TIDMMCKS
RNS Number : 6505O
McKay Securities PLC
21 May 2018
21 May 2018
McKAY DELIVERS ANOTHER
STRONG PERFORMANCE, WITH RECORD LETTINGS TAKING PORTFOLIO
VALUE
AND RENTAL INCOME TO NEW HIGHS
McKay Securities PLC, the only UK Real Estate Investment Trust
(REIT) specialising exclusively in the London and South East office
and industrial markets, today announces its Full Year results for
the year ended 31 March 2018.
Financial Highlights
-- Adjusted profit before tax up 5.4% to GBP9.07 million (31 March 2017: GBP8.60 million)
-- Adjusted basic earnings per share of 9.7 pence (31 March 2017: 9.2 pence)
-- Gross rental income up 5.1% to a historic high of GBP21.84
million (31 March 2017: GBP20.79 million)
-- IFRS profit before tax of GBP43.44 million (31 March 2017:
GBP17.59 million), reflecting a higher valuation surplus compared
to prior year and profits on disposal
-- NAV (EPRA) up 6.3% to 322 pence per share (31 March 2017: 303
pence), or 10.9% excluding swap cancellation costs
-- NNNAV (EPRA) up 13.0% to 322 pence per share (31 March 2017: 285 pence)
-- Loan to value ratio of 31.9% (31 March 2017: 31.6%)
-- Remaining legacy interest rate swap cancelled
-- Final dividend up 14.3% to 7.2 pence per share (2017: 6.3 pence per share)
-- Total dividend for the year up 11.1% to 10.0 pence (2017: 9.0 pence)
Portfolio Highlights
-- Portfolio valuation at a historic high of GBP460.15 million,
generating a 6.1% (GBP26.46 million) valuation surplus
-- Record year of lettings, with 26 open market lettings (1.9%
ahead of ERV) contributing GBP7.0 million pa to a 23.3% increase in
contracted rental income (like for like) to GBP27.05 million 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 GBP33.15 million 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% (GBP5.7 million) profit on disposal of
three lower growth assets, releasing net proceeds of GBP26.80
million 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 GBP460.15 million, 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 GBP68.0
million of assets, that generated income of GBP3.10 million 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% (GBP6.10 million)
reversion in our portfolio."
NOTE
For reconciliation of adjusted profit before tax, see note 5
below
For reconciliation of adjusted basic earnings per share, see
note 9 below
For reconciliation of EPRA NAV and EPRA NNNAV see note 22
below
For further information
please contact:
McKay Securities PLC FTI Consulting
Simon Perkins, CEO Dido Laurimore, Tom Gough,
Ellie Sweeney
Giles Salmon, CFO 020 3727 1000
01189 502333 McKay@fticonsulting.com
www.mckaysecurities.plc.uk
About McKay Securities
McKay Securities PLC is a commercial property investment company
with Real Estate Investment Trust (REIT) status, listed on the main
market of the London Stock Exchange. It specialises in the
development and refurbishment of good quality office and industrial
buildings within established and proven markets of London and the
South East. The portfolio, which is valued at over GBP460 million,
comprises 33 properties in strong and established areas which
deliver diversity in terms of both sector and location.
Forward looking statements
This announcement is for information purposes only and contains
certain forward-looking statements which, by their nature, involve
risk and uncertainty because they relate to or depend upon future
events and circumstances.
There are a number of factors which could cause actual results
and developments to differ materially from those expressed or
implied by these forward looking statements, including a number of
factors outside McKay Securities PLC's control. All forward-looking
statements are based upon information known to McKay Securities PLC
on the date of this announcement and no representation or warranty
is given in relation to them, including as to their completeness or
accuracy or the basis on which they were prepared. McKay Securities
PLC gives no undertaking to update forward-looking statements
whether as a result of new information, future events or otherwise.
Information contained in this announcement relating to the Company
should not be relied upon as an indicator of future
performance.
Details of the programme for the payment of the final dividend
of the Ordinary Shares is as follows:
Ex dividend date 31(st) May 2018
Record Date for the final dividend 1(st) June 2018
Report and Financial Statements
dispatched to
Shareholders with Notice of AGM 5(th) June 2018
Annual General Meeting to be
held at 3.00pm at The
Royal Thames Yacht Club, 60 Knightsbridge, 4(th) July 2018
London SW1
Final dividend paid 26(th) July
2018
A final dividend per share of 7.2 pence is recommended
by the Board making a total dividend for the year
of 10 pence per share (2017: 9.0 pence). The final
dividend will be paid as an Ordinary Dividend.
CHAIRMAN'S STATEMENT
I am pleased to be able to report an exceptionally productive
year for the Group, during which progress with our growth strategy
has enabled the Board to recommend a 14.3% increase in the nal
dividend.
Before considering the year under review, I would like to re ect
on the transformation of the business since the GBP86.70 million
capital raising in 2014, and the support from shareholders at that
time. Our strategic objective, as set out in the Prospectus, was to
grow the capital value and recurring income from a portfolio of
predominantly of ce and industrial properties through development,
refurbishment and active management, whilst maintaining an
appropriate level of gearing.
This has been, and continues to be, delivered to the letter.
Since then our portfolio value as reported by our valuers has
increased by 80.8% to GBP460.15 million, our recurring contracted
rents have increased by 66.5%, the portfolio rental value (ERV) has
increased by 76.0% and gearing (loan to value) has reduced from
44.5% to 31.9%.
The acquisition of eight properties at a cost of GBP74.24
million added a mix of value enhancing opportunities, and the
disposal of twelve smaller and low growth assets realised net
proceeds of GBP68.01 million. To date, the acquisitions have
delivered a combined valuation surplus of 30.5% whilst the
disposals have realised a substantial 22.1% surplus of GBP15.04
million. The growth in portfolio and rental value is all the more
impressive considering the scale of disposals made, which has
enabled the recycling of capital and the improvement of the overall
quality of the portfolio.
Three major speculative development projects and four
refurbishments have proved a great success, with a fourth
development currently under way. The rental value of these assets
has increased by 181.3%, and after GBP61.32 million of capital
expenditure to date, these projects have delivered a 28.7%
valuation surplus of GBP31.16 million.
Beyond the headlines, there has been a real desire to increase
market awareness of the business and to enhance our reputation by
exceeding tenants' expectations and providing engaging workspace to
attract new occupiers.
Underpinning these property initiatives is a more robust nancial
base. Since 2014, all loan facilities have been renewed, the debt
available to the Group has increased by GBP35.00 million to
GBP190.00 million and the loan expiry pro le has been extended. Our
cost of debt is also now at a more competitive level following the
cancellation of legacy interest rate swaps.
We have collectively been fortunate with the well executed
selection of nonexecutive directors of the highest calibre to
replace those standing down after admirable service and support,
and to maintain an independent balance. Despite these changes, the
Board has remained stable, fully engaged and enthusiastic at all
times.
Management foresight has been endorsed with outstanding
performance across all key metrics, delivering a 164.9% increase in
adjusted pro t before tax since March 2014 to GBP9.07 million for
the current year and a 44.7% increase in shareholders' funds to
GBP306.44 million.
The combination of property and nancial progress has enabled us
to achieve our objective of covering the cost of the dividend,
which doubled on issue of the new shares, within three years. The
cost of the dividend this year is over GBP9.00 million, compared
with GBP3.90 million in 2013.
In relative terms, this success is highlighted by a total
shareholder return (TSR) of 54.2%, driven by a 45.5% increase in
the share price since the capital raising, which is more than
double the return delivered by the FTSE 350 Real Estate Index and
the FTSE All Share Index over the same period.
In summary, the combination of shareholder support and the
management of the business has delivered outperformance, signi cant
shareholder value and leaves the Group in a strong position for the
future.
Moving on to the year under review, we have been able to
contribute to the progress above with the further release of
reversionary potential built up in the portfolio since 2014 with a
record year of lettings for the Group. Twenty six open market
lettings were completed at or above March 2017 ERV, unlocking
combined contracted income of GBP7.00 million pa.
A signi cant proportion of this contracted income resulted from
letting progress with the speculative of ce schemes within our
development programme. Clear focus on London and the South East
remains core to the Group's success and ensures we remain acutely
aware of occupier needs in order to deliver relevant and exible
space for today's businesses, as evidenced through our three latest
developments in Reading, Redhill and London which have all
attracted high quality tenants with strong covenants.
At 9 Greyfriars Road, Reading (39,620 sq ft), we achieved a
single letting of the whole building, and at Prospero, Redhill
(50,370 sq ft), we ended the period 91.8% let, having secured
lettings to local and regional occupiers on a oor by oor basis. In
March 2018, we were also very pleased to announce a prelet of 30
Lombard Street, EC3 (58,000 sq ft) where the scheme and its
globally recognised location resulted in the FTSE 100 wealth
manager St. James's Place plc committing to a 15 year lease,
without break, for the entire building. The lease, which remains
conditional on completion of the building this summer, will
commence in January 2019 and makes the largest single contribution
to the increase in contracted rent over the year.
The completed schemes have created high quality assets, which
enhance the income pro le and resilience of the portfolio. They
were the main contributors to a 23.3% (like for like) increase in
contracted rents which ended the year at GBP27.05 million pa (March
2017: GBP23.42 million pa). They were also the main contributors to
the 5.1% increase in gross rents received and the resulting 5.4%
increase in adjusted pro t before tax.
We have also increased the reversionary potential of the
portfolio with planning consent for a 38.5% increase in oorspace at
Brunel Road, Theale, Reading. Development of a speculative 134,150
sq ft warehouse scheme is now under way and we expect to generate
strong interest from logistics occupiers drawn to its strategic
location just off the M4 motorway. The increase in potential rental
value for this asset, combined with refurbishment and asset
management elsewhere in the portfolio, resulted in the portfolio
ERV increasing by 6.7% to GBP33.15 million, outperforming the 1.9%
increase in the IPD index. The GBP6.10 million pa differential to
contracted rents still provides a substantial 22.6% portfolio
reversion for future returns.
With the bene t of valuation gains from the development projects
and elsewhere in the portfolio, including a strong 19.5%
contribution from our industrial assets, the independent portfolio
valuation of GBP460.15 million delivered a 6.1% (GBP26.46 million)
surplus, also outperforming the IPD index increase of 5.3%.
Balance sheet gains were also generated with the sale of
properties in Farnborough, Newbury and Egham. These disposals were
in line with our policy of the targeted recycling of capital out of
smaller and lower growth assets where we can capitalise on recent
value add initiatives or, as in the case of the warehouse unit in
Egham, aggressive market pricing. High levels of investor demand
for warehouse assets resulted in a sale price re ecting a
4.2% yield for this unrefurbished unit, developed by the Group
over forty years ago. Combined net sale proceeds of GBP26.80
million delivered a substantial 27.3% (GBP5.75 million) surplus
over March 2017 book value.
The headroom created from disposals provided us with the ability
to cancel the remaining GBP33.00 million interest rate swap. The
swap predated the global nancial crisis and its 5.17% coupon re
ected the higher interest rate environment at that time. The
cancellation cost to the Group was GBP13.35 million after a signi
cant contribution from the counterparty bank. This removes the nal
legacy swap which will enhance earnings, further strengthen the
balance sheet and improve the Group's debt pro le. It also nally
removes the negative value from the balance sheet.
Valuation and disposal gains helped offset portfolio expenditure
and nancing costs, maintaining a loan to value ratio of 31.9%
(March 2017: 31.6%) and substantial headroom of GBP43.00 million to
loan facilities, which we increased over the year by GBP15.00
million to GBP190.00 million. With supportive lenders, this
provides us with robust nancing for the immediate future.
With the bene t of the positive activity over the period,
shareholders' funds increased by GBP35.65 million (13.2%) to
GBP306.44 million, equivalent to IFRS NAV per share of 326 pence
(March 2017: 289 pence). EPRA NAV per share increased by 6.3% to
322 pence (March 2017: 303 pence)
The Board
As reported at the end of the last nancial year, Nigel Aslin and
Viscount Lifford both retired during the period. They were an
integral part of the Group's successful management through the last
recession and the subsequent period of growth, and I would like to
reiterate my thanks to them for their invaluable counsel and
support over the years.
Dividend
The Board is recommending a 14.3% increase in the nal dividend
to 7.2 pence per share (March 2017: 6.3 pence). In reaching this
recommendation the Board has taken into account the anticipated
earnings growth in future periods from recent lettings and the swap
cancellation, in addition to the adjusted pro t before tax achieved
for the year.
The nal dividend will be paid as an ordinary dividend on 26th
July 2018, and will take the total dividend for the year to 10.0
pence per share (2017: 9.0 pence), an increase of 11.1%.
Future prospects
This has been a year of major strategic progress for the Group,
which will deliver further shareholder value as income from the
prelet at 30 Lombard Street, EC3 and other lettings make a full
contribution. This progress also provides a strengthened platform
to release the signi cant reversionary potential that remains
within the portfolio and to capitalise on the Group's unique
position in its core markets.
Since the EU referendum there have been concerns regarding the
potential for a more cautious occupier market. This remains a risk
but, as we have shown, the markets that we operate in and know well
continue to prove robust and our assets are well placed to deliver
further shareholder value.
Richard Grainger
Chairman
Property and Financial Review
Overview
McKay Securities remains the only Real Estate Investment Trust
(REIT) exclusively focused on developing and investing solely in
the established and proven of ce and industrial real estate markets
of London and the South East. As at 31st March 2018, the Group
owned 31 investment assets and 2 assets in development, with a
combined value of GBP460.2 million (March 2017: 36 assets /
GBP429.9 m). By value, 56.5% of the portfolio is in South East of
ces, 23.5% in London of ces and 15.3% in South East industrial with
a range of other sectors making up 4.7%.
This year heralded great success for the Group. By the end of
the period we had let 9 Greyfriars Road, Reading (39,620 sq ft) to
a single tenant, 91.8% of Prospero, Redhill (50,370 sq ft) on a
multilet basis and prelet the whole of 30 Lombard Street, EC3
(58,000 sq ft) conditional on completing the building. These
lettings contributed to a 23.3% increase in contracted rents (on a
like for like basis) to GBP27.05 million pa (March 2017: GBP23.42
million pa) and a total return of 12.3% compared to the IPD
benchmark of 10.5%.
The entire portfolio is now 89.4% let (March 2017:77.3%) and,
excluding developments, is 92.6% let (March 2017: 93.3%). Through
the development lettings our weighted average lease length to
expiry has now increased to 6.9 years (March 2017: 5.2 years) and
to 5.8 years to tenant's rst break (March 2017: 4.3 years).
We have continued to capitalise on the supply constraints across
all our markets, especially in the South East, and have delivered
the right product in the right locations, generating ERV growth of
6.7% compared to IPD All Property of 1.9%. During the period we
achieved 26 open market lettings totalling GBP7.0 million pa, 1.9%
ahead of ERV. As a result, our South East of ce void rate has
reduced from 19.2% to 7.9% and we continue to refurbish and improve
our remaining portfolio voids wherever possible.
The Group's substantial rental reversion has been established
predominantly through our ambitious development programme referred
to above, which is now realising shareholder value. We remain well
placed to bene t from supply constrained markets, with an enviable
logistics development at Theale now commenced, and 22.6%
reversionary potential portfolio to an ERV of GBP33.14 million
pa.
Occupiers are focussed more than ever on the environment, health
and wellbeing. Catering to these demands, sustainability is
embedded in everything we do. Five years ago we launched our
sustainability strategy and, with our external consultants, we
continue to set ambitious short and long term targets centred on
three core areas: creating sustainable buildings, managing
sustainable buildings and engaging with stakeholders. Over the
period we successfully achieved 90.0% of those targets and
maintained our GRESB 'Green Star' status for the second year
running. We continue to meet our strict criteria of developing
buildings to a minimum of BREEAM Excellent and EPC B rating and we
have reduced our carbon emissions by 14.0% year on year.
Market review
Our London and South East markets have proved resilient thanks
to an historic undersupply of high quality of ce space, buoyed by
consistent levels of demand. The pace of rental growth has levelled
out, but shortfalls in certain centres provide the scope for
further growth. Rent free incentives are stabilising after the 2017
spike in development completions, but the steady levels of take up
highlight that t for purpose buildings of the right size and in the
right locations are letting.
Real estate as an asset class continues to bene t from the low
interest rate environment as investors search for income,
particularly in the globally established London and the South East
markets. Overseas and institutional investors have moved down the
risk curve over the year, reintroducing a more apparent value gap
between prime and secondary assets.
In 2017, central London investment totalled GBP17.0 billion
(2016: GBP12.8 billion) which was only marginally below the record
year of 2013, which saw turnover peak at GBP19.6 billion (source:
Knight Frank) while the South East recorded its second highest year
on record of GBP4.00 billion (2016: GBP2.80 billion) (source:
BNP).
High quality of ce supply remains very constrained across all
our markets. At the end of the period, the vacancy rate of new and
Grade A refurbished stock in London was just 2.0%, compared to the
long term average of 2.3%. At the same time, the South East
equivalent vacancy rate was 6.1%, signi cantly below the long term
average of 7.8%.
The volume of South East of ce lettings has remained steady post
the EU referendum and despite wider economic concerns. Take up for
2017 was 2.00 million sq ft, equalling 2016 and in line with the 10
year average of 1.99 million sq ft. Current active occupier demand
is also being sustained; at the end of Q1 2018, including space
under offer, this stood at 3.59 million sq ft which compares to the
long term average of 3.90 million sq ft.
Set against this environment, and compounding the constrained
supply, the speculative development pipeline is historically thin
with just 0.48 million sq ft and 0.45 million sq ft of new
development due to complete in 2018 and 2019 respectively, which
compares to a 10 year average of 0.71 million sq ft pa.
While there was a resurgence of new buildings in the South East
in 2016 and 2017 in response to the ve year undersupply following
the nancial crisis, many of these were larger schemes which have
proved incompatible with market demand for smaller buildings. Just
four buildings make up 44.0% of the 1.79 million sq ft spike in
development completions in 2017 and the remaining vacancy within
these buildings creates a misleading supply picture in certain
locations.
Building obsolescence is an increasingly important market driver
with over 50% of buildings within the IPD index at least 25 years
old. Tenants therefore have less choice for ef cient new of ce
space, and large buildings are not satisfying the pattern of demand
and take up. In 2017, 82.6% of the South East of ce letting
transactions were in the 5,000 - 20,000 sq ft size band which we
have bene ted from given our portfolio average of 6,700 sq ft per
tenant.
Total occupational costs in prime West End of London locations
are now circa GBP175.00 psf compared to central Reading of circa
GBP60.00 psf. The rental discount has increased by 25.0% since 2007
and the cost of housing gap has also increased from a 20.0%
discount to a 33.0% discount over the same period. The appeal of
the South East will increase further with the Elizabeth Line
(Crossrail) service to London and the quick access to Heathrow
which the Western Rail Access to Heathrow (WRATH) will deliver.
Supply in the industrial and logistics market (15.3% of the
portfolio) fell for a seventh successive year, leaving the
availability rate at a new all time low of 4.4%. Take up,
conversely, reached a record 9.80 million sq ft in the rst quarter
of 2018 and remains high to meet the exponential growth of
ecommerce and the resultant need for last mile delivery to urban
centres. This supply and demand imbalance supports the commencement
of our speculative warehouse development at Theale, referred to
below.
Acquisitions and disposals
We continue to monitor the market closely and assess potential
development acquisitions and investment opportunities where we can
add value. Having invested heavily in prior years, we directed our
capital resources over the year primarily into existing assets
rather than compete in a relatively supply starved investment
market. However, we are beginning to see the gap in pricing widen
between prime and secondary assets which should present value add
opportunities, provided stock is selected wisely.
We made three disposals in the period, realising a combined
surplus over March 2017 book value of 27.3% (GBP5.75 million). The
most notable sale was in Egham, where we capitalised on a very
strong industrial market having added value with a recent lease
extension, by disposing of Runnymede Focus a 90,890 sq ft warehouse
which was developed by the Group in 1974. It was let for a further
seven years at a rent of GBP0.89 million pa and the sale for
GBP19.91 million, representing a yield of 4.2%, realised a surplus
over March 2017 book value of 35.3% (GBP5.12 million).
Two other sales consisted of the previously reported Pinehurst
Park, Farnborough and Albion House in Newbury, which together
delivered the remaining GBP0.63 million of surplus.
Development programme
Over the period development and refurbishment capital
expenditure totalled GBP23.31 million.
In Reading town centre, two minutes walk from the station, 9
Greyfriars Road (39,620 sq ft) was completed in mid 2016. In July
2017 we let the whole of the building to Spaces, guaranteed by
Regus Holdings plc on a 15 year lease (10 year tenant break). The
headline rent of GBP1.21 million pa equated to GBP31.00 per sq ft,
which was 3.3% ahead of March 2017 ERV. This letting to a major new
coworking tenant was the third largest letting in the Thames Valley
last year and was a strong endorsement for both the location and
the product, providing a valuation surplus for the period of 37.6%
(GBP5.40 million).
In Redhill, we completed the only new of ce development in the
last eleven years at Prospero (50,370 sq ft) in late 2016. Since
then, we have achieved record rents for the town (GBP30.00 -
GBP31.00 per sq ft) and all four tenants (91.8% of the building
with a combined contractual rent of GBP1.37 million pa), have
committed to 10 years term certain. This is rare in a market now
characterised by tenant exibility and shorter leases, and shows
great commitment to the quality and sustainability of the building
by the new tenants. The only remaining vacant space is 4,112 sq ft
on part of the rst oor which is being marketed and generating good
interest.
In the heart of the City of London, we remain on programme to
deliver a brand new Grade A of ce development at 30 Lombard Street,
EC3 (58,000 sq ft) in the summer. Ahead of this we have
successfully exchanged contracts to prelet the entire building to
the FTSE 100 wealth manager, St. James's Place plc who will take
occupation in January 2019. The lease, which remains conditional on
practical completion, is for a term of 15 years at a gross rent of
GBP3.76 million pa (GBP3.38 million pa net of ground rent),
marginally ahead of ERV.
During the period we added to our development pipeline and
topped up the reversionary potential of the portfolio by securing
vacant possession and planning approval for a new 134,150 sq ft
logistics warehouse at Junction 12 of the M4 at Theale, on the
south side of Reading. Demolition of the former chilled warehouse
unit has already commenced, and the new building, which will
increase the oor area on the site by 38.5%, is programmed to
complete in Spring 2019. Demand for well speci ed high quality
industrial and logistics units with good motorway access,
particularly to London, remains strong, and marketing is already
generating positive interest.
Asset management
In our London and South East of ce markets, as well as the
delivery of development lettings success, we also remain focused on
the day to day rigorous asset management and refurbishment of our
assets.
At the Mille (96,700 sq ft) in Brentford we continue to
refurbish and improve the building and its environment. The works
encouraged UBC, an existing serviced of ce tenant to commit to the
two lower oors (16,624 sq ft) on 10 year leases without break at
GBP0.33 million pa. These leases replaced legacy management pro t
share agreements which provided little return.
An example of the bene t of our focus on London and the South
East was Benecol, an existing tenant at Switchback, Maidenhead, who
needed to relocate closer to London. To accommodate this we
accepted a surrender of their existing lease of a oor at Switchback
and were able simultaneously to grant them a new lease at the
Mille, thereby retaining them in the portfolio. These lettings
contributed to a total of 34.0% of the oor space at the Mille being
successfully let or having leases renewed in the last 12 months,
creating a valuation gain over the period of 12.2%.
Croydon, with its excellent transport links to central London,
is still proving very popular to occupiers as evidenced at
Corinthian House (44,590 sq ft) which sits directly opposite East
Croydon station. Our active asset management has continued to drive
ERV growth of 16.8% over the period assisted by reletting the 4th
oor (4,497 sq ft) on expiry with no void, at a 47.4% rental
increase to GBP28.00 per sq ft. We also took a surrender of the
dated 7th oor (at GBP17.30 per sq ft) to enable its refurbishment
and granted that tenant a new 10 year lease of the recently
refurbished part 8th oor at GBP30.00 per sq ft.
Our average building size is 43,500 sq ft and 11 out of 16
(68.8%) of our South East buildings are multi let. We recognise
that smaller tenants value exibility, personality of building and
coworking break out areas which is exactly what we have been
providing at both 329 Bracknell and One Crown Square, Woking for
many years now.
At One Crown Square (50,735 sq ft) we continue to upgrade and
provide managed suites with associated coworking areas and communal
kitchens. We concluded eight open market lettings in the period at
a combined rent of GBP0.17 million pa which contributed to a 12.4%
increase in ERV compared to the South East IPD rental growth index
of 2.4%.
15.3% of the portfolio by value is South East industrial assets,
both single let larger units and popular trade counter type
properties. These assets have all continued to perform well in
terms of rental and capital growth, enhanced by refurbishment and
lease renewals where appropriate. At 3 Acre (44,290 sq ft) in
Folkestone we upgraded the estate while simultaneously renewing and
extending 40.0% of the tenants' leases, providing a valuation gain
of 13.3% over the period.
At Oakwood Trade Park (52,400 sq ft) in Crawley which contains
16 fully let trade counter units, we accepted a surrender from an
expanding tenant and simultaneously relet the unit to a new
occupier on a longer lease at an increased record rent for the
estate of GBP15.00 psf. As a result, the ERV increased over the
period by 15.2% and together with subsequent lease renewals, drove
a valuation gain of 36.0%.
At Poyle, adjacent to Terminal 5 of Heathrow Airport, the McKay
Trading Estate (73,955 sq ft) continues to represent the ideal
stock for that market. This fully let estate achieved a 27.3%
growth in ERV and a corresponding valuation gain of 22.1%.
The Group manages all assets in house resulting in strong tenant
relationships and extremely thorough building knowledge. This
proves advantageous when managing lease events, and at lease break
and expiry, 25 out of 42 tenants were retained at contracted rents
totalling GBP1.11 million pa. Whilst the retention rate of 59.5%
was lower over the period (March 2017: 76.6%) in a number of
instances, we chose to end leases to facilitate refurbishment work
and the achievement of higher rents on the open market. Combined
rent for retained tenants was 7.5% ahead of rent prior to the lease
events.
Valuation
Knight Frank was appointed as Group Valuer after the March 2017
year end valuation, replacing Mellersh & Harding who had
provided many years of exceptional service. Knight Frank's
extensive strength across our markets makes them well placed to
assist with the increasing size of the portfolio and to reaf rm the
value of the Group's assets. They are also an accepted valuer by
our lending banks, which will reduce the cost of valuations for
loan purposes.
Knight Frank's independent valuation of the Group's assets
totalled GBP460.15 million as at 31st March 2018 (March 2017:
GBP429.92 m). This showed a surplus of GBP26.46 million (6.1%),
outperforming IPD All Property capital growth of 5.3% over the same
period, and a surplus of GBP17.78 million (4.7%) excluding
developments
The initial yield was 4.1% (March 2017: 4.6%) rising to a topped
up yield of 5.6% at the expiry of rent free periods (March 2017:
5.1%), the equivalent yield was 5.8% (March 2017: 6.4%) and the
reversionary yield at ERV was 6.8% (March 2017: 7.1%). These year
on year movements have been driven by the strong development
lettings which are still in rent free periods, generating a lower
initial yield but a higher topped up yield. As expected the
reversionary yield has reduced as the development lettings have
added value but remains signi cant, driven by the new development
at Theale Logistics Park as well as the investment portfolio voids
and rental reversion.
The quality of buildings and locations in the portfolio was
demonstrated by the rental growth outperformance against the IPD
benchmark. Excluding developments, our South East of ce assets
achieved rental growth of 4.0% (IPD: 2.4%), with London assets at
5.2% (IPD: 0.3%).
Turning to capital growth, again excluding developments, our
South East of ces were marginally lower than IPD at 3.0% versus
3.9% while our London assets achieved 0.5% capital growth versus
IPD of 3.6%.
The industrial sector is widely accepted by the market as the
strongest performer with IPD capital growth of 18.5% and rental
growth of 6.3%. Our seven industrial assets outperformed both these
measures with capital growth of 19.5% and rental growth of 11.4%.
This excludes Runnymede Focus, Egham which achieved a sale price at
the end of the period 35.3% ahead of March 2017 book value.
Total shareholder return
Total Shareholder Return (TSR) for the year to 31st March 2018
was 36.2%. This compares to a FTSE 350 Real Estate Index return of
7.9% and a FTSE All Share return of 1.2% for the same period.
Recent increases in share price reverse the decline in the prior
year resulting from the extreme movement in our share price
following the EU referendum vote. Over a three year period the
Group has delivered a 23.5% return compared to a 0.7% for the FTSE
350 Real Estate and 18.6% for the FTSE All Share.
Dividends
The nal dividend of 7.2 pence per share (March 2017: 6.3 pps)
will be paid on 26th July 2018 to those on the register on 1st June
2018. With the interim dividend of 2.8 pence per share, this takes
the total dividend for the year to 10.0 pence per share, an
increase of 11.1% on the previous year.
As a REIT, the Group is required to distribute at least 90.0% of
rental income pro ts arising each nancial year by way of a Property
Income Distribution (PID). Subject to exemptions, this is paid
after deduction of withholding tax, at present 20.0%. Over the
period, the cost of cancelling interest rate hedging instruments
has offset the pro ts attributable to the PID. As a result, the nal
dividend will be paid as an ordinary dividend rather than a PID
Income statement
Adjusted pro t before tax increased by GBP0.46 million (5.4%) to
GBP9.07 million (March 2017: GBP8.60 million) due primarily to a
GBP1.05 million increase in property revenues. Gross rents bene
tted from letting progress at the Group's developments at 9
Greyfriars Road, Reading and Prospero, Redhill, which will add
further to subsequent periods, which will be further enhanced by
the prelet at 30 Lombard Street, EC3. In addition, recent lettings
elsewhere in the portfolio including at One Crown Square, Woking
and Castle Lane, London added to gross rents. These positives were
offset to a degree by the loss of income at Pegasus Place, Crawley
as a result of a tenant insolvency.
Pro t before tax (IFRS) totalled GBP43.44 million (March 2017:
GBP17.59 million). This included the unrealised surplus on
valuation (including SIC15 adjustment) for the period of GBP25.07
million and the positive impact of the swap cancellation of GBP3.56
million.
Administration costs increased to GBP6.31 million (March 2017:
GBP5.79 million). This 8.8% increase was primarily due to staff
salaries rising in line with in ation and an increase in bonus
payable.
The interest cost for the year of GBP6.74 million was similar to
the prior year (March 2017: GBP6.34 million). This cost will reduce
on a like for like basis going forward as a result of the
cancellation of the Group's remaining GBP33.00 million legacy
interest rate swap, carrying a coupon of 5.17%. The swap was
cancelled on 28th March 2018 at a net cost to the Group of GBP13.35
million, with the full cost of cancellation offset by a lender
contribution. Interest capitalised against projects during the year
was comparable to the prior year at GBP1.66 million (March 2017:
GBP1.82 million) but will reduce as the development programme
matures.
The Group's weighted average cost of debt reduced to 4.06% prior
to amortisation and nance lease interest (March 2017: 4.42%).
The Group does not hedge account its interest rate derivatives
and therefore includes the movement in fair value in the
Consolidated Statement of Comprehensive Income.
Balance sheet
Shareholders' funds increased from GBP270.08 million to
GBP306.44 million over the period, principally due to the GBP26.46
million valuation surplus (GBP25.07 million excluding SIC15
adjustment).
EPRA NAV per share increased by 6.3% over the period to 322
pence (March 2017: 303 pence). NNNAV per share increased by 13.0%
to 322 pence (March 2017: 285 pence) and IFRS NAV per share
increased by 12.8% to 326 pence (March 2017: 289 pence). The
cancellation of the remaining interest rate swap results in the
EPRA and EPRA NNNAV per share now being equal at 322 pence.
The Group currently bene ts from GBP190.00 million (March 2017:
GBP175.00 million) of banking facilities, having re nanced the nal
of its four facilities in August 2017 and increased the existing
Aviva loan by a further GBP10.00 million in March 2018. Drawn debt
at the end of the period was GBP147.00 million (March 2017:
GBP136.00 million). The gearing ratio of drawn debt to portfolio
value (LTV) as at 31st March 2018 was 31.9% (March 2017: 31.6%).
The ratio of aggregate net borrowings to tangible net worth was
48.0% (March 2017: 47.3%). Both ratios have remained constant, with
capital expenditure of GBP23.30 million on the portfolio and the
cost of the cancellation of the swap being offset by asset sales
above book value and the valuation surplus achieved during the
year.
Net cash in ow from operating activities was GBP7.50 million
(March 2017: in ow GBP16.53 million) and interest cover based on
adjusted pro t plus nance costs as a ratio to nance costs was 1.98x
(March 2017: 1.96x).
As a REIT, the Group is tax exempt in respect of capital gains
and all qualifying rental income, which covers the majority of the
Group's activities. Any residual income has been offset by relevant
costs, and there is therefore no tax charge for the period (March
2017: nil).
Defined Benefit Pension Scheme
Under the application of accounting standard IAS19, the Group's
pension de cit has reduced over the period from GBP2.28 million to
GBP2.16 million. The decrease in the de cit is mainly due to an
increase in the discount rate from 2.3% to 2.4%. As a result of the
triennial valuation for the period to 31st March 2017, which showed
a funding level of 87.5% on a continuing valuation basis, the
Group's annual contribution to the Scheme remains at GBP0.24
million. The Scheme was closed to new entrants in the 1980's, and
now consists of six pensioners and no active members.
Signed on behalf of the Board of Directors.
S. Perkins
G. Salmon
The summary of the consolidated results of McKay Securities PLC
and its subsidiary undertakings (the "Group") for the year ending
31(st) March 2018 are as follows:
CONSOLIDATED PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 31st March 2018
Notes 2018 2017
GBP'000 GBP'000
============================================== ====== ========= =========
Gross rents and service charges receivable 2 25,500 24,112
============================================== ====== ========= =========
Other property income 792 1,648
============================================== ====== ========= =========
Direct property outgoings (5,838) (5,888)
============================================== ====== ========= =========
Net rental income from investment properties 2 20,454 19,872
============================================== ====== ========= =========
Administration costs 3 (6,305) (5,795)
============================================== ====== ========= =========
Operating profit before gains on investment
properties 14,149 14,077
============================================== ====== ========= =========
Profit on disposal of investment properties 5,746 -
============================================== ====== ========= =========
Revaluation of investment properties 11 25,066 7,617
============================================== ====== ========= =========
Operating profit 4 44,961 21,694
============================================== ====== ========= =========
Finance costs 6 (5,089) (4,523)
============================================== ====== ========= =========
Finance income 6 3,570 423
============================================== ====== ========= =========
Profit before taxation 43,442 17,594
============================================== ====== ========= =========
Taxation 7 - -
============================================== ====== ========= =========
Profit for the year 43,442 17,594
============================================== ====== ========= =========
Other comprehensive income:
============================================== ====== ========= =========
Items that will not be reclassified
subsequently to profit or loss
============================================== ====== ========= =========
Actuarial movement on defined benefit
pension scheme (70) (628)
============================================== ====== ========= =========
Total comprehensive income for the
year 43,372 16,966
============================================== ====== ========= =========
Earnings per share 9
============================================== ====== ========= =========
Basic 46.25p 18.78p
============================================== ====== ========= =========
Diluted 45.91p 18.63p
============================================== ====== ========= =========
Adjusted earnings per share figures
are shown in note 9
============================================== ====== ========= =========
Dividends 10
============================================== ====== ========= =========
Previous year's final dividend of 6.3p
(2017: 6.1p) paid during the year 5,910 5,683
============================================== ====== ========= =========
Interim dividend of 2.8p (2017: 2.7p)
paid during the year 2,631 2,533
============================================== ====== ========= =========
Proposed final dividend of 7.2p (2017:
6.3p) 6,765 5,910
============================================== ====== ========= =========
The total comprehensive income for the year is all attributable
to the equity holders of the parent company.
GROUP STATEMENT OF FINANCIAL POSITION
As at 31st March 2018
Non-current assets
Notes 2018 2017
GBP'000 GBP'000
=================================================================== ====== ========= =========
Investment properties - Valuation
as reported by the valuers 460,150 429,915
=================================================================== ====== ========= =========
- Adjustment for rents recognised
in advance under SIC 15 (6,691) (5,987)
=================================================================== ====== ========= =========
- Assets held for sale (11,925) (5,500)
=================================================================== ====== ========= =========
- Adjustment for grossing up of head
leases 16 4,404 4,405
=================================================================== ====== ========= =========
11 445,938 422,833
=================================================================== ====== ========= =========
Plant and equipment 12 42 62
=================================================================== ====== ========= =========
Trade and other receivables* 14 5,861 4,730
=================================================================== ====== ========= =========
Total non-current assets 451,841 427,625
=================================================================== ====== ========= =========
Current assets
Trade and other receivables* 14 1,617 2,186
============================== === ========= ========
Assets held for sale 11 11,925 5,500
============================== === ========= ========
Cash and cash equivalents 1,725 4,485
============================== === ========= ========
Total current assets 15,267 12,171
============================== === ========= ========
Total assets 467,108 439,796
============================== === ========= ========
Current liabilities
Loans and other borrowings 15 15 - (34,973)
=============================== === ======== =========
Trade and other payables 15 (9,501) (11,298)
=============================== === ======== =========
Finance lease liabilities 16 16 (285) (285)
=============================== === ======== =========
Interest rate derivatives 15 - (2,159)
=============================== === ======== =========
Total current liabilities (9,786) (48,715)
=============================== === ======== =========
Non-current liabilities
Loans and other borrowings 15 (144,598) (99,127)
=============================== === ========== ==========
Pension fund deficit 24 (2,164) (2,284)
=============================== === ========== ==========
Finance lease liabilities 16 (4,120) (4,120)
=============================== === ========== ==========
Interest rate derivatives 15 - (14,758)
=============================== === ========== ==========
Total non-current liabilities (150,882) (120,289)
=============================== === ========== ==========
Total liabilities (160,668) (169,004)
=============================== === ========== ==========
Net assets 306,440 270,792
=============================== === ========== ==========
Equity
Called up share capital 19 18,791 18,762
================================ === ======== ========
Share premium account 79,235 78,929
================================ === ======== ========
Retained earnings 80,622 55,172
================================ === ======== ========
Revaluation reserve 127,792 117,929
================================ === ======== ========
Total equity 306,440 270,792
================================ === ======== ========
Net asset value per share 22 326p 289p
================================ === ======== ========
EPRA net asset value per share 22 322p 303p
================================ === ======== ========
*Restated see note 14
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31st March 2018
Non-current assets
Notes 2018 2017
GBP'000 GBP'000
=================================================================== ====== ========= =========
Investment properties - Valuation
as reported by the valuers 402,850 399,835
=================================================================== ====== ========= =========
- Adjustment for rents recognised
in advance under SIC 15 (6,691) (5,987)
=================================================================== ====== ========= =========
- Assets held for sale (11,925) (5,500)
=================================================================== ====== ========= =========
- Adjustment for grossing up of head
leases 2,883 2,884
=================================================================== ====== ========= =========
11 387,117 391,232
=================================================================== ====== ========= =========
Plant and equipment 12 42 62
=================================================================== ====== ========= =========
Investments in subsidiaries 13 - 22,176
=================================================================== ====== ========= =========
Trade and other receivables* 14 5,861 4,730
=================================================================== ====== ========= =========
Total non-current assets 393,020 418,200
=================================================================== ====== ========= =========
Current assets
Trade and other receivables* 14 35,049 17,348
============================== === ======== ========
Assets held for sale 11 11,925 5,500
============================== === ======== ========
Cash and cash equivalents 1,725 4,485
============================== === ======== ========
Total current assets 48,699 27,333
============================== === ======== ========
Total assets 441,719 445,533
============================== === ======== ========
Current liabilities
Loans and other borrowings 15 - (34,973)
============================ === ======== =========
Trade and other payables 15 (9,536) (37,561)
============================ === ======== =========
Finance lease liabilities (180) (180)
============================ === ======== =========
Interest rate derivatives 15 - (2,159)
============================ === ======== =========
Total current liabilities (9,716) (74,873)
============================ === ======== =========
Non-current liabilities
Loans and other borrowings 15 (144,598) (99,127)
=============================== === ========== ==========
Pension fund deficit 24 (2,164) (2,284)
=============================== === ========== ==========
Finance lease liabilities (2,703) (2,704)
=============================== === ========== ==========
Interest rate derivatives 15 - (14,758)
=============================== === ========== ==========
Total non-current liabilities (149,465) (118,873)
=============================== === ========== ==========
Total liabilities (159,181) (193,746)
=============================== === ========== ==========
Net assets 282,538 251,787
=============================== === ========== ==========
Equity
Called up share capital 19 18,791 18,762
========================= === ======== ========
Share premium account 79,235 78,929
========================= === ======== ========
Retained earnings 64,002 34,138
========================= === ======== ========
Revaluation reserve 120,510 119,958
========================= === ======== ========
Total equity 282,538 251,787
========================= === ======== ========
*Restated see note 14
GROUP CASH FLOW STATEMENT
For the year ended 31st March 2018
2018 2017
Operating activities GBP'000 GBP'000
================================================== ========= =========
Profit before tax 43,442 17,594
================================================== ========= =========
Adjustments for:
================================================== ========= =========
Depreciation 34 32
================================================== ========= =========
Other non-cash movements 1,350 1,308
================================================== ========= =========
Profit on sale of investment properties (5,746) -
================================================== ========= =========
Movement in revaluation of investment properties (25,066) (7,617)
================================================== ========= =========
Net finance costs 1,519 4,100
================================================== ========= =========
Cash flow from operations before changes
in working capital 15,533 15,417
================================================== ========= =========
(Increase)/decrease in debtors (497) 8,339
================================================== ========= =========
Decrease in creditors (1,373) (1,178)
================================================== ========= =========
Cash generated from operations 13,663 22,578
================================================== ========= =========
Interest paid (6,171) (6,055)
================================================== ========= =========
Interest received 5 7
================================================== ========= =========
Cash flows from operating activities 7,497 16,530
================================================== ========= =========
Investing activities
Proceeds from sale of investment properties 26,773 -
============================================= ========= =========
Purchase and development of investment
properties (25,031) (18,478)
============================================= ========= =========
Purchase of other fixed assets (14) (3)
============================================= ========= =========
Cash flows from investing activities 1,728 (18,481)
============================================= ========= =========
Financing activities
Increase in borrowings 9,908 19,989
====================================== ========= ========
Equity dividends paid (8,541) (8,216)
====================================== ========= ========
Cancellation of derivative (13,352) (5,076)
====================================== ========= ========
Cash flows from financing activities 11,985 6,697
====================================== ========= ========
Net (decrease)/increase in cash and cash
equivalents (2,760) 4,746
============================================ ========= ======
Cash and cash equivalents at the beginning
of the year 4,485 (261)
============================================ ========= ======
Cash and cash equivalents at end of the
year 1,725 4,485
============================================ ========= ======
COMPANY CASH FLOW STATEMENT
For the year ended 31st March 2018
2018 2017
Operating activities GBP'000 GBP'000
=================================================== ========== =========
Profit before tax 38,545 27,760
=================================================== ========== ===========
Adjustments for:
============================================================================
Depreciation 34 32
=================================================== ========== ===========
Other non-cash movements 1,345 1,302
=================================================== ========== ===========
Profit on sale of investment properties (5,746) -
=================================================== ========== ===========
Movement in revaluation of investment properties (15,755) (11,300)
=================================================== ========== ===========
Net finance costs 1,535 4,779
=================================================== ========== ===========
Cash flow from operations before changes
in working capital 19,958 22,573
=================================================== ========== ===========
(Increase)/decrease in debtors (18,770) 9,250
=================================================== ========== ===========
Increase/(decrease) in creditors 1,474 (16,025)
=================================================== ========== ===========
Cash generated from operations 2,662 15,798
=================================================== ========== ===========
Interest paid (6,066) (6,039)
=================================================== ========== ===========
Interest received 1,477 530
=================================================== ========== ===========
Cash flows from operating activities (1,927) 10,289
=================================================== ========== ===========
Investing activities
Proceeds from sale of investment properties 26,773 -
============================================= ========= =========
Purchase and development of investment
properties (15,607) (12,237)
============================================= ========= =========
Purchase of other fixed assets (14) (3)
============================================= ========= =========
Cash flows from investing activities 11,152 (12,240)
============================================= ========= =========
Financing activities
Increase in borrowings 9,908 19,989
====================================== ========= ========
Equity dividends paid (8,541) (8,216)
====================================== ========= ========
Cancellation of derivative (13,352) (5,076)
====================================== ========= ========
Cash flows from financing activities (11,985) 6,697
====================================== ========= ========
Net (decrease)/increase in cash and cash
equivalents (2,760) 4,746
============================================ ========= ======
Cash and cash equivalents at the beginning
of the year 4,485 (261)
============================================ ========= ======
Cash and cash equivalents at end of the
year 1,725 4,485
============================================ ========= ======
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31st March 2018
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 31st March 2016 18,632 77,708 110,312 54,571 261,223
--------------------------------- --------- --------- ------------ ---------- ---------
Profit for the year - - - 17,594 17,594
--------------------------------- --------- --------- ------------ ---------- ---------
Other comprehensive income:
--------------------------------- --------- --------- ------------ ---------- ---------
Transfer surplus on revaluation
of properties - - 7,617 (7,617) -
--------------------------------- --------- --------- ------------ ---------- ---------
Actuarial loss on defined
benefit pension scheme - - - (628) (628)
--------------------------------- --------- --------- ------------ ---------- ---------
Total comprehensive income
for the year - - 7,617 9,349 16,966
--------------------------------- --------- --------- ------------ ---------- ---------
Issue of new shares net
of costs 130 1,221 - (1,351) -
--------------------------------- --------- --------- ------------ ---------- ---------
Dividends paid in year - - - (8,216) (8,216)
--------------------------------- --------- --------- ------------ ---------- ---------
Deferred bonus - - - 128 128
--------------------------------- --------- --------- ------------ ---------- ---------
Cost of share based payments - - - 691 691
--------------------------------- --------- --------- ------------ ---------- ---------
At 31st March 2017 18,762 78,929 117,929 55,172 270,792
--------------------------------- --------- --------- ------------ ---------- ---------
Profit for the year - - - 43,442 43,442
--------------------------------- --------- --------- ------------ ---------- ---------
Other comprehensive income:
--------------------------------- --------- --------- ------------ ---------- ---------
Transfer surplus on revaluation
of properties - - 25,066 (25,066) -
--------------------------------- --------- --------- ------------ ---------- ---------
Transfer on disposal
of investment properties (15,203) 15,203 -
--------------------------------- --------- --------- ------------ ---------- ---------
Actuarial loss on defined
benefit pension scheme - - - (70) (70)
--------------------------------- --------- --------- ------------ ---------- ---------
Total comprehensive income
for the year - - 9,863 33,509 43,372
--------------------------------- --------- --------- ------------ ---------- ---------
Issue of new shares net
of costs 29 306 - (335) -
--------------------------------- --------- --------- ------------ ---------- ---------
Dividends paid in year - - - (8,541) (8,541)
--------------------------------- --------- --------- ------------ ---------- ---------
Deferred bonus - - - 21 21
--------------------------------- --------- --------- ------------ ---------- ---------
Cost of share based payments - - - 796 796
--------------------------------- --------- --------- ------------ ---------- ---------
At 31st March 2018 18,791 79,235 127,792 80,622 306,440
--------------------------------- --------- --------- ------------ ---------- ---------
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31st March 2018
Share Share Revaluation Retained Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- --------- ------------ ---------- ---------
At 31st March 2016 18,632 77,708 108,658 27,054 232,052
---------------------------- --------- --------- ------------ ---------- ---------
Profit for the year - - - 27,760 27,760
---------------------------- --------- --------- ------------ ---------- ---------
Other comprehensive income:
---------------------------------------------------------------------------------------
Transfer surplus on
revaluation of properties - - 11,300 (11,300) -
---------------------------- --------- --------- ------------ ---------- ---------
Actuarial loss on defined
benefit pension scheme - - - (628) (628)
---------------------------- --------- --------- ------------ ---------- ---------
Total comprehensive
income for the year - - 11,300 15,832 27,132
---------------------------- --------- --------- ------------ ---------- ---------
Issue of new shares
net of costs 130 1,221 - (1,351) -
---------------------------- --------- --------- ------------ ---------- ---------
Dividends paid in year - - - (8,216) (8,216)
---------------------------- --------- --------- ------------ ---------- ---------
Deferred bonus - - - 128 128
---------------------------- --------- --------- ------------ ---------- ---------
Cost of share based
payments - - - 691 691
---------------------------- --------- --------- ------------ ---------- ---------
At 31st March 2017 18,762 78,929 119,958 34,138 251,787
---------------------------- --------- --------- ------------ ---------- ---------
Profit for the year - - - 38,545 38,545
---------------------------- --------- --------- ------------ ---------- ---------
Other comprehensive income:
---------------------------------------------------------------------------------------
Transfer surplus on
revaluation of properties - - 15,755 (15,755) -
---------------------------- --------- --------- ------------ ---------- ---------
Transfer on disposal
of investment properties - - (15,203) 15,203 -
---------------------------- --------- --------- ------------ ---------- ---------
Actuarial loss on defined
benefit pension scheme - - - (70) (70)
---------------------------- --------- --------- ------------ ---------- ---------
Total comprehensive
income for the year - - 552 37,923 38,475
---------------------------- --------- --------- ------------ ---------- ---------
Issue of new shares
net of costs 29 306 - (335) -
---------------------------- --------- --------- ------------ ---------- ---------
Dividends paid in year - - - (8,541) (8,541)
---------------------------- --------- --------- ------------ ---------- ---------
Deferred bonus - - - 21 21
---------------------------- --------- --------- ------------ ---------- ---------
Cost of share based
payments - - - 796 796
---------------------------- --------- --------- ------------ ---------- ---------
At 31st March 2018 18,791 79,235 120,510 64,002 282,538
---------------------------- --------- --------- ------------ ---------- ---------
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2018
1 Accounting policies
Basis of preparation
The financial information set out in the final results
announcement does not constitute the Group's statutory accounts
for
the year ended 31st March 2018 or 2017, but is derived from
those accounts. The statutory accounts for the period ended 31st
March 2018 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The statutory
accounts for the year ended 31st March 2017 have been delivered to
the Registrar of Companies. The auditors have reported on the
accounts for both the years ended 31st March 2018 and 2017; their
reports were (i) unqualified (ii) did not include a reference to
any matters to which the auditors 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
While the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards as adopted by the European Union(IFRS), this announcement
does not itself contain sufficient information to comply with
IFRS.
A number of accounting standards, amendments to and
interpretations of standards become applicable for the first time
this year. None had any material impact on the financial
statements.
None of the new standards or amendments to existing standards or
interpretations, which are endorsed but not yet effective, have
been adopted, or are expected to have any material impact on the
financial statements.
The financial statements are prepared on a going concern
basis.
Basis of consolidation
The consolidated financial statements of the Company and its
subsidiary (the Group) have been prepared on a historical cost
basis, except for investment property and derivative financial
instruments which are measured at fair value through the Profit and
Loss and other Comprehensive Income. Subsidiary companies are those
entities under the control of the Company. Control means being
exposed or have rights to variable returns from its involvement and
has the ability to affect those returns through its power over the
subsidiary.
Intra-group balances, income and expenses and unrealised gains
and losses resulting from intra-group transactions are eliminated
in preparing the consolidated financial statements.
Significant judgements and estimates
In the process of preparing the Group's financial statements
management is required to make judgements, estimates and
assumptions when applying accounting policies that may affect the
reported amounts of revenues, expenses, assets and liabilities. Any
judgements, estimates and associated assumptions used in the
preparation of the financial statements are based on management's
best information at the time, however actual outcomes may differ
from estimates used. Not all accounting policies require estimates
and assumptions, however management consider them significant in
applying to valuations, for which qualified external advisors are
used, of investment properties, are disclosed in the applicable
policies and notes below.
Investment Properties
The Group's properties are held as investments to earn rental
income and for capital appreciation and are stated at fair value at
the balance sheet date. The value, reflecting market conditions, is
determined at each reporting date by independent external valuers
and any gain or loss arising from a change in value is recognised
in the Profit and Loss and other Comprehensive Income and
transferred to the revaluation reserve in the Group Statement of
Financial Position. Any accrued rent receivable recognised as a
separate asset in accordance with the Group's accounting policy on
lease incentives is deducted from the external valuation.
Properties purchased are recognised on legal completion in the
accounting period and measured initially at cost including
transaction costs. Sales of properties are recognised on
unconditional exchange of contracts when the significant risks and
rewards of ownership have been transferred. Gains and losses
arising on the disposal of investment properties are recognised in
the Profit and Loss and other Comprehensive Income, being the
difference between net sale proceeds and the carrying value of the
property.
Subsequent expenditure on investment properties is capitalised
only when it increases the future economic benefits associated with
the property. All other expenditure is charged to the Profit and
Loss and other Comprehensive Income.
Interest and other outgoings less rental income relating to
investment properties in the course of development are capitalised,
and added to the cost of the property. Interest capitalised is
calculated on development outgoings, including material
refurbishments to investment property, using the weighted average
cost of general Group borrowings for the year. A property ceases to
be treated as being in the course of development when substantially
all the activities that are necessary to prepare the property for
use are completed.
Properties held under long leases where the Group has
substantially all the risks and benefits of ownership are accounted
for as finance leases and carried at the lower of fair value or
present value of future minimum lease payments. The present value
of the future minimum lease payments is recognised as a liability
with a corresponding asset added to the carrying value of the
leasehold property. The minimum lease payments are apportioned
between finance charges in the Profit and Loss and other
Comprehensive Income and the reduction of the Group Statement of
Financial Position liability. Contingent rents are charged as an
expense in the Profit and Loss and other Comprehensive Income in
the period incurred.
Assets held for sale
Properties held for sale are classified as non-current assets if
its carrying amount will be recovered principally through sale
rather than through continuing use, it is available for immediate
sale and sale is highly probable within one year.
On initial classification as held for sale, non-current assets
are measured at the lower of previously carrying amount and fair
value less costs to sell with any adjustments take to profit or
loss. The same applies to gains and losses on subsequent
re-measurement although gains are not recognised in excess of any
cumulative impairment loss. Intangible assets and property, plant
and equipment once classified as held for sale or distribution are
not amortised or depreciated.
Plant and equipment
Plant and equipment is stated at cost less accumulated
depreciation. Depreciation is provided on a straight line basis at
rates calculated to write off the cost less estimated residual
value over their useful lives, which are estimated to be between 3
and 5 years.
Cash and cash equivalents
Cash comprises cash at bank and short term deposits held on
call. Cash equivalents comprise investments with minimal risk to
changes in value that are readily convertible into cash with an
original maturity of three months or less. Bank overdrafts that are
repayable on demand and form an integral part of the Group's cash
management are included as a component of cash and cash equivalents
for the purpose only of the cash flow statement.
Trade and other receivables and payables
Trade and other receivables are recognised at invoice cost
unless an impairment provision has been made when there is
objective evidence that the Group will not be able to recover
balances in full. Balances are written off when the probability of
recovery is assessed as being remote. Trade and other payables are
recognised at invoice cost.
Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value
less directly attributable transaction costs. Subsequent to initial
recognition, loans and borrowings are measured at amortised cost
using the effective interest rate method.
Reserves
The revaluation reserve represents the unrealised surpluses and
deficits arising on revaluation of the Group's properties and is
not available for distribution until realised through sale. This
forms part of retained earnings.
Segmental analysis
All of the Group's revenue is derived from the ownership of
investment properties located in South East England and central
London. The management team works within a single structure which
includes the executive Directors acting as chief operating decision
maker. Responsibilities are not defined by type or location, each
property being managed individually and reported on for the Group
as a whole directly to the Board of Directors. Properties under
development generate no revenue and are treated as investment
properties in the portfolio. The Directors therefore consider there
to be only one reporting segment.
Revenue
The Group has entered into commercial property leases on its
investment property portfolio. The Directors consider, based on the
terms and conditions, the significant risks and rewards of
ownership of the properties are retained and therefore account for
the leases as operating leases. Rental income receivable under
operating leases less initial direct costs on arranging the leases
is recognised on a straight line basis over the non-cancellable
term of the lease.
The aggregate value of incentives for lessees to enter into
lease agreements, usually in the form of rent free periods or
capital contributions, is recognised over the lease term or to
tenant option to break as a reduction of rental income.
Premiums received from tenants to terminate leases are
recognised as income from investment properties when they
arise.
Service charges and other such receipts arising from expenses
recharged to tenants, with the Group acting as principal, are
recognised in the period that the expense can be contractually
recovered and included gross in income from investment
properties.
Interest received on short term deposits is recognised in
finance income as it accrues.
Borrowing costs
Interest on borrowings, including interest on finance leases, is
recognised in the Profit and Loss and other Comprehensive Income in
the period during which it is incurred, except for interest
capitalised in accordance with the Group's policy on properties
under development (see Properties above). Costs incurred on putting
in place borrowing facilities are recognised in finance costs over
the term of the facility.
Derivative financial instruments
The Group uses derivative financial instruments, such as
interest rate swaps, to manage its exposure to interest rate risk.
The differences between interest payable by the Group and interest
payable to the Group by the swap counterparties are dealt with by
using an effective interest rate.
At each reporting date the instruments are stated at fair value
in the Group Statement of Financial Position which is the estimated
amount that the Group would receive or pay to terminate the
instruments based on the current interest rate yield structure. The
Group has not applied hedge accounting for any financial instrument
in place and any movement in fair value is recognised in the Profit
and Loss and other Comprehensive Income.
Share-based payments
The Group operates an equity-settled share-based performance
plan outlined in the Directors' Remuneration Report under which
Directors and employees are able to acquire shares in the Company.
The fair value cost benefit of the employee services received for
the options granted is recognised over the vesting period in
employee costs within administration expenses with a corresponding
amount recognised in equity. The charge is measured using valuation
models and assumptions outlined in note 18 with adjustment for when
non-market conditions are not expected to be met.
Post employment benefits
The Group operates two pension schemes. The defined benefit
scheme is based on final pensionable pay and has been closed to new
entrants since 1989. The assets of the scheme are held separately
from those of the Group and are measured at fair value, the scheme
obligations being calculated at discounted present value, with any
net surplus or deficit recognised in the Group Statement of
Financial Position. Current service cost and interest on scheme
liabilities less the expected return on scheme assets are
recognised as an expense in the Profit and Loss and other
Comprehensive Income. Actuarial gains and losses on scheme assets
and liabilities are recognised in equity through the Profit and
Loss and other Comprehensive Income. The assumptions used by a
qualified actuary are outlined in note 24.
The Group contributes to eligible employees' defined
contribution personal pension plans and does not accept any
responsibility for the benefits gained from these plans. The
contributions are recognised as an expense in the Profit and Loss
and other Comprehensive Income as incurred but the Group does not
recognise any gains or losses arising from movements in the value
of the personal pension plans.
Taxation
Any tax charge recognised in the Profit and Loss and other
Comprehensive Income comprises current and deferred tax except to
the extent that it relates to items recognised directly in equity,
in which case the related tax is recognised in equity.
Current tax is the expected tax liability on the results for the
year adjusted for items that are not taxable or deductible, or
taxable and deductible in other periods, together with any
adjustment in respect of previous years calculated using tax rates
and laws enacted or substantively enacted at the balance sheet
date.
Deferred tax is the tax expected to be paid or recovered on
temporary differences arising between the carrying amounts of
assets and liabilities for financial reporting purposes and their
tax base. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount
of assets and liabilities, using tax rates enacted or substantively
enacted at the balance sheet date. Tax liabilities are recognised
for all taxable temporary differences and tax assets to the extent
that future taxable profits will be available against which the
asset can be utilised.
The Group converted to REIT status on 1st April 2007 and as a
consequence substantially all the Group's activities as a property
rental business are exempt from tax, including rental profits and
gains on rental property disposals.
2 Net rental income from investment properties
2018 2017
GBP'000 GBP'000
======================================== ======== ========
Gross rents receivable 21,545 20,672
======================================== ======== ========
SIC 15 adjustment (spreading of rental
incentives) 299 118
======================================== ======== ========
Gross rental income 21,844 20,790
======================================== ======== ========
Service charges receivable 3,656 3,322
======================================== ======== ========
25,500 24,112
======================================== ======== ========
Other property income 792 1,648
======================================== ======== ========
Direct property outgoings (5,838) (5,888)
======================================== ======== ========
20,454 19,872
======================================== ======== ========
Rent receivable under the terms of the leases is adjusted, in
accordance with SIC 15, for the effect of any incentives given.
Other property income relates to rights of lights compensation
received in respect of two properties in the portfolio.
3 Administration costs
Group 2018 2017
GBP'000 GBP'000
============================================= ========= =========
Directors' - remuneration 1,271 991
============================================= ========= =========
- bonus(1) 577 176
============================================= ========= =========
Staff - costs 977 1,342
============================================= ========= =========
- bonus 398 195
============================================= ========= =========
National Insurance 570 496
============================================= ========= =========
Pension costs - defined benefit scheme 50 57
============================================= ========= =========
- defined contributions 217 194
============================================= ========= =========
Share based payment accounting charge (IFRS
2) 796 691
============================================= ========= =========
4,856 4,142
============================================= ========= =========
Depreciation (note 12) 34 32
============================================= ========= =========
Office costs 415 523
============================================= ========= =========
Legal and professional fees 938 1,073
============================================= ========= =========
General expenses 62 25
============================================= ========= =========
6,305 5,795
============================================= ========= =========
(1) Amount charged to income in year to 31st March 2018.
The average number of persons employed by the Group and Company
during the year was 19 (2017: 18).
Fees paid to auditor 2018 2017
GBP'000 GBP'000
=================================== ========= =========
Statutory audit services
=================================== ========= =========
McKay Securities PLC audit 72 70
=================================== ========= =========
Subsidiary audits 2 2
=================================== ========= =========
Assurance services
=================================== ========= =========
Interim review 19 19
=================================== ========= =========
Service charge audits 10 10
=================================== ========= =========
Taxation services
=================================== ========= =========
Corporation tax compliance - 47
=================================== ========= =========
103 148
=================================== ========= =========
Future services - contracted fees
=================================== ========= =========
XBRL tagging - 7
=================================== ========= =========
4 Operating profit
Operating profit is identified in the income statement and
represents the profit on activities before finance costs, share of
associated undertakings and taxation.
5 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.
2018 2017
GBP'000 GBP'000
================================================== ========= =========
Profit before tax 43,442 17,594
================================================== ========= =========
Cancellation of derivatives 13,352 5,076
================================================== ========= =========
Change in fair value of derivatives (16,917) (5,491)
================================================== ========= =========
Movement in revaluation of investment properties (25,066) (7,617)
================================================== ========= =========
Other property income (see note 2) (792) (1,648)
================================================== ========= =========
Profit on disposal of investment properties (5,746) -
================================================== ========= =========
IFRS 2 adjustment to share based payments 795 691
================================================== ========= =========
Adjusted profit before tax 9,068 8,605
================================================== ========= =========
6 Net finance costs
2018 2017
GBP'000 GBP'000
============================================== ========= =========
Interest on bank overdraft and loans 5,633 5,269
============================================== ========= =========
Commitment fee 240 381
============================================== ========= =========
Finance lease interest on leasehold property
obligations 285 285
============================================== ========= =========
Finance arrangement costs 590 410
============================================== ========= =========
Capitalised interest (note 8) (1,659) (1,822)
============================================== ========= =========
5,089 4,523
============================================== ========= =========
Cancellation of derivatives 13,352 5,076
============================================== ========= =========
Change in fair value of derivatives (16,917) (5,491)
============================================== ========= =========
Interest receivable (5) (8)
============================================== ========= =========
(3,570) (423)
============================================== ========= =========
Net finance costs 1,519 4,100
============================================== ========= =========
7 Taxation
2018 2017
GBP'000 GBP'000
========================================= ========= =========
Total tax in the Consolidated Profit and - -
Loss and other Comprehensive Income
========================================= ========= =========
Reconciliation to effective rate of tax:
Profit on ordinary activities before tax 43,442 17,594
========================================== ======== ========
Tax charge on profit at 19% (2017: 20%) 8,254 3,519
========================================== ======== ========
Effects of:
========================================== ======== ========
REIT tax exemption (8,254) (3,519)
========================================== ======== ========
Permanent differences - -
========================================== ======== ========
Other timing differences - -
========================================== ======== ========
Tax for period (as above) - -
========================================== ======== ========
8 Capitalised interest
Interest relating to investment properties in the course of
development is dealt with as explained in note 1.
Interest capitalised during the year amounted to GBP1,658,692
(2017: GBP1,821,970) and relates to works to London, 30 Lombard
Street, EC3 and Theale, Brunel Road.
Total development interest capitalised amounts to GBP12,549,320
(2017: GBP10,890,628).
9 Earnings per share
2018 2017
GBP'000 GBP'000
================================================== ========= =========
Basic earnings per share 46.25 18.78
================================================== ========= =========
Cancellation of derivatives 14.22 5.42
================================================== ========= =========
Change in fair value of derivatives (18.02) (5.86)
================================================== ========= =========
Movement in revaluation of investment properties (26.69) (8.13)
================================================== ========= =========
Other property income (0.84) (1.76)
================================================== ========= =========
Profit on disposal of investment properties (6.12) -
================================================== ========= =========
Share based payments 0.85 0.74
================================================== ========= =========
Adjusted earnings per share 9.65 9.19
================================================== ========= =========
Basic earnings per share on ordinary shares is calculated on the
profit in the year of GBP43,442,000 (2017: GBP17,594,000) and
93,925,375 (2017: 93,659,703) shares, being the weighted average
number of ordinary shares in issue during the year.
2018 Number 2017 Number
of shares of shares
======================================= ============ ============
Weighted average number of ordinary
shares in issue 93,925,375 93,659,703
======================================= ============ ============
Number of shares under option 1,516,011 1,453,249
======================================= ============ ============
Number of shares that would have been
issued at fair value (808,206) (656,745)
======================================= ============ ============
Diluted weighted average number of
ordinary shares in issue 94,633,180 94,456,207
======================================= ============ ============
2018 2017
p p
================================================== ======== =======
Basic earnings per share 46.25 18.78
================================================== ======== =======
Effect of dilutive potential ordinary shares
under option (0.34) (0.15)
================================================== ======== =======
Diluted earnings per share 45.91 18.63
================================================== ======== =======
Cancellation of derivatives 14.11 5.37
================================================== ======== =======
Change in fair value of derivatives (17.88) (5.81)
================================================== ======== =======
Movement in revaluation of investment properties (26.49) (8.07)
================================================== ======== =======
Other property income - (1.74)
================================================== ======== =======
Profit on disposal of investment properties (6.07) -
================================================== ======== =======
EPRA diluted earnings per share 9.58 8.38
================================================== ======== =======
EPRA diluted 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 94,633,180 (2017: 94,456,207) shares,
which takes into account the number of potential ordinary shares
under option.
Adjusted earnings per share excludes the after tax effect of
profit from the disposal of investment properties, surrender
premiums received, the change in the fair value of derivatives, the
cancellation of derivatives and the movement in revaluation of
investment properties. The EPRA measure includes all of these
adjustments except surrender premiums included in other property
income, which are added back.
10 Dividends
The final dividend is not included in the accounts as a
liability as at 31st March 2018, as it is subject to shareholder
approval at the Annual General Meeting. The final dividend for 2017
and interim for 2018 paid in the year are included in the
Consolidated Statement of Changes in Equity.
Ordinary dividends
2018 2017
GBP'000 GBP'000
============================================ ========= =========
Previous year's final dividend of 6.3p
paid during the year 5,910 5,683
============================================ ========= =========
Interim dividend of 2.8p (2017: 2.7p) paid
during the year 2,631 2,533
============================================ ========= =========
Total recognised in financial statements 8,541 8,216
============================================ ========= =========
Proposed final dividend of 7.2p (2017:
6.3p) 6,765 5,910
============================================ ========= =========
11 Investment properties
Long Group Long Company
Freehold leasehold Total Freehold leasehold Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----------- ----------- ---------- ----------- ----------- ----------
Valuation
------------------------ ----------- ----------- ---------- ----------- ----------- ----------
At 1st April
2017 368,718 59,615 428,333 368,718 28,014 396,732
------------------------ ----------- ----------- ---------- ----------- ----------- ----------
Additions -
development 4,738 20,023 24,761 4,738 2,113 6,851
------------------------ ----------- ----------- ---------- ----------- ----------- ----------
Revaluation
surplus/(deficit) 17,217 9,247 26,464 17,217 (64) 17,153
------------------------ ----------- ----------- ---------- ----------- ----------- ----------
Adjustment for
rents recognised
in advance under
SIC 15 (726) 22 (704) (726) 22 (704)
------------------------ ----------- ----------- ---------- ----------- ----------- ----------
Disposals (20,990) - (20,990) (20,990) - (20,990)
------------------------ ----------- ----------- ---------- ----------- ----------- ----------
Amortisation
of grossed up
headlease liabilities - (1) (1) - - -
------------------------ ----------- ----------- ---------- ----------- ----------- ----------
Book value as
at 31st March
2018 368,957 88,906 457,863 368,957 30,085 399,042
------------------------ ----------- ----------- ---------- ----------- ----------- ----------
Adjustment for
grossing up
of headlease
liabilities - (4,404) (4,404) - (2,883) (2,883)
------------------------ ----------- ----------- ---------- ----------- ----------- ----------
Adjustment for
rents recognised
in advance under
SIC 15 6,293 398 6,691 6,293 398 6,691
------------------------ ----------- ----------- ---------- ----------- ----------- ----------
Valuation as
at 31st March
2018 375,250 84,900 460,150 375,250 27,600 402,850
------------------------ ----------- ----------- ---------- ----------- ----------- ----------
Long Group Long Company
Freehold leasehold Total Freehold leasehold Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----------- ----------- --------- ----------- ----------- ---------
Valuation
------------------------ ----------- ----------- --------- ----------- ----------- ---------
At 1st April
2016 343,439 55,607 399,046 343,438 27,864 371,302
------------------------ ----------- ----------- --------- ----------- ----------- ---------
Additions -
development 13,753 7,918 21,671 13,753 377 14,130
------------------------ ----------- ----------- --------- ----------- ----------- ---------
Revaluation
surplus/(deficit) 11,522 (4,448) 7,074 11,523 (518) 11,005
------------------------ ----------- ----------- --------- ----------- ----------- ---------
Adjustment for
rents recognised
in advance under
SIC 15 4 (122) (118) 4 (122) (118)
------------------------ ----------- ----------- --------- ----------- ----------- ---------
Head lease adjustment - 661 661 - 413 413
------------------------ ----------- ----------- --------- ----------- ----------- ---------
Amortisation
of grossed up
headlease liabilities - (1) (1) - - -
------------------------ ----------- ----------- --------- ----------- ----------- ---------
Book value as
at 31st March
2017 368,718 59,615 428,333 368,718 28,014 396,732
------------------------ ----------- ----------- --------- ----------- ----------- ---------
Adjustment for
grossing up
of headlease
liabilities - (4,405) (4,405) - (2,884) (2,884)
------------------------ ----------- ----------- --------- ----------- ----------- ---------
Adjustment for
rents recognised
in advance under
SIC 15 5,567 420 5,987 5,567 420 5,987
------------------------ ----------- ----------- --------- ----------- ----------- ---------
Valuation as
at 31st March
2017 374,285 55,630 429,915 374,285 25,550 399,835
------------------------ ----------- ----------- --------- ----------- ----------- ---------
In accordance with the Group's accounting policy on properties
there was an external valuation at 31st March 2018. These
valuations, were carried out by Knight Frank LLP, Chartered
Surveyors and Valuers. The prior year valuation was carried out by
Mellersh and Harding, Chartered Surveyors and Valuers. All
valuations were carried out in accordance with the Appraisal and
Valuation Standards of RICS, on an open market basis.
The historical cost of properties stated at valuation is
approximately GBP319 million (2017: GBP302 million) for the Group
and GBP269 million (2017: GBP269 million) for the Company.
The amount of interest capitalised during the year was
GBP1,658,692 (2017: GBP1,821,970). The Group is a REIT and
therefore does not obtain relief from Corporation Tax.
Investment property valuation method and assumptions
The fair value of the property portfolio has been determined
using income capitalisation techniques, whereby contracted and
market rental values are capitalised with a market for properties
under development, the fair value is calculated by estimating the
fair value of the completed property using the income
capitalisation technique less estimated costs to completion and a
risk premium. The resulting valuations are cross-checked against
the equivalent yields and the fair market values per square foot
derived from comparable recent market transactions on arm's length
terms.
These techniques are consistent with the principles in IFRS 13
Fair Value Measurement and use significant unobservable inputs such
that the fair value measurement of each property within the
portfolio has been classified as Level 3 in the fair value
hierarchy. There were no transfers in or out of Level 3 for
investment properties during the year.
Gains and losses recorded in profit or loss for recurring fair
value measurements categorised within Level 3 of the fair value
hierarchy amount to GBP25.1 million (2017: GBP7.6 million) and are
presented in the Group income statement in the line item
'Revaluation of investment properties'.
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
of the Group's property portfolio, together with the impact of
significant movements in these inputs on the fair value
measurement, are shown below:
Valuation technique
-----------------------------------------------------------------------------------------
London South East South
Offices Offices East Industrial
Income Income Income
Capitalisation Capitalisation Capitalisation
------------------------------ ------------------ ------------------ -----------------
Fair value GBP107,950,000 GBP260,100,000 GBP70,450,000
------------------------------ ------------------ ------------------ -----------------
ERV (per sq ft pa) - average GBP56.57 GBP27.65 GBP10.26
------------------------------ ------------------ ------------------ -----------------
ERV (per sq ft pa) - range GBP10.00-GBP80.00 GBP15.00-GBP43.50 GBP4.50-GBP15.00
------------------------------ ------------------ ------------------ -----------------
True equivalent yield -
average 4.70% 6.73% 5.46%
------------------------------ ------------------ ------------------ -----------------
True equivalent yield - 4.35%-5.69% 5.44%-8.41% 4.91%-7.29%
range
------------------------------ ------------------ ------------------ -----------------
Capital value per sq ft GBP806 GBP364 GBP149
------------------------------ ------------------ ------------------ -----------------
A further GBP21.65 million has been designated other and not
included in the analysis above.
Definitions for ERV and True Equivalent Yield are provided in
the glossary.
Sensitivity analysis
Change in ERV Change in equivalent
yield
----------------- ---------------------- -----------------------
+5% -5% +0.25% -0.25%
----------------- --------- ----------- ------------ ---------
Change in value GBP22.3m GBP(22.3)m GBP(22.7)m GBP24.8m
of investment
properties
----------------- --------- ----------- ------------ ---------
12 Plant and equipment
2018 2017
Cost Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
=========== ========== ========= ========== =========
Opening 214 211 429 426
=========== ========== ========= ========== =========
Additions 14 14 3 3
=========== ========== ========= ========== =========
Disposals (10) (10) (218) (218)
=========== ========== ========= ========== =========
Closing 218 215 214 211
=========== ========== ========= ========== =========
Depreciation
Opening 152 149 338 335
================= ===== ===== ====== ======
Charge for year 34 34 32 32
================= ===== ===== ====== ======
Disposals (10) (10) (218) (218)
----------------- ----- ----- ------ ------
Closing 176 173 152 149
----------------- ----- ----- ------ ------
Net book value 42 42 62 62
================= ===== ===== ====== ======
13 Investments
Shares
in subsidiary
undertakings Total
Company GBP'000 GBP'000
At 1(st) April 2017 22,176 22,176
========================== =============== ==========
Liquidation of Acreway
Limited (22,176) (22,176)
========================== =============== ==========
At 31st March 2018 - -
========================== =============== ==========
At 31st March 2018 McKay Securities PLC had the following wholly
owned subsidiary undertaking which operates in England and are
registered in England and Wales: 20 Greyfriars Road, Reading,
Berkshire, RG1 1NL. Acreway Limited was liquidated during the year,
resulting in a final distribution to the Parent Company.
Baldwin House Limited
The above subsidiary is included in the consolidation.
The principal activity of the subsidiary undertakings is
property investment and development.
The Directors are of the opinion that the investment in the
subsidiary undertaking is not worth less than the current book
value.
14 Trade and other receivables
2018 2017
Current - restated Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
=============================== ========= ========== ========= ==========
Trade receivables - - - -
=============================== ========= ========== ========= ==========
Amounts due from subsidiary
undertaking - 33,436 - 15,308
=============================== ========= ========== ========= ==========
SIC 15 lease incentives 830 830 1,244 1,244
=============================== ========= ========== ========= ==========
Other debtors and prepayments 787 783 942 796
=============================== ========= ========== ========= ==========
1,617 35,049 2,186 17,348
=============================== ========= ========== ========= ==========
2018 2017
Non-current - restated Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
========================== ========= ========== ========= ==========
SIC 15 lease incentive 5,861 5,861 4,730 4,730
========================== ========= ========== ========= ==========
During the year the presentation of lease incentives assets were
reviewed. These assets were previously reported as current. This
balance has now been reallocated between its current and
non-current portion. The Group and Company Statement of Financial
Position have therefore both been retrospectively restated by
GBP4,730,000. This restatement had no impact on the Consolidated
Profit and Loss and other Comprehensive Income, total assets or net
assets.
Group trade receivables that were past due but not impaired are
as follows:
2018 2017
GBP'000 GBP'000
================================== ========= =========
Less than three months due - -
================================== ========= =========
Between three and six months due - -
================================== ========= =========
Between six and twelve months due - -
================================== ========= =========
- -
================================== ========= =========
The Group holds no collateral in respect of these
receivables.
15 Liabilities
Trade and other payables
2018 Company 2017 Company
Group GBP'000 Group GBP'000
GBP'000 GBP'000
============================== ========= ========= ========= =========
Rent received in advance 4,238 4,220 5,328 5,311
============================== ========= ========= ========= =========
Other taxation and social
security costs 967 1,020 1,969 1,969
============================== ========= ========= ========= =========
Amounts owed to subsidiary
undertakings - - - 26,286
============================== ========= ========= ========= =========
Other creditors and accruals 4,296 4,296 4,001 3,995
============================== ========= ========= ========= =========
9,501 9,536 11,298 37,561
============================== ========= ========= ========= =========
The fair value of current liabilities is estimated as the
present value of future cash flows which approximate their carrying
amounts due to the short term maturities.
Creditor days for the Group were 4 days (2017: 8 days).
Loans and other borrowings
The analysis of bank loans which are secured on certain of the
freehold and leasehold properties of the Group is as follows:
Group and Company 2018 2017
GBP'000 GBP'000
==================== ========= =========
Secured bank loans 147,000 136,000
==================== ========= =========
Bank facility fees (2,402) (1,900)
==================== ========= =========
144,598 134,100
==================== ========= =========
The bank loans are secured against land and buildings with a
carrying amount of GBP395,125,000 (2017: GBP386,490,000).
Repayable in: 2018 Company 2017 Group Company
Group GBP'000 GBP'000 GBP'000
GBP'000
======================= ========= ========= =========== =========
Less than 1 year - - 34,973 34,973
======================= ========= ========= =========== =========
1-2 years - - - -
======================= ========= ========= =========== =========
2-5 years 80,639 80,639 45,099 45,099
======================= ========= ========= =========== =========
5-10 years - - - -
======================= --------- --------- ----------- ---------
Greater than 10 years 63,959 63,959 54,028 54,028
======================= --------- --------- ----------- ---------
144,598 144,598 134,100 134,100
======================= ========= ========= =========== =========
Changes in liabilities arising from financing 2018 2017
activities GBP'000 GBP'000
=============================================== ========= =========
Current loans as at 1 April 2017 34,973 -
Non-current loans as at 1 April 2017 99,127 113,701
----------------------------------------------- ========= =========
Total loans as at 1 April 2017 134,100 113,701
=============================================== ========= =========
Increase in borrowings 9,908 19,989
=============================================== ========= =========
Facility fee amortisation 590 410
=============================================== ========= =========
Total loans as at 31 March 2018 144,598 134,100
=============================================== ========= =========
During the year the Group refinanced one of its facilities and
increased another, as a result facilities increased from GBP175
million to GBP190 million.
Borrowing facilities
The Group has various undrawn committed borrowing facilities.
The facilities available in respect of which all conditions
precedent had been met were as follows:
2018 2017
GBP'000 GBP'000
============================== ========= =========
Expiring in less than 1 year - -
============================== ========= =========
Expiring in 1 - 2 years - -
============================== ========= =========
Expiring in 2 - 5 years 43,000 39,000
============================== ========= =========
Expiring in 5 - 10 years - -
============================== ========= =========
43,000 39,000
============================== ========= =========
Liquidity risk
Liquidity risk is managed through committed bank facilities that
ensure sufficient funds are available to cover potential
liabilities arising against projected cash flows. The Group's
facilities are revolving, allowing the Group to apply cash
surpluses to temporarily reduce debt.
Exposure to credit and interest rate risks arise in the normal
course of the Group's business. Derivative financial instruments
are used to reduce exposure to interest rate fluctuations.
Financial instrument maturity
Contractual cash flows
2 months 2-12 months 1-2 2-5 More than
Total or less years years 5 years
At 31st March 2018
=========================== ========= ======== =============== ========= ========= ==========
Non-derivative
financial liabilities
=========================== ========= ======== =============== ========= ========= ==========
Bank overdraft - - - - - -
=========================== ========= ======== =============== ========= ========= ==========
Secured bank loans 147,000 - - - 82,000 65,000
=========================== ========= ======== =============== ========= ========= ==========
Finance lease liabilities 26,369 - 285 285 855 24,944
=========================== ========= ======== =============== ========= ========= ==========
Trade payables 5,209 5,209 - - - -
=========================== ========= ======== =============== ========= ========= ==========
178,578 5,209 285 285 82,855 89,944
=========================== ========= ======== =============== ========= ========= ==========
Derivative financial
liabilities
=====================
Interest rates - - - - - -
used for hedging
=====================
- - - - - -
=====================
At 31st March 2017
=========================== ======== ======= ======= ====== ======= =======
Non-derivative
financial liabilities
=========================== ======== ======= ======= ====== ======= =======
Bank overdraft - - - - - -
=========================== ======== ======= ======= ====== ======= =======
Secured bank loans 136,000 - 35,000 - 46,000 55,000
=========================== ======== ======= ======= ====== ======= =======
Finance lease liabilities 26,654 - 285 285 855 25,229
=========================== ======== ======= ======= ====== ======= =======
Trade payables 5,969 5,969 - - - -
=========================== ======== ======= ======= ====== ======= =======
168,623 5,969 35,285 285 46,855 80,229
=========================== ======== ======= ======= ====== ======= =======
Derivative financial
liability
=========================== ======== ======= ======= ====== ======= =======
Interest rate used
for hedging 19,523 - 1,561 1,514 4,214 12,234
=========================== ======== ------- ======= ====== ======= =======
19,523 - 1,561 1,514 4,214 12,234
=========================== ======== ------- ======= ====== ======= =======
Credit risk
Credit evaluations are performed on all tenants looking to enter
into lease or pre-lease agreements with the Group. Credit risk is
managed by tenants paying rent in advance. Outstanding tenants'
receivables are regularly monitored.
At the statement of financial position date there were no
significant concentrations of credit risk, except for the low risk
lease commitments which were either government departments or held
a top credit rating. The maximum exposure to credit risk is
represented by the carrying amount of each financial asset
including derivative financial instruments on the Group Statement
of Financial Position.
The Group has no exposure to currency risks.
Market risk
The Group is exposed to market risk through changes in interest
rates or availability of credit.
Interest rate risk
The Group adopts a policy of ensuring that its exposure to
interest rate fluctuations is mitigated by the use of financial
instruments. The remaining swap was cancelled on 28(th) March 2018
for GBP13,352,210.
A 25 basis points change in interest rate levels would increase
or decrease the Group's annual profit and equity by GBP367,500
(2017: GBP340,000). This sensitivity has been calculated by
applying the interest rate change to the variable rate borrowings,
net of interest rate swaps, at the year end. The comparative figure
for 2017 was also based on a 25 basis points change in interest
rates. The 25 basis points change being used shows how the profit
or loss and equity would have been affected by changes in the
relevant risk variable that were reasonably possible at the year
end.
Interest rate derivatives
The remaining swap was cancelled on 28(th) March 2018 in full at
a cost to the Group of GBP13,352,210.
As at 31(st) Amount (12) Next
March 2017 GBP'000 Rate Maturity Credit
break
--------------- --------- ------- ----------- ---------- ---------
Interest rate
swaps 33,000 5.17% Sept 2032 Sept 2022
Amount Rate Fair value (3) BCVA Fair
GBP'000 before GBP'000 value
BCVA GBP'000
GBP'000
--------------- --------- ------- ----------- ---------- ---------
Interest rate
swaps 33,000 5.17% (18,310) 1,393 (16,917)
(1) Credit breaks are triggered by the bank and require the
prevailing mark to market value to be paid or received.
(2) Call options are triggered by the bank and require no
payment by either party.
(3) 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:
Group and Company
2018 2017
GBP'000 GBP'000
============= ========== =========
Current - (2,159)
============= ========== =========
Non-current - (14,758)
============= ========== =========
- (16,917)
======================== =========
2018 2017
GBP'000 GBP'000
==================================== ========= =========
Weighted average cost of borrowing 4.06% 4.42%
==================================== ========= =========
The Group does not hedge account its interest rate derivatives
and states them at fair value in the statement of financial
position based on quotations from the Group's banks, any movement
passing through the Statement of Profit and Loss and other
Comprehensive Income. Interest rate swaps 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 2018 and 2017 there was no difference between the book
value and the fair value of all the other financial assets and
liabilities of the Group and Company.
16 Obligations under finance leases
Group finance lease liabilities are payable as follows:
Minimum lease
payments
==================================== ====================
2018 2017
GBP'000 GBP'000
==================================== ========= =========
Within one year 285 285
==================================== ========= =========
In second to fifth years inclusive 1,142 1,142
==================================== ========= =========
Later than five years 24,943 25,227
==================================== ========= =========
26,370 26,654
==================================== ========= =========
Less future finance charges (21,966) (22,249)
==================================== ========= =========
Present value of lease obligations 4,404 4,405
==================================== ========= =========
The above finance lease liabilities relate to investment
properties with a carrying value of GBP84,900,000 (2017:
GBP55,630,000). The terms of these lease agreements are for periods
of between 99 and 125 years. There are no restrictions imposed by
the lease agreements. No contingent rents are payable.
Finance lease liabilities are effectively secured as the rights
to the leased assets revert to the lessor in event of default.
17 Operating leases
The Group leases out all of its investment properties under
operating leases.
The future aggregate minimum rentals receivable under
non-cancellable operating leases are as follows:
2018 2017
GBP'000 GBP'000
======================================== ========= =========
Not later than one year 21,142 20,991
======================================== ========= =========
Later than one year but not later than
five years 58,060 59,964
======================================== ========= =========
Later than five years 28,424 20,877
======================================== ========= =========
107,626 101,832
======================================== ========= =========
18 Share based payments
During the year to 31st March 2018, the Group had one share
based payment arrangement, which is described below. In the case of
the PSP awards, the expected volatility was determined by
calculating historical volatility of the Group's share price.
Performance Share Plan
The performance targets for PSP awards are a combination of TSR
and absolute NAV performance over a three year period. If the
performance criteria have not been met at the end of the vesting
period then the awards will lapse.
The nil cost awards outstanding at 31st March 2018 have been
fair valued using a Monte Carlo valuation pricing model using the
following main assumptions:
18th 16th June 18th
July 2016 June
2017 2015
====================== ======== ========== ========
Share price GBP2.26 GBP2.07 GBP2.55
====================== ======== ========== ========
Term 3 years 3 years 3 years
====================== ======== ========== ========
Risk free rate 0.26.% 0.27% 0.80%
====================== ======== ========== ========
Dividend yield 0% 4.27% 3.35%
====================== ======== ========== ========
Volatility - Company 29.0% 21.27% 18.6%
====================== ======== ========== ========
TSR fair value GBP1.42 GBP0.77 GBP1.43
====================== ======== ========== ========
NAV fair value GBP2.26 GBP1.81 GBP2.35
====================== ======== ========== ========
19 Called up share capital
Ordinary 20 pence shares 2018 Number 2017 Issued Number
in issue Issued of shares GBP of shares
GBP
GBP
========================== =========== =========== ============ ===========
At 1st April 18,761,690 93,808,450 18,631,645 93,158,225
========================== =========== =========== ============ ===========
Issue of shares in year 29,332 146,659 130,045 650,225
========================== =========== =========== ============ ===========
At 31st March 18,791,022 93,955,109 18,761,690 93,808,450
========================== =========== =========== ============ ===========
20 Capital management
The Group's objectives when managing capital are to safeguard
its ability to continue as a going concern, to provide returns to
shareholders and to maintain an appropriate capital structure to
minimise the cost of capital. The current capital structure of the
Group comprises a mix of equity and debt. Equity comprises issued
share capital, reserves and retained earnings, as disclosed in the
Group Balance Sheet.
The Group uses a number of key metrics to manage its capital
structure:
-- gearing
-- bank covenant gearing
-- LTV
The Board monitors the ability of the Group to pay dividends out
of available cash and distributable profits.
21 Related party transactions
Balance
owed to/(owing
from)
============================================= ====================
2018 2017
GBP'000 GBP'000
============================================= ========= =========
Subsidiary undertakings
============================================= ========= =========
Acreway Limited (liquidated 10(th) February
2017) - 26,286
============================================= ========= =========
Baldwin House Limited (33,436) (15,308)
============================================= ========= =========
(33,436) 10,978
============================================= ========= =========
There were no transactions with Directors, who are considered
key management personnel, other than remuneration.
22 Net asset value per share
31st March 31st
2018 Net asset March Net asset
value 2017 value
Net assets Shares per share Shares per share
GBP'000 '000 p Net assets '000 p
GBP'000
================== ============ ========= ============ ============ ========= ============
Basic 306,440 93,955 326 270,792 93,808 289
================== ============ ========= ============ ============ ========= ============
Number of shares
under option 1,200 1,593 (4) 1,036 1,431 (4)
================== ============ ========= ============ ============ ========= ============
Diluted/EPRA
NNNAV 307,640 95,548 322 271,828 95,239 285
================== ============ ========= ============ ============ ========= ============
Adjustment to
fair value of
derivatives - - - 16,918 - 18
================== ============ ========= ============ ============ ========= ============
EPRA NAV 307,640 95,548 322 288,746 95,239 303
================== ============ ========= ============ ============ ========= ============
23 Commitments and contingent liabilities
2018 Group Company 2017 Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Capital expenditure committed
but not provided for 10,703 190 24,255 1,140
=============================== =========== ========= =========== =========
These commitments relate to the Group's two current
developments.
24 Pensions
The Group and Company operates a defined benefit pension scheme
in the UK providing benefits based on final pensionable salary. The
assets of the scheme are held separately from those of the Group,
being invested with insurance companies and managed funds. The
contributions are determined by a qualified actuary on the basis of
a triennial valuation using the attained age method. The most
recent actuarial valuation was as at 31st March 2017. The
assumptions which have the most significant effect on the results
of the valuation are those relating to the rate of return on
investments and the rate of increase in salaries. It was assumed
that the investment returns would be 5.0% per annum.
The Group contributes GBP240,000 per annum into the Scheme.
At the 31st March 2017 actuarial valuation the scheme was 88%
funded on the continuing valuation basis. A recovery plan and
schedule of contributions has been agreed designed to address this
shortfall.
The IAS 19 valuation for the pension scheme disclosures is based
on the most recent actuarial valuation at 31st March 2017 and
updated by First Actuarial in order to assess the liabilities of
the scheme at 31st March 2018. Scheme assets are stated at their
market value at 31st March 2018.
The Scheme has been closed to new entrants since 1989.
The assets of the scheme have been taken at market value and the
liabilities have been calculated using the following principal
actuarial assumptions:
2018 2017
============================== ===== =====
Inflation 3.1% 3.1%
============================== ===== =====
Salary increases n/a n/a
============================== ===== =====
Rate of discount 2.4% 2.3%
============================== ===== =====
Pension in payment increases 3.0% 3.0%
============================== ===== =====
The mortality assumptions adopted at 31st March 2018 imply the
following life expectancies for members currently aged 60:
Male = 26.3 years
The fair value of scheme assets are as 2018 2017
follows: GBP'000 GBP'000
======================================== ========= =========
Equities 723 743
======================================== ========= =========
Gilts 59 70
======================================== ========= =========
Corporate and overseas bonds 40 46
======================================== ========= =========
Absolute return portfolios 4,575 4,533
======================================== ========= =========
Cash 77 46
======================================== ========= =========
Other 57 162
======================================== ========= =========
5,531 5,600
======================================== ========= =========
The asset split is approximated using the current fund splits
for each manager.
Changes in the value of scheme assets over the year
Market value of assets at start of year 5,600 5,413
========================================= ====== ======
Expected return on scheme assets 127 176
========================================= ====== ======
Actuarial gain (23) 175
========================================= ====== ======
Employer contributions 240 240
========================================= ====== ======
Benefits paid (413) (404)
========================================= ====== ======
Market value of assets at end of year 5,531 5,600
========================================= ====== ======
The amount included in the Group and Company Statement of
Financial Position arising from the liabilities in respect of the
defined benefits scheme is as follows:
2018 2017 2016 2015 2014
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ========= ========= ========= ========= =========
Market value of scheme
assets 5,531 5,600 5,413 5,829 5,464
=========================== ========= ========= ========= ========= =========
Value of defined benefit
obligation (7,695) (7,884) (7,252) (7,769) (7,153)
=========================== ========= ========= ========= ========= =========
Deficit in scheme (2,164) (2,284) (1,839) (1,940) (1,689)
=========================== ========= ========= ========= ========= =========
Gains/(losses) on scheme liabilities
==================================================================================
Due to experience (109) 191 45 8 (9)
=========================== ========= ========= ========= ========= =========
Due to change of
basis 87 (994) (304) 725 450
=========================== ========= ========= ========= ========= =========
Experience gains/(losses)
on scheme assets (50) (57) (57) (67) (69)
=========================== ========= ========= ========= ========= =========
Analysis of changes in the value of the defined benefit
obligation over the period:
2018 2017
GBP'000 GBP'000
=================================================== ========= =========
Value of defined benefit obligation at
start of period 7,884 7,252
=================================================== ========= =========
Interest cost 177 233
=================================================== ========= =========
Benefits paid (413) (404)
=================================================== ========= =========
Actuarial gains: experience differing from
that assumed 109 (191)
=================================================== ========= =========
Actuarial gains: changes in demographic 25 -
assumptions
=================================================== ========= =========
Actuarial gains: changes in financial assumptions (87) 994
=================================================== ========= =========
Value of defined benefit obligation at
end of period 7,695 7,884
=================================================== ========= =========
Sensitivity analysis
Assumption Change Change in defined
in assumption Benefit obligation
------------------------- ---------------- --------------------
+/-0.5%
Discount rate p.a -5%/+6%
------------------------- ---------------- --------------------
+/-0.5%
RPI inflation p.a +4%/-4%
------------------------- ---------------- --------------------
Assumed life expectancy +1 year +5%
Analysis of the amount charged to operating profit:
Operating profit 2018 2017
GBP'000 GBP'000
========================================== ========= =========
Current service cost - -
========================================== ========= =========
Analysis of the amount (credited)/charged to finance
costs/(income)
================================================================
Expected return on pension scheme assets (127) (176)
========================================== ========= =========
Interest on pension scheme liabilities 177 233
========================================== ========= =========
Net return 50 57
========================================== ========= =========
Total charge to profit and loss 50 57
========================================== ========= =========
Analysis of the amount recognised directly in equity via other
comprehensive income:
2018 2017
GBP'000 GBP'000
========================= ========= =========================== ========= ===========================
Difference between
expected and
actual return
on assets 23 0% of scheme assets (175) 3% of scheme assets
========================= ========= =========================== ========= ===========================
Experience gains
and losses arising
on the scheme 1% of the present value 10% of the present value
liabilities 47 of the scheme liabilities 803 of the scheme liabilities
========================= ========= =========================== ========= ===========================
Effects of changes - 0% of the present value - 0% of the present value
in the demographic of the scheme liabilities of the scheme liabilities
and financial
assumptions underlying
the present value
of the scheme
liabilities
========================= ========= =========================== ========= ===========================
1% of the present value 8% of the present value
Total 70 of the scheme liabilities 628 of the scheme liabilities
========================= ========= =========================== ========= ===========================
Analysis of the movement in the balance sheet deficit:
2018 2017
GBP'000 GBP'000
======================================== ========= =========
Deficit in scheme at beginning of year (2,284) (1,839)
======================================== ========= =========
Movement in year:
==============================================================
Current service cost - -
======================================== ========= =========
Net interest/return on assets (50) (57)
======================================== ========= =========
Contributions 240 240
======================================== ========= =========
Actuarial gain/(loss) (70) (628)
======================================== ========= =========
Deficit in scheme at end of year (2,164) (2,284)
======================================== ========= =========
The last active member reached retirement age in May 2013.
The Report and Financial Statements will be posted to
Shareholders on 5(th) June 2018 with copies available from the
Group's registered office at 20 Greyfriars Road, Reading, RG1 1NL
from the same date, and from the Group's website
www.mckaysecurities.plc.uk
GLOSSARY
Adjusted EPS
Earnings per share based on profits and adjusted to exclude
certain items as set out in note 9.
Adjusted profit before tax
Profit before tax adjusted to exclude certain non-recurring
items as set out in note 5.
Book value
The amount at which assets and liabilities are reported in the
accounts.
BREEAM
Building Research Establishment Assessment Method. An
environmental standard that rates the sustainability of buildings
in the UK.
Carrying Value
The value of an asset based on prior valuation with the addition
of any subsequent capital expenditure
Contracted rent
Rent payable under the terms of a lease, less ground rent, with
no allowance for the value of incentives granted at lease
commencement.
CRC
Carbon Reduction Commitment. A mandatory emissions reduction
standard in the UK and covers all forms of energy excluding
transportation fuels.
Diluted figures
Reported amount adjusted to include the effects of potential
shares issuable under employee share schemes.
Dun and Bradstreet
Provider of business information and risk management
insight.
Earnings per share (EPS)
Profit after taxation attributable to ordinary shareholders
divided by the weighted average number of ordinary shares in issue
during the year.
EPC
Energy Performance Certificate. Certificates carry ratings which
measure the energy and carbon emission efficiency of the property
using a grade from an 'A' to a 'G'.
EPRA
Standard calculation methods for adjusted EPS, NAV and NNNAV as
set out by the European Public Real Estate Association (EPRA) in
their Best Practice and Policy Recommendations.
Equivalent yield
The internal rate of return from an investment property, based
on the value of the property assuming the current rent passing
reverts to ERV and assuming the property becomes fully reoccupied
over time. It assumes that rent is received quarterly in
advance.
Estimated Rental Value (ERV)
The valuers estimated amount for which floor space should let on
the date of valuation on appropriate lease terms net of ground
rents payable. Also known as MRV.
Extensible Business Reporting Language (XBRL)
A computer language for electronic transmission of business and
financial information.
GRESB
Global Real Estate Sustainability Benchmark.
Industrial property
Term used to include light industrial, industrial and
distribution warehouse property falling with classes B1c, B2 and B8
of the Town & Country Planning Use Classes Order. The terms
does not include retail warehousing, falling within class A1 of the
Order.
Initial yield
Net rents payable at the valuation date expressed as a
percentage of the value of property assets after allowing for
notional purchasers' costs.
Interest cover
The number of times Group net interest payable is covered by
underlying profit before interest and taxation.
Interest rate swap
A financial instrument where two parties agree to exchange an
interest rate obligation for a pre-determined amount of time.
IPD/MSCI
Investment Property Databank. Leading provider of independent
statistical analysis to the commercial property sector.
Loan to value (LTV)
Drawn debt divided by the value of property assets.
Net asset value (NAV) per share
Total equity divided by the number of ordinary shares in issue
at the period end.
Net debt
Total borrowings less cash credit balances.
Property Income Distribution (PID)
PID dividend payments are taxable as letting income in the hands
of shareholders who pay tax. They are paid after deduction of
withholding tax at the basic rate.
REIT (Real Estate Investment Trust)
A tax efficient structure for the management of property. It
must be publicly quoted with 75% of its profits and assets derived
from a qualifying property rental business which is exempt from tax
on income and gains.
Rental value growth
Increase in rental value, as determined at the valuation date,
over the period on a like-for-like basis.
Reversion
Potential uplift in rental value to market rent, as determined
at the valuation date, likely to arise from a rent review, lease
renewal or letting.
RPIX
Retail Prices Index excluding mortgage interest.
Shareholders' funds
Total equity of the Group.
SIC 15
The IFRS treatment in respect of letting incentives. It requires
the Group to offset the value of incentives granted to lessees
against the total rent due over the length of the lease, or to a
break clause if earlier.
Stamp duty land tax
Government tax levied on certain legal transactions including
the purchase of property.
Total shareholder return (TSR)
The growth in the value of an Ordinary share plus dividends
reinvested during the year expressed as a percentage of the share
price at the beginning of the year.
True equivalent yield
The constant capitalisation rate, which, if applied to all cash
flows from an investment property, including current net reversions
and such items as voids and expenditure, equates to the market
value having taken into account notional purchasers costs and
assuming rents paid quarterly in advance.
Weighted average unexpired lease term (WAULT)
The average lease term remaining to expiry across the portfolio
weighted by rental income. This is also disclosed assuming all
break clauses are exercised at the earliest date
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR DGGDUBSDBGIG
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