annual results - mckay securities plc · • breeam outstanding / epc a • 37.6% valuation surplus...
TRANSCRIPT
Annual Results to 31 March 2018
MCKAY / MAY 2018 / 2
HeadingDelivering the growth strategy, with major progress across all metrics
Simon Perkins
CEO
Giles Salmon
CFO
Tom Elliott
Property Director
Management teamReview of the year 3
Financial review 7
Portfolio review 15
South East office market 23
Distribution warehouse market 28
Outlook 29
Appendix 30
MCKAY / MAY 2018 / 2
MCKAY / MAY 2018 / 3
14.3%increase in
final dividend
Strategy• Transformational year, capturing reversion and delivering on the 2014 capital raising strategy
• Development programme de-risked, with a record year of lettings (ahead of ERV) to increase future earnings
• Portfolio positioned to benefit from structural supply constraints in the UK’s strongest regions of London and the South East
• Outperformance: 36% TSR (FTSE 350 Real Estate: 8%)
• Portfolio value, contracted income and ERV all at record highs
Review of the year
MCKAY / MAY 2018 / 4
Outstanding portfolio performance driving returns
• ERV up 6.7% to £33.15m pa Portfolio value up 6.1% to £460.15m TPR of 11.8%: all ahead of IPD
• 30 Lombard Street, EC3 pre-let on a 15 year lease to St James’s Place plc
• Contracted rental income up 15.5% to £27.3m pa including 30 Lombard Street), despite disposals
• 27.3% (£5.7m) surplus available for re-investment, from three disposals
23.3%increase in contracted
income L4L
MCKAY / MAY 2018 / 5
Strengthened financing supporting growth• Adjusted profit up 5.4% to £9.1m
• All remaining legacy interest rate swaps cancelled, enhancing earnings and improving the debt profile
• Loan facilities increased by £15.0m
• 32% LTV maintained, with cap-ex offset by valuation and disposal gains
322pps
EPRA NAV up 6.3%
MCKAY / MAY 2018 / 6
Strategic delivery 2014–2018Gains since March 20141
• TSR 54%
• EPRA NAV pps 42%
• Adjusted profit before taxation 165%
• Contracted rent 67%
• Portfolio ERV 76%
• Portfolio value 81%
• Annual dividend – cost2 141%
• Annual dividend – pence2 18% 1. March 2014 to March 2018 unless stated
2. March 2013 to March 2018
MCKAY / MAY 2018 / 7MCKAY / MAY 2018 / 7
10.0p 9.0pFinancial highlights
£9.1m 322
Dividend per share
Adjusted profit EPRA NAV
2018
March 2018 March 2018
2017
March 2017 £8.6m% change 5.4
March 2017 303pps% change 6.3
11.132%
LTVMarch 2018
increase
March 2017 32%
%
MCKAY / MAY 2018 / 7
MCKAY / MAY 2018 / 8
Gross rental income Adj PBT
0
5
10
15
20
25
30
35
40
3/2014 3/2015 3/2016 3/2017 3/2018 ERV
£ m
illio
n
0
2
4
6
8
10
3/2014 3/2015 3/2016 3/2017 3/2018£
mill
ion
Con
trac
ted
Sustained earnings growth with significant future potential
ERV
MCKAY / MAY 2018 / 9
Adjusted profit before tax
2018: 10.0pps (£9.4m)
2017: 9.0pps
2016: 8.8pps
2015: 8.7pps
2014: 8.6pps
11.1%2018
dividend growth
March 2017
Grossrents(portfolio)
InterestGross rentssales
Netproperty costs
Admin Other March 2018
£ m
illio
n 9.07
0.38
(0.51)
8.60
1.11
0.12
(0.57)
(0.06)
MCKAY / MAY 2018 / 10
Total shareholder return 138
%
5 yearTSR
TSR (%) 1yr 5yr 9yr
• McKay 36 138 395
• FTSE 350 REI 8 58 227
• FTSE All Share 1 38 170
Source: Thomson Reuters
1002010 2011 2012 2013 2014 2015 2016 2017 2018
200
300
400
500
£
MCKAY / MAY 2018 / 11
EPRA NAV pps
March 2017 Swap cancellation
DividendValuationgain
Adjustedprofit
Realisedprofit on disposal
0
50
100
150
200
250
300
March 2018
303p
322p26
10
6
(14)
(9)
322pps
NAV clarity
MCKAY / MAY 2018 / 12
EPRA NNNAV pps
13.0%
12 month gain
March 2017 Swap cancellation
DividendValuationgain
Adjustedprofit
Realisedprofit on disposal
0
50
100
150
200
250
300
March 2018
285p
322p
26
10
6
4
(9)
MCKAY / MAY 2018 / 13
Available facilities up £15.0m to £190.0m • August 2017: refinanced £40.0m Santander facility (previously £35.0m)
• March 2018: increased Aviva facility to £65.0m (£55.0m) at a blended 4.02% until 2030
Swap cancelled• Remaining legacy £33.0m notional swap cancelled March 2018 at a cost of £13.3m after a £2.6m bank contribution
Lombard Street• Not yet pledged
Substantial financing progress achieved 3.06
%
potential future cost
of debt
MCKAY / MAY 2018 / 14
Improved facility profile
Low LTV despite:• £23.3m cap ex
• £13.4m swap cancellation
Additional headroom
Substantial reduction in WACD1
50
100
150
200
£’ m
illio
n
March 2018March 2017 If fully drawn
147
65
190
Drawn
Fixed
65
Fixed
88
136
55
33
Drawn
Hedged
Fixed
0
LTV 32%
WACD 4.42%
LTV 32%
WACD 4.06%
LTV 38%
WACD1 3.06%
1. WACD: weighted average cost of debt, at current rates
MCKAY / MAY 2018 / 15
HeadingBanbury
Windsor
Staines
Poyle
Brentford
Croydon
Redhill
Crawley
LeatherheadWeybridge
Folkestone
Wimbledon
NewburyReading BracknellTheale
Fleet
FarnboroughWoking
Maidenhead
The only REIT specialising exclusively in the strength of the London and South East office and industrial markets
MCKAY / MAY 2018 / 15
MCKAY / MAY 2018 / 16
Portfolio resilience: • regional strength • dual-sector diversity
March 2018 March 2017
Assets 33 36Average lot size £14.0m £11.9m
Occupancy up
inc dev 89.3% 77.3%
exc dev 92.6% 93.3%
WAULT extendedTo expiry 6.9 5.2
To break 5.8 4.3
Valuation yieldsInitial (topped-up) 5.6% 5.1%
Reversionary 6.8% 7.1%
Net equivalent 5.8% 6.4%
56.5%
15.3%
23.5%
4.7%
SE officesSE
industrial
London offices
Other
potential future cost
of debt
460.2£m
portfolio value
MCKAY / MAY 2018 / 17
HeadingUnlocking the portfolio potential
Record year for lettings• 26 open market lettings
• £7.0m pa combined rental
• 1.9% ahead of ERV
Planning consent granted• for major distribution warehouse at Theale, Reading increasing ERV by 92.7%
Strong tenant retention• 59.5% retention at lease break / expiry
• 10 lease renewals – 17.5% over passing 3.9% over ERV
27.3% / £5.7m surplus• realised on three disposals
MCKAY / MAY 2018 / 17
MCKAY / MAY 2018 / 18
Releasing the reversion
Contracted rent
£27.05m pa
Contracted rent £23.42m pa
ERV £33.15m pa
ERV £32.68m pa
Developmentvoid
Developmentvoid
Portfolio void
Portfolio void
Renewal/
review
Renewal/ review
£1.45m pa
£5.64m pa£2.10m pa
£1.79m pa
£2.55m pa
£1.83m pa
ACQUISITION TIMELINE£73 million of acquisitions since 2014 Capital raising
January 2014
Acquisition:Crown Square,Woking
Headline:£6.0m
Yield:9.3% initial
March 2014
Acquisition:Ashcombe House,Leatherhead
Headline:£4.4m
Yield:7.4% initial
April 2014
Acquisition:The Mille,Brentford
Headline:£19.3m
Yield:7.7% initial
May 2014
Acquisition:9 Greyfriars Road,Reading
Headline:£5.8m
Yield:Vacant
September 2014
Acquisition:Station Plaza,Theale
Headline:£8.4m
Yield:10.1% initial
October 2014
Acquisition:The Planets,Woking
Headline:£8.8m
Yield:6.9% initial
April 2015
Acquisition:Brunel Road,Theale
Headline:£
Yield:%
2014JAN
2015JAN
FEB
MAR
APR
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
July 2014
Acquisition:Gainsborough House,Windsor
Headline:£6.9m
Yield:7.1% initial
92%
LET
LET
LET
… and 22.6% potential remainingMarch 2018 March 2017
ACQUISITION TIMELINE£73 million of acquisitions since 2014 Capital raising
January 2014
Acquisition:Crown Square,Woking
Headline:£6.0m
Yield:9.3% initial
March 2014
Acquisition:Ashcombe House,Leatherhead
Headline:£4.4m
Yield:7.4% initial
April 2014
Acquisition:The Mille,Brentford
Headline:£19.3m
Yield:7.7% initial
May 2014
Acquisition:9 Greyfriars Road,Reading
Headline:£5.8m
Yield:Vacant
September 2014
Acquisition:Station Plaza,Theale
Headline:£8.4m
Yield:10.1% initial
October 2014
Acquisition:The Planets,Woking
Headline:£8.8m
Yield:6.9% initial
April 2015
Acquisition:Brunel Road,Theale
Headline:£
Yield:%
2014JAN
2015JAN
FEB
MAR
APR
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
July 2014
Acquisition:Gainsborough House,Windsor
Headline:£6.9m
Yield:7.1% initial
MCKAY / MAY 2018 / 19
30 Lombard Street, EC3
Speculative prime City of London redevelopment (58,000 sq ft)• Pre-let to St James’s Place plc• £3.3m pa (net), equivalent to £65 psf• 22.0% valuation surplus• Conditional on PC in summer 2018
15 year pre-let secured, with no break
MCKAY / MAY 2018 / 20
Speculative development programme delivering returns and proving demand9 Greyfriars Road, Reading Prospero, RedhillTransformational refurbishment of 39,620 sq ft 1980s obsolete office building
• Single letting of entire asset (June 2017)• 15 year lease (tenant break at year 10)• £1.5m pa: 3.9% over ERV• Winner: BCO Regional refurbishment• BREEAM outstanding / EPC A• 37.6% valuation surplus
High quality speculative 50,370 sq ft office development • 92% let• Multi-let at rents ahead of ERV• 10 year terms achieved• 26.9% valuation surplus
MCKAY / MAY 2018 / 21
Topping up the reversion
Speculative redevelopment of 1980s warehouse into a 134,150 sq ft distribution/logistics unit
• New high quality logistics unit• Practical completion Spring 2019• 2 minutes from Junction 12, M4• Potential for long lease term• ERV: £1.4m pa (up 92.7%)
135 Theale Logistics Park, J12 M4: construction underway
MCKAY / MAY 2018 / 22
27% disposal surplus for re-investment Pinehurst Park Farnborough £5.8m £0.3m £0.5m pa
Purchased May 2012
Value release from residential
72% return on cost
Runnymede Focus Egham £19.6m £5.1m £0.9m paConstructed by McKay in the late 1970s
Capitalised on market demand
4.2% disposal yield
Albion House Newbury £1.4m £0.3m £0.1m paDisposal post lease regear
£26.8m £5.7m £1.5m pa
Proceeds (net)
Surplus Rent
Total
HeadingSouth East office market
200703 33 21
Evolving drivers of occupier demand…
millionc50% % %
The proportion of buildings in the IPD South East office index over 25 year old
The total number of lease events over the next three years (13.5m sq ft)
The estimated number of Crossrail passengers on opening in 2018/2019
Average house price discount to central London
Forecast GDP growth to 2027 (second only to London (26%
CommunicationsLease events Workforce Economic performance
Obsolescence
MCKAY / MAY 2018 / 23
MCKAY / MAY 2018 / 24
Heading
84 89
81
… set to build on stable and predictable leasing levels
Office lettings over the last five years:
% %
%
Below 80,000 sq ft
Post completion
New / grade A
Source: BNP ParibasMCKAY / MAY 2018 / 24
0
1
2
3
4
2008
Lettings > 80,000 sq ft
Named demand and u/o (Q1)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018(Q1)
sq
ft
(mill
ion
)
5 year average
43,500sq ft
average McKay
SE office
MCKAY / MAY 2018 / 25
Historically low supply• New / grade A supply:
6.3m sq ft / 6.8%
(Q1/2017: 7.9%)
• New supply:
2.2m sq ft / 2.4%
(Q1/2017: 2.7%)
• 82% of centres with < 5% vacancy (new)
Source: BNP Paribas
% v
acan
cy
Grade A vacancy (%)
New vacancy (%)
5
Rea
ding
Win
dsor
Wat
ford
Leat
herh
ead
Red
hill
/ Rei
gate
Wey
brid
ge
Uxb
ridge
Slo
ugh
Hea
thro
w
Mai
denh
ead
Che
rtse
y
Hig
h W
ycom
be
Oxf
ord
Egh
am /
Sta
ines
Mar
low
Bra
ckne
ll
Cra
wle
y
Wok
ing
Gui
ldfo
rd
Bas
ings
toke
Cam
berle
y et
c0
5
10
15
20
M4 M40 OthersM3West London
South M25
MCKAY / MAY 2018 / 25
MCKAY / MAY 2018 / 26
0
1
20
15
10
5
0
2
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
sq ft
Number of schemes
sq
ft
(mill
ion
)Constrained development pipeline will limit choice 50
Pipeline
below 5 year average
%
• South East office
development
cycle peak largely
absorbed and
pipeline now
constrainedSource: BNP Paribas
MCKAY / MAY 2018 / 27
Broadening demand+Constrained supply= Rental growth
• Rental values have lagged behind central
London by 25% since 2007
• South East markets offering historically good
value relative to London
• Portfolio positioned to benefit from these trends
• Track record of meeting the demands of an
increasingly discerning market
40
60
80
100
120
140
June 2
007
Nov 200
7
Nov 200
8
Nov 200
9
Nov 201
0
Nov 201
1
Nov 201
2
Nov 201
3
Nov 201
4
Nov 201
5
Nov 201
6
Nov 201
7
Ind
ex
Ju
ne
2007
= 1
00
Office – South East Standard Office – Central London
0
50
100
150
200
250
300
350
Jan 19
80
Jan 19
85
Jan 19
90
Jan 19
95
Jan 20
00
Jan 20
05
Jan 20
10
Jan 20
15
Ind
ex
Hammersmith, Merton, Richmond Bracknell, Reading, Reigate, Slough, Woking
Average movement in rental growthIPD UK annual market rental value growth y/y
Source: IPD / BNP ParibasMCKAY / MAY 2018 / 27
MCKAY / MAY 2018 / 28
HeadingDistribution warehouse market
4 1.775… supporting speculative redevelopment at Theale
billion
sq ft
million9.8% %%
Q1/18 take up of units > 100,000 sq ft.Highest on record
Year end availability rate at an all-time low – fallen for the 7th consecutive year
Grade A share of take-up
Q1 industrial investment, 17.1% higher than Q1 2017. Highest on record
MCKAY / MAY 2018 / 28
MCKAY / MAY 2018 / 29
HeadingOutlookPortfolio potential to outperformIncome / dividend growth
• 2018 activity to benefit future periods
• Proven platform to deliver substantial 22.6% (£6.10m pa) income reversion
• Exciting warehouse development prospects at Theale
Capital / NAV growth• Gains from release of portfolio reversion
• Further development and refurbishment gains
• Supported by strong balance sheet, with clarity post swap cancellation
Capitalising on our unique position in London and the South EastMCKAY / MAY 2018 / 29
MCKAY / MAY 2018 / 30
Appendix
Cashflow and debt 31
Financial summary 32
Rental value movement 33
Capital value movement 34
Sustainability 35
Contact information 36
MCKAY / MAY 2018 / 30
MCKAY / MAY 2018 / 31
Cashflow and debt
£’ million136.0
Drawn debtMarch 2017
13.4
Swapcancellation
8.5
Dividendpaid
23.3
Capex
(26.8)
Disposals
(7.4)
Movement in cash
147.0
Drawn debtMarch 2018
MCKAY / MAY 2018 / 32
Financial summary
Balance sheet March 2018
Portfolio value 1 £460.15m
Drawn debt £147.00m
NAV/share 326pps
NAV/share – EPRA 2 322pps
NNNAV/share – EPRA 2 322pps
LTV 32%
Gearing – NAV 3 48%
March 2018
Dividend/share (Final) 7.2pps
Dividend/share (Total) 10.0pps
Income statement March 2018
Profit/(Loss) – IFRS £43.44m
Adjusted profit before tax £9.07m
EPS (EPRA) 8.70pps
1. Valuation movements (%) before allowing for cap-ex incurred during the period
2. Calculated in accordance with EPRA guidelines3. Debt as a percentage of EPRA adjusted net assets
March 2017 Change
£17.59m
£8.60m 5.4%
8.38pps 3.8%
March 2017 Change
£429.92m 7.0%
£136.00m 8.1%
289pps 12.8%
303pps 6.3%
285pps 13.0%
32%
47%
March 2017 Change
6.3pps 14.3%
9.0pps 11.1%
Sept 2017 Change
300pps 8.7%
312pps 3.2%
296pps 8.8%
MCKAY / MAY 2018 / 33
Rental value movement
1. Segments analysed by IPD geographical area, exc dev2. IPD Monthly Index – movement by segment where appli-
cable. IPD London = City segment3. IPD Monthly index (All property)4. Including 9 Greyfriars Road, Reading and Prospero, Redhill5. Brunel Road, Theale and Lombard Street, EC3
12 months to 31st March 20181
London offices
South East offices4
Total offices
South East industrial
Other
Total (excluding developments)
Developments5
Total portfolio (like for like)
Disposals
Total
12 month movement
IPD2
movement
0.3%
2.4%
1.6%
6.3%
–
1.9%3
5.2%
4.0%
4.2%
11.5%
0.0%
5.0%
18.3%
6.7%
1.4%
2018 portfolio ERV £m pa
2017 portfolio ERV £m pa
3.44
18.99
22.43
3.39
1.16
26.98
4.08
31.06
1.62
32.68
3.62
19.76
23.38
3.78
1.16
28.32
4.83
33.15
33.15
MCKAY / MAY 2018 / 34
Capital value movement
1. Valuation movements (%) after allowing for cap-ex incurred during the period
2. IPD Monthly index allocations IPD London = City segment
3. IPD Monthly index (All property)4. Including 9 Greyfriars Road, Reading and Prospero, Redhill
12 months to 31st March 20181
London offices
South East offices4
Total offices
South East industrial
Other
Total (excl. dev)
Developments
Total portfolio (like for like)
Disposals
Total
3.6%
3.9%
3.5%
18.5%
–
5.3%3
5.3%
-0.5%
3.0%
2.3%
19.5%
3.1%
4.7%
16.5%
6.1%
54.40
249.73
304.13
50.00
20.80
374.93
34.00
408.93
20.99
429.92
12 month movement
IPD2
movement2018 portfolio valuation £m
2017 portfolio valuation £m
56.25
260.10
316.35
60.85
21.65
398.85
61.30
460.15
–
460.15
MCKAY / MAY 2018 / 35
Sustainability
Managing Sustainable Buildings
To add value to the
Group’s portfolio by improving
the efficiency of the buildings and
reducing the environmental impact
Creating Sustainable Buildings
To achieve best practice green
building standards in order to
deliver quality buildings
CORE BUSINESS STRATEGY
Engaging our Stakeholders
To maintain an active dialogue
with key stakeholders about
sustainable performance
Highlights• Aurum office development
on track for BREEAM ‘Excellent’ certification
• Piloted a post-occupancy assessment of Prospero, Redhill, with positive results
For 2018/19, we have set ourselves 19 targets, of which 4 are listed below.
• Ensure all new developments and major refurbishments achieve minimum BREEAM Excellent and at least an EPC B rating.
• Hold a minimum of two sustainability related CPD sessions to increase awareness of key issues amongst employees.
• Introduce building awards/competition to encourage uptake of sustainability practices amongst tenants.
• Maintain or enhance McKay’s GRESB performance, relative to 2017.
We have set environmental performance targets to reflect our renewed commitment to our 5 long-term goals to 2020 for energy, carbon, water and waste.
The Group also plans to review and refresh its sustainability strategy over of the course of the coming year, to re-align with the core business strategy and ensure that stakeholder needs are still being met.
Highlights:• Achieved a 14%
reduction in carbon emissions and a 7% reduction in energy consumption on a like-for-like basis
• EPC risk negigible, with <1% of the portfolio (by ERV) falling below an E-rating
Highlights: • Maintained Global Real Estate
Sustainability Benchmark (GRESB) ‘Green Star’ status for the second year running
The Group achieved 90% of its 2017/18 targets
MCKAY / MAY 2018 / 36MCKAY / MAY 2018 / 36
Contact information
MCKAY / MAY 2018 / 36
Simon PerkinsChief Executive Officer
Joined in 2000 after 10 years with Arlington Securities plc. Appointed CEO in 2003.
email: [email protected]
Address: McKay Securities PLC 20 Greyfriars Road Reading Berkshire RG1 1NL
tel: 0118 950 2333
fax: 0118 939 1393
Website: www.mckaysecurities.plc.uk
May 2018
Giles SalmonChief Financial Officer
Joined in 2011, from BAA Lynton. Appointed Finance Director in August 2011.
email: [email protected]
Tom ElliottProperty Director
Joined in 2016 after 11 years with Land Securities plc. Appointed Property Director in April 2017.
email: [email protected]