TIDMMCKS
RNS Number : 4911F
McKay Securities PLC
17 November 2020
COMPLETION OF MAJOR TRANSACTIONS ENHANCES BALANCE SHEET STRENGTH
AND LEAVES MCKAY WELL POSITIONED FOR FUTURE GROWTH
McKay Securities Plc, the only Real Estate Investment Trust
(REIT) specialising exclusively in the South East and London
office, industrial and logistics markets today announces its half
year results for the six months ended 30 September 2020.
Financial highlights
-- Adjusted profit before tax up 3.7% to GBP5.27 million (30 September 2019: GBP5.08 million)
-- Adjusted earnings per share increased by 3.9% to 5.59 pence (30 September 2019: 5.38 pence)
-- IFRS loss before tax of GBP15.02 million (30 September 2019:
profit GBP11.17 million), due to the valuation deficit compared
with a surplus in the comparable period
-- IFRS loss per share of 15.93 pence (30 September 2019: profit 10.83 pence)
-- Gross rental income up 1.1% to GBP12.75 million (30 September
2019: GBP12.61 million), benefiting from active, inhouse portfolio
management
-- Strong rent collection throughout the period with 96.0% of
rents for the year to date (three quarters) received or agreed
-- Portfolio valuation of GBP438.95 million (31 March 2020:
GBP510.00 million), resulting in a 3.4% valuation deficit of
GBP15.64 million (post sale of 30 Lombard Street, EC3)
-- Like for like portfolio ERV down 2.1% to GBP31.42 million pa
-- NTA (EPRA) down 4.9% to 313 pence per share (31 March 2020: 329 pence)
-- NAV (IFRS) down 4.9% to 312 pence per share (31 March 2020: 328 pence)
-- Interim dividend of 2.8 pence per share, in line with the same period last year
Operational and strategic highlights
Largest asset sold
-- Sale of 30 Lombard Street, EC3 completed during the period
(13.2% of portfolio value as at 31 March 2020)
-- 4.16% yield / GBP70.1 million cash proceeds (net of sale costs)
-- LTV reduced to 30.3% (31 March 2020: 37.6%)
Largest development let
-- 135 Theale Logistics Park (134,430 sq ft) completed: April 2020
-- Fully let to Amazon: September 2020
Enhanced resilience and scope for growth
-- Balance sheet transformed
-- GBP10.0 million recycled into Willoughby Logistics Park,
Bracknell, September 2020 at a 5.6% yield
-- GBP108.0 million of undrawn facilities for new acquisitions and other opportunities
-- GBP4.2 million pa (15.2%) portfolio reversion remaining
Simon Perkins, Chief Executive of McKay, said:
"We have achieved two significant milestones for the business
during the period. Completion of the sale of our largest asset, 30
Lombard Street, EC3 for a headline price of GBP76.50 million has
transformed our balance sheet and provided us with enhanced
resilience and headroom for new acquisitions and other
opportunities. Additionally, the letting of 135 Theale Logistics
Park, our largest development, to Amazon on excellent terms, and
our acquisition of Willoughby Logistics Park, Bracknell will both
contribute to our net rental income and increase our portfolio
weighting in the industrial and logistics sector to 25.1%.
"T he relationships that we have built up with our occupiers
through our direct in-house portfolio management approach have
continued to be of great benefit. All our multi-let properties have
remained open for business, and 96.0% of rent due for the year to
date has so far either been received or agreed. Many businesses
were planning a return to the office in September, prior to the
government reverting to a home working policy. Once this policy is
lifted, we see a return to the office gathering momentum. There
will be changes in working practices, and our portfolio is ideally
placed to benefit from a shift towards both decentralisation from
central London and local working.
"In the meantime, the outlook remains dominated by the speed at
which the Covid-19 pandemic passes and the impact it has on the
economy. With the achievements of the last six months, and our
consistent focus on the UK's strongest regions and sectors, we are
in a strong position to navigate this period of uncertainty, and in
due course capitalise on future opportunities."
-S -
Date: 17 November 2020
NOTE
The Group uses a number of Alternative Performance measures (APMs)
which are not defined or specified within IFRS. The Directors use
these measures in order to assess the underlying operational performance
of the Group and allow greater comparability between periods but
do not consider them to be a substitute for, or superior to, IFRS
measures:
For reconciliation of adjusted profit before tax see note 4 below
For reconciliation of adjusted basic earnings per share see note
7 below
For reconciliation of NTA (EPRA) see note 12 below
For reconciliation of LTV see note 3 below
For further information please contact:
McKay Securities Plc FTI Consulting
Simon Perkins, CEO Dido Laurimore, Talia Jessener
Giles Salmon, CFO 020 3727 1000
01189 502333 McKay@fticonsulting.com
About McKay
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 office, industrial and logistics
buildings within proven markets of South East England and London.
The portfolio at 30 September 2020 comprised 33 properties, valued
at GBP438.95m, located in established areas, predominantly along
the M4 corridor, where McKay has deep expertise, with a focus on
growing satellite towns benefitting from strong connectively to
London and robust demand amongst leading occupiers.
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 interim dividend
of the Ordinary Shares is as follows:
Ex dividend date 26 November 2020
Record Date for the interim dividend 27 November 2020
Interim dividend paid 4 January 2021
An interim dividend per share of 2.8 pence, (2019: 2.8 pence per
share), which will be paid as an ordinary dividend.
Chairman's Statement
This has been an extraordinary six months, during which the
world has been buffeted by the impact of Covid-19. We started the
period in lockdown, with the vast majority of the population barred
from their office or place of work, and the country at a
standstill. We reopened our office, and facilitated the safe
occupation of our properties, in early June at the end of
lockdown.
The gradual lifting of onerous restrictions thereafter and the
welcome reduction in hospital admissions through the summer were
encouraging and provided hope for a quick recovery and a return to
a more stable environment. Unfortunately the significant increase
in virus infections in recent weeks has undermined the hopes of
recovery and we are now dealing with a second lockdown and an
extended period of economic uncertainty.
Overview
Despite these challenging conditions, we were able to achieve
the significant milestones for the business of completion of the
sale of 30 Lombard Street, EC3 and the letting of 135 Theale
Logistics Park, both on excellent terms. We also acquired a
logistics asset in Bracknell, achieved strong rent collection with
96.0% of rent due for the year to date either paid or agreed and
increased the portfolio occupancy from 88.7% to 91.2% with new
lettings and high levels of occupier retention.
The GBP76.50 million headline price achieved for the sale of 30
Lombard Street, EC3 in early September reflected a 4.2% yield,
realising the substantial gains from this successful speculative
scheme where we were able to secure a 15 year lease to a strong
covenant prior to completion of the building. The sale proceeds
have strengthened the balance sheet, and reduced the ratio of net
debt to portfolio value ('LTV') at the end of the period to 30.3%
(31 March 2020: 37.6%). This strengthened position provides both
capital flexibility and increased firepower to capitalise on
attractive new acquisitions and other opportunities as they present
themselves.
We were also able to generate substantial shareholder value with
the letting of 135 Theale Logistics Park (134,430 sq ft) on a 10
year lease term to Amazon in late September. The contracted rent of
GBP1.51 million pa, was 2.3% ahead of our valuer's estimate of
rental value ('ERV') and will benefit from an index-linked rent
review at the end of the fifth year. This, combined with the
acquisition of Willoughby Logistics Park, Bracknell in August for
GBP10.00 million at a 5.6% yield, has taken our portfolio weighting
in the growing industrial and logistics sector to 25.1% (see Table
1 below).
With the benefit of our in-house portfolio management, gross
rent received for the period was up 1.1% to GBP12.75 million (30
September 2019: GBP12.61 million), contributing to a 3.7% increase
in adjusted profit before tax to GBP5.27 million (30 September
2019: GBP5.08 million). The reported IFRS loss before tax of
GBP15.02 million (30 September 2019: GBP11.17 million profit) was
due to the unrealised valuation deficit for the period, compared
with a surplus in the comparable period.
The independent valuation of the portfolio at the end of the
period, post the disposal of 30 Lombard Street, EC3, totalled
GBP438.95 million (31 March 2020: GBP510.00 million). This
reflected more challenging market conditions with a 3.4% (GBP15.64
million) deficit after taking into account portfolio expenditure,
acquisitions and disposals (30 September 2019: GBP5.06 million
surplus). It was also the main contributor to a 4.7% decrease in
shareholder's funds to GBP294.74 million (31 March 2020: GBP309.17
million) and a 4.9% decrease in EPRA net tangible asset value per
share ('EPRA NTA') to 313 pence (31 March 2020: 329 pence).
Although this has been a challenging period for the economy, our
team has continued to perform and deliver without interruption and
with excellent results. We remain confident that our office markets
will recover and that we have the experience and market knowledge
to benefit from the future recovery in these markets and the
opportunities that a potential shift to decentralised locations may
create.
Market review
The market over the period was dominated by the restrictive
policy response to contain the pandemic. As a result, performance
across all sectors was flat or negative with the MSCI Monthly Index
(All Property) registering a 4.3% decline in capital values, a 1.7%
decline in rental values and a total return of -1.6%. Our portfolio
performance was similar with declines of 3.4% and 2.1%
respectively, and a total return of -1.6%.
The potential for rental and capital growth in our South East
and London office markets prior to Covid-19 was looking positive,
due to steady levels of take-up, historically low levels of supply
and a limited development pipeline. Occupiers were looking for
higher levels of service from their landlords, as well as
flexibility and contemporary workspaces to attract and retain
staff, and were prepared to pay a higher rent to meet these
requirements. However, since lockdown and the forced move to
working from home, there has been a steep decline in letting
activity across these markets while occupiers defer decisions,
extend leases and assess their post Covid-19 requirements.
Take-up within the South East office market, which accounts for
56.3% of our portfolio (by value), for Q1 to Q3 2020 totalled
817,350 sq ft, 38.0% lower than the equivalent period last year and
named demand of 2.17 million sq ft was 31.6% lower. However, there
was no change to the occupier preference we have reported on in the
past in respect of size and quality, with 98.0% of all transactions
being sub 60,000 sq ft and 79.8% of take-up being new or Grade A
floorspace.
The supply of available floorspace within this market remains
constrained at historically low levels with a 7.7% vacancy rate
overall, reducing to only 1.8% for new space. Developments and
major refurbishments due for delivery by the end of 2021 will
improve the choice available to occupiers, but supply looks set to
remain constrained, particularly as new starts are being deferred
due to market conditions.
There has been much speculation regarding whether the office has
a future in view of the perceived success of home working. In our
opinion, and based on recent surveys and discussions with existing
and prospective occupiers, there is pent up demand to return to the
office. Retaining a physical office presence is considered
essential for business collaboration and continuity as well as
meeting existing and future employee needs. We believe demand will
return, but the shift in occupier trends and requirements that we
were seeing and responding to pre-Covid are likely to accelerate.
The work place will need to provide a safe, sustainable environment
and be more welcoming, with a greater emphasis on health and
wellbeing. These characteristics are reflected in our office assets
as a result of recent refurbishment work and other management
initiatives.
When government policy permits a wider return to work, the
fundamental characteristics of the South East office market of
constrained supply, aging stock and improving communications will
once again underpin positive prospects for the sector and the
Company. These prospects could be further enhanced for the Company
if occupational strategies result in decentralisation from central
London to established centres of the South East.
Table 1
Portfolio capital value and ERV by sector
Assets GBPm GBPm
Sector (no) CV % ERV %
-------------- ------ ------ ----- ----- -----
Office -
SE 17 247.15 56.3 20.66 65.8
-------------- ------ ------ ----- ----- -----
Office -
London 3 57.65 13.1 3.66 11.6
-------------- ------ ------ ----- ----- -----
Office -
Total 20 304.80 69.4 24.32 77.4
-------------- ------ ------ ----- ----- -----
SE Industrial 9 110.35 25.1 6.09 19.4
-------------- ------ ------ ----- ----- -----
Other 4 23.80 5.4 1.01 3.2
-------------- ------ ------ ----- ----- -----
Total 33 438.95 100.0 31.42 100.0
-------------- ------ ------ ----- ----- -----
The South East industrial and logistics sector (25.1% of our
portfolio by value) continues to benefit from the rise in
e-commerce, which has accelerated as a result of Covid-19. Take-up
for Q1 to Q3 2020 totalled 6.86 million sq ft, 23.0% higher than
the equivalent period last year, and total supply of 4.70 million
sq ft represents a low vacancy rate of 4.0%. The positive trends in
this market contributed to the successful letting of 135 Theale
Logistics Park and look set to continue to support this growing
segment of our portfolio.
The South East industrial and logistics sector (25.1% of our
portfolio by value) continues to benefit from the rise in
e-commerce, which has accelerated as a result of Covid-19. Take-up
for Q1 to Q3 2020 totalled 6.86 million sq ft, 23.0% higher than
the equivalent period last year, and total supply of 4.70 million
sq ft represents a low vacancy rate of 4.0%. The positive trends in
this market contributed to the successful letting of 135 Theale
Logistics Park and look set to continue to support this growing
segment of our portfolio.
Asset management
Throughout lockdown and the months that followed, our asset
management objective was to protect and enhance the value of the
existing portfolio, with selective capital expenditure to maximise
letting prospects. Despite the challenges, our internal team and
external advisers were able to maintain full working capacity to
deliver this objective.
Direct landlord management of buildings has never been more
crucial than during the Covid-19 pandemic. This is an integral part
of our business model and has generated close relationships with
our occupiers, who appreciated the urgency and direct management of
Covid-19 compliance at their buildings. These relationships have
also enabled us to listen and help where appropriate, restructure
leases and ultimately achieve high levels of rent collection and
preserve maximum income for the business.
Both the quality of our assets and the regions in which we
operate enable us to attract strong corporate occupiers. At 30
September 2020, 52.5% of our contracted rent was from businesses
with a tangible net worth of at least GBP15.00 million or
government occupiers. Our mix of assets across the office,
industrial and logistics sectors avoids reliance on the performance
of any one industry segment, and gives us a diverse occupier base,
with portfolio ERV split: 32.3% financial and business services,
18.0% technology, 15.7% industrial and logistics, 11.3% real
estate, construction and engineering, 5.7% manufacturing and
pharmaceuticals and just 1.3% in retail.
During the period, we maintained a high 77.8% occupier retention
rate at lease break or expiry (FY to 31 March 2020: 80.0%). We also
secured GBP2.01 million pa of contracted rent from eight new open
market lettings marginally ahead of ERV, and renewed 13 leases at a
combined contracted rent of GBP1.29 million pa, 16.8% ahead of the
prior passing rent. As a result, contracted rent at the end of the
period totalled GBP27.27 million pa, up 7.0% (GBP1.74 million pa)
over the six months for portfolio properties held throughout the
period.
Table 2
Portfolio income
30 September 2020 31 March 2020
----------------------------- -----------------------------
GBPm GBPm
pa Yield(2) Occupancy(3) pa Yield(2) Occupancy(3)
----------------------------- ----- -------- ------------ ----- -------- ------------
Current rental income(1) 23.35 5.0% 21.90 4.0%
----------------------------- ----- -------- ------------ ----- -------- ------------
Contracted rental income(1) 27.27 5.8% 91.2% 28.33 5.2% 88.7%
----------------------------- ----- -------- ------------ ----- -------- ------------
Uplifts at rent review/lease
expiry 1.37 2.62
----------------------------- ----- -------- ------------ ----- -------- ------------
Void properties (excluding
developments(3) ) 2.78 2.48
----------------------------- ----- -------- ------------ ----- -------- ------------
Void (developments) - 1.48
----------------------------- ----- -------- ------------ ----- -------- ------------
Portfolio reversion 4.15 6.48
----------------------------- ----- -------- ------------ ----- -------- ------------
Total portfolio ERV 31.42 6.7% 34.91 6.4%
----------------------------- ----- -------- ------------ ----- -------- ------------
Equivalent yield 6.3% 5.7%
----------------------------- ----- -------- ------------ ----- -------- ------------
1 Net of ground rents.
2 Yield on portfolio valuation with notional purchaser's costs
(6.75%) added.
3 By ERV.
As can be seen from Table 2, part of the portfolio reversion has
been captured with the letting of 135 Theale Logistics Park. The
balance of GBP4.15 million still provides growth potential for an
increase of up to 15.2% in contracted rent.
Our asset management initiatives for the office segment of the
portfolio continued to focus on occupier demand, particularly from
small to medium-sized businesses across the South East. Many of
these occupiers have been striving to find the best of both worlds;
the flexibility and ease of occupation of serviced offices but at
the cost of traditional space in modern well located buildings.
This requirement profile has been enhanced by the impact of
Covid-19 on occupational strategies to include the desire to drive
to work, avoid crowded public transport and high density, high rise
buildings. We are well placed to meet this demand and in particular
with the McKay+ model which we have so far introduced into nine of
our 12 multi-let offices. McKay+ office space consists of
refurbished floors and suites from 500 sq ft to 8,000 sq ft, fitted
with a kitchen area, private meeting rooms and fibre connectivity,
which we have found to improve the speed and ease of lettings.
Added to this, being directly managed by us, it means there is no
middle man or hidden costs while the occupier still benefits from
excellent customer service, flexibility and its own identity.
At The Mille in Brentford (96,700 sq ft), this approach enabled
us to contract quickly with a business that was rapidly expanding
out of serviced office accommodation elsewhere in the building.
They were familiar with and liked our management of the building
and in a period of just two weeks committed to a ten year lease
(with a three year break) on the whole of the McKay+ sixth floor
(8,174 sq ft) at a rent of GBP0.18 million pa. The McKay+ model
also attracted Sedgwick International UK to take a ten year lease
(with a five year break) of the final vacant suite (4,112 sq ft) at
Prospero, Redhill (50,370 sq ft) at a rent of GBP0.13 million pa.
This resulted in full occupation of our third recent speculative
office development scheme, having already fully let 9 Greyfriars
Road, Reading (38,490 sq ft) and 30 Lombard Street, EC3 (58,590 sq
ft).
Refurbishment and betterment of recently vacated floorspace
across the portfolio has continued, including the McKay+ model
where appropriate. The largest scheme under way is at Corinthian
House, Croydon (44,590 sq ft), where we are refurbishing dated
office floorspace to deliver a variety of contemporary floors and
suites into a highly accessible, under-supplied London sub-market
at competitive rents. The first of five floors will be ready by
Christmas 2020 and terms have already been agreed on half this
floor.
Our industrial and logistics portfolio was significantly
enhanced with the completion and letting of Theale Logistics Park,
and the acquisition at Willoughby Road, Bracknell, both of which
are referred to in more detail below. We have continued to benefit
from the occupier demand in this sector, and at the McKay
Industrial Estate at Poyle, close to Heathrow, our largest occupier
renewed all four of their leases for a further six years at the ERV
of GBP0.44 million pa. At Sopwith Drive, Weybridge (63,140 sq ft),
we have a lease expiry next March, and are reviewing refurbishment
options to improve the ERV and letting prospects. The inner M25
location, and the building characteristics are likely to attract
good levels of occupier interest.
ESG
Consideration of environmental, social and governance issues
('ESG') continues to be a high priority not only for occupiers in
our buildings, but for investors in our business and indeed all
stakeholders. The McKay team has sustainability at the forefront of
our decision making process and we anticipate that for the fifth
year in a row the Global Real Estate Sustainability Benchmark
('GRESB') will award us a three star rating. Our score places the
Company above the GRESB average, as we reduce our carbon footprint
year on year and continue to deliver BREEAM excellent developments
and refurbishments.
Development progress
With our recent office developments now all fully let, the final
scheme of our programme was 135 Theale Logistics Park (134,430 sq
ft) adjacent to junction 12 of the M4 motorway, Reading, where we
redeveloped an existing asset and increased the floor area by 39.0%
and doubled the rental value. The scheme achieved practical
completion soon after lockdown in April. We therefore stepped up
our virtual marketing campaign allowing potential tenants to view
the highly specified unit and surrounding yard from internal and
external drone recordings. This generated a letting of the entire
scheme on a ten year term, with an option to renew for a further
ten years, at GBP1.51 million pa, marginally ahead of ERV. The
quality of the completed building and the letting terms achieved
resulted in a significant 23.7% (GBP5.83 million) valuation surplus
for the period, whilst delivering a 31.7% profit on cost for the
scheme.
This completion leaves the Company with no major development
exposure, and limited committed portfolio capital expenditure. This
is a reassuring position to be in at present and future development
projects will be kept under review until the outlook is
clearer.
Disposals and acquisitions
Two disposals were completed during the period and a third
remains subject to planning. The disposal of 30 Lombard Street, EC3
at a headline price of GBP76.50 million was the most significant,
securing net sale proceeds of GBP70.09 million (after the deduction
of fees and outstanding tenant letting incentives) and a 4.2%
surplus to the 31 March 2020 book value. The sale exchanged in
December 2019, conditional on completion of a highways agreement.
This was delayed due to Covid-19 restrictions and finally cleared
in September, triggering completion. The second disposal to
complete was a small residential unit in Parkside, Knightsbridge
for GBP0.71 million, taking net sale proceeds from disposals to
GBP70.80 million.
Contracts were exchanged for the sale of The Planets (98,255 sq
ft) in Woking to a residential developer in 2019, subject to
planning. The buyer has, at its own cost, submitted an appeal
against the council's planning refusal for a high rise residential
tower which, if successful, will trigger completion of the sale in
2021. While the application is being considered, this low rise,
town centre mixed use site is still 86.0% let to Woking Borough
Council.
With the benefit of the proceeds from 30 Lombard Street, EC3, we
have undrawn facilities of GBP108.00 million, providing substantial
headroom for investment. We made one purchase during the period
which was a fully let logistics asset in Bracknell's principal
established industrial area, for GBP10.00 million. The two units at
Willoughby Road are let until 2024 off significantly lower rents
than new stock in the area, giving us good scope for growth from a
purchase yield of 5.6%. The opportunity was sourced off market from
a UK institution in need of liquidity.
Although we are reviewing options to recycle sale proceeds from
30 Lombard Street, EC3 to enhance the portfolio and replace lost
income, we will continue to adopt a selective approach to better
assess the risks associated with the current market
uncertainty.
Valuation
The external independent valuation of the 33 assets (31 March
2020: 33 assets) within the portfolio by Knight Frank LLP at the
end of the period of GBP438.95 million resulted in a deficit of
-3.4%, ahead of the MSCI Monthly Index (All Property) which fell by
-4.3%. The material uncertainty clause applied to the 31 March 2020
valuation, in line with RICS recommendations to all valuers at that
time, was lifted. The reduction in the valuation was predominantly
due to changes to a range of assumptions to reflect the impact of
Covid-19 on market conditions, including a limited reduction in
rental values. Following the sale of 30 Lombard Street, EC3, the
overall portfolio ERV reduced to GBP31.42 million pa (31 March
2020: GBP34.91 million), resulting in a 2.1% reduction for those
assets held over the period, compared with a 1.7% reduction in the
Index.
On a sector basis, our South East office portfolio was hardest
hit by Covid-19 valuation assumptions. This sector underperformed
the Index primarily due to the valuation reflecting the challenging
market environment and increased letting risk, by extending current
and future void periods and by adjusting yields outwards. This was
particularly the case at Corinthian House, Croydon where the 28.3%
valuation deficit resulted from a floor becoming vacant during the
period, and a more cautious set of letting assumptions bearing in
mind the high proportion of office floors being refurbished. The
deficit for this segment of the portfolio was -6.8% relative to the
relevant segment of the MSCI Index of -3.3%, and ERV was down 2.3%
(Index: -0.7%).
Our industrial and logistics portfolio performed well,
benefiting from the letting of 135 Theale Logistics Park, and
delivered a surplus of 7.4%, outperforming the relevant sector of
the MSCI Index which was unchanged. ERV increased by 0.9% (Index:
0.7%).
The portfolio yield profile increased from 31 March 2020
reflecting these revised assumptions. The topped up initial yield
at 30 September 2020 was 5.8% (31 March 2020: 5.2%) with a
reversionary yield (fully let at ERV) of 6.7% (31 March 2020:
6.4%). The equivalent yield, which calculates the average yield
over time taking into account anticipated capital expenditure and
voids, was 6.3% (31 March 2020: 5.7%).
Finance
Rent collection for the year to date is progressing well, with
98.0% of the March quarter rent due either collected or agreed,
97.0% for the June quarter and 92.0% to date for the September
quarter. As a result, 96.0% of rent due has so far either been
received or agreed for the first nine months of the financial year,
as shown in Table 3.
Table 3
Rent collection
Mar 20 Jun 20 Sep 20 Total
quarter quarter quarter 3 quarters
current current current current
Cash collection % % % %
---------------------------- -------- -------- -------- -----------
Paid within seven days 62% 71% 69% 67%
---------------------------- -------- -------- -------- -----------
Paid after seven days 25% 24% 15% 22%
---------------------------- -------- -------- -------- -----------
Cash received 87% 95% 84% 89%
---------------------------- -------- -------- -------- -----------
Payment plan agreed monthly
- O/S 0% 0% 8% 3%
---------------------------- -------- -------- -------- -----------
Payment plan agreed - O/S 11% 2% 0% 4%
---------------------------- -------- -------- -------- -----------
Total received or agreed 98% 97% 92% 96%
---------------------------- -------- -------- -------- -----------
In discussions 1% 1% 8% 3%
---------------------------- -------- -------- -------- -----------
No discussions 0% 0% 0% 0%
---------------------------- -------- -------- -------- -----------
Impaired 1% 2% 0% 1%
---------------------------- -------- -------- -------- -----------
Total 100% 100% 100% 100%
---------------------------- -------- -------- -------- -----------
Total demanded1: GBPm 5.38 5.72 5.61 16.71
---------------------------- -------- -------- -------- -----------
1 Rent due under all lease agreements.
As reported in the accounts for the half year, gross rental
income increased by GBP0.14 million (1.1%) to GBP12.75 million (30
September 2019: GBP12.61 million). Although this movement was
marginal, letting activity and income from acquisitions offset the
loss of income from lease expiries and disposals.
Non-recoverable property costs of GBP1.62 million (30 September
2019: GBP1.52 million) were slightly higher, primarily as a result
of a rental income and service charge impairment of GBP0.23 million
as a result of non-payment due to Covid-19. This represents a low
impairment rate of 1.0%, reflecting our sector mix and strong
occupier base. After taking these costs into account, net rental
income increased by 1.2% to GBP11.29 million (30 September 2019:
GBP11.16 million).
Administration costs before IFRS 2 of GBP2.45 million were 8.6%
lower than the comparable period last year (30 September 2019:
GBP2.68 million) mainly due to the receipt of higher management
fees from multi-let portfolio properties. The IFRS 2 charge for the
period of GBP0.22 million reflects the accounting requirement to
revalue share-based payments at each balance sheet date (30
September 2019: GBP0.39 million credit).
During the period, development and refurbishment expenditure
totalled GBP1.83 million, acquisitions (including fees) totalled
GBP10.65 million and net sale proceeds (before tax) from the two
disposals of GBP70.80 million were received. Interest payable
remained constant at GBP3.41 million (30 September 2019: GBP3.34
million). Net debt at the end of the period was GBP132.91 million
(31 March 2020: GBP191.75 million), which resulted in an LTV at the
end of the period of 30.3% (31 March 2020: 37.6%).
After taking these movements into account, adjusted profit
before tax, our measure of recurring profit excluding valuation
movements, profit on disposal and other one-off items, increased by
3.7% to GBP5.27 million (30 September 2019: GBP5.08 million). The
IFRS loss before tax was GBP15.02 million (30 September 2019:
GBP11.17 million profit) mainly as a result of the negative
unrealised movement of GBP17.10 million in the revaluation of
investment properties (including IFRS 16 adjustment) over the
period compared with a positive movement of GBP3.90 million at 30
September 2019.
Adjusted earnings per share increased by 3.9% to 5.59 pence (30
September 2019: 5.38 pence). EPRA earnings per share reduced to
5.53 pence (30 September 2019: 5.85 pence), with the reduction due
to the impact by the IFRS 2 movement referred to above.
The earnings for the period included a full six months rental
income contribution of GBP1.35 million from 30 Lombard Street, EC3.
As the sale of this asset completed in early September 2020 this
contribution will not be replicated in the second half of the year,
and earnings will be lower until the sale proceeds are recycled
into other initiatives, including the acquisition of income
producing assets.
The two investment properties sold during the period realised
sale proceeds of GBP70.80 million (net of fees and outstanding
tenant letting incentives), representing a 4.1% profit of GBP2.80
million over book value (31 March 2020). After taking into account
the necessary IFRS 16 adjustment, this resulted in a loss on
disposals (before tax) of GBP3.13 million. A tax provision of
GBP1.33 million in respect of the sale of 30 Lombard Street, EC3
was made.
IFRS net asset value reduced by GBP14.43 million to GBP294.74
million (31 March 2020: GBP309.17 million), reflecting the
unrealised valuation deficit and the loss on disposals. As a
result, EPRA NTA per share reduced by 4.9% to 313 pence (31 March
2020: 329 pence) and the IFRS net asset value per share also
reduced by 4.9% to 312 pence (31 March 2020: 328 pence).
The Company's loan profile remains strong with a total of
GBP245.00 million across two facilities, of which GBP108.00 million
was undrawn at the end of the period. These two facilities consist
of a GBP65.00 million fully drawn term loan fixed until 2030 and a
GBP180.00 million revolving facility to 2024, which provides a
reasonable timeframe to work through Covid-19 prior to
refinancing.
Dividend
The Board recognises the importance of dividends to shareholders
and is pleased to declare an interim dividend of 2.8 pence per
share. This maintains the level of dividend paid for the same
period last year and will be paid as an ordinary dividend on 4
January 2021.
The dividend policy will remain under review until the economic
outlook becomes clearer. We will therefore make our recommendation
in respect of any increase in the final dividend at the year end,
based on financial results and economic conditions at that
time.
Outlook
The outlook remains dominated by the speed at which the Covid-19
pandemic passes and the scale and duration of impact it has on the
economy. While we remain in the grip of it, trading conditions and
the operating environment will remain challenging, restricting the
pace of income and capital growth from our existing portfolio and
the recycling of sale proceeds.
With the milestones achieved over the last six months, the
Company is in a much stronger position to navigate these
challenging conditions, and in due course capitalise on market
opportunities, with lower leverage and a high quality portfolio
located in resilient markets.
Richard Grainger
Chairman
Statement of Directors' Responsibilities
Six months to 30 September 2020
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU; and
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
S Perkins
Chief Executive Officer
G Salmon
Chief Financial Officer
Identification of business risks
The Group's principal risks and uncertainties are consistent
with those noted in the Annual Report for the year ended 31 March
2020 which include compliance with financial covenants on bank
borrowing, tenant default, liquidity, interest rate movements on
bank borrowing and the ongoing implications of Covid-19. The
Directors consider that the significant areas of judgement that
have a material effect on the Group's performance are valuation of
investment properties and financial instruments. These are
unchanged from those identified in the Annual Report for the year
ended 31 March 2020.
Going concern
The Interim Report has been prepared on a going concern basis,
which assumes the Group will be able to meet its liabilities as
they fall due, for the foreseeable future. The Directors have
prepared cash flow forecasts which show that the cash generated
from operating activities will provide sufficient cash headroom for
the foreseeable future.
The Group is in full compliance with its borrowing covenants at
30 September 2020 and is expected to be in compliance for the next
12 months.
Independent Review Report to McKay Securities Plc
We have been engaged by the Company to review the condensed set
of financial statements in the interim financial report for the six
months ended 30 September 2020 which comprises the profit and loss
and other comprehensive income statement, the statement of
financial position, the cash flow statement, the statement of
changes in equity, and related notes 1 to 13. We have read the
other information contained in the interim financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the interim financial report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this interim financial report has been prepared in accordance
with International Accounting Standard 34 "Interim Financial
Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial report for the six months ended 30
September 2020 is not prepared, in all material respects, in
accordance with International --- Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
Group Profit and Loss and Other Comprehensive Income
Six months to 30 September 2020
6 months 12 months
to to
6 months
to 30 September 31 March
30 September
2020 2019 2020
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
--------------------------------------------- ----- -------------- -------------- ----------
Gross rents and service charges receivable 14,570 14,572 29,296
--------------------------------------------- ----- -------------- -------------- ----------
Other property income 157 66 69
--------------------------------------------- ----- -------------- -------------- ----------
Direct property outgoings (3,441) (3,369) (7,384)
--------------------------------------------- ----- -------------- -------------- ----------
Net rental income from investment properties 6 11,286 11,269 21,981
--------------------------------------------- ----- -------------- -------------- ----------
Administration costs 5 (2,665) (2,396) (5,163)
--------------------------------------------- ----- -------------- -------------- ----------
Operating profit before gains on investment
properties 8,621 8,873 16,818
--------------------------------------------- ----- -------------- -------------- ----------
(Loss)/profit on disposal of investment
properties (3,128) 1,725 1,668
--------------------------------------------- ----- -------------- -------------- ----------
Revaluation of investment properties 10 (17,105) 3,904 (2,199)
--------------------------------------------- ----- -------------- -------------- ----------
Operating (loss)/profit (11,612) 14,502 16,287
--------------------------------------------- ----- -------------- -------------- ----------
Finance costs 8 (3,414) (3,337) (6,805)
--------------------------------------------- ----- -------------- -------------- ----------
Finance income 8 8 4 5
--------------------------------------------- ----- -------------- -------------- ----------
(Loss)/profit before taxation (15,018) 11,169 9,487
--------------------------------------------- ----- -------------- -------------- ----------
Taxation 9 - (963) (1,392)
--------------------------------------------- ----- -------------- -------------- ----------
(Loss)/profit for the period (15,018) 10,206 8,095
--------------------------------------------- ----- -------------- -------------- ----------
Other comprehensive income:
--------------------------------------------- ----- -------------- -------------- ----------
Items that will not be reclassified
subsequently to profit and loss
--------------------------------------------- ----- -------------- -------------- ----------
Actuarial movement on defined benefit
pension scheme (485) - (185)
--------------------------------------------- ----- -------------- -------------- ----------
Total comprehensive (expenses)/income
for the period (15,503) 10,206 7,910
--------------------------------------------- ----- -------------- -------------- ----------
(Loss)/earnings per share 7
--------------------------------------------- ----- -------------- -------------- ----------
Basic (15.93)p 10.83p 8.59p
--------------------------------------------- ----- -------------- -------------- ----------
Diluted (15.93)p 10.79p 8.57p
--------------------------------------------- ----- -------------- -------------- ----------
Adjusted earnings per share figures are shown in note 7.
Group Statement of Financial Position
As at 30 September 2020
As at As at As at
30 September 30 September 31 March
2020 2019 2020
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
------------------------------------------------------------ ----- -------------- ------------- ----------
Non-current assets
------------------------------------------------------------ ----- -------------- ------------- ----------
Investment properties - As reported by
valuers 10 438,950 492,140 510,000
------------------------------------------------------------ ----- -------------- ------------- ----------
- Adjustment for rents recognised in advance
under IFRS 16 (7,087) (9,482) (10,637)
------------------------------------------------------------ ----- -------------- ------------- ----------
- Assets held for sale (13,500) (79,090) (79,365)
------------------------------------------------------------ ----- -------------- ------------- ----------
- Adjustment for grossing up headleases 3,683 4,403 4,403
------------------------------------------------------------ ----- -------------- ------------- ----------
422,046 407,971 424,401
------------------------------------------------------------ ----- -------------- ------------- ----------
Plant and equipment 132 165 148
------------------------------------------------------------ ----- -------------- ------------- ----------
Trade and other receivables 6,854 9,482 6,982
------------------------------------------------------------ ----- -------------- ------------- ----------
Total non-current assets 429,032 417,618 431,531
------------------------------------------------------------ ----- -------------- ------------- ----------
Current assets
------------------------------------------------------------ ----- -------------- ------------- ----------
Trade and other receivables 4,636 3,676 3,200
------------------------------------------------------------ ----- -------------- ------------- ----------
Assets held for sale 13,500 79,090 83,020
------------------------------------------------------------ ----- -------------- ------------- ----------
Cash and cash equivalents 4,087 2,692 2,245
------------------------------------------------------------ ----- -------------- ------------- ----------
Total current assets 22,223 85,458 88,465
------------------------------------------------------------ ----- -------------- ------------- ----------
Total assets 451,255 503,076 519,996
------------------------------------------------------------ ----- -------------- ------------- ----------
Current liabilities
------------------------------------------------------------ ----- -------------- ------------- ----------
Trade and other payables (15,088) (12,734) (12,433)
------------------------------------------------------------ ----- -------------- ------------- ----------
Current tax liability 9 (1,392) - -
------------------------------------------------------------ ----- -------------- ------------- ----------
Finance lease liabilities (229) (286) (180)
------------------------------------------------------------ ----- -------------- ------------- ----------
Liabilities directly associated with assets
classified as held for sale - - (1,520)
------------------------------------------------------------ ----- -------------- ------------- ----------
Total current liabilities (16,709) (13,020) (14,133)
------------------------------------------------------------ ----- -------------- ------------- ----------
Non-current liabilities
------------------------------------------------------------ ----- -------------- ------------- ----------
Loans and other borrowings (133,888) (169,058) (190,505)
------------------------------------------------------------ ----- -------------- ------------- ----------
Pension fund deficit (2,462) (1,988) (2,097)
------------------------------------------------------------ ----- -------------- ------------- ----------
Deferred tax liability 9 - (963) (1,392)
------------------------------------------------------------ ----- -------------- ------------- ----------
Finance lease liabilities (3,454) (4,118) (2,703)
------------------------------------------------------------ ----- -------------- ------------- ----------
Total non-current liabilities (139,804) (176,127) (196,697)
------------------------------------------------------------ ----- -------------- ------------- ----------
Total liabilities (156,513) (189,147) (210,830)
------------------------------------------------------------ ----- -------------- ------------- ----------
Net assets 294,742 313,929 309,166
------------------------------------------------------------ ----- -------------- ------------- ----------
Equity
------------------------------------------------------------ ----- -------------- ------------- ----------
Called up share capital 18,868 18,853 18,853
------------------------------------------------------------ ----- -------------- ------------- ----------
Share premium account 75,541 79,966 75,541
------------------------------------------------------------ ----- -------------- ------------- ----------
Retained earnings 79,187 75,766 81,531
------------------------------------------------------------ ----- -------------- ------------- ----------
Revaluation reserve 121,146 139,344 133,241
------------------------------------------------------------ ----- -------------- ------------- ----------
Total equity 294,742 313,929 309,166
------------------------------------------------------------ ----- -------------- ------------- ----------
IFRS net asset value per share 12 312p 333p 328p
------------------------------------------------------------ ----- -------------- ------------- ----------
EPRA NTA/NRV value per share 12 313p 333p 329p
------------------------------------------------------------ ----- -------------- ------------- ----------
Group Cash Flow Statement
Six months to 30 September 2020
6 months 6 months 12 months
to to to
30 September 30 September 31 March
2020 2019 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------------------------------------- -------------- -------------- ----------
Operating activities
----------------------------------------------------- -------------- -------------- ----------
(Loss)/profit before taxation (15,018) 11,169 8,095
----------------------------------------------------- -------------- -------------- ----------
Adjustments for:
----------------------------------------------------- -------------- -------------- ----------
Depreciation 25 24 50
----------------------------------------------------- -------------- -------------- ----------
Other non-cash movements 617 (20) 491
----------------------------------------------------- -------------- -------------- ----------
Loss/(profit) on sale of investment properties 3,128 (1,725) (1,668)
----------------------------------------------------- -------------- -------------- ----------
Movement in revaluation of investment properties 17,105 (3,904) 2,199
----------------------------------------------------- -------------- -------------- ----------
Net finance costs 3,406 3,333 6,800
----------------------------------------------------- -------------- -------------- ----------
Cash flow from operations before changes in
working capital 9,263 8,877 15,967
----------------------------------------------------- -------------- -------------- ----------
(Increase)/decrease in debtors (2,646) 528 (203)
----------------------------------------------------- -------------- -------------- ----------
Increase/(decrease) in creditors 2,806 (3,647) (2,903)
----------------------------------------------------- -------------- -------------- ----------
Cash generated from operations 9,423 5,758 12,861
----------------------------------------------------- -------------- -------------- ----------
Interest paid (2,919) (2,954) (6,061)
----------------------------------------------------- -------------- -------------- ----------
Interest received 7 4 5
----------------------------------------------------- -------------- -------------- ----------
Cash flows from operating activities 6,511 2,808 6,805
----------------------------------------------------- -------------- -------------- ----------
Investing activities
----------------------------------------------------- -------------- -------------- ----------
Proceeds from sale of investment properties 70,801 8,072 8,056
----------------------------------------------------- -------------- -------------- ----------
Purchase and development of investment properties (14,077) (10,741) (33,395)
----------------------------------------------------- -------------- -------------- ----------
Purchase of other fixed assets (10) (117) (126)
----------------------------------------------------- -------------- -------------- ----------
Cash flows from investing activities 56,714 (2,786) (25,465)
----------------------------------------------------- -------------- -------------- ----------
Financing activities
----------------------------------------------------- -------------- -------------- ----------
(Decrease)/increase in borrowings (57,000) 8,000 29,000
----------------------------------------------------- -------------- -------------- ----------
Bank facility fees paid (68) (2,498) (2,569)
----------------------------------------------------- -------------- -------------- ----------
Headlease liability paid (167) (230) (285)
----------------------------------------------------- -------------- -------------- ----------
Equity dividends paid (4,148) (6,965) (9,604)
----------------------------------------------------- -------------- -------------- ----------
Cash flows from financing activities (61,383) (1,693) 16,542
----------------------------------------------------- -------------- -------------- ----------
Net increase/(decrease) in cash and cash equivalents 1,842 (1,671) (2,118)
----------------------------------------------------- -------------- -------------- ----------
Cash and cash equivalents at the beginning
of the period 2,245 4,363 4,363
----------------------------------------------------- -------------- -------------- ----------
Cash and cash equivalents at end of period 4,087 2,692 2,245
----------------------------------------------------- -------------- -------------- ----------
Group Statement of Changes in Equity
Six months to 30 September 2020
Attributable to equity holders
of the Parent Company
------------------------------------------
Share Share Revaluation Retained Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------- -------- ----------- --------- --------
At 1 April 2019 18,825 75,541 132,625 84,092 311,083
----------------------------------- -------- -------- ----------- --------- --------
Profit for the period - - - 10,206 10,206
----------------------------------- -------- -------- ----------- --------- --------
Other comprehensive income:
----------------------------------- -------- -------- ----------- --------- --------
Transfer surplus on revaluation
of properties - - 3,904 (3,904) -
----------------------------------- -------- -------- ----------- --------- --------
Transfer on disposal of investment
properties - - 2,815 (2,815) -
----------------------------------- -------- -------- ----------- --------- --------
Total comprehensive income in
the period - - 6,719 3,487 10,206
----------------------------------- -------- -------- ----------- --------- --------
Issue of new shares net of costs 28 - - (28) -
----------------------------------- -------- -------- ----------- --------- --------
Dividends paid in period - - - (6,965) (6,965)
----------------------------------- -------- -------- ----------- --------- --------
Deferred bonus - - - (429) (429)
----------------------------------- -------- -------- ----------- --------- --------
Costs of share-based payments - - - 34 34
----------------------------------- -------- -------- ----------- --------- --------
At 30 September 2019 18,853 75,541 139,344 80,191 313,929
----------------------------------- -------- -------- ----------- --------- --------
Profit for the period - - - (2,111) (2,111)
----------------------------------- -------- -------- ----------- --------- --------
Other comprehensive income:
----------------------------------- -------- -------- ----------- --------- --------
Transfer on disposal of investment
property - - 1 (1) -
----------------------------------- -------- -------- ----------- --------- --------
Transfer surplus on revaluation
of properties - - (6,104) 6,104 -
----------------------------------- -------- -------- ----------- --------- --------
Reinvestment on defined benefit
pension scheme - - - (185) (185)
----------------------------------- -------- -------- ----------- --------- --------
Total comprehensive income in
the period (6,103) 3,807 (2,296)
----------------------------------- -------- -------- ----------- --------- --------
Issue of new shares net of costs - - - - -
----------------------------------- -------- -------- ----------- --------- --------
Dividends paid in period - - - (2,640) (2,640)
----------------------------------- -------- -------- ----------- --------- --------
Cost of share-based payments - - - 34 34
----------------------------------- -------- -------- ----------- --------- --------
Deferred bonus - - - 139 139
----------------------------------- -------- -------- ----------- --------- --------
At 31 March 2020 18,853 75,541 133,241 81,531 309,166
----------------------------------- -------- -------- ----------- --------- --------
(Loss)/profit for the period - - - (15,018) (15,018)
----------------------------------- -------- -------- ----------- --------- --------
Other comprehensive income:
----------------------------------- -------- -------- ----------- --------- --------
Transfer on disposal of investment
property - - 5,010 - 5,010
----------------------------------- -------- -------- ----------- --------- --------
Transfer surplus on revaluation
of properties - - (17,105) 17,105 -
----------------------------------- -------- -------- ----------- --------- --------
Remeasurement on defined benefit
pension scheme - - - (485) (485)
----------------------------------- -------- -------- ----------- --------- --------
Total comprehensive income in
the period - - (12,095) 1,602 (10,493)
----------------------------------- -------- -------- ----------- --------- --------
Issue of new shares net of costs 15 - - (15) -
----------------------------------- -------- -------- ----------- --------- --------
Dividends paid in period - - - (4,148) (4,148)
----------------------------------- -------- -------- ----------- --------- --------
Cost of share-based payments - - - 170 170
----------------------------------- -------- -------- ----------- --------- --------
Deferred bonus - - - 47 47
----------------------------------- -------- -------- ----------- --------- --------
At 30 September 2020 18,868 75,541 121,146 79,187 294,742
----------------------------------- -------- -------- ----------- --------- --------
Notes to the Financial Statements
Six months to 30 September 2020
1 General information
The information for the year ended 31 March 2020 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year
has been delivered to the Registrar of the Companies. The auditors
reported on those accounts: their report was unqualified, did not
draw attention to any matters by way of emphasis and did not
contain a statement under section 498(2) and (3) of the Companies
Act 2006.
2 Accounting policies
Basis of preparation
The annual financial statements of McKay Securities Plc ('the
Group') are prepared in accordance with International Financial
Reporting Standards ('IFRS'), as adopted by the European Union.
This condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the European Union.
As required by the Disclosure and Transparency Rules of the
Financial Conduct Authority, the financial statements have been
prepared applying the accounting policies and presentation that
were applied in the preparation of the Company's published Group
financial statements for the year ended 31 March 2020.
The Board approved the unaudited interim financial statements on
16 November 2020.
3 Alternative Performance Measures
The Group uses a number of Alternative Performance Measures
('APMs') which are not defined or specified within IFRS. The
Directors use these measures in order to assess the underlying
operational performance of the Group and allow greater
comparability between periods but do not consider them to be a
substitute for, or superior to, IFRS measures. For a full
description of APMs see page 98 in the 2020 Annual Report and
Financial Statements. For September 2020, adjusted profit before
tax is in note 4, EPRA earnings per share is in note 7 and EPRA net
tangible asset per share is in note 12.
Total property return
6 months 6 months
to to
30 September 30 September
2020 2019
(Unaudited) (Unaudited)
GBP'000 GBP'000
----------------------------------- ------------- -------------
Valuation (deficit)/surplus (15,645) 5,060
----------------------------------- ------------- -------------
(Loss)/profit realised on disposal (3,128) 1,725
----------------------------------- ------------- -------------
Income from investment properties 11,286 11,269
----------------------------------- ------------- -------------
(7,487) 18,054
----------------------------------- ------------- -------------
Book value 454,595 487,080
----------------------------------- ------------- -------------
Total property return -1.6% 3.7%
----------------------------------- ------------- -------------
Debt to portfolio value (LTV)
30 September 31 March
2020 2020
(Unaudited) (Audited)
GBP'000 GBP'000
------------------------------------------ ------------ ----------
Net debt - bank debt net of cash balances 132,913 191,755
------------------------------------------ ------------ ----------
Valuation as reported by external valuers 438,950 510,000
------------------------------------------ ------------ ----------
LTV 30.3% 37.6%
------------------------------------------ ------------ ----------
4 Adjusted profit before taxation
The Directors consider adjusted profit before taxation to be an
additional informative measure of the ongoing profits from core
rental activities before taxation, adjusted as set out below.
6 months 12 months
to to
6 months
to 30 September 31 March
30 September
2020 2019 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
--------------------------------------------------- -------------- ------------- ----------
(Loss)/profit before taxation (15,018) 11,169 9,487
--------------------------------------------------- -------------- ------------- ----------
Deficit/(surplus) movement in valuation of
investment properties 17,105 (3,904) 2,199
--------------------------------------------------- -------------- ------------- ----------
Other property income (157) (66) (69)
--------------------------------------------------- -------------- ------------- ----------
Loss/(profit) on disposal of investment properties 3,128 (1,725) (1,668)
--------------------------------------------------- -------------- ------------- ----------
IFRS 2 adjustment to share-based payments
and deferred bonus 216 (395) (222)
--------------------------------------------------- -------------- ------------- ----------
Adjusted profit before taxation 5,274 5,079 9,727
--------------------------------------------------- -------------- ------------- ----------
5 Administration costs
6 months 12 months
to to
6 months
to 30 September 31 March
30 September
2020 2019 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------------------------------- -------------- ------------- ----------
Administration costs before IFRS 2 (2,450) (2,791) (5,385)
-------------------------------------- -------------- ------------- ----------
IFRS 2 TSR (169) (213) 290
-------------------------------------- -------------- ------------- ----------
IFRS 2 NAV - 642 -
-------------------------------------- -------------- ------------- ----------
Deferred bonus (46) (34) (68)
-------------------------------------- -------------- ------------- ----------
Total IFRS 2 (215) 395 222
-------------------------------------- -------------- ------------- ----------
Administration costs including IFRS 2 (2,665) (2,396) (5,163)
-------------------------------------- -------------- ------------- ----------
The IFRS 2 charge is calculated by reassessing all current
grants each period to assess how many shares are likely to vest.
This will then lead to either a charge or a credit to the Group
Profit and Loss and Other Comprehensive Income.
6 Net rental income from investment properties
6 months 12 months
to to
6 months
to 30 September 31 March
30 September
2020 2019 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
---------------------------------------------------- -------------- ------------- ----------
Gross rents receivable 11,292 11,458 22,873
---------------------------------------------------- -------------- ------------- ----------
IFRS 16 adjustment (spreading of rental incentives) 1,456 1,148 2,291
---------------------------------------------------- -------------- ------------- ----------
Gross rental income 12,748 12,606 25,164
---------------------------------------------------- -------------- ------------- ----------
Service charges receivable 1,822 1,966 4,132
---------------------------------------------------- -------------- ------------- ----------
14,570 14,572 29,296
---------------------------------------------------- -------------- ------------- ----------
Other property income 157 66 69
---------------------------------------------------- -------------- ------------- ----------
Direct property outgoings (3,441) (3,369) (7,384)
---------------------------------------------------- -------------- ------------- ----------
Net rental income 11,286 11,269 21,981
---------------------------------------------------- -------------- ------------- ----------
Rent receivable under the terms of the leases is adjusted, in
accordance with IFRS 16, for the effect of any incentives
given.
Other property income relates to surrender premiums.
7 Earnings per share
6 months 12 months
to to
6 months
to 30 September 31 March
30 September
2020 2019 2020
(Unaudited) (Unaudited) (Audited)
pence pence pence
--------------------------------------------------- -------------- ------------- ----------
Basic (loss)/earnings per share (15.93) 10.83 8.59
--------------------------------------------------- -------------- ------------- ----------
Deficit/(surplus) movement in revaluation
of investment properties 18.14 (4.14) 2.33
--------------------------------------------------- -------------- ------------- ----------
Other property income (0.17) (0.07) (0.07)
--------------------------------------------------- -------------- ------------- ----------
Loss/(profit) on disposal of investment properties 3.32 (1.83) (1.77)
--------------------------------------------------- -------------- ------------- ----------
IFRS 2 share-based payments and deferred bonus 0.23 (0.42) 1.48
--------------------------------------------------- -------------- ------------- ----------
Deferred tax - 1.02 (0.24)
--------------------------------------------------- -------------- ------------- ----------
Adjusted earnings per share 5.59 5.39 10.32
--------------------------------------------------- -------------- ------------- ----------
Basic earnings per share on ordinary shares is calculated on the
loss in the half year of GBP15,017,944 (30 September 2019: profit
GBP10,206,000 and 31 March 2020: profit GBP8,095,000) and
94,284,620 (30 September 2019: 94,204,508 and 31 March 2020:
94,234,253) shares, being the weighted average number of ordinary
shares in issue during the period.
6 months 6 months 12 months
to to to
30 September 30 September 31 March
2020 2019 2020
(Unaudited) (Unaudited) (Audited)
Number of Number of Number of
shares shares shares
--------------------------------------------- ------------- ------------- ----------
Weighted average number of ordinary shares
in issue 94,284,620 94,204,508 94,234,253
--------------------------------------------- ------------- ------------- ----------
Number of shares under option - 667,348 463,819
--------------------------------------------- ------------- ------------- ----------
Number of shares that would have been issued
at fair value - (307,788) (244,272)
--------------------------------------------- ------------- ------------- ----------
Diluted weighted average number of ordinary
shares in issue 94,284,620 94,564,068 94,453,800
--------------------------------------------- ------------- ------------- ----------
The following potential ordinary shares are anti-dilutive and
are therefore excluded from the weighted average number of ordinary
shares for the purpose of diluted earnings per share.
6 months 6 months 12 months
to 30 September to 30 September to 31 March
2020 2019 2020
(Unaudited) (Unaudited) (Audited)
Number of Number Number
shares of shares of shares
------------------------------ ---------------- ---------------- ------------
Number of shares under option 282,488 - -
------------------------------ ---------------- ---------------- ------------
Diluted earnings per share
6 months 12 months
to to
6 months
to 30 September 31 March
30 September
2020 2019 2020
(Unaudited) (Unaudited) (Audited)
pence pence pence
--------------------------------------------------- -------------- ------------- ----------
Basic (loss)/earnings per share (15.93) 10.83 8.59
--------------------------------------------------- -------------- ------------- ----------
Effect of dilutive potential ordinary shares
under option (0.00) (0.04) (0.02)
--------------------------------------------------- -------------- ------------- ----------
(15.93) 10.79 8.57
--------------------------------------------------- -------------- ------------- ----------
Deficit/(surplus) movement in revaluation
of investment properties 18.14 (4.14) 2.33
--------------------------------------------------- -------------- ------------- ----------
Other property income (0.17) (0.07) (0.07)
--------------------------------------------------- -------------- ------------- ----------
Loss/(profit) on disposal of investment properties 3.32 (1.82) (1.77)
--------------------------------------------------- -------------- ------------- ----------
Share-based payments (IFRS 2) 0.23 (0.42) (0.24)
--------------------------------------------------- -------------- ------------- ----------
Deferred tax - 1.02 1.47
--------------------------------------------------- -------------- ------------- ----------
Adjusted diluted earnings per share 5.59 5.37 10.29
--------------------------------------------------- -------------- ------------- ----------
Share-based payments (IFRS 2) (0.23) 0.42 0.24
--------------------------------------------------- -------------- ------------- ----------
Surrender premiums 0.17 0.07 0.07
--------------------------------------------------- -------------- ------------- ----------
EPRA earnings per share 5.53 5.86 10.60
--------------------------------------------------- -------------- ------------- ----------
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 period of 94,284,620 (30 September 2019:
94,564,068 and 31 March 2020: 94,453,800) shares, which takes into
account the number of potential ordinary shares under option.
Adjusted earnings per share excludes the after tax effect of
loss or profit from the disposal of investment properties, IFRS 2,
deferred taxation, other property income, the change in the fair
value of derivatives and the movement in revaluation of investment
properties. The EPRA measure includes all of these adjustments,
except for surrender premiums included in other property income,
which are added back.
8 Net finance costs
6 months 12 months
to to
6 months
to 30 September 31 March
30 September
2020 2019 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
--------------------------------------------- -------------- ------------- ----------
Interest on bank overdraft and loans 2,607 2,688 5,602
--------------------------------------------- -------------- ------------- ----------
Commitment fee 189 266 462
--------------------------------------------- -------------- ------------- ----------
Finance lease interest on leasehold property
obligations 167 230 397
--------------------------------------------- -------------- ------------- ----------
Finance arrangement costs 451 380 895
--------------------------------------------- -------------- ------------- ----------
Capitalised interest - (227) (551)
3,414 3,337 6,805
Interest receivable (8) (4) (5)
--------------------------------------------- -------------- ------------- ----------
Net finance costs 3,406 3,333 6,800
--------------------------------------------- -------------- ------------- ----------
9 Taxation
There is no taxation charge in the Group Profit and Loss and
Other Comprehensive Income Statement. The current corporation tax
liability in the Group Statement of Financial Position of
GBP1,392,000 relates to the sale of 30 Lombard Street, London, EC3
which completed on 8 September 2020.
10 Investment properties
As at
As at 30
September 31 March
As at 2019 2020
30 September
2020 (Unaudited) (Audited)
(Unaudited)
GBP'000 GBP'000 GBP'000
---------------------------------------------------- -------------- ------------ -----------
Valuation
---------------------------------------------------- -------------- ------------ -----------
At 1 April 503,766 478,778 478,778
---------------------------------------------------- -------------- ------------ -----------
Additions - purchases and developments 12,595 10,579 33,389
---------------------------------------------------- -------------- ------------ -----------
Revaluation (deficit)/surplus (15,645) 5,060 111
---------------------------------------------------- -------------- ------------ -----------
Adjustment for rents recognised in advance
under IFRS 16 (1,460) (1,156) (2,311)
---------------------------------------------------- -------------- ------------ -----------
Disposals (69,520) (6,200) (6,200)
---------------------------------------------------- -------------- ------------ -----------
IFRS 16 write off on disposal 5,010 - -
---------------------------------------------------- -------------- ------------ -----------
Headlease adjustment 800 - -
---------------------------------------------------- -------------- ------------ -----------
Amortisation of grossed up headlease liabilities - - (1)
---------------------------------------------------- -------------- ------------ -----------
Book value including assets held for sale 435,546 487,061 503,766
---------------------------------------------------- -------------- ------------ -----------
Adjustment for grossing up of headlease liabilities (3,683) (4,403) (4,403)
---------------------------------------------------- -------------- ------------ -----------
Adjustment for rents recognised in advance
under IFRS 16 7,087 9,482 10,637
---------------------------------------------------- -------------- ------------ -----------
Valuation as reported by valuers 438,950 492,140 510,000
---------------------------------------------------- -------------- ------------ -----------
In accordance with the Group's accounting policy on properties
there was an external valuation at 30 September 2020. These
valuations, were carried out by Knight Frank LLP. All valuations
were carried out in accordance with the Appraisal and Valuation
Standards of RICS, on an open market basis.
Included in current assets as assets held for sale is The
Planets, Woking, with a value of GBP13.50 million.
The valuation deficit after adjustment for IFRS 16 is
GBP17,105,000.
11 Dividends
6 months 12 months
to to
6 months
to 30 September 31 March
30 September
2020 2019 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------------- -------------- ------------- ----------
Final dividend
------------------------- -------------- ------------- ----------
Year ended 31 March 2020 4,148 - -
------------------------- -------------- ------------- ----------
Year ended 31 March 2019 - 6,965 6,965
------------------------- -------------- ------------- ----------
Interim dividend
------------------------- -------------- ------------- ----------
Year ended 31 March 2020 - - 2,639
------------------------- -------------- ------------- ----------
4,148 6,965 9,604
------------------------- -------------- ------------- ----------
The final dividend of 4.4 pence per share (GBP4,148,000) for the
year ended 31 March 2020 was paid on 23 July 2020.
The Directors have declared an interim dividend of 2.8 pence per
share (2019: 2.8 pence per share).
Since becoming a REIT, the Group is required to distribute at
least 90% of qualifying income profits each year as a Property
Income Distribution ('PID'), and the interim dividend of 2.8 pence
per share will be paid as an ordinary dividend. Further REIT
information is available on the Company's website.
12 Net asset value per share
In October 2019, EPRA issued new best practice reporting
guidelines for Net Asset Value ('NAV') metrics. These
recommendations are effective for accounting periods starting on 1
January 2020 and have been adopted by the Group in reporting the 30
September 2020 position.
EPRA have introduced three new NAV metrics: Net Tangible Assets
('NTA'), Net Reinvestment Value ('NRV') and Net Disposal Value
('NDV'). EPRA NTA is considered to be the most appropriate measure
for McKay's operating activity and is now the primary measure of
net asset value, replacing EPRA NAV.
30 September 2020 (Unaudited)
---------------------------------
Net assets Shares Per share
GBP'000 '000 pence
------------------------------ ------------ ------- ----------
Basic 294,742 94,339 312
------------------------------ ------------ ------- ----------
Number of shares under option - 282 (1)
------------------------------ ------------ ------- ----------
Diluted/EPRA NDV 294,742 94,621 311
------------------------------ ------------ ------- ----------
Deferred taxation 1,392 - 2
------------------------------ ------------ ------- ----------
EPRA NTA 296,134 94,621 313
------------------------------ ------------ ------- ----------
30 September 2019 (Unaudited)
----------------------------------
Net assets Shares Per share
GBP'000 '000 pence
----------------------------------------- ------------- ------- ----------
Basic 313,929 94,264 333
----------------------------------------- ------------- ------- ----------
Number of shares under option - 360 (1)
----------------------------------------- ------------- ------- ----------
Diluted/EPRA NDV 313,929 94,624 332
----------------------------------------- ------------- ------- ----------
Adjustment for fair value of derivatives 963 - 1
----------------------------------------- ------------- ------- ----------
EPRA NTA 314,892 94,624 333
----------------------------------------- ------------- ------- ----------
31 March 2020 (Audited)
-----------------------------
Net assets Shares Per share
GBP'000 '000 pence
----------------------------------------- ---------- ------ ---------
Basic 309,166 94,264 328
----------------------------------------- ---------- ------ ---------
Number of shares under option - 143 (1)
----------------------------------------- ---------- ------ ---------
Diluted/EPRA NDV 309,166 94,407 327
----------------------------------------- ---------- ------ ---------
Adjustment for fair value of derivatives 1,392 - 2
----------------------------------------- ---------- ------ ---------
EPRA NTA 310,558 94,407 329
----------------------------------------- ---------- ------ ---------
The table below shows the calculation for each of the three new
EPRA metrics compared to those previously reported.
Current measures Previous measures
---------------------------- --------------------
EPRA EPRA EPRA EPRA EPRA
NTA NRV NDV NAV NNNAV
As at 30 September 2020 (Unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ -------- -------- -------- --------- ---------
Equity attributable to ordinary
shareholders 294,742 294,742 294,742 294,742 294,742
------------------------------------ -------- -------- -------- --------- ---------
Deferred taxation 1,392 1,392 - 1,392 -
------------------------------------ -------- -------- -------- --------- ---------
Net assets 296,134 296,134 294,742 296,134 294,742
------------------------------------ -------- -------- -------- --------- ---------
Diluted shares ('000) 94,621 94,621 94,621 94,621 94,621
------------------------------------ -------- -------- -------- --------- ---------
Diluted net assets per share
(pence) 313 313 311 313 311
------------------------------------ -------- -------- -------- --------- ---------
Current measures Previous measures
---------------------------- --------------------
EPRA EPRA EPRA EPRA EPRA
NTA NRV NDV NAV NNNAV
As at 31 March 2020 (Audited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- -------- --------- ---------
Equity attributable to ordinary
shareholders 309,166 309,166 309,166 309,166 309,166
-------------------------------- -------- -------- -------- --------- ---------
Deferred taxation 1,392 1,392 - 1,392 -
-------------------------------- -------- -------- -------- --------- ---------
Net assets 310,558 310,588 309,166 310,558 309,166
-------------------------------- -------- -------- -------- --------- ---------
Diluted shares ('000) 94,407 94,407 94,407 94,407 94,407
-------------------------------- -------- -------- -------- --------- ---------
Diluted net assets per share
(pence) 329 329 327 329 327
-------------------------------- -------- -------- -------- --------- ---------
13 Event after balance sheet date
There were no events after the balance sheet date that require
disclosure.
Disclaimer
The Interim Report of McKay Securities Plc for the six months to
30 September 2020 has been drawn up and presented for the purposes
of complying with English law. If any issue were to arise in
relation to any liability under or in connection with the Interim
Report for the six months to 30 September 2020, it would also be
determined in accordance with English law.
Interim Report
The Interim Report is being posted to all shareholders on 27
November 2020. Copies are available to members of the public from
the Company's registered office at 20 Greyfriars Road, Reading,
Berkshire RG1 1NL, and on the Company's website at
mckaysecurities.plc.uk.
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END
IR DQLFFBFLBFBQ
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