TIDMMCKS
RNS Number : 1342P
McKay Securities PLC
15 November 2016
McKAY DELIVERS COMPLETED DEVELOPMENT SCHEMES
AND GROWTH IN RENTAL INCOME
McKay Securities PLC, the Real Estate Investment Trust (REIT)
specialising in South East and London office and industrial
property, today announces its half year results for the six months
ended 30 September 2016.
Financial Highlights
-- Adjusted profit before tax up 11.8% to GBP4.42 million (30 September 2015: GBP3.96 million)
-- Gross rental income up 2.4% to GBP10.42 million (30 September 2015: GBP10.17 million)
-- EPS (EPRA) up 10.3% to 4.3 pence per share (30 September 2015: 3.9 pence per share)
-- IFRS loss before tax of GBP3.78 million (30 September 2015: GBP34.59 million profit)
-- NAV (EPRA) 295 pence per share, down 2.0% (31 March 2016: 301 pence per share)
-- Loan to Value ratio of 31.4% (31 March 2016: 28.9%)
-- Interim dividend of 2.7 pence per share (2015: 2.7 pence per share)
Portfolio Highlights
-- Overall increase in property portfolio value of 3.2%
(GBP12.71 million) to GBP413.88 million
-- 0.7% (GBP3.07 million) property valuation deficit
-- 2.4% (GBP0.77 million pa) increase in ERV to GBP32.21 million
-- Initial portfolio yield of 5.1%, with reversionary potential
of GBP9.77 million pa, taking the portfolio yield to 7.3%
-- Redevelopment schemes in Reading and Redhill completed and being marketed
-- Redevelopment of 30 Lombard Street, EC3 on schedule for completion in Q1 2018
Simon Perkins, Chief Executive Officer of McKay, said:
"Delivery of our growth strategy remains on programme, with
encouraging progress over the period crystallising and
consolidating the significant income potential within our existing
portfolio. With our proactive portfolio management, contracted
rental income has increased by 6.4% to GBP22.45 million pa and the
full potential rental value of the portfolio has increased by 2.4%
to GBP32.76 million pa.
There is therefore still significant potential in the portfolio,
which comes a step closer with the completion of our development
schemes in Reading and Redhill. Release of the full 44% portfolio
reversion of GBP9.77 million pa would take our portfolio yield from
5.1% to 7.3% at current values.
The property market generally suffered a loss of confidence
following the EU referendum result, but more recently, we have seen
markets stabilise and improved recognition in our core markets of
the attraction of property as an asset class.
The South East office occupier market remains governed by
positive fundamentals, with low levels of supply of Grade A quality
space and a limited development pipeline. Yet occupiers are
increasingly facing building obsolescence issues that will continue
to underpin demand and new requirements.
We are well financed and have the ability to generate growth
from the busy programme of development and refurbishment projects
and management initiatives within our existing portfolio. The world
is a more uncertain place than it was a few years ago, but despite
this, McKay is in good shape to continue to deliver value for our
shareholders."
-ends-
Date: 15(th) November 2016
For further information Media enquiries:
please contact:
McKay Securities PLC Capital Access Group
Simon Perkins, CEO Simon Courtenay
Giles Salmon, CFO 020 3763 3400
01189 502333
MCKAY SECURITIES PLC
INTERIM RESULTS
15(TH) NOVEMBER 2016
-----------------------------------------
Details of the programme for the payment of the interim
dividend are as follows:
Ex-dividend date 24(th) November 2016
Record date 25(th) November 2016
Interim dividend payment 5(th) January 2017
The Directors have declared an interim dividend of
2.7 pence per share, (2015: 2.7 pence per share), which
will be paid as an ordinary dividend.
CHAIRMAN'S STATEMENT
-- Profit before tax, adjusted to exclude unrealised movements
in the value of the Group's property portfolio and other non-cash
items, increased by 11.8% to GBP4.42 million for the six month
period to 30(th) September 2016 (30(th) September 2015: GBP3.96
million).
-- The independent valuation of the Group's property portfolio
at 30(th) September 2016 totalled GBP413.88 million, resulting in a
GBP3.07 million (0.7%) valuation deficit for the period (30(th)
September 2015: GBP26.36 million / 7.1% surplus). The negative
value of the Group's remaining interest rate hedging instrument
increased by GBP4.59 million to GBP27.00 million (30(th) September
2015: GBP4.74 million decrease).
-- Inclusion of these, and other, unrealised items resulted in a
loss before tax (IFRS) of GBP3.78 million (30(th) September 2015:
GBP34.59 million profit).
-- Net asset value per share (EPRA) reduced over the period by
2.0% to 295 pence (31(st) March 2016: 301 pence). IFRS net asset
value per share reduced by 3.9% to 269 pence (31(st) March 2016:
280 pence).
-- The Board has declared an interim dividend of 2.7 pence per share (2015: 2.7 pence).
Overview
In my first statement as Chairman, I am pleased to report that
good progress has been made over the period towards our objective
of realising the substantial income potential from our existing
portfolio in order to increase distributable profits, despite the
market reaction to the EU referendum vote.
The result of the referendum, midway through the period, caused
a loss of confidence in the property market generally at that time.
Since then, the UK economy has fared better than many expected, and
capital and rental values have stood up well in our core South East
and London markets. A reduction in capital values of just 0.7% and
rental growth of 2.5% over the period out-performed market indices
and highlights the benefit of the investment we continue to make in
upgrading our properties and the resilient characteristics of our
portfolio.
As a result of continued letting progress and rent reviews,
contracted rental income increased by 6.4% to GBP22.45 million pa
over the period, and rental growth increased the full potential
rental value of the portfolio (ERV) to GBP32.21 million pa.
The potential to crystallise a significant proportion of the
43.5% portfolio reversion of GBP9.77 million pa has improved with
completion of our office development projects at Reading and
Redhill, which have a combined rental value of GBP2.61 million pa.
These both now offer high quality, modern business space in
established centres and our letting agents have recently started
marketing the completed buildings.
This programme has resulted in continued growth in our rental
income which increased by 2.4% to GBP10.42 million (30(th)
September 2015: GBP10.17 million), despite the loss of income from
disposals made last year. This increase was the main contributor to
the 11.8% increase in adjusted profit before tax, our measure of
recurring earnings.
Market Review
Investment volumes across our markets were lower over the period
than in recent times. Whilst this was due in part to the
referendum, a slowdown in the pace of investment was expected as
the market recovery matured and the prospect of cyclical gains
reduced. Property returns remain attractive, and with the
devaluation of sterling there has been continued appetite from
overseas buyers, particularly in London, as well as the emergence
of other buyers outside London, such as local authorities. As a
result, the decline in capital values to date has generally been
limited, particularly for prime assets with secure income.
Low supply levels of new and grade A buildings in our markets
continue to limit occupier choice. This fundamental issue is
supporting headline rental growth for the best available floor
space. A positive consequence of the uncertainty regarding the
implications of the referendum result is the likely constraint on
the development pipeline, reducing the risk of oversupply.
Within the South East office market, which accounts for 59.9% of
the portfolio by value, the supply of new and grade A buildings
remains low at 6.2 million sq ft, representing 7.2% of the total
office supply. The vacancy rate for new buildings is lower still at
2.2 million sq ft (2.6%).
For the year to date, occupier take up of floor space within
this market totalled 1.62 million sq ft, of which 1.42 million sq
ft was in new and grade A buildings. This is the same level as
recorded at this stage last year and 14.1% ahead of the five-year
average for the same period. With 0.56 million sq ft under offer,
occupier take up for the full year is expected to be similar to the
2.13 million sq ft recorded last year, and ahead of the five-year
average of 1.88 million sq ft. Continued occupier demand is
encouraging, but we anticipate the referendum may result in the
short term deferral of larger strategic requirements over 60,000 sq
ft. However, there are many positive factors still at play in our
markets and the opening of the Elizabeth Line (Crossrail) in 2018
and the likelihood of higher business rates are likely to play an
increasingly important part in attracting occupiers from London. In
any event, our vacant properties are below 60,000 sq ft, and lease
events and building obsolescence are likely to continue to generate
new requirements in this smaller size band, which accounted for
79.2% of all occupier take up in 2015.
Within the City of London, the referendum has raised uncertainty
regarding future occupier demand, particularly from the banking
sector. Take up levels for 2016 are expected to be lower than the
above average levels of the last two years, but constrained supply
continues to support rental values. Capital values are generally
lower, but as with other markets, the extent depends on the nature
of the asset.
Portfolio Income and Leasing Activity
Over the period, we completed ten open market lettings with a
combined contracted rental value of GBP0.73 million pa. This was
5.7% ahead of March 2016 ERV, with the work referred to below
helping secure new rental highs in our buildings at Croydon,
Woking, Brentford and Maidenhead.
At lease break and lease expiry, seventeen out of twenty tenants
were retained, which maintained a high retention rate of 85.0% and
secured rents of GBP0.58 million pa. Of this, leases renewed on
expiry accounted for GBP0.25 million pa, which was 0.6% ahead of
ERV and 18.5% ahead of the previous passing rent.
After taking this leasing activity into account, portfolio
occupancy at the end of the period increased from 92.8% to 93.9%,
and from 74.2% to 75.5% with the inclusion of the three development
properties referred to below.
The outstanding February 2016 rent review at Wimbledon Gate,
Wimbledon was settled during the period at a rent of GBP2.35
million pa, equivalent to GBP43.00 psf. Wimbledon has benefited
from the ripple effect of higher rental values from central London,
and the building, which was constructed by the Group in 2005,
remains one of the best in the town. The uplift was a substantial
GBP0.80 million pa (51.6%) over the passing rent and a 13.7%
increase over 31(st) March 2016 ERV.
The portfolio ERV, which ended the period at GBP32.21 million
pa, retains significant potential with vacant properties totalling
GBP1.96 million pa, three development properties totalling GBP5.94
million pa and potential rental uplifts at rent review and lease
expiry of GBP1.87 million pa.
Refurbishment Projects
Refurbishment of Unit 5 (8,364 sq ft) at Switchback Office Park,
Maidenhead completed in early September. Prior to completion, the
top floor was pre-let on a 10-year lease at a rent of GBP0.11
million pa, equating to GBP26.75 psf. This is the last building to
be refurbished on the 37,450 sq ft Park, and the highest rent
achieved, leaving the ground floor (4,133 sq ft) as the remaining
space to let.
Other portfolio refurbishment work progressed well over the
period at Portsoken House, EC3; The Mille, Brentford and 1 Crown
Square, Woking, which together represent 71.4% (GBP1.40 million pa)
of the portfolio void. Completed and ongoing improvement works to
common areas and vacant floor space have generated gains in ERV's
and rents achieved on letting, and marketing is generating
encouraging interest.
Following the completion of conversion works at the end of last
year, Strawberry Hill House, Newbury has now been leased as a
medical Surgery at a rent of GBP0.26 million pa for 25 years.
Development Programme
Our current programme consists of three speculative office
projects, which all made good progress over the period. When let,
these schemes which represent 9.2% of the total portfolio by area
and 18.5% by ERV will make a significant contribution to future
earnings.
The major refurbishment at 9 Greyfriars Road, Reading (39,620 sq
ft) completed in the summer. The scheme has achieved the first ever
BREEAM Outstanding rating awarded outside London, and provides
occupiers with a high quality, sustainable building less than five
minutes walk from the recently upgraded mainline and Elizabeth Line
railway station.
At Redhill, our new scheme (50,370 sq ft) on London Road
completed shortly after the end of the period. It is the only new
office building in Redhill, where vacancy rates are below 5% for
good quality modern floor space. It sets a new benchmark in the
southern M25 market with excellent environmental credentials and a
high quality specification, providing flexible business space close
to Redhill station, with excellent links to London and Gatwick.
In both cases, the marketing campaigns are generating viewings
and early interest.
In the City of London, demolition of the 1960's office building
(35,820 sq ft) at 30 Lombard Street is nearing completion.
Construction of the striking replacement building (58,000 sq ft) in
this core city location remains on programme for completion in
mid-2018.
Valuation
The independent valuation of the Group's portfolio at 30(th)
September 2016 totalled GBP413.88 million (31(st) March 2016:
GBP401.17 million). After taking capital expenditure into account,
this resulted in a 0.7% deficit for the period of GBP3.07 million
overall. The IPD Monthly Index (All Property) deficit for the
period was 3.7%.
On a sector basis (excluding developments) the valuation result
also out-performed IPD with a surplus for South East offices of
0.9% (IPD: deficit 6.2%), a deficit of 0.9% for London offices
(IPD: deficit 4.8%), and a deficit of 1.0% for South East
industrial properties (IPD: deficit 1.1%).
The portfolio initial yield was 4.7% (March 2016: 4.5%)
increasing to 5.1% (March 2016: 5.0%) on the expiry of letting
incentives. At ERV, the reversionary yield would be 7.3% (March
2016: 7.4%). The equivalent yield was 6.4% (March 2016: 6.3%).
The outward shift in yield reflects market reaction to the
uncertainty surrounding the outcome of the referendum vote.
Initially there were concerns that values would fall across all
market sectors, triggered by forced sales from many of the open
ended funds. However, the market has evolved since and comparable
evidence has indicated a more varied picture with some sectors and
building types performing better than expected.
The portfolio valuation reflected this. Those properties with
longer leases, variable lease expiries and limited outstanding
refurbishment expenditure proved more resilient than those with
short income and letting risk. Assumptions in relation to the
development properties reflected market appetite to letting risk,
and at 30 Lombard Street, EC3 also reflected that this project is
the least progressed.
In addition, the benefit of recent and ongoing refurbishment
work and the Wimbledon rent review was reflected in the 2.5%
increase in portfolio ERV over the period, which was also ahead of
the IPD Monthly Index increase of 0.7%. These rental gains helped
offset the outward movement in yields.
Finance
EPRA net asset value per share, which excludes the negative
value of hedging instruments, decreased by 2.0% to 295 pence since
31st March 2016 (301 pence).
IFRS net asset value decreased by GBP9.12 million to GBP252.11
million over the period and net asset value per share decreased by
3.9% to 269 pence. This was mainly due to a negative movement of
GBP4.59 million in the value of the interest rate hedging
instrument and the GBP3.07 million valuation deficit referred to
above.
Drawn debt increased to GBP130.00 million (31st March 2016:
GBP116.00 million), primarily due to development and refurbishment
expenditure. The ratio of drawn debt to portfolio value (LTV) was
31.4% (30th September 2015: 33.1%), and the gearing ratio to
shareholders' funds, adjusted in accordance with banking covenants,
was 46.6% (30th September 2015: 49.9%). The average cost of debt
increased to 4.78% during the period (31(st) March 2016: 4.35%) due
to a higher proportion of drawn debt at fixed rather than floating
rates.
Adjusted profit before tax of GBP4.42 million was 11.8% (GBP0.47
million) higher than the corresponding period last year. A
significant proportion of this increase was the result of lettings
and the settled rent review at Wimbledon Gate. These contributed to
an increase of 2.4% in gross rental income for the period which
totalled GBP10.42 million (30(th) September 2015: GBP10.17
million). Non recoverable property costs of GBP1.24 million were
marginally lower than the corresponding period last year (30(th)
September 2015: GBP1.25 million).
Administration costs of GBP2.98 million for the period were also
marginally lower than the corresponding period last year (30(th)
September 2015: GBP3.00 million).
Net finance costs reduced by GBP0.16 million to GBP2.12 million
(30(th) September 2015: GBP2.28 million) benefitting from the level
of capitalised interest increasing to GBP1.15 million (30(th)
September 2015: GBP0.76 million).
IFRS profit before tax for the period, prior to any adjustments
for unrealised items, shows a GBP3.78 million loss (30th September
2015: GBP34.59 million profit). The loss includes the revaluation
deficit and the negative movement in the mark to market valuation
of the interest rate hedging instrument.
The Board
There have been a number of changes to note over the period,
including my own appointment as Chairman. I would like to thank
David Thomas, my predecessor, for all his efforts over his eleven
years with the Group, and for the healthy state which he has left
business in.
We were pleased to welcome Jon Austen to the Board at the
beginning of July as an independent non-executive Director. Jon,
who qualified as a Chartered Accountant in 1981, has gained
extensive experience in the property sector in a number of senior
roles and most recently as Group Finance Director of
Urban&Civic plc, and has been appointed Chairman of the Audit
Committee.
Steven Mew, Portfolio Director, left the Board at the end of
September after 15 years with the Group and we wish him well in his
new role. Tom Elliott, who has joined us from Land Securities PLC,
has taken on Steven's responsibilities.
Dividend
The Board is pleased to declare an interim dividend of 2.7 pence
per share, which maintains the level of dividend paid for the same
period last year. This will be paid as an ordinary dividend on 5th
January 2017.
Outlook
We are fortunate to be in a strong position to grow the value of
the portfolio and future earnings through our refurbishment and
development initiatives, rather than needing to rely on market
momentum alone.
The pace of this growth will be dependent on the health of the
economy and in turn, tenant demand. However, with recent indicators
suggesting that the economy has held up well, and with our existing
portfolio focused in the most resilient economic regions of the UK,
we look forward to delivering further shareholder value.
R. Grainger
Chairman
15(th) November 2016
CONSOLIDATED PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
-----------------------------------------------------------------------------------------------------------
6 months 6 months 12 months
to 30(th) to 30(th) to 31(st)
September September March
2016 2015 2016
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
Gross rents and service charges
receivable 12,113 11,695 23,689
Direct property outgoings (2,939) (2,776) (6,025)
---------- -------- ---------
Net rental income from investment
properties 3 9,174 8,919 17,664
Administration costs (2,984) (2,996) (5,878)
---------- -------- ---------
Operating profit before (loss)/gains
on investment
properties 6,190 5,923 11,786
Profit on disposal of investment
properties - 315 9,106
Revaluation of investment
properties 6 (3,268) 25,885 34,564
---------- ------- ---------
Operating profit 2,922 32,123 55,456
Net finance
costs - finance costs 5 (6,706) (2,276) (4,478)
- finance income 5 6 4,746 2,182
---------- ---------- -----------
(Loss)/profit before taxation (3,778) 34,593 53,160
Taxation - - -
---------- --------- ----------
(Loss)/profit for the period (3,778) 34,593 53,160
Other comprehensive income:
Items that will not be reclassified
subsequently to profit or
loss
Actuarial movement on defined
benefit pension scheme - - (15)
Other 88 -
---------- -------- ---------
Total comprehensive income
for the period (3,778) 34,681 53,145
---------- -------- ---------
Earnings per share 4
Basic (4.04)p 37.27p 57.17p
Diluted (4.04)p 36.75p 56.36p
Adjusted earnings per share figures
are shown in note 4.
GROUP BALANCE SHEET
------------------------------------- As at As at As at
30(th) 30(th) 31(st)
September September March
2016 2015 2016
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000) GBP'000
Non-current assets
Valuation as reported by
valuers 413,875 398,630 401,170
Adjustment for rents recognised
in advance under
SIC 15 (6,072) (6,819) (5,869)
Adjustment for grossing
up headleases 3,725 3,765 3,745
----------- ----------- -----------
Investment properties 6 411,528 395,576 399,046
Plant and equipment 76 67 91
----------- ------------ -----------
Total non-current assets 411,604 395,643 399,137
----------- ---------- -----------
Current assets
Trade and other receivables 7,972 7,809 15,641
Cash and cash equivalents 2,938 9,385 -
----------- ---------- -----------
Total current assets 10,910 17,194 15,641
----------- ---------- -----------
Total assets 422,514 412,837 414,778
----------- ---------- ----------
Current liabilities
Trade and other payables (9,380) (12,258) (10,938)
Finance lease liabilities (286) (286) (286)
Interest rate derivatives 7 (2,944) (2,944) (2,944)
Bank overdraft - - (261)
---------- --------- ----------
Total current liabilities (12,610) (15,488) (14,429)
---------- -------- ---------
Non-current liabilities
Loans and other borrowings (127,903) (129,522) (113,701)
Pension fund deficit (1,719) (1,875) (1,839)
Finance lease liabilities (4,120) (4,121) (4,121)
Interest rate derivatives 7 (24,054) (16,899) (19,465)
----------- ---------- -----------
Total non-current liabilities (157,796) (152,417) (139,126)
----------- ---------- -----------
Total liabilities (170,406) (167,905) (153,555)
----------- ---------- -----------
Net assets 252,108 244,932 261,223
----------- ---------- -----------
Equity
Called up share capital 18,762 18,486 18,632
Share premium account 78,929 75,917 77,708
Retained earnings 47,374 40,177 54,571
Revaluation reserve 107,043 110,352 110,312
----------- ---------- -----------
Total equity 252,108 244,932 261,223
----------- ---------- -----------
Net asset value per share 9 269p 263p 280p
EPRA net asset value per
share 295p 281p 301p
GROUP CASH FLOW STATEMENT
------------------------------------------------
6 months 6 months 12 months
to 30(th) to 30(th) to 31(st)
September September March
2016 2015 2016
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Operating activities
(Loss)/profit before tax (3,778) 34,593 53,160
Adjustments for:
Depreciation 15 12 18
Other non-cash movements 603 552 1,101
Profit on disposal of investment
properties - (315) (9,106)
Movement in revaluation of investment
properties 3,269 (25,885) (34,564)
Net finance costs/(income) 6,700 (2,470) 2,296
-------- -------- ---------
Cash flow from operations before
changes in working capital 6,809 6,487 12,905
Decrease/(increase) in debtors 8,568 2,482 (5,027)
(Decrease)/increase in creditors (2,756) 1,372 1,177
---------- -------- ---------
Cash generated from operations 12,621 10,341 9,055
Interest paid (3,287) (1,330) (5,810)
Swap cancellation fee - (13,165) -
Interest received 6 9 11
---------- --------- --------
Cash flows from operating activities 9,340 (4,145) 3,256
---------- -------- --------
Investing activities
Proceeds from sale of investment
properties - 865 33,207
Proceeds from sale of investments - 793 793
Purchase and development of investment
properties (14,453) (19,987) (37,660)
Purchase of other fixed assets - (15) (45)
--------- -------- ----------
Cash flows from investing activities (14,453) (18,344) (3,705)
--------- -------- ----------
Financing activities
Increase in borrowings 13,995 37,992 21,986
Equity dividends paid (5,683) (5,546) (8,061)
Swap cancellation fee - - (13,165)
---------- --------- ---------
Cash flows from financing activities 8,312 32,446 760
---------- -------- ---------
Net increase in cash and cash
equivalents 3,199 9,957 311
Cash and cash equivalents at
the beginning of the period (261) (572) (572)
---------- -------- ---------
Cash and cash equivalents at
end of period 2,938 9,385 (261)
---------- -------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders
of the parent company
Share Share Revaluation Retained Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st) April 2015 18,486 75,917 84,752 36,340 215,495
Profit for the period
Other comprehensive
income: - - - 34,593 34,593
Transfer surplus on
revaluation of
properties - - 25,885 (25,885) -
Other - - - 88 88
Transfer on disposal
of investment
properties - - (285) 285 -
--------- --------- --------- --------- ---------
Total comprehensive
income in the
Period - - 25,600 9,081 34,681
Dividends paid in period - - - (5,546) (5,546)
Fair value of share
based payments - - - 302 302
-------- --------- ---------- --------- -----------
At 30(th) September
2015 18,486 75,917 110,352 40,177 244,932
-------- --------- ---------- --------- ----------
Profit for the period - - - 18,567 18,567
Other comprehensive
income:
Transfer surplus on
revaluation of
properties - - 8,679 (8,679) -
Other - - - (88) (88)
Transfers on disposal
of investment
properties - - (8,719) 8,719 -
Actuarial gain on defined
benefit
pension scheme - - - (15) (15)
--------- --------- --------- --------- ---------
Total comprehensive
income for the
period - - (40) 18,504 18,464
Issue of new shares
net of costs 146 1,791 - (1,937) -
Dividends paid in period - - - (2,515) (2,515)
Fair value of share
based payments - - - 342 342
-------- -------- ----------- --------- -----------
At 31(st) March 2016 18,632 77,708 110,312 54,571 261,223
Loss for the period - - - (3,778) (3,778)
Other comprehensive
income:
Transfer surplus on
revaluation of
properties - -- (3,269) 3,269 --
-------- -------- -------- -------- ---------
Total comprehensive
income for the
period - - (3,269) (509) (3,778)
Issue of new shares
net of costs 130 1,221 - (1,351) -
Dividends paid in period - - - (5,683) (5,683)
Fair value of share
based payments - - - 346 346
-------- -------- ---------- --------- ----------
At 30(th) September
2016 18,762 78,929 107,043 47,374 252,108
--------- --------- ---------- --------- ----------
1 Accounting policies
Basis of preparation
This condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the European Union.
As required by the Disclosure and Transparency Rules of the
Financial Conduct Authority, the financial statements have been
prepared applying the accounting policies and presentation that
were applied in the preparation of the Company's published
consolidated financial statements for the year ended 31(st) March
2016.
The comparative figures for the financial year ended 31(st)
March 2016 are not the Company's statutory accounts for that
financial year. Those accounts have been reported on by the
Company's auditor and delivered to the Registrar of Companies. The
report of the auditor was (i) unqualified, (ii) did not include a
reference to any matter to which the auditor drew attention by way
of emphasis without qualifying their report, and (iii) did not
contain a statement under Section 498 (2) or (3) of the Companies
Act 2006.
The Board approved the unaudited interim financial statements on
14(th) November 2016.
Identification of business risks
The Group's principal risks and uncertainties are consistent
with those noted in the Annual Report for the year ended 31(st)
March 2016 which include compliance with financial covenants on
bank borrowing, tenant default, liquidity, interest rate hedging
instruments and interest rate movements on bank borrowing. The
Directors consider that the significant areas of judgement made by
management that have significant effect on the Group's performance
and estimates with a significant risk of material adjustment are
valuation of investment properties and financial instruments. These
are unchanged from those identified in the Annual Report for the
year ended 31(st) March 2016.
Going concern
The Interim Report has been prepared on a going concern basis,
which assumes the Group will be able to meet its liabilities as
they fall due, for the foreseeable future. The Directors have
prepared cash flow forecasts which show that the cash generated
from operating activities will provide sufficient cash headroom for
the foreseeable future.
The Group does not have any significant borrowing facilities
expiring in the next 12 months. The Group is in full compliance
with its borrowing covenants at 30(th) September 2016 and is
expected to be in compliance for the next 12 months.
2 Adjusted profit before tax
Adjusted profit before tax is the Group's preferred measure to
provide a clearer picture of recurring profits from core rental
activities before tax, adjusted as set out below.
6 months 6 months 12 months
to 30(th) to 30(th) to 31(st)
September September March
2016 2015 2016
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
(Loss)/profit before tax (3,778) 34,593 53,160
Fair value loss/(gain) on swaps 4,588 (4,737) (2,171)
Movement in valuation of investment
properties 3,269 (25,885) (34,564)
Profit on disposal of investment
properties - (315) (9,106)
IFRS2 adjustment to share based
payments 346 302 624
---------- -------- --------
Adjusted profit before tax 4,425 3,958 7,943
---------- -------- --------
3 Net rental income from investment
properties
6 months 6 months 12 months
to 30(th) to 30(th) to 31(st)
September September March
2016 2015 2016
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Gross rents receivable 10,212 9,694 19,413
SIC15 adjustment (spreading of
rental incentives) 204 477 746
---------- -------- ---------
Gross rental income 10,416 10,171 20,159
Service charges receivable 1,697 1,524 3,530
---------- -------- ---------
12,113 11,695 23,689
Direct property outgoings (2,939) (2,776) (6,025)
---------- --------- ---------
Net rental income 9,174 8,919 17,664
---------- -------- ---------
Rent receivable under the terms of the leases is adjusted,
in accordance with SIC15, for the effect of any incentives
given.
4 Earnings per share
6 months 6 months 12 months
to 30(th) to 30(th) to 31(st)
September September March
2016 2015 2016
p p p
Basic (loss)/earnings per share (4.04) 37.27 57.17
Change in fair value of derivatives 4.91 (5.11) (2.34)
Movement in revaluation of
investment properties 3.49 (27.89) (37.17)
Profit on disposal of investment
properties - (0.34) (9.79)
Adjusted profit for share based
payments 0.37 0.33 0.67
--------- --------- --------
Adjusted earnings per share 4.73 4.26 8.54
--------- --------- -------
Basic (loss)/earnings per share on ordinary shares
is calculated on the loss in the half year of GBP3,778,471
(September 2015: profit GBP34,593,000 and March 2016:
profit GBP53,160,000) and 93,511,768 (September 2015:
92,807,763 and March 2016: 92,983,951) shares, being
the weighted average number of ordinary shares in
issue during the period.
6 months 6 months 12 months
to 30(th) to 30(th) to 31(st)
September September March
2016 2015 2016
Number Number Number
of shares of shares of shares
Weighted average number of ordinary
shares in issue 93,511,768 92,807,763 92,983,951
Number of shares under option 1,346,921 1,705,818 1,722,237
Number of shares that would
have been issued at fair
Value (481,332) (391,633) (399,554)
--------------- --------------- --------------
Diluted weighted average number
of ordinary shares in
Issue 94,377,357 94,121,948 94,306,634
--------------- --------------- ---------------
6 months 6 months 12 months
to 30(th) to 30(th) to 31(st)
September September March
2016 2015 2016
p p p
Basic (loss)/earnings per share (4.04) 37.27 57.17
Effect of dilutive potential
ordinary shares under option - (0.52) (0.81)
------- ------- -------
Diluted (loss)/earnings per
share (4.04) 36.75 56.36
Change in fair value of derivatives 4.86 (5.03) (2.30)
Movement in revaluation of
investment properties 3.46 (27.50) (36.65)
Profit on disposal of investment
properties - (0.34) (9.65)
Adjusted profit for share based
payments 0.37 0.32 0.66
--------- --------- --------
Adjusted diluted earnings per
share 4.65 4.20 8.42
---------- ---------- --------
Adjusted profit for share based
payments (0.37) (0.32) (0.66)
---------- ---------- --------
EPRA earnings per share 4.28 3.88 7.76
---------- ---------- ---------
Diluted (loss)/earnings per share is calculated on the same
profit after tax and on the weighted average diluted number of
shares in issue during the year of 94,377,357 (September 2015:
94,121,948 and March 2016: 94,306,634) shares, which takes into
account the number of potential ordinary shares under option. No
account has been taken in diluted (loss)/earnings earnings per
share of potential ordinary shares in the period to 30(th)
September 2016 where their conversion to ordinary shares would
decrease the loss per share but is included to arrive at adjusted
diluted earnings per share.
Adjusted (loss)/earnings per share excludes the after tax effect
of profit from the disposal of investment properties, surrender
premiums received (if any), the change in the fair value of
derivatives and the movement in revaluation of investment
properties. The EPRA measure includes all of these adjustments,
except for surrender premiums which are added back.
5 Net finance costs
6 months 6 months 12 months
to 30(th) to 30(th) to 31(st)
September September March
2016 2015 2016
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Interest on bank overdraft
and loans 2,922 2,671 5,657
Finance lease interest on
leasehold property
Obligations 142 142 285
Finance arrangement costs 208 228 413
Fair value loss on derivatives 4,588 - -
Capitalised interest (1,154) (765) (1,877)
--------- --------- ---------
Finance expense 6,706 2,276 4,478
Fair value gain on derivatives - (4,737) (2,171)
Interest receivable (6) (9) (11)
--------- --------- ---------
Finance income (6) (4,746) (2,182)
--------- --------- ---------
Net finance costs/(income) 6,700 (2,470) 2,296
--------- --------- ----------
6 Investment properties
As at As at As at
30(th) 30(th) 31(st)
September September March
2016 2015 2016
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Valuation
At 1(st) April 2016 399,046 350,204 350,204
Additions - acquisition - 11,337 11,337
- development 15,770 8,721 26,046
Revaluation (deficit)/surplus (3,065) 26,362 35,311
Adjustment for rents recognised
in advance under
SIC15 (203) (477) 473
Disposals - (550) (24,285)
Amortisation of grossed up
headlease liabilities (20) (21) (40)
----------- ------------ -----------
Book value 411,528 395,576 399,046
------------ ------------ ----------
Adjustment for grossing up
of headlease liabilities (3,725) (3,765) (3,745)
Adjustment for rents recognised
in advance under
SIC15 6,072 6,819 5,869
----------- ----------- -----------
Valuation 413,875 398,630 401,170
----------- ----------- -----------
In accordance with the Group's accounting policy on properties
there was an external valuation at 30(th) September 2016. These
valuations, were carried out by Mellersh & Harding LLP,
Chartered Surveyors and Valuers. All valuations were carried out in
accordance with the Appraisal and Valuation Standards of RICS, on
an open market basis.
7 Liabilities
The Group adopts a policy of ensuring that its exposure
to interest rate fluctuations is mitigated by the use
of financial instruments. Interest rate swaps have been
entered into to achieve this purpose.
The Group does not hold or issue derivative financial
instruments for trading purposes.
As at 30(th) September
2016 (Unaudited)
Maturity (1) Next Amount Rate Fair Fair
credit GBP'000 value value
break before (2) BCVA GBP'000
BCVA
Interest rate Sept Sept
swaps 2032 2022 45,000 5.17% (29,569) 2,571 (26,998)
As at 30(th) September
2015 (Unaudited)
Maturity (1) Next Amount Rate Fair Fair
credit GBP'000 value value
break before (2) BCVA GBP'000
BCVA
Interest rate Sept Sept
swaps 2032 2022 45,000 5.17% (21,789) 1,946 (19,843)
As at 31(st) March
2016 (Audited)
Maturity (1) Next Amount Rate Fair Fair
credit GBP'000 value value
break before (2) BCVA GBP'000
BCVA
Interest rate Sept Sept
swaps 2032 2022 45,000 5.17% (24,422) 2,013 (22,409)
(1) Credit breaks are triggered by the bank and require
the prevailing mark to market value to be paid or
received.
(2) BCVA - Bilateral Credit Valuation Adjustment is
now required by IFRS 13 to be incorporated in the
mark to market valuations.
The fair value of interest rate derivatives has been split
between current and non-current liabilities according to the
expected timing of cashflows as follows:
As at As at As at
30(th) 30(th) 31(st)
September September March
2016 2015 2016
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Current (2,944) (2,944) (2,944)
Non-current (24,054) (16,899) (19,465)
---------- ---------- ----------
(26,998) (19,843) (22,409)
---------- ---------- ----------
The Group does not hedge account its interest rate derivatives
and states them at fair value in the balance sheet based on
quotations from the Group's banks, any movement passing through the
Consolidated Profit or Loss and Other Comprehensive Income. All
financial liabilities are classed as level 2 in accordance with the
fair value hierarchy stated in IFRS 13. The fair value of these
level 2 contracts are estimated by discounting expected future cash
flows using current market interest rates and yield curve over the
remaining term of the instrument.
There are no liabilities at maturity and no material
unrecognised gains or losses.
In both 2016 and 2015 there was no difference between the book
value and the fair value of all the other financial assets and
liabilities of the Group.
8 Dividends
6 months 6 months 12 months
to 30(th) to 30(th) to 31(st)
September September March
2016 2015 2016
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Final dividend
Year ended 31(st) March 5,683 - -
2016
Year ended 31(st) March
2015 - 5,546 5,546
Interim dividend
Year ended 31(st) March
2015 - - 2,515
---------- ---------- ----------
5,683 5,546 8,061
---------- ---------- ----------
The final dividend of 6.1 pence per share (GBP5,683,000)
for the year ended 31(st) March 2016 was paid
on 28(th) July 2016.
The Directors have declared an interim dividend
of 2.7 pence per share (2015: 2.7 pence per share).
Since becoming a REIT, the Group is required to
distribute at least 90% of qualifying income profits
each year as a Property Income Distribution (PID),
and the interim dividend of 2.7 pence per share
will be paid as an ordinary dividend. Further
REIT information is available on the Company's
website.
9 Net asset value per share 30(th) September 2016
Net assets Shares Net
GBP'000 '000 asset
value
per share
p
Basic 252,108 93,808 269
Shares under option 1,035 1,221 (3)
------------ ---------- -----
Diluted/EPRA NNNAV 253,143 95,029 266
Adjustment for fair value
of derivatives 26,998 - 29
----------- --------- -----
EPRA NAV 280,141 95,029 295
30(th) September 2015
Net assets Shares Net
GBP'000 '000 asset
value
per share
p
Basic 244,932 93,158 263
Number of shares under option 863 1,552 (3)
----------- ---------- -----
Diluted/EPRA NNNAV 245,795 94,710 260
Adjustment for fair value
of derivatives 19,843 - 21
----------- ----------- -----
EPRA NAV 265,638 94,710 281
31(st) March 2016
Net assets Shares Net
GBP'000 '000 asset
value
per share
p
Basic 261,223 93,158 280
Number of shares under option 863 1,552 (3)
----------- ---------- -----
Diluted/EPRA NNNAV 262,086 94,710 277
Adjustment for fair value
of derivatives 22,410 - 24
----------- ----------- -----
EPRA NAV 284,496 94,710 301
10 Disclaimer
The Interim Report of McKay Securities PLC for
the six months to 30(th) September 2016 has been
drawn up and presented for the purposes of complying
with English law. If any issue were to arise in
relation to any liability under or in connection
with the Interim Report for the six months to 30(th)
September 2016, it would also be determined in
accordance with English law.
11 Interim Report
The Interim Report is being posted to all shareholders
on 25(th) November 2016. Copies are available to
members of the public from the Company's registered
office at 20 Greyfriars Road, Reading, Berkshire
RG1 1NL, and on the Company's website at www.mckaysecurities.plc.uk.
Statement of the Directors Responsibilities
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
S C Perkins
CEO
G P Salmon
CFO
15(th) November 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
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