To:
Company Announcements
Date:
20 April 2020
Company: BMO Real Estate
Investments Limited
LEI:
231801XRCB89W6XTR23
Subject:
Trading Update and Net Asset Value
Background
BMO Real Estate Investments Limited (“BREI” or the “Group”)
provides an update on trading and the net asset value as at
31 March 2020 against the backdrop of
the evolving COVID-19 pandemic, as well as the actions being
undertaken by the Investment Manager (the “Manager”), Our
priorities at this challenging time are the wellbeing of everyone
involved with the Group, our ability to provide support to our
tenants where it is most needed and preserving the financial
strength of the Group for shareholders.
Operations
The Manager has robust business continuity plans to ensure it
can maintain operations in these challenging times. Although a work
from home policy has been introduced across all geographies the
asset and property managers are in regular contact with tenants,
providing support where felt necessary. They are also ensuring that
essential services are maintained across the portfolio.
The Managers will consider assistance regarding concessions or
the future phasing of rent where appropriate. The Managers are also
focused on reducing operational costs and service charges in
addition to non-essential capital expenditure. Our hope is that our
support, in addition to that already announced by the Government,
will help place our tenants in a position to resume normal
operations as swiftly as possible when conditions allow.
Net Asset Value (‘NAV’)
The unaudited NAV per share of BREI as at 31 March 2020 was 99.7
pence. This represents a decrease of 2.8 per cent from the
NAV per share as at 31 December 2019
of 102.6 pence and a NAV total return
for the quarter of -1.6 per cent.
The NAV is based on the external valuation of the Group's
property portfolio prepared by Cushman & Wakefield. The
valuation certificate includes a ‘material uncertainty’ clause
in-line with RICS guidance. This clause 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.
The NAV is calculated under International Financial Reporting
Standards ("IFRS").
The NAV includes all income to 31 March
2020 and is calculated after deduction of all dividends paid
prior to that date. Further analysis of the movement in the
NAV and portfolio details are included at the end of this
statement.
Share Price
The share price was 69.2 pence per
share at 31 March 2020, which
represented a discount of 30.6 per cent to the NAV per share
announced above. The share price total return for the quarter was
-15.1 per cent. The volatility of the market has further impacted
the share price during April 2020 and
as at 17 April 2020 the shares were
trading at around 50 pence per share,
a discount of 50 per cent to the NAV as at 31 March 2020.
Portfolio Composition
The Company benefits from a defensive, balanced asset base
allocated 42.6 per cent Industrial & Logistics, 29.4 per cent
Offices, 16.9 per cent Retail Warehousing and 11.1 per cent High
Street Retail. The geographical exposure to the wider South East
region is 77 per cent across all sectors. The portfolio comprises
37 assets, and 122 tenants with the largest tenant representing 7.5
per cent of the annual income. The vacancy rate by rental value is
sub 3 per cent and the average weighted unexpired lease term is in
excess of 6 years.
Rent Collection
The Company has a highly diverse tenant base, the vast majority
of whom continue to trade through the lockdown. Nonetheless almost
without exception UK businesses are experiencing unprecedented
levels of disruption. The Managers are engaging with tenants given
the challenges faced by many to meet quarterly rental commitments
at this time. We are beginning to witness the impact of the trading
restrictions put in place by the Government which has resulted in
the closure of many of our retail units. The portfolio has no
exposure to the hospitality and leisure subsectors and only two
restaurant tenants, although it does have occupiers linked to these
sectors through the supply chain.
The Group has billed c.£3.3m of its quarter 2 rent due from 25
March to date and has collected 69 per cent of this amount
(compared to 94 per cent for the same period last year). This
percentage will increase as tenants with whom we have agreed
monthly payment arrangements pay further instalments. The total
quarterly rent amounts to c.£3.9 million with further contractual
billing dates during the course of April and May.
Cash and Borrowings
The Group has approximately £13.5 million of available cash and
an undrawn revolving credit facility of £20 million. The Group's
£90 million long-term debt with Canada Life and the undrawn loan
facility with Barclays do not need to be refinanced until
November 2026 and March 2025 respectively. As at 31 March 2020, the Group’s LTV was 25.1 per cent
and there was significant headroom under its actual and projected
debt covenants.
Dividend
On 11 March 2020, the Company
announced its quarterly dividend payment of 1.25 pence per ordinary share in respect of the
financial year ended 30 June 2020
which was paid to shareholders on 31 March
2020. The impact that COVID-19 will have on future rental
receipts and the long-term sustainability of the quarterly dividend
is under review and a further update in this regard will be made
once the full picture has been established.
Outlook
Given the uncertainty surrounding the current trading position
of some of the Company’s tenants, the recovery of income due under
existing lease contacts remains the immediate focus. The Company’s
low void rate of c3% and relatively high and diversified weighting
to the Office and Industrial sectors should provide some protection
against these challenges but very few areas of the market will
offer immunity to the wider downturn induced by the pandemic and
associated global lockdown. We therefore continue to expect to see
significant disruption to revenues over the near term, including
the next quarter’s rent collection, even when the timetable for
relaxation of lockdown measures becomes clearer.
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 2019 to 31 March 2020.
|
Pence per share |
% of opening NAV |
Net asset value per share as at 31
December 2019 |
102.6 |
|
Unrealised movement in valuation of
property portfolio (including the effect of gearing) |
(2.6) |
(2.5)* |
Movement in revenue reserves |
(0.3) |
(0.3) |
Net asset value per share as at
31 March 2020 |
99.7 |
(2.8) |
* The un-geared decrease in the valuation of the property
portfolio over the quarter to 31 March
2020 was 1.9%.
Portfolio Analysis |
£m |
% of portfolio as at 31
March 2020 |
% capital value
movement in quarter |
Offices |
94.1 |
29.4 |
0.3 |
- West End |
29.3 |
9.2 |
(0.3) |
- South East |
37.4 |
11.7 |
1.8 |
- Rest of UK |
27.4 |
8.5 |
(0.9) |
Industrial |
136.4 |
42.6 |
(0.2) |
- South East |
136.4 |
42.6 |
(0.2) |
Standard Retail |
35.5 |
11.1 |
(7.0) |
- West End |
8.4 |
2.6 |
(0.9) |
- Rest of London |
2.4 |
0.7 |
(12.7) |
- South East |
17.8 |
5.6 |
(8.0) |
- Rest of UK |
6.9 |
2.2 |
(9.2) |
Retail
Warehouse |
54.3 |
16.9 |
(5.9) |
Total Property |
320.3 |
100.0 |
(1.9) |
Summary Balance Sheet
|
£m |
Pence per
share |
% of Net
Assets |
Property Portfolio per Valuation
Report |
320.3 |
133.0 |
133.4 |
Adjustment for lease incentives |
(3.4) |
(1.4) |
(1.4) |
Fair Value of Property
Portfolio |
316.9 |
131.6 |
132.0 |
Cash |
13.4 |
5.6 |
5.6 |
Trade and other receivables |
7.0 |
2.9 |
2.9 |
Trade and other payables |
(7.8) |
(3.2) |
(3.2) |
Interest-bearing loans |
(89.5) |
(37.2) |
(37.3) |
Net Assets at 31
March 2020 |
240.0 |
99.7 |
100.0 |
The property portfolio will next be valued by an external valuer
during June 2020 and the net asset
value per share as at 30 June 2020
will be announced in July 2020.
Important information
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014. Upon the
publication of this announcement via Regulatory Information Service
this inside information is now considered to be in the public
domain.
Enquiries:
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
Peter Lowe
Scott Macrae
BMO Investment Business Ltd
Tel: 0207 628 8000
Fax: 0131 225 2375