Interim Results to 30th September 2019

MCKAY / NOV 2019

Heading

02

Simon Perkins

CEO

Giles Salmon

CFO

Tom Elliott

Property Director

Management teamReview of the period 3

Financial review 5

Portfolio review 10

Market review 22

Outlook 25

Appendix 26

Interim Results to 30th September 2019

The only REIT specialising in the office, industrial and logistics markets of London and the South East.

MCKAY / NOV 2019 02

MCKAY / NOV 2019 03

492.1portfolio

value(1.0%/£5.1m

surplus)

Positive period, with gains across all key metrics

£m

• Profit up 17.6%, with recent lettings driving strong growth in rental income

• NAV/share (EPRA) up 2.1% to 333 pence, benefiting from valuation and disposal surpluses

• Active in-house management delivering gains ahead of the MSCI benchmark index:

*1.0% (£5.1m) valuation surplus (MSCI: -1.1%)

*1.9% ERV growth to £33.3m (MSCI: 0.1%)

• Substantial 24.3% (£6.5mpa) reversionary potential

• Market conditions stable, but subdued

MCKAY / NOV 2019 04

84%reduction in

carbon footprint from 2017/18

Delivery

• Early adopter

• At the heart of everything we do

• Revised framework and updated strategy concluded in April 2019

• GRESB Green Star 2016/17/18/19

• EPCs: 99.5% E or above

• All developments meeting and exceeding BREEAM Excellent target

• Regular stakeholder engagement

• Positive corporate governance endorsements

Our sustainability framework

MCKAY / NOV 2019 04

05

+17.6% +2.1%

Financial highlights

Adjusted profit NAV (EPRA)

Sept 2018 £4.3m

March 2019 326pps

34.6%LTV

March 2019 33.3%

MCKAY / NOV 2019 05

September 2019 September 2019 September 2019

£5.1m 333pps

MCKAY / NOV 2019 06

NAV (EPRA) pps

March 2019

0

50

100

150

200

250

300

September2019

326p

333p

Valuationgain

4

Adjustedprofit

Profit on disposal

Dividend Other: IFRS 2 adjDeferred tax adj

2

5

(7)

3

333up 2.1%

pps

Dividend (per annum)

2019: 10.2pps

2018: 10.0pps

2017: 9.0pps

2016: 8.8pps

2015: 8.7pps

%Adjusted profit before tax 17.6

%

MCKAY / NOV 2019 07

Up

Sept 2018

Grossrents

InterestSurrender premiums

Netproperty costs

Admin Sept2019

£ m

illion 5.08(0.14)(1.32) (0.01)

4.32

2.17 0.06

Improved loan facilities and increased headroom from refinancing

1. LTV: Net debt as a % of portfolio value

MCKAY / NOV 2019 08

50

100

150

200

250

£ m

illio

n

March 2019 September 20190

165

65 65

Drawn

Fixed Total

facilities

Drawn

Fixed Total

facilities

190

173

245

LTV 33.3%

WACD: weighted average cost of debt, at current rates

WACD 3.3%

LTV 34.6%

WACD 3.1%

3.0%

fully drawn cost of debt

• Portfolio growth enabling increase in loan facilities

• April 2019: A new £180m RCF (club) signed, and three bilateral loans of £125m repaid

• Total facilities up £55m to £245m

• WALD 6.1 years

• WACD fully drawn 3.0% (at current rates)

• Provides an additional £40m for acquisitions / portfolio cap ex

• LTV1 : 34.6% (March 2019: 33.3%)

Heading

Poyle

Croydon

Redhill

Crawley

Leatherhead

Folkestone

Newbury BracknellTheale

FleetFarnborough

Woking

Maidenhead

Banbury

Reading

Weybridge

Windsor Staines

WimbledonBrentford

LondonO

ffice

s

25%

Other

5%Industrial

18%

South E

ast O

ffice

s

52%

MCKAY / NOV 2019 09

• 32 Properties

• Established towns

• Transport hubs

• Internally managed from Reading HQ

Regional strength & sector focus

Office Industrial Other

492.1m

£

portfolio value

Well-placed portfolio with growth prospects

Sept 2019 March 20191

Substantial reversionPortfolio ERV £33.3m pa £32.7m pa

Less: Contracted rents £26.8m pa £26.3m pa

Reversion £6.5m pa £6.4m pa

6.5m pa

£

24% portfolio reversion

MCKAY / NOV 2019 10

Sept 2019 March 2019

Assets 32 33Average lot size £15.4m £14.6m

Occupancy

inc dev 87.1% 87.9%

exc dev 91.1% 91.0%

WAULTTo expiry 5.9 6.1

To break 4.8 5.1

Valuation yieldsInitial (topped-up) 5.1% 5.3%

Reversionary 6.3% 6.6%

Net equivalent 5.7% 5.7%

1. Like for like

Heading

MCKAY / NOV 2019 11

Delivering portfolio potential

High occupier retention• In-house management / strong relationships

• 75.0% tenant retention at lease break / expiry

Portfolio gains• 1.0% (£5.1m) valuation surplus

• 1.9% growth in ERV to £33.3m pa1

• 3.4% total property return

• Outperformance of MSCI index (All property)2

• Income generation ahead of ERV

Disposal: Station Plaza, Theale 32.7% ahead of book value

Development: Approaching PC Theale Logistics Park

1. Like for like2. See appendix

MCKAY / NOV 2019 12

10 open market lettings• £0.49m pa combined rent• 2.3% ahead of ERV

Significant rent reviews• £1.65m pa agreed at ERV• 12.6% uplift over passing• £0.24m backdated income

75% tenant retention• 6 lease renewals• £0.43m pa• 5.3% uplift over passing

Delivering portfolio potentialIncome generation from proactive asset management

One Crown SquareWoking50,190 sq ft

Sopwith DriveWeybridge63,140 sq ft

McKay Trading EstatePoyle73,955 sq ft

Including:

MCKAY / NOV 2019 13

Mallard Court, Staines

24%pre-let

Reception, 1st and 3rd floors (11,340 sq ft)

• PC August 2019

• Latest technology – building app for occupiers

• Part 1st floor exchanged agreement to lease ahead of ERV

Pegasus 2, Crawley Whole building (12,720 sq ft)

• PC July 2019

• Ground floor pre-let at new record rent

Delivering portfolio potentialRefurbishments completed

Combined ERV: 20.5% of portfolio void (excl dev)

MCKAY / NOV 2019 14

Occupiers want…

• Ease of occupation

• Minimal capital expenditure

• Flexibility

• Customer service

• Communal breakout areas

• Connectivity

McKay offers…

• Short form leases

• Fitted out – accelerated occupation

• Flexible lease terms

• Directly managed by McKay

• Kitchen / bookable meeting rooms /

breakout space

• Fibre enabled

Delivering portfolio potentialMeeting occupier trends

Substantial income potential remaining

Contracted rent

ERV £33.3m pa

September 2019

Developmentvoid

Portfolio void

Renewal/

review

£1.5m pa

£2.8m pa

£2.2m pa

… 24.3% (£6.5 million pa) reversion

ACQUISITION TIMELINE£73 million of acquisitions since 2014 Capital raising

January 2014

Acquisition:Crown Square,Woking

Headline:£6.0m

Yield:9.3% initial

March 2014

Acquisition:Ashcombe House,Leatherhead

Headline:£4.4m

Yield:7.4% initial

April 2014

Acquisition:The Mille,Brentford

Headline:£19.3m

Yield:7.7% initial

May 2014

Acquisition:9 Greyfriars Road,Reading

Headline:£5.8m

Yield:Vacant

September 2014

Acquisition:Station Plaza,Theale

Headline:£8.4m

Yield:10.1% initial

October 2014

Acquisition:The Planets,Woking

Headline:£8.8m

Yield:6.9% initial

April 2015

Acquisition:Brunel Road,Theale

Headline:£

Yield:%

2014JAN

2015JAN

FEB

MAR

APR

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

July 2014

Acquisition:Gainsborough House,Windsor

Headline:£6.9m

Yield:7.1% initial

MCKAY / NOV 2019

£26.8m pa

15

MCKAY / NOV 2019 16

Speculative redevelopment of 1980s warehouse, delivering a 39% increase in floor area and 100% increase in ERV

• 134,420 sq ft high quality distribution/logistics unit

• Practical completion Q1/2020

• Adjacent to Junction 12, M4

• Potential for long lease term

• ERV: £1.5m pa

Delivering the reversion135 Theale Logistics Park, J12 M4: approaching completion

17 MCKAY / NOV 2019 17

Rivergate, Newbury• £15.5m purchase price

• 61,385 sq ft, multi let

• 7.5% initial yield

• Recently refurbished

• WAULT 8.8 yrs to expiry

• £1.29m pa contracted rent

• Low rents of £21.40 psf overall

• Freehold

Acquisition

18 MCKAY / NOV 2019 18

Station Plaza, Theale• Campus of three office buildings

totalling 41,420 sq ft

• Purchased 2014 at 10.1% yield

• Lease expiry July 2019

• Passing rent £0.9m pa

• Sold at lease expiry to owner occupier

South West

Theale Town Centre

Theale Train Station

Theale Commercial Estate

Commerce Park

London

1

34

56

1

4

2

5

3

Station Plaza

Arlington Business Park

A4 to Basingstoke

A4 to Reading

Junction 12 2

6

M4

M4Disposal

Sale price £8.2m, 32.7% ahead of book value

19 MCKAY / NOV 2019 19

The Planets, Woking• Sale contracts exchanged

• Planning application to be submitted Q4/2019

• Conditional on receipt of planning consent

• Proposed high density residential tower scheme

• Purchaser pays all costs

• Potential for uplift over book value

Disposal

Prime City of London development (58,590 sq ft)• PC in January 2019

• Triggered 15yr pre-let lease commencement to St James’s Place plc

• £3.4m pa (net), equivalent to £65 psf

• Commenced marketing in September 2019

MCKAY / NOV 2019 20

30 Lombard Street, EC3

Disposal

%Below 80,000 sq ft

85

79Source: BNP Paribas

91 %Post completion

%New / Grade A

MCKAY / NOV 2019 21

Office lettings over the last ten years:

Steady take up and demand with focus on qualitySouth East office market

Lettings completed

0

1

2

3

4

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019(Q3)

sq

ft (m

illio

n)

5 year average

Lettings > 80,000 sq ft

Named demand (Q3)

27

36

%

%

New

All

1.8%Vacancy

now

7.8%Vacancy

now

4

2

6

8

10

12

9/20

15

9/20

16

9/20

17

9/20

18

9/20

19

sq

ft (m

illio

n)

9/20

14

All Grade A + New New

Increasingly constrained supplySouth East office market

MCKAY / NOV 2019 22

Market supply

Source: BNP Paribas

Reduction in South East office supply over 5 years:

0

1

20

15

10

5

0

2

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

sq

ft (m

illio

n)

Number of new schemes (RHS)sq ft (LHS)

Source: BNP Paribas

MCKAY / NOV 2019 23

… with a limited development pipelineSouth East office market… with a limited development pipeline

South East industrial and logistics market

4.0 0.8

… supporting our speculative redevelopment at Theale

years

sq ft

million

5.7%

2019 YTD take up 23% increase on 2018

vacancy rate lowest on record

supply on the market

MCKAY / NOV 2019 24Source: Savills

HeadingOutlookSubstantial portfolio potential in resilient markets

Market growth• Market momentum to pick up with Brexit/political clarity

• Stable occupier demand and decreasing supply of modern business space

• Positive drivers to underpin rental growth

Income growth• 2019 letting activity to benefit future periods

• 24.3% (£6.5m pa) potential income from portfolio reversion

• Development approaching completion at Theale Logistics Park in strong industrial market

NAV growth• Gains from development and capturing the portfolio reversion

• Comfortable LTV with substantial firepower

MCKAY / NOV 2019 25

26

Appendix

Cashflow and debt 27Financial summary 28Rental value movement 29Capital value movement 30Contact information 3 1

MCKAY / NOV 2019 26

MCKAY / NOV 2019 27

Cashflow and debt£’

milli

on

165.0

Drawn debtMarch 2019

7.0

Dividendpaid

Disposalproceeds

10.5

Capex

(8.1) (1.4)

Movement in cash

173.0

Drawn debtSept 2019

MCKAY / NOV 2019 28

Financial summary

Balance sheet Sept 2019

Portfolio value 1 £492.14m

Drawn debt £173.00m

NAV/share 333pps

NAV/share – EPRA 2 333 pps

NNNAV/share – EPRA 2 332 pps

LTV 3 34.6%

Gearing – NAV 4 55%

Sept 2019

Dividend/share (Interim) 2.8pps

Income statement Sept 2019

Profit before tax – IFRS £11.17m

Adjusted profit before tax £5.08m

EPS (EPRA) 5.86pps

1. Valuation movements (%) before allowing for cap-ex incurred during the period

2. Calculated in accordance with EPRA guidelines3. LTV: net debt as a % of portfolio value4. Debt as a percentage of EPRA adjusted net assets

Sept 2018 Change

£11.40m

£4.32m 17.6%

4.10pps 42.9%

March 2019 Change

£482.70m 2.0%

£165.00m 4.8%

331 pps 0.6%

326 pps 2.1%

326 pps 1.8%

33.3%

53%

Sept 2018 Change

2.8pps 0%

Sept 2018 Change

331 pps 0.6%

326 pps 2.1%

326 pps 1.8%

MCKAY / NOV 2019 29

Rental value movement

1. Segments analysed by MSCI geographical area2. MSCI Monthly Index – movement by segment where applicable:

London = City segment3. 30 Lombard St, EC3 reclassified to London offices4. MSCI Monthly index (All property)5. Brunel Road, Theale

6 months to 30th Sept 20191

London offices3

South East offices4

Total offices

South East industrial/logistics

Other

Total (excluding developments)

Developments5

Total (like for like)

Disposals

Total (overall)

6 month movement

MSCI2

movement

0.0%

0.7%

0.8%

1.8%

–

0.1%4

0.1%

0.7%

2.5%

2.0%

2.3%

0.0%

1.9%

0.0%

1.9%

March 2019 portfolio ERV

£m pa

Sept 2019 portfolio ERV

£m pa

7.08

19.13

26.21

3.85

1.15

31.21

1.48

32.69

1.14

33.83

7.13

19.60

26.73

3.94

1.15

31.82

1.48

33.30

–

33.30

MCKAY / NOV 2019 30

1. Valuation movements (%) after allowing for cap-ex incurred during the period, exc disposals

2. MSCI Monthly index allocations MSCI London = City segment

3. 30 Lombard St, EC3 reclassified to London offices4. MSCI Monthly index (All property)

6 months to 30th Sept 20191

London offices3

South East offices

Total offices

South East industrial/logistics

Other

Total (excl. dev)

Developments

Total portfolio (like for like)

Disposals

Total (overall)

0.8%

-0.2%

0.1%

1.6%

–

-1.1%4

-1.1%

2.0%

-0.5%

0.3%

2.7%

-0.9%

0.6%

14.2%

1.0%

6 month movement

MSCI2

movement

Sept 2019 portfolio

valuation £m

March 2019 portfolio

valuation £m

123.25

257.55

380.80

67.55

24.59

472.94

19.20

492.14

–

492.14

120.80

255.70

376.50

65.65

24.55

466.70

9.80

476.50

6.20

482.70

Capital value movement

Contact information

31 MCKAY / NOV 2019

Simon PerkinsChief Executive

Joined in 2000 after 10 years with Arlington Securities plc. Appointed CEO in 2003.

email: scp@mckaysecurities.plc.uk

Address: McKay Securities Plc 20 Greyfriars Road Reading Berkshire RG1 1NL

tel: 0118 950 2333

fax: 0118 939 1393

Website: mckaysecurities.plc.uk

November 2019

Giles SalmonChief Financial Officer

Joined in 2011, from BAA Lynton. Appointed Finance Director in August 2011.

email: gps@mckaysecurities.plc.uk

Tom ElliottProperty Director

Joined in 2016 after 11 years with Land Securities plc. Appointed Property Director in April 2017.

email: te@mckaysecurities.plc.uk