Horror stories predicting a collapse in the London office market continue to remain wide of the mark, as seen in half-year numbers from London and south-east focused landlord McKay Securities (MCKS). With the shares trading at a substantial discount to net asset value (NAV), a lot of potentially bad news has already been factored in, and while a doomsday outcome to Brexit cannot be discounted, McKay has sensibly removed the risk from its development portfolio through a series of new lettings. The speculative element of the entire portfolio has been pared down to just 4 per cent, largely comprising a distribution warehouse scheme at junction 12 of the M4 motorway. But with such a favourable location and continued demand for logistics space, there shouldn’t be too much trouble finding a tenant.
Back in London, a scarcity of decent office space is underpinning rents. Six of the 10 speculative schemes being built by various developers are already pre-let and only four schemes are in the pipeline for 2019, which means that the vacancy rate is now as low as 2 per cent.
During the six-month period, McKay completed seven open-market lettings at an average 8.3 per cent ahead of estimated rental value. The current portfolio has a reversion element of 23.1 per cent, if all existing rents were marked to market.
Analysts at Stifel are forecasting adjusted NAV of 334p a share at the March 2019 year-end (from 322p in 2018).
MCKAY SECURITIES (MCKS) | ||||
ORD PRICE: | 255p | MARKET VALUE: | £240m | |
TOUCH: | 255-259p | 12-MONTH HIGH: | 289p | LOW: 227p |
DIVIDEND YIELD: | 3.9% | TRADING PROPERTIES: | £12.9m | |
DISCOUNT TO NAV: | 23% | NET DEBT: | 50% | |
INVESTMENT PROPERTIES: | £479m |
Half-year to 30 Sep | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
2017 | 300 | 16.5 | 17.6 | 2.8 |
2018 | 331 | 11.4 | 12.1 | 2.8 |
% change | +10 | -31 | -31 | - |
Ex-div: | 22 Nov | |||
Payment: | 3 Jan |