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McKay posts record rental income

By Paul Norman - Monday, May 22, 2017 9:23

McKay securities, the REIT focused on London and the South East, has posted a 7.2% rise in its property portfolio value of 7.2% (£28.75m) to a record £429.92m, and highlighted the strong near term reversionary potential of the portfolio in the near term.

McKay also reported a 1.7% (£7.07m) valuation surplus and gross rental income at a historic high for the business.

Adjusted profit before tax was up 8.3% to £8.60m (31 March 2016: £7.94m) while EPS (adjusted basic) was up 8.2% to 9.2pps (31 March 2016: 8.5pps) and gross rental income was up 3.1% to a historic high of £20.79m (31 March 2016: £20.16m).

IFRS profit before tax was £17.59m (31 March 2016: £53.16m), reflecting a lower valuation surplus contribution compared to the prior year.

NAV (EPRA) per share was up 0.7% to 303p (31 March 2016: 301p).

Within this the investment portfolio was up 2.5%, and offset partly by a 3.5% fall in the value of development assets. South East offices performed strongly (+3.6%), followed by London Offices (+2.5%).

South East industrial assets rose just 0.4%, held back by a 96,850 sq ft warehouse in Theale by the M4 where the tenant has a break option in 2018.

The loan to value ratio is now at 31.6% (31 March 2016: 28.9%) and the final dividend is up 3.3% to 6.3p per share (2016: 6.1p per share). The total dividend for the year is up 2.3% to 9p (2016: 8.8p).

McKay flagged highlights of the period as the record portfolio value and "good progress" in contracted rental income, up 11% (£2.32m pa) to £23.42m pa, following 35 lettings over the period, 26 of which were new to the open market.

The period saw 3.9% growth in portfolio ERV (like-for-like) to £32.68m.

McKay said there is substantial portfolio reversion with the potential to increase income by a further 39.5%.

Redevelopment schemes in Reading and Redhill have completed and are being marketed, with a 10,643 sq ft debut letting at Prospero, Redhill secured.

Its redevelopment of 30 Lombard Street, EC3 is on schedule for delivery in mid-2018, with a marketing campaign to commence imminently. Unconditional contracts were exchanged on the disposal of its Pinehurst Park, Farnborough asset, at 11.5% premium to book value

Richard Grainger, chairman of McKay Securities, said: “In my first year as Chairman, I am pleased to be able to report another positive set of results for the Group, which continues to benefit from its exclusive focus on London and the South East.

"Despite market volatility surrounding the EU referendum, these results show the careful and effective deployment of capital following funds raised in 2014, delivering outperformance for the group.”

Simon Perkins, chief executive of McKay Securities, added: “Our refurbishment programme and proactive asset management activities have continued to release the substantial portfolio potential that we have built up, with rental and capital growth out-performing the market, while two of our three development projects reached completion during the period and our third scheme remains on track for delivery next year.

“With both rental income and the portfolio value at a historic high for the group, we’re pleased to be in a position to deliver increases in shareholders’ funds, profits and dividends at this Full Year. The increase in adjusted profit before tax, our measure of recurring earnings, enabled us to achieve our ambitious target of a covered dividend within three years of doubling the share capital in 2014.

"Looking forward, we will continue pursuing our strategy of building a resilient portfolio in our core markets and crystallising the portfolio reversion to deliver attractive returns for our investors over the long term.”

Perkins said the group was continuing to see the benefit of its focus on "well established centres" and its 2014 decision to double share capital and raise money.

This year the focus will be on the circa 40% reversionary potential of its portfolio via a portfolio void, potential uplifts at review, and then voids in three development properties.

Valuations bounced back in the second half as with other listed REITs, up 2.4%.

"Ther was an assumption that values would drop after the EU referendum vote," said Perkins. "But we saw within a quick period of time property was not going to drop in value because of the underlying fundamentals of the asset class."

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