BMO Real Estate Investments Ltd.

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To: Company Announcements

Dated: January 24, 2022

Company: BMO Real Estate Investments Limited

LEI: 231801XRCB89W6XTR23

Subject: Trading Update and Net Asset Value

Securities

  • Total return on net assets of 10.4% for the quarter ended December 31, 2021
  • Total share price return of 19.3% for the quarter ended December 31, 2021
  • Rent collection since the start of the pandemic in March 2020 at December 2021 is 97.1% and 99.2% for the last quarter
  • From December 31, 2021, the vacancy rate of the portfolio was 3.5% in estimated rental value

Net Asset Value (“NAV”)

The unaudited net asset value per share of BREI as at December 31, 2021 has been 121.0 pence. This represents a 9.5% increase over the net asset value per share at September 30, 2021 of 110.5 pence and a total net asset value return for the quarter of 10.4%.

The NAV is based on the external valuation of the Company’s property portfolio prepared by Cushman & Wakefield.

Net asset value is calculated in accordance with International Financial Reporting Standards (“IFRS”).

The net asset value includes all income to December 31, 2021 and is calculated after deducting all dividends paid before that date.

Breakdown of NIV movement

Below is a breakdown of the change in unaudited net asset value per share calculated under IFRS over the period from September 30, 2021 at December 31, 2021.

cent per share % of opening NAV
Net asset value per share as of September 30, 2021 110.5
Unrealized change in the valuation of the real estate 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 of December 31, 2021 121.0 9.5

* The unadjusted return on capital of the real estate portfolio over the quarter to December 31, 2021 was 7.1%.

Share price

The stock price was 85.4 pence per share at December 31, 2021, representing a 29.4% discount to the net asset value per share reported above. The total share price return for the quarter was 19.3%.

Performance

The final quarter of 2021 saw continued positive momentum in the UK property market, with the sector generating further strong returns driven by capital growth and investment volumes eclipsing the pre-pandemic levels seen in 2019. the focus was rightly on the industrial, logistics and distribution markets, which posted a total return of over 38% for the year ended December 31, 2021 (MSCI Monthly Index), market momentum improved more broadly in sectors that had suffered during the early periods of the pandemic. Retail warehousing continues to perform, with robust business demand and resilient revenue driving yield compression. The office, retail and leisure sectors saw improved occupier and investor sentiment in some sub-sectors. Business confidence linked to improving economic growth forecasts, a robust labor market and the apparent dominance of a milder variant of Omicron gives reason for optimism heading into 2022 despite some economic headwinds, including in the form of further Brexit disruption, inflationary and cost of living pressures, and the potential for rising interest rates.

After a busy 3rd quarter which saw the sale of an Office asset with a premium on Net Asset Value, the acquisition of two assets in strategic sectors with an accretive return for the portfolio and the successful conclusion of two projects major redevelopments, the Company’s permanent assets achieved an encouraging performance during the fourth quarter with a return on capital of 7.1%.

The company’s industrial, logistics and distribution assets, which now represent more than 53% of the portfolio by value, were the primary driver of net asset value appreciation, generating a quarterly return on capital of 12.8%. With record vacancy rates and a limited supply pipeline driving tangible rental growth, a broad investor base is driving record investment volumes and compressing returns. The level of professional demand continues to drive investor optimism and the Company is well positioned to benefit from rental and capital growth going forward. Alongside industrials, the retail warehousing sector, which represented 18% of the portfolio, offered an additional structural advantage, generating quarterly capital growth of 5.7%, driven by a capital weighting seeking to exposure to the sector because of its strong business fundamentals, alternative use values ​​and giving the edge.

While the compression of market returns was the primary determinant of capital performance, the quarter saw the successful conclusion of a number of major asset management initiatives, including:

  • Outstanding payment December 2020 Booker distribution unit rent review in Banbury, crystallizing a significant rise in rents
  • Concluded a reversionary lease with B&Q in Nelson, securing their occupancy for 10 years and providing a significant increase in valuation
  • The rental of the renovated sixth-floor office suite at 14 Berkeley Street, London on a new 3-year lease at a premium rental tone, with terms agreed to rent the property’s last vacant suite at the time of writing

The resumption of professional activity at 14 Berkeley Street, London indicates strengthening sentiment in key office markets, where occupancy and investment volumes continue to improve. However, for both occupier and investor, there is a bias favoring prime office assets, widening the gap with the more illiquid secondary end of the market. In this context, the Company’s office assets, which represent 23% of the portfolio, experienced a marginal fall in capital of 1.4%. Offices in the rest of the UK saw a capital decline of 5.3%, however, the first Berkeley Street, London and renovated county house, Chelmsford the holdings represent approximately 50% of the office portfolio. With a 70% weighting to the core South East, the diversification within the portfolio should shield the Company from some of this pressure as the UK ‘return to power’ continues to evolve.

Sentiment also continues to improve within the High Street Retail sector, where rental values ​​continue to stabilize and investors are now beginning to consider opportunistic buying, albeit again with bias favoring central locations not suffering. not a historic oversupply of commercial housing. The company’s High Street Retail assets saw a marginal fall in capital value of 1.0% in the quarter, driven by assets with impending letting events rather than a reflection on the quality of the portfolio, which remains largely focused on robust central and neighborhood locations with resilient business fundamentals. The company’s High Street Retail assets now represent 6% of the portfolio given the strategic reduction of exposure to the sector over the past few years.

Rent payment schemes have moved closer to standardization, although they place more emphasis on monthly payment schedules. Rental collection for the fourth quarter of 2021 reached 99.2%, the highest collection rate since the start of the pandemic. The structural composition of the portfolio played a key role in providing these strong collection statistics. Collection over the period of 21 months since March 2020 stands at over 97%, helped by near-full collection of the industrial warehousing, office and retail portfolios.

At the end of the period, the portfolio had a vacancy rate of 3.5% (by ERV) and a weighted average unexpired lease term of 6.0 years (assuming tenant breaks worked).

Dividend

At November 18, 2021, the Company announced the payment of a quarterly dividend of 1.0 pence per ordinary share for the year ended June 30, 2022, which was paid to shareholders on December 31, 2021. The board will continue to closely monitor receipts and rental income and will 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 facility with Barclays (of which £10 million is drawn) do not need to be refinanced until than November 2026 and March 2025 respectively. Like a December 31, 2021, the LTV was 24.5% and there was significant wiggle room under the covenants.

Portfolio analysis £m % of portfolio as of December 31, 2021 % change in capital value during the quarter
Desks 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 ownership 385.8 100.0 7.1

Summary report

£m cent per share % of net assets
Real estate portfolio by valuation report 385.8 160.3 132.4
Lease Incentive Adjustment (4.3) (1.8) (1.4)
Fair value of the real estate portfolio 381.5 158.5 131.0
Cash 11.0 4.6 3.8
Customers and other debtors 7.1 2.9 2.4
Suppliers and other creditors (8.5) (3.5) (2.9)
Interest-bearing loans (99.8) (41.5) (34.3)
Net assets as of December 31, 2021 291.3 121.0 100.0

The real estate portfolio will then be valued by an external valuer during March 2022 and the net asset value per share at March 31, 2022 will be announced in April 2022.

Important Information

The information contained in this press release is considered by the Company to constitute inside information within the meaning of the Market Abuse Regulation (EU) No. 596/2014. Upon publication of this announcement via the regulatory information service, this inside information is now considered to be in the public domain.

Requests:

The company secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
The banks
St. Peter Port
Guernsey
GY1 3QL
Tel: 01481 745001
Peter Lowe

Scott Macrae
BMO Investment Firm Ltd.
Tel: 0207 628 8000


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