BMO Real Estate Investments Ltd Trading Update and Net Asset Value
28 April 2022 - 4:00PM
UK Regulatory
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: 01481 745001
Peter Lowe
Scott Macrae
BMO Investment Business Ltd
Tel: 0207 628 8000
END
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