McKay Securities pleased with letting progress ahead of Brexit
Mckay Securities
281.00p
16:30 05/05/22
McKay Securities updated the market on its trading for the period from 1 October to 4 March on Tuesday, confirming that contracts had been exchanged in the period for the disposal, on a subject-to-planning basis, for approximately 350 build to rent apartments at The Planets in Woking to Watkin Jones.
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The London-listed real estate investment trust said the purchase price would be dependent on the final agreed scheme, but would be ahead of current book value, with the 1.1 acre developed in the 1970s occupying a prime location in Woking town centre.
Looking at its new lettings and lease renewals, McKay said it completed 11 open market lettings in the period, with a combined contracted rent of £0.68m per annum, which was 7.5% ahead of estimated recovery value.
A total of 12 lease renewals were completed, with a combined contracted rent of £0.64m per annum, in line with estimated recovery value and 41.5% ahead of the combined contracted rent prior to renewal.
Those renewals generally benefitted from recent refurbishment work, as well as rental gains over the last five years, McKay’s board said.
It also claimed a high tenant retention rate of 79.2% at lease break or expiry, which the directors said reflected the benefit of in-house management of assets and strong tenant relationships.
Portfolio occupancy, excluding developments, increased to 92.1% at period end, from 91.7% as at 30 September.
Contracted rental income was up 1.4% to £27.56m over the same period.
The board reported it had “substantial” remaining 17.6% reversionary potential of £5.90m per annum, representing the difference between contracted rental income and portfolio estimated recovery value.
On the development front, McKay Securities said it saw continued progress with its development schemes, which were set to deliver further income and capital gains.
Practical completion of the redevelopment of the 58,000 square foot 30 Lombard Street asset occurred in January, which the company said triggered commencement of the previously-announced 15 year pre-let without break to St James's Place.
The contracted net rent of £3.40m per annum, equivalent to £65.00 per square foot, was agreed in line with estimated recovery value, and included five-yearly upward-only rent reviews.
Completion of that scheme had created an investment asset of the “highest quality” in a “highly regarded” core City of London location, the McKay Securities board boasted.
At Brunel Road in Theale, demolition and site clearance was completed ahead of the speculative redevelopment of a 134,150 square foot single distribution warehouse unit.
Final approval of pre-commencement planning conditions and building contract negotiations would be finalised in the short term, with completion of that prime distribution unit adjacent to junction 12 of the M4 programmed for the end of 2019.
McKay Securities also reported progress with its existing portfolio, reporting that selective office and warehouse refurbishment projects were underway at The Mille in Brentford, Pegasus Place in Crawley, Corinthian House in Croydon, 5 Acre Estate in Folkestone, and Mallard Court in Staines, to enhance rental values and appeal to occupiers.
The combined estimated recovery value of those refurbishments was £1.72m per annum, representing 68.5% of the portfolio void, excluding developments.
McKay said a forthcoming lease expiry at Station Plaza in Theale, in July, would provide the potential for income-enhancing refurbishment or alternative uses.
Comprising three office buildings totaling 41,420 square feet, and located adjacent to Theale railway station, each unit was currently let off a low passing rent of £21.75 per square foot.
Looking at the books, the company’s drawn debt stood at £163m at period end, widening slightly from £161m as at 30 September, with undrawn facilities of a further £27m.
Its weighted average cost of debt was 3.3%, and its loan-to-value ratio stood at of 34.1%, based on the portfolio value of £478.55m as at 30 September.
The next portfolio valuation on 31 March 2019 would be announced with the year-end results in May.
“It is pleasing to report positive results from a wide range of asset management and development initiatives, as well as the sale - subject to planning- of our large holding in central Woking, despite uncertainty over the outcome of Brexit,” said chief executive officer Simon Perkins.
“New lettings have been secured at 7.5% ahead of estimated recovery value, rents at lease renewal have increased by 41.5% and ongoing refurbishment work across a number of portfolio properties is set to enhance value and increase appeal to occupiers.
“These all contribute to our strategic objective of releasing our substantial reversion.”
Perkins said completion of the redevelopment of 30 Lombard Street in January left the company’s office development programme now virtually fully let.
“Looking forward, construction of our prime 134,150 sq ft distribution warehouse unit at junction 12 of the M4 motorway is due to commence shortly and is already generating potential occupier interest.”