TIDMMCKS
RNS Number : 9143Y
McKay Securities Plc
18 May 2021
SOUTH EAST REGIONAL FOCUS, UNDERPINNED BY ROBUST TRADING AND
ACHIEVEMENT OF KEY MILESTONES, LEAVES McKAY WELL PLACED FOR THE
FUTURE
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 Full
Year results for the year ended 31 March 2021.
Financial Highlights
-- Adjusted profit before tax up 2.4% to GBP9.96 million (31 March 2020: GBP9.73 million)
-- Adjusted earnings per share increased by 2.3% to 10.56 pence (31 March 2020: 10.32 pence)
-- IFRS loss before tax of GBP16.58 million (31 March 2020:
GBP9.49 million profit) due to a valuation deficit compared with a
surplus in the comparable period
-- EPRA EPS: 10.21 pence (31 March 2020: 10.60 pence)
-- Gross rental income down 2.1% to GBP24.62 million (31 March
2020: GBP25.16 million) following disposals in the current and
prior period
-- Portfolio ERV GBP31.45 million (31 March 2020 GBP34.91
million) down 2.0% on a like for like basis
-- IFRS NAV per share down 5.8% to 309 pence (31 March 2020: 328 pence)
-- Portfolio valuation of GBP437.90 million (31 March 2020:
GBP510.00 million), resulting in a 4.7% valuation deficit of
GBP21.58 million
-- EPRA NTA down 6.1% to 309 pence per share (31 March 2020: 329 pence)
-- LTV reduced to 32.4% (31 March 2020: 37.6%) following the
disposal of 30 Lombard Street, EC3 for GBP70.06 million (net)
-- Cash and undrawn facilities of GBP103.25 million, well placed for new opportunities
-- Share buy-back programme of up to GBP10.00 million (announced
in March 2021) underway, accretive to both NAV and EPS
-- 538,542 shares acquired by the year-end at a cost of GBP1.15 million
-- Final dividend up 25.0% to 5.5 pence per share (31 March
2020: 4.4 pps), making a total dividend for the year of 8.3 pence
per share (31 March 2020: 7.2 pps)
Portfolio and Operational Highlights
-- ESG - Defined pathway towards reducing carbon across portfolio
o Company entering the next stage of its ESG journey through the
announcement today of its 2021 Net Zero Carbon Pathway which
provides details of its target to reduce the use of carbon across
the portfolio
o ESG ambitions build on established track record, recognised
through achieving a GRESB (Global Real Estate Sustainability
Benchmark) Green-Star award for the fifth year running, and BREEAM
Excellent rating at 135 Theale Logistics Park
-- Strong rent collection and robust leasing activity
o Strong rent collection throughout the period, with 98.0% of
contracted rent received or agreed
o 18 open market lettings completed at a combined contracted
rent of GBP2.56 million pa, marginally ahead of ERV
o 10 year lease completed with Amazon at 135 Theale Logistics
Park (135,095 sq ft)
o 34 lease renewals at a contracted annual rent of GBP3.87
million pa, securing a 10.4% uplift, including 37,400 sq ft at Swan
Court, Wimbledon to D&G on a new 10 year lease
o Circa 75% of occupiers choosing to remain with McKay at lease
break or expiry over the period despite the challenging
backdrop
o Portfolio occupancy decreased slightly from 88.7% to 85.3%,
providing scope to grow income through planned asset management
initiatives
-- Acquisitions and active asset management driving future rental growth:
o Acquisition of Willoughby Logistics Park, Bracknell,
comprising two fully let modern, self-contained units totalling
54,157 sq ft for GBP10.00 million (5.6% yield)
o McKay+ refurbishments continue to attract new occupiers to the
portfolio, including Maersk Line UK Limited who signed a five year
lease on the 6(th) floor of Portsoken House, EC3 at a contracted
rent of GBP0.98 million pa
o Refurbishment of two floors at Corinthian House, Croydon
completed with terms agreed on 51.0% of the new accommodation above
ERV, reflecting McKay's ability to grow income through active asset
management
o Lease expiries at Sopwith Drive, Weybridge (logistics: 63,140
sq ft) in March 2021 and at Great Brighams Mead, Reading (office:
84,840 sq ft) in April 2022 provide pipeline scope for future
refurbishment, redevelopment or sale
o 28.0% of portfolio now weighted towards the industrial and
logistics sector (31 March 2020: 18.0%), which continues to benefit
from the accelerated rise in e-commerce
Simon Perkins, Chief Executive of McKay, said:
"McKay has delivered another positive set of results against a
market backdrop that continues to be dominated by Covid-19,
reflecting the portfolio's resilience during these challenging
market conditions. As a result of our active asset management
efforts, we exit the third lock down with a reduced LTV compared
with twelve months ago, having completed a meaningful level of
lettings and lease renewals at or above ERV, as well as achieving a
number of substantial milestones. These included the sale of 30
Lombard Street, EC3; the letting of Theale Logistics Park to Amazon
within six months of completion; and the acquisition of Willoughby
Logistics Park, Bracknell, which has increased our portfolio
weighting in the industrial and logistics sector to 28.0%.
"The successes we have achieved in office leasing this year
reinforces our conviction that the office will continue to play an
essential role within corporate life, while our assets, due to both
their location and specification, remain well placed to support
hybrid working practices as these evolve. We remain active in
recycling our capital to drive income potential both in terms of
refurbishment of vacant floorspace and acquisitions. The pace of
recovery and market sentiment will influence the speed at which we
are able to recycle capital from recent disposals. However with our
South East focus, portfolio strength and substantial cash and
undrawn facilities, we believe we are well positioned to benefit
from this recovery and to respond quickly as opportunities present
themselves."
Webcast Conference
There will be an audio webcast presentation for analysts at
11.00am today, hosted by Simon Perkins, Chief Executive Officer of
McKay Securities, together with Giles Salmon, Chief Financial
Officer, and Tom Elliott, Property Director and Head of
Sustainability.
If you would like to join the webcast please use the
registration link below:
https://webcasting.brrmedia.co.uk/broadcast/608adfff0386285386ccc59c
Date: 18 May 2021
-S -
NOTE:
For reconciliation of adjusted profit before tax see note 4
below
For reconciliation of adjusted basic earnings per share see note
8 below
For reconciliation of NAV (EPRA) see note 21 below
LTV - Loan to value, being net debt as percentage of portfolio
value
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 31 March 2021 comprised 33 properties, valued at
GBP437.90 million, located in established areas, predominantly
along the M4 corridor, where McKay has deep expertise, with a focus
on growing satellite towns benefitting from strong connectivity 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 final dividend
of the Ordinary Shares is as follows:
Ex dividend date 27 May 2021
Record Date for the final dividend 28 May 2021
Report and Financial Statements dispatched to Shareholders 2 June 2021
with Notice of AGM
Annual General Meeting to be held at The Royal Thames 1 July 2021
Yacht Club, 60 Knightsbridge, London SW1X 7LF
Final dividend paid 22 July 2021
A final dividend of 5.5 pence per share is recommended by the
Board making a total dividend for the year of 8.3 pence per share
(31 March 2020: 7.2 pps). The final dividend will be paid as an
Ordinary Dividend.
Chair's Statement
Overview
What an extraordinary year we have lived through! McKay has
navigated this challenging environment well and so I am pleased to
be able to report on a positive set of results which reflect a
strong operational performance and the achievement of significant
milestones following the sale of 30 Lombard Street, EC3 and the
letting of 135 Theale Logistics Park, both on excellent terms.
Our strategic focus on the office, industrial and logistics
sectors of the South East and London, the most economically
resilient regions in the country, and a lack of exposure to the
retail and hospitality sectors, has insulated us from the worst
impact of the Covid-19 pandemic. Our industrial and logistics
assets have performed well, benefitting from both our in-house
management initiatives and the increase in on-line retail activity,
with higher occupational demand driving rental and capital growth.
The office market has been more challenging, and many of our
buildings have not been occupied by their tenants for over a year
due to the Government's 'work from home' policy. This has
contributed to a reduction in office values, and held back our
ability to maintain business growth.
The increase in working from home during the pandemic has
generated much debate over future demand for the office, which is
clearly of key importance to us with a 66.6% portfolio weighting to
the sector. Working practices will continue to evolve, and whilst
there will inevitably be change, we remain confident that the
office market will recover as the country is released from
lockdown. Our South East office assets are well placed to meet this
evolving demand, strategically positioned to offer high quality,
flexible business space with good environmental credentials in well
established regional centres.
During the year under review, the three strategic priorities
that we have been focused on in view of the Covid-19 trading
environment were:
-- Continued operational efficiency
-- Positioning for growth post Covid-19
-- Continued delivery of our ESG commitments
Continued operational efficiency
With the country in lockdown and at a standstill at the
beginning of the financial year, our team responded quickly and
effectively to maintain operational efficiency and to protect the
profitability of the business. This was achieved without government
aid and without the need to furlough any of our employees. The
relationships built up over many years with our occupiers as a
result of our in-house management model helped during this
challenging period, enabling us to collect 96.0% of contracted rent
for the financial year (with a further 2.0% due under agreed
payment plans), and to maintain a high 74.3% occupier retention
rate at lease break and expiry, which compares to 80.0% retention
in 2020.
This activity, combined with the benefit of income from recent
acquisitions and developments, contributed to stable net rental
income for the year of GBP21.63 million (31 March 2020: GBP21.98
million) and a 2.4% increase in adjusted profit before tax to
GBP9.96 million (31 March 2020: GBP9.73 million).
The independent valuation of the portfolio at the end of the
period totalled GBP437.90 million (31 March 2020: GBP510.00
million). After taking into account capital expenditure, disposals
and acquisitions, this reflects a 4.7% valuation deficit for the
year of GBP21.58 million (31 March 2020: GBP0.11 million surplus),
with the pace of decline slowing in H2 following a 3.4% deficit
recorded in the first half. The deficit for the year, which is
covered in more detail in the Property and Finance Review, was
mainly due to the reduction in the valuation of our office assets.
This was partially offset by a positive performance from our
industrial and logistics assets, which now account for GBP122.4
million (28.0%) of the portfolio (31 March 2020: 18.1%).
Our weighting to the industrial and logistics sector has
increased following the acquisition of Willoughby Logistics Park,
Bracknell and a strong performance on completion of development and
the letting at 135 Theale Logistics Park, Reading. The timing of
this scheme has proved excellent, and we secured a letting of the
whole asset to Amazon on a ten year term shortly after practical
completion, at a rent of GBP1.51 million pa. The quality of the
scheme and the letting terms achieved resulted in a 42.7% (GBP10.88
million) valuation surplus for the period, and a 49.5% profit on
cost for the scheme.
Inclusion of the unrealised valuation movement is primarily
responsible for the IFRS loss before tax of GBP16.58 million (31
March 2020: GBP9.49 million profit), and the 6.1% reduction in EPRA
net tangible asset value per share ('EPRA NTA') to 309 pence (31
March 2020: 329 pence). IFRS NAV per share reduced by 5.8% to 309
pence (31 March 2020: 328 pence).
Growth prospects post pandemic
We began the year with cash and undrawn facilities of GBP53.25
million providing us with the headroom for acquisitions, or other
value enhancing opportunities. The sale of 30 Lombard Street, EC3
which completed in September 2020, achieved an excellent headline
price of GBP76.50 million, reflecting an initial yield of 4.2%.
This sale significantly strengthened the balance sheet at the end
of the year with reduced loan to value ('LTV') of 32.4% (31 March
2020: 37.6%) and increased cash and undrawn facilities for
opportunities to GBP103.25 million.
Despite the negative impact on the economy of Covid-19, there
have been few forced sellers in the market so far. Acquisition
opportunities in the office sector have been limited as vendors
wait for buildings to be reoccupied, whereas the high investor
demand for warehouse and logistics assets has pushed pricing to
record levels. Over the period we adopted a patient and selective
approach, looking for accretive opportunities in our core South
East and London markets to offset the GBP1.35 million of rental
income that 30 Lombard Street contributed to the year, whilst
maintaining a prudent balance sheet.
This approach led to the off-market acquisition of Willoughby
Logistics Park, Bracknell (54,157 sq ft) in August 2020 for
GBP10.00 million at a 5.6% yield. The two units are let until 2024
and provide scope for rental growth at expiry and medium term
redevelopment potential.
Within the existing portfolio, we invested GBP6.71 million
across a range of refurbishment projects to upgrade both the
quality and environmental credentials of our assets. These targeted
works have improved the rental values and letting prospects of
these assets and have contributed to the 22.8% (GBP5.84 million pa)
reversionary income potential remaining in the portfolio at the end
of the period, being the difference between contracted rent of
GBP25.61 million pa and the GBP31.45 million pa full rental value
('ERV') of the portfolio. This portfolio potential includes our
logistics asset at Sopwith Drive, Weybridge (63,140 sq ft) which
was vacated by a parcel distributor at the end of the period, and
two floors at our office asset Swan Court, Wimbledon (16,400 sq ft)
that we took back as part of the successful lease re-gear in
January 2021. Refurbishment works and possible redevelopment in the
case of Weybridge are planned to secure a combined ERV of GBP1.63
million pa.
Looking further ahead, it has now been confirmed that our tenant
at Great Brighams Mead in central Reading (84,840 sq ft), which has
been in occupation since the Company developed this office building
in 2000, will vacate at lease expiry in March 2022. We are looking
at a range of possible alternatives including a comprehensive
office refurbishment, conversion to residential and other
alternative uses which will determine whether we retain or sell the
asset.
We have been frustrated by the share price discount resulting
first from Brexit and then Covid-19 which triggered a significant
decrease in share prices across the sector, which subsequently
recovered to varying degrees dependent on market exposure. As one
of a number of possible initiatives to help close the discount, we
reviewed the possibility of a share buy-back throughout the year
whilst waiting to establish a better feel for how Covid-19 was
likely to impact on market conditions and business progress. In
March 2021, with improved clarity on these issues in particular, we
announced a share buy-back up to the value of GBP10.00 million,
which equates to circa. 5.0% of the issued share capital.
By the year end, the buy-back programme had acquired 538,542
shares at an average price of 213 pence per share, which has proved
accretive to both net asset value and earnings per share. We will
keep the programme under review, ensuring that it continues as an
efficient and effective means of generating value for
shareholders.
Continued focus on our ESG commitments
ESG considerations have been a part of our decision making since
we adopted our first sustainability strategy in 2013 in response to
the shift in market demand to more environmentally friendly
buildings. We reviewed our approach in 2019 and introduced a new
ESG framework: "The Right Choice for a Sustainable Business", with
three key priorities:
-- Low carbon, resource efficient and healthy buildings
-- A customer-focused and flexible landlord
-- A progressive and transparent business
These priorities are integral to our strategy, supporting our
commercial objectives and targeting the highest standards of
corporate governance. Our positive performance against these
priorities and externally set independent targets is set out in
detail in our 2021 Sustainability Review in our Annual Report and
Financial Statements, and on our website. Of particular note is the
achievement of the high 4-star rating in our 2020 GRESB score, the
BREEAM excellent rating achieved at 135 Theale Logistics Park, and
the target to reduce the use of carbon across our business, which
we plan to deliver with our 2021 Carbon Net Zero Policy announced
today.
Board and employees
I am very pleased to welcome Helen Sachdev to the Board as an
independent Non-Executive Director with effect from April 2021.
Helen has considerable experience gained from a range of sectors,
including real estate, and her knowledge and experience will be
very helpful as we all emerge from the current pandemic. After a
period of stability, the appointment marks the first stage in
succession planning to maintain an independent board.
I would like to thank my Board colleagues for their support,
particularly through the early stages of the pandemic when we held
weekly meetings to discuss the impact on the business.
The pandemic created substantial challenges for our employees,
and I would also like to thank them for their dedication and the
impressive results that their efforts have delivered.
Dividend
The Board is recommending a final dividend of 5.5 pence per
share. This represents a 25.0%% increase compared with the final
dividend paid last year (31 March 2020: 4.4 pence), and takes the
full year dividend to 8.3 pence per share, an increase of 15.3%
over last year (31 March 2020: 7.2 pence).
Although we remain in a period of economic uncertainty, and the
full impact of the pandemic remains to be seen, the Board considers
this increase is justified based on the strong operational
performance over the period, and the improved visibility of market
conditions.
Outlook
As we work our way out of the third lockdown, there are clear
signs that the speed of the national vaccine roll out is having a
positive effect on the economy and corporate confidence. Current
Government policy allows a full return to the workplace from mid
June, and as this gathers pace, we expect activity across our
markets to increase.
We believe that this activity will confirm the essential role of
the office in corporate life, benefitting our office assets which
are well placed in terms of specification and geography to support
the hybrid working practices that will continue to evolve.
The pace of recovery and future market sentiment will influence
our ability to replace earnings from recent disposals with new
lettings and acquisitions. With our well positioned portfolio and
substantial cash and undrawn facilities, we have maintained the
ability to benefit from this recovery and to respond as
opportunities present themselves.
Richard Grainger
Chair
Chief Executive's Review
Overview
Our initial challenge this year was to make the necessary
operational adjustments in response to Covid-19 to maintain the
safety of our team and occupiers, whilst ensuring the efficient
running of the business.
The operating system that we put in place worked effectively
from the outset, with recent investment in our IT systems enabling
all staff to access Company networks remotely without difficulty.
In between lockdowns, all but the most vulnerable of our team were
working from the office, facilitated by being able to drive to work
to our self-contained and secure low rise headquarters in
Reading.
Faced with so much uncertainly, it was reassuring that the
business was well capitalised and that our portfolio was focused in
well established centres of the South East and London, with
occupier diversity across the office, industrial and logistics
sectors.
Moreover, we were pleased to complete the sale of 30 Lombard
Street, EC3 and to let 135 Theale Logistics Park on such good
terms.
The benefits of our in-house, internal management model were
particularly apparent during the crisis. The close work with our
occupiers secured high levels of rent collection and occupier
retention, and resulted in many positive endorsements in our
Occupier Survey carried out in mid 2020. In addition we continued
to invest in the portfolio to benefit from likely trends in office
occupier demand, particularly with our McKay+ offer and
sustainable, flexible, business space.
Continued focus on the South East and London
We remain confident in our strategic focus in our core markets.
We have extensive knowledge of these markets which are supported by
a strong regional economy that contributes 39.0% of the national
GVA, built on specialisation in high value and high technology
sectors. The two regions support 9.4 million workers, 30% of the
national total, and have a higher density of businesses than in the
rest of the country and we believe this should support economic
recovery and occupier demand as pandemic restrictions ease.
Market review
From the first lockdown at the beginning of the year, the office
market stalled, whereas the industrial and logistics sector
continued to operate benefitting from the boom in on-line shopping.
This mix of fortunes contributed to a 2.6% reduction in our office
portfolio ERV over the period and an 11.8% valuation deficit,
whereas the ERV for our industrial and logistics assets held over
the period (excluding developments) increased by 2.6% and their
valuation by 9.0%. Overall, the portfolio valuation deficit was
4.7% (MSCI All Property Index: -2.9%) and the ERV for properties
held over the period was down 2.0% (MSCI All Property Index:
-2.0%).
The valuation deficit of our office portfolio was greater than
the -6.1% MSCI All Property Index performance, which contributed to
the relative under performance of the portfolio as a whole. This
was due in part to the number of planned office refurbishment
projects either completed or underway where we are carrying out
upgrading works to improve rental prospects, and to deliver future
value. However current values were particularly exposed to more
cautious valuation assumptions to reflect the Covid-19 trading
environment. This also applied to forthcoming lease expiries, as
covered in more detail in the Property and Financial Review.
The fall in office values was partially offset by the valuation
gains in our industrial and logistics assets, including a
substantial 42.7% (GBP10.88 million) surplus following the letting
success at 135 Theale Logistics Park. This took the valuation
surplus for this segment of the portfolio to 18.1%.
Investor appetite reflected these sector variations, with demand
from a wide range of investors outstripping the supply of
industrial and logistics opportunities and pushing pricing to
record levels. With the office market on pause, office transactions
have been limited and values have fallen, with the exception of low
risk assets with secure, long term income, where investor demand
remains strong.
The largest segment of our portfolio is South East offices
(53.8%), located predominantly along the M4 corridor. Named
occupier demand at the end of the period, as monitored by BNP
Paribas, totalled 2.25 million sq ft. This was an encouraging 24.9%
increase over the previous quarter, but still 33.0% below the five
year average of 3.37 million sq ft. Annual take up of 1.31 million
sq ft for 2020 in our market area suffered as a result, being 36.4%
below the five year average of 2.06 million sq ft and on a par with
2009, the lowest on record since 2000. Of this take up, 72.9% was
for unit sizes below 60,000 sq ft, and 66.5% was for new or Grade A
space. This continues the trend that we have reported on for a
number of years of occupier demand for better quality floor space
in smaller unit sizes.
With a lower level of letting activity over the year, supply in
this market increased to 8.80 million sq ft, representing a vacancy
rate of 9.4% (31 March 2020: 7.4%), but still well below the peak
vacancy rate following the GFC of 14.2% in 2014. The low vacancy
rate of 2.3% for new buildings (31 March 2020: 1.8%) continues to
limit occupier choice and the speculative pipeline of new schemes
is likely to remain restricted until the demand outlook is
clearer.
Following the sale of 30 Lombard Street, the value of our
remaining three central London buildings accounts for 12.8% of the
portfolio (31 March 2020: 24.7%). Each asset continues to provide
opportunities for income and capital growth, which we will monitor
as the central London occupational market becomes clearer.
Office demand - all change?
As noted above, demand and letting activity in the South East
office market has reduced this past year, and there has been much
discussion regarding the impact of Covid-19, and the working from
home experience in particular, on future occupier trends.
Around 30% of the workforce in the South East and London was
already working from home some of the time prior to the pandemic,
with the proportion rising to around 50% during the first lockdown.
Hybrid working patterns will evolve from this, and although the
number of employees in the office full time may reduce, this is
likely to be offset by lower occupational densities to create safer
working environments.
We believe that demand has been deferred rather than lost. To
best position ourselves to benefit when it returns, the key
considerations we are addressing are:
-- How will offices be used in the future? The use of the office
will vary between business size and type, but remain essential as a
strategic tool in the management of most businesses. It is likely
to be more of a collaborative space to enforce business identity
and to encourage team-work and the effective integration of new and
younger employees.
-- What type of business space will be in demand? We expect the
majority of demand to be for safe, sustainable and smart buildings
of quality that help attract and retain employees. Ease and
flexibility of occupation will be important considerations, as well
as ease of access and local amenities. Letting activity is likely
to remain predominantly for new and Grade A floor space within the
sub 60,000 sq ft size range. A shift to shorter commuting could
also result in decentralisation.
-- How do we meet occupier expectations? Occupiers will expect a
high quality service from their landlord to support the concept of
the office being a welcoming, central and integral part of their
business. Track record and customer focus will be key.
Many of these requirements reflect trends that we were seeing
before the pandemic, and responding to with the quality and
specification of our buildings and the delivery of high levels of
service set out in 'The McKay Way' by our in-house occupier
services team.
With our office properties located mainly in outer London and
the South East, we are also able to offer a cost effective
alternative should occupiers decide to decentralise to reduce
exposure to congested public transport and long travel to work
times. Construction of the Elizabeth Line from central London to
Reading, once opened, will enhance our offer with improved
connectivity.
Sustainability and ESG will play a key role
The importance of ESG considerations, and the environmental
credentials of business space, will continue to increase. These
considerations are integral to our decision making with regard to
portfolio properties and the way that we run the business more
generally.
Our 2021 Sustainability Review, available on our website,
provides full details of our ESG policy and progress during the
year. This includes the publication of our 2021 Net Zero Carbon
commitment announced today, which sets out a number of ambitious
targets in relation to our existing portfolio and future projects
to support the delivery of our core sustainability objective of
creating low carbon, resource efficient buildings.
We will continue to work on these ESG and property initiatives,
such as our McKay+ offer of ready to occupy floor space, short form
leases and fully connected buildings.
The year ahead
Within the existing portfolio, we look forward to improved
confidence from the road map out of lockdown and the continued roll
out of the vaccination programme driving a pick up in leasing
activity of current vacancies and future refurbishments. The lease
break exercised at Sopwith Drive, Weybridge provides scope for a
major refurbishment or redevelopment of this 1980s warehouse, and
at Great Brighams Mead, Reading we are considering a range of
options to evolve a strategy ahead of lease expiry in March
2022.
With substantial cash and undrawn facilities, we will continue
to progress portfolio initiatives and look for earnings and value
accretive acquisitions in our core markets to offset the planned
reduction in earnings from the sale of 30 Lombard Street. Full use
of this headroom will be governed by maintaining a level of gearing
appropriate to the macroeconomic climate and evolving outlook. We
will also continue to closely monitor occupier demand and the
possibility of recycling capital through further disposals, and
maintain the current share buy-back programme while it continues to
be an effective and efficient means of generating shareholder
value.
Simon Perkins
Chief Executive Officer
Property and Financial Review
Introduction
As at 31 March 2021 our portfolio consisted of 33 assets with an
independent valuation of GBP437.90 million. The majority of the
portfolio falls within the office sector, but through a combination
of development and valuation gains as well as the recycling of
capital, we have increased our weighting over the year to the
industrial and logistics sector. By value the breakdown is now
66.6% offices, 28.0% industrial and logistics and 5.4% other with
no retail exposure (31 March 2020: 77.1%, 18.1% and 4.8%
respectively). See Table 1.
Together with selling our largest asset and letting our most
recent development project, Covid-19 and its repercussions have
dominated this year. Operationally our business model of managing
all our assets internally, rather than using third party managing
agents, allowed us to respond with agility and resilience. With
this business model, we know our tenants well and as a result we
knew very quickly where to help, how to help and where to remain
firm. In a crisis more economically damaging than the GFC, we
maintained a strong tenant retention rate with 74.3% of our
occupiers choosing to remain with McKay at lease break or expiry;
collected or agreed plans for 98% of our annual rent; renewed 34
leases; secured 18 open market lettings; and achieved a positive
customer survey with 90% of our occupiers happy with their direct
McKay relationship.
Our total occupancy has fallen to 85.3% (31 March 2020: 88.7%)
and there are two clear reasons for this. Firstly in February 2021
Hermes operated their break clause at Sopwith Drive in Weybridge
(63,140 sq ft / GBP0.65 million pa contracted rent) which they had
occupied for many years, in order to relocate to a larger unit. The
industrial and logistics sector is currently very strong from both
an occupational and investment perspective and this lease break
frees up a prime development / refurbishment opportunity for
us.
Secondly, while we successfully negotiated with our largest
occupier, Domestic & General, to renew their occupation for a
further five years at Swan Court in Wimbledon, they did hand back
30% of the building (ground and first floors totalling 16,400 sq
ft) which they had not been using for some years. These floors will
be refurbished and delivered into this popular under-supplied
Greater London sub-market in the autumn.
These two new vacancies represent 5.2% of the overall portfolio
ERV as at 31 March 2021.
We believe the office remains critical to business continuation
and that the best and most engaging office space will remain in
demand from businesses keen to attract and retain staff. As a
result, we shall continue to upgrade and invest in our assets when
vacancies occur to meet that demand.
Table 1: Properties
Properties % of Portfolio
================= ============= ========== ==============
Office London 3 12.8%
Office South East 17 53.8%
================= ============= ========== ==============
Total Office 20 66.6%
Industrial South East 9 28.0%
================= ============= ========== ==============
Total Industrial 9 28.0%
Other Health 1 1.3%
Other Leisure 1 3.1%
Other Residential 2 1.%
================= ============= ========== ==============
Total Other 4 5.4%
================================ ========== ==============
Overall Total 33 100.0%
================================ ========== ==============
Sustainability and ESG
We continue to recognise how important sustainability is to
potential and existing occupiers, our investors, our employees and
indeed all our stakeholders.
We are particularly proud this year to have achieved a 4* GRESB
(Global Real Estate Sustainability Benchmark) rating, placing us in
the top 40% of those who choose to be measured by this renowned
benchmark.
Our 2021 Sustainability Review, included within our Annual
Report and Financial Statements and available on our website,
provides extensive detail of our ambitions and achievements under
the three pillars for a sustainable business, the Environment,
Social awareness and Governance (ESG).
Development
We completed 135 Theale Logistics Park (135,095 sq ft) in April
2020 and, with Covid-19 limiting mobility, we immediately stepped
up our digital marketing campaign and successfully secured a
letting of the whole scheme to Amazon. This lease completed in
September 2020 for a ten year term with an option to extend for a
further ten years to this strong covenant at GBP1.51 million pa,
marginally ahead of 31 March 2020 ERV ("ERV") with a fixed uplift
at the fifth year review. This resulted in a year end valuation
surplus of GBP10.88 million which delivered a profit on cost for
the development of 49.5%.
Asset management
Portfolio
We have always had a very active, hands-on approach to asset
management which has benefited us in a year when occupiers need
flexibility, potential reorganisations and above all a regular
constructive dialogue with their landlord. Given the difficulty
many occupiers have faced, during the year we negotiated many more
lease renewals than a typical year (34 compared to the average of
the previous two years of 17) at a contracted annual rent of
GBP3.87 million pa (an uplift of 10.4% over the previous passing
rent). The Covid-19 related agreements, in particular, had the
win-win benefit for both us and our occupiers by introducing a rent
free period now in return for a longer lease. Added to this, we
achieved 18 open market lettings at a combined contractual rent of
GBP2.56 million pa, marginally ahead of ERV, providing a total
contracted rent (excluding acquisitions and disposals) of GBP25.02
million pa (31 March 2020: GBP24.93 million pa).
Offices
Within our office portfolio, the most significant lease renewal
was at Swan Court, Wimbledon (57,500 sq ft) which has been the
headquarters of Domestic & General (D&G) since we built the
office building in 2006. Their lease expiry was February 2021 and
in recent years they had sub-let the ground and first floors
(16,400 sq ft). In January 2021 we exchanged an agreement to lease
floors 2-5 (37,400 sq ft) on a ten year lease with a fifth year
tenant break at a contracted rent of GBP1.76 million pa which will
commence on completion of planned landlord upgrade works to the
common parts at the end of the summer. The works will significantly
enhance the look and feel of the building improving the lettability
of the remaining ground and first floors which we will refurbish
simultaneously.
Across selected parts of our office portfolio we continue to
attract occupiers with the McKay+ specification. This provides the
middle ground between conventional accommodation and serviced
offices enabling speed and flexibility of occupation with no middle
man or hidden costs and is managed directly by us, while at the
same time giving the occupiers their own identity and privacy. At
the Mille in Brentford (96,700 sq ft) this model attracted a tenant
out of serviced accommodation into the entire 6th floor (8,174 sq
ft) at a contracted rent of GBP0.18 million pa on a ten year lease
with a tenant break at the end of the third year.
Further McKay + refurbishments attracted two new significant
occupier names to the portfolio. Maersk Line UK Limited signed a
five year lease on the 6th floor (1,870 sq ft) at Portsoken House,
EC3 at a contracted rent of GBP0.98 million pa and Sedgewick
International UK committed to the final vacant suite (4,112 sq ft)
at Prospero in Redhill on a ten year lease at a contracted rent of
GBP0.13 million pa.
Table 2: Capital Value Movement
March 2021 March 2020 12 month
portfolio portfolio 1 MSCI 2
12 months to 31 March 2021 GBPm GBPm Movement Movement
================================ ========== ========== ========= =========
London offices 56.00 58.55 (5.9)% (2.6)%
South East offices 235.60 267.30 (13.0)% (6.1)%
================================ ========== ========== ========= =========
Total offices 291.60 325.85 (11.8)% (5.6)%
South East industrial/logistics 75.25 68.35 9.0% 10.3%
Other 23.90 23.80 0.3% -
================================ ========== ========== ========= =========
(2.9)%
Total (excl. dev) 390.75 418.00 (7.7)% 3
Developments4 36.35 24.00 42.7%
================================ ========== ========== ========= =========
Total portfolio (like for
like) 427.10 442.00 (4.8)% (2.9)%
Disposals - 68.00
Acquisitions 10.80 -
================================ ========== ========== ========= =========
Total (overall) 437.90 510.00 (4.7%) (2.9%)
================================ ========== ========== ========= =========
Valuation yields
================================ ========== ========== ========= =========
Initial 4.8% 4.0%
Initial (topped up) 5.5% 5.2%
Reversion 6.7% 6.4%
Equivalent 6.1% 5.7%
================================ ========== ========== ========= =========
1 Valuation movements (%) after allowing for cap-ex incurred during the period
2 MSCI Monthly Index by relevant sector. London = MSCI City sector
3 MSCI Monthly Index (All property)
4 Theale Logistics Park
Table 3: Rental Value Movement
March 2021 March 2020
portfolio portfolio 12 month MSCI 1
12 months to 31 March 2021 ERV GBPm pa ERV GBPm pa Movement Movement
================================ ============ ============ ========= =========
London offices 3.66 3.75 (2.5)% (0.8)%
South East offices 20.60 21.15 (2.6)% (0.6)%
================================ ============ ============ ========= =========
Total offices 24.26 24.90 (2.6)% (0.6)%
South East industrial/logistics 4.07 3.96 2.6% 3.4%
Other 1.00 1.14 (11.9)% -
================================ ============ ============ ========= =========
(2.0)%
Total (excl. dev) 29.33 30.00 (2.2)% 2
Developments3 1.51 1.48 2.3%
================================ ============ ============ ========= =========
Total portfolio (like for
like) 30.84 31.48 (2.0)% (2.0)%
Disposals - 3.43
Acquisitions 0.61 -
================================ ============ ============ ========= =========
Total (overall) 31.45 34.91
================================ ============ ============ ========= =========
1 MSCI Monthly Index by relevant sector. London = MSCI City sector
2 MSCI Monthly Index (All property)
3 Theale Logistics Park
At Corinthian House, Croydon (44,590 sq ft), having upgraded the
reception and common parts last year, we are now underway with
floor by floor refurbishments as they become available on expiry of
older legacy lettings, enabling us to achieve substantially higher
rental values. Having just reached completion at year end of the
2nd and 5th floors (8,660 sq ft) we had already agreed terms on
over 50% of the new accommodation above ERV reflecting the quality
and prime location of this Croydon landmark office. We aim to
refurbish a further four floors (18,550 sq ft) this year which have
already attracted positive enquiries.
Industrial and logistics
28.0% of the portfolio by value is in the industrial and
logistics sector which has performed very well over the year,
driven by management initiatives, lettings at or above ERV and the
development success referred to earlier.
At Five Acre in Folkestone, we pre-let our last upgraded unit
(17,333 sq ft) to an existing expanding occupier on a ten year
lease at a contracted rent of GBP0.09 million pa and at the McKay
Trading Estate at Poyle we renewed four leases with our largest
occupier (32,251 sq ft) for a further six years at a contracted
rent of GBP0.34 million pa.
Well located trade parks continue to attract demand as evidenced
by our latest refurbishment at Oakwood Trade Park in Crawley
(52,400 sq ft). Prior to completion of a refurbishment of Unit 1
(2,717 sq ft) we signed a ten year lease at a new record rent
equating to GBP18.00 psf which helped drive ERV growth and a
subsequent capital surplus across the Park of 23.5%.
As mentioned above, the exercise of a lease break at Sopwith
Drive, Weybridge (63,140 sq ft) has provided the potential to add
to the value of the building through refurbishment or redevelopment
in this excellent outer London location. A number of schemes are
under review at present.
Table 4: Portfolio yields and reversions
31st March 2021 31st March 2020
==================================== =========================
GBPm pa Yield Occupancy GBPm pa Yield Occupancy
(2) (2) (3)
===================================== ======= ===== ==================== ======= ===== =========
Current rental income(1) 22.20 4.8% 21.90 4.0%
===================================== ======= ===== ==================== ======= ===== =========
Contracted rental income(1) 25.61 5.5% 85.3% 28.33 5.2% 88.7%
===================================== ======= ===== ==================== ======= ===== =========
Uplifts at rent review/lease
expiry 1.21 2.62
===================================== ======= ===== ==================== ======= ===== =========
Void properties (exc developments(3)
) 4.63 15.5% 2.48 7.4%
===================================== ======= ===== ==================== ======= ===== =========
Void (developments) - 1.48 3.9%
===================================== ======= ===== ==================== ======= ===== =========
Portfolio reversion 5.84 6.58
===================================== ======= ===== ==================== ======= ===== =========
Total portfolio ERV 31.45 6.7% 34.91 6.4%
===================================== ======= ===== ==================== ======= ===== =========
Equivalent yield 6.1% 5.7%
===================================== ======= ===== ==================== ======= ===== =========
1 Net of ground rents
2 Yield on portfolio valuation with notional purchaser's costs (6.75%) added
3 By ERV
Valuations
As at 31 March 2021 Knight Frank's independent valuation of the
portfolio was GBP437.90 million (31 March 2020: GBP510.00
million).
The entire year has been characterised by Covid-19 and the
economic uncertainty that it carried which is only now beginning to
clear with the successful vaccine rollout. The total portfolio
suffered to a greater degree in H1 with a valuation deficit of
-3.4% followed by -1.3% in H2, delivering a total 12 month deficit
of 4.7% set against the MSCI All Property Index of -2.9%. See
Tables 2 and 3.
The valuers reflected uncertainty in the office sector by
increasing void periods and rent free incentives while also pushing
yields out to varying degrees depending on tenant covenant strength
and lease length. These adjustments were more severe in H1 when
there was still significant uncertainty at the September valuation
date, resulting in a capital deficit in our office portfolio for H1
of -6.7%. Although the H2 valuation date of 31 March 2021 had the
benefit of an improving outlook, there still remained uncertainty
about the speed and quantum of a return to work. This resulted in
further valuation risk adjustments and an H2 office portfolio
deficit of -5.0%, delivering a total office portfolio deficit for
the year of -11.8%. Rental value declines were less apparent and
our office portfolio ERV fell by -2.6%. See Table 4.
There were two office assets which impacted our office portfolio
performance which are worth highlighting. At the start of the year
at Great Brighams Mead in central Reading (84,840 sq ft)
discussions had been ongoing about the possibility of a lease
extension with the sole tenant (expiry March 2022). However,
towards Christmas the tenant confirmed that it would vacate at
lease expiry, and at the valuation date the valuers had to assume
vacancy at expiry, full refurbishment expenditure as well as
estimated voids and rent free incentives.
Secondly at Corinthian House in Croydon, the valuation reduced
due to the timing in the refurbishment cycle of the building, and
the current vacancy and capex required for the launch of this
re-positioned asset. Although strong pre-let interest is being
pursued, at the date of valuation it had not crystallised.
Our industrial and logistics portfolio (28.0% by value)
performed well, delivering a capital surplus of 16.4%. As referred
to above, the letting at 135 Theale Logistics Park and the strength
of investor demand generated a substantial 42.7% surplus of
GBP10.88 million.
As at 31 March 2021 the portfolio net initial yield was 4.75%
(31 March 2020: 4.02%) rising to 5.48% on the expiry of rent free
periods (31 March 2020: 5.20%). This yield increase reflects the
fall in values due to the Covid uncertainty coupled with the fact
that we sold our largest asset at a low yield of 4.16%. The
reversionary yield, adopting the full net ERV and current book
value was 6.73% (31 March 2020: 6.41%).
Cash collection
The table below highlights the quarterly experience for the
Group regarding cash collection. The overall result for the year
shows 96.0% of contracted rents were collected in cash and a
further 2.0% (GBP0.45 million) to be collected under agreements put
in place during the year. Of the total contracted rent of GBP22.38
million demanded for the year to 31 March 2021, only GBP0.39
million has been impaired.
Table 5: Cash collection Mar 20 Quarter Jun 20 Quarter Sep 20 Quarter Dec 20 Quarter Total 4 Quarters
================ ================ ================ ================ ==================
GBP % GBP % GBP % GBP % GBP %
========================= ======== ====== ======== ====== ======== ====== ======== ====== ========== ======
Paid within 7 days 3,342 62% 4,075 71% 3,872 69% 5,043 88% 16,333 73%
========================= ======== ====== ======== ====== ======== ====== ======== ====== ========== ======
Paid after 7 days 1,714 31% 1,528 26% 1,477 26% 480 8% 5,200 23%
========================= ======== ====== ======== ====== ======== ====== ======== ====== ========== ======
Cash received 5,056 94% 5,604 98% 5,348 96% 5,524 96% 21,532 96%
========================= ======== ====== ======== ====== ======== ====== ======== ====== ========== ======
Paying monthly
- O/S 0 0% 0 0% 0 0% 6 0% 6 0%
========================= ======== ====== ======== ====== ======== ====== ======== ====== ========== ======
Not monthly - O/S 246 5% 19 1% 143 3% 34 1% 442 2%
========================= ======== ====== ======== ====== ======== ====== ======== ====== ========== ======
Agreed but O/S 246 5% 19 1% 143 3% 40 1% 448 2%
========================= ======== ====== ======== ====== ======== ====== ======== ====== ========== ======
Total received
or agreed 5,302 99% 5,623 98% 5,491 98% 5,564 98% 21,980 98%
========================= ======== ====== ======== ====== ======== ====== ======== ====== ========== ======
Impaired 78 1% 92 2% 92 2% 133 2% 395 2%
========================= ======== ====== ======== ====== ======== ====== ======== ====== ========== ======
Total received
or agreed 5,380 100% 5,715 100% 5,583 100% 5,697 100% 22,375 100%
========================= ======== ====== ======== ====== ======== ====== ======== ====== ========== ======
Key: O/S - outstanding
Income statement
Adjusted profit before tax, our measure of recurring profit,
increased by GBP0.23 million (2.4%) to GBP9.96 million (31 March
2020: GBP9.73 million). Gross rental income was 2.1% lower as a
result of significant disposals in the current and prior period,
offset by reduced interest costs on lower borrowings. Adjusted
basic earnings per share increased by 2.3% to 10.56 pps (31 March
2020: 10.32 pps).
At headline level, the loss before tax (IFRS) of GBP16.58
million (31 March 2020: GBP9.49 million profit), was mainly as a
result of the valuation deficit of GBP23.36 million (after the IFRS
16 adjustment) being bigger than the prior year (31 March 2020:
deficit GBP2.20 million).
The 2.1% (GBP0.54 million) reduction in gross rental income to
GBP24.62 million (31 March 2020: GBP25.16 million) was a result of
the significant disposals of 30 Lombard St, EC3 and Station Plaza,
Theale, offset by new rental income from the acquisitions at
Willoughby Road, Bracknell and Rivergate, Newbury, the latter
contributing a full year of rental income, and further increased by
new lettings such as 135 Theale Logistics Park.
Property costs for the year of GBP3.15 million were GBP0.10
million less than the previous year (31 March 2020: GBP3.25
million) mainly due to the successful reclaiming of previously paid
council rates received in the year which offset higher void
costs.
Administration costs before IFRS 2 charges reduced to GBP5.17
million (31 March 2020: GBP5.39 million), primarily due to the 2018
Performance Share Plan outturn of zero which reduced the National
Insurance charge compared to the prior year, and Covid-19 related
savings. The IFRS 2 charge increased during the year (GBP0.49
million) compared to the GBP0.22 million credit in the previous
year. The credit in the previous year resulted from an accounting
change in the calculation methodology of IFRS 2.
Whilst cash collection was strong during the Covid-19 affected
period, as noted above, GBP0.39 million of the rents receivable
have been impaired (31 March 2020: Nil). These relate to tenants
that have gone into administration or amounts assessed as
irrecoverable. The two tenants that account for half of this amount
are a professional services firm and a hospitality tenant.
The interest cost for the year reduced to GBP6.35 million (31
March 2020: GBP7.36 million), due to lower drawings after the sale
of 30 Lombard St, EC3, which reduced drawn debt to GBP144.00
million at 31 March 2021 (31 March 2020: GBP194.00 million). The
weighted average cost of debt prior to amortisation and finance
lease interest reduced slightly to 3.1% (31 March 2020: 3.4%).
Balance sheet
Shareholders' funds decreased from GBP309.17 million to
GBP289.90 million over the period, primarily due to the revaluation
deficit for the year of GBP23.36 million as detailed above. In
addition, the sale of 30 Lombard Street, EC3 resulted in a GBP2.82
million loss of disposal after adjustment for IFRS16 (letting
incentives).
EPRA NTA per share reduced by 6.1% over the period to 309 pence
(31 March 2020: 329 pence) and IFRS NAV per share reduced by 5.8%
to 309 pence (31 March 2020: 328 pence). The revaluation movement
was the main driver for these changes.
Debt facilities at the year end remained at GBP245.00 million
(31 March 2020: GBP245.00 million), providing GBP101.00 million of
headroom over our current drawings to support operational
flexibility, deliver further portfolio initiatives and provide
increased scope for new investments. The reduction in drawings was
driven by the receipt from the sale of 30 Lombard St, EC3 (GBP70.06
million), offset by the purchase of Willoughby Rd, Bracknell
(GBP10.66 million), capex on the portfolio of GBP6.71 million and
paid dividends of GBP6.79 million.
The ratio of net debt to portfolio value (LTV) at the year end
was 32.4% (31 March 2020: 37.6%).
Net cash inflow from operating activities was GBP7.43 million
(31 March 2020: inflow GBP6.81 million) and interest cover based on
adjusted profit plus finance costs as a ratio to finance costs was
2.49x (31 March 2020: 2.28x).
As a REIT, the Company is tax exempt in respect of qualifying
capital gains and qualifying rental income, which covers the
majority of the Company's activities. However the sale of 30
Lombard St, EC3, was within three years of practical completion and
therefore triggered a capital gains tax charge of GBP1.26 million
under REIT regulations. This was estimated in the prior year at
GBP1.39 million, and finalised this year.
Defined benefit pension scheme
Under the application of accounting standard IAS19, the
Company's pension deficit slightly increased over the period from
GBP2.10 million to GBP2.18 million.
A triennial valuation was completed for the period to 31 March
2020, which shows a funding level of 77.8% on a SFO (Statutory
Funding Objective) valuation basis. The previous triennial
valuation showed a funding level of 87.5% on a SFO valuation basis.
As a result of this valuation, the company will continue the annual
cash contribution to the scheme of GBP0.24 million. The scheme was
closed to new entrants in the 1980's, and now consists of six
pensioners and no active members.
Share buy-back programme
The buy-back programme commenced on 8 March 2021. The Board set
the total size of the programme at up to GBP10.00 million, or
approximately 5% of the Company's issued ordinary share capital. As
at 31 March 2021, 538,542 shares had been purchased by the company
at a cost of GBP1.15 million. The reported IFRS Basic NAV is 309
pps, however this equates to 307 pps prior to the buyback and can
therefore be considered NAV accretive.
Dividends
The final dividend of 5.5 pence per share (31 March 2020: 4.4
pps) will be paid on 22 July 2021 to those on the register as at 28
May 2021. With the interim dividend of 2.8 pence per share, this
takes the total dividend for the year to 8.3 pence per share (31
March 2020: 7.2 pps), an increase of 15.3% on the previous
year.
As a REIT, the Company is required to distribute at least 90.0%
of rental income profits arising each financial year by way of a
Property Income Distribution ("PID"). After taking into account
allowable costs the final dividend will be paid as an ordinary
dividend rather than a PID.
Financial risks
The financial risks are documented in the principal risks and
uncertainty section of the Strategic Report.
Signed on behalf of the Board of Directors
T. Elliott
Property Director and Head of Sustainability
G. Salmon
Chief Financial Officer
Consolidated Profit and Loss and Other Comprehensive Income
For the year ended 31 March 2021
2021 2020
Notes GBP'000 GBP'000
=================================================== ===== ==================== ========
Gross rents and service charges receivable 2 28,589 29,296
=================================================== ===== ==================== ========
Other property income 157 69
=================================================== ===== ==================== ========
Direct property outgoings (7,112) (7,384)
=================================================== ===== ==================== ========
Net rental income from investment properties 2 21,634 21,981
=================================================== ===== ==================== ========
Administration costs (5,175) (5,385)
=================================================== ===== ==================== ========
IFRS 2 charge (489) 222
=================================================== ===== ==================== ========
Total administration costs 3 (5,664) (5,163)
=================================================== ===== ==================== ========
Operating profit before gains on investment
properties 15,970 16,818
=================================================== ===== ==================== ========
(Loss)/profit on disposal of investment properties (2,854) 1,668
=================================================== ===== ==================== ========
Revaluation of investment properties 10 (23,356) (2,199)
=================================================== ===== ==================== ========
Operating (loss)/profit (10,240) 16,287
=================================================== ===== ==================== ========
Finance costs 5 (6,351) (6,805)
=================================================== ===== ==================== ========
Finance income 5 8 5
=================================================== ===== ==================== ========
(Loss)/profit before taxation 4 (16,583) 9,487
=================================================== ===== ==================== ========
Taxation 6 133 (1,392)
=================================================== ===== ==================== ========
(Loss)/profit for the year (16,450) 8,095
=================================================== ===== ==================== ========
Other comprehensive income:
=================================================== ===== ==================== ========
Items that will not be reclassified subsequently
to profit or loss
=================================================== ===== ==================== ========
Remeasurement on defined benefit pension scheme (278) (185)
=================================================== ===== ==================== ========
Total comprehensive (expense)/income for the
year (16,728) 7,910
=================================================== ===== ==================== ========
(Loss)/earnings per share 8
=================================================== ===== ==================== ========
Basic (17.45)p 8.59p
=================================================== ===== ==================== ========
Diluted (17.45)p 8.57p
=================================================== ===== ==================== ========
Adjusted earnings per share figures are shown
in note 9
=================================================== ===== ==================== ========
Dividends 9
=================================================== ===== ==================== ========
31 March 2020 final dividend of 4.4 pence (31
March 2019: 7.4 pence) paid during the year 4,148 6,965
=================================================== ===== ==================== ========
30 September 2020 interim dividend of 2.8 pence
(30 September 2019: 2.8 pence) paid during
the year 2,642 2,639
=================================================== ===== ==================== ========
Proposed final dividend of 5.5 pence (31 March
2020: 4.4 pence) 5,116 4,148
=================================================== ===== ==================== ========
The total comprehensive income for the year is all attributable
to the equity holders of the Parent Company.
The accompanying notes form an integral part of these financial
statements.
Consolidated Statement of Financial Position
As at 31 March 2021
2021 2020
Notes GBP'000 GBP'000
================== ===== ======== ========
Non-current assets
================== ===== ======== ========
Investment properties - Valuation as reported
by the valuers 437,900 510,000
===================================================================================== ========= =========
* Adjustment for tenant incentives recognised under
IFRS 16 (7,403) (10,637)
===================================================================================== ========= =========
* Assets held for sale (13,500) (79,365)
===================================================================================== ========= =========
* Adjustment for grossing up of headleases 14 3,683 4,403
===================================================================================== ========= =========
10 420,680 424,401
===================================================================================== ========= =========
Plant and equipment 11 125 148
===================================================================================== ========= =========
Other receivables 13 7,403 6,982
===================================================================================== ========= =========
Total non-current assets 428,208 431,531
===================================================================================== ========= =========
Current assets
===================================================================================== ========= =========
Trade and other receivables 13 3,063 3,200
===================================================================================== ========= =========
Assets held for sale 10 13,500 83,020
===================================================================================== ========= =========
Cash 2,249 2,245
===================================================================================== ========= =========
Total current assets 18,812 88,465
===================================================================================== ========= =========
Total assets 447,020 519,996
===================================================================================== ========= =========
Current liabilities
===================================================================================== ========= =========
Trade and other payables 14 (9,233) (12,433)
===================================================================================== ========= =========
Lease liabilities 15 (229) (180)
===================================================================================== ========= =========
Current tax liability (654) -
===================================================================================== ========= =========
Liabilities directly associated with assets
classified as held for sale 15 - (1,520)
===================================================================================== ========= =========
Total current liabilities (10,116) (14,133)
===================================================================================== ========= =========
Non-current liabilities
===================================================================================== ========= =========
Loans and other borrowings 14 (141,369) (190,505)
===================================================================================== ========= =========
Pension fund deficit 23 (2,180) (2,097)
===================================================================================== ========= =========
Deferred tax liability 6 - (1,392)
===================================================================================== ========= =========
Lease liabilities 15 (3,453) (2,703)
===================================================================================== ========= =========
Total non-current liabilities (147,002) (196,697)
===================================================================================== ========= =========
Total liabilities (157,118) (210,830)
===================================================================================== ========= =========
Net assets 289,902 309,166
===================================================================================== ========= =========
Equity
===================================================================================== ========= =========
Called up share capital 18 18,760 18,853
===================================================================================== ========= =========
Capital redemption reserve 108 -
===================================================================================== ========= =========
Share premium account 75,541 75,541
===================================================================================== ========= =========
Retained earnings 80,598 81,531
===================================================================================== ========= =========
Revaluation reserve 114,895 133,241
===================================================================================== ========= =========
Total equity 289,902 309,166
===================================================================================== ========= =========
IFRS net asset value per share 21 309p 328p
===================================================================================== ========= =========
EPRA NTA/NRV value per share 21 309p 329p
===================================================================================== ========= =========
The accompanying notes form an integral part of these financial
statements.
These financial statements were approved by the Board of
Directors on 17 May 2021 and were signed on its behalf by R
Grainger and S Perkins.
Company Statement of Financial Position
As at 31 March 2021
Registration number 421479
2021 2020
Notes GBP'000 GBP'000
=========================================================================== ===== ========= =========
Non-current assets
=========================================================================== ===== ========= =========
Investment properties - Valuation as reported
by the valuers 433,400 437,500
=========================================================================== ===== ========= =========
- Adjustment for tenant incentives recognised
under IFRS 16 (7,403) (6,982)
=========================================================================== ===== ========= =========
- Assets held for sale (13,500) (13,500)
=========================================================================== ===== ========= =========
* Adjustment for grossing up of head leases 3,682 2,883
=========================================================================== ===== ========= =========
10 416,179 419,901
=========================================================================== ===== ========= =========
Plant and equipment 11 77 84
=========================================================================== ===== ========= =========
Investments in subsidiary - -
=========================================================================== ===== ========= =========
Other receivables 13 7,404 6,982
=========================================================================== ===== ========= =========
Total non-current assets 423,660 426,967
=========================================================================== ===== ========= =========
Current assets
=========================================================================== ===== ========= =========
Trade and other receivables 13 3,062 46,933
=========================================================================== ===== ========= =========
Assets held for sale 10 13,500 13,500
=========================================================================== ===== ========= =========
Cash 2,249 2,245
=========================================================================== ===== ========= =========
Total current assets 18,811 62,678
=========================================================================== ===== ========= =========
Total assets 442,471 489,645
=========================================================================== ===== ========= =========
Current liabilities
=========================================================================== ===== ========= =========
Trade and other payables 14 (34,750) (12,423)
=========================================================================== ===== ========= =========
Lease liabilities (229) (180)
=========================================================================== ===== ========= =========
Total current liabilities (34,979) (12,603)
=========================================================================== ===== ========= =========
Non-current liabilities
=========================================================================== ===== ========= =========
Loans and other borrowings 14 (141,369) (190,505)
=========================================================================== ===== ========= =========
Pension fund deficit 23 (2,180) (2,097)
=========================================================================== ===== ========= =========
Lease liabilities (3,453) (2,703)
=========================================================================== ===== ========= =========
Total non-current liabilities (147,002) (195,305)
=========================================================================== ===== ========= =========
Total liabilities (181,981) (207,908)
=========================================================================== ===== ========= =========
Net assets 260,490 281,737
=========================================================================== ===== ========= =========
Equity
=========================================================================== ===== ========= =========
Called up share capital 18 18,760 18,853
=========================================================================== ===== ========= =========
Capital redemption reserve 108 -
=========================================================================== ===== ========= =========
Share premium account 75,541 75,541
=========================================================================== ===== ========= =========
Retained earnings 65,914 65,181
=========================================================================== ===== ========= =========
Revaluation reserve 100,167 122,162
=========================================================================== ===== ========= =========
Total equity 260,490 281,737
=========================================================================== ===== ========= =========
The accompanying notes form an integral part of these financial
statements.
The loss for the financial year ended 31 March 2021 was
GBP13,422,039 (2020 profit of: GBP8,340,645).
These financial statements were approved by the Board of
Directors on 17 May 2021 and were signed on its behalf by R
Grainger and S Perkins.
Consolidated Cashflow Statement
For the year ended 31 March 2021
2021 2020
GBP'000 GBP'000
===================================================== ======== ========
Operating activities
===================================================== ======== ========
(Loss)/profit before tax (16,583) 9,487
===================================================== ======== ========
Adjustments for:
===================================================== ======== ========
Depreciation 47 50
===================================================== ======== ========
Amortisation of leasehold properties 1 1
===================================================== ======== ========
Deferred bonus write-off 94 68
===================================================== ======== ========
Fair value of share options 396 (290)
===================================================== ======== ========
Letting fees amortisation 652 668
===================================================== ======== ========
Defined benefit pension scheme adjustments 45 44
===================================================== ======== ========
Taxation 133 (1,392)
===================================================== ======== ========
Loss/(profit) on sale of investment properties 2,854 (1,668)
===================================================== ======== ========
Movement in revaluation of investment properties 23,356 2,199
===================================================== ======== ========
Net finance costs 6,342 6,800
===================================================== ======== ========
Cashflow from operations before changes in working
capital 17,337 15,967
===================================================== ======== ========
Increase in debtors (1,680) (203)
===================================================== ======== ========
Decrease in creditors (2,394) (2,903)
===================================================== ======== ========
Cash generated from operations 13,263 12,861
===================================================== ======== ========
Interest paid (5,237) (6,061)
===================================================== ======== ========
Interest received 8 5
===================================================== ======== ========
Corporation tax paid (605) -
===================================================== ======== ========
Cashflows from operating activities 7,429 6,805
===================================================== ======== ========
Investing activities
===================================================== ======== ========
Proceeds from sale of investment properties 70,777 8,056
===================================================== ======== ========
Purchase and development of investment properties (19,925) (33,395)
===================================================== ======== ========
Purchase of other fixed assets (24) (126)
===================================================== ======== ========
Cashflows from investing activities 50,828 (25,465)
===================================================== ======== ========
Financing activities
===================================================== ======== ========
Gross debt drawdowns 20,000 34,000
===================================================== ======== ========
Gross debt repayments (70,000) (5,000)
===================================================== ======== ========
Bank facility fees paid (34) (2,569)
===================================================== ======== ========
Equity dividends paid (6,790) (9,604)
===================================================== ======== ========
Share buybacks (1,147) -
===================================================== ======== ========
Headlease interest and capital paid (282) (285)
===================================================== ======== ========
Cashflows from financing activities (58,253) 16,542
===================================================== ======== ========
Net increase/(decrease) in cash and cash equivalents 4 (2,118)
===================================================== ======== ========
Cash and cash equivalents at the beginning of the
year 2,245 4,363
===================================================== ======== ========
Cash and cash equivalents at the end of the year 2,249 2,245
===================================================== ======== ========
The accompanying notes form an integral part of these financial
statements.
Company Cashflow Statement
For the year ended 31 March 2021
2021 2020
GBP'000 GBP'000
===================================================== ======== ========
Operating activities
===================================================== ======== ========
(Loss)/profit before tax (13,422) 8,341
===================================================== ======== ========
Adjustments for:
===================================================== ======== ========
Depreciation 31 34
===================================================== ======== ========
Amortisation of leasehold properties 1 1
===================================================== ======== ========
Deferred bonus write-off 94 68
===================================================== ======== ========
Fair value of share options 396 (290)
===================================================== ======== ========
Letting fees amortisation 649 617
===================================================== ======== ========
Defined benefit pension scheme adjustments 45 44
===================================================== ======== ========
Profit on sale of investment properties - (1,668)
===================================================== ======== ========
Movement in revaluation of investment properties 21,995 2,205
===================================================== ======== ========
Net finance costs 6,205 5,374
===================================================== ======== ========
Cashflow from operations before changes in working
capital 15,994 14,726
===================================================== ======== ========
Decrease/(increase) in debtors 43,403 (3,893)
===================================================== ======== ========
Increase/(decrease) in creditors 24,677 (27)
===================================================== ======== ========
Cash generated from operations 84,074 10,806
===================================================== ======== ========
Interest paid (5,125) (6,061)
===================================================== ======== ========
Interest received 92 1,327
===================================================== ======== ========
Cashflows from operating activities 79,041 6,072
===================================================== ======== ========
Investing activities
===================================================== ======== ========
Proceeds from sale of investment properties - 8,056
===================================================== ======== ========
Purchase and development of investment properties (20,813) (32,847)
===================================================== ======== ========
Purchase of other fixed assets (24) (46)
===================================================== ======== ========
Cashflows from investing activities (20,837) (24,837)
===================================================== ======== ========
Financing activities
===================================================== ======== ========
Gross debt drawdowns 20,000 34,000
===================================================== ======== ========
Gross debt repayments (70,000) (5,000)
===================================================== ======== ========
Bank facility fees paid (34) (2,569)
===================================================== ======== ========
Headlease interest and capital paid (229) (180)
===================================================== ======== ========
Repurchase of shares (1,147) -
===================================================== ======== ========
Equity dividends paid (6,790) (9,604)
===================================================== ======== ========
Cashflows from financing activities (58,200) 16,647
===================================================== ======== ========
Net increase/(decrease) in cash and cash equivalents 4 (2,118)
===================================================== ======== ========
Cash and cash equivalents at the beginning of the
year 2,245 4,363
===================================================== ======== ========
Cash and cash equivalents at the end of the year 2,249 2,245
===================================================== ======== ========
The accompanying notes form an integral part of these financial
statements.
Consolidated Statement of Changes in Equity
For the year ended 31 March 2021
Attributable to equity holders
of the Parent Company
=======================================================
Capital Restated Restated
Share redemption Share Revaluation Retained Total
capital revenue premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
====================================== ======== =========== ======== =========== ========= ========
At 31 March 2019 18,825 - 75,541 132,625 84,092 311,083
====================================== ======== =========== ======== =========== ========= ========
Profit for the year - - - - 8,095 8,095
====================================== ======== =========== ======== =========== ========= ========
Other comprehensive income:
====================================== ======== =========== ======== =========== ========= ========
Transfer deficit on revaluation
of properties - - - (2,200) 2,200 -
====================================== ======== =========== ======== =========== ========= ========
Transfer on disposal of investment
properties - - - 2,816 (2,816) -
====================================== ======== =========== ======== =========== ========= ========
Remeasurement on defined benefit
pension scheme - - - - (185) (185)
====================================== ======== =========== ======== =========== ========= ========
Total comprehensive income for
the year - - - 616 7,294 7,910
====================================== ======== =========== ======== =========== ========= ========
Issue of new shares net of costs 28 - - - (28) -
====================================== ======== =========== ======== =========== ========= ========
Dividends paid in year - - - - (9,605) (9,605)
====================================== ======== =========== ======== =========== ========= ========
Deferred bonus - - - - 68 68
====================================== ======== =========== ======== =========== ========= ========
Costs of share-based payments - - - - (290) (290)
====================================== ======== =========== ======== =========== ========= ========
At 31 March 2020 18,853 - 75,541 133,241 81,531 309,166
====================================== ======== =========== ======== =========== ========= ========
Loss for the year - - - - (16,450) (16,450)
====================================== ======== =========== ======== =========== ========= ========
Other comprehensive (expense)/income:
====================================== ======== =========== ======== =========== ========= ========
Transfer deficit on revaluation
of properties - - - (23,356) 23,356 -
====================================== ======== =========== ======== =========== ========= ========
Transfer on disposal of investment
property - - - 5,010 - 5,010
====================================== ======== =========== ======== =========== ========= ========
Remeasurement on defined benefit
pension scheme - - - - (278) (278)
====================================== ======== =========== ======== =========== ========= ========
Total comprehensive (expense)/income
for the year - - - (18,346) 6,628 (11,718)
====================================== ======== =========== ======== =========== ========= ========
Issue of new shares net of costs 15 - - - (15) -
====================================== ======== =========== ======== =========== ========= ========
Repurchase of shares (108) 108 - - (1,247) (1,247)
====================================== ======== =========== ======== =========== ========= ========
Dividends paid in year - - - - (6,789) (6,789)
====================================== ======== =========== ======== =========== ========= ========
Deferred bonus - - - - 94 94
====================================== ======== =========== ======== =========== ========= ========
Costs of share-based payments - - - - 396 396
====================================== ======== =========== ======== =========== ========= ========
At 31 March 2021 18,760 108 75,541 114,895 80,598 289,902
====================================== ======== =========== ======== =========== ========= ========
The accompanying notes form an integral part of these financial
statements.
Company Statement of Changes in Equity
For the year ended 31 March 2021
Capital Restated Restated
Share redemption Share Revaluation Retained Total
capital revenue premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
====================================== ======== =========== ======== =========== ========= ========
At 31 March 2019 18,825 - 75,541 121,551 67,491 283,408
====================================== ======== =========== ======== =========== ========= ========
Profit for the year - - - - 8,341 8,341
====================================== ======== =========== ======== =========== ========= ========
Other comprehensive income:
====================================== ======== =========== ======== =========== ========= ========
Transfer deficit on revaluation
of properties - - - (2,205) 2,205 -
====================================== ======== =========== ======== =========== ========= ========
Transfer on disposal of investment
properties - - - 2,816 (2,816) -
====================================== ======== =========== ======== =========== ========= ========
Remeasurement on defined benefit
pension scheme - - - - (185) (185)
====================================== ======== =========== ======== =========== ========= ========
Total comprehensive income for
the year - - - 611 7,545 8,156
====================================== ======== =========== ======== =========== ========= ========
Issue of new shares net of costs 28 - - - (28) -
====================================== ======== =========== ======== =========== ========= ========
Dividends paid in year - - - - (9,605) (9,605)
====================================== ======== =========== ======== =========== ========= ========
Deferred bonus - - - - 68 68
====================================== ======== =========== ======== =========== ========= ========
Costs of share-based payments - - - - (290) (290)
====================================== ======== =========== ======== =========== ========= ========
At 31 March 2020 18,853 - 75,541 122,162 65,181 281,737
====================================== ======== =========== ======== =========== ========= ========
Loss for the year - - - - (13,422) (13,422)
====================================== ======== =========== ======== =========== ========= ========
Other comprehensive (expense)/income:
====================================== ======== =========== ======== =========== ========= ========
Transfer deficit on revaluation
of properties - - - (21,995) 21,995 -
====================================== ======== =========== ======== =========== ========= ========
Transfer on disposal of investment
properties - - - - - -
====================================== ======== =========== ======== =========== ========= ========
Remeasurement on defined benefit
pension scheme - - - - (278) (278)
====================================== ======== =========== ======== =========== ========= ========
Total comprehensive (expense)/income
for the year - - - (21,995) 8,295 (13,700)
====================================== ======== =========== ======== =========== ========= ========
Issue of new shares net of costs 15 - - - (15) -
====================================== ======== =========== ======== =========== ========= ========
Repurchase of shares (108) 108 - - (1,247) (1,247)
====================================== ======== =========== ======== =========== ========= ========
Dividends paid in year - - - - (6,789) (6,789)
====================================== ======== =========== ======== =========== ========= ========
Deferred bonus - - - - 93 93
====================================== ======== =========== ======== =========== ========= ========
Costs of share-based payments - - - - 396 396
====================================== ======== =========== ======== =========== ========= ========
At 31 March 2021 18,760 108 75,541 100,167 65,914 260,490
====================================== ======== =========== ======== =========== ========= ========
The accompanying notes form an integral part of these financial
statements.
Notes to the Financial Statements
For the year ended 31 March 2021
1 Accounting policies
Basis of preparation
McKay Securities Plc ('the Company') is a public company limited
by shares incorporated in the United Kingdom under the Companies
Act and is registered in England and Wales. The address of the
Company's registered office is 20 Greyfriars Road, Reading,
Berkshire RG1 1NL.
The principal activities of the Company and its subsidiaries
('the Group') and the nature of the Group's operations are set out
in the Strategic Report.
These financial statements are presented in GBP sterling, which
is the currency of the primary economic environment in which the
Group operates and are rounded to the nearest thousand.
The financial statements have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and International Financial
Reporting Standards (IFRS Standards) adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union.
The financial statements are prepared on a going concern basis
as explained in the Principal Risks and Uncertainties and going
concern statement.
In accordance with Section 408 Companies Act 2006 a separate
Profit and Loss and Other Comprehensive Income for the Company is
not presented. The loss for the year after tax of the Company is
GBP13,422,039 (2020: profit of GBP8,340,645).
The consolidated financial statements of the Company and its
subsidiary ('the Group') have been prepared on a historical cost
basis, except for investment property which is measured at fair
value through the Profit and Loss and Other Comprehensive
Income.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, regardless of whether
that price is directly observable or estimated using another
valuation technique. In estimating the fair value of an asset or a
liability, the Group takes into account the characteristics of the
asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at
the measurement date. Fair value for measurement and/or disclosure
purposes in these consolidated financial statements is determined
on such a basis, except for share-based payment transactions that
are within the scope of IFRS 2 and leasing transactions that are
within the scope of IFRS 16.
New and revised IFRS Standards in issue but not yet
effective
At the date of authorisation of these financial statements, the
Group has not applied the following new and revised IFRS Standards
that have been issued but are not yet effective:
IFRS 17 Insurance Contracts
IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
Amendments to IAS 1 Classification of Liabilities as Current or
Non-current
Amendments to IFRS 3 Reference to the Conceptual Framework
Amendments to IAS 16 Property, Plant and Equipment - Proceeds
before Intended Use
Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling a Contract
Annual Improvements to IFRS Amendments to IFRS 1 First-time
Adoption of International Financial Reporting Standards,
Standards 2018-2020 Cycle IFRS 9 Financial Instruments, IFRS 16
Leases, and IAS 41 Agriculture
The Directors do not expect that the adoption of the Standards
listed above will have a material impact on the financial
statements of the Group in future periods.
IFRS 16 was adopted for the first time for the year ended 31
March 2020.
For the year ended 31 March 2021 the following subsidiaries of
the Company were entitled to exemption from audit under s479A of
the Companies Act 2006 relating to subsidiary companies:
Companies House Registration
Subsidiary Name Number
====================== ============================
Baldwin House Limited 00692181
====================== ============================
Basis of consolidation
The subsidiary company is under the control of the Company.
Control means being exposed or have rights to variable returns from
its involvement and has the ability to affect those returns through
its power over the subsidiary.
Control is achieved when the Company: has the power over the
investee; is exposed, or has rights, to variable returns from its
involvement with the investee; and has the ability to use its power
to affects its returns.
All intra-Group assets and liabilities, equity, income, expenses
and cashflows relating to transactions between the members of the
Group are eliminated on consolidation.
Critical accounting judgements and key sources of estimation
uncertainty
In the process of preparing the Group's financial statements
management is required to make judgements, estimates and
assumptions when applying accounting policies that may affect the
reported amounts of revenues, expenses, assets and liabilities. Any
judgements, estimates and associated assumptions used in the
preparation of the financial statements are based on management's
best information at the time, however actual outcomes may differ
from estimates used. Management does not consider there to be any
critical accounting judgements in the preparation of the Group's
financial statements. Management considers that the valuation of
investment property represents a key source of estimation
uncertainty, for which qualified external advisers are used. As a
result of Covid-19, the level of estimation increased, as reflected
by the inclusion of a material uncertainty clause within the
valuation report, as at 31 March 2020. However no material
uncertainty clause has been included for the year ended 31 March
2021. See further detail below and in note 10.
Investment properties
The Group's properties are held as investments to earn rental
income and for capital appreciation and are stated at fair value at
the balance sheet date. The value, reflecting market conditions, is
determined at each reporting date by independent external valuers
and any gain or loss arising from a change in value is recognised
in the Profit and Loss and Other Comprehensive Income and
transferred to the revaluation reserve in the Group Statement of
Financial Position. Tenant incentives are recognised as a separate
asset in accordance with the Group's accounting policy on lease
incentives and are deducted from the external valuation.
Properties purchased are recognised on legal completion in the
accounting period and measured initially at cost including
transaction costs. Sales of properties are recognised on legal
completion. Gains and losses arising on the disposal of investment
properties are recognised in the Profit and Loss and Other
Comprehensive Income, being the difference between net sale
proceeds and the carrying value of the property.
Subsequent expenditure on investment properties is capitalised
only when it increases the future economic benefits associated with
the property. All other expenditure is charged to the Profit and
Loss and Other Comprehensive Income.
Interest and other outgoings less rental income relating to
investment properties in the course of development are capitalised,
and added to the cost of the property. Interest capitalised is
calculated on development outgoings, including material
refurbishments to investment property, using the weighted average
cost of general Group borrowings for the year. A property ceases to
be treated as being in the course of development when substantially
all the activities that are necessary to prepare the property for
use are completed.
The Group owns a number of properties under long leaseholds.
These are leased out to tenants under operating leases and included
in the balance sheet at fair value (disclosed as head leases). The
obligation to the freeholder for the buildings element of the
leasehold is included in the balance sheet at the present value of
the minimum lease payments at inception. The minimum lease payments
are apportioned between finance charges in the Profit and Loss and
Other Comprehensive Income and the reduction of the Group Statement
of Financial Position liability. Contingent rents are charged as an
expense in the Profit and Loss and Other Comprehensive Income in
the period incurred.
Assets held for sale
Properties held for sale are classified as non-current assets if
their carrying amount will be recovered principally through sale
rather than through continuing use, they are available for
immediate sale and sale is highly probable within one year.
Investment properties held for sale are carried at fair value in
the Statement of Financial Position. Intangible assets and
property, plant and equipment once classified as held for sale or
distribution are not amortised or depreciated.
Plant and equipment
Plant and equipment is stated at cost less accumulated
depreciation. Depreciation is provided on a straight line basis at
rates calculated to write off the cost less estimated residual
value over their useful lives, which are estimated to be between
three and five years.
Cash
Cash comprises cash at bank and short-term deposits held on
call.
Financial assets
Financial assets do not carry any interest and are stated
initially at fair value and subsequently at amortised cost as
reduced by appropriate credit loss allowances. The Group always
recognises lifetime expected credit losses ('ECL') on these
financial assets are estimated using a provision matrix based on
the Group's historical credit loss experience, adjusted for factors
that are specific to the debtors, general economic conditions and
an assessment of both the current as well as the forecast direction
of conditions at the reporting date, including time value of money
where appropriate. The Group derecognises a financial asset when
the contractual right to the cashflows of the asset expire or on
transfer of the asset and the associated risks and rewards to
another party.
Trade and other payables
Trade and other payables are not interest bearing and are
initially recognised at fair value and subsequently at amortised
cost. The Group derecognises trade and other payables liabilities
when they are extinguished, which occurs when the obligation
associated with the liability is discharged, cancelled or
expires.
Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value
less directly attributable transaction costs. Subsequent to initial
recognition, loans and borrowings are measured at amortised cost
using the effective interest rate method.
Reserves
The revaluation reserve represents the unrealised surpluses and
deficits arising on fair value measurement of the Group's
properties and is not available for distribution until realised
through sale. This forms part of retained earnings.
Segmental analysis
All of the Group's revenue is derived from the ownership of
investment properties located in the South East and London. The
management team works within a single structure which includes the
Executive Directors acting as chief operating decision maker.
Responsibilities are not defined by type or location, each property
being managed individually and reported on for the Group as a whole
directly to the Board of Directors. Properties under development
generate no revenue and are treated as investment properties in the
portfolio. The Directors therefore consider there to be only one
reporting segment.
Revenue
The Group has entered into commercial property leases on its
investment property portfolio. The Directors consider, based on the
terms and conditions, the significant risks and rewards of
ownership of the properties are retained and therefore account for
the leases as operating leases. Rental income receivable under
operating leases less initial direct costs on arranging the leases
is recognised on a straight line basis over the non-cancellable
term of the lease.
The aggregate value of incentives for lessees to enter into
lease agreements, usually in the form of rent free periods or
capital contributions, is recognised over the lease term or to
tenant option to break as an adjustment to rental income.
The revenue recognition policy for the following revenue streams
are in line with IFRS 15, as revenue is recognised when it
transfers control over a product or service to a customer.
Premiums received from tenants to terminate leases are
recognised as income from investment properties when they
arise.
Service charges and other such receipts arising from expenses
recharged to tenants, with the Group acting as principal, are
recognised in the period that the expense can be contractually
recovered and included gross in income from investment
properties.
Interest received on short-term deposits is recognised in
finance income as it accrues.
Operating profit
Operating profit is identified in the income statement and
represents the profit on activities before finance costs and
taxation.
Borrowing costs
Interest on borrowings, including interest on finance leases, is
recognised in the Profit and Loss and Other Comprehensive Income in
the period during which it is incurred, except for interest
capitalised in accordance with the Group's policy on properties
under development (see investment properties above). Costs incurred
on putting in place borrowing facilities are recognised in finance
costs over the term of the facility.
Share-based payments
The Group operates an equity-settled share-based performance
plan outlined in the Directors' Remuneration Report under which
Directors and employees are able to acquire shares in the Company.
Equity-settled share-based payments to employees' services are
measured at the fair value of the equity instruments at the grant
date. The fair value excludes the effect of non-market-based
vesting conditions. Details regarding the determination of the fair
value of equity-settled share-based transactions are set out in
note 17.
The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight line
basis over the vesting period, based on the Group's estimate of the
number of equity instruments that will eventually vest. At each
reporting date, the Group revises its estimate of the number of
equity instruments expected to vest as a result of the effect of
non-market-based vesting conditions. The impact of the revision of
the original estimates, if any, is recognised in profit or loss
such that the cumulative expense reflects the revised estimate,
with a corresponding adjustment to reserves.
Post employment benefits
The Group operates two pension schemes. The defined benefit
scheme is based on final pensionable pay and has been closed to new
entrants since 1989. The assets of the scheme are held separately
from those of the Group and are measured at fair value, the scheme
obligations being calculated at discounted present value, with any
net surplus or deficit recognised in the Group Statement of
Financial Position. Current service cost and net interest on scheme
liabilities and scheme assets are recognised as an expense in the
Profit and Loss and Other Comprehensive Income. Actuarial gains and
losses on scheme assets and liabilities are recognised in equity
through the Profit and Loss and Other Comprehensive Income. The
assumptions used by a qualified actuary are outlined in note
23.
The Group contributes to eligible employees' defined
contribution personal pension plans and does not accept any
responsibility for the benefits gained from these plans. The
contributions are recognised as an expense in the Profit and Loss
and Other Comprehensive Income as incurred but the Group does not
recognise any gains or losses arising from movements in the value
of the personal pension plans.
Taxation
Any tax charge recognised in the Pro t and Loss and Other
Comprehensive Income comprises current and deferred tax except to
the extent that it relates to items recognised directly in equity,
in which case the related tax is recognised in equity.
Current tax is the expected tax liability on the results for the
year adjusted for items that are not taxable or deductible, or
taxable and deductible in other periods, together with any
adjustment in respect of previous years calculated using tax rates
and laws enacted or substantively enacted at the balance sheet
date.
Deferred tax is the tax expected to be paid or recovered on
temporary differences arising between the carrying amounts of
assets and liabilities for nancial reporting purposes and their tax
base. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively
enacted at the balance sheet date. Tax liabilities are recognised
for all taxable temporary differences and tax assets to the extent
that future taxable pro ts will be available against which the
asset can be utilised.
The Group converted to REIT status on 1 April 2007 and as a
consequence substantially all the Group's activities as a property
rental business are exempt from tax, including rental pro ts and
gains on rental property disposals that are compliant with the REIT
rules.
2 Net rental income from investment properties
2021 2020
GBP'000 GBP'000
==================================================== ======== ========
Gross rents receivable 22,854 22,873
==================================================== ======== ========
IFRS 16 adjustment (spreading of rental incentives) 1,771 2,291
==================================================== ======== ========
Gross rental income 24,625 25,164
==================================================== ======== ========
Service charges receivable 3,964 4,132
==================================================== ======== ========
Gross rents and service charges receivable 28,589 29,296
==================================================== ======== ========
Other property income 157 69
==================================================== ======== ========
Direct property outgoings (7,112) (7,384)
==================================================== ======== ========
Net rental income from investment properties 21,634 21,981
==================================================== ======== ========
Rent receivable under the terms of the leases is adjusted, in
accordance with IFRS 16, for the effect of any incentives
given.
3 Administration costs
2021 2020
GBP'000 GBP'000
=============================================== ======== ========
Group
=============================================== ======== ========
Directors' - remuneration 1,204 1,203
=============================================== ======== ========
- bonus 449 523
=============================================== ======== ========
Staff - costs 1,061 1,167
=============================================== ======== ========
- bonus 252 239
=============================================== ======== ========
Management fee service charge (361) (293)
=============================================== ======== ========
National Insurance 227 507
=============================================== ======== ========
Pension costs - defined benefit scheme 45 44
=============================================== ======== ========
- defined contributions 308 275
=============================================== ======== ========
Other staff costs 51 37
=============================================== ======== ========
Share-based payment accounting charge (IFRS 2) 489 (222)
=============================================== ======== ========
Staff related costs 3,725 3,480
=============================================== ======== ========
Depreciation (note 12) 47 50
=============================================== ======== ========
Office costs 676 575
=============================================== ======== ========
Legal and professional fees 1,123 1,007
=============================================== ======== ========
General expenses 93 51
=============================================== ======== ========
Total administrations costs 5,664 5,163
=============================================== ======== ========
The average number of persons employed by the Group and Company
during the year was 18 (2020: 19).
Details of Directors' remuneration can be found in the
Directors' Annual Remuneration Report.
In advance of each audit, the Committee obtains confirmation
from the external auditor that it remains independent and that the
level and nature of non-audit fees are not an independence threat.
The table below details the total fees paid to the auditor. The
Committee considers the current auditor Deloitte to be independent
of the Group and Company.
2021 2020
GBP'000 GBP'000
============================= ======== ========
Fees paid to auditor
============================= ======== ========
Statutory audit services
============================= ======== ========
McKay Securities Plc audit 137 130
============================= ======== ========
Subsidiary audit 10 10
============================= ======== ========
Assurance services
============================= ======== ========
Interim review 31 30
============================= ======== ========
Service charge review 16 15
============================= ======== ========
194 185
============================= ======== ========
4 Alternative performance measures
APM IFRS Note reference
=============================================== ================= ==============
Adjusted profit before tax Profit before tax Note 4
The Group adjusts to present recurring IFRS
profits by removing items not under management
control
----------------------------------------------- ----------------- --------------
Total property return ('TPR') Note 4
----------------------------------------------- ----------------- --------------
Management's indicator of return on portfolio
during the period.
----------------------------------------------- ----------------- --------------
Debt to portfolio value ('LTV') Note 4
----------------------------------------------- ----------------- --------------
Management guide to gearing levels.
----------------------------------------------- ----------------- --------------
EPRA net tangible asset value per share Net asset value Note 21
('NTA') per share
----------------------------------------------- ----------------- --------------
Assumes that entities buy and sell assets,
crystalising unavoidable deferred tax.
----------------------------------------------- ----------------- --------------
EPRA net reinstatement asset value per Net asset value Note 21
share ('NRV') per share
----------------------------------------------- ----------------- --------------
Assumes that entities never sell assets,
therefore the value required to rebuild
the entity.
----------------------------------------------- ----------------- --------------
EPRA net disposal asset value per share Net asset value Note 21
('NDV') per share
----------------------------------------------- ----------------- --------------
Represents a disposal scenario where
deferred tax and other adjustments are
calculated.
----------------------------------------------- ----------------- --------------
EPRA net asset value per share Net asset value Note 21
A future looking matrix by adding in per share
share options that may vest
----------------------------------------------- ----------------- --------------
EPRA ('NNNAV') Net asset value Note 21
EPRA NNNAV in the EPRA NAV adjusted to per share
reflect the fair value of debt and derivatives
and to include deferred taxation.
----------------------------------------------- ----------------- --------------
Adjusted earnings per share Basic earnings Note 8
Adjusted earnings as above by using recurring per share
profits
----------------------------------------------- ----------------- --------------
EPRA earnings per share Basic earnings Note 8
Adjusted earnings per share except for per share
surrender premiums (included in other
property income) and share based payments
are added back.
----------------------------------------------- ----------------- --------------
Portfolio valuation
Valuation of total property portfolio
at period end as per Knight Frank valuation
=============================================== ================= ==============
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. The Directors
consider adjusted profit before tax to be an additional informative
measure of the ongoing profits from core rental activities before
taxation, adjusted as set out. See further detail in the
glossary.
These alternative performance measures are commonly used within
the property sector.
2021 2020
GBP'000 GBP'000
=================================================== ======== ========
(Loss)/profit before tax (16,583) 9,487
=================================================== ======== ========
Movement in revaluation of investment properties
(see note 11) 23,356 2,199
=================================================== ======== ========
Other property income (see note 2) (157) (69)
=================================================== ======== ========
Loss/(profit) on disposal of investment properties 2,854 (1,668)
=================================================== ======== ========
IFRS 2 adjustment to share-based payments 489 (222)
=================================================== ======== ========
Adjusted profit before tax 9,959 9,727
=================================================== ======== ========
Total property return (TPR)
2021 2020
GBP'000 GBP'000
=============================================== ======== ========
Valuation (deficit) / surplus (21,579) 111
=============================================== ======== ========
Profit realised on disposal (excluding IFRS 16
write off) 2,155 1,668
=============================================== ======== ========
Income from investment properties 21,663 21,981
=============================================== ======== ========
2,209 23,760
=============================================== ======== ========
Book value 459,480 509,889
=============================================== ======== ========
Total property return 0.5% 4.7%
=============================================== ======== ========
As there are no remaining developments as at 31 March 2021 we
have updated the table above to show TPR including developments to
provide a more appropriate comparison.
Debt to portfolio value ('LTV')
2021 2020
GBP'000 GBP'000
========================================== ======== ========
Drawn debt 144,000 194,000
========================================== ======== ========
Cash balances (2,249) (2,245)
========================================== ======== ========
Net debt - bank debt net of cash balances 141,751 191,755
========================================== ======== ========
Valuation as reported by external valuers 437,900 510,000
========================================== ======== ========
LTV 32.4% 37.6%
========================================== ======== ========
5 Net finance costs
2021 2020
GBP'000 GBP'000
================================================= ======== ========
Interest on bank overdraft and loans 4,606 5,602
================================================= ======== ========
Commitment fee 564 462
================================================= ======== ========
Lease interest on leasehold property obligations 282 397
================================================= ======== ========
Finance arrangement costs 899 895
================================================= ======== ========
Capitalised interest (note 7) - (551)
================================================= ======== ========
6,351 6,805
================================================= ======== ========
Interest receivable (8) (5)
================================================= ======== ========
Net finance costs 6,343 6,800
================================================= ======== ========
The capitalisation of interest has no effect on taxation.
6 Taxation
2021 2020
GBP'000 GBP'000
================================================== ======== ========
Total tax in the Consolidated Profit and Loss and
Other Comprehensive Income 133 (1,392)
================================================== ======== ========
Reconciliation to effective rate of tax:
-------------------------------------------------- -------- --------
(Loss)/profit on ordinary activities before tax (16,583) 9,487
================================================== ======== ========
Tax charge on profit at 19% (2020: 19%) (3,151) 1,803
================================================== ======== ========
Effects of:
================================================== ======== ========
REIT tax exemption 3,151 (1,803)
================================================== ======== ========
Tax provision movement 133 (1,392)
================================================== ======== ========
Tax for period (as above) 133 (1,392)
================================================== ======== ========
The taxation charge in the Consolidated Profit and Loss and
Other Comprehensive Income relates to a movement in the taxation
provision of GBP133,000 on the sale of 30 Lombard Street, EC3. As a
REIT, the Group is tax exempt in respect of qualifying capital
gains and qualifying rental income, which covers the majority of
the Company's activities. The tax provision relating to the sale of
30 Lombard St arises as the completion of the sale was within three
years of practical completion and therefore triggers a chargeable
capital gain under REIT regulations.
7 Capitalised interest
Interest relating to investment properties in the course of
development is dealt with as explained in note 1.
Interest capitalised during the year amounted to nil (2020:
GBP550,933 related to works to Theale Logistics Park).
Total development interest capitalised amounts to GBP14,737,480
(2020: GBP14,737,480).
Interest is capitalised using the Group's weighted average cost
of borrowings and the effective rate applied in the year was 3.10%
(2020: 3.35%).
8 Earnings per share
2021 2020
Basic earnings per share pence pence
===================================================== ======= ======
Basic (loss)/earnings per share (17.45) 8.59
===================================================== ======= ======
Movement in revaluation of investment properties 24.77 2.33
===================================================== ======= ======
Other property income (0.17) (0.07)
===================================================== ======= ======
Loss/(profit) on disposal of investment properties 3.03 (1.77)
===================================================== ======= ======
Taxation (0.14) 1.48
===================================================== ======= ======
Share-based payments 0.52 (0.24)
===================================================== ======= ======
Adjusted earnings per share 10.56 10.32
===================================================== ======= ======
Share-based payments (0.52) 0.24
===================================================== ======= ======
Other property income 0.17 0.07
===================================================== ======= ======
EPRA earnings per share 10.21 10.63
===================================================== ======= ======
Basic (loss)/earnings per share on ordinary shares is calculated
on the loss in the year of (GBP16,450,000) (2020: profit of
GBP8,095,000) and 94,292,376 (2020: 94,234,253) shares, being the
weighted average number of ordinary shares in issue during the
year.
EPRA earnings per share is calculated on the same profit after
tax and on the weighted average number of shares in issue during
the year of 94,292,376 (2020: 94,234,253) shares.
2021 2020
Number Number
of shares of shares
==================================================== ========== ==========
Weighted average number of ordinary shares in issue 94,292,376 94,234,253
==================================================== ========== ==========
Number of shares under option - 463,819
==================================================== ========== ==========
Number of shares that would have been issued at
fair value - (244,272)
==================================================== ========== ==========
Diluted weighted average number of ordinary shares
in issue 94,292,376 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.
2021 2020
Number Number
of shares of shares
============================== ========== ==========
Number of shares under option 144,921 -
============================== ========== ==========
2021 2020
Diluted earnings per share pence pence
===================================================== ======= ======
Basic (loss)/earnings per share (17.45) 8.59
===================================================== ======= ======
Effect of dilutive potential ordinary shares under
option 0.00 (0.02)
===================================================== ======= ======
(17.45) 8.57
===================================================== ======= ======
Movement in revaluation of investment properties 24.77 2.33
===================================================== ======= ======
Other property income (0.17) (0.07)
===================================================== ======= ======
Loss/(profit) on disposal of investment properties 3.03 (1.77)
===================================================== ======= ======
Share-based payments 0.52 (0.24)
===================================================== ======= ======
Taxation (0.14) 1.47
===================================================== ======= ======
Adjusted diluted earnings per share 10.56 10.29
===================================================== ======= ======
Adjusted earnings per share excludes the after tax effect of
profit from the disposal of investment properties, share-based
payments, deferred taxation, other property income, and the
movement in revaluation of investment property.
The taxation charge in the Consolidated Profit and Loss and
Other Comprehensive Income relates to a taxation provision movement
of GBP133,000 on the sale of 30 Lombard Street, EC3.
9 Dividends
The final dividend is not included in the accounts as a
liability as at 31 March 2021, as it is subject to shareholder
approval at the Annual General Meeting. The final dividend for 2020
and interim for 2020 paid in the year are included in the
Consolidated Statement of Changes in Equity above.
2021 2020
GBP'000 GBP'000
===================================================== ======== ========
Ordinary dividends
===================================================== ======== ========
31 March 2020 final dividend of 4.4 pence (31 March
2019: 7.4 pence) paid during the year 4,148 6,965
===================================================== ======== ========
30 September 2020 interim dividend of 2.8 pence (30
September 2019: 2.8 pence) paid during the year 2,642 2,639
===================================================== ======== ========
Total recognised in financial statements 6,790 9,604
===================================================== ======== ========
Proposed final dividend of 5.5 pence (31 March 2020:
4.4 pence) 5,116 4,148
===================================================== ======== ========
10 Investment properties
Group Company
===================================== ============================== ==============================
Freehold Long Total Freehold Long Total
GBP'000 leasehold GBP'000 GBP'000 leasehold GBP'000
GBP'000 GBP'000
===================================== ======== ========== ======== ======== ========== ========
Valuation
===================================== ======== ========== ======== ======== ========== ========
At 1 April 2020 401,998 101,768 503,766 401,998 31,402 433,400
===================================== ======== ========== ======== ======== ========== ========
Additions - capital expenditure 6,337 484 6,821 6,337 478 6,815
===================================== ======== ========== ======== ======== ========== ========
Additions - purchases 10,658 - 10,658 10,658 - 10,658
===================================== ======== ========== ======== ======== ========== ========
Revaluation deficit (18,445) (3,134) (21,579) (18,445) (3,128) (21,573)
===================================== ======== ========== ======== ======== ========== ========
Adjustment for tenant incentives
recognised in advance under
IFRS 16 (449) (1,327) (1,776) (449) 28 (421)
===================================== ======== ========== ======== ======== ========== ========
Disposals - (69,520) (69,520) - - -
===================================== ======== ========== ======== ======== ========== ========
IFRS write off on disposal - 5,009 5,009 - - -
===================================== ======== ========== ======== ======== ========== ========
Headlease adjustment - 801 801 - 801 801
===================================== ======== ========== ======== ======== ========== ========
Amortisation of grossed up headlease
liabilities - (1) (1) - (1) (1)
===================================== ======== ========== ======== ======== ========== ========
Book value as at 31 March 2021 400,099 34,080 434,179 400,099 29,580 429,679
===================================== ======== ========== ======== ======== ========== ========
Adjustment for grossing up of
headlease liabilities - (3,682) (3,682) - (3,682) (3,682)
===================================== ======== ========== ======== ======== ========== ========
Adjustment for tenant incentives
recognised in advance under
IFRS 16 7,301 102 7,403 7,301 102 7,403
===================================== ======== ========== ======== ======== ========== ========
Valuation as at 31 March 2021 407,400 30,500 437,900 407,400 26,000 433,400
===================================== ======== ========== ======== ======== ========== ========
Group Company
===================================== ============================== ==============================
Freehold Long Total Freehold Long Total
GBP'000 leasehold GBP'000 GBP'000 leasehold GBP'000
GBP'000 GBP'000
===================================== ======== ========== ======== ======== ========== ========
Valuation
===================================== ======== ========== ======== ======== ========== ========
At 1 April 2019 378,125 100,653 478,778 378,125 30,790 408,915
===================================== ======== ========== ======== ======== ========== ========
Additions - development 16,396 555 16,951 16,396 57 16,453
===================================== ======== ========== ======== ======== ========== ========
Additions - purchases 16,438 - 16,438 16,438 - 16,438
===================================== ======== ========== ======== ======== ========== ========
Revaluation (deficit)/surplus (3,235) 3,346 111 (3,235) 393 (2,842)
===================================== ======== ========== ======== ======== ========== ========
Adjustment for tenant incentives
recognised in advance under
IFRS 16 474 (2,785) (2,311) 474 163 637
===================================== ======== ========== ======== ======== ========== ========
Disposals (6,200) - (6,200) (6,200) - (6,200)
===================================== ======== ========== ======== ======== ========== ========
Amortisation of grossed up headlease
liabilities - (1) (1) - (1) (1)
===================================== ======== ========== ======== ======== ========== ========
Book value as at 31 March 2020 401,998 101,768 503,766 401,988 31,402 433,400
===================================== ======== ========== ======== ======== ========== ========
Adjustment for grossing up of
headlease liabilities - (4,403) (4,403) - (2,882) (2,882)
===================================== ======== ========== ======== ======== ========== ========
Adjustment for tenant incentives
recognised in advance under
IFRS 16 6,852 3,785 10,637 6,852 130 6,982
===================================== ======== ========== ======== ======== ========== ========
Valuation as at 31 March 2020 408,850 101,150 510,000 408,850 28,650 437,500
===================================== ======== ========== ======== ======== ========== ========
In accordance with the Group's accounting policy on properties
there was an external valuation at 31 March 2021. These valuations
were carried out by Knight Frank LLP, Chartered Surveyors and
Valuers. All valuations were carried out in accordance with the
Appraisal and Valuation Standards of RICS, on an open market
basis.
The historical cost of properties stated at valuation is
approximately GBP322 million (2020: GBP377 million) for the Group
and GBP321 million (2020: GBP315 million) for the Company.
The amount of interest capitalised during the year was nil
(2020: GBP550,933). The Group is a REIT and therefore does not
obtain relief from Corporation Tax.
Investment property valuation method and assumptions
The fair value of the property portfolio has been determined
using income capitalisation techniques, whereby contracted and
market rental values are capitalised with a market value for
properties under development, the fair value is calculated by
estimating the fair value of the completed property using the
income capitalisation technique less estimated costs to completion
and a risk premium. The resulting valuations are cross-checked
against the equivalent yields and the fair market values per square
foot derived from comparable recent market transactions on arm's
length terms.
These techniques are consistent with the principles in IFRS 13
Fair Value Measurement and use significant unobservable inputs such
that the fair value measurement of each property within the
portfolio has been classified as Level 3 in the fair value
hierarchy. There were no transfers in or out of Level 3 for
investment properties during the year.
Losses recorded in profit or loss for recurring fair value
measurements categorised within Level 3 of the fair value hierarchy
amount to GBP23.4 million (2020: GBP2.2 million) and are presented
in the Group income statement in the line item 'Revaluation of
investment properties'.
Due to Covid-19 there was a material uncertainty clause attached
to the Knight Frank valuation for the year ended 31 March 2020.
Whilst Covid-19 continues to impact financial markets and
restrictions remain in place in many countries including the UK the
stabilising conditions have meant that no material uncertainty
clause is included in the year ended 31 March 2021.
The asset held for sale is The Planets, Woking totalling GBP13.5
million, all of which has been reclassified from investment
property. This property remains held for sale at 31 March 2021,
with the original exchange of sale contracts in March 2019. This
sale remains conditional on the receipt of planning consent being
achieved by the purchaser. Whilst the submitted planning consent
was not approved on initial submission, management is confident
that a successful appeal will be undertaken with an adjusted plan
such that the disposal will be able to be completed within 12
months of the balance sheet date.
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
of the Group's property portfolio, together with the impact of
significant movements in these inputs on the fair value
measurement, are shown below:
South East South East
London offices offices industrial
================================ ===================== ===================== =====================
Valuation technique Income capitalisation Income capitalisation Income capitalisation
================================ ===================== ===================== =====================
Fair value GBP56,000,000 GBP235,600,000 GBP122,400,000
================================ ===================== ===================== =====================
ERV (psf pa) - average GBP53.69 GBP23.62 GBP11.08
================================ ===================== ===================== =====================
ERV (psf pa) - range GBP7.50-GBP100.00 GBP14.50-GBP48.00 GBP5.00-GBP17.00
================================ ===================== ===================== =====================
True equivalent yield - average 4.95% 7.84% 5.20%
================================ ===================== ===================== =====================
True equivalent yield - range 4.36%-6.06% 5.95%-10.58% 4.25%-6.23%
================================ ===================== ===================== =====================
Capital value psf GBP741.20 GBP321.87 GBP216.70
================================ ===================== ===================== =====================
A further GBP23.90 million has been designated 'other' and not
included in the analysis above.
Definitions for ERV and true equivalent yield are provided in
the glossary.
Change in ERV Change in equivalent
yield
========================================= ================ ======================
+5% -5% +0.25% -0.25%
========================================= ======= ======= ========== ==========
Sensitivity analysis
========================================= ======= ======= ========== ==========
Change in value of investment properties +GBP19m -GBP19m -GBP20m +GBP22m
========================================= ======= ======= ========== ==========
11 Plant and equipment
2021 2020
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
================ ======== ======== ======== ========
Cost
================ ======== ======== ======== ========
Opening 231 151 133 133
================ ======== ======== ======== ========
Additions 24 24 132 52
================ ======== ======== ======== ========
Disposals (20) (20) (34) (34)
================ ======== ======== ======== ========
Closing 235 155 231 151
================ ======== ======== ======== ========
Depreciation
================ ======== ======== ======== ========
Opening 83 67 61 61
================ ======== ======== ======== ========
Charge for year 47 31 50 34
================ ======== ======== ======== ========
Disposals (20) (20) (28) (28)
================ ======== ======== ======== ========
Closing 110 78 83 67
================ ======== ======== ======== ========
Net book value 125 77 148 84
================ ======== ======== ======== ========
12 Investments
Shares
in subsidiary
undertakings
GBP'000
================ ==============
Company
================ ==============
At 1 April 2020 -
================ ==============
At 31 March 2021 -
================ ==============
At 31 March 2021 McKay Securities Plc owned 100% of the ordinary
share capital of Baldwin House Limited, representing 100 shares
with nominal value of GBP1. Baldwin House Limited operates in
England and is registered in England and Wales with a registered
address of 20 Greyfriars Road, Reading, Berkshire RG1 1NL.
The principal activity of the subsidiary undertaking is property
investment and development.
The Directors are of the opinion that the investment in the
subsidiary undertaking is not worth less than the current book
value.
13 Trade and other receivables
2021 2020
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
========================================= ======== ======== ======== ========
Current
========================================= ======== ======== ======== ========
Rent receivables 2,072 2,072 2,360 2,360
========================================= ======== ======== ======== ========
Amounts due from subsidiary undertakings - - - 43,918
========================================= ======== ======== ======== ========
Prepayments 336 336 822 637
========================================= ======== ======== ======== ========
Other debtors 655 654 18 18
========================================= ======== ======== ======== ========
3,063 3,062 3,200 46,933
========================================= ======== ======== ======== ========
Non-current
========================================= ======== ======== ======== ========
IFRS 16 lease incentives 7,403 7,404 6,982 6,982
========================================= ======== ======== ======== ========
Rent receivables of GBP434,000 were written off during the year
and are not included in the table above.
Group trade receivables that were past due but not impaired are
as follows:
2021 2020
GBP'000 GBP'000
================================= ======== ========
Less than three months due 2,072 2,360
================================= ======== ========
Between three and six months due - -
================================= ======== ========
Between six and 12 months due - -
================================= ======== ========
2,072 2,360
================================= ======== ========
The Group holds no collateral in respect of these
receivables.
14 Liabilities
2021 2020
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
======================================== ======== ======== ========= ========
Trade and other payables
======================================== ======== ======== ========= ========
Rent received in advance 5,806 5,806 5,389 5,389
======================================== ======== ======== ========= ========
Amounts due to subsidiary undertaking - 25,517 - -
======================================== ======== ======== ========= ========
Other taxation and social security
costs 521 521 1,736 1,726
======================================== ======== ======== ========= ========
Accruals 2,612 2,612 4,551 4,551
======================================== ======== ======== ========= ========
Other creditors 294 294 757 757
======================================== ======== ======== ========= ========
9,233 34,750 12,433 12,423
======================================== ======== ======== ========= ========
The fair value of current liabilities is estimated as the
present value of future cashflows which approximate their carrying
amounts due to the short-term maturities.
Creditor days for the Group were one day (2020: ten days).
Loans and other borrowings
The analysis of bank loans which are secured on certain of the
freehold and leasehold properties of the Group is as follows:
2021 2020
GBP'000 GBP'000
=================== ======== ========
Group and Company
=================== ======== ========
Secured bank loans 144,000 194,000
=================== ======== ========
Bank facility fees (2,631) (3,495)
=================== ======== ========
141,369 190,505
=================== ======== ========
The bank loans are secured against land and buildings with a
carrying amount of GBP412,250,000 (2020: GBP476,750,000).
2021 2020
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
======================= ======== ======== ======== ========
Repayable in:
======================= ======== ======== ======== ========
Less than one year - - - -
======================= ======== ======== ======== ========
One to two years - - - -
======================= ======== ======== ======== ========
Two to five years 77,181 77,181 126,373 126,373
======================= ======== ======== ======== ========
Five to ten years 64,188 64,188 - -
======================= ======== ======== ======== ========
Greater than ten years - - 64,132 64,132
======================= ======== ======== ======== ========
141,369 141,369 190,505 190,505
======================= ======== ======== ======== ========
2021 2020
GBP'000 GBP'000
========================================================= ======== ========
Changes in liabilities arising from financing activities
========================================================= ======== ========
Current loans as at 1 April
========================================================= ======== ========
Non-current loans as at 1 April 190,505 163,176
========================================================= ======== ========
Total loans as at 1 April 190,505 163,176
========================================================= ======== ========
Gross debt drawdowns 20,000 34,000
========================================================= ======== ========
Gross debt repayments (70,000) (5,000)
========================================================= ======== ========
Bank facility fees (cash) (34) (2,569)
========================================================= ======== ========
Facility fee amortisation (non-cash) 898 898
========================================================= ======== ========
Total loans as at 31 March 141,369 190,505
========================================================= ======== ========
2021 2020
GBP'000 GBP'000
================================================== ======== ========
Present value of lease liabilities as at 1 April 4,403 4,404
================================================== ======== ========
Headlease cash payments (282) (285)
================================================== ======== ========
Impact of unwind of discount rate (non-cash) 282 284
================================================== ======== ========
Headlease adjustment 800 -
================================================== ======== ========
Headlease write off on disposal (1,520) -
================================================== ======== ========
Present value of lease liabilities as at 31 March 3,683 4,403
================================================== ======== ========
Borrowing facilities
The Group has various undrawn committed borrowing facilities.
The facilities available in respect of which all conditions
precedent had been met were as follows:
2021 2020
GBP'000 GBP'000
=============================== ======== ========
Expiring in less than one year - -
=============================== ======== ========
Expiring in one to two years - -
=============================== ======== ========
Expiring in two to five years 101,000 51,000
=============================== ======== ========
Expiring in five to ten years - -
=============================== ======== ========
101,000 51,000
=============================== ======== ========
Liquidity risk
Liquidity risk is managed through committed bank facilities that
ensure sufficient funds are available to cover potential
liabilities arising against projected cashflows. The Group's
facilities are revolving in part, allowing the Group to apply cash
surpluses to temporarily reduce debt.
On 8 April 2019 the Company increased total facilities to GBP245
million. Three bilateral facilities (GBP125 million) were replaced
with one revolving credit facility ('RCF') of GBP180 million.
The following table details the Group's remaining contractual
maturities for its non-derivative financial liabilities. The tables
have been drawn up based on the undiscounted cashflows of financial
liabilities based upon the earliest dates on which the Group can be
required to pay. The table includes both interest and principal
cashflows. When the amount payable is not fixed, the amount
disclosed has been determined by reference to the applicable
interest rate as at the balance sheet date.
Financial instrument maturity
Contractual cashflows
===================================== ====================================================
Total 2 months 2-12 1-2 2-5 More
or less months years years than
5 years
===================================== ======= ======== ======= ====== ====== ========
At 31 March 2021
===================================== ======= ======== ======= ====== ====== ========
Non-derivative financial liabilities
===================================== ======= ======== ======= ====== ====== ========
Bank overdraft - - - - - -
===================================== ======= ======== ======= ====== ====== ========
Secured bank loans 144,000 - - - 79,000 65,000
===================================== ======= ======== ======= ====== ====== ========
Bank interest 28,304 - 4,114 4,114 9,349 10,727
===================================== ======= ======== ======= ====== ====== ========
Lease liabilities 22,252 - 230 230 690 21,102
===================================== ======= ======== ======= ====== ====== ========
Other taxation and social security
costs 521 - 521 - - -
===================================== ======= ======== ======= ====== ====== ========
Accruals 2,612 - 2,612 - - -
===================================== ======= ======== ======= ====== ====== ========
Other creditors 294 - 294 - - -
===================================== ======= ======== ======= ====== ====== ========
197,983 - 7,771 4,344 89,039 96,829
===================================== ======= ======== ======= ====== ====== ========
Contractual cashflows
===================================== =====================================================
Total 2 months 2-12 1-2 2-5 More
or less months years years than
5 years
===================================== ======= ======== ======= ====== ======= ========
At 31 March 2020
===================================== ======= ======== ======= ====== ======= ========
Non-derivative financial liabilities
===================================== ======= ======== ======= ====== ======= ========
Bank overdraft - - - - - -
===================================== ======= ======== ======= ====== ======= ========
Secured bank loans 194,000 - - - 129,000 65,000
===================================== ======= ======== ======= ====== ======= ========
Bank interest 38,798 - 5,709 5,709 14,040 13,340
===================================== ======= ======== ======= ====== ======= ========
Lease liabilities 25,798 - 285 285 857 24,371
===================================== ======= ======== ======= ====== ======= ========
Other taxation and social security
costs 1,736 - 1,736 - - -
===================================== ======= ======== ======= ====== ======= ========
Accruals 4,551 - 4,551 - - -
===================================== ======= ======== ======= ====== ======= ========
Other creditors 757 - 757 - - -
===================================== ======= ======== ======= ====== ======= ========
265,640 - 13,038 5,994 143,897 102,711
===================================== ======= ======== ======= ====== ======= ========
Credit risk
Credit evaluations are performed on all tenants looking to enter
into lease or pre-lease agreements with the Group. Credit risk is
managed by tenants paying rent in advance. Outstanding tenants'
receivables are regularly monitored.
At the Statement of Financial Position date there were no
significant concentrations of credit risk, except for the low risk
lease commitments which were either government departments or held
a top credit rating. The maximum exposure to credit risk is
represented by the carrying amount of each financial asset
including derivative financial instruments on the Group Statement
of Financial Position.
The Group has no exposure to currency risks.
Market risk
The Group is exposed to market risk through changes in interest
rates or availability of credit. The Group actively monitors these
exposures.
Interest rate risk
The Group adopts a policy of ensuring that its exposure to
interest rate fluctuations is mitigated by the use of financial
instruments.
A 25 basis points change in interest rate levels would increase
or decrease the Group's annual profit and equity GBP197,500 (2020:
GBP322,500). This sensitivity has been calculated by applying the
interest rate change to the variable rate borrowings at the year
end. The comparative figure for 2020 was also based on a 25 basis
points change in interest rates. The 25 basis points change being
used shows how the profit or loss and equity would have been
affected by changes in the relevant risk variable that were
reasonably possible at the year end.
Interest rate derivatives
The Group does not hold any interest rate derivatives as at 31
March 2021.
2021 2020
=================================== ===== =====
Weighted average cost of borrowing 3.10% 3.35%
=================================== ===== =====
There are no liabilities at maturity and no material
unrecognised gains or losses.
In both 2021 and 2020 there was no difference between the book
value and the fair value of all the other financial assets and
liabilities of the Group and Company.
15 Lease liabilities
Minimum lease payments
========================
2021 2020
GBP'000 GBP'000
================================================ =========== ===========
Group lease liabilities are payable as follows:
================================================ =========== ===========
Year one 230 285
================================================ =========== ===========
Year two 230 286
================================================ =========== ===========
Year three 230 286
================================================ =========== ===========
Year four 230 285
================================================ =========== ===========
Year five 230 285
================================================ =========== ===========
Greater than five years 21,102 24,371
================================================ =========== ===========
22,252 25,798
================================================ =========== ===========
Less future finance charges (18,569) (21,395)
================================================ =========== ===========
Present value of lease obligations 3,683 4,403
================================================ =========== ===========
The above lease liabilities relate to investment properties with
a carrying value of GBP26,000,000 (2020: GBP95,900,000). The terms
of these lease agreements are for periods of between 97 and 125
years. There are no restrictions imposed by the lease agreements.
No contingent rents are payable.
Lease liabilities are effectively secured as the rights to the
leased assets revert to the lessor in event of default.
The annual obligation for the first five years is GBP230,000
pa.
16 Operating leases
The Group leases out all of its investment properties under
operating leases.
The future aggregate minimum rentals receivable under
non-cancellable operating leases are as follows:
2021 2020
GBP'000 GBP'000
================================================== ======== ========
Not later than one year 20,081 20,224
================================================== ======== ========
Later than one year but not later than five years 52,613 52,964
================================================== ======== ========
Later than five years 24,987 55,336
================================================== ======== ========
97,681 128,524
================================================== ======== ========
17 Share-based payments
During the year to 31 March 2021, the Group had one share-based
payment arrangement, which is described below. In the case of the
PSP awards, the expected volatility was determined by calculating
historical volatility of the Group's share price.
Performance Share Plan
The performance targets for PSP awards are a combination of TSR
and absolute NAV performance over a three-year period. If the
performance criteria have not been met at the end of the vesting
period then the awards will lapse.
The nil cost awards outstanding at 31 March 2021 have been fair
valued using a Monte Carlo valuation pricing model using the
following main assumptions:
23 June 10 June 8 June 18 July
2020 2019 2018 2017
===================== ======= ======= ======= =======
Share price GBP1.94 GBP2.40 GBP2.67 GBP2.26
===================== ======= ======= ======= =======
Term 3 years 3 years 3 years 3 years
===================== ======= ======= ======= =======
Risk free rate (0.05)% 0.49% 0.80% 0.26%
===================== ======= ======= ======= =======
Dividend yield 0% 0% 0% 0%
===================== ======= ======= ======= =======
Volatility - Company 37.0% 31.0% 31.0% 29.0%
===================== ======= ======= ======= =======
TSR fair value GBP1.10 GBP1.34 GBP1.73 GBP1.42
===================== ======= ======= ======= =======
NAV fair value GBP1.94 GBP2.40 GBP2.70 GBP2.26
===================== ======= ======= ======= =======
Share-based payments
2021 2020
Number Number
of shares of shares
=========================================== ========== ==========
Outstanding at the beginning of the period 1,721,829 1,732,473
=========================================== ========== ==========
Granted during the period 733,655 638,465
=========================================== ========== ==========
Forfeited during the period - (18,880)
=========================================== ========== ==========
Exercised during the period (75,477) (139,573)
=========================================== ========== ==========
Expired during the period (273,287) (490,656)
=========================================== ========== ==========
Outstanding at the end of the period 2,106,720 1,721,829
=========================================== ========== ==========
During the year 75,477 shares were issued to settle the 2017 PSP
(First Grant) on 12 August 2020. These shares were issues out of
distributable revenues under the Company's Articles of
Association.
The above table includes outstanding shares at the end of the
year relating to deferred bonus shares of 144,921 (2020: 107,055),
of which 37,866 were granted during the year (2020: 50,845) and nil
exercised in the period (2020: 57,480).
The weighted average life of the 2,106,720 shares outstanding is
7.82 years (2020: 8.29 years). The weighted average price on the
date of exercise for options exercised during the year was GBP1.88
(2020: GBP2.40).
18 Called up share capital
2021 2020
Issued Number Issued Number
GBP of shares GBP of shares
================================== ========== ========== ========== ==========
Ordinary 20 pence shares in issue
================================== ========== ========== ========== ==========
At 1 April 18,852,794 94,263,998 18,824,879 94,124,425
================================== ========== ========== ========== ==========
Issue of shares in year(1) 15,095 75,477 27,915 139,573
================================== ========== ========== ========== ==========
Repurchase of shares (107,708) (538,542) - -
================================== ========== ========== ========== ==========
At 31 March 18,760,181 93,800,933 18,852,794 94,263,998
================================== ========== ========== ========== ==========
1. During the year 75,477 shares (2020: 139,573) were issued to
settle the 2017 PSP (First Grant) on 12 August 2020.
19 Capital management
The Group's objectives when managing capital are to safeguard
its ability to continue as a going concern, to provide returns to
shareholders and to maintain an appropriate capital structure to
minimise the cost of capital. The current capital structure of the
Group comprises a mix of equity and debt. Equity comprises issued
share capital, reserves and retained earnings, as disclosed in the
Group Balance Sheet.
The Group uses a number of key metrics(1) to manage its capital
structure, including:
-- gearing
-- LTV(1)
The Board monitors the ability of the Group to pay dividends out
of available cash and distributable profits.
1. See glossary.
20 Related party transactions
Balance owed to/(owing
from)
========================
2021 2020
GBP'000 GBP'000
======================== =========== ===========
Subsidiary undertakings
======================== =========== ===========
Baldwin House Limited 25,516 (43,918)
======================== =========== ===========
25,516 (43,918)
======================== =========== ===========
There were no transactions with Directors, who are considered
key management personnel, other than remuneration, details of which
are provided in the Directors' Annual Remuneration Report.
See note 23 for details on the pension scheme.
These related party transactions are between Baldwin House
Limited and the Company. They relate to property payments and
receipts for the two properties held in Baldwin House Limited
during the year. This balance is zero at Group level.
The Parent Company funded capital expenditure on behalf of
Baldwin House in the year amounting to GBP6,088 (2020:
GBP544,795).
2021 2020
GBP'000 GBP'000
========================================== ======== ========
Interest charge by McKay to Baldwin House 91 1,321
========================================== ======== ========
Management fee charged by McKay 174 338
========================================== ======== ========
21 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 31
March 2021 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.
31 March 2021 31 March 2020
============================== ==============================
NAV NAV
Net assets Shares per share Net assets Shares per share
GBP'000 '000 pence GBP'000 '000 pence
================== ========== ====== ========== ========== ====== ==========
Basic 289,902 93,801 309 309,166 94,264 328
================== ========== ====== ========== ========== ====== ==========
Number of shares
under option - 145 - - 143 (1)
================== ========== ====== ========== ========== ====== ==========
Diluted/EPRA NDV 289,902 93,946 309 309,166 94,407 327
================== ========== ====== ========== ========== ====== ==========
Deferred taxation - - - 1,392 - 2
================== ========== ====== ========== ========== ====== ==========
EPRA NTA 289,902 93,946 309 310,558 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 31 March 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================ ======== ======== ======== ========= ========
Equity attributable to ordinary
shareholders 289,902 289,902 289,902 289,902 289,902
================================ ======== ======== ======== ========= ========
Deferred taxation - - - - -
================================ ======== ======== ======== ========= ========
Net assets 289,902 289,902 289,902 289,902 289,902
================================ ======== ======== ======== ========= ========
Diluted shares ('000) 93,946 93,946 93,946 93,946 93,946
================================ ======== ======== ======== ========= ========
Diluted net assets per share
(pence) 309 309 309 309 309
================================ ======== ======== ======== ========= ========
Current measures Previous measures
============================ ===================
EPRA EPRA EPRA EPRA EPRA
NTA NRV NDV NAV NNNAV
As at 31 March 2020 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
================================ ======== ======== ======== ========= ========
22 Commitments and contingent liabilities
2021 2020
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
================================== ======== ======== ======== ========
Capital expenditure committed but
not provided for - - 672 672
================================== ======== ======== ======== ========
The 2020 commitments related to the Group's one development in
place at the end of the year.
23 Pensions
The Group and Company operate a defined benefit pension scheme
in the UK providing benefits based on final pensionable salary. The
assets of the scheme are held separately from those of the Group,
being invested with insurance companies and managed funds. The
contributions are determined by a qualified actuary on the basis of
a triennial valuation using the attained age method. The most
recent actuarial valuation was as at 31 March 2020. The assumption
which has the most significant effect on the results of the
valuation are those relating to the rate of return on investments.
It was assumed that the investment returns would be 5.0% per
annum.
The Group contributes GBP240,000 per annum into the Scheme. This
was reviewed as part of the 2020 triennial valuation.
At the 31 March 2020 actuarial valuation the scheme was 78.0%
funded on the statutory funding objective basis. A recovery plan
and schedule of contributions has been agreed designed to address
this shortfall.
The IAS 19 valuation for the pension scheme disclosures is based
on the most recent actuarial valuation at 31 March 2020 and updated
by First Actuarial in order to assess the liabilities of the scheme
at 31 March 2021. Scheme assets are stated at their market value at
31 March 2021.
The Scheme has been closed to new entrants since 1989.
The assets of the scheme have been taken at market value and the
liabilities have been calculated using the following principal
actuarial assumptions:
2021 2020
============================= ==== ====
Inflation 3.3% 2.6%
============================= ==== ====
Salary increases n/a n/a
============================= ==== ====
Rate of discount 1.7% 2.3%
============================= ==== ====
Pension in payment increases 3.2% 2.6%
============================= ==== ====
The mortality assumptions adopted at 31 March 2021 imply the
following life expectancies for members currently aged 60:
Male = 27.8 years
2021 2020
GBP'000 GBP'000
================================================ ======== ========
The fair value of scheme assets are as follows:
================================================ ======== ========
Equities 2,134 1,693
================================================ ======== ========
Gilts 557 264
================================================ ======== ========
Corporate and overseas bonds 266 252
================================================ ======== ========
Absolute return portfolios 2,173 1,984
================================================ ======== ========
Property 152 120
================================================ ======== ========
Cash 315 443
================================================ ======== ========
Other 89 83
================================================ ======== ========
5,686 4,839
================================================ ======== ========
100.0% of the equities are in quoted equities.
The asset split is approximated using the current fund splits
for each manager.
The plan assets do not expose the entity to any significant
concentration risk.
2021 2020
GBP'000 GBP'000
=============================================== ======== ========
Changes in the value of scheme assets over the
year
=============================================== ======== ========
Market value of assets at start of year 4,839 5,332
=============================================== ======== ========
Return on scheme assets 109 115
=============================================== ======== ========
Actuarial gain 931 (417)
=============================================== ======== ========
Employer contributions 240 240
=============================================== ======== ========
Benefits paid (433) (431)
=============================================== ======== ========
Market value of assets at end of year 5,686 4,839
=============================================== ======== ========
Analysis of changes in the value of the defined benefit
obligation over the period:
2021 2020
GBP'000 GBP'000
===================================================== ======== ========
Value of defined benefit obligation at start of
period 6,936 7,440
===================================================== ======== ========
Interest cost 155 159
===================================================== ======== ========
Benefits paid (433) (431)
===================================================== ======== ========
Actuarial gains: experience differing from that
assumed 167 83
===================================================== ======== ========
Actuarial gains: changes in demographic assumptions 313 -
===================================================== ======== ========
Actuarial gains: changes in financial assumptions 728 (315)
===================================================== ======== ========
Value of defined benefit obligation at end of period 7,866 6,936
===================================================== ======== ========
Sensitivity analysis
Significant actuarial assumptions for the determination of the
defined benefit obligation are discount rate, expected salary
increase and mortality. The sensitivity analyses below have been
determined based on reasonably possible changes of the respective
assumptions occurring at the end of the reporting period, while
holding all other assumptions constant. The sensitivity analysis
presented above may not be representative of the actual change in
the defined benefit obligation as it is unlikely that the changes
in assumptions would occur in isolation of one another as some of
the assumptions may be correlated. The RPI inflation assumption
sensitivity factors in the impact of inflation on the rate of
increase in pension in payment assumptions.
Change
in defined
Change benefit
in assumption obligation
======================== =============== ===========
Assumption
======================== =============== ===========
+/-0.5%
Discount rate pa -/+5%
======================== =============== ===========
+/-0.5%
RPI inflation pa +4%/-3%
======================== =============== ===========
Assumed life expectancy +1 year +6%
======================== =============== ===========
Analysis of the amount charged to operating profit:
2021 2020
GBP'000 GBP'000
===================================================== ======== ========
Operating profit
===================================================== ======== ========
Current service cost - -
===================================================== ======== ========
Analysis of the amount (credited)/charged to finance
(income) /costs
===================================================== ======== ========
Return on pension scheme assets (109) (115)
===================================================== ======== ========
Interest on pension scheme liabilities 155 159
===================================================== ======== ========
Total charge to profit and loss 46 44
===================================================== ======== ========
Analysis of the movement in the balance sheet deficit:
2021 2020
GBP'000 GBP'000
======================================= ======== ========
Deficit in scheme at beginning of year (2,097) (2,108)
======================================= ======== ========
Movement in year:
======================================= ======== ========
Current service cost - -
======================================= ======== ========
Net interest/return on assets (46) (44)
======================================= ======== ========
Contributions 240 240
======================================= ======== ========
Actuarial loss (277) (185)
======================================= ======== ========
Deficit in scheme at end of year (2,180) (2,097)
======================================= ======== ========
The last active member reached retirement age in May 2013.
The weighted average maturity profile of the defined benefit
obligation at the end of the year is ten years (2020: ten
years).
24 Post balance sheet events
There has been no material post balance events between the
balance sheet date and the signing of the accounts.
Supplementary information (unaudited)
Table 1: EPRA Summary
2021 2020
================================== ================ ================
Reference GBP'000 Pence GBP'000 Pence
per per
share share
================================== ========== ======== ====== ======== ======
Table
EPRA Earnings 2 9,626 10.21 10,019 10.63
================================== ========== ======== ====== ======== ======
Table
EPRA NTA 3 290,556 309 310,558 329
================================== ========== ======== ====== ======== ======
Table
EPRA NRV 3 290,556 309 310,558 329
================================== ========== ======== ====== ======== ======
Table
EPRA NDV 3 289,902 309 309,166 327
================================== ========== ======== ====== ======== ======
Table
EPRA NIY 4 4.5% 3.8%
================================== ========== ======== ====== ======== ======
Table
EPRA NIY (topped-up) 4 5.2% 5.2%
================================== ========== ======== ====== ======== ======
Table
EPRA Vacancy rate 5 14.6% 11.3%
================================== ========== ======== ====== ======== ======
EPRA Cost Ratio (excluding vacant Table
property costs) 6 25.9% 25.3%
================================== ========== ======== ====== ======== ======
EPRA Cost Ratio (including vacant Table
property costs) 6 31.8% 34.3%
================================== ========== ======== ====== ======== ======
Table 2: EPRA Earnings
2021 2020
Notes GBP'000 GBP'000
================================================= ====== ======== ========
Earnings per IFRS income statement (16,450) 8,095
========================================================= ======== ========
Adjustments to calculate EPRA Earnings:
================================================= ====== ======== ========
Movement in revaluation of investment properties 23,356 2,200
========================================================= ======== ========
Loss/(profit) on disposal of investment
properties 2,854 (1,668)
========================================================= ======== ========
Taxation (134) 1,392
========================================================= ======== ========
EPRA Earnings 9,626 10,019
========================================================= ======== ========
Basic number of shares (000's) 94,292 94,234
========================================================= ======== ========
EPRA Earnings per share 10.21 10.63
========================================================= ======== ========
Company specific adjustments:
================================================= ====== ======== ========
Share Based Payments (IFRS 2) 489 (222)
========================================================= ======== ========
Other property income (157) (70)
========================================================= ======== ========
Adjusted earnings 9,959 9,727
========================================================= ======== ========
Adjusted EPS 10.56 10.32
========================================================= ======== ========
Table 3: EPRA Net Asset Measures
In October 2019, the European Public Real Estate Association
('EPRA') published new Best Practices Recommendations ('BPR') for
financial disclosures by public real estate companies. The BPR
introduced three new measures of net asset value: EPRA net tangible
assets ('NTA'), EPRA net reinstatement value ('NRV') and EPRA net
disposal value ('NDV').
These recommendations are effective for accounting periods
starting on 1 January 2020 and have been adopted by the Group in
reporting the 31 March 2021 position.
EPRA NTA is considered to be most consistent with McKay
Securities' business as a UK REIT providing long-term progressive
and sustainable returns. EPRA NTA now acts as the primary EPRA
measure of net asset value.
A reconciliation of the three new EPRA NAV metrics is shown in
the table below. The previously reported EPRA NAV and EPRA NNNAV
have also been included for comparative purposes.
As at 31 March 2021 Current Measures Previous Measures
================================ ============================ ====================
EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================ ======== ======== ======== ======== ==========
Equity attributable to ordinary
shareholders 289,902 289,902 289,902 289,902 289,902
================================ ======== ======== ======== ======== ==========
Deferred taxation - - - - -
================================ ======== ======== ======== ======== ==========
Net assets 289,902 289,902 289,902 289,902 289,902
================================ ======== ======== ======== ======== ==========
Diluted shares ('000) 93,946 93,946 93,946 93,946 93,946
================================ ======== ======== ======== ======== ==========
Diluted net assets per share
(p) 309 309 309 309 309
================================ ======== ======== ======== ======== ==========
As at 31 March 2020 Current Measures Previous Measures
================================ ============================ ====================
EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
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 310,558 310,558 309,166 310,558 309,166
================================ ======== ======== ======== ======== ==========
Diluted shares ('000) 94,407 94,407 94,407 94,407 94,407
================================ ======== ======== ======== ======== ==========
Diluted net assets per share
(p) 329 329 327 329 327
================================ ======== ======== ======== ======== ==========
Table 4: EPRA NIY
2021 2020
Notes GBP'000 GBP'000
================================================ ====== ======== ========
Investment property - wholly owned 437,900 510,000
======================================================== ======== ========
Investment property - share of JVs/Funds
================================================ ====== ======== ========
Trading property (including share of JVs)
================================================ ====== ======== ========
Less: developments - (24,000)
======================================================== ======== ========
Completed property portfolio 437,900 486,000
======================================================== ======== ========
Allowance for estimated purchasers' costs
================================================ ====== ======== ========
Gross valuation of completed property portfolio A 437,900 486,000
================================================ ====== ======== ========
Annualised cash passing rental income 22,197 21,897
======================================================== ======== ========
Property outgoings (2,645) (3,252)
======================================================== ======== ========
Annualised net rents B 19,552 18,645
================================================ ====== ======== ========
Adjustment for notional rent and other
lease adjustments 3,415 6,431
======================================================== ======== ========
Topped-up net annualised rent C 22,967 25,076
================================================ ====== ======== ========
EPRA NIY B/A 4.5% 3.8%
================================================ ====== ======== ========
EPRA 'topped-up' NIY C/A 5.2% 5.2%
================================================ ====== ======== ========
Table 5: EPRA Vacancy Rate
2021 2020
Notes GBP'm GBP'm
============================================ ====== ====== ======
Annualised estimated rental value of vacant
premises A 4.6 4.0
============================================ ====== ====== ======
Annualised estimated rental value of the
completed property portfolio B 31.5 34.9
============================================ ====== ====== ======
EPRA Vacancy Rate A/B 14.6% 11.3%
============================================ ====== ====== ======
Table 6: EPRA Cost Ratio
2021 2020
Notes GBP'000 GBP'000
============================================= ====== ======== ========
Administrative expenses 5,175 5,385
===================================================== ======== ========
Net service charge costs 1,191 986
===================================================== ======== ========
Direct vacancy costs 1,454 2,266
===================================================== ======== ========
Management fees (361) (293)
===================================================== ======== ========
Other operating income - -
============================================= ====== ======== ========
EPRA costs (including direct vacancy costs) A 7,820 8,637
============================================= ====== ======== ========
Group vacant property costs (1,454) (2,266)
===================================================== ======== ========
EPRA costs (excluding direct vacancy costs) B 6,366 6,371
============================================= ====== ======== ========
Gross rental income less ground rents C 24,624 25,164
============================================= ====== ======== ========
EPRA costs ratio (including vacant property
costs) A / C 31.8% 34.3%
============================================= ====== ======== ========
EPRA costs ratio (excluding vacancy property
costs) B / C 25.9% 25.3%
============================================= ====== ======== ========
The Report and Financial Statements will be posted to
shareholders on 2 June 2021 with copies available from the
Company's registered office at 20 Greyfriars Road, Reading, RG1 1NL
from the same date, and from the Company's website
www.mckaysecurities.plc.uk .
Glossary
Adjusted EPS
Earnings per share - based on profits and adjusted to exclude
certain items as set out in note 8.
Adjusted profit before tax
Profit before tax adjusted to exclude profit from the disposal
of investment properties, share-based payments, other property
income, the change in fair value derivatives and the movement in
revaluation of investment property. These items are excluded on the
bases that they relate to non-core rental activity as set out in
note 4.
Book value
The amount at which assets and liabilities are reported in the
accounts.
BREEAM
Building Research Establishment Environmental Assessment Method.
An environmental standard that rates the sustainability of
buildings in the UK.
Carrying value
The value of an asset based on prior valuation with the addition
of any subsequent capital expenditure.
Contracted rent
Rent payable under the terms of a lease, less ground rent, with
no allowance for the value of incentives granted at lease
commencement.
CRC
Carbon Reduction Commitment. A mandatory emissions reduction
standard in the UK that covers all forms of energy excluding
transportation fuels.
Diluted figures
Reported amount adjusted to include the effects of potential
shares issuable under employee share schemes.
Dun and Bradstreet
Provider of business information and risk management
insight.
Earnings per share ('EPS')
Profit after taxation attributable to ordinary shareholders
divided by the weighted average number of ordinary shares in issue
during the year.
EPC
Energy Performance Certificate. Certificates carry ratings which
measure the energy and carbon emission efficiency of the property
using a grade from an 'A' to a 'G'.
EPRA
Standard calculation methods for adjusted EPS, NTA, NRV and NDV
as set out by the European Public Real Estate Association ('EPRA')
in their Best Practice and Policy Recommendations.
Equivalent yield (True)
The internal rate of return from an investment property, based
on the value of the property assuming the current rent passing
reverts to ERV and assuming the property becomes fully reoccupied
over time. It assumes that rent is received quarterly in
advance.
Estimated Rental Value ('ERV')
The valuers estimated amount for which floor space should let on
the date of valuation on appropriate lease terms net of ground
rents payable. Also known as MRV.
Extensible Business Reporting Language ('XBRL')
A computer language for electronic transmission of business and
financial information.
Gearing
Drawn debt to shareholders' funds.
GRESB
Global Real Estate Sustainability Benchmark.
Industrial property
Term used to include light industrial, industrial and
distribution warehouse property falling within classes B1c, B2 and
B8 of the Town & Country Planning Use Classes Order. The term
does not include retail warehousing, falling within class A1 of the
Order.
Initial yield
Net rents payable at the valuation date expressed as a
percentage of the value of property assets after allowing for
notional purchasers' costs.
Interest cover ('ICR')
The number of times Group net interest payable is covered by
adjusted profit before interest and taxation.
Interest rate swap
A financial instrument where two parties agree to exchange an
interest rate obligation for a pre-determined amount of time.
IPD/MSCI
Investment Property Databank. Leading provider of independent
statistical analysis to the commercial property sector.
Loan to value ('LTV')
Drawn debt divided by the value of property assets.
Net asset value ('NAV') per share
Total equity divided by the number of ordinary shares in issue
at the period end.
Net debt
Total borrowings less cash credit balances.
Portfolio capital return ('PCR')
The annual valuation movement and realised surpluses/deficits
from the Company's directly held investment portfolio expressed as
a percentage return on the value at the beginning of the period,
adjusted for acquisitions and capital expenditure.
Property Income Distribution ('PID')
PID dividend payments are taxable as letting income in the hands
of shareholders who pay tax. They are paid after deduction of
withholding tax at the basic rate.
Real Estate Investment Trust ('REIT')
A tax efficient structure for the management of property. It
must be publicly quoted with 75% of its profits and assets derived
from a qualifying property rental business which is exempt from tax
on income and gains.
Rental value growth
Increase in rental value, as determined at the valuation date,
over the period on a like-for-like basis.
Reversion
Potential uplift in rental value to market rent, as determined
at the valuation date, likely to arise from a rent review, lease
renewal or letting.
RPIX
Retail Price Index excluding mortgage interest.
Shareholders' funds
Total equity of the Company.
IFRS 16
The IFRS treatment in respect of letting incentives. It requires
the Company to offset the value of incentives granted to lessees
against the total rent due over the length of the lease, or to a
break clause if earlier.
Stamp duty land tax
Government tax levied on certain legal transactions including
the purchase of property.
Task force on Climate-related Financial Disclosure ('TCFD')
The TCFD climate-related financial disclosure recommendations
are designed to promote advancements in the availability and
quality of climate-related disclosure.
Total property return ('TPR')
Valuation surplus/(deficit) plus profit on disposal plus income
from investment properties divided by the book value.
Total shareholder return ('TSR')
The growth in the value of an ordinary share plus dividends
reinvested during the year expressed as a percentage of the share
price at the beginning of the year.
True equivalent yield
The constant capitalisation rate, which, if applied to all
cashflows from an investment property, including current net
reversions and such items as voids and expenditure, equates to the
market value having taken into account notional purchasers' costs
and assuming rents paid quarterly in advance.
Weighted average unexpired lease term ('WAULT')
The average lease term remaining to expiry across the portfolio
weighted by rental income. This is also disclosed assuming all
break clauses are exercised at the earliest date.
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