3
2015 | Report and Financial Statements |
McKay Securities PLC
DAVID THOMAS
CHAIRMAN
Our objective for the year was to allocate the proceeds of the
Capital Raising to allow the Group to benefit from the anticipated
positive trends in the office and industrial markets of the
South East and London. To achieve this, we identified the
potential to acquire properties at an opportune time in the market
cycle, to make an early start on four refurbishment schemes and
to accelerate a number of larger portfolio development projects.
We are pleased that substantial progress has been made on
all fronts. Our returns have been enhanced by our increased
exposure to these markets, which have improved as we
anticipated. Total shareholder return over the year was
24.8%, which compares favourably with a return of 22.8%
for the FTSE 350 Real Estate Index.
The value of our property portfolio increased by £98.21 million
(38.6%) over the period to £352.76 million. This included five
new properties acquired at a cost of £51.54 million. A further
acquisition since the year end has taken the total number of
acquisitions since the Capital Raising to eight, at a combined
cost of £73.83 million.
Also contributing to this increase was a 13.8% (£42.71 million)
valuation surplus. Gains were seen across all segments of the
portfolio, particularly where further yield compression enhanced
returns from our refurbishment and management activity.
This surplus was the main component of the 18.9%
growth in EPRA NAV per share, which ended the period
at 270 pence.
The growing portfolio and the delivery of our refurbishment and
development projects into improving markets has also significantly
enhanced the income profile of the portfolio and underpins its
future potential. The estimated rental value of the portfolio (ERV)
is assessed at each valuation date by our external valuers and
ended the year up 59.4% (£11.25 million pa) to £30.19 million pa.
Acquisitions (net of disposals) contributed £5.76 million pa to this
increase and the like for like ERV of retained portfolio properties
increased by 29.6%, adding a further £5.49 million pa. Of the
retained properties, the largest gains were secured where works
have now commenced on our major office development and
refurbishment projects at 30 Lombard Street, EC3 (58,000 sq ft);
London Road, Redhill (47,000 sq ft) and 9 Greyfriars Road,
Reading (38,000 sq ft). Excluding these properties, there
was still encouraging evidence of an improvement in rental
values, with the underlying ERV up 7.9%.
This improvement was also experienced with lettings achieved
over the year. The combined contracted rent from open market
lettings in the portfolio was £1.81 million pa, 12.4% ahead of
ERV and the portfolio occupancy (excluding development
properties) increased from 86.8% to 91.8%.
Although the full income benefit of acquisitions, lettings and our
refurbishment and development projects will be seen over the next
few years, gross rental income received over the period increased
by 20.0% (£2.94 million) to £17.62 million. The difference
between rents received and portfolio ERV highlights the increased
potential of the portfolio to deliver further gains.
This higher level of rental income was the main contributor to
a 69.3% (£2.37 million) increase in adjusted profit before tax,
which totalled £5.79 million (March 2014: £3.42 million).
This is the Group’s measure of recurring profit, excluding
unrealised movements in the value of the property portfolio
and hedging instruments, profit on the sale of investment
properties, and non-cash items.
Weset out our strategy for futuregrowthat
the timeof the£86.71millionCapital Raising
inFebruary2014, and its implementationover
the last year hasdeliveredasignificant increase
in thevalueof our portfolio, strengthenedour
incomeprofileand improved theprospects
for enhanced returns for shareholders in
futureyears.
