McKay Securities : Final Results for the year to 31st March 2016

Group Income Statement

McKAY REPORTS SIGNIFICANT PROGRESS IN ALL KEY AREAS

McKay Securities PLC, the Real Estate Investment Trust (REIT) specialising in South East and London office and industrial property, today announces its Full Year results for the year ended 31 March 2016.

Financial Highlights

• Adjusted profit before tax up 37.2% to £7.94 million (31 March 2015: £5.79 million)

• IFRS profit before tax of £53.16 million (31 March 2015: £33.28 million)

• NAV (EPRA) per share up 11.5% to 301 pence (31 March 2015: 270 pence)

• NNNAV (EPRA) per share up 20.4% to 277 pence (31 March 2015: 233 pence)

• Loan to Value ratio of 28.9% (31 March 2015: 25.9%)

• £175 million debt refinancing completed, including £35 million reduction in notional value of interest rate swaps

• Final dividend up 1.7% to 6.1 pence per share (2015: 6.0 pence per share)

• Total dividend for the year up to 8.8 pence (2015 8.7 pence)

  Portfolio Highlights

• Portfolio value increased by £48.41 million to £401.17 million

• 9.7% (£35.31 million) valuation surplus (like for like)

• 5 properties sold during the year, realising a net surplus of 37.1%

• Gross rental income up 14.4% (£2.54 million) to £20.16 million

• 8.5% growth in portfolio ERV (like for like)

• Portfolio ERV increase of 87.1% over 3 years to £31.44 million pa

• Potential portfolio reversion of 49%

• Good progress on development projects in Reading, Redhill and Lombard Street, EC3 David Thomas, Chairman of McKay Securities PLC, said:

"This has been a year of major progress for the Group towards our objective of being able to deliver attractive and sustainable returns to shareholders over the long term, as a result of expanding the business and focusing entirely on the office and industrial markets of London and the South East. Our major investment in property acquisitions, refurbishments and development projects over the last few years increased our scale to coincide with a time of growth in rental and capital values across our markets. By positioning our investment assets to take best advantage of these positive market trends, we have generated significant growth in value and earnings this year from an improved and more resilient portfolio. In addition, progress with the development programme has enhanced the prospects of the release of further gains over the years ahead. Both of these initiatives improve the chances of crystallising the full rental potential of the portfolio. "It has been a privilege to serve as Chairman for the last nine years, and I am pleased that Richard Grainger, who joined the Board in May 2014, will be succeeding me as Chairman at the conclusion of this year's AGM in July. I would like to convey my thanks to all the team at McKay and to our shareholders for their support over the years, and wish the Group well for the future."

Date: 24th May 2016

For further information please contact:	Media enquiries:
McKay Securities PLC	Capital Access Group
Simon Perkins, Chief Executive Officer	Simon Courtenay
Giles Salmon, Chief Finance Officer	020 3763 3400
01189 502333

Details of the programme for the payment of the final dividend on the Ordinary Shares is as follows:
Ex dividend date	2nd June 2016
Record Date for the final dividend	3rd June 2016
Report and Financial Statements dispatched to
Shareholders with Notice of AGM	15th June 2016
Annual General Meeting to be held at 12 noon at The
Royal Thames Yacht Club, 60 Knightsbridge, London SW1	14th July 2016
Final dividend paid	28th July 2016
A final dividend per share of 6.1 pence is recommended by the Board making a total dividend for the year of 8.8 pence per share (2015 - 8.7 pence). The final dividend will be paid as an Ordinary Dividend.

CH AI RM AN' S ST ATEM ENT

This has been a year of major progress for the Group towards our objective of being able to deliver attractive and sustainable returns to shareholders over the long term, as a result of expanding the business and focusing entirely on the office and industrial markets of London and the South East.

Our major investment in property acquisitions, refurbishments and development projects over the last few years increased our scale to coincide with a time of growth in rental and capital values across our markets. By positioning our assets to take best advantage of these positive market trends, we have generated significant growth in value and earnings this year from an improved and more resilient portfolio. In addition, progress with the development programme has enhanced the prospects of the release of further gains over the years ahead. Both of these initiatives improve the chances of crystallising the full rental potential of the portfolio.

The value of the Group's property portfolio exceeded £400 million, ending the period up £48.41 million to £401.17 million. The valuation surplus for those properties retained over the period was 9.7% (£35.31 million), which was another positive result after the 13.8%(£42.71 million) portfolio surplus last year. Our refurbishment projects and active management continued to generate gains, supporting our business model of investing in our assets to provide attractive, modern business space. In a number of cases, these improvement works resulted in new rental highs being achieved, contributing to like for like growth in portfolio rental value of 8.5%.

The increase in overall portfolio value was achieved despite a net reduction in the number of assets from 40 to 36. We took advantage of strong market demand and special purchasers to secure a 37.1% (£9.11 million) surplus on the sale of 5 properties, realising net proceeds of £33.31 million.

This was in line with our strategy of recycling capital from mature and small assets for reinvestment into both the existing portfolio and new properties. Continuing our selective approach to acquisitions, we purchased a warehouse unit (96,850 sq ft) off-market at Brunel Road, Theale, near Junction 12 of the M4 motorway, at the beginning of the period. This was at a cost of £11.33 million, yielding 6.6% on a rent of £0.75 million pa. This adds to the range of refurbishment and development options available within the portfolio.

The gains made on valuation and disposal contributed to a £45.73 million increase in shareholders' funds, which ended the period at £261.22 million. NAV per share (EPRA) increased by 11.5% to 301pps (March 2015: 270pps).

Our recent investment in the portfolio has also generated a marked increase in earnings and profit for the year. Gross rental income for the period increased by £2.54 million (14.4%) to £20.16 million (March 2015: £17.62 million). Recent acquisitions contributed £1.72 million to this increase, along with £1.53 million in additional rent secured from our refurbishment programme and other lettings, offset by disposals and portfolio vacancies.

This higher level of income was the primary contributor to a 37.2% uplift in adjusted profit before tax which increased to £7.94 million (March 2015: £5.79 million). This is our measure of recurring profit, excluding unrealised movements in the value of the property portfolio and hedging instruments, profit on the sale of investment properties, and non-cash items.

Profit before tax (IFRS) including these movements increased by 59.7% to £53.16 million (March 2015: £33.28 million). The increase over last year was due to the higher surplus on disposals and a positive movement in the value of hedging instruments.

The scale of transformation of the portfolio since our equity raise in February 2014 is highlighted by the 87.1% increase in the portfolio's estimated rental value (ERV) from £16.80 million pa at 31st March 2013 to £31.44 million pa at the end of the period. The unrealised proportion of ERV (reversion), which provides an indication of the future earnings potential of the portfolio, also increased significantly from £0.80 million pa to £10.34 million pa over the same period.

Of this reversion, our current development programme (covered in more detail in the Property and Finance Review) accounts for £5.85 million pa. This programme consists of speculative office schemes at 9 Greyfriars Road, Reading (38,200 sq ft) and London Road, Redhill (48,050 sq ft), which are both due to complete shortly, and 30 Lombard Street, EC3 (58,000 sq ft) due to complete in 2018. Void and higher finance costs post completion will have a negative impact on earnings, but, once let, these assets will crystallise a significant proportion of the reversion, creating a step change in future profits.

The Reading and Redhill schemes are now close to completion and present well. Marketing campaigns are being progressed and initial feedback is positive. They are both in prime town centre locations, close to mainline railways stations with direct access into central London. We expect these properties and our portfolio generally to benefit from the ripple effect of higher rents from London and those occupiers looking for more cost effective solutions. Constrained supply in both towns and consistent levels of occupier demand and take up, particularly for new and Grade A buildings of up to 60,000 sq ft, leave these schemes well placed to secure future lettings.

During the year, we also completed a restructure of our loan facilities (May 2015) to provide funding certainty for these and other portfolio initiatives. This has strengthened our balance sheet with extended loan expiries, a reduction in the level of historic interest rate swaps, a lower cost of debt, and an increase in loan facilities to £175.00 million (March 2015: £150.00 million).

Dividend

The Board is recommending a 1.7% increase in the final dividend to 6.1 pence per share (March 2015: 6.0 pence). This will be paid as an ordinary dividend on 28th July 2016. It takes the total dividend for the year to 8.8 pence per share (2015: 8.7 pence), and dividend cover to 96.9% on recurring earnings. This recommendation reflects the Board's intention to maintain a progressive dividend policy whilst re-establishing dividend cover from recurring earnings.

The Board

On 14th April 2016 we made an announcement regarding the appointment of a new Chairman and a new independent non-executive Director. These changes mark an important stage in our succession planning, and I am pleased that Richard Grainger, who joined the Board in May 2014, will be succeeding me as Chairman. This will take place at the conclusion of this year's Annual General Meeting, at which point I will also stand down as a Director.

I am also pleased to welcome Jon Austen to the Board, with effect from 1st July 2016, as an independent non-executive Director. Having qualified as a Chartered Accountant in 1981, Jon has gained extensive experience in the property sector in a number of senior finance roles, most recently as Group Finance Director of Urban&Civic plc.

We have also announced that Steven Mew will resign from the Board and leave at the end of September 2016. We wish him well and are actively recruiting his replacement.

It has been a privilege to serve as Chairman for the last nine years and as a member of the Board for eleven years. I would like to convey my thanks to all the team at McKay and to our shareholders for their continuous support over the years, and wish the Group well for the future.

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