To: Company Announcements
Date: 24 January 2022
Company: BMO Real Estate Investments Limited
LEI: 231801XRCB89W6XTR23
Subject: Trading Update and Net Asset Value
Headlines
- Net Asset total return of 10.4 per cent for the quarter ended 31 December 2021
- Share Price total return of 19.3 per cent for the quarter ended 31 December 2021
- Rent collection since the onset of the pandemic in March 2020 to December 2021 is 97.1 per cent and 99.2 per cent for the latest quarter
- As of 31 December 2021, the portfolio void rate was 3.5 per cent by estimated rental value
Net Asset Value (‘NAV’)
The unaudited NAV per share of BREI as at 31 December 2021 was 121.0 pence. This represents an increase of 9.5 per cent from the NAV per share as at 30 September 2021 of 110.5 pence and a NAV total return for the quarter of 10.4 per cent.
The NAV is based on the external valuation of the Company's property portfolio prepared by Cushman & Wakefield.
The NAV is calculated under International Financial Reporting Standards ("IFRS").
The NAV includes all income to 31 December 2021 and is calculated after the deduction of all dividends paid prior to that date.
Breakdown of NAV movement
Set out below is a breakdown of the change to the unaudited net asset value per share calculated under IFRS over the period from 30 September 2021 to 31 December 2021.
| Pence per share | % of opening NAV | |
| Net asset value per share as at 30 September 2021 | 110.5 | |
| Unrealised movement in valuation of property portfolio (including the effect of gearing) | 10.5 | 9.5* |
| Net revenue | 1.0 | 0.9 |
| Dividends paid | (1.0) | (0.9) |
| Net asset value per share as at 31 December 2021 | 121.0 | 9.5 |
* The un-geared capital return of the property portfolio over the quarter to 31 December 2021 was 7.1 per cent.
Share Price
The share price was 85.4 pence per share as at 31 December 2021, which represented a discount of 29.4 per cent to the NAV per share announced above. The share price total return for the quarter was 19.3 per cent.
Performance
The final quarter of 2021 saw continued positive momentum in the UK real estate market, with the sector delivering further strong returns driven by capital growth and with investment volumes eclipsing the pre-pandemic levels seen in 2019. While much of the focus has rightfully been on the Industrial, Logistics and Distribution markets, which posted a total return in excess of 38 per cent for the year ended 31 December 2021 (MSCI Monthly Index), market dynamics improved more widely across those sectors that had suffered through the early periods of the pandemic. Retail Warehousing continues to perform, with robust occupational demand and income resilience leading to yield compression. The Office, High Street Retail and Leisure sectors saw improving occupier and investor sentiment across selected sub-sectors. Business confidence linked to improving economic growth forecasts, a robust labour market and the apparent dominance of a milder Omicron variant gives reason for optimism heading into 2022 despite some economic headwinds, most notably in the form of further Brexit disruption, inflationary and cost of living pressures, and the potential for rising interest rates.
Following a busy Quarter 3 which saw the sale of an Office asset at a premium to Net Asset Value, the acquisition of two assets in strategic sectors at a yield accretive to the portfolio and the successful conclusion of two major redevelopment projects, the Company’s standing assets delivered encouraging performance over Quarter 4 with a capital return of 7.1 per cent.
The Company’s Industrial, Logistics and Distribution assets, which now account for over 53 per cent of the portfolio by value were the key driver of NAV appreciation, generating a quarterly capital return of 12.8 per cent. With record-low vacancy rates and a constrained supply pipeline resulting in tangible rental growth, a broad investor base is driving record high investment volumes and compressing yields. The level of occupational demand is continuing to spur investor optimism and the Company is well positioned to benefit from both rental and capital growth moving forward. Alongside Industrials, the Retail Warehousing sector at 18 per cent of the portfolio offered a further structural advantage, generating quarterly capital growth of 5.7 per cent, driven by a weight of capital seeking exposure to the sector due to its strong occupational fundamentals, alternative use values and yield advantage.
While market yield compression was the main determinant of capital performance, the quarter saw the successful conclusion of a number of major asset management initiatives including:
- Settlement of the outstanding December 2020 rent review at the Booker distribution unit in Banbury, crystallising a significant rental uplift
- Conclusion of a reversionary lease to B&Q in Nelson, securing their occupation for 10 years and providing a meaningful valuation uplift
- The letting of the refurbished sixth floor office suite at 14 Berkeley Street, London on a new 3 year lease at a premium rental tone, with terms agreed to lease the final vacant suite at the property at the time of writing
The uptick in occupational activity at 14 Berkeley Street, London is indicative of strengthening sentiment within core office markets, where both occupational take-up and investment volumes continue to improve. However, for both occupier and investor there is a polarisation favouring prime office assets, widening the gap to the more illiquid secondary end of the market. Against this backdrop, the Company’s Office assets, which make up 23 per cent of the portfolio, experienced marginal capital decline of 1.4 per cent. The Rest of UK offices experienced capital falls of 5.3 per cent, however, the prime Berkeley Street, London and refurbished County House, Chelmsford holdings account for broadly 50 per cent of the office portfolio. With a 70 per cent weighting towards the core South East, diversification within the portfolio should insulate the Company from some of this pressure as the UK’s ‘return to office’ continues to evolve.
Sentiment also continues to improve within the High Street Retail sector, where rental values continue to stabilise and investors are now starting to consider opportunistic purchases, albeit again with polarisation favouring those core locations not suffering from a historic over-supply of retail accommodation. The Company’s High Street Retail assets saw a marginal capital value fall of 1.0 percent over the quarter, led by assets with impending lease events rather than a reflection on portfolio quality, which remains largely focused on the robust core and neighbourhood locations with resilient occupational fundamentals. The Company’s High Street Retail assets now account for 6 per cent of the portfolio given the strategic reduction in exposure to the sector over recent years.
Rent payment patterns have approached normalisation, albeit with a greater emphasis on monthly payment schedules. Rent collection for Q4 2021 has reached 99.2 per cent, the highest collection rate since the on-set of the pandemic. The structural composition of the portfolio has been key in delivering these robust collection statistics. Collection over the 21 month period since March 2020 stands at in excess of 97 per cent, aided by near full collection from the Industrial, Office and Retail Warehousing portfolios.
As at period end the portfolio had a vacancy rate of 3.5 per cent (by ERV) and an average weighted unexpired lease term of 6.0 years (assuming tenant breaks operated).
Dividend
On 18 November 2021, 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 December 2021. 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 £11.0 million of available cash and an undrawn revolving credit facility of £10 million. The £90 million long-term debt with Canada Life and the £20 million revolving credit loan facility with Barclays (of which £10 million is drawn) do not need to be refinanced until November 2026 and March 2025 respectively. As at 31 December 2021, the LTV was 24.5 per cent and there was significant headroom under debt covenants.
| Portfolio Analysis | £m | % of portfolio as at 31 December 2021 | % capital value movement in quarter |
| Offices | 87.5 | 22.7 | (1.4) |
| 28.0 | 7.3 | 0.2 |
| 33.8 | 8.7 | 0.4 |
| 25.7 | 6.7 | (5.3) |
| Industrial, logistics and distribution | 205.5 | 53.3 | 12.8 |
| 205.5 | 53.3 | 12.8 |
| Standard Retail | 23.1 | 6.0 | (1.0) |
| 6.6 | 1.7 | (1.9) |
| 1.6 | 0.4 | - |
| 11.3 | 2.9 | (0.9) |
| 3.6 | 1.0 | - |
| Retail Warehouse | 69.7 | 18.0 | 5.7 |
| Total Property | 385.8 | 100.0 | 7.1 |
Summary Balance Sheet
| £m | Pence per share | % of Net Assets | |
| Property Portfolio per Valuation Report | 385.8 | 160.3 | 132.4 |
| Adjustment for lease incentives | (4.3) | (1.8) | (1.4) |
| Fair Value of Property Portfolio | 381.5 | 158.5 | 131.0 |
| Cash | 11.0 | 4.6 | 3.8 |
| Trade and other receivables | 7.1 | 2.9 | 2.4 |
| Trade and other payables | (8.5) | (3.5) | (2.9) |
| Interest-bearing loans | (99.8) | (41.5) | (34.3) |
| Net Assets at 31 December 2021 | 291.3 | 121.0 | 100.0 |
The property portfolio will next be valued by an external valuer during March 2022 and the net asset value per share as at 31 March 2022 will be announced in April 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: 01481 745001
Peter Lowe
Scott Macrae
BMO Investment Business Ltd
Tel: 0207 628 8000
