To:
RNS
Date:
26 March 2020
From:
BMO Real Estate Investments Limited
LEI:
231801XRCB89W6XTR23
Interim results in respect of the six-month period ended
31 December 2019
· Net asset value total return* of
0.3 per cent
· Portfolio ungeared total return*
of 1.3 per cent
· Annualised dividend yield* of
6.0 per cent based on the period end share price
· Dividend cover* reduced to 69.6 per
cent for the period, impacted by sales and a one-off accounting
adjustment following the sale of a retail warehouse in Rotherham
* See Alternative Performance Measures
The Chairman, Vikram Lall,
stated:
The Group’s performance reflects a further period of challenging
conditions in the UK commercial property market with capital values
decreasing by 1.8 per cent. The net asset value (‘NAV’) total
return per share for the period was 0.3 per cent and the NAV per
share at the period end was 102.6
pence.
The share price increased by 5.0 per cent over the six months,
giving a share price total return of 8.2 per cent, with the
discount to NAV narrowing to 18.1 per cent at the period end,
compared to a discount of 23.7 per cent as at 30 June 2019.
Property Market
Historical
The UK commercial property market delivered a total return of
0.4 per cent in the six months to 31
December 2019 with capital falls of 1.8 per cent, as
measured by the MSCI UK Quarterly Property Index (‘MSCI’). There
was a drop off in performance which was primarily attributed to the
continued political and economic uncertainty and an investment
hiatus linked to the general election, alongside continued weakness
in the retail market.
The retail sector saw further deterioration to produce a total
return of -4.4 per cent, with both occupier and investor sentiment
depressed. In contrast, Industrials delivered a 2.6 per cent total
return, with the South-East out-performing, although this
represented a deceleration from the previous six-month period. The
Office market recorded a 2.3 per cent total return, with provincial
offices being the top-performing segment. Total returns for
alternatives were 2.6 per cent in the six-month period. Investment
activity staged some recovery, especially towards year-end, to move
above the long-term average, helped by overseas buying
post-election. By the end of the reporting period, the annual
income return had edged up marginally to 4.5 per cent.
Current
Post period end, COVID-19 is clearly the dominant risk for the
global economy and the UK property market. There has been
significant disruption to all sectors worldwide. We do not yet know
how significant an impact the outbreak will have on medium-term
growth, but it would appear that early predictions of an immediate
bounce back by the middle of the year may well prove short-sighted.
Certainly, there is potential for a change in consumption patterns
and working practices that could have lasting consequences for
consumer behaviour.
The UK property market has until recently, outside of parts of
the retail market at least, been characterised by historically high
levels of occupancy and low levels of new supply. Pricing for prime
logistics, offices and alternatives has been robust. While likely
impacting on the tenants and therefore occupancy rates we also see
potential disruption to construction projects. In the current
environment of enforced social distancing it is unreasonable to
expect occupiers to engage in leasing decisions and we expect a
pause in any transactional activity which could extend for a number
of months.
Portfolio
Historical
Turning back to performance for the period, the Group’s property
portfolio delivered a total return of 1.3 per cent in the period,
compared with 0.4 per cent for MSCI. Both capital and income
returns were ahead of the index. Over the twelve months to
December 2019 the Group’s property
portfolio produced an ungeared total return of 3.3 per cent, 200
basis points of outperformance against MSCI which returned 1.3 per
cent.
With valuations under pressure, performance was again income
driven. Capital depreciation for the portfolio of 1.2 per cent was
offset by an income return of 2.6 per cent. At the period
end, the portfolio continued to deliver an above market income
yield, with the low void rate of 3.2 per cent. This was
almost entirely attributable to the part pre-let office property at
County House, Chelmsford which is
currently under refurbishment and is due for completion by the end
of 2020. Tenant demand for the Company’s assets remains strong,
particularly for the large industrial exposure located within the
South-East. Average unexpired lease length has remained steady over
the period, being in excess of six years.
The portfolio’s Office assets, particularly the regional
offices, were the key contributors to Company performance over the
period, delivering a 4.4 per cent total return. This was
comfortably in excess of the index for the period and was driven by
the successful realisation of a number of asset management
initiatives, including those at Standard Hill, Nottingham and the continuation of the work at
14 Berkeley Street, London, the
Company’s largest asset.
The portfolio’s Industrial assets also delivered positive
performance, returning 2.6 per cent for the six months. This is
reflective of their core South-East, and predominantly urban
locations allowing for active management of the tenant base. The
Industrial assets at Eastleigh and
the multi-let estate at Colnbrook,
Heathrow were amongst the top
performers over the period. The portfolio’s exposure to this
segment of the market is now over 40 per cent of assets by
value.
The Company’s Retail assets remain fully let and despite
pressure on total returns, marginally outperformed the wider
market, delivering -2.7 per cent versus -4.5 per cent from the MSCI
Index. The High Street and the Retail Warehouse assets showed a
divergence of fortunes with the Retail Warehouse assets
outperforming the MSCI index by some margin. This was on account of
the generally low rented nature of the Company properties within
this subsector, and the continued demand for well-located assets.
The lack of exposure to Shopping Centres, department stores and
fashion parks has been to the benefit of relative performance.
Against this challenging backdrop, the Company successfully
completed the disposal of two retail assets for £13.65 million in
the final quarter of 2019. The first, a multi-let high street block
on the Parade and Warwick Street in Leamington Spa with an average
lease term of 2.8 years to break, was sold for £6.9 million in
November 2019. The second, a retail
warehouse in Rotherham, was sold
for £6.75 million in December 2019 to
an owner occupier. The unit was occupied by Homebase under the
terms of their August 2018 CVA. In
aggregate these sales were secured at 1 per cent below the Q3 2019
independent market valuation. These sales have enhanced the cash
reserves of the Company as referred to below, and this is of great
benefit to the Company in the current climate.
The Company’s Retail portfolio remains under continual review
and has been the focus of significant management activity. Ten
assets have been sold over the past three years in order to
position the asset base away from this structurally challenged part
of the market. Nevertheless, the Board remains aware of the dangers
of liquidating an entire subsector into a relatively thin
investment market, particularly given the quality inherent in a
number of the portfolio’s assets and the opportunities for
repurposing and delivering the value that we are already seeing
coming through in leasing activity.
Current
There are specific near-term risks to both revenue from rental
income and downward pressure on property valuations. This is
compounded by the recent gating of the open-ended property funds,
with valuers being expected to declare ‘Material Uncertainty’
around upcoming asset valuations given the lack of comparable
transactions and general market uncertainty.
As we continue to monitor ongoing developments regarding the
outbreak of COVID-19, both the Board and the Manager are taking
every precaution to safeguard the health and wellbeing of staff,
occupiers and stakeholders. The Manager has robust business
continuity plans to ensure it can maintain operations in these
challenging times. These continuity plans have been
thoroughly reviewed since the outbreak, and the Board is in close
contact with senior management and business continuity teams across
the BMO Financial Group to assess the situation and react
accordingly. Although a work from home policy has been introduced
by the Manager across all geographies, with all non-essential
business travel being postponed and all employees following
government advice regarding social distancing and personal travel;
close asset monitoring is continuing remotely, through established
reporting channels.
Borrowings and Cash
The Group currently has borrowings of £90 million from a
non-amortising term loan facility agreement with Canada Life
Investments which expires in November
2026. There is also a £20 million revolving credit facility
agreement with Barclays Bank plc which is currently undrawn. This
facility is due to expire in November
2020 and we are close to finalising its extension to
March 2025. At the period end the
covenants on both facilities were comfortably met and there is
currently significant covenant headroom. Net gearing represented
24.2 per cent of the investment properties of the Group as at
31 December 2019. The weighted
average interest rate (including amortisation of refinancing costs)
on the Group's total current borrowings is 3.1 per cent. The
Company continues to maintain a prudent attitude to gearing.
The Group had £16.6 million of cash available at 31 December 2019 with a £20 million revolving
credit facility also available if required. While it is too early
to give reliable predictions of the potential impact upon revenue
for the coming year, given the current uncertainty linked to the
outbreak of COVID 19, the Manager is carefully monitoring/analysing
the rental income forecasts and liaising with the underlying
tenants. Furthermore, the Company has sufficient cash
reserves. These are being managed very carefully, with a prudent
approach being adopted to preserve cashflow and reduce operational
costs, including the suspension of all non-essential capital
expenditure projects.
Dividends and Dividend Cover
The first interim dividend for the year ending 30 June 2020 of 1.25
pence per share was paid in December
2019, with a second interim dividend of 1.25 pence per share to be paid on 31 March 2020 to shareholders on the register on
20 March 2020.
The dividend cover for the six months was 69.6 per cent,
compared with a dividend cover of 90.3 per cent for the equivalent
period last year. This shortfall was primarily as a result of a
decrease in rental income of £1.1 million for the six months.
£820,000 of the decrease was attributable to the recently sold
property in Rotherham and two
thirds of that amount was a result of the required accounting
treatment of lease incentives following the sale, rather than a
drop in the level of cash received. There was also a reduction in
rent at the office building at County House, Chelmsford as part of the ongoing
refurbishment mentioned above.
Environmental, Social and Governance
(‘ESG’)
I am delighted with the progress the Company continues to make
in advancing its ESG strategy and with the improvement realised in
a number of key industry indicators. A significant increase in the
portfolio’s annual Global Real Estate Sustainability Benchmark
(GRESB) score is a notable achievement and provides a pleasing
independent reflection of the successful attention our property
managers have given across a breadth of sustainability related
matters.
Replacement of communal lighting with more environmentally
friendly modern equivalents at some of our retail and industrial
sites, together with collaboration and thoughtful control over
heating and cooling of occupier spaces in our multi-occupied office
assets, have realised a 4.8 per cent reduction in landlord-procured
absolute energy consumption compared with last year.
We continue to give considerable attention to our ESG
commitments and to responding to the ever-changing landscape in
this space. An update on progress is included in this announcement
and we will provide a further summary of progress in our Annual
Report later this year, with a more detailed insight of our
performance in our 2020 ESG Report.
Outlook
Although sentiment improved at the start of 2020 following a
conclusive general election result and Brexit being triggered, this
went into sharp reverse soon afterwards in response to the spread
of COVID-19 both globally and within the UK. Monetary and fiscal
policy have been eased substantially in an effort to combat the
disruption caused by the pandemic. With economic growth forecasts
being revised lower and concerns about a no deal Brexit
re-surfacing, the outlook for property has become much more
uncertain with share prices across the real estate sector falling
sharply and remaining volatile. The Company's share price at close
on 24 March 2020 was 48 pence per ordinary share. The duration and
severity of the COVID-19 outbreak is unknown, but it is likely to
impact 2020 performance across the property industry, and the
changes to working practices and lifestyles may have longer-term
implications for the industry.
In such uncertain times the diversification of our asset base,
the exposure to a wide range of sectors and occupiers, in
particular industrial and offices which make up approximately three
quarters of the asset base by value should provide relative
resilience. The Company has limited exposure to development,
leisure and restaurants and no exposure to the other hospitality
and healthcare sectors.
We anticipate that there will be some impact upon revenues for
the coming year, but it is too early to quantify the levels.
Against this uncertain background the Company has a robust Balance
Sheet and the cash position, including undrawn loan facilities
remains strong.
Enquiries to:
The Company Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited
Trafalgar Court,
Les Banques,
St Peter Port
Guernsey GY1 3QL
Tel: 01481 745001
Fax: 01481 745051
P Lowe, S Macrae
BMO Investment Business Limited
Tel: 0207 628 8000
Fax: 0131 225 2375
Environmental, Social and Governance
(“ESG”)
Highlights for the half year period to
31 December 2019
The Company has continued to advance the implementation of its
ESG Strategy over the period with material progress being made in a
number of key areas, most notably a 4.8% reduction in our absolute
energy consumption, equating to a 13.5% reduction in carbon
emissions. This is broadly in line with our long-term emissions
reduction trajectory and has been driven mostly by portfolio
movements as well as operational building management
improvements.
The distribution profile of our Energy Performance Certificate
(EPC) ratings remains broadly unchanged across the portfolio. The
number of certificates held has reduced on account of property
sales but exposure to lower F & G rated demises remains
unchanged at 4% in terms of estimated rental value.
The Company has engaged WSP UK Limited to provide advice and
technical expertise on the assessment and evaluation of physical
climate risks and opportunities through detailed scenario modelling
and analysis. Outputs are anticipated during the next half-year and
will serve to inform and support the disclosures the Company will
continue to make under the Taskforce for Climate-related Financial
Disclosures (TCFD) initiative.
We are also pleased to report that the Company submitted to the
2019 Global Real Estate Sustainability Benchmark (GRESB) survey and
achieved a score of 60, representing a 39.5% increase in the
previous year’s result. Furthermore, the fund achieved a rating of
B in GRESB’s public disclosure analysis indicating a good level of
reporting and transparency. These indicators confirm that good
progress is being made and that the Company has a solid platform
from which to continue making further incremental improvements.
BMO Real Estate Investments Limited
Condensed Consolidated Statement of Comprehensive Income
Notes |
Six months to
31 December
2019
(unaudited) |
Six months to
31 December
2018
(unaudited) |
Year to
30 June
2019
(audited) |
|
£’000 |
£’000 |
£’000 |
Revenue |
|
|
|
Rental income |
8,305 |
9,380 |
18,606 |
Total revenue |
8,305 |
9,380 |
18,606 |
(Losses)/gains on investment properties |
|
|
|
(Losses)/gains on sale of
investment
6
properties realised
Unrealised losses on revaluation of
6
investment properties |
(987)
(2,473) |
24
(5,466) |
(206)
(7,343) |
Total
income |
4,845 |
3,938 |
11,057 |
|
|
|
|
Expenditure |
|
|
|
Investment management
fee
2 |
(1,318) |
(1,064) |
(2,286) |
Other
expenses
3 |
(884) |
(943) |
(1,757) |
Total expenditure |
(2,202) |
(2,007) |
(4,043) |
|
|
|
|
Net operating profit before
finance costs and taxation |
2,643 |
1,931 |
7,014 |
|
|
|
|
Net finance costs |
|
|
|
Interest receivable |
14 |
4 |
13 |
Finance costs |
(1,781) |
(1,797) |
(3,526) |
|
(1,767) |
(1,793) |
(3,513) |
|
|
|
|
Net profit from
ordinary activities before taxation |
876 |
138 |
3,501 |
Taxation on profit on ordinary
activities |
(147) |
(147) |
(295) |
Profit/(loss) for
the period |
729 |
(9) |
3,206 |
|
|
|
|
|
|
|
|
Basic and diluted
earnings per
share
5 |
0.3p |
0.0p |
1.3p |
BMO Real Estate Investments Limited
Condensed Consolidated Balance Sheet
Notes |
31 December
2019
(unaudited)
£’000 |
31 December
2018
(unaudited)
£’000 |
30 June
2019
(audited)
£’000 |
Non-current assets |
|
|
|
Investment
properties
6 |
322,405 |
343,093 |
339,353 |
Trade and other receivables |
3,398 |
3,354 |
4,162 |
|
325,803 |
346,447 |
343,515 |
Current assets |
|
|
|
Trade and other receivables |
1,714 |
2,394 |
2,569 |
Cash and cash equivalents |
16,618 |
9,354 |
9,858 |
|
18,332 |
11,748 |
12,427 |
|
|
|
|
Total assets |
344,135 |
358,195 |
355,942 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
Trade and other payables |
(6,552) |
(6,383) |
(6,074) |
Tax payable |
(147) |
(147) |
(295) |
|
(6,699) |
(6,530) |
(6,369) |
|
|
|
|
Total assets less current
liabilities |
337,436 |
351,665 |
349,573 |
|
|
|
|
Non-current liabilities |
|
|
|
Interest-bearing bank
loans
7 |
(89,666) |
(96,418) |
(96,505) |
Trade and other payables |
(773) |
(158) |
(782) |
|
(90,439) |
(96,576) |
(97,287) |
|
|
|
|
|
|
|
|
Net assets |
246,997 |
255,089 |
252,286 |
|
|
|
|
|
|
|
|
Represented by: |
|
|
|
Share
capital
9 |
2,407 |
2,407 |
2,407 |
Special distributable reserve |
177,161 |
177,161 |
177,161 |
Capital reserve |
66,684 |
72,251 |
70,144 |
Revenue reserve |
745 |
3,270 |
2,574 |
Equity shareholders’
funds |
246,997 |
255,089 |
252,286 |
|
|
|
|
|
|
|
|
Net asset value per
share
10 |
102.6p |
106.0p |
104.8p |
|
|
|
|
BMO Real Estate Investments Limited
Condensed Consolidated Statement of Changes in Equity
For the period ended 31 December 2019 (unaudited)
|
Share
Capital
£’000 |
Special
Distributable Reserve
£’000 |
Capital Reserve
£’000 |
Revenue
Reserve
£’000 |
Total
£’000 |
At 1 July 2019 |
2,407 |
177,161 |
70,144 |
2,574 |
252,286 |
|
|
|
|
|
|
Profit for the period |
- |
- |
- |
729 |
729 |
Dividends paid |
- |
- |
- |
(6,018) |
(6,018) |
Transfer in respect of losses on
investment properties |
- |
- |
(3,460) |
3,460 |
- |
|
|
|
|
|
|
At 31 December 2019 |
2,407 |
177,161 |
66,684 |
745 |
246,997 |
For the period ended 31 December 2018 (unaudited)
|
Share
Capital
£’000 |
Special
Distributable Reserve
£’000 |
Capital Reserve
£’000 |
Revenue
Reserve
£’000 |
Total
£’000 |
At 1 July 2018 |
2,407 |
177,161 |
77,693 |
3,855 |
261,116 |
|
|
|
|
|
|
Loss for the period |
- |
- |
- |
(9) |
(9) |
Dividends paid |
- |
- |
- |
(6,018) |
(6,018) |
Transfer in respect of losses on
investment properties |
- |
- |
(5,442) |
5,442 |
- |
|
|
|
|
|
|
At 31 December 2018 |
2,407 |
177,161 |
72,251 |
3,270 |
255,089 |
For the year ended 30 June 2019 (audited)
|
Share
Capital
£’000 |
Special
Distributable Reserve
£’000 |
Capital Reserve
£’000 |
Revenue
Reserve
£’000 |
Total
£’000 |
At 1 July 2018 |
2,407 |
177,161 |
77,693 |
3,855 |
261,116 |
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
3,206 |
3,206 |
Dividends paid |
- |
- |
- |
(12,036) |
(12,036) |
Transfer in respect of losses on
investment properties |
- |
- |
(7,549) |
7,549 |
- |
|
|
|
|
|
|
At 30 June 2019 |
2,407 |
177,161 |
70,144 |
2,574 |
252,286 |
BMO Real Estate Investments Limited
Condensed Consolidated Statement of Cash Flows
|
Notes |
Six months
to
31 December 2019
(unaudited) |
Six months to 31
December 2018
(unaudited) |
Year to
30 June
2019
(audited) |
|
|
|
|
|
|
|
£’000 |
£’000 |
£’000 |
|
|
|
|
|
Cash flows from operating
activities |
|
|
|
|
Net profit for the period before
taxation |
|
876 |
139 |
3,501 |
Adjustments for: |
|
|
|
|
Losses/(gains) on sale of investment
properties
realised
Unrealised losses on revaluation
of
investment properties |
6
6 |
987
2,473 |
(24)
5,466 |
206
7,343 |
Realised
capital contribution |
6 |
(12) |
- |
- |
Decrease/(increase) in operating trade and
other
receivables |
|
1,699 |
(774) |
(1,758) |
Increase in
operating trade and other payables |
|
455 |
971 |
1,286 |
Interest
received |
|
(14) |
(4) |
(13) |
Finance
costs |
|
1,781 |
1,797 |
3,526 |
|
|
8,245 |
7,571 |
14,091 |
|
|
|
|
|
Taxation
paid |
|
(295) |
(294) |
(295) |
Net cash inflow
from operating activities |
|
7,950 |
7,277 |
13,796 |
|
|
|
|
|
Cash flows from investing
activities |
|
|
|
|
Capital
expenditure |
6 |
(1,184) |
(341) |
(878) |
Purchase of investment
properties |
6 |
(718) |
- |
- |
Sale of investment
properties |
6 |
15,402 |
1,074 |
3,244 |
Interest received |
|
14 |
4 |
13 |
|
|
|
|
|
Net cash inflow from investing
activities |
|
13,514 |
737 |
2,379 |
|
|
|
|
|
Cash flows from financing
activities |
|
|
|
|
Dividends
paid |
|
(6,018) |
(6,018) |
(12,035) |
Bank loan interest paid |
|
(1,686) |
(1,679) |
(3,319) |
Bank loan repaid, net of costs –
Barclays |
|
(7,000) |
(6,000) |
(6,000) |
|
|
|
|
|
Net cash outflow from financing
activities |
|
(14,704) |
(13,697) |
(21,354) |
|
|
|
|
|
Net increase/(decrease) in cash
and cash equivalents |
|
6,760 |
(5,683) |
(5,179) |
Opening cash and cash
equivalents |
|
9,858 |
15,037 |
15,037 |
Closing cash and cash
equivalents |
|
16,618 |
9,354 |
9,858 |
BMO Real Estate Investments Limited
Notes to the Condensed Financial Statements
for the six months to 31 December
2019
1. General information
The condensed consolidated financial statements have been
prepared in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom Financial Conduct
Authority and IAS 34 ‘Interim Financial Reporting’. The condensed
consolidated financial statements do not include all of the
information required for a complete set of IFRS financial
statements and should be read in conjunction with the consolidated
financial statements for the Group for the year ended 30 June 2019 which were prepared under full IFRS
requirements. The accounting policies used in preparation of the
condensed consolidated financial statements are consistent with
those of the consolidated financial statements of the Group for the
year ended 30 June 2019.
The Group has adopted the following new standard which is
effective for annual periods beginning on or after 1 January
2019. The following change is also expected to be reflected
in the Group’s consolidated financial statements as at and for the
year ended 30 June 2020.
· IFRS 16 ‘Leases’ – For lessees,
it will result in almost all leases being recognised on the
consolidated statement of financial position, as the distinction
between operating and finance leases will be removed. Under
the new standard, an asset (the right to use the leased item) and a
financial liability to pay rentals are recognised. The only
exceptions are short-term and low-value leases. The
accounting for lessors will not significantly change. The
Directors have assessed the requirements of IFRS 16 and determine
that there will be no material impact on its current accounting
practices.
2.
Investment management fee
|
Six months to 31
December 2019
£’000 |
Six months to 31
December 2018
£’000 |
Year to
30 June 2019
£’000 |
|
|
|
|
|
|
Investment management fee – basic
fee |
1,044 |
1,064 |
2,104 |
|
Investment management fee –
performance fee |
274 |
- |
182 |
|
|
|
|
|
|
|
1,318 |
1,064 |
2,286 |
|
3. Other
expenses
|
Six months to 31
December 2019
£’000 |
Six months to 31
December 2018
£’000 |
Year to
30 June 2019
£’000 |
|
|
|
|
|
|
Direct operating expenses of let
rental property |
358 |
379 |
705 |
|
Direct operating expenses of vacant
property |
14 |
142 |
162 |
|
Provision for bad debts |
69 |
- |
(15) |
|
Valuation and other professional
fees |
126 |
113 |
253 |
|
Directors’ fees |
80 |
77 |
154 |
|
Administrative fee |
55 |
54 |
107 |
|
Other expenses |
182 |
178 |
391 |
|
|
|
|
|
|
|
884 |
943 |
1,757 |
|
|
|
|
|
|
|
4. Dividends
|
Six
months to
31 December 2019 |
Six
months to
31 December 2018 |
Year
ended
30 June 2019 |
|
£’000 |
Rate
(pence) |
£’000 |
Rate
(pence) |
£’000 |
Rate
(pence) |
Property Income
Distributions: |
|
|
|
|
|
|
Fourth interim for the prior
year |
3,009 |
1.25 |
3,009 |
1.25 |
3,009 |
1.25 |
First interim |
3,009 |
1.25 |
3,009 |
1.25 |
3,009 |
1.25 |
Second interim |
- |
- |
- |
- |
3,009 |
1.25 |
Third interim |
- |
- |
- |
- |
3,009 |
1.25 |
|
6,018 |
2.50 |
6,018 |
2.50 |
12,036 |
5.00 |
A second interim dividend for the year to 30 June 2020, of 1.25
pence per share, will be paid on 31
March 2020 to shareholders on the register at close of
business on 20 March 2020.
5.
Earnings per share
|
Six months to 31
December 2019 |
Six months
to
31 December 2018 |
Year to
30 June
2019 |
|
|
|
|
Net profit/(loss) attributable to
ordinary shareholders (£’000) |
729 |
(9) |
3,206 |
Weighted average of ordinary shares
in issue during period |
240,705,539 |
240,705,539 |
240,705,539 |
Return per share |
0.3p |
0.0p |
1.3p |
Earnings for the six months to 31
December 2019 should not be taken as a guide to the results
for the year to 30 June 2020.
6. Investment
properties
|
|
Six months to 31
December 2019
£’000 |
Six months to 31
December 2018
£’000 |
Year to
30 June 2019
£’000 |
Freehold and
leasehold properties
Opening market value |
|
343,550 |
353,625 |
353,625 |
Capital expenditure |
|
1,184 |
341 |
878 |
Purchase |
|
718 |
- |
- |
Sales -
net proceeds
-
losses on sales |
|
(15,402)
(9,367) |
(1,074)
(3,426) |
(3,244)
(3,638) |
Unrealised losses realised during
the period |
|
8,380 |
3,450 |
3,432 |
Unrealised gains on
investment properties
Unrealised losses on investment properties |
|
4,048
(6,521) |
4,718
(10,184) |
11,348
(18,661) |
Realised capital
contribution
Accrued selling costs |
|
12
- |
-
- |
-
(30) |
Movement in lease incentive
receivable |
|
(877) |
(150) |
(160) |
Closing market value |
|
325,725 |
347,300 |
343,550 |
Adjustment for lease incentives |
|
(3,320) |
(4,207) |
(4,197) |
Balance sheet carrying
value |
|
322,405 |
343,093 |
339,353 |
|
|
|
|
|
|
Six months to 31
December 2019
£’000 |
Six months to 31
December 2018
£’000 |
Year to
30 June 2019
£’000 |
|
|
|
|
Losses on sale |
(9,367) |
(3,426) |
(3,638) |
Unrealised losses realised during
the year |
8,380 |
3,450 |
3,432 |
(Losses)/gains on sale of investment
properties realised |
(987) |
24 |
(206) |
|
Six months to 31
December 2019
£’000 |
Six months to 31
December 2018
£’000 |
Year to
30 June 2019
£’000 |
|
|
|
|
Unrealised gains on investment
properties |
4,048 |
4,718 |
11,348 |
Unrealised losses on investment
properties |
(6,521) |
(10,184) |
(18,661) |
Accrued selling costs |
- |
- |
(30) |
|
|
|
|
Unrealised losses on revaluation of
investment properties |
(2,473) |
(5,466) |
(7,343) |
|
|
|
|
All the Group’s investment properties were valued as at
31 December 2019 by qualified
professional valuers working in the company of Cushman &
Wakefield. All such valuers are chartered surveyors, being
members of the Royal Institution of Chartered Surveyors
(‘RICS’). There were no significant changes to the valuation
techniques used during the period and these valuation techniques
are detailed in the consolidated financial statements as at and for
the year ended 30 June 2019. The market value of these
investment properties amounted to £325,725,000 (31 December 2018: £347,300,000; 30 June 2019: £343,550,000), however an
adjustment has been made for lease incentives of £3,320,000 that
are already accounted for as an asset (31
December 2018: £4,207,000; 30 June
2019: £4,197,000).
7. Interest-bearing bank
loans
On 9 November 2015, the Group
entered into an eleven-year £90 million non-amortising term loan
agreement with Canada Life and a five-year £20 million revolving
credit facility agreement with Barclays. The interest rate
payable on the Canada Life loan is at a fixed rate of 3.36% per
annum and the interest payable on the Barclays loan is at a
variable rate based on 3-month LIBOR plus a margin of 1.45% per
annum. During the period, the Company repaid £7 million of the
revolving credit facility to Barclays and no revolving credit
facility was drawn at 31 December
2019.
At 31 December 2019 borrowings of
£90 million were drawn down. The balance sheet value is
stated at an amortised cost of £89,666,000 (31 December 2018: £96,418,000 and 30 June 2019: £96,505,000). Amortised cost
is calculated by deducting loan arrangement costs, which are
amortised back over the life of the loan. The fair value of
the Canada Life loan is shown in note 8.
8. Fair value
measurements
The fair value measurements for financial assets and financial
liabilities are categorised into different levels in the fair value
hierarchy based on the inputs to valuation techniques
used.
The different levels are defined as follows:
· Level 1 – Unadjusted, fully
accessible and current quoted prices in active markets for
identical assets or liabilities. Examples of such instruments
would be investments listed or quoted on any recognised stock
exchange.
· Level 2 – Quoted prices for
similar assets or liabilities, or other directly or indirectly
observable inputs which exist for the duration of the period of
investment. Examples of such instruments would be those for
which the quoted price has been suspended, forward exchange rate
contracts and certain other derivative instruments.
· Level 3 – External inputs are
unobservable. Fair value is the Directors’ best estimate,
based on advice from relevant knowledgeable experts, use of
recognised valuation techniques and on assumptions as to what
inputs other market participants would apply in pricing the same or
similar instruments.
All of the Group’s investments in direct property are included
in Level 3 as it involves the use of significant inputs. There were
no transfers between levels of the fair value hierarchy during the
six-month period ended 31 December
2019.
Other than the fair values stated in the table below, the fair
value of all other financial assets and liabilities is not
materially different from their carrying value in the financial
statements.
|
31
December 2019
£’000 |
31
December 2018
£’000 |
30 June
2019
£’000 |
£90 million Canada Life Loan
2026* |
(95,676) |
(96,586) |
(96,234) |
*The fair value of the interest-bearing Canada Life Loan is
based on the yield on the Treasury 2% 2025 which would be used as
the basis for calculating the early repayment of such loan plus the
appropriate margin. The Canada Life loan is classified as Level 2
under the hierarchy of fair value measurement.
The Group’s financial risk management objectives and policies
are consistent with those disclosed in the consolidated financial
statements as at and for the year ended 30
June 2019.
9. Share capital
|
31 December
2019
£’000 |
31 December
2018
£’000 |
30 June
2019
£’000 |
Allotted, called-up and fully
paid |
|
|
|
240,705,539 Ordinary Shares of 1
pence each in issue |
2,407 |
2,407 |
2,407 |
The Company issued nil Ordinary Shares during the period.
10. Net asset value per
share
|
Six months
to
31 December 2019 |
Six months
to
31 December 2018 |
Year ended
30 June
2019 |
Net asset value per ordinary share |
102.6p |
106.0p |
104.8p |
Net assets attributable
at the period end (£’000) |
246,997 |
255,089 |
252,286 |
Number of ordinary
shares in issue at the period end |
240,705,539 |
240,705,539 |
240,705,539 |
11. 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 considered the current cash position of the
Group, the availability of the loans and compliance with their
covenants, forecast rental income and other forecast cash flows.The
Group has agreements relating to its borrowing facilities with
which it has complied during the period.Based on this information
the Directors believe that the Group has the ability to meet its
financial obligations as they fall due for a period of at least
twelve months from the date of the approval of the accounts.For
this reason, they continue to adopt the going concern basis in
preparing the accounts.
12. Related party
transactions
The Directors of the Company, who are considered to be the
Group’s key management personnel, received fees for their services
and dividends from their shareholdings in the Company. No
fees remained payable at the period end.
13. Operating segments
The Board has considered the requirements of IFRS 8 ‘Operating
Segments’. The Board is of the view that the Group is engaged
in a single segment of business, being property investment, and in
one geographical area, the United
Kingdom, and that therefore the Group has only a single
operating segment. The Board of Directors, as a whole, has been
identified as constituting the chief operating decision maker of
the Group. The key measure of performance used by the Board to
assess the Group’s performance is the total return of the Group’s
net asset value, as calculated under IFRS, and therefore no
reconciliation is required between the measure of profit or loss
used by the Board and that contained in the condensed consolidated
financial statements.
14. Investment in subsidiary
undertakings
The Group results consolidate those of IRP Holdings Limited
(‘IRPH’) and IPT Property Holdings Limited (‘IPTH’). IRPH and IPTH
are companies incorporated in Guernsey whose principal business is
that of a property investment company. These companies are
100 per cent owned by the Group’s ultimate parent company, which is
BMO Real Estate Investments Limited.
15. Post balance sheet
events
Since the period end the COVID-19 pandemic has had a significant
effect on the global economy and by extension the UK property
market and stock markets. There has been significant market
volatility and the Company's share price at close on 24 March 2020 was 48
pence per ordinary share. Further details in relation to
COVID-19 and its impact on the Company are provided in the
Chairman’s Statement above.
16. The report and accounts for the half-year ended
31 December 2019 is available on the
website www.bmorealestateinvestments.com
Statement of Principal Risks and
Uncertainties
The Group’s assets consist of direct investments in UK
commercial property. Its principal risks are therefore related to
the UK commercial property market in general but also the
particular circumstances of the properties in which it is invested
and their tenants. Other risks faced by the Group include market,
investment and strategic, regulatory, tax structuring and
compliance, financial, reporting, credit, operational and
environmental risks. The Group is also exposed to risks in
relation to its financial instruments. These risks, and the way in
which they are mitigated and managed, are described in more detail
under the heading ‘Principal Risks and Future Prospects’ within the
Business Model and Strategy in the Group’s Annual Report for the
year ended 30 June 2019. The Group’s
principal risks and uncertainties have not changed materially since
the date of that report other than the current risks posed since
the period end in relation to the COVID-19 pandemic which has had a
significant effect on the global economy and by extension the UK
property market and stock markets. The risk environment is
considerably heightened, and the Chairman’s Statement considers the
impact on the Company.
Statement of Directors’
Responsibilities in Respect of the Interim Report
We confirm that to the best of our knowledge:
· the condensed set of
consolidated financial statements has been prepared in accordance
with IAS 34 ‘Interim Financial Reporting’ as adopted by the
European Union;
· the Chairman’s Statement
constituting the Interim Management Report together with the
Statement of Principal Risks and Uncertainties include a fair
review of the information required by the Disclosure and
Transparency Rules (‘DTR’) 4.2.7R, being an indication of important
events that have occurred during the first six months of the
financial year and their impact on the condensed set of
consolidated financial statements; and
· the Chairman’s Statement
together with the consolidated financial statements include a fair
review of the information required by DTR 4.2.8R, being related
party transactions that have taken place in the first six months of
the current financial year and that have materially affected the
financial position or performance of the Group during that period,
and any changes in the related party transactions described in the
last Annual Report that could do so.
On behalf of the Board
Vikram Lall
Chairman
25 March 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.
|
Six months to 31
December
2019
Pence |
Six months to 31
December
2018
Pence |
Year to
30 June
2019
Pence |
Net Asset Value per
share |
102.6 |
106.0 |
104.8 |
Share price per share |
84.0 |
92.2 |
80.0 |
Discount |
18.1% |
13.0% |
23.7% |
Dividend Cover – The percentage by which profits for the year
(less gains/losses on investment properties) cover the dividend
paid.
A reconciliation of dividend cover is shown below:
|
Six months to 31
December
2019
£’000 |
Six months to 31
December
2018
£’000 |
Year to
30 June
2019
£’000 |
|
|
|
|
Profit/(loss) for the
period |
729 |
(9) |
3,206 |
Add back: Realised
losses/(gains)
Unrealised losses |
987
2,473 |
(24)
5,466 |
206
7,343 |
Profit before investment gains
and losses |
4,189 |
5,433 |
10,755 |
Dividends |
6,018 |
6,018 |
12,036 |
Dividend Cover
percentage |
69.6%* |
90.3% |
89.4% |
* A one off accounting adjustment for lease incentives,
following the sale of the property at Rotherham reduced dividend cover by 8.8% for
the six months to 31 December
2019.
Dividend Yield – The annualised dividend divided by the share
price at the period end. An analysis of dividends is contained in
note 4.
Net Gearing – Borrowings less net current assets divided by
value of investment properties.
|
Six months to 31
December
2019
£’000 |
Six months to 31
December
2018
£’000 |
Year to
30 June
2019
£’000 |
|
|
|
|
Loans |
89,666 |
96,418 |
96,505 |
Less net current assets |
(11,633) |
(5,218) |
(6,058) |
Total |
78,033 |
91,200 |
90,447 |
Value of investments
properties |
322,405 |
343,093 |
339,353 |
Net Gearing |
24.2% |
26.6% |
26.7% |
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.
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.
Portfolio (Property) Total Return – Combining the Portfolio
Capital Return and Portfolio Income Return over the period,
calculated on a quarterly time-weighted basis.
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.
|
Six months to 31
December
2019 |
Six months to 31
December
2018 |
Year to 30
June
2019 |
|
|
|
|
NAV per share at the start of the
period |
104.8p |
108.5p |
108.5p |
NAV per share at the end of the
period |
102.6p |
106.0p |
104.8p |
Change in the period |
-2.1% |
-2.3% |
-3.4% |
Impact of dividend
reinvestments |
+2.4% |
+2.3% |
+4.7% |
|
|
|
|
NAV total return for the
period |
+0.3% |
0.0% |
+1.3% |
|
|
|
|
|
Six months to 31
December
2019 |
Six months to 31
December
2018 |
Year to
30 June
2019 |
|
|
|
|
Share price per share at the
start of the period |
80.0p |
99.8p |
99.8p |
Share price per share at the end
of the period |
84.0p |
92.2p |
80.0p |
Change in the period |
+5.0% |
-7.6% |
-19.8% |
Impact of dividend
reinvestments |
+3.2% |
+2.6% |
+4.6% |
|
|
|
|
Share price total return for the period |
+8.2% |
-5.0% |
-15.2% |
|
|
|
|