BMO Real Estate Investments Ltd Trading Update and Net Asset Value

 
TIDMBREI 
 
To:                   Company Announcements 
 
Date:                28 April 2022 
 
Company:        BMO Real Estate Investments Limited 
 
LEI:                  231801XRCB89W6XTR23 
 
Subject:           Trading Update and Net Asset Value 
 
Headlines 
 
  * Net Asset Value total return of 6.6 per cent for the quarter ended 31 March 
    2022 
 
  * Sixth consecutive quarter of Net Asset Value appreciation 
 
  * Share Price total return of 11.3 per cent for the quarter ended 31 March 
    2022 
 
  * As of 31 March 2022, the portfolio void rate was 2.7 per cent by estimated 
    rental value 
 
Net Asset Value ('NAV') 
 
The unaudited NAV per share of BREI as at 31 March 2022 was 128.0 pence. This 
represents an increase of 5.8 per cent from the NAV per share as at 31 December 
2021 of 121.0 pence and a NAV total return for the quarter of 6.6 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 March 2022 and is calculated after the 
deduction of all dividends paid prior to that date. 
 
Breakdown of NAV movement 
 
Set out below is a breakdown of the change to the unaudited net asset value per 
share calculated under IFRS over the period from 31 December 2021 to 31 March 
2022. 
 
                                                      Pence    % of 
                                                        per opening 
                                                      share     NAV 
 
Net asset value per share as at 31 December 2021      121.0 
 
Unrealised movement in valuation of property            6.8    5.6* 
portfolio (including the effect of gearing) 
 
Net revenue                                             1.2     1.0 
 
Dividends paid                                        (1.0)   (0.8) 
 
Net asset value per share as at 31 March 2022         128.0     5.8 
 
* The un-geared capital return of the property portfolio over the quarter to 31 
March 2022 was 4.2 per cent. 
 
Share Price 
 
The share price was 94.0 pence per share as at 31 March 2022, which represented 
a discount of 26.6 per cent to the NAV per share announced above. The share 
price total return for the quarter was 11.3 per cent. 
 
Performance 
 
The UK real estate market got off to a positive start in 2022, with investment 
volumes significantly ahead of long-term averages and the weight of capital 
driving prime yields back to pre-pandemic levels. This encouraging backdrop 
faces headwinds in the form of an increasingly uncertain economic context 
characterised by geopolitical instability, inflationary pressures, supply chain 
disruption and falling consumer confidence. However, the UK property market 
should continue to offer a relative safe-haven as prime yields remain 
attractive from a global perspective and some of the inflation-hedging 
characteristics of the asset class continue to support the sector's yield 
advantage. 
 
Within this context, the Company's property portfolio delivered a sixth 
consecutive quarter of NAV appreciation, posting quarterly capital growth of 
4.2 per cent. The key driver of performance remains the strength of the 
Industrial sector and the weighting held within the portfolio, with Industrial 
assets now accounting for 54.3 per cent of the portfolio by value and posting a 
6.3 per cent quarterly capital return in the period. The weight of capital 
seeking exposure to the sector continues to drive yield compression, while 
active asset management has been critical to capitalise on the rental growth 
story linked to continued supply constraints, particularly in London and the 
South East. Most notably, the quarter saw the reletting of Unit 2 at Network 
Bracknell, simultaneously surrendering the incumbent tenant's lease and 
delivering a new lease at a premium to both passing rent and estimated rental 
value (ERV). Asset management successes such as this will be pivotal in 
enhancing income return and driving performance from the low yields that are 
now prevalent in the sector. 
 
The Retail Warehousing sector remains a highly sought-after asset class, with 
the Company's fit for purpose, convenience and low rented, modern stock well 
positioned to benefit from investor demand for the resilient income streams. 
The Company's assets delivered capital growth of 4.7 per cent and offer 
structural advantage to the portfolio, accounting for 18.2 per cent of the 
portfolio by capital value. This capital growth was largely derived from market 
yield compression, however, ongoing asset management at properties such as 
Beverley Way in New Malden and Halls Mill Retail Park in Bury underline the 
Manager's ability to deliver an attractive, sustainable income return from the 
portfolio's assets. 
 
For the first quarter since the on-set of the pandemic, all sectors had 
positive capital returns, as improving sentiment, particularly towards the 
Retail sector has crystalised into valuation uplifts. The Company's Office 
properties (21.8 per cent of portfolio value) delivered a negligible valuation 
uplift with asset management key in supporting capital values. Most notably, 
the refurbished second floor 'Plug & Play' suite at Berkeley Street, London was 
let on a new 5-year lease ahead of ERV, cementing a strong rental tone and 
resulting in the asset benefitting from full occupation. The asset's income 
profile was further enhanced by the (post period) settlement of the outstanding 
March 2020 rent review on the ground floor car showroom, which settled at a 
meaningful premium to passing rent. While the core Office centres and prime 
assets are benefitting from both occupier and investor's 'flight to quality', 
capital values remain constrained on assets with latent leasing or capital 
expenditure risk. Company performance reflected this in respect of some of the 
South East and Rest of UK office assets, as a consequence of the inclusion of 
prudent capital expenditure and reletting assumptions by the Company's 
independent Valuers. 
 
The Company's High Street Retail assets (5.7 per cent of portfolio value) 
delivered quarterly capital growth of 0.2 per cent as the market continues to 
stabilise somewhat. While Company assets with shorter leasing profiles have 
held back capital performance for some time now, near-zero vacancy rates across 
the portfolio lend confidence to the ability to maintain the attractive income 
return, while the predominantly convenience/neighbourhood led nature of the 
portfolio's Retail assets are in relatively good stead to benefit from 
improving market dynamics. 
 
Rent collection for Q1 2022 has reached 99.9 per cent, indicating a 
normalisation of payment patterns coinciding with the end of the statutory 
commercial rent moratorium. Rent collection since the onset of the pandemic 
stands at 98 per cent, with unsettled sums related to pandemic concessions 
limited to a sole case in the Office portfolio where a payment plan was agreed 
with the occupier. The structural composition of the portfolio has been key in 
delivering these collection statistics, with near full collection from the 
Industrial, Office and Retail Warehousing portfolios. 
 
As at period end the portfolio vacancy rate fell to 2.7 per cent (by ERV) and 
the average weighted unexpired lease term improved to 6.2 years (assuming 
tenant breaks are exercised). 
 
Dividend 
 
On 1 March 2022, the Company announced a quarterly dividend payment of 1.0 
pence per ordinary share in respect of the financial year ended 30 June 2022, 
which was paid to shareholders on 31 March 2022. The Board will continue to 
monitor rental receipts and earnings closely and keep the future level of 
dividends under review. 
 
Cash and Borrowings 
 
The Company has approximately £9.1 million of available cash and an undrawn 
revolving credit facility of £13 million. The £90 million long-term debt with 
Canada Life and the £20 million revolving credit loan facility with Barclays 
(of which £7 million is drawn) do not need to be refinanced until November 2026 
and March 2025 respectively. As at 31 March 2022, the LTV was 23.5 per cent and 
there was significant headroom under debt covenants. 
 
Portfolio Analysis                                £m        % of  % capital 
                                                       portfolio      value 
                                                        as at 31  movement 
                                                      March 2022 in quarter 
 
Offices                                         87.6        21.8          - 
 
  * West End                                    29.0         7.2        3.5 
 
  * South East                                  33.4         8.3      (1.3) 
 
  * Rest of UK                                  25.2         6.3      (2.2) 
 
Industrial, logistics and distribution         218.4        54.3        6.3 
 
  * South East                                 218.4        54.3        6.3 
 
Standard Retail                                 23.1         5.7        0.2 
 
  * West End                                     6.6         1.6          - 
 
  * Rest of London                               1.5         0.4      (3.2) 
 
  * South East                                  11.5         2.9        1.3 
 
  * Rest of UK                                   3.5         0.8      (1.4) 
 
Retail Warehouse                                73.3        18.2        4.7 
 
Total Property                                 402.4       100.0        4.2 
 
Summary Balance Sheet 
 
                                                     £m   Pence    % of 
                                                            per     Net 
                                                          share  Assets 
 
Property Portfolio per Valuation Report           402.4   167.2   130.6 
 
Adjustment for lease incentives                   (4.4) 
                                                          (1.8)   (1.4) 
 

Fair Value of Property Portfolio                  398.0   165.4   129.2 
 
Cash                                                9.1     3.8     3.0 
 
Trade and other receivables                         7.1     2.9     2.3 
 
Trade and other payables                          (9.3)   (3.9)   (3.0) 
 
Interest-bearing loans                           (96.9)  (40.2)  (31.5) 
 
Net Assets at 31 March 2022                       308.0   128.0   100.0 
 
The property portfolio will next be valued by an external valuer during June 
2022 and the net asset value per share as at 30 June 2022 will be announced in 
July 2022. 
 
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] 
 
 
 
END 
 
 

(END) Dow Jones Newswires

April 28, 2022 02:00 ET (06:00 GMT)