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McKay Securities completes Prospero Redhill

McKay Securities has announced its half year results for the six months ended 30 September 2016. Its EPRA NAV at the end of the period was 295 pence per share, down 2.0% (31 March 2016: 301 pence per share). EPRA earnings per share were up 10.3% to 4.3 pence as gross rental income rose by 2.4% to GBP10.42m. They are paying an unchanged interim dividend of 2.7p.

Letting progress and rent reviews meant that contracted rental income increased by 6.4% to GBP22.45 million pa over the period, and rental growth increased the full potential rental value of the portfolio (ERV) to GBP32.21 million pa. Office development projects at Reading and Prospero in Redhill, which have a combined rental value of GBP2.61 million pa, were completed. This was one driver of the uplift in rental income. They also completed ten open market lettings with a combined contracted rental value of GBP0.73 million pa.  This was 5.7% ahead of March 2016 ERV, with the work referred to below helping secure new rental highs in buildings at Croydon, Woking, Brentford and Maidenhead. At lease break and lease expiry, seventeen out of twenty tenants were retained, which maintained a high retention rate of 85.0% and secured rents of GBP0.58 million pa. An outstanding February 2016 rent review at Wimbledon Gate, Wimbledon was settled during the period at a rent of GBP2.35 million pa. Portfolio occupancy at the end of the period increased from 92.8% to 93.9%, and from 74.2% to 75.5% with the inclusion of the three development properties.

Refurbishment Projects

Refurbishment of Unit 5 (8,364 sq ft) at Switchback Office Park, Maidenhead completed in early September.  Prior to completion, the top floor was pre-let on a 10-year lease at a rent of GBP0.11 million pa, equating to GBP26.75 psf.  This is the last building to be refurbished on the 37,450 sq ft Park, and the highest rent achieved, leaving the ground floor (4,133 sq ft) as the remaining space to let. Other portfolio refurbishment work progressed well over the period at Portsoken House, EC3; The Mille, Brentford and 1 Crown Square, Woking, which together represent 71.4% (GBP1.40 million pa) of the portfolio void. Completed and ongoing improvement works to common areas and vacant floor space have generated gains in ERV’s and rents achieved on letting, and marketing is generating encouraging interest. Following the completion of conversion works at the end of last year, Strawberry Hill House, Newbury has now been leased as a medical Surgery at a rent of GBP0.26 million pa for 25 years.

Development Programme

The current programme consists of three speculative office projects, which all made good progress over the period. When let, these schemes which represent 9.2% of the total portfolio by area and 18.5% by ERV will make a significant contribution to future earnings.

The major refurbishment at 9 Greyfriars Road, Reading (39,620 sq ft) completed in the summer.  The scheme has achieved the first ever BREEAM Outstanding rating awarded outside London, and provides occupiers with a high quality, sustainable building less than five minutes walk from the recently upgraded mainline and Elizabeth Line railway station. At Redhill, a new scheme (50,370 sq ft) on London Road completed shortly after the end of the period.  It is the only new office building in Redhill, where vacancy rates are below 5% for good quality modern floor space. They think it sets a new benchmark in the southern M25 market with excellent environmental credentials and a high quality specification, providing flexible business space close to Redhill station, with excellent links to London and Gatwick. In both cases, the marketing campaigns are generating viewings and early interest. In the City of London, demolition of the 1960’s office building (35,820 sq ft) at 30 Lombard Street is nearing completion.  Construction of the striking replacement building (58,000 sq ft) in this core city location remains on programme for completion in mid-2018.

MCKS : McKay Securities

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