annual results - mckay securities plc · • breeam outstanding / epc a • 37.6% valuation surplus...

Annual Results to 31 March 2018

MCKAY / MAY 2018 / 2

HeadingDelivering the growth strategy, with major progress across all metrics

Simon Perkins

CEO

Giles Salmon

CFO

Tom Elliott

Property Director

Management teamReview of the year 3

Financial review 7

Portfolio review 15

South East office market 23

Distribution warehouse market 28

Outlook 29

Appendix 30



14.3%increase in

final dividend

Strategy• Transformational year, capturing reversion and delivering on the 2014 capital raising strategy

• Development programme de-risked, with a record year of lettings (ahead of ERV) to increase future earnings

• Portfolio positioned to benefit from structural supply constraints in the UK’s strongest regions of London and the South East

• Outperformance: 36% TSR (FTSE 350 Real Estate: 8%)

• Portfolio value, contracted income and ERV all at record highs

Review of the year


Outstanding portfolio performance driving returns

• ERV up 6.7% to £33.15m pa Portfolio value up 6.1% to £460.15m TPR of 11.8%: all ahead of IPD

• 30 Lombard Street, EC3 pre-let on a 15 year lease to St James’s Place plc

• Contracted rental income up 15.5% to £27.3m pa including 30 Lombard Street), despite disposals

• 27.3% (£5.7m) surplus available for re-investment, from three disposals

23.3%increase in contracted

income L4L


Strengthened financing supporting growth• Adjusted profit up 5.4% to £9.1m

• All remaining legacy interest rate swaps cancelled, enhancing earnings and improving the debt profile

• Loan facilities increased by £15.0m

• 32% LTV maintained, with cap-ex offset by valuation and disposal gains

322pps

EPRA NAV up 6.3%


Strategic delivery 2014–2018Gains since March 20141

• TSR 54%

• EPRA NAV pps 42%

• Adjusted profit before taxation 165%

• Contracted rent 67%

• Portfolio ERV 76%

• Portfolio value 81%

• Annual dividend – cost2 141%

• Annual dividend – pence2 18% 1. March 2014 to March 2018 unless stated

2. March 2013 to March 2018

MCKAY / MAY 2018 / 7MCKAY / MAY 2018 / 7

10.0p 9.0pFinancial highlights

£9.1m 322

Dividend per share

Adjusted profit EPRA NAV

2018

March 2018 March 2018

2017

March 2017 £8.6m% change 5.4

March 2017 303pps% change 6.3

11.132%

LTVMarch 2018

increase

March 2017 32%

%



Gross rental income Adj PBT

0

5

10

15

20

25

30

35

40

3/2014 3/2015 3/2016 3/2017 3/2018 ERV

£ m

illio

n

0

2

4

6

8

10

3/2014 3/2015 3/2016 3/2017 3/2018£

mill

ion

Con

trac

ted

Sustained earnings growth with significant future potential

ERV


Adjusted profit before tax

2018: 10.0pps (£9.4m)

2017: 9.0pps

2016: 8.8pps

2015: 8.7pps

2014: 8.6pps

11.1%2018

dividend growth

March 2017

Grossrents(portfolio)

InterestGross rentssales

Netproperty costs

Admin Other March 2018

£ m

illio

n 9.07

0.38

(0.51)

8.60

1.11

0.12

(0.57)

(0.06)

MCKAY / MAY 2018 / 10

Total shareholder return 138

%

5 yearTSR

TSR (%) 1yr 5yr 9yr

• McKay 36 138 395

• FTSE 350 REI 8 58 227

• FTSE All Share 1 38 170

Source: Thomson Reuters

1002010 2011 2012 2013 2014 2015 2016 2017 2018

200

300

400

500

£

MCKAY / MAY 2018 / 11

EPRA NAV pps

March 2017 Swap cancellation

DividendValuationgain

Adjustedprofit

Realisedprofit on disposal

0

50

100

150

200

250

300

March 2018

303p

322p26

10

6

(14)

(9)

322pps

NAV clarity

MCKAY / MAY 2018 / 12

EPRA NNNAV pps

13.0%

12 month gain

March 2017 Swap cancellation

DividendValuationgain

Adjustedprofit

Realisedprofit on disposal

0

50

100

150

200

250

300

March 2018

285p

322p

26

10

6

4

(9)

MCKAY / MAY 2018 / 13

Available facilities up £15.0m to £190.0m • August 2017: refinanced £40.0m Santander facility (previously £35.0m)

• March 2018: increased Aviva facility to £65.0m (£55.0m) at a blended 4.02% until 2030

Swap cancelled• Remaining legacy £33.0m notional swap cancelled March 2018 at a cost of £13.3m after a £2.6m bank contribution

Lombard Street• Not yet pledged

Substantial financing progress achieved 3.06

%

potential future cost

of debt

MCKAY / MAY 2018 / 14

Improved facility profile

Low LTV despite:• £23.3m cap ex

• £13.4m swap cancellation

Additional headroom

Substantial reduction in WACD1

50

100

150

200

£’ m

illio

n

March 2018March 2017 If fully drawn

147

65

190

Drawn

Fixed

65

Fixed

88

136

55

33

Drawn

Hedged

Fixed

0

LTV 32%

WACD 4.42%

LTV 32%

WACD 4.06%

LTV 38%

WACD1 3.06%

1. WACD: weighted average cost of debt, at current rates

MCKAY / MAY 2018 / 15

HeadingBanbury

Windsor

Staines

Poyle

Brentford

Croydon

Redhill

Crawley

LeatherheadWeybridge

Folkestone

Wimbledon

NewburyReading BracknellTheale

Fleet

FarnboroughWoking

Maidenhead

The only REIT specialising exclusively in the strength of the London and South East office and industrial markets

MCKAY / MAY 2018 / 15

MCKAY / MAY 2018 / 16

Portfolio resilience: • regional strength • dual-sector diversity

March 2018 March 2017

Assets 33 36Average lot size £14.0m £11.9m

Occupancy up

inc dev 89.3% 77.3%

exc dev 92.6% 93.3%

WAULT extendedTo expiry 6.9 5.2

To break 5.8 4.3

Valuation yieldsInitial (topped-up) 5.6% 5.1%

Reversionary 6.8% 7.1%

Net equivalent 5.8% 6.4%

56.5%

15.3%

23.5%

4.7%

SE officesSE

industrial

London offices

Other

potential future cost

of debt

460.2£m

portfolio value

MCKAY / MAY 2018 / 17

HeadingUnlocking the portfolio potential

Record year for lettings• 26 open market lettings

• £7.0m pa combined rental

• 1.9% ahead of ERV

Planning consent granted• for major distribution warehouse at Theale, Reading increasing ERV by 92.7%

Strong tenant retention• 59.5% retention at lease break / expiry

• 10 lease renewals – 17.5% over passing 3.9% over ERV

27.3% / £5.7m surplus• realised on three disposals

MCKAY / MAY 2018 / 17

MCKAY / MAY 2018 / 18

Releasing the reversion

Contracted rent

£27.05m pa

Contracted rent £23.42m pa

ERV £33.15m pa

ERV £32.68m pa

Developmentvoid

Developmentvoid

Portfolio void

Portfolio void

Renewal/

review

Renewal/ review

£1.45m pa

£5.64m pa£2.10m pa

£1.79m pa

£2.55m pa

£1.83m pa

ACQUISITION TIMELINE£73 million of acquisitions since 2014 Capital raising

January 2014

Acquisition:Crown Square,Woking

Headline:£6.0m

Yield:9.3% initial

March 2014

Acquisition:Ashcombe House,Leatherhead

Headline:£4.4m

Yield:7.4% initial

April 2014

Acquisition:The Mille,Brentford

Headline:£19.3m

Yield:7.7% initial

May 2014

Acquisition:9 Greyfriars Road,Reading

Headline:£5.8m

Yield:Vacant

September 2014

Acquisition:Station Plaza,Theale

Headline:£8.4m

Yield:10.1% initial

October 2014

Acquisition:The Planets,Woking

Headline:£8.8m

Yield:6.9% initial

April 2015

Acquisition:Brunel Road,Theale

Headline:£

Yield:%

2014JAN

2015JAN

FEB

MAR

APR

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

July 2014

Acquisition:Gainsborough House,Windsor

Headline:£6.9m

Yield:7.1% initial

92%

LET

LET

LET

… and 22.6% potential remainingMarch 2018 March 2017

ACQUISITION TIMELINE£73 million of acquisitions since 2014 Capital raising

January 2014

Acquisition:Crown Square,Woking

Headline:£6.0m

Yield:9.3% initial

March 2014

Acquisition:Ashcombe House,Leatherhead

Headline:£4.4m

Yield:7.4% initial

April 2014

Acquisition:The Mille,Brentford

Headline:£19.3m

Yield:7.7% initial

May 2014

Acquisition:9 Greyfriars Road,Reading

Headline:£5.8m

Yield:Vacant

September 2014

Acquisition:Station Plaza,Theale

Headline:£8.4m

Yield:10.1% initial

October 2014

Acquisition:The Planets,Woking

Headline:£8.8m

Yield:6.9% initial

April 2015

Acquisition:Brunel Road,Theale

Headline:£

Yield:%

2014JAN

2015JAN

FEB

MAR

APR

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

July 2014

Acquisition:Gainsborough House,Windsor

Headline:£6.9m

Yield:7.1% initial

MCKAY / MAY 2018 / 19

30 Lombard Street, EC3

Speculative prime City of London redevelopment (58,000 sq ft)• Pre-let to St James’s Place plc• £3.3m pa (net), equivalent to £65 psf• 22.0% valuation surplus• Conditional on PC in summer 2018

15 year pre-let secured, with no break

MCKAY / MAY 2018 / 20

Speculative development programme delivering returns and proving demand9 Greyfriars Road, Reading Prospero, RedhillTransformational refurbishment of 39,620 sq ft 1980s obsolete office building

• Single letting of entire asset (June 2017)• 15 year lease (tenant break at year 10)• £1.5m pa: 3.9% over ERV• Winner: BCO Regional refurbishment• BREEAM outstanding / EPC A• 37.6% valuation surplus

High quality speculative 50,370 sq ft office development • 92% let• Multi-let at rents ahead of ERV• 10 year terms achieved• 26.9% valuation surplus

MCKAY / MAY 2018 / 21

Topping up the reversion

Speculative redevelopment of 1980s warehouse into a 134,150 sq ft distribution/logistics unit

• New high quality logistics unit• Practical completion Spring 2019• 2 minutes from Junction 12, M4• Potential for long lease term• ERV: £1.4m pa (up 92.7%)

135 Theale Logistics Park, J12 M4: construction underway

MCKAY / MAY 2018 / 22

27% disposal surplus for re-investment Pinehurst Park Farnborough £5.8m £0.3m £0.5m pa

Purchased May 2012

Value release from residential

72% return on cost

Runnymede Focus Egham £19.6m £5.1m £0.9m paConstructed by McKay in the late 1970s

Capitalised on market demand

4.2% disposal yield

Albion House Newbury £1.4m £0.3m £0.1m paDisposal post lease regear

£26.8m £5.7m £1.5m pa

Proceeds (net)

Surplus Rent

Total

HeadingSouth East office market

200703 33 21

Evolving drivers of occupier demand…

millionc50% % %

The proportion of buildings in the IPD South East office index over 25 year old

The total number of lease events over the next three years (13.5m sq ft)

The estimated number of Crossrail passengers on opening in 2018/2019

Average house price discount to central London

Forecast GDP growth to 2027 (second only to London (26%

CommunicationsLease events Workforce Economic performance

Obsolescence

MCKAY / MAY 2018 / 23

MCKAY / MAY 2018 / 24

Heading

84 89

81

… set to build on stable and predictable leasing levels

Office lettings over the last five years:

% %

%

Below 80,000 sq ft

Post completion

New / grade A

Source: BNP ParibasMCKAY / MAY 2018 / 24

0

1

2

3

4

2008

Lettings > 80,000 sq ft

Named demand and u/o (Q1)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018(Q1)

sq

ft

(mill

ion

)

5 year average

43,500sq ft

average McKay

SE office

MCKAY / MAY 2018 / 25

Historically low supply• New / grade A supply:

6.3m sq ft / 6.8%

(Q1/2017: 7.9%)

• New supply:

2.2m sq ft / 2.4%

(Q1/2017: 2.7%)

• 82% of centres with < 5% vacancy (new)

Source: BNP Paribas

% v

acan

cy

Grade A vacancy (%)

New vacancy (%)

5

Rea

ding

Win

dsor

Wat

ford

Leat

herh

ead

Red

hill

/ Rei

gate

Wey

brid

ge

Uxb

ridge

Slo

ugh

Hea

thro

w

Mai

denh

ead

Che

rtse

y

Hig

h W

ycom

be

Oxf

ord

Egh

am /

Sta

ines

Mar

low

Bra

ckne

ll

Cra

wle

y

Wok

ing

Gui

ldfo

rd

Bas

ings

toke

Cam

berle

y et

c0

5

10

15

20

M4 M40 OthersM3West London

South M25

MCKAY / MAY 2018 / 25

MCKAY / MAY 2018 / 26

0

1

20

15

10

5

0

2

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

sq ft

Number of schemes

sq

ft

(mill

ion

)Constrained development pipeline will limit choice 50

Pipeline

below 5 year average

%

• South East office

development

cycle peak largely

absorbed and

pipeline now

constrainedSource: BNP Paribas

MCKAY / MAY 2018 / 27

Broadening demand+Constrained supply= Rental growth

• Rental values have lagged behind central

London by 25% since 2007

• South East markets offering historically good

value relative to London

• Portfolio positioned to benefit from these trends

• Track record of meeting the demands of an

increasingly discerning market

40

60

80

100

120

140

June 2

007

Nov 200

7

Nov 200

8

Nov 200

9

Nov 201

0

Nov 201

1

Nov 201

2

Nov 201

3

Nov 201

4

Nov 201

5

Nov 201

6

Nov 201

7

Ind

ex

Ju

ne

2007

= 1

00

Office – South East Standard Office – Central London

0

50

100

150

200

250

300

350

Jan 19

80

Jan 19

85

Jan 19

90

Jan 19

95

Jan 20

00

Jan 20

05

Jan 20

10

Jan 20

15

Ind

ex

Hammersmith, Merton, Richmond Bracknell, Reading, Reigate, Slough, Woking

Average movement in rental growthIPD UK annual market rental value growth y/y

Source: IPD / BNP ParibasMCKAY / MAY 2018 / 27

MCKAY / MAY 2018 / 28

HeadingDistribution warehouse market

4 1.775… supporting speculative redevelopment at Theale

billion

sq ft

million9.8% %%

Q1/18 take up of units > 100,000 sq ft.Highest on record

Year end availability rate at an all-time low – fallen for the 7th consecutive year

Grade A share of take-up

Q1 industrial investment, 17.1% higher than Q1 2017. Highest on record

MCKAY / MAY 2018 / 28

MCKAY / MAY 2018 / 29

HeadingOutlookPortfolio potential to outperformIncome / dividend growth

• 2018 activity to benefit future periods

• Proven platform to deliver substantial 22.6% (£6.10m pa) income reversion

• Exciting warehouse development prospects at Theale

Capital / NAV growth• Gains from release of portfolio reversion

• Further development and refurbishment gains

• Supported by strong balance sheet, with clarity post swap cancellation

Capitalising on our unique position in London and the South EastMCKAY / MAY 2018 / 29

MCKAY / MAY 2018 / 30

Appendix

Cashflow and debt 31

Financial summary 32

Rental value movement 33

Capital value movement 34

Sustainability 35

Contact information 36

MCKAY / MAY 2018 / 30

MCKAY / MAY 2018 / 31

Cashflow and debt

£’ million136.0

Drawn debtMarch 2017

13.4

Swapcancellation

8.5

Dividendpaid

23.3

Capex

(26.8)

Disposals

(7.4)

Movement in cash

147.0

Drawn debtMarch 2018

MCKAY / MAY 2018 / 32

Financial summary

Balance sheet March 2018

Portfolio value 1 £460.15m

Drawn debt £147.00m

NAV/share 326pps

NAV/share – EPRA 2 322pps

NNNAV/share – EPRA 2 322pps

LTV 32%

Gearing – NAV 3 48%

March 2018

Dividend/share (Final) 7.2pps

Dividend/share (Total) 10.0pps

Income statement March 2018

Profit/(Loss) – IFRS £43.44m

Adjusted profit before tax £9.07m

EPS (EPRA) 8.70pps

1. Valuation movements (%) before allowing for cap-ex incurred during the period

2. Calculated in accordance with EPRA guidelines3. Debt as a percentage of EPRA adjusted net assets

March 2017 Change

£17.59m

£8.60m 5.4%

8.38pps 3.8%

March 2017 Change

£429.92m 7.0%

£136.00m 8.1%

289pps 12.8%

303pps 6.3%

285pps 13.0%

32%

47%

March 2017 Change

6.3pps 14.3%

9.0pps 11.1%

Sept 2017 Change

300pps 8.7%

312pps 3.2%

296pps 8.8%

MCKAY / MAY 2018 / 33

Rental value movement

1. Segments analysed by IPD geographical area, exc dev2. IPD Monthly Index – movement by segment where appli-

cable. IPD London = City segment3. IPD Monthly index (All property)4. Including 9 Greyfriars Road, Reading and Prospero, Redhill5. Brunel Road, Theale and Lombard Street, EC3

12 months to 31st March 20181

London offices

South East offices4

Total offices

South East industrial

Other

Total (excluding developments)

Developments5

Total portfolio (like for like)

Disposals

Total

12 month movement

IPD2

movement

0.3%

2.4%

1.6%

6.3%

–

1.9%3

5.2%

4.0%

4.2%

11.5%

0.0%

5.0%

18.3%

6.7%

1.4%

2018 portfolio ERV £m pa

2017 portfolio ERV £m pa

3.44

18.99

22.43

3.39

1.16

26.98

4.08

31.06

1.62

32.68

3.62

19.76

23.38

3.78

1.16

28.32

4.83

33.15

33.15

MCKAY / MAY 2018 / 34

Capital value movement

1. Valuation movements (%) after allowing for cap-ex incurred during the period

2. IPD Monthly index allocations IPD London = City segment

3. IPD Monthly index (All property)4. Including 9 Greyfriars Road, Reading and Prospero, Redhill

12 months to 31st March 20181

London offices

South East offices4

Total offices

South East industrial

Other

Total (excl. dev)

Developments

Total portfolio (like for like)

Disposals

Total

3.6%

3.9%

3.5%

18.5%

–

5.3%3

5.3%

-0.5%

3.0%

2.3%

19.5%

3.1%

4.7%

16.5%

6.1%

54.40

249.73

304.13

50.00

20.80

374.93

34.00

408.93

20.99

429.92

12 month movement

IPD2

movement2018 portfolio valuation £m

2017 portfolio valuation £m

56.25

260.10

316.35

60.85

21.65

398.85

61.30

460.15

–

460.15

MCKAY / MAY 2018 / 35

Sustainability

Managing Sustainable Buildings

To add value to the

Group’s portfolio by improving

the efficiency of the buildings and

reducing the environmental impact

Creating Sustainable Buildings

To achieve best practice green

building standards in order to

deliver quality buildings

CORE BUSINESS STRATEGY

Engaging our Stakeholders

To maintain an active dialogue

with key stakeholders about

sustainable performance

Highlights• Aurum office development

on track for BREEAM ‘Excellent’ certification

• Piloted a post-occupancy assessment of Prospero, Redhill, with positive results

For 2018/19, we have set ourselves 19 targets, of which 4 are listed below.

• Ensure all new developments and major refurbishments achieve minimum BREEAM Excellent and at least an EPC B rating.

• Hold a minimum of two sustainability related CPD sessions to increase awareness of key issues amongst employees.

• Introduce building awards/competition to encourage uptake of sustainability practices amongst tenants.

• Maintain or enhance McKay’s GRESB performance, relative to 2017.

We have set environmental performance targets to reflect our renewed commitment to our 5 long-term goals to 2020 for energy, carbon, water and waste.

The Group also plans to review and refresh its sustainability strategy over of the course of the coming year, to re-align with the core business strategy and ensure that stakeholder needs are still being met.

Highlights:• Achieved a 14%

reduction in carbon emissions and a 7% reduction in energy consumption on a like-for-like basis

• EPC risk negigible, with <1% of the portfolio (by ERV) falling below an E-rating

Highlights: • Maintained Global Real Estate

Sustainability Benchmark (GRESB) ‘Green Star’ status for the second year running

The Group achieved 90% of its 2017/18 targets

MCKAY / MAY 2018 / 36MCKAY / MAY 2018 / 36

Contact information

MCKAY / MAY 2018 / 36

Simon PerkinsChief Executive Officer

Joined in 2000 after 10 years with Arlington Securities plc. Appointed CEO in 2003.

email: [email protected]

Address: McKay Securities PLC 20 Greyfriars Road Reading Berkshire RG1 1NL

tel: 0118 950 2333

fax: 0118 939 1393

Website: www.mckaysecurities.plc.uk

May 2018

Giles SalmonChief Financial Officer

Joined in 2011, from BAA Lynton. Appointed Finance Director in August 2011.


Tom ElliottProperty Director

Joined in 2016 after 11 years with Land Securities plc. Appointed Property Director in April 2017.


annual results - mckay securities plc · • breeam outstanding / epc a • 37.6% valuation surplus...

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