INTERIM RESULTS to 30th September 2017

Transcription

1 INTERIM RESULTS to 30th September 2017

2 Banbury Maidenhead Newbury Theale Reading Fleet Windsor Bracknell Farnborough Woking Brentford Poyle Staines Weybridge Leatherhead Redhill Wimbledon Croydon Crawley Folkestone THE ONLY REIT SPECIALISING EXCLUSIVELY IN THE STRENGTH OF THE LONDON AND SOUTH EAST OFFICE AND INDUSTRIAL MARKETS MKS / NOV 2017 / 2

3 MANAGEMENT TEAM Simon Perkins CEO CONTENTS Introduction 3 Financial review 6 Giles Salmon CFO Portfolio review 15 Market review 26 Outlook 31 Tom Elliott Property Director Appendix 33 MKS / NOV 2017 / 3

4 UNLOCKING THE PORTFOLIO POTENTIAL OPERATIONAL INITIATIVES DRIVING RENTAL AND CAPITAL GROWTH 5.3% increase in contracted rent to 24.66m pa 4.3% increase in portfolio ERV (net) to 34.08m pa 2.7% valuation surplus ( 11.94m) on portfolio value of m Outperformance of IPD (on capital and rental growth, and total return) AND STRONG FINANCIAL GAINS Net rental income: up 8.2% to 9.92m Adjusted profit before tax: up 6.2% to 4.70m EPRA NAV: up 3.0% to 312 pps Interim dividend up 3.7% to 2.8pps (September 2016: 2.7pps) MAINTAINING REVERSIONARY YIELD of 7.1% DELIVERING THE GROWTH STRATEGY, WITH PROGRESS ACROSS ALL METRICS MKS / NOV 2017 / 4

5 SUSTAINED GROWTH WITH SIGNIFICANT FUTURE POTENTIAL Gross rental income Adj PBT 10 8 millions millions /2014 3/2015 3/2016 3/2017 9/2017 ERV Portfolio value /2014 3/2015 3/2016 3/2017 9/2017 NAV/share 300 millions pence per share /2014 3/2015 3/2016 3/2017 9/ /2014 3/2015 3/2016 3/2017 9/2017 MKS / NOV 2017 / 5

6 CONTENTS Introduction 3 Financial review 6 Portfolio review 15 Market review 26 Outlook 31 Appendix 33 MKS / NOV 2017 / 6

7 ADJUSTED PROFIT BEFORE TAX million (0.07) (0.38) 4.00 Sept 2015 Sept 2016 Gross rents Interest Net property costs Admin Sept 2017 Clear dividend progression: 2014: 8.6pps 2015: 8.7pps 2016: 8.8pps 2017: 9.0pps MKS / NOV 2017 / 7

8 GROSS RENTS AND ADJUSTED PROFIT m million m 17.6m 20.1m 20.8m 0 3.4m March m 8.6m 5.8m March 2015 March 2016 March 2017 ERV 1 Sept ERV = full portfolio rental value (net of GR) Gross rents Adjusted profit MKS / NOV 2017 / 8

9 LOAN FACILITY PROFILE DEBT FACILITIES INCREASED BY 5M FOLLOWING RCF REFINANCING 200 LTV 37% 150 LTV 32% LTV 33% million Fixed Fixed Fixed 0 33 Hedged Drawn March Hedged Drawn Hedged Sept 2017 If fully drawn MKS / NOV 2017 / 9

10 DRAWINGS AND HEDGING PROFILE COST OF DEBT REDUCING millions WACD % March 2015 Sept 2015 March 2016 Sept 2016 March 2017 Sept 2017 Fully drawn At current rates Floating debt Hedged/fixed debt Weighted average cost of debt MKS / NOV 2017 / 10

11 PRUDENT FINANCIAL MANAGEMENT Last of the four facilities refinanced in August 2017 Available facilities increased by 5m to 180m Current WACD 1 3.9% (March 2017: 4.4%) Fully drawn WACD 1 c 3.7% 30 Lombard Street, EC3 currently unsecured FURTHER PROGRESS ON IMPROVED DEBT TERMS AND STRUCTURE 1. WACD: Weighted average cost of debt MKS / NOV 2017 / 11

12 CASHFLOW AND DEBT (2.71) million Drawn debt March 2017 Dividend paid Movement in cash Capex Drawn debt Sept 2017 MKS / NOV 2017 / 12

13 BALANCE SHEET EPRA NAV p (6) (1) 312p 0 March 2017 Valuation gain Adjusted profit Dividend Other Sept 2017 EPRA NNNAV 285p (6) (1) 296p March 2017 Valuation gain Adjusted profit Dividend Other Swap movement Sept 2017 Difference 18p 16p MKS / NOV 2017 / 13

14 FINANCIAL SUMMARY Balance sheet Sept 2017 Portfolio value m Drawn debt m NAV/share 300pps NAV/share EPRA 2 312pps NNNAV/share EPRA 2 296pps LTV 33% Gearing NAV 3 50% March 2017 Change m 5.3% m 9.6% 289pps 3.8% 303pps 3.0% 285pps 3.9% 32% 4.1% 47% 5.8% Sept 2016 Change 269pps 11.5% 295pps 5.8% 266pps 11.3% Income statement Sept 2017 Profit/(Loss) IFRS 16.54m Adjusted profit before tax 4.70m EPS (EPRA) 4.55pps Sept 2016 Change (3.78)m 4.42m 6.2% 4.28pps 6.3% Dividend/share (Interim) 2.8pps 2.7pps 3.7% 1. Valuation movements (%) before allowing for cap-ex incurred during the period 2. Calculated in accordance with EPRA guidelines 3. Debt as a percentage of EPRA adjusted net assets MKS / NOV 2017 / 14

15 CONTENTS Introduction 3 Financial review 6 Portfolio review 15 Market review 26 Outlook 31 Appendix 33 MKS / NOV 2017 / 15

16 SECTOR DIVERSITY WITH REGIONAL STRENGTH Banbury Key Office Retail (Ancillary) Industrial Other 36 properties (March 2017: 36) 212 tenants (March 2017: 214) Average lot size 12.57m (March 2017: 11.94m) Established centres Maidenhead Brentford Newbury Theale Windsor Poyle Staines Wimbledon Reading Bracknell Croydon Weybridge Fleet Leatherhead Woking Farnborough Redhill 19% 18% 5% Total 453m Crawley 58% Folkestone Location (by value) South East offices 58% South East industrial 18% London offices 19% Other 5% No. of assets MKS / NOV 2017 / 16

17 ACHIEVED 4.9% INCREASE IN RENTAL VALUE (VS IPD 2 : 0.9%) Movement: 4.3% / 1.41m pa increase in total portfolio ERV 1 up 4.9% to 34.08m pa All property IPD McKay Gains driven by: Refurbishments New lettings ahead of ERV Successful rent reviews South East offices London offices South East industrial ERV: % change (6 months) 1. ERV = Estimated full portfolio rental value (net of GR), inc dev 2. Monthly index. London = City segment. Segments exc dev MKS / NOV 2017 / 17

18 DELIVERED 3.3% CAPITAL GROWTH (vs IPD 1 : 2.2%) Portfolio valuation of m (March 2017: m) 2.7% / 11.94m valuation surplus over cost 5.3% / 22.74m increase in portfolio value 3.3% / 12.71m valuation surplus over cost (exc dev) Initial yield 2 : 5.1% (March 17: 5.1%) Reversionary yield 3 : 7.1% (March 17: 7.1%) Net equivalent yield: 6.1% (March 17: 6.1%) Surplus: % change (6 months) IPD McKay All property South East offices London offices South East industrial 1. Monthly index. London = City segment. Segments exc dev 2. Topped up: On contracted rents (net) 3. On ERV (net) MKS / NOV 2017 / 18

19 ACTIVE IN-HOUSE ASSET MANAGEMENT SUPPORTING GROWTH STRATEGY Lettings 2.9% ahead of ERV 8 open market lettings 1.46m pa combined new rental income Largest letting 9 Greyfriars Rd, Reading: 1.21m pa Positive tenant retention 48% tenant retention at lease break/expiry (March 2017: 77%) with decrease due to strategic termination for refurbishment 0.61m pa retained 3 lease renewals (2.9% over passing / 3.7% ahead of ERV) Portfolio occupancy up (by ERV) 94.6% excl. dev (March 2017: 94.5%) 81.3% inc. dev (March 2017: 77.3%) Total portfolio return 5.8% (IPD: 4.5%) Lynda Perry Head of Occupier Services Stuart Key Asset Manager Richard Morgan Asset Manager Andrew Jones Development Manager MKS / NOV 2017 / 19

20 UNLOCKING REVERSION 9 GREYFRIARS ROAD, READING Speculative comprehensive refurbishment of 39,620 sq ft 1980s office building, using proceeds from 2014 capital raising Single letting of entire asset (June 2017) 15 year lease (tenant break at year 10) 1.46m pa: 3.9% over ERV 34.7% valuation surplus Winner: BCO Regional refurbishment BREEAM outstanding / EPC A Transformational refurbishment, repositioning the building to modern standards MKS / NOV 2017 / 20

21 CREATING VALUE ACTIVE ASSET MANAGEMENT 3 Acre Estate, Folkestone (44,290 sq ft) Upgrade: 0.4m cap ex 40% of estate re-geared Valuation surplus 1 ERV increase % 3.3% One Crown Square, Woking (50,735 sq ft) Repositioned with improved common areas Refurbishment of 5th and 6th floors completed Commitment to smaller suites 12.0% 14.6% McKay Trading Estate, Poyle (73,955 sq ft) Prime Heathrow pitch Right sized units for market ERV growth contributing to valuation gain 14.7% 27.5% 1. Six months to 30th September 2017 MKS / NOV 2017 / 21

22 STRONG FUTURE GROWTH PROSPECTS 9.43M PA INCOME REVERSION 38.2% POTENTIAL GROWTH IN RENTAL INCOME ERV 34.08m pa Development void 4.52m pa LET 46% LET/UO Portfolio void 1.85m pa Renewal/review 3.05m pa Contracted rent 24.66m pa MKS / NOV 2017 / 22

23 PROSPERO, LONDON ROAD, REDHILL: COMPLETED Speculative development of a high quality office building of 50,370 sq ft 22% let at period end; now 46% let 3rd floor (10,643 sq ft) let Jan year term 0.33m pa rent ( 31psf) Ground floor (11,537 sq ft) let Oct year term 0.35m pa rent ( 30psf) Rents ahead of ERV Only available new space in Redhill/Reigate MKS / NOV 2017 / 23

24 30 LOMBARD STREET, LONDON EC3: UNDER CONSTRUCTION Speculative redevelopment to create a top quality City building (58,000 sq ft) in a prime location 62% increase in building area Completion on programme mid 2018 Pre-let marketing underway MKS / NOV 2017 / 24

25 THEALE LOGISTICS PARK, J12 M4: PLANNING GRANTED Speculative redevelopment of 1980s warehouse with construction of either a single building (134,420 sq ft) or four units (118,000 sq ft) Planning consent granted October 2017 Site becomes vacant February 2018 Marketing and detailed design underway Potential increase in rental value from 7.75psf (current ERV) to circa 10.50psf Potential for long lease term MKS / NOV 2017 / 25

26 CONTENTS Introduction 3 Financial review 6 Portfolio review 15 Market review 26 Outlook 31 Appendix 33 MKS / NOV 2017 / 26

27 SOUTH EAST OFFICES: STEADY OCCUPIER DEMAND LETTINGS YEAR TO DATE: 1.63M SQ FT VS YTD Q3/16 Up 3% 60,000 sq ft Up 5% by number Down 17% overall 95% of sq ft let < 80,000 sq ft 80% of sq ft let Grade A / new Q3/17 active demand of 3.76m sq ft 5% up on Q3/16 Demand drivers: Lease events Consolidation Obsolescence / Permitted development Elizabeth Line opening rating revaluation sq ft (million) Lettings (McKay market area) 5 year average (Q3) lease breaks / expiries Lettings > 80,000 sq ft = 14.8m sq ft / 768 no Named demand (Q3) Source: Strutt & Parker MKS / NOV 2017 / 27

28 CROSSRAIL 2018/2019 IMPROVING ACCESS TO LOWER OCCUPANCY COSTS ( psf) Total occupancy Reading Maidenhead West End City ELIZABETH LINE (CROSSRAIL) Reading 0 Maidenhead 12 Slough 21 Hayes & Harlington 33 Ealing Broadway 42 Paddington 50 Bond Street 53 Liverpool Street 58 Canary Wharf 67 MAINLINE (Change to Crossrail) CURRENT MKS / NOV 2017 / 28

29 SOUTH EAST OFFICES: LIMITED SUPPLY IN MOST CENTRES Historically low supply levels New / grade A supply: 7.1m sq ft / 8.4% 20 (Q1/2017: 7.9%) New supply: 2.4m sq ft / 2.9% (Q1/2017: 2.7%) 15 Grade A vacancy (%) New vacancy (%) 81% of centres with 5% vacancy (new) Development response in key centres, but pipeline now constrained % vacancy 10 March 2011 (8.9%) average vacancy September 2017 (8.4%) average vacancy Continued conversion to residential (PD) 5 Source: Strutt & Parker 0 Weybridge Slough Uxbridge Marlow Bracknell Reading Maidenhead Leatherhead / Dorking Chertsey Heathrow Guildford Egham / Staines Oxford Crawley Blackwater Valley Redhill / Reigate Woking Watford High Wycombe Basingstoke Windsor MKS / NOV 2017 / 29

30 CITY OF LONDON 1 : NEW SUPPLY COMING THROUGH, BUT OFF LOW LEVELS 2017 lettings: 4.1m sq ft YTD % up on Q Q3/2017 demand: 4.0m sq ft 20 Take up Supply City core prime rent 80 Up 10% YTD 1.5% above 5 yr average New / Grade A supply (Q3/2017): 2.6m sq ft Low vacancy rate of 3% sq ft (million) rent per sq ft 14% below 5 yr average 5 40 New / Grade A take up: 2.7m sq ft 5 yr average Development pipeline 2 4.8m sq ft under construction (2.3)m sq ft pre-let (48%) 2.5m sq ft speculative 1. City core and fringe 2. Completions: September 2017 December 2018 Source: Knight Frank MKS / NOV 2017 / 30

31 CONTENTS Introduction 3 Financial review 6 Portfolio review 15 Market review 26 Outlook 31 Appendix 33 MKS / NOV 2017 / 31

32 OUTLOOK RELEASE OF PORTFOLIO POTENTIAL TO GENERATE FURTHER SHAREHOLDER RETURNS INCOME Clear strategy for growth to enhance progressive dividend policy 38.2% ( 9.43m pa) portfolio reversion to deliver income / capital gains 7.1% reversionary yield Diverse portfolio in resilient markets Active, in-house management with proven track record NAV Crystallisation of portfolio reversion / ERV generally to drive gains Release of development and refurbishment surplus Strong balance sheet and financing to support initiatives UNDERPINNED BY SPECIALIST PORTFOLIO FOCUS MKS / NOV 2017 / 32

33 CONTENTS Introduction 3 Financial review 6 Portfolio review 15 Market review 26 Outlook 31 Appendix Rental value movement 34 Capital value movement 35 Sustainability 36 Contacts 37 MKS / NOV 2017 / 33

34 RENTAL VALUE MOVEMENT 6 months to 30th September March 2017 portfolio ERV m pa Sept 2017 portfolio ERV m pa 6 month movement IPD 2 movement London offices % 0.2% South East offices % 1.3% Total offices % 0.6% South East industrial % 4.7% Other % Total (excl. dev) % 0.9% 3 Developments % Total portfolio % 1. Segments analysed by IPD geographical area, exc dev 2. IPD Monthly Index movement by segment where applicable. IPD London = City segment 3. IPD Monthly index (All property) 4. Inc. 9 Greyfriars Rd, Reading MKS / NOV 2017 / 34

35 CAPITAL VALUE MOVEMENT 6 months to 30th September March 2017 portfolio CV m Sept 2017 portfolio CV m 6 month movement IPD 2 movement London offices % 1.5% South East offices % 1.8% Total offices % 1.4% South East industrial % 7.6% Other % Total (excl. dev) % 2.2% 3 Developments % Total portfolio % 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. Inc. 9 Greyfriars Rd, Reading MKS / NOV 2017 / 35

36 SUSTAINABILITY THE GROUP ACHIEVED 80% OF ITS 2017 TARGETS Highlights: Achieved a 13% reduction in carbon emissions, a 19% reduction in gas consumption and an 11% reduction in water consumption on a like-forlike basis EPC risk reduced, with only 1% of the portfolio (by ERV) falling below an E-rating 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 For 2018, we have set ourselves 19 new targets, and renewed our commitment to our 5 long-term goals to 2020 for energy, carbon, water and waste. 5 of these 19 targets 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 three sustainability related CPD sessions to increase awareness of key issues amongst employees. Introduce building awards/competition to encourage uptake of sustainability practices. Highlights Achieved BREEAM Outstanding and EPC A ratings at 9 Greyfriars Road, Reading (39,620 sq ft) Achieved BREEAM Excellent and EPC A at Prospero, Redhill (50,370 sq ft) Highlights: Achieved GRESB Green Star status for the first time, improving the Group s score by 28 points in comparison to Conduct a review of major operational material spend categories and investigate establishing minimum sustainability procurement requirements based on the results. Maintain or enhance McKay s performance in the Global Real Estate Sustainability Benchmark. MKS / NOV 2017 / 36

37 CONTACT INFORMATION Simon Perkins Chief Executive Officer Joined in 2000 after 10 years with Arlington Securities plc. Appointed CEO in Giles Salmon Chief Financial Officer Joined in 2011, from BAA Lynton. Appointed Finance Director in August Address: McKay Securities PLC 20 Greyfriars Road Reading Berkshire RG1 1NL tel: fax: Website: Tom Elliott Property Director Joined in 2016 after 10 years with Land Securities plc. Appointed Property Director in April November 2017 MKS / NOV 2017 / 37