Annual Results - McKay Securities PLC · 2020-07-24 · Dividend • Final: 4.4pps, down 40.5% (March 2019: 7 ... Annual Report and Financial Statements 2020 8 B u y M o n it o r

Annual Report and Financial Statements2019

Annual Results to 31 March 2020

Simon Perkins

CEO

Giles Salmon

CFO

Tom Elliott

Property Director

Management teamReview of the year 3

Financial review 6

Portfolio review 12

Market review 18

Outlook 24

Appendix 25

Annual Results to 31 March 2020

The only REIT specialising in the office, industrial and logistics markets of the South East and London.

MCKAY / JUNE 2020 02


Delivery of development programme

Releasing portfolio income potential

Enhancing scope for future growth

• 135 Theale Logistics Park (134,430 sq ft) completed

• Concludes active period of development and major refurbishment

• Since 2014 Capital Raise: £106.7m cap-ex, delivering ERV growth of 84.7%

• 16.4% increase in rents received (gross) to £25.2m, driving increase in profits

• 4.1% increase in contracted rents to £28.3m pa, from lettings and rent reviews

• Outperformance of MSCI Monthly Index

– 3.2% increase in ERV to £34.9mpa (MSCI: -0.3%)

– 5.7% increase in portfolio value to £510.0m, with 0.0% movement on cost (MSCI: -4.8%)

– 4.7% total portfolio return (MSCI: -0.1%)

• 23.3% (£6.6m pa) remaining reversion

• New loan facility adding £55.0m of additional headroom

• With sale proceeds from 30 Lombard St, EC3, c£100.0m for investment

Strong operational performance from delivery of key strategic priorities

Adjusted profit up 5.0% to £9.7mNAV/share (EPRA) up 0.9% to 329pps

Dividend • Final: 4.4pps, down 40.5% (March 2019: 7.4pps)

• Full year: 7.2pps, down 29.4% (March 2019: 10.2pps)

04 MCKAY / JUNE 2020

Navigating Covid-19 Resilient characteristics and continued application of strategy

Wholly invested in the office, industrial and logistics sectors• No retail/leisure/hospitality exposure

• Good quality assets: £96.9m cap-ex over 5yrs on refurb/dev

• Positive supply/demand characteristics

Strong rent collection for Q1 March Qtr from diverse occupier base• 73% cash collected

• 95% collected or agreed

• No reliance on a single business sector

No major capex• Minimal development and refurb exposure

• No on-site contractual development risk

Strong balance sheet• Earliest loan renewals 2024

• £51.0m undrawn facilities for investment

Scope for growth• c£100.0m for investment post disposal of 30 Lombard St, EC3

(est. Q3/2020)

9

McKay Securities Plc Annual Report and Financial Statements 2020

McKay Securities Plc Annual Report and Financial Statements 2020

8

Buy

Mon

itor p

oten

tial in

vestment p

roperties and acquire assets

that

mee

t ide

ntifi

ed criteria

to add value through sustainable

refu

rbis

hment,

developm

ent and management.

Actively manage our assets in-house and deliver outstanding

customer service in order to attract and retain occupiers,

support business growth and maxim

ise returns.

Manage

Sell

Dispose of m

ature assets to recycle capital

to be reinvested into new properties and projects.

Develop

Refurbish and develop our propertie

s to c

reat

e

environmentally sustainable and healthy b

uildin

gs w

here

peo

ple

and businesses can thrive and enhance/deliv

er port

folio

retu

rns.

Business Model

Land and buildingsWe focus on quality office, industrial and logistics business space within the established markets of the South East and London.

RelationshipsOur geographical focus and in-house management capabilities enable us to build strong relationships and work in partnership with our occupiers and local supply chains.

Our teamOur experienced team are experts in their field and know the South East and London markets intimately.

Respected brandWe take pride in everything we do and have developed a reputation for quality, innovation, sustainability, ambition and growth.

Financial flexibilityStrong banking relationships and a robust balance sheet allow flexibility to invest in the portfolio throughout the cycle.

Our mission is to develop, refurbish and manage commercial property: working in partnership with occupiers to deliver quality, innovation and growth. We provide the very best environment for our customers to thrive and businesses to grow.

Key resources

Completing our development programme

Achieving portfolio income potential

Enhancing scope for future growth

Strategic priorities

What we do

01 0302

Value creation We generate value by operating an effective and established business model that delivers sustainable, long-term returns.

See more on page [00]

Read more about why our stakeholders matter and how we have engaged with them on page [00]

OccupiersWe offer our occupiers choice, flexibility, quality and sustainable/energy efficient business space.

InvestorsWe aim to deliver attractive and sustainable returns to shareholders.

CommunitiesWe are committed to playing our part in the local community and supporting causes that will benefit from our experience..

EmployeesWe aim to support and engage our employees by providing a working environment that promotes health, wellbeing and development.

SuppliersSuppliers play a fundamental role in delivering our vision and we value close relationships.

Environment

Low carbon, resource efficient and healthy buildings

Social

A customer focused and flexible landlord

Governance

A progressive and transparent business

44%reduction in carbon emissions since 2015/16

94%tenants likely to recommend McKay as a landlord

4th successive year of GRESB Green Star Award

• Updated ESG strategy in place April 2019

• All developments achieving at least BREEAM Excellent

• EPCs: 99.5% E or above

• 29 targets: 86% achieved

ESG: New strategy in place“The right choice for a sustainable business”


9 Greyfriars Road, Reading (38,490 sq ft)

• Short-listed for sustainable development project of the year, Thames Valley Property Week

• BREEAM Outstanding

06

Financial highlightsStrategy delivering next step change

329pps

EPRA NAVMarch 2020

Up 0.9%March 2019: 326pps

37.6%

LTV March 2020

March 2019: 33.3%

Final dividend per share

4.4p2020

Total for year 7.2p (2019: 10.2p), down 29.4%


Adjusted profitMarch 2020

Up 5.0%March 2019: £9.27m

£9.73m


Rent collection March 2020 Quarter

Collection Analysis Rent Demanded (£m)

Rent % Collected (cumulative)

Tenants % No. of Tenants

Paid within 7 working days 2.88 53% 59% 107

Paying monthly within 7 working days 0.45 9% 15% 27

Collected within 7 working days 3.33 62% 62% 74% 134

Paid after 7 working days 0.17 3% 7% 11

Paying monthly after 7 working days 0.43 8% 1% 2

Collected after 7 working days 0.60 11% 73% 8% 13

Paying monthly (O/S) 0.37 7% 1% 2

Agreed but not monthly (O/S) 0.82 15% 8% 14

Agreed (O/S) 1.19 22% 95% 9% 16

In discussions 0.26 5% 8% 15

No communicaton 0.01 0% 1% 2

Not agreed (O/S) 0.27 5% 100% 9% 17

Target 5.38 100% 100% 180

Cash Flow

Total Paid 3.91 73%

Total Cash Outstanding 1.47 27%

Total demanded 5.38 100%


NAV (EPRA) pps

March 2019

0

50

00

50

00

50

00

March2020

326p329p

Valuationgain

0

Adjustedprofit

Profit on disposal

Dividend IFRS 2 adjDeferred tax adj

IFRS 16 adj

2

10

5

(10)(2)

3

329up 0.9%

pps


Gross rental income

0

2

4

6

8

10

3/2014 3/2015 3/2016 3/2017 3/2018 3/2019 3/2020£

mill

ion

Sustained growth in rental income driving profit

0

5

10

15

20

25

30

35

40

3/2014 3/2015 3/2016 3/2017 3/2018 3/2019 3/2020 ERV

£ m

illio

n

ERV: £34.9m pa

Contracted: £28.3m pa

Adj profit before tax

• £25.2m: up 16.4% • 71.4% increase since 3/2014

• £9.7m: up 5.0%• 286% increase since 3/2014

Full year dividend:

2020: 7.2pps

2019: 10.2pps

2018: 10.0pps

2017: 9.0pps

2016: 8.8pps

EPS (EPRA): 10.6 pence, up 20.3%

EPS (adj diluted): 10.3 pence, up 5.2%

%

March 2019

Grossrents

Interest Netproperty costs

Admin March 2020

£ m

illio

n

9.73(0.47)

9.27

3.56

(2.31)

(0.32)

Adjusted profit before tax 5.0

%


Up


Improved loan facilities and increased headroom from refinancing

1. LTV: Net debt as a % of portfolio value

50

100

150

200

250

£ m

illio

n

March 2019 March 20200

165

65 65

Drawn

Fixed Total

facilities

Drawn

Fixed Total

facilities

190 194

245

LTV 33.3%

WACD: weighted average cost of debt, at current rates

WACD 3.3%

LTV 37.6%

WACD 3.3%

2.8%

fully drawn cost of debt

• Portfolio growth enabling increase in loan facilities

• April 2019: A new £180m RCF (club) signed, and three bilateral loans of £125m repaid

• Total facilities up £55m to £245m

• Earliest facility renewal 2024

• WACD fully drawn 2.8% (at March 2020 rates)

• Provides c£100m for acquisitions / portfolio cap ex post disposal of 30 Lombard St

• LTV1: 37.6% (March 2019: 33.3%) : c28% post disposal of 30 Lombard St, EC3 (est. Q3/2020)

Heading

Poyle

Croydon

Redhill

Crawley

Leatherhead

Folkestone

Newbury BracknellTheale

FleetFarnborough

Woking

Maidenhead

Banbury

Reading

Weybridge

Windsor Staines

WimbledonBrentford

12 Office Industrial Other

Sector1 No. £m (March 20) % by value

South East Offices 17 267.3 52

South East Industrial/logistics 8 92.4 18

South East (total) 25 359.7 70

London Offices 4 125.8 25

Other 4 24.5 5

33 510.0 100

Occupancy: 92.6% exc dev (March 2019: 91.0%)

• Excellent road/rail communications

• Established centres

• Internally managed

• Reading HQ = Local knowledge

Our portfolioRegional strength & sector diversity

1. At 31 March 2020

MCKAY / JUNE 2020

13

Substantial income potential remaining

Contracted rent

£34.9m pa

March 2020

Developmentvoid

Portfolio void

Renewal/

review

£1.5m pa

£2.5m pa

£2.6m pa

… 23% (£6.6 million pa) reversionary potential

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


£28.3m pa

Yield

6.4% reversion

5.2% initial

ERV

Speculative redevelopment of 1980s warehouse adjacent to junction 12, M4, delivering a 39% increase in floor area and 100% increase in ERV

• 134,430 sq ft high quality distribution/logistics unit

• Completed shortly after year end

• ERV: £1.5m pa

• Marketing on-going

Completing the development programme135 Theale Logistics Park


Positive letting progress• 22 open market lettings• £1.3m pa combined rent• 1.4% ahead of ERV

Significant rent reviews• 10 reviews completed• £2.3m pa agreed, 4.1% ahead of ERV• 13.9% uplift over passing• £0.2m backdated income

80% tenant retention• In-house management / strong relationships• 12 lease renewals• £0.9m pa• 12.0% uplift over passing

5 AcreFolkestone

Sopwith DriveWeybridge

1 Castle LaneSW1

Including:


Releasing portfolio potentialIncome generation from proactive asset management

30 Lombard Street, EC3• Conditional sale contracts exchanged Dec 2019

• Sale completion est. Q3/2020

• 4.16% disposal yield

• Headline price £76.5m (c£65m net)

• Scheme completed in January 2019

• 15 year lease to St James’s Place plc, at a £3.4m pa (net)

Station Plaza, Theale• 3 office buildings, totalling 41,420 sq ft

• Purchased 2014 at 10.1% yield

• Lease expired July 2019

• Sold to owner occupier for £8.2m, 32.7% ahead of book value

Planets, Woking• Sale contracts exchanged to residential developer

• Application recommended for approval at March 2020 planning committee, but refused. Appeal under consideration.

• Potential for uplift over book value

16 MCKAY / JUNE 2020 30 Lombard St, EC3

Disciplined capital recycling Supporting future growth

• 161 opportunities analysed

• 25 assets inspected

• 1 acquisition – Rivergate, Newbury• £15.5m purchase price, 7.5% NIY

• 61,385 sq ft recently refurbished

• Fully let – 8.8 yrs to expiry

• Low rents of £21.40 psf

• £51m headroom

• Increasing to c£100m post Lombard Street sale (est. Q3/2020)


Acquisitions and funds for investmentSupporting future growth


Investment market• Low transaction volumes:

sector variations

• Still weight of money

• Few forced sellers so far

Occupier market• Office relocation decisions on hold

• Regear opportunities for existing landlords

• Ind/warehouse demand picking up

Valuations• Subject to required RICS materiality clause

Key issues to be determined• Rent collection

• Extent of homeworking

• Office occupation density

• Potential for decentralisation

• Pace of economic recovery


Covid-19 Market Review

Occupiers want…

• Ease of occupation

• Lower cost solution

• Connectivity

• Minimal capital expenditure

• Flexibility

• Customer service

McKay offers…

• Short form leases

• Car parking

• Low rise buildings

• Average office rent £28psf

• Fibre enabled

• Fitted out – accelerated occupation

• Flexible lease terms

• Directly managed by McKay

Covid-19: Office trendsMaking the case for South East offices more attractive



J11

GATWICKAIRPORT

READING

PADDINGTON

HEATHROWAIRPORT

THAMES

J10

J4

J8

J6

J3

J12

J15

J18

J10

J7

J12

LONDON

BRACKNELL

WINDSOR

WOKINGHAM

GUILDFORD

WOKING

STAINES SUNBURY

UXBRIDGE

CHERTSEY

FLEET

HOOK

CAMBERLEY

BASINGSTOKE

NEWBURY

THEALE

FARNBOROUGHAIRPORT

SLOUGH

HIGH WYCOMBE

MARLOW

M25

M25

M23

M26

M20

M25

M25

M40

A322A331A339

A31

A404

A205

A4074

A3

A3

A3

M1 M11

M4

M3

M4A4

A4

A33A23

A40

WATERLOO

UP TO £160 PSF

UP TO £100 PSF

UP TO £55 PSF

UP TO £52 PSF

UP TO £41PSF

Total Occupation Cost (PSF)

£58.00 (PSF)READING TC

NEWBURY

£36.00 (PSF)

BASINGSTOKE

£41.00 (PSF)

BRACKNELL

£42.00 (PSF)

WOKING

£51.00 (PSF)

STAINES

£52.00 (PSF)

BRENTFORD

£45.00 (PSF)WINDSOR

£52.00 (PSF)

MAIDENHEAD

£53.00 (PSF)

HIGH WYCOMBE

£38.00 (PSF)

SLOUGH

£54.00 (PSF)

WATFORD

£53.00 (PSF)

WEST END

£159 .00(PSF)

HAMMERSMITH

£86.00 (PSF)

Covid-19: McKay office locationsDe-centralisation: cost savings and ease of access

CROYDON

£46.00 (PSF)

CRAWLEY

£42.00 (PSF)

REDHILL

£42.00 (PSF)

£55.00 (PSF)UXBRIDGE

20 MCKAY / JUNE 2020 Source: Rare

MCKAY / JUNE 2020 21 MCKAY / JUNE 2020 21 Source: BNP Paribas

South East Office DemandStable demand

Q1/2020• Named demand

• 2.8m sq ft (Q1/2019: 2.8m sq ft)

• 2019 lettings• Below 5yr average

• Brexit impact

Post Covid-19• Named demand steady

• Deals on hold

• Drivers of demand• 4.5m sq ft lease events over

next 3 yrs (667 events)

• Obsolescence

0

1

2

3

4

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Q1

sq

ft (m

illio

n)5 year average

2015–2020 = 2m

Lettings > 80,000 sq ft

Named demand (Q1)Q1 Lettings

Office lettings


Total supply

6.8m sq ft / 7.3% (March 2019: 7.6%)

New supply

1.7m sq ft / 1.8% (March 2019: 1.9%)

90% of centres with <5% supply (new)

Development/refurbishment caution post Covid-19

South East Office SupplyConstrained supply and pipeline post Covid-19 44

reduction in total supply

since 3/14

%

Source: BNP Paribas1. Includes refurbishment for 2019 onwards

0

2

4

6

8

10

12

14

16

18

20

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Spec Development (sq ft) Refurbishments (sq ft) Number of Schemes

Speculative development and comprehensive refurbishments

South East industrial and logistics market

5.0 0.9

… supporting our speculative redevelopment at Theale

years

sq ft

million

5.9%

5yr average lettings vacancy rate lowest of all regions

supply on the market

Source: Savills


OutlookRobust strategy supported by resilient markets

Full impact of Covid-19 to be seen

McKay insulated by structural under-supply in key sectors

Potential impact from occupier failure and rental default

Positive letting prospects for 135 Theale Logistics Park

Substantial 23.3% portfolio reversion

Well positioned to benefit from future market investment opportunities


Appendix

Cashflow and debt 26Financial summary 27Total shareholder return 28Use of funds 29Rental value movement 30Capital value movement 3 1Contact information 32Occupier and sector analysis 33


Cashflow and debt£’

milli

on

165.0

Drawn debtMarch 2019

Dividendpaid

Disposalproceeds

16.9

16.4

CapexAcquisitionMovement in cash

194.0

Drawn debtMarch 2020

9.6

(8.1)(5.8)



Financial summary

Balance sheet March 2020

Portfolio value 1 £510.00m

Drawn debt £194.00m

NAV/share 328 pps

NAV/share – EPRA 2 329 pps

NNNAV/share – EPRA 2 327 pps

LTV 3 38%

Gearing – NAV 4 63%

March 2020

Dividend/share (Final) 4.4pps

Dividend/share (Total) 7.2pps

Income statement March 2020

Adjusted profit before tax £9.73m

Profit before tax – IFRS £9.49m

EPS (EPRA) 10.6pps

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

2. Calculated in accordance with EPRA guidelines3. LTV: net debt as a % of portfolio value4. Debt as a percentage of EPRA adjusted net assets

March 2019 Change

£9.27m 5.0%

£13.19m -28.1%

8.8pps 20.3%

March 2019 Change

£482.70m 5.7%

£165.00m 17.6%

331 pps -0.9%

326 pps 0.9%

326 pps 0.3%

33%

53%

March 2019 Change

7.4pps -40.5%

10.2pps -29.4%

Sept 2019 Change

333 pps -1.5%

333 pps -1.2%

332 pps -1.5%

Total shareholder return

Source: Thomson Reuters

50

100

150

200

250

300

£

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

TSR (%) 1 yr 5 yr 10 yr

• McKay -22 -15 88

• FTSE 350 REI -15 -14 78

• FTSE All Share -19 3 54


Use of funds

0

50

£’ m

illio

n

2015 2016 2017 2018 2019 2020

65

50

Drawn debt £m 91.5 116.0 136.0 147.0 165.0 194.0

LTV % 26 29 32 32 33 38

£79m acquisitions

£107m capital expenditure

£76m disposals

£ 32m swap cancellation cost

Post 2014 Capital Raise1

MCKAY / JUNE 2020 291. £87.6m capital raise in Feb 2014 to capitalise on market recovery


Rental value movement

1. MSCI Monthly Index by relevant sector. London = MSCI City sector

2. MSCI Monthly Index (All property)3. Theale Logistics Park

12 months to 31st March 2020

London offices

South East offices

Total offices

South East industrial/logistics

Other

Total (excluding developments)

Developments3

Total portfolio (like for like)

Disposals

Acquisitions

Total (overall)

12 month movement

MSCI1

movement

1.6%

0.9%

1.6%

3.4%

–

-0.3%2

-0.3%

-0.3%

1.0%

3.0%

2.5%

2.9%

1.4%

2.5%

0.0%

2.4%

3.2%

2020 portfolio ERV £m pa

2019 portfolio ERV £m pa

7.08

19.13

26.21

3.85

1.15

31.21

1.48

32.69

1.14

–

33.83

7.15

19.72

26.87

3.96

1.17

32.00

1.48

33.48

–

1.43

34.91


Capital value movement

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

2. MSCI Monthly Index by relevant sector. London = MSCI City sector

3. MSCI Monthly Index (All property)4. Theale Logistics Park

12 months to 31st March 2020

London offices

South East offices

Total offices

South East industrial/logistics

Other

Total (excluding developments)

Developments4

Total portfolio (like for like)

Disposals

Acquisitions

Total (overall)

Valuation yields

Initial

Initial (topped up)

Reversion

Equivalent

12 month1 movement

MSCI2

movement

1.1%

-0.2%

-0.8%

2.4%

–

-4.8%3

-4.8%

-4.8%

3.7%

-4.3%

-1.8%

3.3%

-1.2%

-1.1%

18.4%

-0.2%

0.0%

2020 portfolio valuation £m

2019 portfolio valuation £m

120.80

255.70

376.50

65.65

24.55

466.70

9.80

476.50

6.20

–

482.70

4.1%

5.3%

6.6%

5.7%

125.80

249.70

375.50

68.35

24.55

468.40

24.00

492.40

–

17.60

510.00

4.0%

5.2%

6.4%

5.7%


Occupier and sector analysis

Sector Number of tenants Av. contracted rent (£psf) Occupancy (by ERV) Capital value (£psf)

South East offices 124 27.20 90.0% 365

South East industrial 42 9.70 96.4% 182

South East total 166 91.0%

London offices 18 49.40 96.9% 936

Other 4 7.40 100% 210

Total (exc dev) 188 22.80 92.6% 358

Dev 0 0 0 179

Total (inc dev) 188 22.80 88.6% 342

Financial & Business Services

ICT

Retail, Distribution & Transport

Real Estate, Construction & Engineering

Manufacturing & Pharmaceuticals

Public Sector

Other

% (by ERV)

35

17

14

10

5

3

16

Portfolio occupier analysis (by sector)

Contact information


Simon PerkinsChief Executive

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

June 2020

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.


Documents

Annual Results - McKay Securities PLC · 2020-07-24 · Dividend • Final: 4.4pps, down 40.5% (March 2019: 7 ... Annual Report and Financial Statements 2020 8 B u y M o n it o r