MCKS.L Regulatory News (MCKS)

McKay Securities PLC

Broker Profile

Simon Perkins, Managing Director

Simon Courtenay

Giles Salmon, Finance Director

020 7448 3244

0118 950 2333

Details of the programme for the payment of the interim dividend are as follows:

Ex-dividend date 27th November 2014

Record date 28th November 2014

Interim dividend payment 8th January 2015

The Directors have declared an interim dividend of 2.7 pence per share, (2013: 2.7 pence per share), which will be paid as a Property Income Distribution (PID).

CHAIRMAN'S STATEMENT

Profit before tax, adjusted to exclude unrealised movements in the value of the Group's property portfolio, interest rate hedging instruments and the net profit on its disposal of properties and other investments, increased by 65.0% to £2.75 million for the six month period to 30th September 2014 (30th September 2013: £1.67 million).

The independent valuation of the Group's property portfolio at 30th September 2014 totalled £321.70 million, incorporating a £14.80 million (4.8%) valuation surplus for the period (30th September 2013: £8.49 million / 3.9%). The overall value of the portfolio, including five new properties and this surplus, increased by £67.15 million (26.4%).

The negative value of the Group's interest rate hedging instruments increased by £4.16 million over the period to £26.72 million (30th September 2013: negative movement of £13.10 million).

Net sale proceeds from two property disposals over the period was £3.22 million, realising a 4.6% (£0.14 million) surplus over book value.

With the inclusion of these unrealised and non-recurring items, profit before tax (IFRS) was £13.94 million (30th September 2013: £22.79 million).

Net asset value over the period increased by £9.25 million (4.9%) to £198.48 million. Net asset value per share (EPRA) increased by 5.7% to 240 pence (31st March 2014: 227 pence).

The Board has declared an interim dividend of 2.7 pence per share (2013: 2.7 pence).

Overview

This has been a period of substantial growth for the Group, during which our focus has been on investing the proceeds of our Capital Raising, which completed in February 2014. This secured £86.71 million of new equity and enabled full use of existing debt facilities. Our strategic objective in raising the funds was to take advantage of anticipated improvements in the office and industrial markets of the South East and London through active property management, refurbishment and development. I am pleased to say that good progress has been made on all fronts.

Since the Capital Raising, seven new properties have been acquired at a cost of £62.50 million. Of these, five were acquired during the period at a cost of £51.71 million.

The Capital Raising has also enabled us to accelerate and complete a number of refurbishment projects, which now contribute to the reversionary potential of the portfolio. This potential will be further enhanced by other significant development and refurbishment projects within the portfolio, where detailed design and planning work has been progressed.

The acquisitions made over the period, combined with 2.3% rental growth across the portfolio, has increased our contracted rental income since 31st March 2014 by 23.6% to £20.25 million pa and the estimated market rental value (ERV) by 31.2% to £24.68 million pa. This ERV is for the whole portfolio, and only includes rental uplifts on development and refurbishment projects once works have commenced.

In summary, the intense activity over the period of integrating new properties into the portfolio, progressing existing and future projects and continuing to actively manage the enlarged portfolio leaves the Group with a larger, more diverse portfolio with greater potential to add value through our well established skills in our core markets.

Market Review

Portfolio initiatives have been underpinned by the positive trends that have been maintained across our markets. Occupier demand has remained stable, and the supply of new and Grade A buildings has continued to reduce. As anticipated at the time of the Capital Raising, this bottleneck in supply and increasing obsolescence is putting upward pressure on rental and capital values across these markets.

The conversion of lower quality office stock to residential use continues to generate occupier demand from displaced tenants and reduce the overall stock available, both of which are beneficial to us. Improved travel times into central London and other future advantages of Crossrail will also become more apparent as its delivery in 2018/2019 draws closer.

Within our South East office markets, which now account for 53% of the Group's portfolio, the supply of new and Grade A floor space has reduced by 11.3% since September 2010 to 6.73 million sq ft (7.8%), with the vacancy rate for new buildings lower still at 2.27 million sq ft (2.6%). The delivery of new buildings has picked up, but not to a level that will alleviate the constrained level of supply, demonstrated by the rental growth that new schemes are generating. Named occupier demand of 3.33 million sq ft remains similar to levels for the last twelve months. Take up for the year is expected to be ahead of the five year average of 1.83 million sq ft, but lower than the 2.49 million sq ft achieved in 2013.

Central and outer London market conditions also remain positive, with existing and anticipated supply struggling to keep up with occupier demand. The resulting rental growth is encouraging not only our London office properties, which account for 29% of the portfolio, but also our office properties outside London which are benefiting from the ripple effect of higher rents. Availability within the City office market is now 8.70 million sq ft, which is 18% below the long term average and the vacancy rate of 7.3% is the lowest since 2007. For new and refurbished stock, availability reduces further to 3.60 million sq ft. With annual take up of new and Grade A floor space in the region of 2.80 million sq ft and only 1.70 million sq ft of speculative floor space under construction, occupier choice is becoming increasingly constrained.

Portfolio Review

Five properties were acquired during the period at the following purchase price:

· The Mille, Brentford (office: 96,950 sq ft): £19.30 million.

· 9 Greyfriars Road, Reading (office: 38,200 sq ft): £5.80 million.

· Gainsborough House, Windsor (office: 18,660 sq ft): £6.85 million.

· Station Plaza, Theale (office: 41,540 sq ft): £8.46 million.

· The Planets, Woking (mixed use: 106,600 sq ft): £8.75 million.

All acquisitions were made in well established centres within our core markets, maintaining our portfolio focus entirely within the office and industrial markets of the South East and London. Their combined ERV of £5.44 million pa averages £18.00 psf, providing scope for growth from a range of active management, refurbishment and redevelopment initiatives in these well regarded centres.

Management initiatives identified for each asset at the time of purchase are now being implemented. A number of early gains have been achieved, such as converting the turnover based rental income from the advertising display on the western elevation of The Mille, Brentford to a fixed income, securing a 43.4% rental uplift to £0.22 million pa.

We have also finalised designs for the comprehensive refurbishment of 9 Greyfriars Road in central Reading, and the planning application will be submitted shortly. Refurbishment is programmed to commence in Spring 2015, and will deliver a significantly improved building to the market in 2016. It will benefit from completion of the major improvements to the station, which will be at the western end of Crossrail, and the proposed strategic redevelopment of Station Hill.

Two property disposals were made during the period, securing net proceeds of £3.22 million. The sale of land at the rear of our office development site on London Road, Redhill was completed at £0.95 million following receipt of planning consent for residential use. At the McKay Trading Estate, Bicester, approximately half of our landholding was compulsorily acquired to enable Bicester Town station, which serves the Bicester Village outlet centre to be enlarged. The station upgrade will create the potential for higher value uses in the retained units. Our historic shareholding in PIH Ltd was also sold during the period. Payment was by way of new shares in the acquiring AIM listed company, securing a surplus of £0.71 million which can be realised on disposal of the shares at the expiry of the lock-in period in summer 2015.

In addition to our acquisition programme, we have continued to adopt a pro-active approach to the management of our properties to take best advantage of improving market conditions. Despite recent gains, ERVs and capital values for those properties held since the peak of the last cycle remain, respectively, 6.9% and 13.0% lower. With the supply constraints referred to above, further market driven rental growth is likely to close this gap, enhanced by rental gains from our own initiatives.

Over the period, fifteen open market lettings were achieved with a combined annual contracted rental value of £0.66 million pa, which was 4.3% ahead of ERV. These were secured across a variety of portfolio properties, with the letting of Pegasus Two, Crawley (12,730 sq ft) at a rental of £0.27 million pa on an unbroken 10 year lease being the largest.

At lease break or expiry, nineteen out of twenty-six tenants were retained. This maintained a high tenant retention rate of 73% and secured rents totalling £0.97 million pa, generally in line with ERVs.

Four refurbishment projects were either underway or planned at the beginning of the period. Works have completed at three of these, being Switchback Office Park, Maidenhead, 329 Bracknell, and 66 Wilson Street, EC3. These properties have a combined vacant ERV of £0.98 million pa and are attracting encouraging levels of occupier interest. The remaining project has also made progress, where planning consent is being finalised for the conversion of Strawberry Hill House, Newbury from office use to a medical centre for two local practices. The pre-let to these practices is expected to become unconditional shortly, allowing conversion works to commence. On completion of the works in 2015, the practices will enter into a 25 year government backed lease at a rental of £0.26 million pa; double the current office ERV.

In addition to these four projects, funds in the region of £35.00 million were identified at the time of Capital Raising for potential office development schemes at London Road, Redhill (47,000 sq ft), and 30/32 Lombard Street, EC2 (58,000 sq ft). Both projects have planning consent in place and detailed design work has been progressed over the period to refine the schemes and to address potential development constraints. Having reviewed the prospects for each scheme, the Board has taken the decision to commence both at the earliest opportunity. To achieve this, further design work, variations to the existing planning consents and other third party approvals will continue to be worked on. Assuming progress continues to be made, we plan to make a start on both these projects by the end of March 2015. On this basis completion of the Redhill scheme will be in 2016 and the Lombard Street scheme in 2018.

The combination of new acquisitions, improving rental values and completed refurbishment projects has increased the reversion in the portfolio by 73.3% to £4.43 million pa. This reversion includes vacant floor space with an ERV of £3.50 million pa, which maintains portfolio occupancy at 85.8% (March 2014: 85.9%). The five largest portfolio voids total 62% of this vacant ERV and include the completed refurbishments at Bracknell and Wilson Street, EC3 referred to above, and vacant space to let at The Mille, Brentford. 

The net contribution to portfolio ERV on commencement of projects within the development programme consisting of Redhill, Reading and Newbury should be in the region of £4.75 million pa, enhancing this reversionary potential significantly.

Valuation

The independent valuation of the Group's property portfolio as at 30th September 2014 totalled £321.70 million, generating a 4.8% (£14.80 million) surplus for the period and a substantial 26.4% increase in overall value (31st March 2014: £254.55 million).

The initial yield of the portfolio was 5.5% (March 2014: 5.3%) increasing to 6.0% (March 2014: 6.1%) on the expiry of letting incentives. At ERV, the reversionary yield was 7.3% (March 2014: 7.0%) and the equivalent yield was 6.9% (March 2014: 6.7%).

Acquisitions and the 2.3% increase in the ERV of properties held over the period enhanced the reversionary and equivalent yield. Stamp duty and other purchase costs were an initial drag on performance for the acquisitions, and the portfolio surplus excluding these properties was 5.8%. This was lower than the 6.8% increase in the IPD (Monthly) Index, mainly due to a lower contribution from two of our larger South East office properties whose values had declined less during the downturn due to long leases. The total portfolio return of 7.2% was below IPD (10.0%) due to this difference in valuation gains.

Finance

Net assets increased by £9.25 million to £198.48 million since 31st March 2014, increasing basic net asset value per share by 4.3% to 215 pence. The external valuation of the Group's investment properties resulted in a surplus of £14.80 million which contributed to this increase. This was balanced out to a degree by a negative unrealised movement of £4.6 million in the value of interest rate hedging instruments. EPRA net asset value per share, which excludes the negative value of hedging instruments, increased by 5.7% to 240 pence.

Adjusted profit before tax of £2.75 million was £1.08 million higher then the corresponding period last year. This was primarily the result of the five acquisitions made since 31st March 2014 contributing towards the extra £1.27 million of gross rental income received over the period. The full income benefit of recent acquisitions will be seen in subsequent periods. Non recoverable property costs increased by £0.34 million, mainly due to the portfolio additions. Administration costs increased by £0.47 million, due to the fair value accounting treatment and national insurance costs of grants under the Performance Share Plan and increased costs generally associated with running an enlarged business. The interest cost for the period reduced by £0.49 million from the corresponding period last year as a result of the early termination of the £25.00 million interest rate swap in March 2014.

The Group continues to benefit from four favourable banking facilities totalling £155.00 million, with the earliest expiry (£45.00 million) being in February 2016. Compliance has been maintained with all covenants over the period, allowing the Group to continue to enjoy the low margins and flexible terms.

Drawn debt at 30th September 2014 was £93.50 million (30th September 2013: £100.50 million). The ratio of drawn debt to portfolio value (LTV) was 29.1% (30th September 2013: 44.5%), and the gearing ratio to shareholders' funds, adjusted in accordance with banking covenants, was 42.0% (30th September 2013: 85.0%). These metrics have all improved as a result of the Capital Raising in February 2014. Funds raised were initially used to repay debt, with the facilities then re-drawn as required by acquisitions and capital expenditure. Headroom to existing banking facilities will reduce further as the planned refurbishment and development projects are progressed.

The Group's average cost of debt for the period rose to 6.6% (2013: 5.9%). This temporary increase was a result of debt reducing below the £80 million hedged level following the Capital Raising. As debt increases back over this level, the average cost of debt will reduce as borrowing margins are lower than the hedged rate.

Dividend

The Board is pleased to declare an interim dividend of 2.7 pence per share, which maintains the level of dividend paid for the same period last year. This will be paid as a Property Income Distribution (PID) on 8th January 2015.

Future Prospects

It has been a significant achievement to have substantial funds available from the Capital Raising to invest at the current time when the outlook for our markets is robust. Excellent progress has been made putting these funds to productive use with new acquisitions, the acceleration of refurbishment projects and exciting pipeline schemes.

Although there will undoubtedly be an increase in political, and therefore economic, uncertainty as momentum gathers towards the May 2015 General Election, we do not consider at this stage that it will have any marked effect on fundamentals in our core markets.

We intend to focus all our resources on the variety of property initiatives that we now have within our control, enhanced by further anticipated rental growth across all our markets, to secure future income and capital gains at the earliest opportunity. 

D.O. Thomas

Chairman

18th November 2014

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

----------------------------------------------------------------------------------------

6 months

6 months

12 months

to 30th

to 30th

to 31st 

September 

September

March

2014 

2013

2014

(Unaudited) 

(Unaudited)

(Audited)

Notes

£'000

£'000

£'000 

Gross rents and service charges receivable

 10,470

8,160 

16,897 

Direct property outgoings

(3,243)

(1,861)

(4,110) 

---------- 

-------- 

---------

Net rental income from investment properties

3

7,227

6,299 

 12,787 

Administration costs

(2,111)

(1,640)

(3,946)

---------- 

-------- 

---------

Operating profit before gains on investment properties

5,116

4,659 

8,841

Profit/(loss) on disposal of investment properties

142 

(124)

(124) 

Revaluation of investment properties

6

14,498 

8,155 

22,917

---------- 

------- 

---------

Operating profit

19,756 

12,690 

31,634

Finance costs

5

(6,541)

10,099 

6,651 

Finance income

5

10 

4 

5

Profit on disposal of associated undertaking

712 

- 

-

---------- 

---------- 

----------- 

Profit before taxation

13,937 

22,793 

 38,290 

Taxation

-

- 

- 

---------- 

--------- 

----------

Profit for the period

 13,937 

22,793 

 38,290 

Other comprehensive income:

Actuarial movement on defined benefit pension

Scheme

-

- 

372 

---------- 

-------- 

---------

Total comprehensive income for the period

 13,937 

22,793 

 38,662 

---------- 

-------- 

--------- 

Earnings per share

4

Basic

15.13p

49.68p

75.03p

Diluted

14.88p

48.52p

72.95p

Adjusted earnings per share figures are shown in note 4.

GROUP BALANCE SHEET

-------------------------------------

As at

As at

As at

30th 

30th

31st 

September

September

March

2014

2013

2014

(Unaudited)

(Unaudited)

(Audited)

Notes

£'000

£'000)

£'000

Non-current assets

Investment properties

6

 319,467

224,345 

252,645 

Plant and equipment

 74

20 

13 

Investments

 712

-

-

-----------

----------- 

-----------

 320,253

224,365 

252,658 

-----------

---------- 

-----------

Current assets

Trade and other receivables

 9,480

6,342 

6,952 

Cash and cash equivalents

 7,121

3,827 

2,100 

-----------

---------- 

-----------

Total assets

 336,854

234,534 

261,710 

-----------

---------- 

-----------

Current liabilities

Trade and other payables

(12,344)

(8,030)

(6,555)

Finance lease liabilities

(286)

(286)

(286)

Interest rate derivatives

7

(3,633)

(4,262)

(3,510)

----------

--------- 

----------

Total current liabilities

(16,263)

(12,578)

(10,351)

----------

-------- 

---------

Non-current liabilities

Loans and other borrowings

(93,316)

(100,234)

(37,266)

Pension fund liabilities

(1,588)

(2,178)

(1,690)

Finance lease liabilities

(4,121)

(4,121)

(4,121)

Interest rate derivatives

7

(23,085)

(23,226)

(19,047)

----------

---------- 

-----------

Total non-current liabilities

(122,110)

(129,759)

(62,124)

----------

---------- 

-----------

Total liabilities

(138,373)

(142,337)

(72,475)

----------

---------- 

-----------

Net assets

198,481 

92,197 

189,235

----------

---------- 

----------

Equity

Called up share capital

18,485 

9,176

18,352

Share premium account

75,917 

2,478

75,541

Distributable reserve

 52,060 

57,477

57,988

Revaluation reserve

 52,019

23,066

37,354

----------

---------

-----------

Total equity

 198,481

92,197

189,235

----------

---------

-----------

Net asset value per share

9

215p

201p

206p

GROUP CASH FLOW STATEMENT

------------------------------------------------

6 months

6 months

12 months

to 30th 

to 30th

to 31st 

September

September

March

2014

2013

2014

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Operating activities

Profit before tax

13,937 

22,793 

38,290 

Adjustments for:

Depreciation

 16 

7 

15 

Other non-cash movements

430 

344 

731 

(Profit)/loss on disposal of investment properties

(142)

124 

124 

Movement in revaluation of investment properties

 (14,498)

(8,155)

(22,917)

Net finance costs

 6,531 

(10,103)

(6,656)

Profit on disposal of associate undertaking

(712)

- 

- 

--------

-------- 

---------

Cash flow from operations before changes in working capital

5,562 

5,010 

9,587 

Increase in debtors

 (1,779)

(545)

(1,001)

Decrease in creditors

3,763 

(230)

(795)

----------

-------- 

---------

Cash generated from operations

 7,546 

4,235 

7,791 

Interest paid

(1,378)

(1,945)

(11,596)

Interest received

10 

4 

5 

----------

--------- 

--------

Cash flows from operating activities

 6,178 

2,294 

(3,800)

----------

-------- 

--------

Investing activities

Proceeds from sale of investment properties

 3,217 

1,158 

1,116 

Purchase and development of investment properties

(55,395)

(5,832)

(19,406)

Purchase of other fixed assets

(74)

(3)

(7)

---------

-------- 

----------

Cash flows from investing activities

(52,252)

(4,677)

(18,297)

---------

--------

----------

Financing activities

Proceeds from issue of share capital

509 

- 

86,712

Costs associated with issue of share capital

- 

- 

(4,473)

Increase/(decrease) in borrowings

56,000 

5,978 

(57,035)

Equity dividends paid

(5,414)

(2,661)

(3,900)

----------

-------- 

---------

Cash flows from financing activities

51,095 

3,317 

21,304 

----------

------- 

---------

Net increase/(decrease) in cash and cash equivalents

5,021

934 

 (793)

Cash and cash equivalents at the beginning of the period

2,100

2,893 

 2,893 

----------

-------- 

---------

Cash and cash equivalents at end of period

7,121

3,827 

 2,100 

----------

-------- 

---------

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the parent company

Share capital

£'000

Share premium

£'000

Revaluation reserve

£'000

Total

 distributable

reserve

 £'000

Total equity £'000

At 31st March 2013

9,176

2,478

14,314 

45,965 

71,933 

Profit for the year

- 

- 

- 

 38,290 

38,290 

Other comprehensive income:

Transfer surplus on revaluation

of properties

- 

- 

 22,917 

(22,917)

- 

Transfer share of surplus on

revaluation of properties

in associated undertaking

- 

- 

 204 

(204)

- 

Transfer on disposal of investment

properties

- 

- 

(81)

81 

- 

Actuarial gain on defined

benefit pension scheme

-

- 

- 

372 

372 

---------

---------

---------

---------

---------

Total comprehensive profit for the year

- 

- 

23,040 

15,622 

38,662 

Share issue on capital raising

9,176 

77,536 

- 

- 

86,712 

Costs associated with share issue

- 

(4,473)

- 

- 

(4,473)

Dividends paid in year

- 

- 

- 

(3,900)

(3,900)

Fair value of share based payments

- 

- 

- 

 301 

301 

---------

---------

---------

--------- 

---------

At 31st March 2014

 18,352

75,541 

37,354 

57,988 

189,235 

---------

---------

---------

--------- 

---------

Profit for the period

- 

- 

- 

 13,937 

13,937 

Other comprehensive income:

Transfer surplus on 

revaluation of properties

- 

- 

 14,498 

(14,498)

- 

Transfer on disposal of investment in

associated undertaking

1,419 

(1,419)

- 

Transfer on disposal of investment

Properties

- 

- 

 (1,252)

1,252 

- 

Issue of new shares net of costs

133 

376 

- 

- 

509 

Dividends paid in period

- 

- 

- 

(5,414)

(5,414)

Fair value of share based payments

- 

- 

- 

 214 

214 

---------

---------

---------

---------

-----------

At 30th September 2014

 18,485

75,917 

52,019 

52,060 

198,481 

---------

---------

---------

---------

-----------

6 months

6 months

12 months

to 30th 

to 30th

to 31st 

September

September

March

2014

2013

2014

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Profit before tax

13,937 

22,793 

38,290 

Change in fair value of derivatives

4,160 

(13,098)

(18,029)

Movement in revaluation of investment properties

(14,498)

(8,155)

(22,917)

(Profit)/loss on disposal of investment properties

(142) 

124 

124 

Derivative contract cancellation costs

- 

- 

5,690 

Change in fair value of investments

(712) 

2

 - 

---------- 

-------- 

-------- 

Adjusted profit before tax

2,745

1,666 

 3,158 

---------- 

-------- 

-------- 

3

Net rental income from investment properties

6 months

6 months

12 months

to 30th 

to 30th

to 31st 

September

September

March

2014

2013

2014

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Gross rents receivable

 8,114 

6,816 

 14,003 

SIC15 adjustment (spreading of rental incentives)

 303 

333 

 680 

---------- 

-------- 

--------- 

Gross rental income

8,417 

7,149 

14,683 

Service charges receivable

2,053 

1,011 

 2,214 

---------- 

-------- 

--------- 

10,470 

8,160 

 16,897 

Direct property outgoings

(3,243)

(1,861)

(4,110)

---------- 

--------- 

--------- 

7,227 

6,299 

12,787 

---------- 

-------- 

--------- 

Rent receivable under the terms of the leases is adjusted, in accordance with SIC15, for the effect of any incentives given.

4

Earnings per share

6 months

6 months

12 months

to 30th

to 30th

to 31st

September

September

March

2014

2013

2014

p

p

p

Basic earnings per share

 15.13 

49.68 

75.03 

Change in fair value of derivatives

 4.52 

(28.55)

(24.18)

Movement in revaluation of investment properties

(15.75)

(17.77)

(44.90)

Profit on disposal of investment properties

(0.15)

0.27 

0.24 

Change in fair value of investments

(0.77)

- 

 - 

---------

---------

--------

Adjusted earnings per share

 2.98 

3.63 

 6.19 

---------

---------

-------

Basic earnings per share on ordinary shares is calculated on the profit in the half year of £13,937,000 (2013: £22,793,000) and 92,085,186 (2013: 45,879,174) shares, being the weighted average number of ordinary shares in issue during the period.

6 months

6 months

to 30th

to 30th

September

September

2014

2013

Number

of shares

Number

of shares

Weighted average number of ordinary shares in issue

 92,085,186 

45,879,174 

Number of shares under option

 2,341,454 

2,647,436 

Number of shares that would have been issued at fair value

(763,020)

(1,553,852)

--------------- 

---------------

Diluted weighted average number of ordinary shares in issue

 93,663,620 

46,972,758 

---------------

---------------

6 months

6 months

12 months

to 30th

to 30th

to 31st

September

September

March

2014

2013

2014

p

p

p

Basic earnings per share

 15.13 

49.68 

 75.03 

Effect of dilutive potential ordinary shares under option

 (0.26)

(1.16)

(2.08)

Change in fair value of derivatives

 4.44 

(27.89)

(23.51)

Movement in revaluation of investment properties

(15.48)

(17.36)

(43.66)

Loss on disposal of investment properties

(0.15)

0.27 

0.24 

Change in fair value of investments

(0.75)

- 

- 

---------

--------- 

--------

Adjusted diluted earnings per share

 2.93 

3.54 

 6.02 

----------

----------

--------

EPRA earnings per share

2.93 

3.54 

 6.02 

----------

----------

---------

5

Net Finance costs

6 months

6 months

12 months

to 30th

to 30th

to 31st

September

September

March

2014

2013

2014

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Interest on bank overdraft and loans

2,427 

2,870 

5,508 

Derivative contract cancellation costs

- 

- 

5,690 

Finance lease interest on leasehold property

obligations

 98 

142 

 285 

Finance arrangement costs

 50 

47 

 92 

Fair value gain on derivatives

4,160 

(13,098)

 (18,029)

Capitalised interest

(194)

(60)

(197)

---------

---------

---------

6,541 

(10,099)

(6,651)

Interest receivable

(10)

 (4)

(5)

---------

--------- 

--------- 

6,531 

(10,103)

(6,656)

---------

--------- 

----------

6

Investment Properties

As at 30th

As at 30th

As at 31st

September

September

March

2014

2013

2014

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Valuation

At 1st April 2014

254,550

211,768 

211,768 

Additions - acquisition

51,710

5,520 

16,340 

- development

 3,710

205 

2,900 

Revaluation surplus

 12,896

8,488 

23,615 

Adjustment for rents recognised in advance under

SIC15

(304)

(333) 

(698) 

Disposals

(3,075)

(1,283) 

(1,240)

Amortisation of grossed up headlease liabilities

 (20)

(20) 

(40)

-----------

------------

-----------

Book value

319,467 

224,345 

252,645 

------------

------------

----------

Adjustment for grossing up of headlease liabilities

(3,805)

(3,845)

(3,825)

Adjustment for rents recognised in advance under 

SIC15

6,033 

5,365 

5,730 

-----------

-----------

-----------

Valuation

321,695 

225,865 

254,550 

-----------

-----------

-----------

7

Liabilities

The Group adopts a policy of ensuring that its exposure to interest rate fluctuations is mitigated by the use of financial instruments. Interest rate swaps have been entered into to achieve this purpose. 

The Group does not hold or issue derivative financial instruments for trading purposes.

As at 30th September 2014 (Unaudited)

Amount

£'000

Maturity

2Next

credit

break

3Next

call

option

Interest rate swaps

75,000

Sept 2032

Sept 2022 

Interest rate swaps

5,000

Dec 2032

5Dec 2017 

Dec 2019

---------

80,000

---------

Amount

£'000

Rate

Fair

value

before

BCVA

4BCVA

Fair

value

£'000

Interest rate swaps

75,000

5.17%

(27,771)

2,531

(25,240)

Interest rate swaps

5,000

4.65%

(1,558)

80

(1,478)

---------

----------

--------

----------

80,000

(29,329)

2,611

(26,718)

---------

---------

--------

----------

As at 30th September 2013 (Unaudited)

Interest rate swaps

75,000

Sept 2032

Sept 2022 

Sept 2014

Interest rate swaps

125,000

Oct 2038

Jan 2016 

Jan 2016

Interest rate swaps

5,000

Dec 2032

5Dec 2017 

Dec 2019

----------

105,000

----------

Interest rate swaps

75,000

4.80%

(23,521)

2,710

(20,811)

Interest rate swaps

125,000

4.31%

(5,686)

267

(5,419)

Interest rate swaps

5,000

4.65%

(1,364)

106

(1,258)

---------

---------

--------

----------

105,000

(30,571)

3,083

(27,488)

----------

----------

--------

----------

As at 31st March 2014 (Audited)

Interest rate swaps

75,000

5.17%

(23,217)

1,904

(21,313)

Interest rate swaps

5,000

4.65%

(1,316)

72

(1,244)

---------

----------

-------

-----------

80,000

(24,533)

1,976

(22,557)

----------

----------

-------

----------

1The £25 million interest rate swap was terminated on 26th March 2014 at a cost of £5.7 million.

2Credit breaks are triggered by the bank and require the prevailing mark to market value to be paid or received.

3Call options are triggered by the bank and require no payment by either party.

4BCVA - Bilateral Credit Valuation Adjustment is now required by IFRS 13 to be incorporated in the mark to market valuations. This is applicable to Group Financial Statements from 30th September 2013.

5The counter party bank has given notice this break will be exercised.

 As at 30th

 As at 30th

As at 31st

September

September

March

2014

2013

2014

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Current

(3,633)

(4,262)

(3,510)

Non-current

(23,085)

(23,226)

(19,047)

----------

----------

----------

(26,718)

(27,488)

(22,557)

----------

----------

----------

8

Dividends

6 months

6 months

12 months

to 30th

to 30th

to 31st

September

September

March

2014

2013

2014

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Final dividend

Year ended 31st March 2014

5,414

- 

-

Year ended 31st March 2013

-

2,661

2,661

Interim dividend

Year ended 31st March 2013

-

- 

1,239

----------

----------

----------

 5,414 

2,661

3,900

----------

----------

----------

The final dividend of 5.9 pence per share (£5,414,000) for the year ended 31st March 2014 was paid on 31st July 2014. 

The Directors have declared an interim dividend of 2.7 pence per share (2013: 2.7 pence per share).

Since becoming a REIT, the Group is required to distribute at least 90% of qualifying income profits each year as a Property Income Distribution (PID), and the interim dividend of 2.7 pence per share will be paid as part of this distribution. Further REIT information is available on the Company's website.

9 Net asset value per share

30th September 2014

Net assets

£'000

Shares

'000

Net

asset value per share

p

Basic

198,481

92,426

215 

Shares under option

1,458

2,125

(3)

------------

 ----------

 ----- 

Diluted/EPRA NNNAV

199,939

94,551

212 

Adjustment for fair value of derivatives

26,718

-

28 

---------- 

---------

----- 

EPRA NAV

226,657

94,551

240 

30th September 2013

Net assets

£'000

Shares

'000

Net

asset value per share

p

Basic

92,197 

45,879

201 

Number of shares under option

2,118 

2,771

(7)

----------- 

 ----------

 ----- 

Diluted/EPRA NNNAV

94,315 

48,650

194 

Adjustment for fair value of derivatives

27,488 

-

56 

----------- 

 -----------

 ----- 

EPRA NAV before adjustment

121,803 

48,650

250

Adjustment to exclude interest rate derivatives

(6,677)

-

(13)

-----------

-----------

-----

EPRA NAV

115,126

48,650

237

31st March 2014

Net assets

£'000

Shares

'000

Net

asset value per share

p

Basic

189,235 

91,758

206 

Number of shares under option

1,986 

2,477

(3)

----------- 

 ----------

 ----- 

Diluted/EPRA NNNAV

191,221 

94,235

203 

Adjustment for fair value of derivatives

22,557 

-

24

----------- 

 -----------

 ----- 

EPRA NAV

213,778

94,235

227 

10

Disclaimer

The Interim Report of McKay Securities PLC for the six months to 30th September 2014 has been drawn up and presented for the purposes of complying with English law. If any issue were to arise in relation to any liability under or in connection with the Interim Report for the six months to 30th September 2014, it would also be determined in accordance with English law.

11

Interim Report

The Interim Report is being posted to all shareholders on 28th November 2014. Copies are available to members of the public from the Company's registered office at 20 Greyfriars Road, Reading, Berkshire RG1 1NL, and on the Company's website at www.mckaysecurities.plc.uk.