Reading: McKay Securities announces 'striking' set of results

McKay Securities plc, the only UK Real Estate Investment Trust (REIT) specialising exclusively in the London and South East office and industrial markets, headquartered in Reading, has announced full-year results for the year ended March 31, 2018.

Financial Highlights

• Adjusted profit before tax up 5.4% to £9.07 million (31 March 2017: £8.60m)
• Adjusted basic earnings per share of 9.7 pence (31 March 2017: 9.2p)
• Gross rental income up 5.1% to a historic high of £21.84m (31 March 2017: £20.79m)
• IFRS profit before tax of £43.44m (31 March 2017: £17.59m), reflecting a higher valuation surplus compared to prior year and profits on disposal
• NAV (EPRA) up 6.3% to 322p per share (31 March 2017: 303p), or 10.9% excluding swap cancellation costs
• NNNAV (EPRA) up 13.0% to 322p per share (31 March 2017: 285p)
• Loan to value ratio of 31.9% (31 March 2017: 31.6%)
• Remaining legacy interest rate swap cancelled
• Final dividend up 14.3% to 7.2p per share (2017: 6.3p per share)
• Total dividend for the year up 11.1% to 10p (2017: 9p)

Portfolio Highlights

• Portfolio valuation at a historic high of £460.15m, generating a 6.1% (£26.46m) valuation surplus
• Record year of lettings, with 26 open market lettings (1.9% ahead of ERV) contributing £7m pa to a 23.3% increase in contracted rental income (like for like) to £27.05m pa
• Key lettings include:

• Lombard Street, EC3, fully pre-let to a single tenant, on a 15-year lease without break
• 9 Greyfriars Road, Reading, fully let to a single tenant, on a 15-year lease (10-year tenant break)
• Prospero, Redhill, 91.8% let on a multi-let basis, all on 10-year terms

• 6.7% increase in rental value (like for like), taking portfolio ERV to £33.15m pa

• Development of a new 134,150 sq ft logistics warehouse at Junction 12 of the M4 at Theale underway with Spring 2019 completion
• Substantial 27.3% (£5.7m) profit on disposal of three lower growth assets, releasing net proceeds of £26.80m for reinvestment

Richard Grainger, chairman of McKay Securities, said: “Not only are these a striking set of results but they also act as a marker to reflect on the transformation of the business since our capital raising in 2014, leading to the recommendation of a 14.3% increase in the final dividend. Since 2014, the portfolio value has increased by 81% to £460.15m, recurring contracted rents have increased by 67%, the portfolio rental value (ERV) has increased by 76% and gearing (loan to value) has reduced from 45% to 32%.  This has been achieved despite selling £68m of assets, that generated income of £3.10m pa.

"While we must remain wary of the current political environment, the markets that McKay operates in and knows so well continue to prove robust and our business is well placed to deliver further shareholder value into the future.”

Simon Perkins, chief executive of McKay Securities, added: “We are now reaping the benefit of the many asset management initiatives that we have been working on, but particularly the decision made to speculatively develop three office schemes back in 2014.  Each scheme has been exceptionally well received, with two of them fully let during the period and the third at 92% occupancy.

“We have continued to release value from the significant reversion these initiatives have generated, delivering higher levels of income and capital gains. Through our strong in-house asset management team, we have secured record income from lettings, ahead of ERV, and have opportunistically sold properties significantly above book value.   

“With the benefit of these gains, we took the decision to cancel the remaining legacy swap at the end of the period which, along with recent lettings will make a positive contribution to future earnings.

“Central to our success has been our strategic geographical focus on London and the South-East, whilst applying our team’s skills in development, refurbishment and active management. We have intimate local market knowledge and awareness of business occupier needs and it is this that will continue to drive our approach as we navigate the market and unlock the 22.6% (£6.10m) reversion in our portfolio.”