BMO sheds office and retail assets to reopen property fund

BMO sheds office and retail assets to reopen property fund
Credit: Aidan Crawley

The managers of the BMO UK Property fund have sold assets from the office, retail and warehousing sectors in a bid to prepare the portfolio for its reopening next week.

BMO’s property portfolio is to open its doors to dealing from Monday (December 14), after being suspended due to market uncertainty since March.

In the fund’s latest investor update, managers Guy Glover and Emma Gullifer said they had been raising liquidity levels in the fund to ensure the portfolio had a “suitable cash buffer” that could be maintained throughout the re-opening.

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The ongoing uncertainty in the market, coupled with the headwinds from the Covid-19 pandemic and Brexit, triggered the managers’ decision to bring a number of assets to the market.

BMO told investors: “The assets identified for sale have been selected with a clear asset management strategy and rationale for sale.

“To this end, the majority of the sales have been sourced from the office, retail and retail warehousing sectors, where we feel that there may be downside risks in the occupational markets, which may impact rental levels.”

The managers noted the potential for a downturn in the overall demand for office space in the medium term, as businesses adapted to changing working practices.

Before the planned sales, offices accounted for some 28 per cent of the BMO UK Property fund, but this will dwindle to 21 per cent once the deals are done.

Similarly, the fund’s retail warehouse weighting will drop from 17 to 12 per cent, while standard retail will soon make up just 2.8 per cent of the portfolio, down from 6 per cent.

BMO said: “We have taken the conscious decision to reposition the portfolio towards the industrial and logistics sector as we believe the demand drivers for these types of assets remain very strong.

“Against a backdrop of historic under-supply, this sector is forecast to deliver significant outperformance over the next five years.

“In contrast, shopping centres and high street retail remain challenged, as the impact of the Covid-19 pandemic is likely to have accelerated the structural issues already facing these sectors.”

BMO’s reopening follows similar decisions from St James’s Place, Columbia Threadneedle. Aberdeen Standard and LGIM.

Property funds have been able to reopen since the Royal Institution of Chartered Surveyors earlier this month (September 9) recommended a general ‘lifting’ of material valuation uncertainty from areas of UK real estate.

Material uncertainty means valuers were unable to value the assets within the funds with the same degree of certainty as would otherwise be the case.

Rics' announcement essentially allowed property funds to reopen if the asset manager saw fit, but many portfolios — such as M&G’s, Aviva’s and Janus Henderson’s — remain gated.

The FCA is currently consulting on rules which would require investors to give notice, potentially up to 180 days, before their investment is redeemed from an open-ended property fund.

It is an attempt to curb the “liquidity mismatch” between the underlying property held in such funds and the daily basis on which investors buy and sell units.