with 
returns weakening as the period wore on. A positive income return of 5.2 per 
cent was offset by capital value falls of 5.6 per cent. The portfolio has 
delivered in excess of the Index over 1, 3, 5, 7 and 16 years since inception. 
 
The relative outperformance has been primarily driven by the high conviction to 
Industrial, logistics and distribution assets (43 per cent of portfolio 
weighting by capital value) and the sustained yield premium, assisted by the 
consistently low vacancy rate which currently stands at 3.3 per cent (versus 
over 7.6 per cent for the Index). The average lot size of the portfolio, at 
under GBP9 million, has aided liquidity and enabled some flexibility in trading 

throughout a relatively challenging time in the investment market.  Over recent 
quarters the absence of any allocation to shopping centres, department stores, 
hotel, leisure and student accommodation, and the very small exposure to the 
food and beverage sector, has been of benefit to relative performance. 
 
The completion of asset management initiatives and successful negotiation of 
lease events on the Company's Office portfolio led to Offices being the 
portfolios best performing subsector over the year, delivering 6.1 per cent. 
This was followed by Industrial & logistics assets at 4 per cent and Retail, 
inclusive of Retail Warehousing, delivering -12 per cent. Industrial and Office 
assets make up approximately 75 per cent of the portfolio by value. 
 
Retail 
 
Structural change for the retail sector has been accelerated by lockdown as the 
move towards e-commerce has intensified, initially by necessity and now 
progressively, by habit. CVAs, business failures, store rationalisations and 
re-financings continued with high street, shopping centre and leisure tenants 
in particular demanding a re-basing of rents. Landlords are constrained in 
their rent collection options when faced with rent arrears on account of the 
moratorium on affirmative action, and there is now some momentum behind lease 
reform and a move towards turnover rents in the sector. The problems have 
affected all parts of the market but mass-market operators, highly leveraged 
companies, fashion, restaurants and some luxury retailers are worst affected. 
 
Delays to the reform and revaluation of business rates will further impact upon 
the sector. Although post period we have seen some outlets re-opening, footfall 
and trading has not fully recovered, and further stress is anticipated. 
Supermarkets may be relatively resilient where the covenant is strong, and the 
income stream is both long and indexed. We continue to see merit in 
appropriately let retail warehousing, particularly in business sectors where 
occupiers continue to embrace an evolving multi-channel offer and utilise 
stores for a mixture of sales, delivery and returns. Re-purposing and the 
proposed changes to permitted development rights (PDRs) may act to support the 
sector, but the structural adjustment has further to go. 
 
The Company's Retail assets remain fully let and marginally outperformed the 
wider market, delivering -12.4 per cent over the year. Although only 11 per 
cent of the portfolio by weighting, capital write downs for the High Street 
portfolio have been severe and the market remains under significant pressure 
with the pace of value falls accelerating as the period drew to a close. A more 
relative bright spot has been the Company's retail warehousing assets which 
also outperformed their peers in the wider market, although still delivering a 
-9 per cent total return over the 12 months. Fully let and with a high 
prevalence of 'essential retailers' as occupiers, we have seen robust rent 
collection over the period of lockdown from this segment of the portfolio. The 
lack of exposure to Shopping Centres, department stores and fashion parks has 
been to the benefit of relative performance for some time now, as has been the 
absence of leisure, hotels and student accommodation over recent quarters. 
 
A number of sales have been conducted from the retail portfolio over recent 
years, predominantly as part of a reweighting exercise and this policy was 
progressed further over the 12 months to June (see below). While further 
opportunistic disposals remain under consideration there are no plans for a 
wholesale exit from the sector.  Notwithstanding the obvious structural 
challenge to the sector we continue to see significant polarisation in returns 
within sectors and it remains important to look beyond blunt classification to 
the underlying fundamentals of any asset. Many of the portfolio's assets from 
this sector continue to offer a valuable contribution towards the Company 
objective, particularly so with regards to the delivery of income from the 
Retail Warehousing portfolio. Where opportunity for management has arisen, for 
example in the case of the property assets at Enterprise Way, Luton and Brook 
Retail Park, Bromsgrove we have generally been able to generate successful 
outcomes. 
 
Offices 
 
There has been much debate around the 'future of the Office' following the 
adoption of agile working practices as a consequence of the recent lockdown, 
and the encouragement from both employers and government, initially at least, 
to work from home. Investor sentiment towards offices fell sharply in the final 
quarter of the period, however, it was still positive in balance for Central 
London and Rest of UK offices. The latest RICS survey shows 93 per cent of 
respondents expecting occupiers to cut their floor space requirements with the 
majority favouring 5-10 per cent as the likely medium-term readjustment. 
 
The Q2 2020 Central London occupational market data was particularly weak due 
to lockdown. The outlook is uncertain but 50 per cent of space under 
construction to 2024 is let or under offer, providing some downside protection. 
The City appears more exposed in this regard than the West End.  Moving in to 
Q3, workspace occupancy rates are still low, 30-50 per cent at best, and 
travelling on public transport remains unpopular with workers, particularly 
those who feel they can function with a high degree of efficiency remotely. 
Outside of Central London the core regional markets have less than two years 
supply and vacancy rates actually indicate under-supply. More than half of the 
space under construction has been pre-let. Lockdown has affected the market but 
the fundamentals, outside of the evolving threat from behavioural change appear 
relatively sound at this time. 
 
Occupiers have been delaying decisions and there has been an emphasis on 
cutting costs. This is in part down to behavioural changes, not least the 
concerns around public transportation relevant in many of our large cities, but 
it is also linked to the correlation between Office performance and GDP growth, 
expectations for which remain exceptionally weak.  Take-up has also been 
affected by problems in the flexible office sector, most notably at WeWork. 
There has been little increase in new supply in the majority of core markets 
over recent years and vacancy rates remain low by historic standards. Supply is 
likely to be hit further by lockdown and this, coupled with a loss of tertiary 
space due to the extension of PDRs could act as support. Nonetheless we expect 
to see a period of subdued rental growth linked to a softening of aggregate 
demand. Space requirements, office layout and facilities will change as a 
result of the pandemic, certainly in the short term, but likely with at least 
some lasting consequence. The polarisation between prime and secondary stock is 
likely to persist, with those landlords able to offer service and amenity, 
build relationships with occupiers and prioritise wellbeing and ESG 
considerations set to remain most relevant. 
 
The Company's Office portfolio is geographically diverse with holdings in the 
West End of London, the wider South East and core regional markets such as 
Edinburgh. The sector delivered the strongest returns over the year on account 
of leasing activity and the realisation of value-add initiatives at 6.1 per 
cent versus 1.4 per cent for the Index peers. 
 
Industrial and Logistics 
 
There was a marked slowdown in returns from the sector as the year wore on but 
nonetheless the Industrial and Logistics sector continued its recent trend of 
outperformance, with the South East, which includes London, continuing to 
out-perform the Rest of the UK.  Standard industrials outperformed logistics 
warehousing over the year, driven in no small part by sentiment towards London 
multi let estates. The Company's Industrial assets delivered in line with their 
peers at 4.0 per cent versus 3.98 per cent for the Index over the year. 
 
Despite the challenges being faced by the UK economy, sentiment for industrial 
property is being supported by the belief that a permanent shift to more online 
retailing will offer sustained benefit to the sector. A move to onshoring, and 
a reappraisal of supply chains, either due to Brexit or as a response to 
lockdown is also being viewed as a positive. Supply as a whole remains at 
favourable levels. The sector is unlikely to escape the effects of UK and 
global recession but is expected to be among the least impacted. 
 
A feature of the market has been the increase in average deal size over the 
year led by demand from e-commerce occupiers. Activity has been boosted by 
Amazon as well as Covid-related demand from supermarkets and the NHS. Despite 
the expectation of continued buoyant demand, the risk of tenant default also 
needs to be borne in mind, particularly so the more the market leans on demand 
from retail and e-commerce in a recessionary environment. Similarly, certain 
geographies, exposed through supply chains to specific sectors of the economy 
may prove more vulnerable in the event of a prolonged downturn, while others 
appear a little more at the mercy of Brexit trade deals. There had been a 
noticeable supply pickup early in the period regionally and the low level of 
existing supply in the south east has been compounded by intense competition 
for land from a wide range of users. By the end of the year the volume of new 
supply has started to tail off somewhat, reduced in part by lockdown, with 
developers said to be increasingly cautious. Availability on the whole has 
remained broadly unchanged, but with a shift towards better quality assets and 
an overhang of some secondary stock. 
 
The positive performance of the Company's Industrial, Logistics and 
Distribution assets was delivered on account of their core, South-East, and 
predominantly urban locations where we continue to see strong levels of demand, 
successful outcomes at lease event and the opportunity to actively manage the 

tenant base. By weighted contribution the assets at Hemel Hempstead, and the 
multi-let estate at Colnbrook, Heathrow were amongst the top performers over 
the period, as was the 'big box' logistics asset at Echo Park, Banbury. The 
portfolio's exposure to the industrial, logistics and distribution segment of 
the market is now over 43 per cent of assets by value and continues to deliver 
significant structural benefit. Whilst we remain wary of the compressing of 
yields across the sector as a whole, occupancy and income growth has continued 
to justify the sector to date, particularly so on a relative basis given the 
trials evident in many of the other traditional sectors. 
 
The industrials market is expected to continue to out-perform, but there are 
signs that the degree of out-performance is moderating. Demand is likely to be 
supported by the continued growth of online but economic stress and in places, 
increased supply, could cap rental growth prospects, while Brexit could 
simultaneously lead to both a shift to warehousing in mainland Europe and some 
nearshoring / stockpiling within the UK itself. Quality, location, and access 
to major markets and skill hubs remains critical. 
 
Alternatives 
 
The portfolio does not currently own alternatives, which delivered a marginal 
negative total return over the year following a significant deterioration in 
the final quarter. The pandemic has affected hotel and student accommodation 
occupancy rates and this could take some time to recover. Analyst forecasts for 
the five years to 2024 have generally been downgraded with severe mark-downs 
seen for restaurants, leisure and secondary healthcare. Further rental and 
capital value corrections are in prospect. 
 
Rent collection 
 
Collection for the March to June quarter for the Company is currently 94.1 per 
cent with the June to September quarter to date currently standing at 90.0 per 
cent. Monthly payment agreements are set to improve upon this further in the 
coming weeks. c.50 per cent of the Q2 shortfall is to be recovered in due 
course via repayment plans and via documented lease extensions, the balance 
being either rent free concession or sums pending agreement. Agreements to 
allow occupiers to pay monthly act as a drag on collection statistics, however 
we are keen to help our tenants manage their cashflow wherever possible at this 
difficult time. Practical full recovery from Offices and Industrials for 
March-June and over 91 per cent from retail warehouses for the same period 
demonstrates the quality of the Company tenant base alongside the hard work of 
the asset management team. We recognise the challenges being faced by many of 
our occupiers at present and continue to work with them to seek mutually 
beneficial outcomes. Negotiations are undertaken on a case by case basis prior 
to granting any concession to contractually obliged rents. Although June's 
recovery is encouraging to date, we expect further challenges ahead as the 
economy starts to open up. 
 
Asset Management 
 
In an environment where passive rental value growth will be difficult to come 
by active management will be the key to driving income growth. Whilst the 
near-term focus has been on the protection of the Company's balance sheet, 
there are a number of portfolio initiatives that remain ongoing that are 
forecast to add meaningful income to the portfolio upon practical completion. 
Sales earlier in the period have enabled the Company to continue with these 
initiatives without compromising on financial prudence. The two major capital 
projects are at the office property at County House, Chelmsford and the retail 
warehouse at Enterprise Way, Luton. The redevelopment at Luton is entirely 
pre-let to a discount food store, DIY retailer and drive through pod, with the 
majority of the new income secured on the basis of long leases with upward only 
inflation linkages in the rent review mechanisms. Contractors are on site with 
practical completion of the building works and commencement of the new leases 
expected mid-2021. In the meantime, the Company continues to receive income 
from the current occupier. The refurbishment of the office at County House, 
Chelmsford is ongoing with the first stage of the works to be completed later 
this year. The Crown Prosecution Service are the existing tenant who are 
continuing to occupy and pay rent through the delivery phase, having 
contractually committed to a new 10-year lease on half of the property upon 
completion of the works. The remainder of the refurbished space will be 
available to let in the open market. At the time of writing we are in 
negotiations with an occupier to take one of the floors. 
 
The year has been characterised by positive leasing outcomes on the Industrial 
assets at Colnbrook Industrial Estate, Heathrow and Airways, Eastleigh. In 
addition, there was the letting of office suits at 14 Berkeley Street, London 
and Glory Park, High Wycombe, alongside the new letting over 40,000 sq ft of 
space to Virgin Media at Bellshill, Glasgow. Encouraging rent review 
settlements were delivered at the office building let to HSBC in Edinburgh 
Park. 
 
Transactions 
 
As in the previous reporting period, portfolio turnover and the burden of 
associated transaction costs were relatively low, the Company having declined 
to purchase assets late in the cycle following the Covid-19 outbreak. 
 
Turning to sales, the Company continued to reduce its exposure to the retail 
sector. There was the sale of the parade of shops at Kings Heath, Birmingham 
for GBP2.0 million at the start of the year, followed by the successful disposal 
of two retail assets for a combined 
 
GBP13.7 million in the final quarter of 2019, the first a multi-let high street 
block in Leamington Spa and the second a retail warehouse in Rotherham. In 
aggregate these sales were secured within 1 per cent of the independent market 
valuation at the time. There have now been 9 disposals from the retail 
portfolio over the last 4 years. We are wary of continuing to hold exposure to 
a structurally challenged part of the market but are also alive to the dangers 
of seeking a wholesale exit at this time with investment demand relatively 
weak. There remains benefit in some diversification which was brought into 
sharp focus by the recent downgrades to parts of the leisure and food & 
beverage market, albeit that diversification must be aligned to structural 
trends. For example, at current pricing we continue to see merit in ownership 
of the Company's functional, generally low rented, retail warehousing assets, 
well placed for both convenience and multi-channel retailing, where we are 
seeing live opportunities to unlock value via leasing activity or repurposing. 
 
Cash management 
 
The cash built up through sales originally earmarked to pursue suitable 
acquisition opportunities or to enhance the existing portfolio via asset 
management initiatives has served the purpose of bolstering the balance sheet 
over the past few months, while LTV's have come under scrutiny and rent 
collection for the sector has been sluggish. The cash position presents a solid 
footing with which to approach the challenges inherent in the UK commercial 
property market at this time, and subject to continued robustness in rent 
collection, the pursuit, at the right time, of acquisition opportunities. Given 
competition for quality property and the cautious optimism in forecasts for the 
market in general throughout much of the period until lockdown, the Company has 
maintained a measured approach to deployment of capital. This is something 
which now appears prudent given recent value falls at the All Property level. 
 
The Manager considers that while there is no pressure to invest the remaining 
cash reserves immediately, opportunities may reveal themselves from stressed or 
forced sellers in due course. Opportunistic sales from the retail portfolio 
remain under consideration, although very much subject to pricing. 
 
Outlook 
 
Although the next few months may see positive economic data as restrictions 
ease, and growth resumes from a low base, there are a number of headwinds. 
There is likely to be a spike in unemployment as the furlough scheme ends in 
October, which could delay recovery. Further waves of infection and lockdowns 
cannot be ruled out. The Brexit negotiations have been slow and the UK remains 
on course to leave the EU at the end of the year. Although fiscal austerity has 
been ruled out, at some point, the public accounts will need to move towards 
stabilisation. The property market will also need to adjust to a probable 
permanent shift towards more online retailing and increased working from home, 
affecting prospects across the main sectors. Hospitality and Student 
accommodation face unique challenges in the short term. Lease structures may 
also change, as firms demand greater flexibility, and income growth will be 
patchy. The outlook is uncertain, but on consensus economic forecasts and with 
no further major lockdowns, we expect a difficult 2020 to be followed by a 
partial recovery in 2021 and modest positive total returns thereafter, led by 
the industrials, logistics & distribution sector. 
 
The Company portfolio will not be immune to these market forces, which look 
likely to weigh on performance in the near term, although it remains relatively 
well placed to be resilient on the basis of its diversification and quality, 
sector and geographic bias. In particular, prospects remain encouraging for 
Industrial, logistics and distribution properties located within the south 
east, as well as a fit for purpose Office exposure. The company has made a 
meaningful move to down weight its exposure to the retail market and does not 
carry a legacy allocation to the Shopping Centre, Leisure and Hospitality sub 
sectors. Comparably strong rent collection statistics and the minimal impact 
from CVA or administrations to date has added further comfort. 
 
Peter Lowe 
BMO Rep Property Management Limited 
 
 
 
                      BMO Real Estate Investments Limited 

                Consolidated Statement of Comprehensive Income 
 
                                                         Year ended       Year ended 
                                                       30 June 2020     30 June 2019 
 
                                                              GBP'000            GBP'000 
 
Revenue 
 
Rental income                                                17,011           18,606 
 
Total revenue                                                17,011           18,606 
 
Losses on investment properties 
 
Losses on sale of investment properties realised              (991)            (206) 
 
Unrealised losses on revaluation of investment             (17,031)          (7,343) 
properties 
 
Total Income                                                (1,011)           11,057 
 
Expenditure 
 
Investment management fee                                   (2,261)          (2,286) 
 
Other expenses                                              (2,146)          (1,757) 
 
Total expenditure                                           (4,407)          (4,043) 
 
Net operating (loss)/profit before finance costs and        (5,418)            7,014 
taxation 
 
Net finance costs 
 
Interest receivable                                              34               13 
 
Finance costs                                               (3,507)          (3,526) 
 
                                                            (3,473)          (3,513) 
 
Net (loss)/profit from ordinary activities before           (8,891)            3,501 
taxation 
 
Taxation on profit on ordinary activities                     (258)            (295) 
 
(Loss)/profit for the year/total comprehensive income       (9,149)            3,206 
 
Basic and diluted earnings per share                         (3.8p)             1.3p 
 
 
All items in the above statement derive from continuing operations. 
 
All of the profit and total comprehensive income for the year is attributable 
to the owners of the Group. 
 
 
                      BMO Real Estate Investments Limited 
                          Consolidated Balance Sheet 
 
                                                            30 June 2020   30 June 2019 
                                                                   GBP'000          GBP'000 
 
 
Non-current assets 
 
Investment properties                                            308,734        339,353 
 
Trade and other receivables                                        3,788          4,162 
 
                                                                 312,522        343,515 
 
Current assets 
 
Trade and other receivables                                        3,437          2,569 
 
Cash and cash equivalents                                         13,726          9,858 
 
                                                                  17,163         12,427 
 
Total assets                                                     329,685        355,942 
 
Non-current liabilities 
 
Interest-bearing bank loans                                     (89,542)       (96,505) 
 
Trade and other payables                                           (960)          (782) 
 
                                                                (90,502)       (97,287) 
 
Current liabilities 
 
Trade and other payables                                         (6,319)        (6,074) 
 
Tax payable                                                        (258)          (295) 
 
                                                                 (6,577)        (6,369) 
 
Total liabilities                                               (97,079)      (103,656) 
 
Net assets                                                       232,606        252,286 
 
Represented by: 
 
Share capital                                                      2,407          2,407 
 
Special distributable reserve                                    177,161        177,161 
 
Capital reserve                                                   52,122         70,144 
 
Revenue reserve                                                      916          2,574 
 
Equity shareholders' funds                                       232,606        252,286 
 
Net asset value per share                                          96.6p         104.8p 
 
 
 
                      BMO Real Estate Investments Limited 
                  Consolidated Statement of Changes in Equity 
                        For the year ended 30 June 2020 
 
 
                                           Special 
                             Share   Distributable    Capital    Revenue 
                           Capital         Reserve    Reserve    Reserve      Total 
                             GBP'000           GBP'000      GBP'000      GBP'000      GBP'000 
 
 
At 1 July 2019               2,407         177,161     70,144      2,574    252,286 
 
 
Loss for the year                -               -          -    (9,149)    (9,149) 
 
 
Total comprehensive 
income for the year              -               -          -    (9,149)    (9,149) 
 
Dividends paid                   -               -          -   (10,531)   (10,531) 
 
Transfer in respect of           -               -   (18,022)     18,022          - 
losses on investment 
properties 
 
 
At 30 June 2020              2,407         177,161     52,122        916    232,606 
 
For the year ended 30 June 2019 
 
 
                                           Special 
                             Share   Distributable    Capital    Revenue 
                           Capital         Reserve    Reserve    Reserve      Total 
                             GBP'000           GBP'000      GBP'000      GBP'000      GBP'000 
 
 
At 1 July 2018               2,407         177,161     77,693      3,855    261,116 
 
 
Profit for the year              -               -          -      3,206      3,206 
 
Total comprehensive              -               -          -      3,206      3,206 
income for the year 
 
Dividends paid                   -               -          -   (12,036)   (12,036) 
 
Transfer in respect of           -               -    (7,549)      7,549          - 
losses on investment 
properties 
 
 
At 30 June 2019              2,407         177,161     70,144      2,574    252,286 
 
 
 
                      BMO Real Estate Investments Limited 
                     Consolidated Statement of Cash Flows 
 
 
                                                              Year ended    Year ended 
                                                            30 June 2020  30 June 2019 
 
                                                                   GBP'000         GBP'000 
 
Cash flows from operating activities 
 
Net (loss)/profit for the year before taxation                   (8,891)         3,501 
 
Adjustments for: 
 
     Losses on sale of investment properties realised                991           206 
 
     Unrealised losses on revaluation of investment               17,031         7,343 
properties 
 
     Realised capital contribution                                  (12)             - 
 
     Increase in operating trade and other receivables             (494)       (1,758) 
 
     Increase in operating trade and other payables                  423         1,286 
 
     Interest received                                              (34)          (13) 
 
     Finance costs                                                 3,507         3,526 
 
                                                                  12,521        14,091 
 
Taxation paid                                                      (295)         (295) 
 
Net cash inflow from operating activities                         12,226        13,796 
 
Cash flows from investing activities 
 
Purchase of investment properties                                  (723)             - 
 
Capital expenditure                                              (2,070)         (878) 
 
Sale of investment properties                                     15,402         3,244 
 
Interest received                                                     34            13 
 
Net cash inflow from investing activities                         12,643         2,379 
 
Cash flows from financing activities 
 
Dividends paid                                                  (10,531)      (12,035) 
 
Bank loan interest paid                                          (3,470)       (3,319) 
 
Bank loan repaid, net of costs - Barclays Loan                   (7,000)       (6,000) 
 
Net cash outflow from financing activities                      (21,001)      (21,354) 
 
Net increase/(decrease) in cash and cash equivalents               3,868       (5,179) 
 
Opening cash and cash equivalents                                  9,858        15,037 
 
Closing cash and cash equivalents                                 13,726         9,858 
 
 
 
BMO Real Estate Investments Limited 
 
Principal Risks and Future Prospects 
 
Each year the Board carries out a comprehensive, robust assessment of the 
principal risks and uncertainties that could threaten the Group's success. The 
consequences for its business model, liquidity, future prospects and viability 
form an integral part of this assessment. 
 
The Board applies the principles detailed in the internal control guidance 
issued by the Financial Reporting Council and has established an ongoing 
process designed to meet the particular needs of the Group in managing the 
risks and uncertainties to which it is exposed. 
 
Consideration has been given to the impact from Covid-19 which has had a 
significant effect on the commercial real estate market. This has resulted in a 
number of the residual risks increasing as highlighted in the table below. 
 
Principal risks and uncertainties faced by the Group are described below and in 
note 2, which provides detailed explanations of the risks associated with the 
Group's financial instruments. 
 
·    Market - the Group's assets comprise of direct investments in UK 

commercial property and it is therefore exposed to movements and changes in 
that market. This includes political and economic factors such as Brexit and 
the impact of Covid-19. 
 
·    Investment and strategic - poor investment processes and incorrect 
strategy, including sector and geographic allocations and use of gearing, could 
lead to poor returns for shareholders. 
 
·    Regulatory - breach of regulatory rules could lead to suspension of the 
Company's Stock Exchange listing, financial penalties or a qualified audit 
report. 
 
·    Tax structuring and compliance - the Group should ensure compliance with 
the relevant tax rules and thresholds at all times.  Changes in legislation 
could result in the Group no longer being a tax efficient investment vehicle 
for shareholders. 
 
·    Financial - inadequate controls by the Manager or third-party service 
providers could lead to misappropriation of assets. Inappropriate accounting 
policies or failure to comply with accounting standards could lead to a 
qualified audit report, misreporting or breaches of regulations. Breaching 
Guernsey solvency test requirements or loan covenants could lead to a loss of 
shareholders' confidence and financial loss for shareholders. 
 
·    Reporting - valuations of the investment property portfolio require 
significant judgement by valuers which could lead to a material impact on the 
net asset value.  Incomplete or inaccurate income recognition could have an 
adverse effect on the Group's net asset value, earnings per share and dividend 
cover. 
 
·    Credit - an issuer or counterparty could be unable or unwilling to meet a 
commitment that it has entered into with the Group.  This may cause the Group's 
access to cash to be delayed or limited. 
 
·    Operational - failure of the Manager's accounting systems or disruption to 
its business, or that of other third-party service providers through error, 
fraud, cyber-attack or business continuity failure could lead to an inability 
to provide accurate reporting and monitoring, leading to a loss of 
shareholders' confidence. 
 
·    Environmental - inadequate attendance to environmental factors by the 
Manager, including those of a regulatory and market nature and particularly 
those relating to energy performance, health and safety, flood risk and 
environmental liabilities, leading to the reputational damage of the Group, 
reduced liquidity in the portfolio, and/or negative asset value impacts. 
 
The Board seeks to mitigate and manage these risks through continual review, 
policy-setting and enforcement of contractual obligations. It also regularly 
monitors the investment environment and the management of the Group's property 
portfolio. 
 
The Manager seeks to mitigate these risks through active asset management 
initiatives and carrying out due diligence work on potential tenants before 
entering into any new lease agreements. All properties in the portfolio are 
insured. 
 
As well as considering current risks quarterly, the Board and the Investment 
Manager carry out a separate annual assessment of emerging risks when reviewing 
strategy and evaluate how these could be managed or mitigated. However, the 
Board considers that the line between current and emerging risks is often 
blurred and many of the emerging risks identified are already being managed to 
some degree where their effects are beginning to impact. 
 
The principal emerging risks identified are outlined below: 
 
·    The structural and behavioural changes in the market is a significant 
emerging risk, particularly as the prominence of online shopping continues to 
increase. Over the last two years the market has experienced a number of 
high-profile retailers going out of business, downsizing, closing stores and 
negotiating flexible leases at lower rents. With an increasing number of vacant 
stores, the challenge is to find different uses for commercial property, 
whether that's for residential, leisure, food and beverage, or other 
alternative uses. 
 
·    The ESG agenda is a very prominent one and will continue to grow in its 
importance to shareholders, future investors and our customers. As discussed in 
our ESG report, we have already made significant strides in this area and we 
will continue to do so. The increasing market attention being paid to climate 
risk and social impact have been notable features of the evolving agenda over 
the last year, and those need to be considered more explicitly in property 
investment and management activity than has been the case previously. 
 
·    The political climate continues to be uncertain and as well as the ongoing 
effects of Brexit, there are strong calls for another Scottish referendum. 
During times of heightened uncertainty, a key benefit to the Company is its 
closed-ended structure, in that it is not forced to sell property during 
stressed times. 
 
·    Legislative changes are always a risk, particularly where they are 
politically driven and may cause changes in our property allocation. Such 
issues might involve some style of rent control or an escalation of regulatory 
oversight on ESG factors, particularly in responding to the climate emergency. 
 
·    The impact of technology increasingly means that things change very 
quickly which is an opportunity as well as a risk, and it is important that we 
continue to keep abreast of what is happening in this space. 
 
·    The developing threat from Covid-19 is the dominant risk for the global 
economy, and by extension the UK property market. The severity of the threat is 
becoming clearer by the day with significant disruption to all sectors 
worldwide. This threat has an ongoing effect on many of our principal risks and 
the Board meet regularly with the Manager to assess these risks and how they 
can be managed. More detail is included in the Chairman's Statement and the 
Manager's Report. Of particular concern is the Company's cash flow, given the 
number of expected tenant defaults in the short-term. The Board and the manager 
review on a daily basis the cash collected and have taken the decision to half 
the rate of the quarterly dividend to maximise the cash reserves available. In 
addition, the Group is in regular contact with its lenders in case the decline 
in rent collected causes certain covenants to be breached or become close to 
being breached. 
 
To help manage emerging risks and discuss other wider topics affecting 
property, the Board has an annual strategy meeting. The Board considers having 
a clear strategy is the key to managing and mitigating emerging risk. 
 
The highest residual risks encountered during the year, how they are mitigated 
and actions taken to address these are set out in the table below. 
 
Highest Residual Risks      Mitigation                  Actions taken in the year 
 
Unfavourable markets, poor  The underlying investment   The Board reviews the 
stock selection,            strategy, performance,      Manager's performance at 
inappropriate asset         gearing and income          quarterly Board meetings 
allocation and              forecasts are reviewed with against key performance 
underperformance against    the Investment Manager at   indicators and the ongoing 
benchmark and/or peer       each Board Meeting. The     strategy is reviewed and 
group. This risk may be     Company's portfolio is well agreed. 
exacerbated by gearing      diversified and of a high   The Board has met on a 
levels.                     quality. Gearing is kept at significantly more frequent 
A challenging retail market modest levels and is        basis since the outbreak of 
where rental growth is      monitored by the Board.     Covid-19 where it has 
generally negative and      The Manager provides        received trading updates 
capital values are falling  regular information on the  from the Manager and 
as capitalisation rates     expected level of rental    carefully reviewed cash 
rebase.                     income that will be         forecasts. 
This market has witnessed   generated from underlying   Rental collection in the 
many company voluntary      properties. The portfolio   retail and retail warehouse 
arrangements and            is well diversified by      sectors has been negatively 
administrations in the last geography and sector and    impacted by Covid-19. The 
two years. There is an      the exposure to individual  Manager is in regular 
increased risk of tenant    tenants is monitored and    contact with tenants and 
defaults in this sector,    managed to ensure there is  rental collection is a 
particularly since the      no over exposure.           primary focus. Collection 
Covid-19 outbreak, which                                rates since the Covid-19 
could put the level of                                  outbreak have been ahead of 
dividend cover at risk.                                 expectations. 
 
 
Risk increased in the year 
under review 
 
The share price has been    The discount is reported to Investors have access to the 
trading at a discount and   and reviewed by the Board   Manager and the underlying 
this has widened            at least quarterly. Share   team who will respond to any 
significantly since the     buybacks as a means of      queries they have on the 
Covid-19 outbreak. This     narrowing the discount or   discount. The level of 
imbalance, combined with    as an attractive investment discount is kept under 
the recent share price      for the Company are         constant review and the 
volatility can diminish the considered and weighed up   number of meetings to 
attractiveness of the       against the risks. The      discuss the discount 
Company to investors.       position is monitored by    increased during the year. 
                            the Manager on a daily      At the Board's request there 
                            basis and any material      has been increased reporting 
                            changes are investigated    from the broker on the 

                            and communicated to the     market and the shareholder 
                            Board more regularly.       feedback they are receiving. 
 
 
Risk increased in the year 
under review 
 
Insufficient cash resources The Manager reports         The Board have held 
to meet capital commitments quarterly on ongoing        additional ad-hoc Board 
or to fund the quarterly    revenue and cash            Meetings since the Covid-19 
dividend leading to         forecasting. The Company    outbreak which includes 
emergency sale of assets    performs a solvency test in revenue and cash 
and/or cutting of dividend  advance of each dividend    forecasting. The GBP20m 
level.                      payment. A detailed cash    revolving credit facility 
                            flow model and schedule on  was extended from November 
                            immediate cash commitments  2020 to March 2025. A 
                            is regularly reviewed by    decision was made to cut the 
                            the Board. A GBP20m revolving dividend by 50 per cent in 
                            credit facility with        order to protect cash 
                            Barclays (available until   resources. The rate and 
Risk increased in the year  March 2025) provides        sustainability of the 
under review                additional flexibility.     dividend remains under 
                                                        continual review. 
 
Error in the calculation/   External valuers are        The valuations are being 
application of the          appointed to value          closely monitored and 
investment company NAV      the portfolio on a          compared to other 
leads to a material         quarterly basis. There is   market-based information. 
misstatement.               regular liaison with the    There has been more 
                            valuers regarding all       transactional evidence 
Valuers have difficulty in  elements of the portfolio.  coming to the market post 
valuing the property assets There is regular attendance period end and the material 
due to lack of              by Directors at the         uncertainty clause will be 
transactional evidence or   valuation meetings and the  removed by the valuers for 
market uncertainty.         Auditors attend the year    the September 2020 
                            end valuation meeting.      valuations. 
The Valuers introduced a 
material uncertainty clause 
in their valuations 
following the Covid-19 
outbreak. 
 
 
Risk increased in the year 
under review 
 
Viability Assessment and Statement 
 
The Board conducted this review over a 5-year time horizon, a period thought to 
be appropriate for a commercial property investment company with a long-term 
investment outlook, borrowings secured over an extended period and a portfolio 
with a weighted average unexpired lease length of 5.7 years. The assessment has 
been undertaken, taking into account the principal risks and uncertainties 
faced by the Group which could threaten its objective, strategy, future 
performance, liquidity and solvency. 
 
The major risks identified as relevant to the viability assessment were those 
relating to a downturn in the UK commercial property market and its resultant 
effect on the valuation of the investment portfolio, the level of rental income 
being received and the effect that this would have on cash resources and 
financial covenants. The Board took into account the illiquid nature of the 
Group's portfolio, the existence of the long-term borrowing facilities, the 
effects of any significant future falls in investment values and income 
receipts on the ability to repay and re-negotiate borrowings, maintain dividend 
payments and retain investors. These matters were assessed over an initial 
period to September 2025, and the Directors will continue to assess viability 
over 5 year rolling periods, taking account of foreseeable severe but plausible 
scenarios. 
 
In the ordinary course of business, the Board reviews a detailed financial 
model on a quarterly basis, incorporating market consensus forecast returns, 
projected out to the maturity of its principal loan of GBP90 million which is due 
to mature in 2026.  This model uses prudent assumptions and factors in any 
potential capital commitments. For the purpose of assessing the viability of 
the Group, the model has been adjusted to look at the next five years and is 
stress tested with projected returns comparable to the most extreme commercial 
property market downturn experienced historically. The model projects a 
worst-case scenario of an equivalent fall in capital and income values over the 
next two years, followed by three years of zero growth. The model demonstrated 
that even under these extreme circumstances the Group remains viable. 
 
Based on their assessment, and in the context of the Group's business model, 
strategy and operational arrangements set out above, the Directors have a 
reasonable expectation that the Group will be able to continue in operation and 
meet its liabilities as they fall due over the 5-year period to September 2025. 
 For this reason, the Board also considers it appropriate to continue adopting 
the going concern basis in preparing the Annual Report and Consolidated 
Financial Statements. 
 
The Company continues to monitor the potential impact of the Covid-19 virus on 
cash flows. Particular attention is paid to the circumstances of all the 
tenants in the portfolio and detailed modelling is performed on a day to day 
basis as events unfold. Rental collection since the outbreak has been in excess 
of the levels originally anticipated, with the levels of rent collected for the 
March to June 2020 quarter at 94.1 per cent and collection for the June to 
September 2020 quarter at 90.0 per cent.  The Board made the decision to cut 
the level of the quarterly dividend by 50 per cent from June 2020 in order to 
preserve cash resources. 
 
Detailed modelling has been performed, which has looked at the impact of the 
current crisis under increasingly negative scenarios and the effect of a 
suspension in paying out dividends to preserve cash. The modelling demonstrates 
that the Company remains viable. 
 
                      BMO Real Estate Investments Limited 
 
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 
reviewed detailed cash flow, income and expense projections in order to assess 
the Group's ability to pay its operational expenses, bank interest and 
dividends. The Directors have examined significant areas of possible financial 
risk including cash and cash requirements and the debt covenants, in particular 
those relating to loan to value and interest cover. The Directors have not 
identified any material uncertainties which cast significant doubt on the 
Group's ability to continue as a going concern for a period of not less than 12 
months from the date of the approval of the consolidated financial statements. 
The Board believes it is appropriate to adopt the going concern basis in 
preparing the financial statements. 
 
Directors' Responsibilities in Respect of the Annual Report & Consolidated 
Accounts 
 
We confirm that to the best of our knowledge: 
 
·    the financial statements, prepared in accordance with IFRS as adopted by 
the European Union, give a true and fair view of the assets, liabilities, 
financial position and profit or loss of the Group and the undertakings 
included in the consolidation taken as a whole and comply with The Companies 
(Guernsey) Law, 2008; 
 
·    the Strategic Report (comprising the Chairman's Statement, Business Model 
and Strategy, Promoting Success, Key Performance Indicators, Principal Risks 
and Future Prospects, Manager's Review, Environmental, Social and Governance 
and Property Portfolio) and the Report of the Directors' includes a fair review 
of the development and performance of the business and the position of the 
Group and the undertakings included in the consolidation taken as a whole 
together with a description of the principal risks and uncertainties that it 
faces; 
 
·    the financial statements and Directors' Report includes details of related 
party transactions; and 
 
·    the Annual Report and financial statements, taken as a whole, are fair, 
balanced and understandable and provide the information necessary for 
shareholders to assess the Group's position and performance, business model and 
strategy. 
 
On behalf of the Board 
V Lall 
Chairman 
25 September 2020 
 
                      BMO Real Estate Investments Limited 
                Notes to the Consolidated Financial Statements 
                        for the year ended 30 June 2020 
 
1.          The audited results of the Group which were approved by the Board 
on 22 September 2020 have been prepared on the basis of International Financial 
Reporting Standards as adopted by the EU, interpretations issued by the IFRS 
Committee, applicable legal and regulatory requirements of the Companies 
(Guernsey) Law, 2008 and the Listing Rules of the UK Listing Authority as well 
as the accounting policies set out in the statutory accounts of the Group for 
the year ended 30 June 2020. 
 
2.         Financial Instruments and investment properties 
 
The Group's investment objective is to provide ordinary shareholders with an 
attractive level of income together with the potential for income and capital 
growth from investing in a diversified UK commercial property portfolio. 
 
Consistent with that objective, the Group holds UK commercial property 
investments.  In addition, the Group's financial instruments comprise cash, 
receivables, interest-bearing loans and payables that arise directly from its 
operations. 
 
The Group is exposed to various types of risk that are associated with 
financial instruments. Financial risks are risks arising from financial 
instruments to which the Group is exposed during or at the end of a reporting 

period. Financial risk comprises market risk (including currency risk, price 
risk and interest rate risk), credit risk and liquidity risk. There was no 
foreign currency risk as at 30 June 2020 or 30 June 2019 as assets and 
liabilities are maintained in Sterling. 
 
The Board reviews and agrees policies for managing the Group's risk exposure. 
These policies are summarised below and have remained unchanged for the year 
under review. These disclosures include, where appropriate, consideration of 
the Group's investment properties            which, whilst not constituting 
financial instruments as defined by IFRS, are considered by the Board to be 
integral to the Group's overall risk exposure. 
 
The primary objectives of the financial risk management policies are to 
establish risk limits, and then ensure that exposure to risks stays within 
these limits. 
 
Market risk 
 
Market risk is the risk the fair value of future cash flows of a financial 
instrument will fluctuate because of changes in market prices. 
 
Sensitivities to market risks included below are based on change in one factor 
while holding all other factors constant. In practice, this is unlikely to 
occur, and changes in some of the factors may be correlated - for example, 
changes in interest rate and changes in foreign currency rates. 
 
The Group's strategy for the management of market risk is driven by the 
investment policy. The management of market risk is part of the investment 
management process and is typical of commercial property investment. The 
portfolio is managed with an awareness of the effects of adverse valuation 
movements through detailed and continuing analysis, with an objective of 
maximising overall returns to shareholders. 
 
Price Risk 
 
The Group has no significant exposure to price risk as it does not hold any 
equity securities or commodities. The Group is exposed to price risk other than 
in respect of financial instruments, such as property price risk including 
property rentals risk. Investment in property and property-related assets are 
inherently difficult to value due to the individual nature of each property. As 
a result, valuations are subject to substantial uncertainty. There is no 
assurance that the estimates resulting from the valuation process will reflect 
the actual sales price even where such sales occur shortly after the valuation 
date. Such risk is minimised through the appointment of external property 
valuers. 
 
Any changes in market conditions will directly affect the profit/loss reported 
through the Consolidated Statement of Comprehensive Income. A 10 per cent 
increase in the value of the investment properties held at 30 June 2020 would 
have increased net assets available to shareholders and the increased the net 
income for the year by GBP30.9 million (2019: GBP33.9 million); an equal change in 
the opposite direction would have decreased net assets and decreased net income 
by an equivalent amount. 
 
The calculations above are based on investment property valuations at the 
respective balance sheet dates and are not representative of the year as a 
whole, nor reflective of future market conditions. 
 
Interest rate risk 
 
Some of the Group's financial instruments are interest-bearing.  They are a mix 
of both fixed and variable rate instruments with differing maturities.  As a 
consequence, the Group is exposed to interest rate risk due to fluctuations in 
the prevailing market rate. 
 
The Group's exposure to interest rate risk relates primarily to the Group's 
borrowings.  Interest rate risk on the GBP90 million Canada Life term loan is 
managed by the loan bearing interest at a fixed rate of 3.36 per cent per annum 
until maturity on 9 November 2026. 
 
Credit risk 
 
Credit risk is the risk that an issuer or counterparty will be unable or 
unwilling to meet a commitment that it has entered into with the Group. 
 
In the event of default by an occupational tenant, the Group will suffer a 
rental shortfall and incur additional costs, including legal expenses, in 
maintaining, insuring and re-letting the property. The Board receives regular 
reports on concentrations of risk and any tenants in arrears.  The Manager 
monitors such reports in order to anticipate, and minimise the impact of, 
defaults by occupational tenants. 
 
The Group has a diversified tenant portfolio. The maximum credit risk from the 
rent receivables of the Group at 30 June 2020 is GBP2,264,000 (2019: GBP802,000). 
The maximum credit risk is stated after deducting an impairment provision of GBP 
421,000 (2019: GBP9,000). Of this amount GBPnil was subsequently written off and GBP 
111,000 has been recovered. 
 
Apart from the rent receivable disclosed above there were no financial assets 
which were either past due or considered impaired at 30 June 2020 (2019: nil). 
 
Deposits refundable to tenants may be withheld by the Group in part or in whole 
if receivables due from the tenant are not settled or in case of other breaches 
of contract. 
 
All of the cash is placed with financial institutions with a credit rating of A 
or above.  Bankruptcy or insolvency of these financial institutions may cause 
the Group's ability to access cash placed on deposit to be delayed or limited. 
Should the credit quality or the financial position of the banks currently 
employed significantly deteriorate, the Manager would move the cash holdings to 
another financial institution. 
 
The Group can also spread counterparty risk by placing cash balances with more 
than one financial institution.  The Directors consider the residual credit 
risk to be minimal. 
 
Liquidity risk 
 
Liquidity risk is the risk that the Group will encounter in realising assets or 
otherwise raising funds to meet financial commitments.  The Group's investments 
comprise UK commercial property. 
 
Property in which the Group invests is not traded in an organised public market 
and may be illiquid.  As a result, the Group may not be able to quickly 
liquidate its investments in these properties at an amount close to their fair 
value in order to meet its liquidity requirements. 
 
The Group's liquidity risk is managed on an ongoing basis by the Manager and 
monitored on a quarterly basis by the Board.  In order to mitigate liquidity 
risk the Group aims to have sufficient cash balances (including the expected 
proceeds of any property sales) to meet its obligations for a period of at 
least twelve months. 
 
In certain circumstances, the terms of the Group's bank loans entitle the 
lender to require early repayment, for example, if covenants are breached, and 
in such circumstances the Group's ability to maintain dividend levels and the 
net asset value attributable to the Ordinary Shares could be adversely 
affected. 
 
3.          The fourth interim dividend of 0.625p will be paid on 30 September 
2020 to shareholders on the register on 11 September 2020. The ex-dividend date 
was 10 September 2020. 
 
4.         There were 240,705,539 Ordinary Shares in issue at 30 June 2020. The 
earnings per Ordinary Share are based on the net loss for the year of GBP 
9,149,000 and on 240,705,539 Ordinary Shares, being the weighted average number 
of shares in issue during the year. 
 
5.         These are not full statutory accounts. The full audited accounts for 
the year ended 30 June 2020 will be sent to shareholders in September 2020, and 
will be available for inspection at Trafalgar Court, Les Banques, St. Peter 
Port, Guernsey, the registered office of the Company.  The full annual report 
and consolidated accounts will be available on the Company's website: 
www.bmorealestateinvestments.com 
 
6.          The Annual General Meeting will be held on 17 November 2020. 
 
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. 
 
                                                                2020        2019 
                                                               pence       pence 
 
Net Asset Value per share                        (a)            96.6       104.8 
 
Share price per share                            (b)            56.0        80.0 
 
Discount (c = (b-a)/a)                           (c)          -42.0%      -23.7% 
 
Dividend Cover - The percentage by which Profits for the year (less Gains/ 
losses on investment properties and non-recurring other income) cover the 
dividend paid. 
 
A reconciliation of dividend cover is shown below: 
 
                                                              30 June     30 June 
                                                                 2020        2019 
 
 
                                                                GBP'000       GBP'000 
 
(Loss)/profit for                                             (9,149)       3,206 
the year 
 
Add:                 Realised losses                              991         206 
 
                     Unrealised losses                         17,031       7,343 
 
Profit before investment gains and losses        (a)            8,873      10,755 
 
Dividends                                        (b)           10,531      12,036 
 
Dividend Cover (c=a/b)                           (c)            84.3%       89.4% 
 
Dividend Yield - The annualised dividend divided by the share price at the 
year-end. 
 
Net Gearing - Borrowings less net current assets divided by value of investment 
properties. 
 
                                                             30 June     30 June 
                                                                2020        2019 
 
 

                                                               GBP'000       GBP'000 
 
Loans                                                         89,542      96,505 
 
Less net current assets                                     (10,586)     (6,058) 
 
Total                                             (a)         78,956      90,447 
 
Value of investment properties                    (b)        308,734     339,353 
 
Net Gearing (c = a/b)                             (c)          25.6%       26.7% 
 
Ongoing Charges - All operating costs incurred by the Company, expressed as a 
proportion of its average Net Assets over the reporting year.  The costs of 
buying and selling investments and derivatives are excluded, as are interest 
costs, taxation, non-recurring costs and the costs of buying back or issuing 
Ordinary Shares.  An additional Ongoing Charge figure is calculated which 
excludes direct operating property expenses as these are variable in nature and 
tend to be specific to lease events occurring during the year. 
 
                                                             30 June    30 June 
                                                                2020       2019 
 
 
                                                               GBP'000      GBP'000 
 
Investment management fee                                      2,261      2,286 
 
Other expenses                                                 2,146      1,757 
 
Less non-recurring bad                                         (413)         15 
debts 
 
Less direct property                                           (852)      (867) 
expenses 
 
Ongoing charges (excluding direct operating expenses)          3,142      3,191 
 
Ongoing charges (excluding direct operating expenses)           1.3%       1.2% 
as a % of average net assets 
 
Ongoing charges (including direct operating expenses)          3,994      4,058 
 
Ongoing charges (including direct operating expenses)           1.6%       1.6% 
as a % of average net assets 
 
Average net assets                                           244,424    256,408 
 
 
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.  This calculation 
is carried out by MSCI Inc. 
 
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. This 
calculation is carried out by MSCI Inc. 
 
Portfolio (Property) Total Return - Combining the Portfolio Capital Return and 
Portfolio Income Return over the period, calculated on a quarterly 
time-weighted basis. This calculation is carried out by MSCI Inc. 
 
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. 
 
                                                            2020            2019 
 
NAV per share at start of year - pence                     104.8           108.5 
 
NAV per share at end of year - pence                        96.6           104.8 
 
Change in the year                                         -7.8%           -3.4% 
 
Impact of dividend reinvestments                           +4.1%           +4.7% 
 
NAV total return for the year                              -3.7%           +1.3% 
 
 
 
 
                                                            2020            2019 
 
Share price per share at start of year -                    80.0            99.8 
pence 
 
Share price per share at end of year - pence                56.0            80.0 
 
Change in the year                                        -30.0%          -19.8% 
 
Impact of dividend reinvestments                           +5.1%           +4.6% 
 
Share price total return for the year                     -24.9%          -15.2% 
 
All enquiries to: 
 
Peter Lowe 
Scott Macrae 
BMO Investment Business Limited 
Tel: [phone] 
The Company Secretary 
 
Northern Trust International Fund Administration Services (Guernsey) Limited 
PO BOX 255 
Trafalgar Court 
Les Banques 
St Peter Port 
Guernsey GY1 3QL 
Tel: [phone] 
 
 
 
END 
 

(END) Dow Jones Newswires

September 28, 2020 02:00 ET (06:00 GMT)