Annual results 12 months to 31 March 2014 Contents Introduction 3 - - PowerPoint PPT Presentation

Annual results 12 months to 31 March 2014

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MKS / MAY 2014

Introduction 3 Capital Raising summary 4 Financial review 6 Portfolio review 11

Capital and rental movements Income generation and retention Projects Acquisitions

Market review of South East offices 24 Prospects 30 Appendix 31

Contents

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MKS / MAY 2014

INTRODUCTION

March 2014: A strengthened platform for growth

» Clear focus on delivering our strategic aim of expansion in the South East and London markets » Balance sheet strength significantly enhanced by £86.7m Capital Raising (February 2014) » Active refurbishment and development programme and acquisitions adding potential » Portfolio initiatives driving strong valuation performance and rental gains in recovering markets » Total shareholder return 54.7%

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MKS / MAY 2014

CAPITAL RAISING SUMMARY

» Timetable achieved: 29 January: Announcement of Firm Placing and Placing & Open Offer

• f 45,879,171 new ordinary shares at £1.89 per share

14 February: Shareholder approval and announcement of results 19 February: Settlement » Result: » Investment of £45m of proceeds to date: – delivery of refurbishment projects – acceleration of development projects – hedging instruments reduced – acquisitions within South East and London office and industrial markets

Number of ordinary shares Firm Placing 14,131,241 Placing 25,343,688 Open Offer 6,404,245 45,879,174 Shares in issue @ 3/13 45,879,174 Issued share capital @3/14 91,758,348

@£1.89 = £86.71million

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MKS / MAY 2014

FINANCIAL REVIEW

• Progressive dividend: (8.3pps / 8.4pps / 8.5pps / 8.6pps)

Adjusted profit before tax

March 2013 Gross rents Interest Net property costs Admin Other March 2014 £’ million 3.16 (0.15) (0.17) (0.48) (1.41) (0.05) 5.42

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MKS / MAY 2014

FINANCIAL REVIEW

Drawn debt March 2013 Cash

• utflow

Dividends paid Acquisitions Capex Capital raising Drawn debt March 2014 94.50 (82.20) 37.50 3.10 16.30 3.02 3.90 £’ million Disposals (1.12)

Cashflow and net debt

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MKS / MAY 2014

FINANCIAL REVIEW

» £37.5m drawn against facilities of £155.0m » No debt renewal until February 2016 » £22.6m negative mark to market for interest rate swaps (March 2013: negative £40.6m) » £25m swap terminated early / £80m notional balance remaining » Weighted average cost of debt up since Capital Raising, now reducing as funds are invested

Loans and financing … balance sheet strengthened

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MKS / MAY 2014

FINANCIAL REVIEW

September 2013 Change 201pps 2.5% 237pps (4.2)% 194pps 4.6%

Summary

Balance sheet March 2014 March 2013 Change Portfolio value (1) £254.55m £212.94m 19.5% Drawn debt £37.50m £94.50m (60.3)% NAV/share 206pps 157pps 31.2% NAV/share – EPRA (2) 227pps 238pps (4.6)% NNNAV/share (2) 203pps 154pps 31.8% LTV 15% 44% (65.9)% Gearing – NAV (3) 18% 84% (78.6)% Income statement March 2014 Profit/(Loss) – IFRS £38.29m Adjusted profit before tax £3.16m EPS (EPRA) 6.02pps Dividend/share (Final) 5.9pps Dividend/share (Total) 8.6pps

1: Valuation movements (%) after allowing for cap-ex incurred during the period 2: Calculated in accordance with EPRA guidelines 3: Debt as a percentage of EPRA adjusted net assets

March 2013 Change £1.75m £5.42m 11.49pps 1.7% 1.2% 5.8pps 8.5pps

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MKS / MAY 2014

FINANCIAL REVIEW

238p 227p (29)p (4)p (6)p 3p 1p Valuation gain 24p March 2013 Capital raise Adjusted profit Swap cancel- lation Dividend Other March 2014 154p 11p (6)p 3p 19p 203p (4)p 2p 24p March 2013 Capital raise Adjusted profit Swap cancel- lation Dividend Other March 2014 Valuation gain

EPRA NAV NNNAV

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MKS / MAY 2014

FINANCIAL REVIEW

March 2013 Drawn £94.50m Fully drawn £117.50m £37.50m Drawn £155.00m Drawn £37.50m March 2014

LTV 44% Gearing 84% LTV 15% Gearing 18% Estimated LTV 42% Estimated Gearing 73%

Drawn debt

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MKS / MAY 2014

PORTFOLIO REVIEW

The only REIT focused on the South East and London

Locations (by value) South East offices 44% London offices 33% South East industrial 20% Other 3%

3% 33% 44% 20%

» 37 properties1 (March 2013: 33) » Portfolio rental value: £18.94m1 (March 2013: £16.77m) » Portfolio capital value: £254.55m1 (March 2013: £212.94m) » Initial yield: 6.1%2 (March 2013: 7.1%)

Key Office Retail Industrial Other New properties Wimbledon Banbury Reading Bracknell Bicester Maidenhead Newbury Croydon Folkestone Weybridge Poyle Crawley Hook Fleet Farnborough Staines

London

Redhill Woking Leatherhead Note: 1. As at 31 March 2014 2. On contracted rents

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MKS / MAY 2014

PORTFOLIO REVIEW

Strong valuation gains and rental growth

» Valuation surplus: £23.61m (10.2%) » Portfolio ERV up – 4.4% like for like to £17.50m pa – 13.0% overall to £18.94m pa » ERV of refurbishments up 27.6%

12 months to 31 March 2014 Portfolio Full year valuation £m movement %(1) South East offices 98.70 9.6 London offices 83.39 13.1 Total offices 182.08 11.2 South East industrial 48.74 9.7 Other 6.58 8.4 Like for like 237.40 10.8 Acquisitions 17.15 3.1 Total portfolio 254.55 10.2 3.0 8.9 5.3 1.3 2.2 Full year movement % Portfolio ERV £m IPD(2) % change 11.7 12.8

1: Annual valuation movements (%) after allowing for cap-ex incurred during the period, exc acquisitions 2: IPD Monthly Index – annual movement by segment where applicable. IPD London = City segment 3: IPD Monthly index (All property)

IPD(2) % change 2.8 8.9 4.2 1.3 – 1.23

–

4.4 – 13.0 12.0 10.5 – 6.83

–

17.50 1.44 18.94 7.96 5.45 13.41 3.90 3.19

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MKS / MAY 2014

PORTFOLIO REVIEW

In-house, active portfolio management

» Three refurbishment projects commenced (ERV up 29.6% to £1.01m pa) » 13 open market lettings secured – £0.76m pa combined rental – 1.4% ahead of ERV – includes 5 lettings at Switchback Office Park, Maidenhead (valuation gain: 36.3%) » 53% tenant retention at least break/expiry – £1.38m pa retained (at ERV) – 59% retention excluding refurbishment expiries – includes lease restructuring at Weybridge (valuation gain: 51.0%) » Total portfolio occupancy: 85.9% (March 2013: 91.4%) – ERV £2.67m pa (165,900 sq ft) – includes development / refurbishment voids » WAULT: at 5.7 years (March 2013: 6.0 years) and 4.6 years to break (March 2013: 5.1 years)

» TOTAL PORTFOLIO RETURN: 15.6% (IPD: 14.0%)

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MKS / MAY 2014

Acquisition: Columbia House, Farnborough

PORTFOLIO REVIEW

» Purchased in July 2013 for £2.9m with high (11.1%) initial yield » Freehold distribution warehouse (40,450 sq ft), built in 2000 » High specification and close to J4/M3 » Let to May 2015 at £0.34m pa » 5 year lease regear agreed » 22.1% valuation gain

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MKS / MAY 2014

PORTFOLIO REVIEW

Acquisition: 1 Crown Square, Woking

» Purchased in January 2014 for £6.00m » Town centre office building (51,500 sq ft) » Initial yield 9.3% from low net rent of £0.59m pa (£11.60psf) » Asset management – Potential to improve net income from building by renegotiating away from inclusive leases and reducing service charges – Increase rental value in building – Work on common areas to improve building offer – Review refurbishment / redevelopment post lease expiries in 2018 – ERV up 12.4% to £0.76m pa

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MKS / MAY 2014

Acquisition: Ashcombe House, Leatherhead

PORTFOLIO REVIEW

» Purchased in March 2014 for £4.36m » Town centre office building (17,340 sq ft), yielding 7.4% » WAULT: 8.8 years (3.8 years including break) » Potential to increase low rents averaging £19.63 psf

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MKS / MAY 2014

Acquisition: The Mille, Brentford

PORTFOLIO REVIEW

» Post period acquisition in April 2014 for £19.30m (£130psf) » Rental income: £1.57m pa / Initial yield 7.7% » 96,560 sq ft office building and adjoining site Asset management

» Significant potential to capitalise on the building’s prominence and the rental gains spreading from central London » Improve rents from average of £15.00psf » Improve advertising revenue » Investigate refurbishment / redevelopment alternatives

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MKS / MAY 2014

Acquisition: 9 Greyfriars Road, Reading

PORTFOLIO REVIEW

» Post period (off market) acquisition in May 2014 for £5.8m » 38,200 sq ft office building close to Reading Station » Recently vacated: ERV £0.57m pa (£15 psf) Asset management

» Work up and progress a comprehensive refurbishment » Benefit from Crossrail, station improvements and major Station Hill redevelopment » ERV post refurbishment: £1.01m pa (£27psf)

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PORTFOLIO REVIEW

Project: 66 Wilson Street, London EC2

Comprehensive office refurbishment (12,000 sq ft) in ‘tech city’

Status: Works progressing on programme Completion: June 2014 ERV on PC: £0.43m pa (£38.00 psf)

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MKS / MAY 2014

PORTFOLIO REVIEW

Refurbishment and repositioning

• f early 1980s office building

(33,600 sq ft)

Status: Works progressing on programme Two suites pre-let Completion: June 2014 ERV on PC: £0.49m pa (£15.00 psf)

Project: 329 Bracknell (formerly Doncastle House)

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MKS / MAY 2014

PORTFOLIO REVIEW

25 year pre-let (no breaks) – Conversion from office to medical centre

Status: Agreement for lease signed Planning application submitted Commencement: 2014 (subject to planning) Completion: Summer 2015 Rent: £0.26m pa agreed rent

Project: Strawberry Hill House, Newbury (15,200 sq ft)

Refurbishment to provide upgraded office units

Status: Buildings 1 and 4 (10,765 sq ft): pre-let and occupied Building 6 (4,570 sq ft): pre-let and refurbishment

• n programme

Completion: October 2014 ERV on PC: £0.07m pa (£14.50 psf)

Project: Switchback Office Park, Maidenhead

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MKS / MAY 2014

PORTFOLIO REVIEW

» Off-market acquisition May 2013 £2.3m » Residential site sale completed: £0.9m » Net site value: £1.4m » Consent obtained for 47,000 sq ft office » Professional team instructed » Detailed design being progressed » Demolition completed » Office marketing commenced » Office ERV: £1.22m pa (at £26psf) » Start on site Q4 2014 under review

Project: Prospero, Redhill

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MKS / MAY 2014

PORTFOLIO REVIEW

Redevelopment of 1970s office building (35,800 sq ft), to create a top quality City HQ building (58,000 sq ft) in a prime location

Completion: 2.5 year build programme Passing rent (net): £0.50m pa ERV (net): £2.85m pa (at £58psf) » Professional team appointed » Detailed design of consented scheme underway » Speculative start on site (Q1/2015) under review

Project: 30-32 Lombard Street, London EC2

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MKS / MAY 2014

MARKET REVIEW South East Offices

» 2013 lettings up 80% to 2.49m sq ft » Highest level of take up since 2007 » Supply of Grade A (new) floorspace at historic low of 2.8% » 30% reduction in available Grade A (new) floorspace over 3 years » Rental growth spreading

Taplow Maidenhead Reading Burnham Slough Langley Iver West Drayton Hayes & Harlington Southall Heathrow West Ealing Ealing Broadway Paddington Bond Street Tottenham Court Road Liverpool Street Farringdon Whitechapel Stratford Acton Main Line Hanwell Canary Wharf

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MKS / MAY 2014

Driven by:

» Lease event and expansion » Obsolescence: 44% of tenants in buildings >24yrs old (Source: IPD Index) » 75% of relocations within 10 miles » Environmental agenda of increasing importance » Diverse occupier base

1 2 3 4 5

sq ft (m)

2004 2005 2006 2007 2008 5 year average 2009 2010 2011 2012 2013 2014 (Q1) Current named demand 2014 2016 2015 lease breaks / expiries = 16.8m sq ft / 886 no

Highest level of take up since 2007

Source: Strutt & Parker

Lettings (core market area)

MARKET REVIEW South East Offices

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MKS / MAY 2014

… diverse demand

MARKET REVIEW South East Offices

Size (sq ft) Search Area Reason for move 20,000 Heathrow Obsolescence. 25,000 M4 Expansion. 70,000 M4 / M25 Expansion. 80,000 Reading Obsolescence. 20,000 Reading Obsolescence. 60,000 South West London Obsolescence. 30,000 Guildford Obsolescence. 10,000 Reading Obsolescence. 25,000 Maidenhead Expansion. 60,000 Staines Expansion. 10,000 Guildford Merger. 20,000 Redhill / Reigate Expansion. Size (sq ft) Search Area Reason for move 40,000 Dorking / Redhill / Reigate / Guildford Obsolescence. 15,000 BWV / Woking / Chertsey / Staines Merger. 100,000 West London / M4 Obsolescence. 15,000 Bracknell Obsolescence. 20–25,000 Staines Obsolescence / relocation. 40,000 M4 corridor Obsolescence. 40,000 Hammersmith / Chiswick Expansion. 35,000 Woking Expansion. 30,000 South West London Expansion. 25,000 Marlow Expansion 10,000 Guilford Obsolescence. Source: Strutt & Parker

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MKS / MAY 2014

… remaining consistent with McKay portfolio

Source: Strutt & Parker

Quality counts In existing buildings

1 2 3 4 Million 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 >60,000 sq ft <60,000 sq ft

Annual take-up by size band (sq ft)

1 2 3 4 Million 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Grade B New / Grade A

Annual take-up by grade (sq ft)

1 2 3 4 Million 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Post-completion letting Pre-completion letting

Annual take-up by commitment type (sq ft)

Clear trends maintained

Predominantly sub 60,000 sq ft

MARKET REVIEW South East Offices

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MKS / MAY 2014

Chertsey Heathrow Redhill / Reigate Watford Basingstoke Oxford Crawley Leatherhead / Dorking Egham / Staines High Wycombe Guildford Woking Marlow Windsor 5 10 15 25 % void Grade A void (%) Grade A (new) void (%) Maidenhead Reading Uxbridge Weybridge Slough Bracknell Blackwater Valley

» 81% of centres with Grade A (new) void <5% » Low Grade A (new) void: 2.8% (2.4m sq ft) = 30% reduction since March 2010 » Low Grade A void: 7.9% (6.8m sq ft) = 10% reduction since March 2010

Supply bottleneck restricting occupier choice

Source: Strutt & Parker

MARKET REVIEW South East Offices

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MARKET REVIEW South East Offices

M40 M25 M3 M25 A329 (M) M4 M4

J16 J15 J12 J11

M11 High Wycombe Maidenhead Newbury Basingstoke Aldershot Woking Addlestone Staines Leatherhead Farnborough Bracknell Windsor Slough Brentford Reading Heathrow airport Paddington station

… and rents increasing

Based on Grade A / new building and 10 year lease with no breaks Source: Strutt & Parker

Reading

Q1 prime rent (psf) £31.50 Rent-free months 24

Maidenhead

Q1 prime rent (psf) £33 Rent-free months 21

Slough

Q1 prime rent (psf) £25 Rent-free months 30

Watford

Q1 prime rent (psf) £24 Rent-free months 24

Chiswick

Q1 prime rent (psf) £49 Rent-free months 15

Hammersmith

Q1 prime rent (psf) £49 Rent-free months 15

Staines

Q1 prime rent (psf) £33 Rent-free months 21

Uxbridge

Q1 prime rent (psf) £32 Rent-free months 21

Bracknell

Q1 prime rent (psf) £21 Rent-free months 33

Guildford

Q1 prime rent (psf) £28 Rent-free months 21

Basingstoke

Q1 prime rent (psf) £18 Rent-free months 33

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MKS / MAY 2014

PROSPECTS

• Positive fundamentals in our markets
• Implementation of strategy to benefit from market improvements
• Corporate identity and balance sheet transformed
• Growing portfolio of diverse opportunities to deliver increased returns

…positioned for continued growth in chosen markets

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APPENDIX

Crossrail 32 Sustainability 33 Contact details 34

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» £5 billion invested in 13 projects over 10 years on the GWR » All London routes pass through Reading Station – £850m station upgrade – 5 new platforms – New pedestrian bridge » Electrification and new trains from 2016 » Heathrow rail access: £500m allocated / 2021 » Crossrail from 2018: extended to Reading

Taplow Maidenhead Reading Burnham Slough Langley Iver West Drayton Hayes & Harlington Southall Heathrow West Ealing Ealing Broadway Paddington Bond Street Tottenham Court Road Liverpool Street Farringdon Whitechapel Stratford Acton Main Line Hanwell Canary Wharf

Crossrail and other major rail improvements

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SUSTAINABILITY

Our new sustainability strategy is live

The strategy covers 3 focus areas aligned to our core business activities

Implementation is already in progress 82% achievement of targets set to March 2014, including: » Eliminating risks to rental income stream post 2018: Developing upgrade plans for properties with F and G-rated EPCs » Ensuring our new developments remain attractive: Setting a minimum environmental certification standard of BREEAM Very Good across all developments and major refurbishments » Supporting occupier retention and lease renewal: Initiating dialogue with our occupiers on our sustainability strategy Targets for the year to March 2015 are now in place.

Managing Sustainable Buildings To add value to the Group’s portfolio by improving the efficiency of the buildings and reducing the environmental impact Creating Sustainable Buildings To achieve best practice green building standards in order to deliver quality buildings

CORE BUSINESS STRATEGY

Engaging our Stakeholders To maintain an active dialogue with key stakeholders about sustainable performance

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CONTACT INFORMATION

Simon Perkins Managing Director Joined the Company in 2000 after 10 years with Arlington Securities plc. Appointed Managing Director in 2003. email: scp@mckaysecurities.plc.uk Steven Mew Director Joined the Company in 2001 after 12 years with property consultants Gooch Webster. Appointed Director in August 2002. email: srm@mckaysecurities.plc.uk Giles Salmon Finance Director Joined the Company in 2011, from BAA Lynton. Appointed Finance Director in August 2011. email: gps@mckaysecurities.plc.uk Address: McKay Securities PLC 20 Greyfriars Road Reading Berkshire RG1 1NL tel: 0118 950 2333 fax: 0118 939 1393 Website: www.mckaysecurities.plc.uk May 2014