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Annual Report
and Financial
Statements
2021
McKay Securities Plc Annual Report and Financial Statements 2021
Environment
Low carbon, resource ecient
and healthy buildings.
See more on
Pages 36 to 39
Social
A customer-focused and flexible landlord.
See more on
Pages 40 and 41
Governance
A progressive and transparent business.
See more on
Pages 42 to 44
A focus on sustainability is embedded across our
operations and integrated into our strategy.
How we are working towards our
ESG commitments
McKay is a specialist in the development,
refurbishment andmanagement of office,
industrial and logistics property in the South
East and London – ideally positioned
todeliver quality, innovation andgrowth.
McKay Securities Plc
Annual Report and Financial Statements 2021
2
Strategic Report
Governance Financial Statements
3
Download the 2021 McKay Annual Report
mckaysecurities.plc.uk
Contents
Strategic Report
3 Financial Highlights
4 Who we are
5 Property Portfolio
6 Chair’s Statement
8 Timeline
10 Chief Executive’s Review
12 Strategic Framework
14 Strategy in Action
16 Business Model
18 Section 172 Statement
20 Our Stakeholders
22 Property and Financial Review
30 KPIs
32 Five-year Summary
33 EPRA Metrics and Update
34 Sustainability Review
45 Principal Risks and
Uncertainties
50 Viability Statement
51 Going Concern Statement
Governance Report
54 Chair’s Letter
56 Board of Directors
58 Corporate Governance Report
62 Nomination Committee Report
65 Audit and Risk Committee
Report
68 Directors’ Remuneration Report
86 Directors’ Report
88 Statement of Directors’
Responsibilities
89 Independent Auditor’s Report
Financial Statements
98 Financial Statements
129 Glossary
131 Company and Shareholder
Information
Financial Highlights
Profits and earnings
Loss before tax (IFRS)
£16.58m
1
(2020: £9.49 million profit)
IFRS loss per share
17.5p
2
(2020: profit per share 8.6p)
Adjusted profit before tax
£9.96m
1
(2020: £9.73 million)
EPRA earnings per share
10.2p
2
(2020: 10.6p)
Shareholders’ funds
£289.90m
(2020: £309.17 million)
EPRA NTA per share
309p
4
(2020: 329 pence)
Net asset value per share (IFRS)
309p
4
(2020: 328 pence)
Proposed final dividend per share
5.5p – up 25.0%
(2020: 4.4 pence), making the total dividendper share for the year
8.3 pence (2020: 7.2 pence)
Total property return Debt to portfolio value
0.5%
5
(2020: 4.7%)
32.4%
5
(2020: 37.6%)
Portfolio valuation
£437.90m
3
(2020: £510.00 million)
Deficit
£21.58m
3
(2020: surplus £0.11 million/0.0%)
(4.7)%
1. See note 4 in financial statements.
2. See note 8 in financial statements.
3. See note 10 in financial statements.
4. See note 21 in financial statements.
5. See note 4 in financial statements for
APM detail and pages 30 to 31 for KPIs.
McKay Securities Plc
Annual Report and Financial Statements 2021
4
Who We Are
See more on pages 12 and 13
Our Purpose
To deliver outstanding services
asa customer-focused and
flexible landlord with occupiers
atthe heart of everything we do.
Our Vision
To build upon our reputation and
status as the leading property
specialist for occupiers and
investors, focused entirely on the
South East and London – and
build a business based on markets
that we know and understand.
Our Values
Our values guide our every day ways of working,
help us make the right decisions and manage our
business. They give us identity, direction and unity.
They help us focus on what’s important and to do
the right thing. Importantly, our values let you know
who you are doing business with.
We treat each other with genuine respect
• behaving towards others as we would have
them behave towards us
• listening, understanding and empathising
• caring for our community and the environment.
We build our success on strong collaboration
• sharing expertise openly and generously
• supporting and challenging each other
todeliver ever more creative solutions
• forging long-term, trusted relationships.
We act at all times with complete integrity
• making the right choices, doing the right thing
• demonstrating fairness, loyalty, consistency
and transparency
• taking ownership and being accountable.
We work with a sharp professional focus
• putting delivery and outstanding service first
• getting the details right, with a pragmatic
andhighly commercial mindset
• letting our energy and passion shine through.
Our Mission
To develop, refurbish and manage
low-carbon, resource-ecient
andhealthy commercial property;
working inpartnership with
occupiers todeliver quality,
innovation andgrowth.
We provide the very best
environment for our customers
to thriveand businesses to grow.
We deliver sustainable returns
by operating an eective and
established business model in a
progressive and transparent way.
Our strategic priorities for 2021 help us to achieve our
purposeand create sustainable value for our stakeholders.
01.
Continued
operational
efficiency
through
Covid-19
02.
Positioning
for growth
03.
Continued
delivery of
our ESG
commitments
Strategic Report
Governance Financial Statements
5
33
Properties
£437.90m
Portfolio value
1.49m sq ft
Internally managed
See more on page 22
Portfolio (31 March 2021)
As the only REIT specialising in the office, industrial and logistics markets of
the South East and London, McKay offers a unique proposition for investors.
McKay Securities Plc
Annual Report and Financial Statements 2021
6
Chair’s
Statement
Overview
What an extraordinary year we have lived
through! McKay has navigated this challenging
environment well and so I am pleased to be
able to report on a positive set of results which
reflect a strong operational performance and
the achievement of significant milestones
following the sale of 30 Lombard Street, EC3
and the letting of 135 Theale Logistics Park,
both on excellent terms.
Our strategic focus on the office, industrial
and logistics sectors of the South East and
London, the most economically resilient
regions in the country, and a lack of exposure
to the retail and hospitality sectors, has
insulated us from the worst impact of the
Covid-19 pandemic. Our industrial and logistics
assets have performed well, benefitting from
both our in-house management initiatives
and the increase in on-line retail activity, with
higher occupational demand driving rental
and capital growth. The office market has
been more challenging, and many of our
buildings have not been occupied by their
tenants for over a year due to the Government’s
‘work from home’ policy. This has contributed
to a reduction in office values, and held back
our ability to maintain business growth.
The increase in working from home during
the pandemic has generated much debate
over future demand for the office, which is
clearly of key importance to us with a 66.6%
portfolio weighting to the sector. Working
practices will continue to evolve, and whilst
there will inevitably be change, we remain
confident that the office market will recover
as the country is released from lockdown.
Our South East office assets are well placed
to meet this evolving demand, strategically
positioned to offer high quality, flexible
business space with good environmental
credentials in well established regional centres.
During the year under review, the three
strategic priorities that we have been
focused on in view of the Covid-19 trading
environment were:
• Continued operational efficiency
• Positioning for growth post Covid-19
• Continued delivery of our ESG
commitments
Continued operational efficiency
With the country in lockdown and at a
standstill at the beginning of the financial
year, our team responded quickly and
effectively to maintain operational efficiency
and to protect the profitability of the business.
This was achieved without government aid
and without the need to furlough any of our
employees. The relationships built up over
many years with our occupiers as a result
ofour in-house management model helped
during this challenging period, enabling us
tocollect 96.0% of contracted rent for the
financial year (with a further 2.0% due under
agreed payment plans), and to maintain a
high 74.3% occupier retention rate at lease
break and expiry, which compares to 80.0%
retention in 2020.
This activity, combined with the benefit
ofincome from recent acquisitions and
developments, contributed to stable net
rental income for the year of £21.63 million
(31 March 2020: £21.98 million) and a 2.4%
increase in adjusted profit before tax to
£9.96 million (31 March 2020: £9.73 million).
The independent valuation of the portfolio at
the end of the period totalled £437.90 million
(31 March 2020: £510.00 million). After
taking into account capital expenditure,
disposals and acquisitions, this reflects
a4.7% valuation deficit for the year of
£21.58million (31 March 2020: £0.11 million
surplus), with the pace of decline slowing in
H2 following a 3.4% deficit recorded in the
first half. The deficit for the year, which is
covered in more detail in the Property and
Finance Review, was mainly due to the
reduction in the valuation of our office assets.
This was partially offset by a positive
performance from our industrial and logistics
assets, which now account for £122.4 million
(28.0%) of the portfolio (31 March 2020: 18.1%).
Our weighting to the industrial and logistics
sector has increased following the
acquisition of Willoughby Logistics Park,
Bracknell and a strong performance on
completion of development and the letting
at135 Theale Logistics Park, Reading. The
timing of this scheme has proved excellent,
and we secured a letting of the whole asset
to Amazon on a ten year term shortly after
practical completion, at a rent of £1.51 million
pa. The quality of the scheme and the letting
terms achieved resulted in a 42.7% (£10.88
million) valuation surplus for the period, and
a49.5% profit on cost for the scheme.
Inclusion of the unrealised valuation
movement is primarily responsible for
theIFRS loss before tax of £16.58 million
(31 March 2020: £9.49 million profit), and
the6.1% reduction in EPRA net tangible
asset value per share (“EPRA NTA”) to
309pence (31 March 2020: 329 pence).
IFRS NAV per share reduced by 5.8% to
309pence (31 March 2020: 328 pence).
Growth prospects post pandemic
We began the year with cash and undrawn
facilities of £53.25 million providing us with
the headroom for acquisitions, or other value
enhancing opportunities. The sale of 30
Lombard Street, EC3 which completed in
September 2020, achieved an excellent
headline price of £76.50 million, reflecting
aninitial yield of 4.2%. This sale significantly
strengthened the balance sheet at the end
ofthe year with reduced loan to value (“LTV”)
of 32.4% (31 March 2020: 37.6%) and
increased cash and undrawn facilities
foropportunities to £103.25 million.
After such an extraordinary year,
I am pleased to be able to report on
a positive set of results for McKay...
Strategic Report
Governance Financial Statements
7
I would like to thank my Board colleagues
fortheir support, particularly through the
early stages of the pandemic when we held
weekly meetings to discuss the impact on
thebusiness.
The pandemic created substantial
challenges for our employees, and I would
also like to thank them for their dedication
andthe impressive results that their efforts
have delivered.
Dividend
The Board is recommending a final dividend
of 5.5 pence per share. This represents a
25.0%% increase compared with the final
dividend paid last year (31 March 2020:
4.4pence), and takes the full year dividend
to8.3 pence per share, an increase of 15.3%
over last year (31 March 2020: 7.2 pence).
Although we remain in a period of economic
uncertainty, and the full impact of the
pandemic remains to be seen, the Board
considers this increase is justified based
onthe strong operational performance
overthe period, and the improved visibility
ofmarket conditions.
Outlook
As we work our way out of the third lockdown,
there are clear signs that the speed of the
national vaccine roll out is having a positive
effect on the economy and corporate
confidence. Current Government policy
allows a full return to the workplace from mid
June, and as this gathers pace, we expect
activity across our markets to increase.
We believe that this activity will confirm
theessential role of the office in corporate
life,benefitting our office assets which are
well placed in terms of specification and
geography to support the hybrid working
practices that will continue to evolve.
The pace of recovery and future market
sentiment will influence our ability to
replaceearnings from recent disposals
withnew lettings and acquisitions.
With our well positioned portfolio and
substantial cash andundrawn facilities,
wehave maintained the ability to benefit
fromthis recovery andtorespond as
opportunities presentthemselves.
Richard Grainger
Chair
17 May 2021
Despite the negative impact on the economy
of Covid-19, there have been few forced
sellers in the market so far. Acquisition
opportunities in the office sector have been
limited as vendors wait for buildings to be
reoccupied, whereas the high investor
demand for warehouse and logistics assets
has pushed pricing to record levels. Over the
period we adopted a patient and selective
approach, looking for accretive opportunities
in our core South East and London markets to
offset the £1.35 million of rental income that
30 Lombard Street contributed to the year,
whilst maintaining a prudent balance sheet.
This approach led to the off-market
acquisition of Willoughby Logistics Park,
Bracknell (54,157 sq ft) in August 2020 for
£10.00 million at a 5.6% yield. The two units
are let until 2024 and provide scope for
rentalgrowth at expiry and medium term
redevelopment potential.
Within the existing portfolio, we invested
£6.71 million across a range of refurbishment
projects to upgrade both the quality and
environmental credentials of our assets.
These targeted works have improved the
rental values and letting prospects of these
assets and have contributed to the 22.8%
(£5.84 million pa) reversionary income
potential remaining in the portfolio at the end
of the period, being the difference between
contracted rent of £25.61 million pa and the
£31.45 million pa full rental value (“ERV”) of
the portfolio. This portfolio potential includes
our logistics asset at Sopwith Drive,
Weybridge (63,140 sq ft) which was vacated
by a parcel distributor at the end of the
period, and two floors at our office asset
Swan Court, Wimbledon (16,400 sq ft) that
we took back as part of the successful lease
re-gear in January 2021. Refurbishment
works and possible redevelopment in the
case of Weybridge are planned to secure
acombined ERV of £1.63 million pa.
Looking further ahead, it has now been
confirmed that our tenant at Great Brighams
Mead in central Reading (84,840 sq ft),
which has been in occupation since the
Company developed this office building in
2000, will vacate at lease expiry in March
2022. We are looking at a range of possible
alternatives including a comprehensive office
refurbishment, conversion to residential and
other alternative uses which will determine
whether we retain or sell the asset.
We have been frustrated by the share price
discount resulting first from Brexit and then
Covid-19 which triggered a significant
decrease in share prices across the sector,
which subsequently recovered to varying
degrees dependent on market exposure. As
one of a number of possible initiatives to help
close the discount, we reviewed the
possibility of a share buy-back throughout
the year whilst waiting to establish a better
feel for how Covid-19 was likely to impact on
market conditions and business progress. In
March 2021, with improved clarity on these
issues in particular, we announced a share
buy-back up to the value of £10.00 million,
which equates to circa. 5.0% of the issued
share capital.
By the year end, the buy-back programme
had acquired 538,542 shares at an average
price of 213 pence per share, which has
proved accretive to both net asset value
andearnings per share. We will keep the
programme under review, ensuring that
itcontinues as an efficient and effective
means of generating value for shareholders.
Continued focus on our ESG
commitments
ESG considerations have been a part of
ourdecision making since we adopted
ourfirst sustainability strategy in 2013 in
response to the shift in market demand
tomore environmentally friendly buildings.
We reviewed our approach in 2019 and
introduced a new ESG framework: “The
Right Choice for a Sustainable Business”,
with three key priorities:
• Low carbon, resource efficient
andhealthy buildings
• A customer-focused and flexible landlord
• A progressive and transparent business
These priorities are integral to our strategy,
supporting our commercial objectives and
targeting the highest standards of corporate
governance. Our positive performance
against these priorities and externally set
independent targets is set out in detail in
our2021 Sustainability Review in our
AnnualReport and Financial Statements,
and on our website. Of particular note is the
achievement of the high 4-star rating in our
2020 GRESB score, the BREEAM excellent
rating achieved at 135 Theale Logistics Park,
and the target to reduce the use of carbon
across our business, which we plan to deliver
with our 2021 Carbon Net Zero Policy
announced today.
Board and employees
I am very pleased to welcome Helen
Sachdev to the Board as an independent
Non-Executive Director with effect from
April 2021. Helen has considerable
experience gained from a range of sectors,
including real estate, and her knowledge
andexperience will be very helpful as we
allemerge from the current pandemic.
Aftera period of stability, the appointment
marks the first stage in succession planning
to maintain anindependent board.
McKay Securities Plc
Annual Report and Financial Statements 2021
8
During the year we have continued to make good progress against
our strategic and sustainability priorities whilst focusing on the
health and wellbeing of our colleagues and occupiers and
maintaining operational resilience in the face of Covid-19.
March 2020
Timeline
Covid compliance
at McKay assets
Acquisition of
Willoughby
Logistics Park,
Bracknell for
£10.00 million
Practical completion of
Theale Logistics Park
135,095 sq ft
Refurbishment of
2nd and 5th floors
of Corinthian
House, Croydon,
commences
Letting
of Theale
Logistics park
to Amazon,
10-year term
£1.51 million pa
contracted rent
Lockdown 1 Lockdown 2
Strategic Report
Governance Financial Statements
9
Customer Survey
completed – 90%satisfied
(10%neutral) with
McKay relationship
March 2021
74.5%
Tenant
retention
Domestic & General
Lease renewal at Swan
Court, Wimbledon
£1.76 million pa
contracted rent
agreement for lease
ESG – GRESB
4-Star award
Share buy-back
announced
96.0%
cash rent
collection
Completion of
Lombard Street,
EC3 sale for
£76.50million
Swan Court Lobby DraftK4
OS_Swan Court_Phase 01_External_Camera 02
Aspect ratio 1.0 Lens:43mm
Time of Day 10:45am 15|06|21
Draft
Lockdown 3
McKay Securities Plc
Annual Report and Financial Statements 2021
10
the portfolio valuation deficit was 4.7%
(MSCI All Property Index: -2.9%) and the
ERV for properties held over the period was
down 2.0% (MSCI All Property Index: -2.0%).
The valuation deficit of our office portfolio
was greater than the -6.1% MSCI All Property
Index performance, which contributed to the
relative under performance of the portfolio as
a whole. This was due in part to the number of
planned office refurbishment projects either
completed or underway where we are carrying
out upgrading works to improve rental
prospects, and to deliver future value.
However current values were particularly
exposed to more cautious valuation
assumptions to reflect the Covid-19 trading
environment. This also applied to forthcoming
lease expiries, as covered in more detail
inthe Property and Financial Review.
The fall in office values was partially offset
bythe valuation gains in our industrial and
logistics assets, including a substantial
42.7% (£10.88 million) surplus following the
letting success at 135 Theale Logistics Park.
This took the valuation surplus for this
segment of the portfolio to 18.1%.
Investor appetite reflected these sector
variations, with demand from a wide range of
investors outstripping the supply of industrial
and logistics opportunities and pushing pricing
to record levels. With the office market on
pause, office transactions have been limited
and values have fallen, with the exception of
low risk assets with secure, long term income,
where investor demand remains strong.
The largest segment of our portfolio is South
East offices (53.8%), located predominantly
along the M4 corridor. Named occupier
demand at the end of the period, as
monitored by BNP Paribas, totalled 2.25
million sq ft. This was an encouraging 24.9%
increase over the previous quarter, but still
33.0% below the five year average of 3.37
million sq ft. Annual take up of 1.31 million sq ft
for 2020 in our market area suffered as a
result, being 36.4% below the five year
average of 2.06 million sq ft and on a par with
2009, the lowest on record since 2000. Of
this take up, 72.9% was for unit sizes below
60,000 sq ft, and 66.5% was for new or
Grade A space. This continues the trend that
we have reported on for a number of years of
occupier demand for better quality floor
space in smaller unit sizes.
With a lower level of letting activity over the
year, supply in this market increased to 8.80
million sq ft, representing a vacancy rate of
9.4% (31 March 2020: 7.4%), but still well
below the peak vacancy rate following the
GFC of 14.2% in 2014. The low vacancy rate
of 2.3% for new buildings (31 March 2020:
1.8%) continues to limit occupier choice and
the speculative pipeline of new schemes is
likely to remain restricted until the demand
outlook is clearer.
We remain confident in our
strategic focus on the office,
industrial and logistics markets
of the South East and London.
Chief Executive’s Review
Overview
Our initial challenge this year was to make
the necessary operational adjustments in
response to Covid-19 to maintain the safety
of our team and occupiers, whilst ensuring
the efficient running of the business.
The operating system that we put in place
worked effectively from the outset, with
recent investment in our IT systems enabling
all staff to access Company networks
remotely without difficulty. In between
lockdowns, all but the most vulnerable
ofourteam were working from the office,
facilitated by being able to drive to work
toour self-contained and secure low rise
headquarters in Reading.
Faced with so much uncertainly, it was
reassuring that the business was well
capitalised and that our portfolio was
focused in well established centres of
theSouth East and London, with occupier
diversity across the office, industrial and
logistics sectors.
Moreover, we were pleased to complete the
sale of 30 Lombard Street, EC3 and to let 135
Theale Logistics Park on such good terms.
The benefits of our in-house, internal
management model were particularly
apparent during the crisis. The close work
with our occupiers secured high levels
ofrentcollection and occupier retention,
andresulted in many positive
endorsementsin our Occupier Survey
carried out in mid 2020. In addition we
continued to invest in the portfolio to benefit
from likely trends in office occupier demand,
particularly with our McKay+ offer and
sustainable, flexible, business space.
Continued focus on the
South East and London
We remain confident in our strategic focus
inour core markets. We have extensive
knowledge of these markets which are
supported by a strong regional economy
thatcontributes 39.0% of the national GVA,
built on specialisation in high value and high
technology sectors. The two regions
support 9.4 million workers, 30% of the
national total, and have a higher density of
businesses than in the rest of the country
and we believe this should support economic
recovery and occupier demand as pandemic
restrictions ease.
Market review
From the first lockdown at the beginning of
the year, the office market stalled, whereas
the industrial and logistics sector continued
to operate benefitting from the boom in
on-line shopping. This mix of fortunes
contributed to a 2.6% reduction in our office
portfolio ERV over the period and an 11.8%
valuation deficit, whereas the ERV for our
industrial and logistics assets held over the
period (excluding developments) increased
by 2.6% and their valuation by 9.0%. Overall,
Strategic Report
Governance Financial Statements
11
London South East UK
20202019
0
10
20
30
40
50
60
21 20 19 18 17
0
100
75
[X.X]
62
68
65
0
150
300
450
600
London
South East
East
North West
South West
West Midlands
Yorks & Humber
East Midlands
Scotland
Wales
N. Ireland
North East
Total (LHS) Per 1,000 people (RHS)
0
20
40
60
80
Number of businesses by region and per capita
Workers that work from home at least some of the time
(% of regional employment )
Following the sale of 30 Lombard Street, the
value of our remaining three central London
buildings accounts for 12.8% of the portfolio
(31 March 2020: 24.7%). Each asset continues
to provide opportunities for income and capital
growth, which we will monitor as the central
London occupational market becomes clearer.
Office demand – all change?
As noted above, demand and letting activity
in the South East office market has reduced
this past year, and there has been much
discussion regarding the impact of Covid-19,
and the working from home experience in
particular, on future occupier trends.
Around 30% of the workforce in the South
East and London was already working from
home some of the time prior to the pandemic,
with the proportion rising to around 50%
during the first lockdown. Hybrid working
patterns will evolve from this, and although
the number of employees in the office full
time may reduce, this is likely to be offset by
lower occupational densities to create safer
working environments.
We believe that demand has been deferred
rather than lost. To best position ourselves to
benefit when it returns, the key
considerations we are addressing are:
• How will offices be used in the future? The
use of the office will vary between business
size and type, but remain essential as a
strategic tool in the management of most
businesses. It is likely to be more of a
collaborative space to enforce business
identity and to encourage team-work and
the effective integration of new and
younger employees.
• What type of business space will be in
demand? We expect the majority of
demand to be for safe, sustainable and
smart buildings of quality that help attract
and retain employees. Ease and flexibility
ofoccupation will be important
considerations, as well as ease of access
and local amenities. Letting activity is likely
to remain predominantly for new and Grade
A floor space within the sub 60,000 sq ft
size range. A shift to shorter commuting
could also result in decentralisation.
• How do we meet occupier expectations?
Occupiers will expect a high quality service
from their landlord to support the concept
of the office being a welcoming, central and
integral part of their business. Track record
and customer focus will be key.
Many of these requirements reflect trends
that we were seeing before the pandemic,
and responding to with the quality and
specification of our buildings and the delivery
of high levels of service set out in ‘The McKay
Way’ by our in-house occupier services team.
With our office properties located mainly in
outer London and the South East, we are
also able to offer a cost effective alternative
should occupiers decide to decentralise to
reduce exposure to congested public transport
and long travel to work times. Construction
ofthe Elizabeth Line from central London
toReading, once opened, will enhance
ouroffer with improved connectivity.
Sustainability and ESG
will play a key role
The importance of ESG considerations,
andthe environmental credentials of
business space, will continue to increase.
These considerations are integral to our
decision making with regard to portfolio
properties and the way that we run the
business more generally.
Our 2021 Sustainability Review, available on
our website, provides full details of our ESG
policy and progress during the year. This
includes the publication of our 2021 Net Zero
Carbon commitment announced today,
which sets out a number of ambitious targets
in relation to our existing portfolio and future
projects to support the delivery of our core
sustainability objective of creating low
carbon, resource efficient buildings.
We will continue to work on these ESG and
property initiatives, such as our McKay+
offer of ready to occupy floor space, short
form leases and fully connected buildings.
The year ahead
Within the existing portfolio, we look forward
to improved confidence from the road map
out of lockdown and the continued roll out
ofthe vaccination programme driving a pick
up in leasing activity of current vacancies
andfuture refurbishments. The lease break
exercised at Sopwith Drive, Weybridge
provides scope for a major refurbishment
orredevelopment of this 1980s warehouse,
and at Great Brighams Mead, Reading we
are considering a range of options to evolve a
strategy ahead of lease expiry in March 2022.
With substantial cash and undrawn facilities,
we will continue to progress portfolio initiatives
and look for earnings and value accretive
acquisitions in our core markets to offset the
planned reduction in earnings from the sale of
30 Lombard Street. Full use of this headroom
will be governed by maintaining a level of
gearing appropriate to the macroeconomic
climate and evolving outlook. We will also
continue to closely monitor occupier demand
and the possibility of recycling capital through
further disposals, and maintain the current
share buy-back programme while it continues
to be an effective and efficient means of
generating shareholder value.
Simon Perkins
Chief Executive Officer
17 May 2021
Source: Capital Economics
60
50
40
30
20
10
0
London South East
South East South East
UK
McKay Securities Plc
Annual Report and Financial Statements 2021
12
Strategic Framework
Our strategy is to apply entrepreneurial property
initiatives to create sustainable value from our
assets for our stakeholders.
2020/21 progressStrategic priorities
Continued operational
efficiency through
Covid-19
Ensuring that despite Covid-19, operational
eciency and the profitability of the business
ismaintained.
01
• Rapid and effective compliance with
government guidance throughout the year
• Remote working through lockdown periods,
with employees able to access Company
networks remotely without difficulty
• In-house management ensuring building
compliance with Covid-19 safety standards
• Effective business continuity securing letting
progress, including 135 Theale Logistics Park
Continued delivery of
our ESG commitments
Our sustainability framework identifies three
priorities to ensure that ESG targets are
integrated into the delivery of our strategy.
03
• Publication of our 2021 Sustainability Review
which sets out in detail the progress made
through the period in relation to our ESG
long-term priorities
• 93.0% achievement of independently
set targets
• Publication of our Net Zero Carbon
Pathwaypolicy
Positioning for growth
Maintaining a strong balance sheet and
refreshing portfolio potential by recycling
capital from disposals into acquisitions and
portfolio initiatives, and other capital allocation
initiatives to improve prospects for growth.
02
• Sale of the long leasehold interest of 30
Lombard Street, EC3 at a headline price
of£76.50 million (4.16% yield) to capture
development gains and to recycle capital
• £10.00 million acquisition of Willoughby Rd,
Bracknell; a multi-let logistics asset with
growth potential
• Investment of £5.56 million into the
refurbishment of portfolio properties
toenhance growth prospects
• Investment of £1.15 million over the period
through the share buy-back programme
See our 2021 Sustainability Review
page 34
Strategic Report
Governance Financial Statements
13
Relevant performance metrics Future objectives Risks
• Maintain high occupier retention rate
• Maintain/improve upon our occupier
satisfaction score in the next
occupier survey
• Evolve our smart building technology
to improve our offer to occupiers
• Maintain strong relationships with
occupiers and suppliers
• Maintain high levels of rent collection
• Reduce portfolio vacancy
• Impact of Covid-19
• Market downturn
• Occupier default
Sustainability target achievement
Reduction in like-for-like energy
consumption by 16.4% against
2019/20
Improved GRESB score from
75to77, 4-star rated
Long-term decarbonisation
plandeveloped
Occupier survey and follow-up
action plan completed
• Maintain high achievement rate
ofsustainable targets
• Implementation of ESG objectives
• Implementation of Net Zero Carbon
Pathway policy
• Impact of Covid-19
• Market downturn
Occupier retention rate 74.3%
Rent collection 98% cash
andagreed
Occupier satisfaction score 90%
IFRS NAV £289.90m
TPR 0.5%
• Continue to utilise increase
inloanfacilities
• Maintain banking relationships
• Secure earnings and value-
enhancing acquisitions
• Continue to capture value
fromportfolio initiatives
• Enhance prospect for
strategicgrowth
• Impact of Covid-19
• Lack of suitable investment
opportunities
• Overpricing restricting
purchasing
• Covenant compliance
LTV: 32.4%
10 year TSR: 199.2%
Cash and undrawn facilities
£103.25m
McKay Securities Plc
Annual Report and Financial Statements 2021
14
Strategy
in Action
Continued operational
efficiency through Covid-19
• Former 96,850 sq ft chilled warehouse,
acquired in 2015 for £10.70 million
• While retaining income, planning for new
distribution/logistics unit of 135,095 sq ft
• Floor area increase of 39%
• ERV increase of 97%
• Once ready to demolish, agreed early
surrender payment with tenant
• Practical completion achieved in April 2020
• Letting of the whole to Amazon at a rent of
£1.51 million pa completed in September 2020
• 2021 valuation surplus of £10.88 million (42.7%)
Significant milestone achieved with the letting of 135 Theale Logistics Park
01
Strategic Report
Governance Financial Statements
15
Positioning
for growth
Continued
delivery of our
ESG commitments
• Sale of 30 Lombard Street, EC3, completed
inSeptember 2020
• Let prior to completion of development
inJanuary2019 on a 15-yearlease
• Headline price of £76.50 million at a yield of
4.16% securing net proceeds of £70.06 million
• Balance sheet strengthened, with LTV
at31 March 2021 reduced to 32.4%
• Post-sale of 30 Lombard Street, EC3, circa
£100.00million for new opportunities
• 93% achievement of independently set ESG targets
• 4-star GRESB achieved
• Publication of our Net Zero Carbon Pathway
02 03
Disposal of 30 Lombard Street, EC3
Uninterrupted progress
McKay Securities Plc
Annual Report and Financial Statements 2021
16
Our mission is to develop, refurbish
and manage commercial property,
working in partnership with occupiers
to deliver quality, innovation and
growth. We provide the very best
environment for our customers to
thrive and businesses to grow.
Strategic priorities
What we do
Continued operational
efficiency through Covid-19
Positioning for growth
Continued delivery of our
ESG commitments
01
02
03
Land and buildings
We focus on quality office, industrial
andlogistics business space within the
established markets of the South East
and London.
Relationships
Our geographical focus and in-house
management capabilities enable us
tobuild strong relationships and work
inpartnership with our occupiers and
local supply chains.
Our team
Our experienced team are experts
intheirfield and know the South East
andLondon markets intimately.
Respected brand
We take pride in everything we
do and have developed a reputation
forquality, innovation, sustainability,
ambition and growth.
ESG framework
Our sustainability strategy framework
‘The Right Choice for a Sustainable
Business’ lies at the heart of all we do.
Financial flexibility
Strong banking relationships and a robust
balance sheet allow flexibility to invest in
the portfolio throughout the cycle.
Key resources
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See more on pages 12 and 13
Strategic Report
Governance Financial Statements
17
Value creation
We generate value by operating
an effective and established
business model that delivers
sustainable, long-term returns.
Communities
We are committed to playing our part in the local community
and supporting causes that will benefit from our experience.
Employees
We aim to support and engage our employees by providing
aworking environment that promotes health, wellbeing
anddevelopment.
Suppliers
Suppliers play a fundamental role in delivering our vision
and we value close relationships.
Occupiers
We offer our occupiers choice, flexibility, quality and
sustainable/energy-efficient business space.
Investors
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toshareholders.
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Read more about why our stakeholders matter and
how we have engaged with them on pages 20 and 21
McKay Securities Plc
Annual Report and Financial Statements 2021
18
Section 172 Statement
Our commitment to Section 172
As part of our Sustainability Strategy Framework we are
committed to being a progressive and transparent business and
adhering to high levels of Corporate Governance. This includes
our commitment to considering the stakeholders of our Company
in our approach to decision making throughout the business in
order to promote the success of the Company, in line with our
duties under Section 172 of the Companies Act 2006 (1) (a) to (f)
as set out above.
We define principal decisions as those that are material to the
Company and significant to any of our key stakeholder groups.
In making such decisions, the Board considers the outcome
from its stakeholder engagement as well as the need to maintain
a reputation for high standards of business conduct and the
need to act fairly between the members of the Company.
Principal decisions are minuted at each Board meeting and
entered into in our corporate S172 log, along with matters
taken into consideration and stakeholder engagement.
Duty to promote the success of the Company
Companies Act 2006 – Section 172
(1) A director of a company must act in the way he/she considers, in good faith, would bemost likely to promote the success
of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:
(a) the likely consequences of any decision in the long term,
(b) the interests of the company’s employees,
(c) the need to foster the company’s business relationships with suppliers, customers and others,
(d) the impact of the company’s operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
Willoughby Road, Bracknell
Strategic Report
Governance Financial Statements
19
Examples of our approach to decision making during the period are:
#1
Covid-19
Having assessed the information
available when lockdown measures
were first implemented, the Board
put in place Covid-19 measures
toprotect shareholder and other
stakeholders’ interests in March
2020 and maintained these
throughout the year. Measures
putin place included:
– regular market updates on
Company progress and quarterly
rent collection rates,
– offering occupier support
whereappropriate on a
case-by-case basis,
– maintaining a smooth transition
toremote working and ensuring
thehealth and wellbeing of our
employees, and
– maintaining our long-standing
relationships with our suppliers.
#2
Purchase of
Willoughby Road,
Bracknell
The decision to add this logistics
asset to the Company’s portfolio
in August 2020 increased the
Company’s exposure to the logistics
sector, providing a high-quality,
earnings enhancing asset with
rental growth prospects and
long-term development potential.
This expansion of the portfolio
addshigh-quality business space
tomeet occupier requirements in
aprime location, as well as providing
economies of scale for the business.
The acquisition was funded using
exisiting loan facilities, after
consideration ofheadroom and
LTVmetrics.
#3
Share Buy-back
On 8 March 2021 the Company
announced a share buy-back
programme of up to £10.0 million,
or approximately 5%, of the
Company’s issued ordinary
share capital.
After careful consideration, the Board
believed that with improving visibility
in market conditions and business
progress, the Company’s substantial
discount to net asset value meant
theProgramme oered the potential
to make market purchases ata price,
orprices, that it believed would be
accretive. The Board will keep the
Programme under review to ensure
itcontinues as an ecient and
eective means of generating value
for shareholders.
McKay Securities Plc
Annual Report and Financial Statements 2021
20
Our Stakeholders
Stakeholders How we engaged during the year How we engaged during the year (continued) Areas of focus
Occupiers
Our occupiers are at the heart of our business and we take great pride
increating sustainable and progressive environments where their
businesses can thrive.
For more information, see:
The McKay Way on page 27
Sustainability Review on page 34
Occupier Survey on page 40
• Each occupier is appointed their own dedicated in-house asset
manager who is available to discuss any aspect of an occupier’s
leaseterms
• A dedicated in-house occupier services representative is assigned
to each occupier. Their aim is to support each occupier’s business
needs on a day-to-day basis
• We communicated to occupiers that Covid building compliance was
regularly reviewed and the implementation of measures was in line
with government guidance as a minimum standard
• In September 2020 we carried out one of our regular occupier
surveys, created action plans and fed back onactions taken
• Unique spaces – creating the right space for each individual occupier
• Flexible lease terms
• Value for money
• Excellent customer service experience
• An approachable landlord
• The environmental impact of their space
• Covid compliance
Investors
Our shareholders are fundamental to how we operate as a business.
Theyprovide the equity base for the business and although they are
primarilylooking at a financial return they are increasingly holding
companiesto account on their ESG strategy and policies.
For more information, see:
Sustainability Review on page 34
Strategic Framework on page 12
• There is a well established investor relations programme of investor
and analyst presentations. Presentations follow the annual financial
timetable and are undertaken following the announcement of the
end of year and half year results. During the year, due to Covid and
social distancing restrictions, these were carried out via a remote
conferencing facility
• Regular press releases and RNS announcements on business events
• In normal circumstances all Directors attend the Annual General
Meeting (“AGM”) and are available to engage with shareholders.
The2020 AGM was a closed meeting but investors had the
opportunity to submit questions online prior to the meeting and
anyresponses were available to view on the Company’s website
• Financial performance
• A robust business model
• Implementation of a sound ESG strategy
• Ensure assets are future-proofed through progressive
technological improvement
• Effective communication
• Covid compliance
Employees
Our employees are a diverse mix of highly skilled and experienced individuals
who are keen to see both themselves and the Company develop and grow.
Their skills, enthusiasm and commitment are central to business success.
For more information, see:
Corporate Governance – Working Practices case study on page 42
Sustainability Review on page 34
• During the year throughout the periods of lockdown practical
measures were put in place to ensure employees were able to work
from home. Regular communication from line managers through
the use of remote conferencing facilities and email updates helped
support interaction between employees
• An Employee Representative Non-Executive Director (“desNED”)
provides a conduit to the Board for the employee voice
• Executive Directors ordinarily undertake year end and interim
presentations to employees and encourage attendance at the
Company’s AGM but due to Covid compliance, the 2020 AGM
wasa closed meeting
• We engage with employees through workshops, regular team
meetings, annual appraisals and training opportunities
• As part of our commitment to the wellbeing of our employees
weoffer health and dental care schemes, and occupational health
support is regularly made available
• Inclusivity and empowerment
• Top-down communication
• Collaboration – sharing ideas and views
• Continual development of skills
• A flexible working environment
• Supportive employee health and wellbeing services
• A Covid compliant and healthy workplace
Communities
We are mindful that as a Company we do not work in isolation.
We are committed to playing our part in the local community and
supportingcharitable, education and other causes that might benefit
fromour experience.
For more information, see:
Sustainability Review on page 34
Occupier Survey case study on page 40
With the impact of Covid we believed it even more important to continue
our commitment as:
• A Supporter of the Reading University Pathways
to Property programme
• A partner of Ethical Reading, a not-for-profit social enterprise
dedicated to making Reading a better place to live and work
throughhelping organisations become more ethical
• A supporter of Land Aid, a property industry charity focused
onreducing youth homelessness
• A contributor to supporting selected charities such as MIND,
anorganisation that supports mental health, NHS Charities
Togetherand a local hospice
• Supporting selected charities
• Working in partnership with the local community
• Building close links with our local university
Suppliers
We use a large number of products and services to construct, improve
andmaintain our buildings.
The procurement choices we make can have a significant impact on people,
organisations and the wider environment. For this reason, suppliers and
contractors play a fundamental role in delivering our vision and achieving
ourobjectives. We recognise that by working closely with our suppliers we
canhave a material impact and we have an obligation to ensure that our supply
chain and procurement practices follow proper standards.
For more information, see:
Sustainability Review on page 34
• We engage with all suppliers at pre-qualification stage
and withevery new contract or contract renewal
• Key suppliers in the top five operational procurement
categoriesare audited on an annual basis to ensure
compliancewith our procurement policy (updated in 2020)
• We strive for continual improvement. We are committed to advancing
our policies and systems across the Company to ensure we address
and monitor performance in all aspects of sustainability that are
relevant to the business
• Building relationships based on a strong ethical ethos and high standards
• Prompt payment practices
• A responsible procurement policy
• Promoting human rights
• Reducing adverse environmental impacts
We believe we must be responsive to changing stakeholder expectations,
to remain relevant and ensure a resilient and progressive business.
We set out here our key stakeholders, how we engage with them and what they tell us is important to them. We continue to build on strong
relationships with all our stakeholders. It is important for us to listen and understand their evolving needs. This understanding will support
the decision-making process at all levels in the business, enhance our reputation as a trusted landlord, and strengthen our presence in the
office, industrial and logistics markets of the South East and London.
Strategic Report
Governance Financial Statements
21
Stakeholders How we engaged during the year How we engaged during the year (continued) Areas of focus
Occupiers
Our occupiers are at the heart of our business and we take great pride
increating sustainable and progressive environments where their
businesses can thrive.
For more information, see:
The McKay Way on page 27
Sustainability Review on page 34
Occupier Survey on page 40
• Each occupier is appointed their own dedicated in-house asset
manager who is available to discuss any aspect of an occupier’s
leaseterms
• A dedicated in-house occupier services representative is assigned
to each occupier. Their aim is to support each occupier’s business
needs on a day-to-day basis
• We communicated to occupiers that Covid building compliance was
regularly reviewed and the implementation of measures was in line
with government guidance as a minimum standard
• In September 2020 we carried out one of our regular occupier
surveys, created action plans and fed back onactions taken
• Unique spaces – creating the right space for each individual occupier
• Flexible lease terms
• Value for money
• Excellent customer service experience
• An approachable landlord
• The environmental impact of their space
• Covid compliance
Investors
Our shareholders are fundamental to how we operate as a business.
Theyprovide the equity base for the business and although they are
primarilylooking at a financial return they are increasingly holding
companiesto account on their ESG strategy and policies.
For more information, see:
Sustainability Review on page 34
Strategic Framework on page 12
• There is a well established investor relations programme of investor
and analyst presentations. Presentations follow the annual financial
timetable and are undertaken following the announcement of the
end of year and half year results. During the year, due to Covid and
social distancing restrictions, these were carried out via a remote
conferencing facility
• Regular press releases and RNS announcements on business events
• In normal circumstances all Directors attend the Annual General
Meeting (“AGM”) and are available to engage with shareholders.
The2020 AGM was a closed meeting but investors had the
opportunity to submit questions online prior to the meeting and
anyresponses were available to view on the Company’s website
• Financial performance
• A robust business model
• Implementation of a sound ESG strategy
• Ensure assets are future-proofed through progressive
technological improvement
• Effective communication
• Covid compliance
Employees
Our employees are a diverse mix of highly skilled and experienced individuals
who are keen to see both themselves and the Company develop and grow.
Their skills, enthusiasm and commitment are central to business success.
For more information, see:
Corporate Governance – Working Practices case study on page 42
Sustainability Review on page 34
• During the year throughout the periods of lockdown practical
measures were put in place to ensure employees were able to work
from home. Regular communication from line managers through
the use of remote conferencing facilities and email updates helped
support interaction between employees
• An Employee Representative Non-Executive Director (“desNED”)
provides a conduit to the Board for the employee voice
• Executive Directors ordinarily undertake year end and interim
presentations to employees and encourage attendance at the
Company’s AGM but due to Covid compliance, the 2020 AGM
wasa closed meeting
• We engage with employees through workshops, regular team
meetings, annual appraisals and training opportunities
• As part of our commitment to the wellbeing of our employees
weoffer health and dental care schemes, and occupational health
support is regularly made available
• Inclusivity and empowerment
• Top-down communication
• Collaboration – sharing ideas and views
• Continual development of skills
• A flexible working environment
• Supportive employee health and wellbeing services
• A Covid compliant and healthy workplace
Communities
We are mindful that as a Company we do not work in isolation.
We are committed to playing our part in the local community and
supportingcharitable, education and other causes that might benefit
fromour experience.
For more information, see:
Sustainability Review on page 34
Occupier Survey case study on page 40
With the impact of Covid we believed it even more important to continue
our commitment as:
• A Supporter of the Reading University Pathways
to Property programme
• A partner of Ethical Reading, a not-for-profit social enterprise
dedicated to making Reading a better place to live and work
throughhelping organisations become more ethical
• A supporter of Land Aid, a property industry charity focused
onreducing youth homelessness
• A contributor to supporting selected charities such as MIND,
anorganisation that supports mental health, NHS Charities
Togetherand a local hospice
• Supporting selected charities
• Working in partnership with the local community
• Building close links with our local university
Suppliers
We use a large number of products and services to construct, improve
andmaintain our buildings.
The procurement choices we make can have a significant impact on people,
organisations and the wider environment. For this reason, suppliers and
contractors play a fundamental role in delivering our vision and achieving
ourobjectives. We recognise that by working closely with our suppliers we
canhave a material impact and we have an obligation to ensure that our supply
chain and procurement practices follow proper standards.
For more information, see:
Sustainability Review on page 34
• We engage with all suppliers at pre-qualification stage
and withevery new contract or contract renewal
• Key suppliers in the top five operational procurement
categoriesare audited on an annual basis to ensure
compliancewith our procurement policy (updated in 2020)
• We strive for continual improvement. We are committed to advancing
our policies and systems across the Company to ensure we address
and monitor performance in all aspects of sustainability that are
relevant to the business
• Building relationships based on a strong ethical ethos and high standards
• Prompt payment practices
• A responsible procurement policy
• Promoting human rights
• Reducing adverse environmental impacts
McKay Securities Plc
Annual Report and Financial Statements 2021
22
Property and
Financial Review
Introduction
As at 31 March 2021 our portfolio consisted
of 33 assets with an independent valuation of
£437.90 million. The majority of the portfolio
falls within the office sector, but through a
combination of development and valuation
gains as well as the recycling of capital, we
have increased our weighting over the year
to the industrial and logistics sector. By value
the breakdown is now 66.6% offices, 28.0%
industrial and logistics and 5.4% other with
no retail exposure (31 March 2020: 77.1%,
18.1% and 4.8% respectively). See Table 1.
Together with selling our largest asset and
letting our most recent development project,
Covid-19 and its repercussions have
dominated this year. Operationally our
business model of managing all our assets
internally, rather than using third party
managing agents, allowed us to respond
withagility and resilience. With this business
model, we know our tenants well and as a
result we knew very quickly where to help,
how to help and where to remain firm.
In a crisis more economically damaging than
theGFC, we maintained a strong tenant
retention rate with 74.3% of our occupiers
choosing to remain with McKay at lease
break or expiry; collected or agreed plans
for98% of our annual rent; renewed 34
leases; secured 18 open market lettings;
andachieved a positive customer survey
with 90% of our occupiers happy with their
direct McKay relationship.
Our total occupancy has fallen to 85.3%
(31 March 2020: 88.7%) and there are two
clear reasons for this. Firstly in February
2021 Hermes operated their break clause
atSopwith Drive in Weybridge (63,140 sq ft /
£0.65 million pa contracted rent) which they
had occupied for many years, in order to
relocate to a larger unit. The industrial and
logistics sector is currently very strong
fromboth an occupational and investment
perspective and this lease break frees
up a prime development / refurbishment
opportunity for us.
Secondly, while we successfully negotiated
with our largest occupier, Domestic &
General, to renew their occupation for
afurther five years at Swan Court in
Wimbledon, they did hand back 30% of
thebuilding (ground and first floors totalling
16,400 sq ft) which they had not been using
for some years. These floors will be
refurbished and delivered into this popular
under-supplied Greater London sub-market
in the autumn.
These two new vacancies represent 5.2% of
the overall portfolio ERV as at 31 March 2021.
We believe the office remains critical to
business continuation and that the best
andmost engaging office space will remain
indemand from businesses keen to attract
and retain staff. As a result, we shall continue
to upgrade and invest in our assets when
vacancies occur to meet that demand.
Table 1: Properties
Properties % of Portfolio
Office London 3 12.8%
Office South East 17 53.8%
Total Office 20 66.6%
Industrial South East 9 28.0%
Total Industrial 9 28.0%
Other Health 1 1.3%
Other Leisure 1 3.1%
Other Residential 2 1.0%
Total Other 4 5.4%
Overall Total 33 100.0%
Swan Court, Wimbledon
Tom Elliott Giles Salmon
Strategic Report
Governance Financial Statements
23
Property Portfolio
At 31 March 2021
Area sq ft
£15m and over
60.5% of portfolio
Brentford The Mille, 1000 Great West Road (office) 96,700
Crawley Oakwood Trade Park, Gatwick Road (industrial & logistics) 52,400
EC3
1
Portsoken House, Minories (office and ancillary retail) 49,570
Newbury Rivergate, Newbury Business Park (office) 61,385
Poyle McKay Trading Estate, Blackthorne Road (industrial & logistics) 73,955
Reading Great Brighams Mead, Vastern Road (office) 84,840
Reading 9 Greyfriars Road (office) 38,490
Redhill Prospero, London Road (office)
50,370
SW19 Swan Court, Worple Road (office and ancillary retail) 57,500
SW1 1 Castle Lane (office) 14,250
Theale Theale Logistics Park, Brunel Road (industrial & logistics) 135,095
£10m to £15m
21.7% of portfolio
Bracknell Willoughby Road (industrial & logistics) 54,155
Crawley Pegasus Place, Gatwick Road (office) 50,790
Croydon Corinthian House, Dingwall Road (office) 44,590
EC2 66 Wilson Street (office) 11,890
Maidenhead Switchback Office Park, Gardner Road (office) 37,155
Weybridge Sopwith Drive, Brooklands (industrial & logistics) 63,140
Woking 1 Crown Square (office and ancillary retail) 50,190
Woking The Planets, Crown Square (other/leisure) 98,255
£5m to £10m
13.3%of portfolio
Bracknell Building 329, Doncastle Road (office) 32,800
Farnborough Columbia House, 1 Apollo Rise (industrial & logistics) 40,755
Fleet One Fleet, Ancells Road (office) 34,580
Folkestone 3 Acre Estate, Park Farm Road (industrial & logistics) 44,290
Folkestone 5 Acre Estate, Park Farm Road (industrial & logistics) 60,535
Leatherhead Ashcombe House, 5 The Crescent (office) 17,450
Newbury
Strawberry Hill House, Bath Road (other/medical)
15,230
Reading 20/30 Greyfriars Road (office) 33,345
Staines Mallard Court, Market Square (office and ancillary retail) 21,860
Windsor Gainsborough House, 59-60 Thames Street (office) 18,660
£0m to £5m
4.5%ofportfolio
Banbury Lower Cherwell Street Industrial Estate (industrial & logistics) 40,060
Chobham Castle Grove Road (other/land) —
Staines 2 Clarence Street (office) 3,440
SW1
1
Parkside, Knightsbridge (other/residential) 2,900
Percentages based on the valuation
at 31 March 2021
1. Denotes leasehold properties.
McKay Securities Plc
Annual Report and Financial Statements 2021
24
Property and Financial Review continued
Sustainability and ESG
We continue to recognise how important
sustainability is to potential and existing
occupiers, our investors, our employees
andindeed all our stakeholders.
We are particularly proud this year to have
achieved a 4* GRESB (Global Real Estate
Sustainability Benchmark) rating, placing us
in the top 40% of those who choose to be
measured by this renowned benchmark.
Our 2021 Sustainability Review, included
within our Annual Report and Financial
Statements and available on our website,
provides extensive detail of our ambitions
and achievements under the three pillars for
a sustainable business, the Environment,
Social awareness and Governance (ESG).
Development
We completed 135 Theale Logistics Park
(135,095 sq ft) in April 2020 and, with
Covid-19 limiting mobility, we immediately
stepped up our digital marketing campaign
and successfully secured a letting of the
whole scheme to Amazon. This lease
completed in September 2020 for a ten year
term with an option to extend for a further ten
years to this strong covenant at £1.51 million
pa, marginally ahead of 31 March 2020 ERV
(“ERV”) with a fixed uplift at the fifth year
review. This resulted in a year end valuation
surplus of £10.88 million which delivered a
profit on cost for the development of 49.5%.
Asset management
Portfolio
We have always had a very active, hands-on
approach to asset management which has
benefited us in a year when occupiers need
flexibility, potential reorganisations and
above all a regular constructive dialogue
withtheir landlord. Given the difficulty many
occupiers have faced, during the year we
negotiated many more lease renewals than a
typical year (34 compared to the average of
the previous two years of 17) at a contracted
annual rent of £3.87 million pa (an uplift of
10.4% over the previous passing rent). The
Covid-19 related agreements, in particular,
had the win-win benefit for both us and our
occupiers by introducing a rent free period
now in return for a longer lease. Added to this,
we achieved 18 open market lettings at a
combined contractual rent of £2.56 million
pa, marginally ahead of ERV, providing a total
contracted rent (excluding acquisitions and
disposals) of £25.02 million pa (31 March
2020: £24.93 million pa).
Offices
Within our office portfolio, the most
significant lease renewal was at Swan Court,
Wimbledon (57,500 sq ft) which has been
the headquarters of Domestic & General
(D&G) since we built the office building in
2006. Their lease expiry was February 2021
and in recent years they had sub-let the
ground and first floors (16,400 sq ft). In
January 2021 we exchanged an agreement
to lease floors 2-5 (37,400 sq ft) on a ten
yearlease with a fifth year tenant break at
acontracted rent of £1.76 million pa which
willcommence on completion of planned
landlord upgrade works to the common parts
at the end of the summer. The works will
significantly enhance the look and feel of
thebuilding improving the lettability of the
remaining ground and first floors which we
will refurbish simultaneously.
Across selected parts of our office portfolio
we continue to attract occupiers with the
McKay+ specification. This provides the
middle ground between conventional
accommodation and serviced offices
enabling speed and flexibility of occupation
with no middle man or hidden costs and is
managed directly by us, while at the same
time giving the occupiers their own identity
and privacy. At the Mille in Brentford (96,700
sq ft) this model attracted a tenant out of
serviced accommodation into the entire
6thfloor (8,174 sq ft) at a contracted rent of
£0.18 million pa on a ten year lease with a
tenant break at the end of the third year.
Further McKay + refurbishments attracted
two new significant occupier names to the
portfolio. Maersk Line UK Limited signed a
five year lease on the 6th floor (1,870 sq ft)
atPortsoken House, EC3 at a contracted
rent of £0.98 million pa and Sedgewick
International UK committed to the final
vacant suite (4,112 sq ft) at Prospero in
Redhillon a ten year lease at a contracted
rent of £0.13 million pa.
Table 2: Capital Value Movement
12 months to 31 March 2021
March 2021 portfolio
£m
March 2020 portfolio
£m
12 month¹
Movement
MSCI²
Movement
London offices 56.00 58.55 (5.9)% (2.6)%
South East offices 235.60 267. 30 (13.0)% (6.1)%
Total offices 291.60 325.85 (11.8)% (5.6)%
South East industrial/logistics 75.25 68.35 9.0% 10.3%
Other 23.90 23.80 0.3% –
Total (excl. dev) 390.75 418.00 (7.7)%
(2.9)%
3
Developments
4
36.35 24.00 42.7%
Total portfolio (like for like) 427.10 442.00 (4.8)% (2.9)%
Disposals – 68.00
Acquisitions 10.80 –
Total (overall) 437.90 510.00 (4.7%) (2.9%)
Valuation yields
Initial 4.8% 4.0%
Initial (topped up) 5.5% 5.2%
Reversion 6.7% 6.4%
Equivalent 6.1% 5.7%
1. Valuation movements (%) after allowing for cap-ex incurred during the period
2. MSCI Monthly Index by relevant sector. London = MSCI City sector
3. MSCI Monthly Index (All property)
4. Theale Logistics Park
Strategic Report
Governance Financial Statements
25
At Corinthian House, Croydon (44,590 sq ft),
having upgraded the reception and common
parts last year, we are now underway with
floor by floor refurbishments as they become
available on expiry of older legacy lettings,
enabling us to achieve substantially higher
rental values. Having just reached completion
at year end of the 2nd and 5th floors (8,660
sq ft) we had already agreed terms on over
50% of the new accommodation above ERV
reflecting the quality and prime location of
this Croydon landmark office. We aim to
refurbish a further four floors (18,550 sq ft)
this year which have already attracted
positive enquiries.
Industrial and logistics
28.0% of the portfolio by value is in the industrial
and logistics sector which has performed very
well over the year, driven by management
initiatives, lettings at or above ERV and the
development success referred to earlier.
At Five Acre in Folkestone, we pre-let our
lastupgraded unit (17,333 sq ft) to an existing
expanding occupier on a ten year lease at
acontracted rent of £0.09 million pa and
atthe McKay Trading Estate at Poyle we
renewed four leases with our largest
occupier (32,251 sq ft) for a further six years
at a contracted rent of £0.34 million pa.
Well located trade parks continue to attract
demand as evidenced by our latest
refurbishment at Oakwood Trade Park in
Crawley (52,400 sq ft). Prior to completion
ofa refurbishment of Unit 1 (2,717 sq ft) we
signed a ten year lease at a new record rent
equating to £18.00 psf which helped drive
ERV growth and a subsequent capital
surplus across the Park of 23.5%.
As mentioned above, the exercise of a lease
break at Sopwith Drive, Weybridge (63,140
sq ft) has provided the potential to add to the
value of the building through refurbishment
or redevelopment in this excellent outer
London location. A number of schemes
areunder review at present.
Table 4: Portfolio yields and reversions
31st March 2021 31st March 2020
£m
pa Yield² Occupancy³
£m
pa Yield² Occupancy³
Current rental income
1
22.20 4.8% 21.90 4.0%
Contracted rental income
1
25.61 5.5% 85.3% 28.33 5.2% 88.7%
Uplifts at rent review/lease expiry 1.21 2.62
Void properties (exc developments
3
) 4.63 15.5% 2.48 7.4%
Void (developments) – 1.48 3.9%
Portfolio reversion 5.84 6.58
Total portfolio ERV 31.45 6.7% 34.91 6.4%
Equivalent yield 6.1% 5.7%
1. Net of ground rents
2. Yield on portfolio valuation with notional purchaser’s costs (6.75%) added
3. By ERV
Table 3: Rental Value Movement
12 months to 31 March 2021
March 2021 portfolio
ERV £m pa
March 2020 portfolio
ERV £m pa
12 month
Movement
MSCI¹
Movement
London offices 3.66 3.75 (2.5)% (0.8)%
South East offices 20.60 21.15 (2.6)% (0.6)%
Total offices 24.26 24.90 (2.6)% (0.6)%
South East industrial/logistics 4.07 3.96 2.6% 3.4%
Other 1.00 1.14 (11.9)% –
Total (excl. dev) 29.33 30.00 (2.2)%
(2.0)%²
Developments
3
1.51 1.48 2.3%
Total portfolio (like for like) 30.84 31.48 (2.0)% (2.0)%
Disposals – 3.43
Acquisitions 0.61 –
Total (overall) 31.45 34.91
1. MSCI Monthly Index by relevant sector. London = MSCI City sector
2. MSCI Monthly Index (All property)
3. Theale Logistics Park
McKay Securities Plc
Annual Report and Financial Statements 2021
26
Property and Financial Review continued
Valuations
As at 31 March 2021 Knight Frank’s
independent valuation of the portfolio
was£437.90 million (31 March 2020:
£510.00 million).
The entire year has been characterised by
Covid-19 and the economic uncertainty that
it carried which is only now beginning to clear
with the successful vaccine rollout. The total
portfolio suffered to a greater degree in H1
with a valuation deficit of -3.4% followed by
-1.3% in H2, delivering a total 12 month deficit
of 4.7% set against the MSCI All Property
Index of -2.9%. See Tables 2 and 3.
The valuers reflected uncertainty in the
office sector by increasing void periods and
rent free incentives while also pushing yields
out to varying degrees depending on tenant
covenant strength and lease length. These
adjustments were more severe in H1 when
there was still significant uncertainty at the
September valuation date, resulting in a
capital deficit in our office portfolio for H1 of
-6.7%. Although the H2 valuation date of
31 March 2021 had the benefit of an
improving outlook, there still remained
uncertainty about the speed and quantum of
a return to work. This resulted in further
valuation risk adjustments and an H2 office
portfolio deficit of -5.0%, delivering a total
office portfolio deficit for the year of -11.8%.
Rental value declines were less apparent
and our office portfolio ERV fell by -2.6%.
See Table 4.
There were two office assets which
impacted our office portfolio performance
which are worth highlighting. At the start of
the year at Great Brighams Mead in central
Reading (84,840 sq ft) discussions had been
ongoing about the possibility of a lease
extension with the sole tenant (expiry March
2022). However, towards Christmas the
tenant confirmed that it would vacate at lease
expiry, and at the valuation date the valuers
had to assume vacancy at expiry, full
refurbishment expenditure as well as
estimated voids and rent free incentives.
Secondly at Corinthian House in Croydon,
the valuation reduced due to the timing in the
refurbishment cycle of the building, and the
current vacancy and capex required for the
launch of this re-positioned asset. Although
strong pre-let interest is being pursued, at
the date of valuation it had not crystallised.
Our industrial and logistics portfolio (28.0%
by value) performed well, delivering a capital
surplus of 16.4%. As referred to above, the
letting at 135 Theale Logistics Park and the
strength of investor demand generated a
substantial 42.7% surplus of £10.88 million.
As at 31 March 2021 the portfolio net initial
yield was 4.75% (31 March 2020: 4.02%)
rising to 5.48% on the expiry of rent free
periods (31 March 2020: 5.20%). This yield
increase reflects the fall in values due to the
Covid uncertainty coupled with the fact that
we sold our largest asset at a low yield of
4.16%. The reversionary yield, adopting the
full net ERV and current book value was
6.73% (31 March 2020: 6.41%).
Cash collection
The table below highlights the quarterly
experience for the Group regarding cash
collection. The overall result for the year
shows 96.0% of contracted rents were
collected in cash and a further 2.0%
(£0.45million) to be collected under
agreements put in place during the year.
Ofthe total contracted rent of £22.38 million
demanded for the year to 31 March 2021,
only £0.39 million has been impaired.
Key: O/S – outstanding
Table 5: Cash collection
Mar 20 Quarter Jun 20 Quarter Sep 20 Quarter Dec 20 Quarter Total 4 Quarters
£ % £ % £ % £ % £ %
Paid within 7 days 3,342 62% 4,075 71% 3,872 69% 5,043 88% 16,333 73%
Paid after 7 days 1,714 31% 1,528 26% 1,477 26% 480 8% 5,200 23%
Cash received 5,056 94% 5,604 98% 5,348 96% 5,524 96% 21,532 96%
Paying monthly – O/S 0 0% 0 0% 0 0% 6 0% 6 0%
Not monthly – O/S 246 5% 19 1% 143 3% 34 1% 442 2%
Agreed but O/S 246 5% 19 1% 143 3% 40 1% 448 2%
Total received or agreed 5,302 99% 5,623 98% 5,491 98% 5,564 98% 21,980 98%
Impaired 78 1% 92 2% 92 2% 133 2% 395 2%
Total received or agreed 5,380 100% 5,715 100% 5,583 100% 5,697 100% 22,375 100%
Income statement
Adjusted profit before tax, our measure of
recurring profit, increased by £0.23 million
(2.4%) to £9.96 million (31 March 2020: £9.73
million). Gross rental income was 2.1% lower
as a result of significant disposals in the
current and prior period, offset by reduced
interest costs on lower borrowings. Adjusted
basic earnings per share increased by 2.3%
to 10.56 pps (31 March 2020: 10.32 pps).
At headline level, the loss before tax (IFRS) of
£16.58 million (31 March 2020: £9.49 million
profit), was mainly as a result of the valuation
deficit of £23.36 million (after the IFRS 16
adjustment) being bigger than the prior year
(31 March 2020: deficit £2.20 million).
The 2.1% (£0.54 million) reduction in gross
rental income to £24.62 million (31 March
2020: £25.16 million) was a result of the
significant disposals of 30 Lombard St, EC3
and Station Plaza, Theale, offset by new
rental income from the acquisitions at
Willoughby Road, Bracknell and Rivergate,
Newbury, the latter contributing a full year of
rental income, and further increased by new
lettings such as 135 Theale Logistics Park.
Property costs for the year of £3.15 million
were £0.10 million less than the previous year
(31 March 2020: £3.25 million) mainly due to
the successful reclaiming of previously paid
council rates received in the year which offset
higher void costs.
Governance Financial Statements
27
Strategic Report
At McKay, we believe
our relationship
witheach and every
occupier is key to
ourbusiness.
Accordingly, we set
out our commitment
to existing and future
occupiers in
‘TheMcKay Way’.
Lynda Perry
Head of Occupier Services
The
McKay
Way
The McKay Way sets out our customer service commitment and describes
ourapproach to achieve and maintain the important relationship between
ourselves as landlord and our occupiers. Most of all, it is about McKay
peopledirectly managing our own properties; people who genuinely care
and willalways go the extra mile to assist our occupiers and do the right thing
whilst maintaining excellent relationships with our suppliers and contractors
to deliver exceptional service.
90%
of occupiers are happy with their McKay
relationship with 10% remaining neutral.
01
Transparency
If we say we will, it happens –
our word is our bond. Everything
is clear, easy to understand
andtransparent.
02
Directly
managed
McKay people in McKay
buildings – looking after your
teams and your business every
day in the right way.
03
Customer
service
You are at the heart of everything
we do. We give our best every
day and respond when you need
usto.
04
Value for money
Too much, too little or just right.
We will find the right value not
just for the lease but for the
operations andrunning costs
that impact upon your business.
05
Unique spaces
We will help you to create a
spacethat meets your needs
and is right for your people,
teams and business to thrive.
06
Flexibility
Let us help you to find the right
space. If you need more we can
help – if you need less, we can
help you with that too.
07
Approachable
It all begins and ends with
aconversation. Talk to us –
we are here to help.
08
Business
Continuity
Constant review and
implementation of measures in
line with Government guidance
as a minimum standard.
McKay Securities Plc
Annual Report and Financial Statements 2021
28
Property and Financial Review continued
Administration costs before IFRS 2 charges
reduced to £5.17 million (31 March 2020:
£5.39 million), primarily due to the 2018
Performance Share Plan outturn of zero
which reduced the National Insurance
charge compared to the prior year, and
Covid-19 related savings. The IFRS 2 charge
increased during the year (£0.49 million)
compared to the £0.22 million credit in the
previous year. The credit in the previous year
resulted from an accounting change in the
calculation methodology of IFRS 2.
Whilst cash collection was strong during the
Covid-19 affected period, as noted above,
£0.39 million of the rents receivable have
been impaired (31 March 2020: Nil). These
relate to tenants that have gone into
administration or amounts assessed as
irrecoverable. The two tenants that account
for half of this amount are a professional
services firm and a hospitality tenant.
The interest cost for the year reduced to
£6.35 million (31 March 2020: £7.36 million),
due to lower drawings after the sale of 30
Lombard St, EC3, which reduced drawn debt
to £144.00 million at 31 March 2021 (31 March
2020: £194.00 million). The weighted
average cost of debt prior to amortisation
andfinance lease interest reduced slightly
to3.1% (31 March 2020: 3.4%).
Balance sheet
Shareholders’ funds decreased from £309.17
million to £289.90 million over the period,
primarily due to the revaluation deficit for
theyear of £23.36 million as detailed above.
Inaddition, the sale of 30 Lombard Street
EC3 resulted in a £2.82 million loss on
disposal after adjustment for IFRS 16
(lettingincentives).
EPRA NTA per share reduced by 6.1% over
the period to 309 pence (31 March 2020: 329
pence) and IFRS NAV per share reduced
by5.8% to 309 pence (31 March 2020: 328
pence). The revaluation movement was the
main driver for these changes.
Debt facilities at the year end remained
at£245.00 million (31 March 2020:
£245.00million), providing £101.00 million
ofheadroom over our current drawings to
support operational flexibility, deliver further
portfolio initiatives and provide increased
scope for new investments. The reduction in
drawings was driven by the receipt from the
sale of 30 Lombard St, EC3 (£70.06 million),
offset by the purchase of Willoughby Rd,
Bracknell (£10.66 million), capex on the
portfolio of £6.71 million and paid dividends
of£6.79 million.
Dividends
The final dividend of 5.5 pence per share
(31 March 2020: 4.4 pps) will be paid on
22 July 2021 to those on the register as
at28 May 2021. With the interim dividend
of2.8pence per share, this takes the total
dividend for the year to 8.3 pence per
share(31 March 2020: 7.2 pps), an increase
of15.3% on the previous year.
As a REIT, the Company is required to
distribute at least 90.0% of rental income
profits arising each financial year by way
ofaProperty Income Distribution (“PID”).
Aftertaking into account allowable costs
thefinal dividend will be paid as an ordinary
dividend rather than a PID.
Financial risks
The financial risks are documented in the
principal risks and uncertainty section of
theStrategic Report on page 47.
Signed on behalf of the Board of Directors
T. Elliott
Property Director and Head of Sustainability
17 May 2021
G. Salmon
Chief Financial Officer
17 May 2021
The ratio of net debt to portfolio value
(LTV) atthe year end was 32.4%
(31 March 2020: 37.6%).
Net cash inflow from operating activities was
£7.43 million (31 March 2020: inflow £6.81
million) and interest cover based on adjusted
profit plus finance costs as a ratio to finance
costs was 2.49x (31 March 2020: 2.28x).
As a REIT, the Company is tax exempt in
respect of qualifying capital gains and
qualifying rental income, which covers the
majority of the Company’s activities. However
the sale of 30 Lombard St, EC3, was within
three years of practical completion and
therefore triggered a capital gains tax charge
of £1.26 million under REIT regulations. This
was estimated in the prior year at £1.39
million, and finalised this year.
Defined benefit pension scheme
Under the application of accounting standard
IAS19, the Company’s pension deficit slightly
increased over the period from £2.10 million
to £2.18 million.
A triennial valuation was completed for the
period to 31 March 2020, which shows a
funding level of 77.8% on a SFO (Statutory
Funding Objective) valuation basis.
Theprevious triennial valuation showed
afunding level of 87.5% on a SFO valuation
basis. As a result of this valuation, the
company will continue the annual cash
contribution to the scheme of £0.24 million.
The scheme was closed to new entrants
inthe 1980’s, and now consists of six
pensioners and no active members.
Share buy-back programme
The buy-back programme commenced on
8 March 2021. The Board set the total size
ofthe programme at up to £10.00 million, or
approximately 5% of the Company’s issued
ordinary share capital. As at 31 March 2021,
538,542 shares had been purchased
bythecompany at a cost of £1.15 million.
Thereported IFRS Basic NAV is 309 pps,
however this equates to 307 pps prior
tothebuyback and can therefore be
consideredNAV accretive.
Governance Financial Statements
29
Strategic Report
Top five
Assets
The top five assets
represent 36.0%
of the portfolio.
Prospero, Redhill
Freehold BREEAM ‘excellent’ office
building developed by McKay in 2016.
50,370 sq ft
Mille, Brentford
Landmark freehold multi-let
office on the ‘Golden Mile’.
96,700 sq ft
Portsoken House, EC3
Prominent leasehold office building on
the eastern edge of the City of London.
49,570 sq ft
Swan Court, SW19
Prime office freehold in Wimbledon,
originally developed by McKay in 2006.
57,500 sq ft
Theale Logistics Park,
Reading
Industrial and logistics freehold
BREEAM ‘excellent’ warehouse
developed by McKay in 2020 and fully
let to Amazon.
135,095 sq ft
See more on pages 14
McKay Securities Plc
Annual Report and Financial Statements 2021
30
Key
Performance
Indicators
Financial KPIs
Portfolio capital return (capital)
(“PCR”) (%) (IFRS)
17 18 19 20 21
0.3
-4.2
7.4
1.4
1.7
11.4
-5
%
15
%
Description
The annual valuation and realised surpluses from the
Company’s investment portfolio expressed as a percentage
return on the valuation at the beginning of the year, adjusted
foracquisitions and capital expenditure.
Performance
Negative returns as a result of the Covid-19 environment
Link to strategy:
01
02
03
Total portfolio return (capital and
income) (“TPR”) (%)
17 18 19 20 21
0.5
12.3
5.4
6.8
15.9
0
%
20
%
4.7
Description
The portfolio capital return and net rental income from
investment properties for the year expressed as a percentage
return on the valuation at the beginning of the year, adjusted
foracquisitions and capital expenditure.
Performance
Flat overall returns with positive income return offset by
negative capital return
Link to strategy:
01
02
03
EPRA NTA value return
(“NAV”) (%)
17 18 19 20 21
3.2
-3.8
9.4
4.4
3.6
14.7
-5
%
25
%
Description
The growth in adjusted net asset value per ordinary share
plusdividends reinvested per ordinary share expressed
asapercentage of the adjusted net asset value per share
atthebeginning of the year.
Performance
Negative returns as a result of the Covid-19 environment
Link to strategy:
01
02
03
Total shareholder return
(“TSR”) (%)
17 18 19 20 21
-30
%
50%
-22.6
-8.6
36.2
27.3
-11.3
Description
The growth in the value of an ordinary share plus dividends
reinvested during the year expressed as a percentage of
theshare price at the beginning of the year.
Performance
The post-lockdown response has driven the share price upward
Link to strategy:
01
02
03
Strategic Report
Governance Financial Statements
31
Non-financial KPIs
ESG: GRESB score (%)
17 18 19 20 21
0
100
75
77
62
68
65
Definition
GRESB assess and benchmarks the environmental, social and
governance (“ESG”) performance of real estate assets. The
GRESB Real Estate Assessment is the investor-driven global
ESG benchmark and reporting framework for listed property
companies, private property funds, developers and investors
that invest directly in real estate.
Performance
Over the past eight years of submitting to the GRESB Real
EstateESG Benchmark we have seen steady improvement
inour scores from scoring 37% in 2014, to 77% in 2021, our
highest score to date. This year’s highest score also saw the
achievement of a 4 star rating for the first time, demonstrating
thebusiness’s clear commitment to the sustainability agenda.
We can attribute this improvement in such a challenging year
toboth the ongoing engagement with our tenants and wider
work the team untertakes to embed sustainability into the core
ofour business.
Link to strategy:
01
02
03
Portfolio carbon footprint (tonnes
of CO
2
e)
17 18 19 20 21
1,438
2,401
2,042
2,592
0%
4,000
1,862
Definition
The portfolio carbon footprint is based on landlord-controlled
energy consumption. The figures are calculated on a like-for like
basis of the five-year period using UK Government Emissions
Conversion Factors for Greenhouse Gas Company Reporting.
Performance
Like-for-like location based carbon emissions over the past five
years have decreased from 2,592 tonnes in 2016/17 to 1,438
tonnes in 2020/21. This large reduction of 44.5% is due to both
the ongoing energy efficiency measures being implemented
atour assets and the ongoing decarbonisation of the grid.
Location based emissions are still tracked to ensure continued
improvement in energy efficiency at our assets even though
they are all on renewable electricity tariffs.
Link to strategy:
01
02
03
McKay Securities Plc
Annual Report and Financial Statements 2021
32
Five-year summary
Financial measure
2021 2020 2019 2018 2017
Gross rental income (£’000) 24,625 25,164 21,608 21,844 20,790
Net rental income (£’000) 21,634 21,981 19,906 20,453 19,871
(Loss)/profit before taxation (£’000) (16,583) 9,487 13,190 43,443 17,594
Adjusted profit before taxation (£’000)
1
9,959 9,727 9,272 9,067 8,605
Investment properties (£’000) 437,900 510,000 482,700 460,150 429,915
Loans and borrowings (£’000)
(141,369)
(190,505) (163,176) (144,598) (134,100)
Total equity (£’000) 289,902 309,166 311,083 306,440 270,792
Ordinary dividends per share (pence) 8.3 7. 2 10.2 10.0 9.0
(Loss)/earnings per share – basic (pence) (17.5) 8.6 14.0 46.3 18.8
Earnings per share – adjusted basic (pence)
1
10.6
10.3 9.9 9.7 9.2
Net asset value per share (pence) 309 328 331 326 289
EPRA NTA/NAV per share (pence)
1
309 329 326 322 303
Interest cover 2.5 2.2 2.1 2.0 2.0
Loan to value 33 38 33 32 32
1. See note 4 of the Financial Statements for APMs .
Five-year
Summary
Strategic Report
Governance Financial Statements
33
EPRA Metrics
and Update
EPRA Metric Rationale FY21 FY20
EPRA Earnings
(pence per share)
Measure of a company’s underlying operating
results and an indication of the extent to which
current dividend payments are supported
by earnings.
10.2 10.6
EPR A NTA
(pence per share)
Reflects a company’s tangible assets values
andassumes that entities buy and sell assets,
thereby crystallising certain levels of unavoidable
deferred tax liability.
309 329
EPRA NRV
(pence per share)
Provides stakeholders the value required to
rebuild the entity and assumes that no selling
ofassets takes place.
309 329
EPRA NDV
(pence per share)
Provides stakeholders with the value under
anorderly sale of business scenario, where
deferred tax, financial instruments and certain
other adjustments are calculated to the full extent
of their liability, net of any resulting tax.
309 327
EPRA NIY
A comparable measure for portfolio valuations,
which should make it easier for investors to judge
themselves how the valuation of portfolio X
compares with portfolio Y.
4.5% 3.8%
EPRA ‘topped-up’ NIY
Incorporates an adjustment to the EPRA NIY
inrespect of the expiration of rent-free periods
(or other unexpired lease incentives such
asdiscounted rent periods and step rents).
5.2% 5.2%
EPRA Vacancy Rate
A ‘pure’ (%) measure of investment property
space that is vacant, based on estimated
rentalvalue.
14.6% 11.3%
EPRA Cost Ratios
(includingvacant
property costs)
A key measure to enable meaningful
measurement of the changes in a company’s
operating costs. Companies are encouraged
touse the EPRA Cost Ratios as a baseline
toprovide additional disclosures, where
appropriate, on costs in the context of their
ownbusiness model.
31.8% 34.3%
(excluding vacant
property costs)
25.9% 25.3%
New EPRA Net Asset Value metrics
Over the last decade, the business model of many property
companies has moved from long-term passive asset owners
intoactive asset managers and capital allocators. As such,
morethan 16 years after the first introduction of the EPRA
BestPractices Recommendations (“BPR”) Guidelines, a
reviewof its main KPI was performed.
This has resulted in the replacement of EPRA NAV and EPRA
NNNAV with three new Net Asset Valuation metrics that have
been introduced with the October 2019 EPRA BPR Guidelines
and are applicable to McKay for the first time this financial year.
Abridge between the historic and new NAV metrics can be found
on page 127 of this report.
New scoring methodology
In November 2019, EPRA’s Board of Directors decided to modify
the methodology of the EPRA BPR survey to focus on stricter
compliance. Not disclosing a KPI’s calculation will now result
inazero score for that KPI.
Following on from this announcement we set out all EPRA
metrics below, withsupporting calculations on pages 126 to 128
of this report.
McKay Securities Plc
Annual Report and Financial Statements 2021
34
ESG Highlights
During the year to 31 March 2021, we continued to build on our strong track record of sustainability
achievements, despite the challenges posed by Covid-19. We are particularly proud to report that:
• Our score in the 2020 Global Real
Estate Sustainability Benchmark
(“GRESB”) improved from 75 to 77,
allowing us to achieve a 4-star rating for
the first time, and placing us in the top
40% of the reporting entities
• Landlord-controlled energy
consumption decreased by 16.4%
on a like-for-like basis compared
toournew baseline year 2019/20
• Landlord-controlled like-for-like
carbon emissions are down by 22%
against our new baseline year of
2019/20
• Increased utility data coverage has
been achieved across the board, with a
particular focus on tenant energy,
GHGemissions and water use
• Measures have been put in place to
ensure the continuity of our 100%
zero-carbon electricity procurement
status when new assets are acquired
whilst we continue to seek ways to further
reduce carbon at our developments
• We continue to support health and
wellbeing at our sites and secured
mental health first aid training for
building staff in 2020
Our sustainability advisor, JLL, continues to provide ongoing support to implement our strategy and reviews progress
madeagainst targets on a quarterly basis.
In our Sustainability Strategy Framework outlined on the opposite page, we set out our three long-term priorities
with corresponding material risks, opportunities and objectives aligned to the UN Sustainable Development Goals.
We set out our performance against the corresponding targets for the year and these can also be found on the ESG
section of our website.
Sustainability Review
“ Across our portfolio we are actively
seeking ways to support the shift to a
low-carbon built environment while
continuing to support our customers
in these challenging times by providing
them with well-managed, healthy and
productive spaces.”
Tom Elliott MRICS
Property Director and Head of Sustainability
Our sustainability vision and strategic framework
aims to ensure that our business is future-proofed,
resilient and responsive to changing stakeholder
expectations. It is fully aligned to our corporate
vision, mission and purpose and centred on the
delivery of ten objectives aligned to our three
long-term ESG priorities:
Environment
Providing low-carbon, resource-efficient
and healthy buildings (E)
Social
Being a customer-focused
and flexible landlord (S)
Governance
Operating as a progressive and
transparent business (G)
The Right Choice for a Sustainable Business.
Strategic Report
Governance Financial Statements
35
Long-term Priorities
Material risks and opportunities
Objectives
2030 UN Sustainable Development Goals
• Accelerated building obsolescence
without climate adaptation to a
low-energy and low-carbon outlook
• Buildings more attractive to occupiers
with improved building health,
wellbeing and productivity integral
todesign and management
• High running costs with poor waste
and resource management
• High levels of building accreditations
tohelp improve sustainability
performance across multiple metrics
• Actively participate in the transition
towards a low-carbon economy
byincreasing our assets’ energy
efficiency, generating and procuring
renewable sources of energy
andproviding infrastructure for
electricvehicles
• Pursue a circular approach to resource
use that reduces construction and
fit-out costs, increases the flexibility
ofour buildings, benefits local
communities, reduces operational
costs and reduces environmental
impacts from waste
• Put health at the forefront of our property
development and management strategy
to help our customers’ businesses
prosper and the people using our
buildings to feel fit and well
• Financial and representational benefit
of high levels of occupier attraction,
satisfaction and retention
• Improve market and occupier
awareness of positive portfolio
andbuilding credentials
• Continued technological innovation
toimprove occupier experience
• Social and commercial benefits of
community inclusivity and wellbeing
asa local business
• Provide outstanding customer service
by being an approachable, responsive
and proactive landlord
• Invest in digital infrastructure that
enables our customers to be better
connected, more productive and
havea lower environmental impact
• Seek to ensure that our assets
supportmodern workplace
requirements and continue to
engageour existing customers
• Identify opportunities to support
thelocal communities around our
assets, co-creating places where
people and business can thrive
• The importance and appeal to
allstakeholders of transparent
compliance with the highest
standardsof governance guidelines
• Increasing pressure on investors
toonly consider companies that
candemonstrate delivery of ESG
commitments
• Improved portfolio resilience with
athorough and integrated approach
torisk management, including climate
and health and safety
• Business and employee benefits
fromhigh levels of engagement,
wellbeing and equality
• Communicate clearly and directly
withour stakeholders and maintain
ourculture of high levels of corporate
governance
• Monitor and report transparently
onour sustainable business
performance and KPIs linked to
eachof our long-term priorities.
Maintain our position in theGRESB
• Protect and enhance current and
future value of our assets and our
business by anticipating and
responding to evolving risks, including
environmental and social trends
03
Governance:
A progressive &
transparent business
Upholding high standards of
corporate governance, managing
and disclosing sustainability risk
and unlocking sustainable value
02
Social:
A customer-focused
and flexible landlord
Supporting our local communities
and our occupiers’ sustainability
goals, and creating places where
businesses and people can thrive
01
Environment:
Low-carbon, resource-
efficient & healthy buildings
Focusing on long-term sustainability
by creating low-carbon, resource-
ecient and healthy buildings
McKay Securities Plc
Annual Report and Financial Statements 2021
36
2019/20 2020/21
0
1,000
2,000
1,880
1,460
Environment
Low-carbon, resource-efficient and healthy buildings
It has now been six years since we committed to achieving better sustainability outcomes in relation
to how our properties are operated, developed and refurbished. We continue to improve on the
portfolio’s resource eciency, waste production and GHG emissions and in this way we are actively
supporting the shift towards a more sustainable built environment, beneficial to occupiers, investors
and wider-society. We set ourselves 14 targets to deliver low-carbon, resource-ecient and healthy
buildings for the year to 31 March 2021, of which 93% were fully achieved.
81%
absolute reduction
in carbon emissions
since 2016/17
4
properties rated
BREEAM ‘Excellent’
or ‘Outstanding’
Environmental performance
• Reduction in landlord-controlled,
like-for-like energy consumption
by16.4% against 2019/20
• Renewable electricity contract in place
which has ensured the continuity of
our100% zero-carbon electricity
procurement status as soon as
possible when new assets areacquired
Electric vehicle charging
• Currently in the process of reviewing
electric vehicle charging infrastructure
at Swan Court, 329 Bracknell,
PegasusPlace and Sopwith Drive
tohelp our occupiers in the transition
toa low-carbon economy
Like-for-like Carbon Emissions –
location-based (CO
2
e)
Like-for-like Energy Consumption (kWh)
EPC review and strategy
• Undertaken a full review of the Energy
Performance Certificates across
ourportfolio and identified energy
efficiency upgrade opportunities as
well as climate adaptation measures
toconsider
IEQ sensor project
• We are currently in the process of
trialling indoor environmental quality
sensors measuring air quality and
thermal comfort within our own offices
and in a pilot building in our portfolio.
We hope to then roll out the monitors
across our portfolio to ensure we are
providing our occupiers with an
optimised workplace environment
2019/20 2020/21
Electricity Natural Gas
0
250,000
500,000
750,000
10,000,000
2,851,692
5,647,743
2,484,832
4,623,180
Total portfolio energy and carbon footprint
FY16/17 FY17/18 FY18/19 FY19/20 FY20/21
% Change
against
FY16/17
% Change
against
FY19/20
Electricity (kWh) 6,307,689 6,205,282 7,022,083 7,296,264 7,220,294 14.47% -1.04%
Natural Gas (kWh) 3,384,904 3,647,458 2,593,505 3,272,902 3,481,742 2.86% 6.38%
GHG (location-based)* 3,057 2,734 2,369 2,357 2,256 -26.21% -4.30%
GHG (market -based)* 3,057 2,734 478 572 594 -80.57% 3.85%
Energy (kWh) 9,692,593 9, 852,740 9,615,588 10,569,166 10,702,036 10.41% 1.26%
Intensity (energy / floor area) 6.73 6.90 6.73 7.79 7. 21 7.04% -7.49%
* Scope 3 business travel not included
Sustainability Review continued
Strategic Report
Governance Financial Statements
37
Sources of greenhouse gas emissions
2020/21
tonnes of CO
2
e
(location-based
calculation)
1
2020/21
tonnes of CO
2
e
(market-based
calculation)
2
2019/20
tonnes of CO
2
e
(location-based
calculation)
1
2019/20
tonnes of CO
2
e
(market-based
calculation)
2
Scope 1
Energy Gas (EPRA sBPR fuels – Abs) 594 594 572 572
Fugitive
emissions
Refrigerant emissions De minimis De minimis De minimis De minimis
Scope 2
Energy Landlord-controlled electricity (EPRA
sBPR Elec – Abs)
951 0 1,631 0
Scope 3
Energy Transmission and distribution losses
(EPRA sBPR 3.6)
132 0 160 0
Tenant
Energy
Landlord-obtained energy sub-
metered to tenants (EPRA sBPR 3.6)
578 0 – 0
Energy Emissions from employee business
travel for which the Company does not
own or control
4 4 8 8
Total 2,259 598 2,370 580
Intensity
tCO
2
e/$m Adjusted profit before tax
(Scopes 1 and 2 only)
155.22 59.68 226.36 58.78
1. For the ‘location-based’ method of emissions calculations, standard emissions factors from the UK Government Emissions Conversion Factors for Greenhouse Gas Company
Reporting 2020 were used.
2. For the ‘market-based’ method, the Company’s contractual instruments for the purchase of certified renewable electricity were accounted for, resulting in a significant reduction in
the Company’s carbon footprint in practice.
Data qualifying notes:
• This is the Company’s eighth year of disclosure under the Mandatory Greenhouse Gas Emissions Reporting regulations and second under the recently introduced Streamlined
Energy and Carbon Reporting regulations.
• The Company’s emissions for the year to March 2020 have been restated due to Q4 2019/20 data not being available at the time of reporting in 2020; this final period of data is
estimated in every Annual Report.
• This statement has been prepared in line with the main requirements of the GHG Protocol Corporate Accounting and Reporting Standard and ISO 14064-1:2006.
• Within Scope 1 emissions, refrigerant-related emissions for the period were de minimis.
• Scope 2 dual reporting is undertaken, which discloses one Scope 2 emission figure according to a location-based method and another according to a market-based method.
• Emissions from employee business travel (by vehicle) have been calculated and reported under Scope 3 emissions for the first time. Emissions have been calculated on a distance
travelled basis, where the relevant vehicle emissions factor has been applied to expensed mileage.
• Scope 3 Landlord-obtained energy sub-metered to tenants, is calculated through submeter recharge. These emissions are not included under Scope 2 to prevent double counting.
2020/21 is the first year this separation has been demonstrated.
• An operational control consolidation approach has been adopted.
2019/20 2020/21
0
5,000
10,000
15,000
20,000
25,000
23,641
17,760
FY 19/20 FY 20/21
0%
25%
50%
75%
100%
56%
38.59%
44%
61.41%
FY 19/20
Waste
(tonnes)
FY 20/21
0
40
80
120
160
64.230
4.821
37.164
20.523
2.835
88.948
61.41%
Total Recycled
Total Non-Recycled
Incineration (with energy recovery) Facility
Recycling Facility
Composting
Target Non-Recycled
2019/20 2020/21
0
5,000
10,000
15,000
20,000
25,000
23,641
17,760
FY 19/20 FY 20/21
0%
25%
50%
75%
100%
56%
38.59%
44%
61.41%
FY 19/20
Waste
(tonnes)
FY 20/21
0
40
80
120
160
64.230
4.821
37.164
20.523
2.835
88.948
61.41%
Total Recycled
Total Non-Recycled
Incineration (with energy recovery) Facility
Recycling Facility
Composting
Target Non-Recycled
2019/20 2020/21
0
5,000
10,000
15,000
20,000
25,000
23,641
17,760
FY 19/20 FY 20/21
0%
25%
50%
75%
100%
56%
38.59%
44%
61.41%
FY 19/20
Waste
(tonnes)
FY 20/21
0
40
80
120
160
64.230
4.821
37.164
20.523
2.835
88.948
61.41%
Total Recycled
Total Non-Recycled
Incineration (with energy recovery) Facility
Recycling Facility
Composting
Target Non-Recycled
Water Like-for-like
Consumption (m
3
)
Like-for-like Waste
Recycling Rate (%)
Like-for-like Total Waste
by Disposal Routes (kg)
McKay Securities Plc
Annual Report and Financial Statements 2021
38
Case study
McKay’s net zero carbon ambition
One of the three core objectives of our sustainability strategy is to focus on creating low-carbon, resource-efficient and healthy
buildings, and we have made significant progress already.
Taking our objective one step further, from 1 April 2021 we have aligned our approach on carbon reductions to the UK’s net zero
carbon goal, aiming to achieve a net zero carbon portfolio well in advance of the UK’s 2050 ambition. We will continue to report
on our progress against this goal each year.
The specifics of our high-level pathway to a net zero carbon portfolio are laid out below.
Developments and Major Refurbishments
Alignment with the RIBA Climate Challenge benchmark
From 2021 onwards, for any new developments or major
refurbishments entering planning, embodied carbon will be
minimised to the furthest extent feasible using industry - accepted
and practical measures and materials available at that point in time.
We will aim to align with the RIBA Climate Challenge benchmark
which starts at <800KgCO
2
e/m
2
in 2020 and progressively
reduces to <500KgCO
2
e/m
2
in 2030.
Design and process innovations
We will seek continuous improvements in building design
through the advice from our contractors and consultants such
that each development embraces architectural and
construction innovations.
Certification
We will monitor the situation as it evolves, but anticipate that
every development will be aligned to the most appropriate
carbon benchmark or certification available at that time.
Achieving net zero in operation
All new developments will target zero carbon in operation with the
goal of achieving this by 2030 – i.e. maximising onsite generation,
incorporating low / zero carbon technologies and able to operate
solely on carbon- free or carbon-neutral forms of power and fuel;
this will reduce the need for McKay and our occupiers to purchase
emissions offsets to cover the operations of those buildings.
Standing Portfolio and Acquisitions
Upgrades to asset ratings
In addition to upgrading our assets’ EPC ratings over time in
line with our planned programme of improvement works,
and investigate NABERS Certification as this matures.
Reductions in landlord- controlled energy consumption
We will seek to continue to reduce the operational energy
consumption of our portfolio to minimise running costs for our
occupiers, and will aim to align our assets’ energy performance
with the UKGBC ‘Paris Proof Targets’ where asset type specific
targets are available.
Implementing zero- carbon energy technology
Landlord-controlled electricity is already supplied via
zero- carbon tariffs and we will ensure this procured renewable
energy demonstrates additionality in line with the principles of
NZC. Our next goal is to significantly reduce – ideally eliminate –
landlord- controlled gas consumption and associated Scope 1
carbon emissions from our buildings by 2040, by replacing
gas-fuelled HVAC systems with electrical or other zero carbon
systems whenever lease events allow for minimal disruption.
Working with our occupiers
We will engage with each current and new occupier across our
portfolio over the coming years and work with them on practical
solutions to reduce or eliminate their own carbon footprints over time.
We will review progress on an annual basis to ensure that we stay
on track to reach a zero carbon portfolio well before 2050.
Environment
Sustainability Review continued
Bracknell 329
Strategic Report
Governance Financial Statements
39
Targets
Low-carbon, resource-efficient and healthy buildings Target Status
Actively participate in the transition towards a low-carbon economy by increasing our assets’ energy efficiency,
generating and procuring renewable sources of energy and providing infrastructure for electric vehicles
Ensure the electricity procured for any new asset acquired in the year ended 31 March 2021 period is
shifted to a renewable electricity tariff by the end of the year, to maintain McKay’s 100% zero-carbon
electricity procurement status
Achieved
Electricity: Achieve a year-on-year 4% reduction in like-for-like landlord controlled electricity consumption
and work towards 20% reduction in carbon emissions by the year ended 31 March 2025 from the year
ended 31 March 2020
Achieved
Gas: Achieve a year-on-year 4% reduction in like-for-like landlord controlled gas consumption and work
towards 20% reduction in carbon emissions by the year ended 31 March 2025 from the year ended
31 March 2020
Achieved
Develop a long-term approach for decarbonising new developments and further reducing the carbon
footprints of existing assets
Achieved
Review all EPC ratings, energy efficiency measures, and climate adaptation measures across the portfolio,
and develop upgrade plans where needed
Achieved
Identify a development/refurbishment project (if a suitable opportunity arises) where McKay could
seek to achieve net zero carbon (as a pilot) before the year ended 31 March 2022
Achieved
Continue to ensure that all new developments and major refurbishments achieve minimum BREEAM
‘Excellent’ rating and an EPC rating of at least B
Achieved
Conduct a feasibility study for installing electric vehicle charging infrastructure at selected assets
Achieved
Pursue a circular approach to resource use that reduces construction and fit-out costs, increases the flexibility
of our buildings, benefits local communities, reduces operational costs and reduces environmental impacts
from waste
Waste: Increase the recycling rate for the portfolio by 5% across properties for which the Group
hasmanagement control, and work towards a 25% increase by 2024/25 from the year ended
31 March 2025 from the year ended 31 March 2020
Not achieved
Water: Achieve a year-on-year 4% reduction in like-for-like landlord controlled water consumption,
and work towards 20% reduction by the year ended 31 March 2025 from the year ended 31 March 2020
Achieved
Proceed with the implementation of water-saving technologies in a minimum of two assets
Achieved
Put health at the forefront of our property development and management strategy to help our customers’
businesses prosper and the people using our buildings to feel fit and well
Install indoor environmental quality sensors in a trial space to monitor the performance of both the
spaceand the sensors
Achieved
Undertake a post occupancy evaluation at a suitable asset, to identify the extent to which occupier
experience matches with the design intent
Achieved
McKay employees to tour an exemplary environmentally sustainable and healthy building, for inspiration
and knowledge-building
Not achieved
McKay Securities Plc
Annual Report and Financial Statements 2021
40
Serving our customers to the best of our ability is at the
coreof our business and in the year to 31 March 2021 we
achieved 100% of our annual targets in relation to enhancing
customer service and delivering high-quality workplaces.
Case study
Occupier survey
We directly manage all our assets and ‘The McKay Way’ documents our
promise to create an environment that supports our occupiers’ businesses.
We believe that maintaining strong relationships with our occupiers is key
toa successful and sustainable partnership. As part of our progressive
customer service commitment, we undertook another occupier satisfaction
survey in October 2020. Each of our occupiers was invited to take part in an
online questionnaire. This was the third occupier survey, which enabled us
to devise a questionnaire well-suited to providing meaningful answers. The
purpose of the survey was to give a voice to our occupiers, to listen and to
understand where we can improve.
The results of the occupier survey showed an overall increase in
performance and occupier satisfaction between 2019 and 2020.
Keystatistics showed:
• 90% of occupiers are satisfied to very satisfied with their direct
relationship with the Company (10% neutral);
• 89% of occupiers are satisfied to very satisfied with our response
toCovid-19;
• 88% said we had good to exceptional understanding of occupier
business needs; and
• 78% said they were likely to recommend us as a landlord.
While we believe these results are impressive, we are always striving to
improve. Our Occupier Service Team undertook a detailed review of the
results and contacted occupiers that had indicated there was room for
improvement. We engaged tenants directly in this way to see how we could
create a positive environment to further support their business growth.
As part of the survey, we also took the opportunity to link the responses with
our commitment to the community. For each of the survey responses
received we pledged a donation to charity. One of our employees suggested
supporting the charity MIND, an organisation that supports mental health,
which we felt was fitting given the increase in support needed as a result of
Covid-19. We were delighted with the response from our occupiers and due to
a government matching scheme, the Company’s total donation to MIND’s
‘The Big Give’ amounted to £3,000.
2020/21 has been a difficult year for all of us,
including the need to adapt to new ways of
working, almost overnight. We have been
committed to supporting our customers to
navigate the challenges brought about by
thepandemic. Through focusing on health
andwellbeing, alongside exploring the
deployment of smart building technology
acrossour portfolios, we are ensuring that
ourassets are both people-centric and
high-performance spaces.
Occupier survey and action plan
• In 2020 we issued a survey to our occupiers
which provided us with valuable feedback on
occupiers’ perceptions of us as a landlord and
their experiences of the properties in which
they occupy
• Overall, responses demonstrated a general
increase in performance and satisfaction
when compared to 2019 and 88% of
respondents depict our understanding of their
business as ranging from good to exceptional
• Covid-19 specific questions were asked and
89% of respondents were satisfied with our
response to the pandemic
• Feedback was requested and received on
issues such as natural light, acoustics, design
and productivity, and an action plan was
subsequently developed, with a view to
bolstering performance in these areas
Mental health first aid training
• Mental health first aid training sessions have
been organised for front-of-house and occupier
services teams at all multi-let properties
• Our on-site teams at all of these locations were
encouraged to attend this training, in efforts to
promote health and wellbeing for all on site
Charity initiatives and contributions
• Despite the challenges posed by Covid-19 we
remained committed to our community partners
– not-for-profit social enterprise Ethical Reading
and Reading University’s Pathways to Property
programme. We understand the importance
of fostering young talent, and senior leaders
continue to have a productive mentoring
relationship with Reading University students
• We continue to be a supporter of the Land Aid
charity and this year charitable contributions
included MIND, a charity which has been
dedicated to tackling mental health issues
since 1946, NHS Charities Together and
alocal hospice
Social
Sustainability Review continued
A customer-focused and flexible landlord
Strategic Report
Governance Financial Statements
41
Targets
A customer-focused and flexible landlord Target Status
Provide outstanding customer service by being an approachable, responsive and proactive landlord
Carry out an occupier survey in the year to 31 March 2021, including questions on key sustainability issues
Achieved
Seek to ensure that our assets support modern workplace requirements and continue to engage our
existingcustomers
Implement a follow-up action plan based on the findings of the 31 March 2020 occupier survey
Achieved
Organise a mental health first aid training session for site teams and invite occupiers
Achieved
Identify opportunities to support the resilience of local communities around our assets, co-creating
placeswhere people and business can thrive
Continue to support identified charity partners throughout the year. In light of Covid-19, consider how
we can work with charity partners to help solve challenges created by the pandemic and enhance local
community health and economic resilience going forward
Achieved
In relevant tender exercises, require suppliers to provide a Living Wage option
Achieved
Invest in digital infrastructure that enables our customers to be better connected, more productive
and have a lower environmental impact
Document our approach and standards for digital infrastructure and smart building technologies across
the portfolio, to share with existing and potential tenants
Achieved
Portsoken House, EC3
McKay Securities Plc
Annual Report and Financial Statements 2021
42
Over the past year we’ve continued to strengthen our
approach to sustainability performance management
and disclosure, materially improving data coverage
across our assets against a number of KPIs.
We’ve also made good progress towards integrating
the requirements of the Task Force on Climate-related
Financial Disclosures (“TCFD”) into our corporate
governance, risk management and reporting, with
this year being the first time we have integrated a
TCFD statement into our Annual Report.
For this year end the TCFD requirements are not
mandatory, however we have included additional
disclosure to enhance transparency ahead of it
becoming eective next year.
Case study
Working Practices Workshop
– ‘Lockdown Lessons’
Building on our commitment to increase employee engagement,
inSeptember 2020 the CEO invited the workforce to an internal
workshop entitled ‘Lockdown Lessons’. As part of the Company’s
response to Covid-19 and the first national lockdown, the key aims
ofthe workshop were to:
• Enable the team to reflect on their own personal experiences
throughout the first lockdown
• Discuss a wide range of ideas from staff welfare to improving
business efficiency
• Consider what outcomes could be taken forward to a post-Covid age
• Feed back the views of the workforce to the Board
• At the end of the workshop, the groups shared their observations,
ideas and conclusions. These included, butwere not limited to:
• Recognition that there had been a wide range of
experiences throughout lockdown and that all staff felt
theyhad been productive and had remained positive
• Despite widespread working from home, McKay’s IT
systems remained effective, albeit personal contact
hadbeen missed and team spirit affected
• Increased flexible working could enhance work/life balance
• Employees felt safe in a Covid-safe work environment,
however, it was considered essential that familiarity didn’t
lead to complacency and that standards were maintained
orimproved where necessary
Outputs from the session fed into new working practices for our sta,
including proposed flexible working and improved IT support and training.
Since the workshop, we have been through two further lockdownsand
the outcomes of the session have given our stafurther confidence
and experience to work their way throughsuch challenges.
We set ourselves seven targets to advance our Progressive
and Transparent Business objectives for the year ended
31 March 2021, all of which have been fully achieved.
Moreover, another year of improving our Global Real Estate
Sustainability Benchmark (“GRESB”) rating provides evidence
of the ongoing strength and validity of our approach.
GRESB performance
• Achieved a 4-star rating in 2020, increasing our GRESB
score from 75 to 77
• Continued to expand our collection of occupier
environmental data; contributing to higher scoring
in the GRESB Performance Indicator section
Responsible procurement
• The year to March 2021 saw an update of our
Responsible Procurement policy.The policy manages
theCompany’s environmental and social risks in its
supply chain and is supported by a set of minimum
sustainability standards for contractors
• As part of the policy, we have committed to monitoring
theperformance of suppliers and their adherence to
theCompany’s policies. We therefore conducted a
Responsible Procurement audit of a selection of our top
suppliers to ensure that our suppliers were maintaining
their performance against our standards
Climate risk management (see our TCFD
statement on page 44)
Employee engagement and adapting to Covid-19
• Our employees participate in an annual evaluation
process undertaken by their line manager and receive
feedback on current and future objectives
• We understand the importance of continuous
professional development and support all our staff
topursue both on-the-job training and attend external
additional courses and events as required to maintain
andenhance their skills
• All staff are also required to complete yearly training
onanti-bribery, data security and equality & diversity.
Formore information see the Nomination Committee
Report page 62
• We also continue to expand and enhance our
knowledgewith regards to material ESG risks, most
recently through a climate risk CPD session delivered
byour sustainability advisors
• Covid-19 – our employees have risen to the various
challenges they have been presented with through these
unprecedented times and worked flexibly at home with
the support of IT systems and keeping in touch with their
teams through regular remote meetings. See case study
on Working Practices Workshop
• DesNed, Nick Shepherd, held a workforce engagement
meeting with employees in July 2020 and fed their views
back to the Board
Governance
Sustainability Review continued
A progressive and transparent business
Strategic Report
Governance Financial Statements
43
Targets
A progressive and transparent business Target Status
Protect and enhance the value of our assets and future-proof our business by anticipating and responding
toevolving environmental and social trends
Review all asset websites and asset profiles on the corporate website to ensure that sustainability
andhealth and wellbeing features are appropriately incorporated
Achieved
Risk Sub-committee to review the corporate risk register quarterly, including key climate risks
Achieved
Organise a CPD session for employees on climate risk
Achieved
Develop a checklist of climate adaptation measures to review for relevance for each asset development/
refurbishment plan
Achieved
Monitor and report transparently on our sustainable business performance by using KPIs linked to each of our
focus areas, and maintain our position in GRESB
Communicate clearly and directly with our stakeholders and maintain our culture of sound corporate governance
Continue reporting to the Global Real Estate Sustainability Benchmark and maintain performance
relative to 2019
Achieved
Aim to increase data coverage across all aspects, with a particular focus on tenant energy, GHG
emissions and water data
Achieved
Further align future reporting to the TCFD framework, agreeing new metrics to report on in 2020/21
asour approach to climate risk management evolves during this financial year
Achieved
Pegasus Place, Crawley
McKay Securities Plc
Annual Report and Financial Statements 2021
44
Task Force on Climate-related
Financial Disclosures Statement
Governance
Disclosure of
governance on
climate-related risks
and opportunities
Our climate and principal risk review processes have been joined up such that climate risk review is integrated
within the core strategy, with the Board being ultimately responsible for determining the nature and the extent
of the Group’s principal risks. Physical and transitional climate risks are included within the risk register, which
is in turn reviewed by the Risk Sub-committee on a quarterly basis in order to establish which are material to
the Group. The Risk Sub-committee is supported by specialist advisors at JLL on how to assess both
physical and transitional climate risks.
Strategy
Disclosure of actual
and potential impacts
of climate-related risks
and opportunities on
the organisation’s
business, strategy and
financial planning
We have identified that climate-related risks could impact on the Company by reducing:
1. Asset desirability to occupiers due to buildings no longer being fit for purpose, driven by obsolescence
inrelation to location, design or operation.
2. Our ability to dispose of assets, on account of the growing investor focus on climate-related risks.
3. Access to capital and also negatively impacting the firm’s reputation, driven by concerns over how
wellassets are adapted for climate change and how effectively occupiers are positioned in relation
toalow-carbon economy.
We have taken action to increase the resource efficiency of our assets and develop and refurbish properties
to achieve higher sustainability standards. In this way we are actively supporting the shift towards a low-
carbon economy and the circular built environment that offers our occupiers a better quality workplace at a
competitive service cost. The result of this is bolstered occupier and investor confidence in the environmental
performance of our assets. McKay additionally uses climate risk information to inform acquisition and
disposal decisions, and asset business planning to maximise the long-term attractiveness of assets to
themarket and to decrease obsolescence risk.
Risk
Management
Disclosure of the
Company’s process for
identifying, assessing
and managing climate
related risks
Our Board is committed to ensuring that the business is resilient and responsive to changing stakeholder
expectations and future events. The Board is fully supported in all activities relating to this by the Audit & Risk
Committee, Risk Sub-committee and wider management team. The Company is continually improving on its
understanding and assessing the potential impact of physical changes, including extreme weather such as
flooding events and longer-term shifts in climate patterns, as well as the transitional changes in terms of
emissions pricing, costs from adopting lower emission technology, regulation of products, legislation and
consumer behaviour. Our risk register is reviewed on a quarterly basis and updated to keep track of the
changing nature of these risks. Climate risks are assessed and managed in line with best practice guidelines
and this information is then used to inform key business activities in the marketplace.
Metrics and
Targets
Disclosure of metrics
and targets that allow
the Company to assess
and manage climate-
related risks and
opportunities
The metrics that we use to assess all climate-related risks and opportunities are tracked within the corporate
risk management process as outlined above. Material issues and associated objectives are reported publicly
via a number of channels, such as in our Annual Report and yearly ESG Review documents, categorised
under the headings of Environment, Social and Governance. Measures such as those listed under our
Environment heading contribute to the mitigation of climate risks through limiting our environmental impact,
and include the following:
• Reduced landlord-controlled, like-for-like energy consumption by 4% against 2019/20
• New renewable electricity contract in place covering 100% of landlord controlled assets and enabling a
flexible arrangement to accommodate portfolio flux
• Energy reductions anticipated in 2020/21 through the installation of new HVAC systems at four properties
• Integration of climate adaption measures into our development checklist
Despite ambitious targets, we continue to achieve strong progress towards reducing our overall
environmental impact and have reduced like-for-like energy consumption year-on-year since 2017/18
andlike-for-like GHG emissions year-on-year since 2016/17.
Sustainability Review continued
Strategic Report
Governance Financial Statements
45
Principal Risks
and Uncertainties
Risk governance structure
The Board
The Board develops the
Company’s strategic approach
torisk and maintains overall
responsibility for monitoring the
effectiveness of the Company’s
risk management and internal
control systems.
The Audit and
Risk Committee
Membership:
Independent Non-Executive
Directors
The Audit and Risk Committee,
onbehalf of the Board, reviews
theeffectiveness of the Company’s
internal financial control and
internal control risk management
systems.
The Risk
Sub-committee
Membership:
Executive Directors
The Risk Sub-committee maintains
the Company’s risk register,
designs and maintains the
Company’s financial control and
internal risk management systems
and advises on emerging potential
riskexposure.
The Board’s overall strategy is based on a
low/medium risk appetite determined by
an assessment of the prospects within
our chosen real estate markets and
compliance with the stringent
requirements of the REIT regime.
This consistent long-term strategy has
proved to be successful through numerous
property cycles with the inherent risks of
property development and investment
mitigated by internal portfolio management
by professionals with extensive market
experience located at the geographic
centreof the portfolio.
On an individual property basis, risk can
behigh. This is especially the case with
speculative development projects.
However, the risk is carefully assessed,
taking into account financial, physical, legal,
environmental sustainability and future
climate-related impacts.
Any decisions made are not only in respect
of the relevant property, but also on a
portfolio-wide basis.
Decision making is based on an open culture,
with clearly defined terms of reference for
the internal Risk Sub-committee, overseen
by an independent Board. Although
economic conditions within our selected
markets of the South East and London
arebeyond our control, they have proven
tobe more resilient and less volatile through
the regular property cycles than the market
as a whole.
The Company’s strategy of sector and
geographic diversity within these markets
adds value in positive market conditions and
spreads risk in negative market conditions.
An ongoing process for identifying,
evaluating and managing emerging and
principal risks faced by the Company was in
place throughout the year to 31 March 2021,
as evidenced by the Covid-19 review, and up
to the date of approval of the Annual Report
and Financial Statements. Further detail can
be found in the Corporate Governance
Report on page 58.
A robust assessment of the emerging
principal risks facing the Company has been
carried out and the principal risks are listed
on pages 46 to 49.
Low Medium High
Macroeconomic
Financial
Portfolio
Corporate
Risk appetite
The Board’s appetite in respect of the four key areas of risk identified by the Risk Sub-committee
is as follows:
McKay Securities Plc
Annual Report and Financial Statements 2021
46
Principal Risks and Uncertainties continued
Principal risks
and their impact
How risk
is managed
Risk exposure
change inthe year
Macroeconomic environment
Covid-19 impact
Stakeholder health and
wellbeing, economic
recession, negative impact
on rents, capital values and
portfolio performance,
structure changes in
workingpractices.
Continued compliance with government guidance. Developed Covid
compliant measures throughout the business.
Continued investment in IT to ensure operational resilience with closure
ofthe Company’s head oce.
Direct management of the portfolio properties to ensure close
communication with occupiers and continued operational eciency.
Scenario testing to provide headroom guidance to loan covenants.
Market awareness of occupier trends, and commercial flexibility
torespondas appropriate.
Assumptions within the Group’s viability statement have been widened
toinclude the impact of Covid-19 on the business.
Covid-19 is a continuing
risk impacting the
Company and its
stakeholders since the
beginning of March
2020. The impact has
been unprecedented
andis likely to continue
throughout 2021.
Other macro
economic risk
Lack of economic growth
and a recessionary
environment leading to
reduced occupier demand
and higher voids.
Disorderly Brexit damages
the UK economy.
Major climate-related shift
inpolicy and investment
decision making.
Whilst the Board recognises it has limited control over many external risks,
itmonitors economic indicators and tailors delivery of the Company’s
strategy accordingly.
Climate risk is integrated into the updated due diligence process for
purchasing , development, refurbishment and management. These risk
assessments will help ensure existing and new assets at risk of negative
impact are identified and the risk mitigated.
Ensure and communicate to stakeholders high levels of governance
andinform investors of our delivery of ESG commitments. External
sustainability advisor retained to measure, advise and set comprehensive
annual ESGtargets.
Ongoing uncertainty in
relation to the departure
from the EU that could
impact on corporate
decision making and
increased sector risk.
Strategic Report
Governance Financial Statements
47
Principal risks
and their impact
How risk
is managed
Risk exposure
change inthe year
Financial
Interest rate rise
Leading to lower profits.
The Board’s policy is to borrow at both fixed and floating rates of interest. A £65 million fixed facility.
Further hedging remains
under review.
Lack of liquidity
Increasing the cost of
borrowing and the ability to
borrow.
This is managed through a mixture of short and long-term bank facilities
toensure sucient funds are available to cover potential liabilities arising
against projected cashflows.
A £180 million revolving
credit facility secured
inApril 2019 with a
syndicate of lenders
replaced the previous
bilateral facilities and
secures debt facilities
forthe next three years.
Breach of financial
covenants on bank
borrowings
As a result of rental or capital
movement.
Compliance with bank covenants is closely monitored by the Board which
regularly reviews various forecast models to help its financial planning.
Throughout the period
the Company complied
with all such covenants.
Covid-19 continues
toincrease this area
ofrisk exposure.
Major occupier default
Losing a significant occupier
that materially impacts profits.
This is monitored using Dun & Bradstreet checks for new occupiers together
with ongoing credit checks and internal credit control. The Board receives
regular information on rental arrears and rent collection activities.
The impact of Covid-19 has resulted in tighter monitoring of rent collecting
and outstanding rent due. Earlier intervention by asset managers to discuss
occupiers’ situations and development repayment plans has been actioned
where appropriate. The historic Covid impact on rent collection was
managed eectively for the year to 31 March 2021 resulting in 98% collected
or agreed and 2% impaired.
Part of our climate risk assessment process includes a high-level review of
occupier business activities and the risk of impact of carbon/climate policies
on occupier viability.
Ensure our assets are technologically innovative and our occupiers are
aware of the sustainability credentials to help increase tenant retention.
Taxation
REIT non-compliance.
As a REIT, the Company is required to distribute at least 90% of rental
income profits each year. Internal monitoring is in place.
Throughout the period
the Company complied
with the regulations.
Key
Risk exposure in the last year: Link to strategy:
Increased Delivery of development programme
Unchanged Release of portfolio incomepotential bycapturingreversion
Reduced Scope for future growth
McKay Securities Plc
Annual Report and Financial Statements 2021
48
Principal Risks and Uncertainties continued
Principal risks
and their impact
How risk
is managed
Risk exposure
change inthe year
Portfolio
Portfolio strategy
Strategy at odds with
economic conditions and
occupier demand.
The Board continually reviews its strategy against its objectives, taking
into consideration the economic conditions, future climate-related
impacts, the property market cycle and occupier demand.
The Company focuses entirely on the South East and London in
established and proven markets.
An experienced and proven acquisition team with a wide network of
contacts and advisers ensure the Company is well placed to view and
assess potential investment opportunities. The strategy reflects
future-proofing assets to meet demand for low-carbon and climate-
adapted work places.
All investment opportunities are subject to full due diligence procedures
including physical, legal, environmental and sustainability considerations.
Covid-19 has introduced
greater market and
economic uncertainty.
Development/
refurbishment
Delays, overruns or other
contractual disputes leading
to increased costs, delayed
delivery and reduced
profitability.
Failure of contractor.
Construction cost inflation.
Planning constraints.
Not meeting market demand.
The Board is regularly presented with details of capital expenditure and
progress on developments, including appraisals and sensitivity analysis.
Regular appraisals of developments and refurbishments are carried out.
Contractors are assessed for financial stability and historic performance.
Design and build contracts are issued where appropriate; others are fully
designed prior to commencement of works.
The Company continually monitors planning and regulatory reform and
takes advice from external advisers and industry specialists. All new
developments and major refurbishments will target a minimum BREEAM
‘Excellent’ rating and an EPC rating of at least ‘B’ to improve carbon footprint
and maximise occupier appeal.
The newly updated development checklist takes into account climate
adaptation needs and carbon emissions mitigation requirements up to 2030.
Development risk is
limited to ongoing
refurbishments.
Reduction in rental values
Exposure to volatility of
rental values.
Developing, refurbishing and managing the portfolio in order to oer new
and Grade ‘A’ space performing well on environmental matters to attract
and retain quality occupiers.
Actively managing the portfolio, maintaining market awareness of
appropriate rental values alongside lease length and maintaining an
opendialogue and good relationship with occupiers.
Climate risk is integrated into the updated due diligence process for
purchasing, development, refurbishment and management. These
risk assessments will help ensure existing and new assets at risk of
negative rental value impact are identified and the risk mitigated.
Occupier demand in
smaller lot sizes.
Supply constraints in the
Company’s markets have
contributed to improved
rental values.
Covid-19 has increased
the risk of lower rental
values if occupier
demand reduces.
Reduction in capital values
Exposure to volatility of
capital values.
An open market valuation of the Company’s properties is undertaken at the
year end and half year by independent external valuers in accordance with
RICS guidelines and analysed by the Company’s auditors. Valuations are
then reviewed by the Audit and Risk Committee and approved by the Board.
The Company retains a borrowing headroom should there be an overall
decline in capital values.
The Company maintains market awareness of the prospects of positive
andnegative movements in the asset values.
Constant review by management of occupier covenant, lease length
andasset management (including environmental performance) of buildings
to preserve/increase capital values.
Investor appetite and
therefore capital values
may reduce as a result
ofCovid-19.
Strategic Report
Governance Financial Statements
49
Principal risks
and their impact
How risk
is managed
Risk exposure
change inthe year
Corporate
Reputational risk
Adverse publicity/inaccurate
media reporting.
Major incident at a property.
Actions by Directors or sta
including fraud and bribery.
Occupier’s business model
or specific activity negatively
perceived by stakeholders.
McKay performance on
ESG/climate change
negatively perceived by
stakeholders.
The Company retains an external investor and public relations
consultancy. Press releases are approved by the Chief Executive prior
torelease. The Company produces a sta handbook that sets out an
employee code of conduct and other guidelines.
Considered in the lease decision-making process.
The Company has a transparent approach and has made good progress
in managing its ESG risks and opportunities. McKay submits to the Global
Real Estate Sustainability Benchmark (“GRESB”) annually.
No significant main
factors to increase risk.
Legal and regulatory risk
Non-compliance with
regulations and laws
resulting in planning and
project delays, fines and loss
of reputation (including
future climate regulation).
The Company employs experienced sta and external advisers to provide
guidance on regulatory requirements.
The Board approves and adopts the Company’s policies for compliance
with current legislation.
Continued compliance
with regulation.
Retention/recruitment
Failure to retain or attract
keyindividuals could impact
on major decision making
and the future prosperity
ofthe Company.
Reviews are undertaken with sta on a regular basis to maintain a positive
and encouraging working environment. The remuneration package is at
market levels to attract and retain individuals with the skills, knowledge and
experience required for the business.
Sector employment
opportunities remain
constant.
Health and safety
Accidents to employees,
contractors, occupiers
andvisitors to properties
resulting in injury, litigation or
the delay of refurbishment/
redevelopment projects.
The Health and Safety Committee (“HSC”) meets regularly to review the
health and safety risk profile and to implement new management systems
required. These meetings review the Company’s fire risk assessments,
safety inspections, and contractors’ insurance and safe working practices.
The HSC is supported by specialist external advisers.
With Covid-19, the scale of exposure to risk has increased and the
management response across the portfolio is greater.
Continued compliance
with regulation.
IT/cyber
Cyber attack resulting in IT
systems failure.
Anti-virus software and firewalls protect IT systems. Data and programs
areregularly backed up and backups are secured o-site.
Implementation of Company’s business continuity plan. Cyber fraud
insurance is in place.
Increase in global
incidents of this nature.
Business continuity &
terrorism
Business unable to operate
due to operational failure or
unforeseen event.
The business operates a business continuity plan that is reviewed on
aregular basis. In the aftermath of an unforeseen event the plan enables
thebusiness to be operational with minimal disruption.
All buildings have insurance to cover a terrorist incident and loss of rent.
All three Executive Directors generally avoid travelling over longer
distancestogether.
The impact of Covid-19
triggered the business
continuity plan. The
Company shut the Reading
oce and operational
continuity was maintained
with allemployees able
towork remotely.
Key
Risk exposure in the last year: Link to strategy:
Increased Delivery of development programme
Unchanged Release of portfolio incomepotential bycapturingreversion
Reduced Scope for future growth
McKay Securities Plc
Annual Report and Financial Statements 2021
50
Viability
Statement
In accordance with
Provision 31 of the
2018 UK Corporate
Governance Code
theDirectors have
assessed the viability
of the Company
beyond the 12-month
period required by
thegoing concern
provision.
Principal risks
The principal risks to the continued operation
of the Group are regularly reviewed by the
Risk Sub-committee, the Audit and Risk
Committee and the Board. They are split
intofour areas of focus: macroeconomic;
financial; property; and corporate.
Full details are set out on pages 46 to 49.
Assessment process
The four areas of principal risk were
subjected to quantitative and qualitative
analysis over the assessment period
referred to above.
Scenario testing, based on current
economic circumstances, was undertaken,
including consideration of:
• the implications of a decline in income
• a decline in capital values
• increasing interest costs
• an increased length in the period
anassetis vacant.
In order to stress test these risks on a
quantitative financial basis, five key
businessareas were identified:
• dividend cover
• liquidity
• REIT compliance
• lending covenants (“LTV”)
• lending covenants (“ICR”).
These key business areas were
usingfourcore scenarios being:
Scenario 1: a 20% reduction in
rentalincome
Scenario 2: a 25% reduction
incapitalvalues
Scenario 3: a 3% increase in interest cost
Scenario 4: increased length in the
periodan asset is vacant with specific
emphasis upon recently developed and
refurbished assets.
An additional scenario to reflect the
uncertain economic impact of Covid-19
was identified:
Scenario 5: a 15% reduction in values and
10% reduction in income and a 2% increase
in interest costs.
The above scenarios were selected
inresponse to our principal risks and
uncertainties that can be seen on
pages46 to 49.
Assumptions and future prospects
The main assumptions surrounding the
Company’s business model and its strategy
remain unchanged. The Company continues
to focus on the office, warehouse and
logistics markets in the South East and
London, to provide occupiers with a
progressive sustainable working
environment in which the businesses can
thrive and as a REIT, investors continue to
receive in excess of 90% of distributable
profits. The Company’s revolving credit
facility terminates in April 2024 and this
analysis assumes it is renewed at that time
onthe same basis.
The Company’s strategy has built-in flexibility
to enable the business to react to
unexpected economic impacts, either by a
reduction in its development/refurbishment
programme (thereby reducing capital
expenditure) or by selectively reducing the
number of assets the Company holds.
Expectation
The result of the stress testing of these five
scenarios against the Company’s five-year
profit forecast demonstrated that the
Company can accommodate each of these
scenarios, either without any mitigation, or
with mitigation where the scenario imposes
stress, for example suitable cash
conservation strategies.
Conclusion
In conclusion, based upon the robust risk
assessment described above, the Board has
a reasonable expectation that the Company
will be able to continue in operation and meet
its liabilities as they fall due over the period to
March 2026.
This viability statement was approved
bythe Board on 4 February 2021.
The Company is a specialist in the
development, refurbishment and
management of office, industrial and
logisticsproperty in the South East and
London and has a highly experienced
management team.
Assessment period
The viability assessment was undertaken on
the basis of a five-year period, with particular
focus on years one to three. The Directors
reviewed this time frame and consider a
five-year period to be an appropriate time
horizon for the following reasons:
• The Company’s internal modelling
is for afive-year period.
• It is a reasonable period for matters
including the assessment of income
generation and the availability of
debt funding.
• The majority of the Company’s contracted
income expires within five years.
• The Company’s revolving credit facility
iscurrently for a five-year term.
• In the past, property has proved cyclical
and a five-year time horizon is considered
a reasonable timeframe to assess
futurecycles.
• The time taken from acquiring an asset,
finalising a strategy, obtaining planning
permission through to letting is
approximately three to five years.
Strategic Report
Governance Financial Statements
51
Going Concern
Statement
Given the significant impact of Covid-19
onthe macroeconomic conditions in
whichthe Company is operating, the
Directors have placed a particular focus
onthe appropriateness of adopting the
goingconcern basis in preparing the
financial statements for the year ended
31 March 2021. The Company’s going
concern assessment considers the
Company’s principal risks (see pages 46 to
49) andisdependent on a number of factors,
including financial performance, continued
access to borrowing facilities andthe ability
to continue to operate theCompany’s debt
structure within its financial covenants.
In April 2019 the Company successfully
renegotiated an increase in its facilities
withits long-term lenders and entered
intoanew facility with a pool of lenders
thatruns until 2024.
The going concern assessment of lending
covenants (LTV and ICR) considered the
prospects of a significant reduction in rental
income and capital values, as well as no
receipts from planned disposals. Whilst
there is headroom across the covenants,
thecovenants most likely to be affected
arein relation to the ICR. In assessing this,
the Directors undertook a reverse stress
testtounderstand how much rental income
was required to meet these covenants.
Having considered rent collection patterns
over the last 12 months there is sufficient
headroom tomeet loan covenants from
agoing concern perspective.
Should the impacts of the pandemic become
more severe than currently forecast by the
Directors, the Going Concern Statement
would be dependent on the Group’s ability to
take further actions. Detailed consideration
was given to the availability and likely
effectiveness of mitigating actions that could
be taken, including future cash conservation
strategies and discussions with lenders
regarding the terms of the loan agreements,
being mindful of recent PRA guidance
tolenders.
The Board took further comfort from
theviability scenario testing which
demonstrated a resilient financial position
during the going concern period.
The going concern period assessed is
12months from the balance sheet date.
Based on these considerations, together
with available market information and the
Directors’ knowledge and experience of
theCompany’s property portfolio and
markets, the Directors have adopted the
going concern basis in preparing the
accounts for the year ended 31 March 2021.
In accordance with
Provision 30 of the
2018UK Corporate
Governance Code the
Directors have reviewed
cashflow forecasts
which show that the
Company has sufficient
facilities to meet
forecast outgoings and
expects to comply with
all covenants over the
going concern period.
Approval of Strategic Report
The Strategic Report for the year end 31 March 2021 has been approved by the Board
and was signed on its behalf by:
Simon Perkins
Chief Executive Officer
17 May 2021
McKay Securities Plc
Annual Report and Financial Statements 2021
52
9 Greyfriars Road, Reading
Governance
54 Chair’s Letter
56 Board of Directors
58 Governance Report
62 Nomination Committee Report
65 Audit and Risk Committee Report
68 Directors’ Remuneration Report
86 Directors’ Report
88 Statement of Directors’ Responsibilities
89 Independent Auditor’s Report
Strategic Report
Governance
Financial Statements
53
McKay Securities Plc
Annual Report and Financial Statements 2021
54
Chair’s Letter
Dear Shareholder
I am pleased to introduce our Corporate Governance
Report for the year ended 31 March 2021.
During the year we have continued to
strive for the highest standards of corporate
governance throughout the business.
We remain committed to working in the
best interests of our shareholders and
other stakeholders in a responsible,
sustainable and ethical way and our positive
achievements are reflected throughout
this report.
Covid-19 has dominated how we have
operated over the last year and as a Board,
we have responded flexibly to the challenges
that have arisen. Despite the restrictions on
meeting in person, we have successfully
discharged the responsibilities of the Board
and its Committees, and our employees have
continued to perform in an exemplary way.
This has been facilitated by the investment in
our internal IT systems over recent years
which enabled a seamless transition to
remote working. That said, we are looking
forward to the lifting of restrictions and the
ability to evolve our governance in a
post-Covid-19 environment.
This has also been a year during which
regulation and investor expectation has
continued to grow in terms of ESG corporate
reporting and transparency. For many years
we have recognised the importance of these
issues and how they relate to the way we
operate the business, to our stakeholders
and to society.
Our 2013 sustainability strategy was
replaced in 2019 with our sustainability
framework: ‘The Right Choice for a
Sustainable Business’. Based on this, we
have continued to strengthen our reporting.
A thorough review of our ESG targets and
results are set out within our Sustainability
Review on pages 34 to 44.
Our efforts were rewarded in 2020, when
weimproved our GRESB score and
achieved a 4-star rating, and this year we
have integrated a TCFD statement into our
Annual Report in advance of the requirement
to report in 2022, further evidencing our
continued commitment to ESG discipline
requirements. Our annual Sustainability
Review canbe found on pages 34 to 44 and
on ourwebsite.
Under Section 172 of the Companies Act
2006, we are required to provide information
on how the Directors have performed their
duty to promote the success of the Company
and in doing so, their regard to its various
stakeholders. The principal decisions
madeby the Board during the year, and
howwe have taken our stakeholders into
consideration when delivering the
Company’s strategic objectives, are set
outon pages 18 to 21.
Succession planning is an ongoing
responsibility of the Nomination Committee
which has appointed an additional Non-
Executive Director following the Board’s
desire to improve diversity. Although
Covid-19 delayed appointment we are
delighted to announce in April 2021 that
Helen Sachdev was appointed an
independent Non-Executive Director.
Due to Covid-19 a decision to carry out
anexternal evaluation of our Board and
Committees has been deferred for a year
and therefore this year’s annual Board,
Committee and individual Director evaluations
were carried out internally using our online
questionnaire and remote one-to-one
interviews with individual Directors. All
Non-Executive Directors have confirmed to
me their ability to provide the time commitment
required to discharge their responsibilities
effectively and further details of this year’s
evaluation process and outcomes can be
found within the Nomination Committee
Report on pages 63 to 64.
The Terms of Reference for the Board
andits Committees were reviewed along
with the Company’s various policies in
February2021. These documents can
befound on theCompany’s website,
mckaysecurities.plc.uk.
As I reported last year, the Remuneration
Committee recommended cancellation of
the salary review for the financial year to
31 March 2020 for all Directors and employees
in light of Covid-19. The Committee also
recommended the postponement of the
payment of any bonus until January 2021.
The Remuneration Committee Report sets
out in detail the factors that have been taken
into account in decision making this year,
balancing a strong operational performance
with investor returns. In terms of basic salary
the Committee recommended to the Board a
2% increase across the workforce for the
period from 1 April 2021. This recognises our
employees’ positive response throughout
this challenging period and their continued
commitment to the business.
55
Strategic Report Governance Financial Statements
Throughout the year to 31 March 2021
theCompany has complied with the
principles and provisions of the Corporate
Governance Code 2018, with the exception
of Code Provision 38 – Pension contribution
rates for Executive Directors. During the
year under review, it was agreed that
contribution rates would be reduced inline
with the workforce with effect from end of
December 2022 and provision 40 on
workforce engagement in relation to
executive remuneration. Please see the
Remuneration Report that starts on
page68.
Annual General Meeting
arrangements
On behalf of the Board I am pleased to
inform you that this year’s Annual General
Meeting (“AGM”) will be held at 11.30am
on1 July 2020. This meeting will be held in
Stage 4 of the Government’s roadmap out
of lockdown and therefore no restrictions
are anticipated and we welcome shareholder
attendance. In the event that the Government
guidelines require a change to the
arrangements, shareholders will be advised
by means of an RNS press release.
However, some individuals may have some
concerns about physically attending the
AGM and choose not to be present this year.
To enable all shareholders to have a voice
atour AGM we have put in place an email
address for shareholders to submit
questions ahead of the meeting. If you would
like to ask a question on the Company’s
Annual Report and Financial Statements or
any of the proposed resolutions listed within
the Notice of Meeting please send it to
info@ mckaysecurities.plc.uk marked for
the attention of the Company Secretary
ahead of the meeting and in any event to be
received by 5.00pm on 29 June 2021.
Aresponse to the questions received will be
made available on the Company’s website
as soon as practicable following the AGM.
In any event, I would strongly encourage you
to vote ahead of the AGM by completing and
returning your Proxy Form as early as
possible prior to the meeting, and appointing
the Chair of the AGM to act as your proxy to
vote on your behalf. The Proxy Form should
be completed, signed and returned in
accordance with the instructions printed
thereon at least 48 hours prior to the AGM.
Richard Grainger
Chair
17 May 2021
McKay Securities Plc
Annual Report and Financial Statements 2021
56
Board of Directors
Board
member
Richard
Grainger
ACA
Chair
Simon
Perkins
MRICS
Chief Executive
Officer
Giles
Salmon
FCA
Chief Financial
Officer
Tom
Elliott
MRICS
Property Director
and Head of
Sustainability
Position
Appointed Chair in
July 2016, having been
appointed a Non-
Executive Director
inMay 2014.
Member of the
Remuneration and
Nomination Committees.
Joined the Company
inAugust 2000.
Appointed a Director
inApril2001.
Appointed the Chief
Executive Officer in
January2003.
Member of the
NominationCommittee.
Joined the Company
inMay2011.
Appointed as Chief
Financial Officer
inAugust2011.
Joined the Company
inSeptember 2016.
Appointed a Director
inApril 2017.
Skills and
Experience
Chartered Accountant.
Richard has extensive
board-level experience
in the corporate finance
and commercial sectors.
He brings to the Group
proven leadership skills
and experience of
complex corporate
negotiations.
Chartered Surveyor.
Simon has widespread
knowledge of the real
estatesector with direct
operational experience
inmanagement,
development and
refurbishment, as well
asstrategic focus and
management skills to
successfully lead
theexecutive team.
Chartered Accountant.
Giles has a wealth
ofexperience at an
operational and strategic
level of corporate finance
within the real estate
sector, including
corporate restructures
and managing business
change.
Chartered Surveyor.
Tom has extensive
experience within the
commercial real estate
sector and specialises
ininvestment strategy,
transactions, asset
management and
development.
Previous appointments:
Chairman of Close
Brothers Corporate
Finance until 2009.
Chairman of Safestore
Plc until December 2013.
Previous appointments:
Nine years with business
park developer, Arlington
Securities PLC from
1990 to1999.
Previous appointments:
Finance Director at BAA
Lynton operating the
Airport Property
Partnership from 2004
to2008 and Managing
Director from 2008
to2010.
Previous appointments:
Head of Investment for
theLondon Portfolio of
Land Securities Group
PLC to2016.
External
positions
Chairman of
Liberation Group.
None. None. None.
57
Strategic Report Governance Financial Statements
Jon
Austen
FCA
Senior Independent
Director
Jeremy
Bates
MRICS
Independent
Non-Executive
Director
Helen
Sachdev
FCMA
Independent
Non-Executive
Director
Nick
Shepherd
FRICS
Independent
Non-Executive
Director
Appointed a Non-
Executive Director in
July2016 and Senior
Independent Director
from April 2017.
Chair of the Audit
andRiskCommittee.
Member of the Nomination
and Remuneration
Committees.
Appointed a Non-
Executive Director
inJanuary 2017.
Chair of the Nomination
Committee.
Member of the Audit and
Risk, and Remuneration
Committees.
Appointed in April 2021.
Member of the Audit
andRisk,Nomination
andRemuneration
Committees.
Appointed a Non-
Executive Director
inJanuary 2015 and
desNED from April 2019.
Chair of the Remuneration
Committee.
Member of the Audit
andRisk, and Nomination
Committees.
Chartered Accountant.
Jon has gained significant
experience within the real
estate sector in senior
financial roles, with
exposure to corporate
takeovers and capital
raising.
Chartered Surveyor.
Jeremy has many years of
experience with Savills as
a leading agent within the
South East commercial
real estate sector, with
significant knowledge
ofoccupier services
andtrends.
Chartered Accountant.
Helen has extensive real
estate and commercial
experience following
senior roles in anumber of
blue chip organisations.
Chartered Surveyor.
Nick has worked at the
highest level of asset
management, investment
anddevelopment and has
experience in corporate
mergers and business
integration.
Previous appointments:
Group Finance Director
ofUrban&Civic plc to
July2016.
Chief Financial Officer
ofAudley Group Limited
to December 2020.
Previous appointments:
Property Director of Tesco
Stores Ltd, MD of Barclays
plc, COO of Marsh and
Parsons. Previous
Non-Executive Director
roles have included
Communisis PLC, Athelney
Trust PLC, Optivo Housing
Association and Genesis
Housing Association.
Previous appointments:
Senior Partner of Drivers
Jonas until 2010.
Vice Chair of Deloitte UK
untilMay 2013.
Non-Executive Director of
Supermarket Income REIT
and their subsidiaries.
Non-Executive Director of
Arnold White Group Ltd.
Director of Savills UK
Limited, EMEA Head of
Occupational Markets and
UK Head of Transaction
Services.
Chair of the Loughborough
Building Society and a
Non-Executive Director
ofWilmington PLC.
Chair of the Property
IncomeTrust for Charities.
Senior Adviser of Urban
Legacies Ltd.
McKay Securities Plc
Annual Report and Financial Statements 2021
58
2018 Corporate
Governance Code
1. Board Leadership and
Company Purpose
A Board leadership
B Company’s purpose, culture
andvalues
C Provision of resources and
frameworkof controls
D Stakeholder engagement
E Workforce policies and practices
2. Division of Responsibilities
F Company Chair
G Directors and their division
ofresponsibilities
H Non-Executive Directors
I Board effectiveness and efficiency
3. Composition, Succession
and Evaluation
J Board appointments
K Board membership
L Annual Board evaluation
Information including succession
planning, evaluation and diversity
canbe found within the Nomination
Committee Report on pages 62 to 64
4. Audit, Risk and Internal Control
M External audit function
N Assessment of the Company’s
position and prospects
O Risk management and internal
controlframework
Information can be found within the
Audit and Risk Committee Report and
the Principal Risks and Uncertainties
on pages 65 to 67 and 45 to 49
respectively
5. Remuneration
P Remuneration policies and practices
Q Executive and senior management
remuneration
R Remuneration linked to strategy
andperformance
Information, including current
remuneration policies, can be
foundwithin the Remuneration
Reportfrom page 68
Governance Report
Introduction
McKay is a listed company incorporated in
the United Kingdom and this year is reporting
its appliance with the 2018 UK Corporate
Governance Code, which can be found at
frc.org.uk.
Board leadership
The Company is led by a highly experienced
team of Executive and Non-Executive
Directors who bring a wealth of knowledge
and a wide range of skills to the boardroom.
Their collective role as a Board is to promote
the long-term sustainable success of the
Company, generating value for shareholders
and contributing to wider society.
Biographical details of the Directors can be
found on pages 56 and 57, and the Company’s
leadership structure can be seen on page 59.
Company purpose
The Company’s purpose is to deliver
outstanding services as a customer-focused
and flexible landlord with occupiers at its
heart, while being alert to the needs of its
employees and the impact of the business
onthe environment and wider society.
The Board satisfies itself that the Company’s
purpose is aligned to its actions and strategy
by receiving management reports, customer
surveys and the outcomes from employee
and shareholder engagement.
Culture and values
During the year the Board reviewed the
Company’s values, consulting with the
workforce and with specific input from the
Company Chair and desNED. From this, the
Company’s values were formalised and are set
out on page 4. These values are reflected in the
boardroom and at every level throughout the
business. They are reinforced through the
adoption and regular review of a schedule of
matters reserved for the Board, Committee
terms of reference and governance policies.
Constructive debate is actively encouraged
and the Board is satisfied that no individual or
group of Directors dominate decision making.
The Board is careful to ensure the business is
able to succeed in the long term by promoting
good relationships with stakeholders that
uphold the values of sound corporate
governance. The Board assesses and
monitors the Company’s culture through
regular updates of corporate activity and is
satisfied that the policies, practices and
behaviour throughout the business are aligned
with the Company’s purpose values and
strategy. Further details of the Company’s
approach to relationships with stakeholders
are set out on pages 20 and 21, and its
governance policies are available on the
website mckaysecurities.plc.uk.
Board composition
The composition of the Board complies with
Provision 11 of the 2018 UK Corporate
Governance Code in that more than 50%
ofthe Board, excluding the Chair, are
Non-Executive Directors whom the Board
considers to be independent. Jon Austen
isthe Senior Independent Director.
When appointing new Directors, the Board
considers any other demands upon their
time. Prior to appointment, significant
commitments of new Directors are disclosed
and these and any subsequent external
appointments must be approved by the
Board. No Director serves on the Board
beyond a nine-year period.
Further details on the appointment of Helen
Sachdev to the Board and its Committees on
13 April 2021 can be found within the Nomination
Committee Report on pages 62 to 64.
Director independence
The Board considers the Non-Executive
Directors to be independent in that they have
no business or other relationship with the
Company that might influence their
independence or judgement.
Conflicts of interest
The Board has adopted a policy and effective
procedures for managing and, where
appropriate, approving conflicts or potential
conflicts of interest should they arise. Only
Directors who have no interest in the matter
being considered will be able to make the
relevant decision and, in taking the decision,
the Directors must act in a way they consider
in good faith that will be the most likely to
promote the success of the Company.
Professional advice and training
The Board and Committees have access
tothe advice and services of the Company
Secretary and independent legal advice
atthe Company’s expense, if required.
Continuing professional development training
is available for Directors as necessary.
Risk management and internal control
The Board is responsible for establishing and
reviewing the Company’s system of internal
control to safeguard shareholders’
investment and the Company’s assets.
The Audit and Risk Committee reviews the
effectiveness of the Company’s internal
financial control and internal control risk
management systems on behalf of the Board.
Their report can be found on pages 65 to 67.
The Risk Sub-committee is responsible for
identifying key risks and assessing their likely
impact on the Company and maintaining the
risk register. The Executive Directors make
up the membership and the Risk Sub-
committee reports directly to the Audit and
Risk Committee. Significant areas within the
risk register include property, financial and
corporate risks. Areas of risk such as
corporate taxation, legal matters, defined
benefit pension scheme, detailed insurance
cover and contracts including maintenance
and property management all come under
the direct control of the Executive Directors
and are reviewed on an ongoing basis.
Further details of the Company’s principal
risks and uncertainties can be found on
pages 45 to 49 of the Strategic Report.
59
Strategic Report Governance Financial Statements
Audit and Risk Committee
Jon Austen FCA is Chair of the Audit and Risk
Committee, which met three times in the last
year. Jon is identified as having recent and
relevant financial experience as required by
the Code. Further details, along with the
Committee’s responsibilities and activities
are set out in the Audit and Risk Committee
Report on pages 65 to 67.
Remuneration Committee
Nick Shepherd FRICS is Chair of the
Remuneration Committee which met four
times in the last year. The Committee
members, the Directors’ Remuneration
Policy and the Annual Report on
Remuneration are set out in the Directors’
Remuneration Report on pages 68 to 87.
Nomination Committee
Jeremy Bates MRICS is Chair of the
Nomination Committee. The Committee met
three times in the last year and its
responsibilities and activities, including the
appointment of new Directors and the
performance evaluation of the Board are set
out in the Nomination Committee Report on
pages 62 to 64.
Board Leadership Structure
Governance /
Leadership Structure
Board and Committee attendance (for the financial year to 31 March 2021)
Board meetings
The Board held 15 meetings in the year to 31 March 2021, including a Board Strategy Day, which is set aside to focus specifically on the
Group’s long-term strategy. The Board was provided with full and timely information in order to discharge its duties. Due to the multiple
lockdowns throughout the year and social distancing guidelines, the Board met remotely on a more frequent basis ensuring the impact
ofCovid-19 on the Company and its stakeholders was regularly considered and where appropriate any mitigating action was approved.
Board
(15 meetings)
Audit and
Risk Committee
(3 meetings)
Remuneration
Committee
(4 meetings)
Nomination
Committee
(3 meetings)
R Grainger 15 3¹ 4 3
S Perkins 15 3¹ 4 3
G Salmon 15 3¹ – –
T Elliott 15 2¹ – –
J Austen 15 3 4 3
J Bates 15 3 4 3
N Shepherd 15 3 4 3
1. In attendance by invitation.
2. H Sachdev was appointed to the Company’s Board and Committees on 13 April 2021.
Committees
There are three Committees that make their recommendations to the Board, all of which have clear terms of reference that comply with the
2018 UK Corporate Governance Code. These are reviewed annually and are available on the Company’s website.
McKay Securities Plc
Board Members
1 Non-Executive Chair
4 Independent Non-Executive Directors
3 Executive Directors
Audit and Risk Committee Members
1 Non-Executive Chair
4 Independent Non-Executive Directors
Risk Sub-committee Members
3 Executive Directors
Remuneration Committee
Members
1 Non-Executive Chair
4 Independent Non-Executive Directors
Nomination Committee Members
1 Non-Executive Chair
4 Independent Non-Executive Directors
1 Executive Director
McKay Securities Plc
Annual Report and Financial Statements 2021
60
Governance Report continuedGovernance Report continued
Relations with shareholders
The Board recognises the importance of
maintaining an ongoing relationship with
theCompany’s shareholders and the
investment community.
Directors engage with current and
prospective shareholders and analysts.
Engagement is set around the financial
reporting calendar, specifically following the
announcement of the Company’s final and
interim results. In addition, regular market
updates are made throughout the year on
any acquisitions, major lettings or disposals
of assets in the portfolio.
Throughout the year to 31 March 2021 the
impact of Covid-19 meant that engagement
with the investment community was held
remotely and the 2021 AGM was a closed
event. Shareholders were provided with an
email address to enable them to submit
questions in advance of the meeting.
Thesequestions and Board responses
wereposted on the Company’s website
following the meeting.
In addition, there is an investor relations
section on the Company’s website, which
includes annual and interim reports. The
website also includes stock exchange
releases, details of the Company’s portfolio,
corporate policies and day-to-day
contactdetails.
The Company has a share account
management and dealing facility for all
shareholders via Equiniti Shareview. This
offers shareholders secure access to their
account details held on the share register to
amend address information and payment
instructions directly, as well as providing a
simple and convenient way of buying and
selling the Company’s ordinary shares. For
internet services visit shareview.co.uk or the
investor relations section of the Company’s
website. The Shareview dealing service is
also available by telephone on 03456 037
037 between 8.30am and 4.30pm Monday
to Friday.
AGM arrangements and Covid-19
Shareholders are given at least 20 working
days’ notice of the Company’s AGM and in
normal circumstances have the opportunity
to attend the AGM and to ask questions of
the Board, including the Chairmen of the Risk
and Audit Committee, the Nomination
Committee and the Remuneration
Committee who all attend.
Shareholders vote separately on each
proposal and are informed of proxy voting
figures. Following the meeting the voting
figures are posted on the Company’s
website, mckaysecurities.plc.uk.
The 2021 AGM is scheduled for 1 July 2021.
Under current government guidelines all
Covid-19 restrictions will be lifted from
21 June 2021. Therefore the 2021 AGM will
be open for all shareholders to attend. The
meeting will be held at 11.30am at the Royal
Thames Yacht club for full details see the
Notice of Meeting. In the event that the
Government guidelines require a change to
the arrangements, shareholders will advised
by means of an RNS press release.
The Board values the opportunity to meet
shareholders in person at the AGM to listen
and respond to their questions.
Shareholders are strongly encouraged to
vote ahead of the AGM by completing and
returning their Proxy Form as early as
possible prior to the meeting, and appointing
the Chair of the AGM to act as their proxy to
vote on their behalf. The Proxy Form should
be completed, signed and returned in
accordance with the instructions printed
thereon at least 48 hours prior to the AGM.
Workforce engagement
The Board has ultimate responsibility for
ensuring that workforce policies and
practices are in line with the Company’s
purpose and values and support the desired
culture. Workforce policies and practices are
encompassed within the Company’s staff
handbook which is made available to all
employees on their induction and is available
on the Company’s intranet.
Despite the challenges of Covid-19, as part
ofthe employee 2020 engagement
programme, desNED, Nick Shepherd held a
workforce engagement meeting in July 2020
and fed the views of employees back to the
Board. In September 2020, CEO Simon
Perkins hosted an employee workshop
entitled ‘Lockdown Lessons’, the outcomes
of this workshop were also fed back to the
Board. Senior management supported the
workforce throughout the lockdowns
imposed by the impact of Covid-19 by
ensuring good communication, facilitating
flexible working and ensuring a safe and
Covid compliant working environment as
restrictions were lifted and employees
returned to work. A case study on the
employee workshop ‘Lockdown Lessons’
can be found within the Sustainability Review
on page42.
As well as annual employee evaluations held
on a one-to-one basis with their respective
line managers, all employees are required to
complete the Company’s annual online
e-training programme. In 2020 this annual
training progamme was extended to include
Non-Executive Directors. The programme is
made up of three modules:
• Equality and diversity;
• Bribery prevention; and
• Data security.
Whistleblowing policy
The purpose of this policy is to enable the
Company to investigate possible malpractice
and take appropriate steps to deal with it.
Ifemployees have concerns about the
business, the whistleblowing procedures
enable employees to raise such concerns
inconfidence, anonymously if they wish,
atan early stage and in the right way.
Thewhistleblowing policy is for concerns
which are in the public interest where the
interests of others or of the organisation
itselfare at risk. Further details of the policy
can be found on the Company’s website,
mckaysecurities.plc.uk.
Relations with other key
stakeholders
Directors have a duty to promote the
success of the Company having regard to
arange of key stakeholders and interests,
asset out under s172 of the Company’s Act
2006. Further information on the Company’s
stakeholders and the Company’s approach
to decision making can be found on pages
18 to 21.
61
Strategic Report Governance Financial Statements
Chair, Richard Grainger
Provide coherent leadership to the Board.
• Set the agenda, style and tone of Board discussions to promote
effective decision making and constructive debate.
• Ensure constructive relations between the Executive and
Non-Executive Directors.
• Ensure new Directors participate in a full, formal and tailored
induction programme facilitated by the Company Secretary.
• Ensure the development needs of the Board and its Directors
are identified and, with the Company Secretary having a key
role, that these needs are met.
• Ensure the peformance of the Board, its Committees and
individual Directors is evaluated at least once a year with the
support of the Senior Independent Director.
• Ensure effective communications with shareholders and
communicate their views to the Board.
• Promote the highest standards of integrity, probity and
corporate governance.
• Ensure an appropriate balance is maintained between the
interest of shareholders and other stakeholders.
Senior Independent Director, Jon Austen
Act as a sounding board for the Chair, providing support in
delivering objectives.
• Serve as an intermediary for the otherDirectors
and shareholders.
• To be available to shareholders and other Non-Executive
Directors to address any concerns or issues outside of
alternative channels.
• Lead the process to review the Chair’s performance.
Non-Executive Directors (NEDs), Jon Austen,
Jeremy Bates, Helen Sachdev and Nick Shepherd
• Provide external independent perspective and oversight
to the Board.
• Create constructive challenge to executive decision making.
• Assist in setting the Company’s strategy and objectives and
apply their particular specialist expertise and exeperience.
• Promote the highest standards of corporate governance
andintegrity.
• Membership of the Company’s Remuneration, Audit and
Riskand Nomination Committees and undertake their
responsibilities as set out in the Committee Terms of Reference.
• Attend the Company’s Annual General Meeting and respond
toshareholders’ questions in their capacity as Chairs of the
Company’s Committees.
Designated NED, Nick Shepherd
• Engage with the Company’s workforce to better understand
their views.
• Facilitate employees’ voices within the boardroom.
Division of responsibilities
There is a clear division of responsibilities between the leadership of the Board and the Executive leadership of the Company’s
business. The roles of the Chair and Chief Executive are, and will continue to be, separate. The division of responsibilities between the
Chair and the Chief Executive is set out in writing and approved by the Board.
Chief Executive, Simon Perkins
Lead the Executive Directors and the senior team in the day-to-
day running of the Company.
• Develop the Company’s objectives and strategy having regard
to the Company’s responsibilities to its shareholders,
customers, employees and other stakeholders.
• Successful achievement of objectives and execution
ofapproved strategy and effective implementation of
Boarddecisions.
• Manage the Company’s risk profile, and internal controls in line
with the extent and categories of risk identified as acceptable
bythe Board.
• Optimise as far as reasonably possible the use and adequacy
ofthe Company’s resources.
• Identifiy and execute acquisitions and disposals.
• Develop policies for Board approval and implementation and
ensure all policies and procedures are followed and conform
tothe highest standards.
• Make recommendations to the Remuneration Committee on
employee remuneration policy.
• Make recommendations to the Nomination Committee on the
role and capabilities required in respect of the appointment of
Executive Directors.
Chief Financial Officer, Giles Salmon
Support the Chief Executive in developing the Company’s
objectives and strategy.
• Lead and manage the day-to-day running of the finance team.
• Advise and present to the Board the Company’s financial strategy.
• Responsible for the organisation’s forecasting, budgets and
cashflow and oversees all financial reporting.
• Head of Human Resources.
• Responsible for the Company’s IT system and IT security.
• A member of the Risk Sub-committee and advises on all
elements of financial risk.
• Responsible for internal financial controls and compliance.
Property Director, Tom Elliott
Supports the Chief Executive in developing the Company’s
objectives and strategy.
• Advise the Board on the Company’s portfolio strategy.
• Lead the development and implementation of the Company’s
asset management and occupier services strategy.
• Responsible for, and implements, the Company’s
sustainabilitystategy.
• A member of the Risk Sub-committee and advises on
allelements of property risk.
• Lead and manage the day-to-day running of the property team.
Company Secretary, Joanne McKeown
• Secretary to the Board.
• Prepare and disseminate Board and Committee Papers.
• Responsible for organising the Annual General Meeting.
• Guide the Board on corporate governance and
regulatorycompliance.
• Support the Board, Committees, Chair and Directors.
Dear Shareholder
I am pleased to present the report of the
Nomination Committee for the year ended
31 March 2021.
McKay Securities Plc
Annual Report and Financial Statements 2021
62
Nomination
Committee
Report
The responsibilities of the
Committee over the year are set
outin detail in the Report below, and
remain an essential contribution to
efficient and effective Board
governance.
One of the key areas of the Committee’s
work over the year has been the recruitment
of a Non-Executive Director to improve the
balance of Non-Executive representation
onthe Board. The process was hampered
bythe impact of Covid-19, but I am pleased
toreport we have recently announced the
appointment of Helen Sachdev. Helen brings
both Board and Committee experience
inpublicly listed companies, as well as
commercial real estate experience from
herprevious roles. Her skills will not only
complement those of existing Non-
Executive Directors, but bring an additional
dimension to the views of the Board and
itsCommittees. Helen will offer herself for
re-election at the 2021 AGM along with the
remainder of the Board. Full biographical
details of the Board can be found on pages
56 to 57.
I am also pleased to report that although
Covid-19 has meant the office has been
closed at times during the year, individuals
have been able to work from home
effectively, benefitting from recent
investment in IT and systems.
Furthermore, this has not prevented
desNED, Nick Shepherd, from meeting with
employees to hear their views, for example
on how they and the business were
operating in the pandemic, and feed these
back to the Board. Further details on
employee engagement can be found
onpage 42.
In February 2021, the Committee’s Terms
of Reference were reviewed and no material
amendments have been made. The Terms
of Reference are available to view at the
Company’s website, mckaysecurities.plc.uk.
The year ahead will remain a challenging
environment, but the Committee will
continue to support the Board and its
Committees, to ensure they have the
appropriate balance of skills, experience
andindependence necessary to discharge
their respective duties and responsibilities
effectively.
Jeremy Bates
Chair of the Nomination Committee
17 May 2021
63
Strategic Report Governance Financial Statements
Committee role and
responsibilities
The main roles and responsibilities of the
Committee are set out within its Terms of
Reference which are reviewed annually
and are available on the Company’s
website, mckaysecurities.plc.uk.
These responsibilities include:
• Regularly reviewing the structure,
sizeand composition of the Board;
• Membership of Board Committees;
• Succession planning for Directors
andother senior executives;
• Identifying and nominating for the
approval of the Board, candidates
tofillBoard vacancies as and when
they arise including the role of Senior
Independent Director and Employee
Representative Non-Executive
Director;
• Reviewing the results of the Board
performance evaluation process that
relate to the composition of the Board;
• Reviewing the equality and diversity
policy of the Company; and
• Making recommendations to the
Board concerning the re-election
ofDirectors by shareholders.
Committee membership
andmeetings
Members of the Nomination Committee are:
J Bates MRICS – Chair
J Austen FCA
R Grainger ACA
H Sachdev FCMA (from 13 April 2021)
N Shepherd FRICS
S Perkins MRICS
The Nomination Committee met three times
in the last year with 100% attendance.
The majority of the members of
theCommittee are independent
Non-ExecutiveDirectors.
Provision 11 of the 2018 UK Corporate
Governance Code states that at least half the
Board should be Non-Executive Directors
(for the purposes of this test the Chair of the
Board is excluded.) The appointment of
Helen Sachdev as an additional independent
Non-Executive Director further strengthens
compliance with this provision and the
Boardnow comprises the Chair, three
Executive Directors and four independent
Non-Executive Directors.
The appointment of Helen Sachdev
asaNon-Executive Director has also
demonstrated the Board’s commitment to
the principles of the Hampton-Alexander
review for greater female representation.
The Committee is also alert to ensuring the
findings of the Parker Review on ethnic
diversity are taken into consideration and
has ensured that any list of candidates for
any Board position included candidates
witha wide range of backgrounds. However,
the Board has been mindful that the right
balance of skills and experience of the
candidate is key and therefore to date no
ethnic diversity targets have been set.
Succession planning
One of the main roles of the Nomination
Committee is to consider succession
planning for Directors and other senior
executives. Due to the limited number of
Executive Directors and other senior
executives, and the importance of
maintaining administration costs at an
operational minimum, succession planning
for this part of the workforce is generally on
areplacement basis. For Non-Executive
Directors, succession plans consider an
approach over multiple years, are regularly
reviewed and ensure a formal, rigorous
andtransparent procedure for
newappointments.
Appointment of Directors
The Nomination Committee is responsible
for identifying and nominating for approval by
the Board, candidates to fill Board vacancies
as and when they arise. The aim is to recruit
Directors who will make a positive
contribution to Board values, culture
andstrategic decision making.
In respect of the most recent Board
appointment, in the first instance the
Committee undertook a skills gap analysis
and reassessed the composition of the
existing Board, considering experience,
diversity, knowledge and personal attributes.
It then prepared a description of the role
along with the professional and personal
skills required and agreed the external
process to be undertaken.
The Committee is mindful that candidates
should be fully aware of the time commitment
expected of them. The number of roles
candidates already undertake is taken into
consideration to ensure that individuals do
not compromise their effectiveness through
overcommitment. All letters of appointment
set out the expected time commitment.
Third-party independent recruitment
consultants, Spencer Stuart and Nurole,
were identified and appointed to undertake
the search for suitable candidates to put
forward to the Committee for consideration
and interview. Both recruitment specialists
have no other connection nor provided
anyother services to the Company or
individual Directors.
A list of candidates was submitted to the
Committee for consideration and candidate
interviews were undertaken remotely due
toCovid restrictions. The Committee then
recommended their preferred candidate
tothe Board.
The Committee considers that while
Covid-19 may have had an impact on the
search, the process undertaken has ensured
that a thorough, transparent andeffective
search has been carried out. Full
biographical details of Helen Sachdev can
befound on page 57, contract details can be
found with the Remuneration Report from
page 68 onwards and details of re-election
at the 2021 AGM can be found within the
Company’s Notice of Meeting.
Non-Executive Directors are appointed for
an initial three-year term and are subject to
annual re-election at the AGM. Any term
beyond six years is subject to particularly
rigorous review in line with the Company’s
strategy for progressive refreshing of the
Board. The longest serving Non-Executive
isRichard Grainger, who joined the Board
in2014.
Board and Committee evaluations
Formal annual evaluations of the Board
and its Committees were undertaken in
February 2021.
Consideration was given during the year to
an externally run process but as a result of
the impact of Covid-19 the Board agreed to
reconsider this for the current financial year.
Therefore, the process this year was an
internally run exercise undertaken using the
Company’s digital board solution with a
series of questionnaires submitted online.
The process was administered by the
Company Secretary.
The Board and Committee evaluations
concluded that the Board and Committees
operated in an effective manner with open
and transparent dialogue, a high level of
challenging and constructive debate, and
arespect for individuals’ opinions.
McKay Securities Plc
Annual Report and Financial Statements 2021
64
Nomination Committee Report continued
Individual Director
performance evaluation
Formal individual Director performance
evaluations were undertaken in March
2021. Each Director completed an online
questionnaire, and this was submitted to the
Board Chair who then discussed responses
with individual Directors on a one-to-one
basis and provided feedback. The Senior
Independent Director undertook the
exercise in relation to the Chair. Due to
Covid-19, meetings were held via a remote
conferencing facility.
The exercise concluded that each individual
Director continued to make a positive
contribution to Board effectiveness through
their wide range of skills and experience in
the commercial sector at a strategic and
operational level, and demonstrated the
commitment and independence required
todeal with the future challenges to
thebusiness.
All evaluations identified:
• the need for greater diversity on the
Board. This has been progressed with
theappointment of Helen Sachdev
• resumption of visits by the Board to
individual assets once the restrictions
surrounding Covid-19 have been lifted
• improved visibility of the Board with
theworkforce.
Re-election of Directors
As recommended under Provision 18 of the
2018 UK Corporate Governance Code, all
Directors of the Company, being eligible, will
offer themselves for re-election at the 2021
AGM. The biographical details of the
Directors are available on pages 56 and 57.
Policy on diversity and equality
The Company is committed to being an
inclusive employer and our objective is to
treat our workforce equally, equitably and
with consideration. All aspects of diversity
including gender and ethnicity are
considered when recruiting at any level
of the business.
While the Board has overall responsibility for
the Company’s equality and diversity policy,
the responsibility of the Nomination
Committee includes its regular review and
approval. We believe every employee has a
personal responsibility for implementation
and as such the policy is an intrinsic part
ofthe Company’s staff handbook. All
employees are required to complete online
e-training in equality and diversity when
joining the business and annually thereafter.
The Company’s policy on equality and
diversity is available to view on our website
mckaysecurities.plc.uk.
Over the course of the year, the Company
took the following steps to address the
importance of diversity and equality:
• enhanced maternity leave
• shared parental leave provision
• flexible working hours to assist parents
insupporting their children’s education
throughout the pandemic lockdowns.
The Company’s workforce, which totals
15employees (excluding Directors), is
anexperienced and diverse group of
individuals, who are committed to the
success of the business.
With a limited number of employees, diversity
statistics are more meaningful for the
business as a whole (excluding Directors),
rather than specially for senior management
(provision 23 of the UK Corporate
Governance Code). Our workforce diversity
statistics for the period to 31 March 2021 as
illustrated opposite and include senior
management and their direct reports.
Modern slavery
Under the UK Modern Slavery Act 2015 the
Company is not required to produce a
statement as its global turnover is less than
£36 million, however we are committed to
implementing best practice to combat all
forms of human trafficking, forced labour and
unlawful child labour in any activities carried
out by the Company and throughout our
supply chain.
Our employees adhere to high standards
ofbehaviour and integrity as part of our
concerted effort to prevent slavery and
human trafficking. All employees have a
responsibility for promoting ethical and
lawful employment practices throughout
ourbusiness. All our employees are paid in
excess of the National Living Wage and
based on the small team directly employed,
we believe the risk of any slavery or human
trafficking in respect of our employees is low.
For more details, our Anti-Slavery, Human
Trafficking and Child Labour Policy
Statement is available on our website
mckaysecurities.plc.uk. This statement sets
out details on our approach and our due
diligence processes in relation to our supply
chain, including reference to the Company’s
Responsible Procurement Policy which can
also be found on our website.
Gender
Ethnic Origin
Employee Age Profile
Length of Service
By Department
MaleFemale
AsianWhite British
PropertyFinance & Co Sec
Operational Support
40-4920-29 30-39
60+50-59
5-10 YrsUnder 3 Yrs 3-5 Yrs
20+ Yrs15-20 Yrs
10-15 Yrs
Dear Shareholder
I am pleased to present the Audit
and Risk Committee Report for
the year to 31 March 2021.
65
Strategic Report Governance Financial Statements
The purpose of this Committee is
toplay a key role in maintaining the
quality of our financial reporting,
theadequacy and effectiveness of
internal controls and the Company’s
risk management strategy. This year
the Committee had to contend with
the impact and effects of Covid-19 in
all areas of its remit.
The Committee is committed to high
standards of corporate governance and
continues to operate in accordance with
its Terms of Reference. These are
reviewed annually, with the last review
being carried out in February 2021.
No material changes were required at
thisreview and the Terms of Reference
ofboth the Audit and Risk Committee
andthe Risk Sub-committee are
available on the Company’s website,
mckaysecurities.plc.uk.
The Committee’s primary responsibility
was to oversee both the half year review
and the year end audit, and ensure they
were undertaken effectively despite the
restrictions of Covid-19. Particular areas
of audit focus included portfolio
valuationand both the viability and going
concern statements. The practicalities
ofundertaking the various processes
ofthe review and audit have been
challenging and I would like to express
myappreciation to both the finance
teamatMcKay and the audit team at
Deloitte for their endeavours in order to
complete their work effectively in such
difficult circumstances.
Details can be found within the following
report and the Independent Auditor’s
Report can be found on pages 89 to 95.
The Committee also has responsibility
for overseeing the Company’s risk
management and internal control
functions. This responsibility has been
delegated to the Risk Sub-committee
which reports its findings to the Audit
and Risk Committee through myself
asChair. The impact of Covid-19 has
permeated throughout the risk profile
of the Company. The business has
developed, implemented, and continues
to manage Covid-compliant measures
tomitigate the risk of incidents within
theportfolio. Tighter monitoring on rent
collection to ensure any indicators of
occupier distress were identified at an
early stage, and the provision of support
where appropriate, was key to mitigating
increased risk. Processes were put in
place to ensure our internal control
measures retained their high standard
aswell as met the needs of individuals
working remotely.
ESG continues to be high on our risk radar
and I was particularly pleased to see that
our GRESB score continues to improve,
demonstrating through our objectives
andtargets that we are managing and
responding to the risks that are material
toour business on a progressive basis.
Further details on these and other risks
can be found in the Company’s Principal
Risks and Uncertainties on pages 45 to 49.
Jon Austen
Chair of the Audit and Risk Committee
17 May 2021
Audit and Risk
Committee Report
McKay Securities Plc
Annual Report and Financial Statements 2021
66
Committee role and
responsibilities
The main roles and responsibilities of the
Committee are set out within its Terms of
Reference which are reviewed annually
and are available on the Company’s
website, mckaysecurities.plc.uk.
These responsibilities include:
• Financial reporting: monitoring and
assessing the integrity of the financial
statements of the Company including
its Annual and Interim Reports,
reporting to the Board on significant
financial reporting issues and
judgements and advising the Board on
whether taken as a whole, the report
and financial statements are fair,
balanced and understandable;
• Risk management and internal
controls: reviewing the Company’s
riskmanagement and internal control
systems and approving statements
concerning internal control, principal
risks and uncertainties and the
viabilitystatement;
• Specific to this year, continuing to
ensure that the risk and uncertainty
relating to Covid-19 is appropriately
reflected throughout the Annual
Report and Financial Statements;
• External and internal audit:
recommending to the Board for
shareholder approval at the AGM the
appointment or reappointment of the
external auditor and overseeing the
relationship with the external auditor.
Managing the selection process
fortheappointment of the external
auditor and regularly reviewing its
independence, objectivity and
effectiveness. Committee
consideration is also given annually
tothe requirement of an internal
auditfunction;
• Compliance, whistleblowing and fraud:
reviewing the adequacy and security
of the Company’s arrangements; and
• Reporting to the Board on how it has
discharged its responsibilities.
Committee membership
andmeetings
The Committee consists solely of
independent Non-Executive Directors.
The members of the Committee are:
J Austen FCA – Chair
J Bates MRICS
H Sachdev (from 13 April 2021)
N Shepherd FRICS
Jon Austen is identified as having recent
andrelevant financial experience and
theCommittee believes as a whole it
hascompetence relevant to the sector
inwhichthe Company operates.
The Committee met three times in the last
year with full Committee attendance at all
meetings. These meetings were held to
coincide with the financial reporting and
audit cycle. The table of attendance is set
outin the Corporate Governance Report
onpage 59.
The Chair of the Board, the Chief Executive
(“CEO”), Chief Financial Officer (“CFO”)
andexternal auditors regularly attend by
invitation. In a pre-Covid environment the
Committee meet twice a year with the
external audit engagement partner to
provide the opportunity to discuss matters
without executive management being
present. In the current Covid environment
the Chair of the Committee and the external
audit engagement partner have
communicated remotely.
Main reoccurring activities of the
Committee during the year
Significant judgements and
financialreporting
The Committee focused on the significant
judgement in the Annual Report and
Financial Statements in respect of the
Company’s property valuation.
The valuation of the Company’s portfolio
wasundertaken by an external professional
valuer, Knight Frank LLP, and the
assumptions and judgements were
discussed and reviewed with management
and the Committee. The valuation was
reviewed along with its associated risks,
withparticular focus given to the level of
judgement that was applied as a result of the
impact of Covid-19. The Committee gained
comfort from the valuer’s methodology and
other supporting market information. The
external auditor assessed the valuer’s
objectivity and experience through direct,
robust discussions with the valuer. Deloitte
LLP reviewed the valuation report prepared
by Knight Frank LLP and their terms of
engagement. Utilising their internal valuation
experts, Deloitte Real Estate, underlying
assumptions were challenged, the valuation
methodology used assessed and the impact
of Covid-19 considered.
The external auditor concluded that the
methodology, assumptions and judgements
were in line with their own findings.
The disclosures in the financial statements
were considered and it was agreed property
valuations had been appropriately recorded.
As part of monitoring the integrity of the
financial statements the Committee
reviewed the application of any enacted
changes to significant accounting policies
and concluded that there were no material
changes to reflect in the Company’s
accounts. Further details on accounting
policies can be found in note 1.
As requested by the Board, the Committee
undertook a review of the Annual Report and
Financial Statements for the year ended
31 March 2021 and advised the Board that,
taken as a whole, these were fair, balanced
and understandable and provided the
information necessary for shareholders
toassess the Company’s position,
performance, business model and strategy.
Risk management and
internalcontrol
The Committee is responsible for reviewing
the Company’s risk management and
internal control systems. The Risk Sub-
committee has delegated responsibilities
including:
• overseeing, assessing and advising on the
current and emerging risk exposure to the
Company;
• maintaining the Company’s risk register;
and
• monitoring and reviewing the
effectiveness of all the Company’s
material controls, including financial,
operational and compliance controls.
The Risk Sub-committee met three times
during the year and reported its findings to
the Audit and Risk Committee through its
Chair. It focused on:
• the emerging and continued risk of
Covid-19 and its impact on the portfolio
and our occupiers;
• the risks surrounding internal control
measures as a result of increased working
from home during the pandemic
lockdown; and
• climate and sustainability risk on the
portfolio and measures of mitigation
through the setting of comprehensive
annual ESG targets.
The Company’s risk register was updated
following each meeting.
Audit and Risk Committee Report continued
67
Strategic Report Governance Financial Statements
The Committee believes the existing and
emerging risks have been identified and
incarrying out its review of the Sub-
committee’s findings it re-evaluated the
levelof the Company’s risk appetite in
the‘macroeconomic’ key area and
recommended to the Board that a lower
levelof risk appetite in light of the impact of
Covid-19 be adopted. For full details on the
Company’s risk appetite, principal risks and
uncertainties, the Company’s long-term
viability statement and going concern
statement, please see pages 45 to 51.
Identification of business risks
The Company has an established system
ofinternal financial control which is designed
to ensure the maintenance of proper
accounting records and the reliability of
financial information used within the
business. However, such a system is
designed to manage rather than eliminate
the risk of failure to achieve business
objectives and can only provide reasonable
and not absolute assurance against material
misstatement or loss.
Annual and long-term revenue, cashflow
andcapital forecasts are updated quarterly
during the year. Results and forecasts are
reviewed against budgets and regular
reports are made to the Board on all financial
and treasury matters.
The Directors confirm that they have
specifically reviewed the framework and
effectiveness of the system of internal
control for the year to 31 March 2021.
External audit
In line with EU audit reforms and FRC
guidance the Group, following an audit
tender process, appointed Deloitte as
auditor in 2019. Therefore, no tender
processwill be undertaken this year.
At the 2020 AGM shareholders resolved
toauthorise the appointment of Deloitte LLP
as auditor to the Group.
Deloitte undertook the half year review as
at30 September 2020 and full audit of the
Group for the year to 31 March 2021. The
Group’s audit partner, since the appointment
of Deloitte in 2019, has been Stephen Craig.
The Committee is responsible for overseeing
the relationship with the external auditor.
Aspart of this responsibility the Committee
reviewed Deloitte’s audit plan, its terms of
engagement and the engagement letter
andauthorised management to sign the
representation letter.
Once again, the impact of Covid-19 has
affected how the Company has been audited
this year. The year end audit was conducted
under Step 2 of the Government’s roadmap
out of lockdown.
This meant measures that were put in
placefor the 2020 audit, to submit
documents electronically wherever
possible,were reinstated.
When the audit was completed the
Committee reviewed the findings with
theexternal auditor and evaluated the
independence and effectiveness of the
auditprocess. This included:
• a review of the auditor’s independence –
confirmation that all Deloitte network firms
and engagement teams are independent
of the Company has been provided within
the audit report; and
• an assessment of the quality of the audit
by considering:
• how the auditor dealt with the
Company’s significant judgement,
theportfolio valuation;
• the impact of Covid-19 on the audit
process and outcomes; and
• the response to questions put by the
Committee on the process and findings
of the audit.
The Committee concluded that the audit had
been carried out in an effective and efficient
manner and reported this to the Board.
As approved by shareholder resolution at
the2020 AGM, the Directors authorised the
remuneration of the auditor. Audit fees for the
full year were £147,000 (2020: £140,000)
with related assurance work of £47,000
(2020: £45,000). Full details of audit fees
areset out in note 3.
The Committee considers this assurance
work does not impact the objectivity of the
audit firm and is satisfied that the work is
appropriate, being that ordinarily provided
bythe appointed auditor.
Non-audit fees, being tax services and debt
advisory services, were provided by PwC.
The Committee believe there are no
inconsistencies between the FRC’s
EthicalStandard and the Group’s policy
forthe supply of non-audit services, nor
anybreaches.
It is proposed to put a resolution to
shareholders at the 2021 AGM for the
reappointment of Deloitte and a separate
resolution to enable the Directors to
determine their remuneration (full details
can be found within the Company’s Notice
of Meeting).
Internal audit
The Committee reviewed the requirement
for an internal audit function; and concluded
that as there is a small management team
operating from one location, enabling close
involvement of the Executive Directors in the
day-to-day operational matters of the
Company, coupled with the comprehensive
internal controls currently in place, no
requirement to establish an internal audit
function was needed at this time. This
recommendation was made to the Board.
The external auditor has confirmed that they
consider that the absence of a formal internal
audit function does not have a substantive
impact on their audit approach.
Whistleblowing policy
The Committee, on behalf of the Board,
reviewed arrangements by which employees
of the Company may in confidence raise
concerns in respect of the financial reporting
and other matters. These detailed procedures
are set out in the Company’s staff handbook
and the Company’s policy is available on the
website mckaysecurities. plc.uk.
Committee performance evaluation
The Committee’s annual appraisal process
was an internally run exercise using the
Company’s digital board solution in the
format of a questionnaire, completed by all
members and submitted online. This was
reviewed by the Committee Chair and
feedback was provided at a meeting of the
Committee. The evaluation concluded that
the Committee continued to operate in an
efficient and effective way.
Going concern
The significant impact of Covid-19 on the
macroeconomic conditions in which the
Company is operating has meant the
Directors have placed a particular focus on
the appropriateness of adopting the going
concern basis in preparing the financial
statements for the year to 31 March 2021.
The Company’s going concern assessment
considers the Company’s principal risks (see
pages 45 to 49); and is dependent on a
number of factors, including financial
performance, continued access to
borrowing facilities and the ability to continue
to operate the Company’s debt structure
within its financial covenants. The going
concern statement can be found on page 51.
Dear Shareholder
I am pleased to present the Directors’
Remuneration Report for the year ended
31 March 2021, which hasbeen prepared
by the Remuneration Committee (‘the
Committee’) and approved by the Board.
Directors’
Remuneration Report
McKay Securities Plc
Annual Report and Financial Statements 2021
68
The report is divided into three
sections:
01
This Annual Statement of
the Remuneration Committee
Chair forthe year ended
31 March 2021, which
summarises remuneration
outcomes and how the
Remuneration Policy will
operatefor the year ending
31March 2022;
02
The Directors’ Remuneration
Policy, which presents our
Remuneration Policy which
was approved by shareholders
at the 2020 Annual General
Meeting. No changes
areproposed; and
03
The Annual Report on
Remuneration, which provides
further detail on how the
Remuneration Policy was
implemented in the year ended
31 March 2021, and how the
Remuneration Policy will operate
for theyear ending
31 March 2022.
Business context
The year to 31 March 20201 has been a
hugely challenging year for everyone.
Nevertheless, as presented elsewhere in
thisReport, the Executive Directors and
employees remained totally focused on the
Company’s priorities for the year: completion
of the sale of 30 Lombard Street, physical
completion and letting of 135 Theale
Logistics Park, maintaining rent collection
levels, retaining our tenants and minimising
voids in the portfolio.
Despite the impact of Covid-19, the Company
was extremely successful in delivering these
objectives. At the same time the Company
did not seek or receive any government
support during the year (eg furlough
payments or government backed loans),
nor has it made any Covid-19 related
redundancies.
However, in considering remuneration issues
the Committee is mindful of the reduced final
dividend paid to shareholders for the year
to31 March 2020 and the impact on our
stakeholders more generally.
Remuneration summary for the year
Executive Directors and employees received
no salary increases during the year.
In terms of performance-related pay, the
thresholds for the NAV and TSR targets for
the PSP awards granted in 2018, which are
due to vest in June 2021, were not achieved.
Consequently the 2018 PSP awards will
lapse in full in June 2021.
The annual bonus plan for Executive
Directors comprises three elements:
absolute NAV growth, adjusted earnings
pershare (EPS) and a range of strategic
corporate targets. The NAV growth
threshold was not met for the year, resulting
in 0% award for that element of bonus (30%
salary opportunity). The EPS target (45%
salary opportunity) was achieved in full,
dueto a combination of factors, including
additional income from 30 Lombard Street,
earlier and better letting of 135 Theale
Logistics Park, better than expected lease
renewal of Swan Court, Wimbledon and a
number of reductions in overheads. This
resulted in an award of 45% of salary under
the bonus formula.
Performance against the third area of bonus
aligned to strategic corporate targets (25%
salary opportunity) resulted in a partial
award of 19.5% of salary, giving a total
possible bonus award of 64.5% of salary
before the application of negative discretion
(see below).
Further details (including the targets and
performance against them) are set out in
theAnnual Report on Remuneration.
1. Annual Statement
69
Strategic Report Governance Financial Statements
Committee activities during the year
The Committee met four times during 2020/21. The main Committee
activities during the year (full details of which are set out in the Annual
Report on Remuneration) included:
• considering the Remuneration Committee’s response to Covid-19;
• determining Executive Directors’ basesalary levels for 2021/22;
• setting the Executive Directors’ bonus targets for 2020/21 and
agreeing the outturn in respect of the 2019/20 annualbonus;
• agreeing the structure of the annual bonus for 2021/22;
• determining vesting of the 2018 PSP awards which reached the end
of the three-year performance period on 31March 2021;
• overseeing the grant of the PSP awards in 2020/21 which was made
over shares worth 100% of salary to the Executive Directors and
which vest subject to the achievement of a blend of challenging
absolute NAV per share growth targets and relative TSR targets;
• considering remuneration policies and practices across the
workforce;
• considering any conflicts of interest (none were identified) and risk in
respect of the Remuneration Policy; and
• seeking shareholder approval for the new Remuneration Policy at
the 2020 AGM and considering shareholder and shareholder
representative views in this regard.
In addition, the Committee continually considers how McKay’s Policy
and practices are consistent with the six factors set out in Provision
40of the 2018 UK Corporate Governance Code:
• Clarity – our Policy is well understood by our senior team and
employees more generally and has been clearly articulated to
ourshareholders;
• Simplicity – the Committee is mindful of the need to avoid overly
complex remuneration structures which can be misunderstood and
deliver unintended outcomes. As such, our executive remuneration
policies and practices are as simple to communicate and operate as
possible, while ensuring that they are aligned to our strategy;
• Risk – our Policy is based on: (i) a combination of both short and
long-term incentive plans based on financial, non-financial and share
price-linked targets; (ii) a combination of cash and equity (both in
terms of deferred bonus and PSP awards); and (iii) a number of
shareholder protections (i.e. bonus deferral, shareholding
guidelines, malus/clawback provisions) have been designed to
reduce the risk of inappropriate risk-taking;
• Predictability – our incentive plans are subject to individual caps,
with our share plans also subject to market standard dilution limits.
The scenario charts in the Remuneration Policy illustrate how the
rewards potentially receivable by our Executive Directors vary
based on performance and share price growth;
• Proportionality – there is a clear link between individual awards,
delivery of strategy and our long-term performance. In addition, the
structure of our short and long-term incentives, together with the
structure of the Executive Directors’ service contracts, ensures that
poor performance is not rewarded; and
• Alignment to culture – McKay’s focus on office, industrial and
logistics sectors across London and the South East combined with a
number of successful development projects and intensive in-house
portfolio management is fully supported through the metrics in both
the annual bonus and long-term incentive which measure how we
perform against main KPIs that underpin the delivery of our strategy.
remuneration arrangements offered below
Board level. As such, only a limited number
ofchanges were made at the 2020 AGM to
maintain compliance with good governance:
• The maximum pension contribution rate of
20% of salary was removed with the
intention that the pension contribution for
Executive Directors will be aligned with
the workforce (10% of salary) by
31 December 2022. Going forward,
pension provision for new Executive
Directors and employees promoted to the
Board will be aligned, in percentage of
salary terms, to the general workforce
contribution rate;
• Our informal post-cessation shareholding
guideline was formalised and introduced
into Policy. Going forward, Executive
Directors will need to retain shares equal
to 100% of the shareholding guideline (i.e.
200% of salary) up until the first
anniversary of cessation, reducing to
50%of the guideline between the first
andsecond anniversary. Own shares
purchased and shares obtained from
share awards granted prior to the 2020
AGM will be excluded from the post-
cessation guideline;
• Rather than the default position under the
leaver policy being that deferred bonus/
PSP awards normally vest at cessation for
a ‘good leaver’, the Policy was updated in
line with best practice. Going forward,
rather than vesting at cessation, deferred
bonus/PSP awards will normally vest at
the normal vesting date, subject to
performance targets (where relevant)
andtime pro-rating; and
• Malus and clawback provisions in the
bonus and PSP were enhanced.
Discretion
In view of the general climate of restraint, the
Committee decided to use its discretion to
reduce the bonus award from 64.5% of
salary to 50.0% of salary. In the context of a
2.0% salary award for the year ended
31 March 2022 (0% for the year ended
31 March 2021), nil vesting of the 2018 PSP in
2021 and the successful achievement of the
Company’s principal commercial objectives
in the year to31 March 2021, the Committee
believes this to be a fair award.
Changes to the Policy approved
atthe 2020 AGM
Following a detailed review of the existing
Remuneration Policy approved by
shareholders at the 2017 AGM, the
Committee concluded the Remuneration
Policy remained fit for purpose and well
aligned to both our strategy and
McKay Securities Plc
Annual Report and Financial Statements 2021
70
Policy implementation for the year
ending 31 March 2022
The Committee continues to give careful
consideration to implementation of the Policy
for 2021/22 given the ongoing impact of
Covid-19. The proposed implementation
ofthe Policy for 2021/22 is as follows:
• Base salary increases will be limited to
thatawarded to the general workforce.
• Any new Executive Director appointment
will receive a workforce-aligned pension.
Reflecting the difficulties of changing an
existing contractual commitment
materially (as noted in the FRC’s
implementation guidance in respect of
implementing the new UK Corporate
Governance Code), the level of Executive
Director pension provision for the year to
31 March 2021 for Simon Perkins (18% of
salary) and Giles Salmon (16% of salary)
will continue albeit frozen in cash terms at
the 2020/21 value. Pension provision for
Tom Elliott (11% of salary) is already broadly
aligned with the workforce provision.
• The maximum annual bonus potential will
continue to be set at 100% of salary with
30% based on growth in Net Asset Value
(“NAV”) per share, 45% based on Earnings
Per Share (“EPS”) growth and 25% based
on Strategic targets. While the Committee
is unable to share the EPS and NAV
targets for 2021/22 due to the commercial
sensitivity, full retrospective disclosure of
the targets, result and any bonus award
will be set out in the Directors’
Remuneration Report for the year ending
31 March 2022. The strategic targets will
focus on rent collection, voids, occupier
retention, ESG progress and projects.
• Annual Bonus deferral, whereby any
bonus award in excess of 50% of salary
will be deferred into shares for three years,
will remain unchanged.
• PSP award levels will continue to be
granted over shares worth no more than
100% of salary, with 40% of awards based
on NAV growth targets and 60% of awards
based on relative Total Shareholder
Return against the selected constituents
of the FTSE All Share Real Estate
(Investment and Services REITs) index.
• Shareholding guidelines (both in
employment and post-cessation)
willremain at 200% of salary.
Shareholder consultation in respect
of the new Policy
In taking our revised Policy to the 2020 AGM,
the Committee consulted with our largest ten
shareholders and the main representative
bodies. The Committee was very grateful
forthe level of support received for the
proposals and as such, no changes will be
made to the Remuneration Policy, or the
implementation of the Policy, for the year
ending 31 March 2022.
Non-Executive Director fees
Following nil increase in 2020/21, Non-
Executive Director fees will increase by
2.0%in 2021/22.
Conclusion
Implementation of the Policy for 2021/22
reflects the continued impact of Covid-19,
whilst reflecting the need for an effective
remuneration structure at McKay.
I therefore hope that you will be supportive of
our approach and that you will therefore vote
in favour of the Directors’ Remuneration
Report (excluding the Remuneration Policy)
that will be tabled at the forthcoming AGM.
Nick Shepherd
Chair of the Remuneration Committee
17 May 2021
Directors’ Remuneration Report continued
71
Strategic Report Governance Financial Statements
2. Remuneration
PolicyReport
This section of the Annual
Report setsoutasummary of
the Directors’ Remuneration
Policy asapproved by
shareholders at the 2020 AGM.
The full Policy approved by shareholders is set out in the
Annual Report and Financial Statements 2020 which can
be found at www.mckaysecurities.plc.uk.
The principal objective of the Remuneration Committee
isto design and implement a Remuneration Policy that
promotes the long-term success of the Company. The
Committee seeks to ensure that the senior executives are
fairly rewarded in light of the Group’s performance, taking
into account all elements of their remuneration package.
Asignificant proportion of executive remuneration is
performance related, comprising an annual bonus and
aPerformance Share Plan (“PSP”). The fixed portion of
remuneration comprises basic salary, benefits and a
payment in lieu of pension.
Policy scope
The Policy applies to the Chair, Executive Directors
andNon-Executive Directors.
Policy duration
Shareholders approved the current Policy at the 2020
AGM on 23 July 2020 and it will apply from this date for
amaximum of three years.
30 Lombard Street, EC3
McKay Securities Plc
Annual Report and Financial Statements 2021
72
Summary Policy table
A summary of the Remuneration Policy is as follows:
Element Purpose and
link to strategy
Operation Maximum
opportunity
Performance
measures
Base salary
To recruit and
reward executives of
the quality required
and with appropriate
skills to manage and
develop the Group
successfully.
Reviewed annually by the
Committee, on the basis of the
performance of the individual
Executive Director and
comparability with other similarly
sized companies within the
sector and the market generally.
Paid on a monthly basis.
The Committee is guided
by the general salary
increase for the broader
employee population and
market conditions but on
occasions may need to
recognise, for example, a
change in the scale, scope
or role and/or market
movements. However, a
formal cap on salaries will
apply such that no
incumbent Executive
Director’s base salary shall
be increased beyond
£500,000.
n/a
Benefits
To p rovide
appropriate levels
ofbenefits to
executives of the
quality required and
appropriate skills to
manage and develop
the Group
successfully.
The Company typically provides:
• Car allowance
(paid monthly)
• Medical insurance
• Life assurance
The Committee reserves the
discretion to introduce new
benefits where it concludes
thatit is appropriate to do so,
having regard to the particular
circumstances and to
marketpractice.
Where appropriate, the
Company will meet certain costs
relating to Executive Director
relocations (which are not
subject to the benefits cap).
The aggregate value of any
benefits provided to any
single Director will not
exceed £75,000.
n/a
Pension
To p rovide
appropriate levels of
pension provision to
executives of the
quality required and
appropriate skills to
manage and develop
the Group
successfully.
Executive Directors can receive
pension contributions to
personal pension arrangements
or, if a Director is impacted by
annual or lifetime limits on
contribution levels to qualifying
pension plans, the balance or all
can be paid as a cash
supplement.
New Executive
Directors:
In line with the general
workforce contribution
rate (as a percentage
ofsalary).
Current Executive
Directors:
The Executive Directors
have agreed to align their
pension provision with the
general workforce by
31 December 2022.
n/a
Directors’ Remuneration Report continued
73
Strategic Report Governance Financial Statements
Element Purpose and
link to strategy
Operation Maximum
opportunity
Performance
measures
Annual bonus
To incentivise and
reward the delivery
of the Company’s
strategic objectives.
Annual bonus plan levels and the
appropriateness of measures
are reviewed annually as close
as is practicable to the
commencement of each
financial year to ensure they
continue to support our strategy.
Once set, performance
measures and targets will
generally remain unchanged for
the year, except to reflect events
such as corporate acquisitions
or other major transactions
where the Committee considers
it to be necessary in its opinion to
make appropriate adjustments.
Annual bonus plan outcomes are
paid in cash up to 50% of salary,
with three-year deferral into
shares for outcomes greater
than 50% of salary. The number
of shares subject to vested
deferred share awards may
beincreased to reflect the
valueof dividends that would
have been payable during the
vesting period.
Malus/clawback provisions
apply (see below).
Up to 100% of salary The performance
measures applied may be
financial or non-financial
and corporate divisional
or individual and in such
proportions as the
Committee considers
appropriate. Where a
sliding scale of targets is
used, attaining the
threshold level of
performance for any
measure will not typically
produce a pay-out of
more than 30% of the
maximum portion of
overall annual bonus
attributable to that
measure, with a sliding
scale to full pay-out for
maximum performance.
The Committee will also
retain the flexibility to
adjust the bonus outturn
based upon a formulaic
assessment of
performance against the
targets if it believes that
this outturn does not
reflect overall
performance and/or
shareholders’
experience.
Performance
Share Plan
(“PSP”)
To incentivise and
reward the delivery
of the Company’s
strategic objectives.
and to provide
further alignment
with shareholders
through the use of
shares and to aid
retention.
Awards under the PSP may be
granted as nil/nominal cost
options or conditional awards
which vest to the extent
performance conditions are
satisfied over a period of at least
three years. A two-year
post-vesting holding period will
also normally apply. Part/all of
vested awards may also be
settled in cash. The PSP rules
allow that the number of shares
subject to vested PSP awards
may be increased to reflect the
value of dividends that would
have been paid in respect of any
dividends payable falling
between the grant and the
release of shares.
Malus/clawback provisions
apply (see below).
Normal grant policy:
Up to 100% of salary
Maximum normal
grantlevel:
Up to 150% of salary
Exceptional grant level:
Up to 200% of salary
The Committee may set
such performance
conditions on PSP
awards as it considers
appropriate, whether
financial or non-financial
and whether corporate,
divisional or individual.
Performance periods
may be over such periods
as the Committee selects
at grant, which will not be
less than, but may be
longer than, three years.
No more than 25% of
awards vest for attaining
the threshold level of
performance.
McKay Securities Plc
Annual Report and Financial Statements 2021
74
Element Purpose and
link to strategy
Operation Maximum
opportunity
Performance
measures
Shareholding
guidelines
To align executive
and shareholder
interests.
The Committee recognises the
importance of Executive
Directors aligning their interests
with shareholders through
building up significant
shareholdings in the Group.
Executive Directors are required
to retain 100% of any PSP and
deferred bonus shares acquired
on vesting (net of tax) until they
reach the ownership guideline.
In employment:
200% of salary.
Post employment:
100% of the shareholding
guideline (i.e. 200% of
salary) up until the first
anniversary of cessation,
reducing to 50% of the
guideline between the first
and second anniversary.
Own shares purchased
and shares obtained from
share awards granted prior
to the 2020 AGM will be
excluded from the
post-cessation guideline.
n/a
Non-Executive
Director fees
To attract and retain
a high-calibre Chair
and Non-Executive
Directors by offering
appropriate fees.
The fees paid to the Chair and
Non-Executive Directors are set
by reference to comparability
with other similarly sized
companies within the sector and
the market generally. The fees
payable to the Non-Executive
Directors are determined by the
Board, with the Chair’s fees
determined by the Committee.
The Chair and Non-Executive
Directors will not participate in
any cash or share incentive
arrangements.
The Company reserves the right
to provide benefits including
travel and office support. Fees
are paid on a monthly basis.
When determining fee
increases, the Company is
guided by the general
increase for the broader
employee population and
market conditions but on
occasion may need to
recognise, for example,
change in responsibility,
time commitment and/or
market movements.
The aggregate fees and
any benefits of the Chair
and Non-Executive
Directors will not exceed
the limit from time to time
prescribed within the
Company’s Articles of
Association for such fees.
n/a
Notes
1. The Committee operates incentive plans according to their respective rules and where relevant in accordance with the Listing Rules. Consistent with market practice, the Committee
retains discretion over a number of areas relating to the operation and administration of the plan. These include, but are not limited to, determining who participates, the timing of
awards, award levels, setting performance targets, amending performance targets (if an event occurs, in exceptional circumstances, to enable the targets to fulfil their original
purpose), assessing performance targets, treatment of awards on a change of control, treatment of awards for leavers and adjusting awards (e.g. as a result of a change in capital
structure).
2. The annual bonus and PSP are based on performance against targets that are aligned with the Company’s short, medium and long-term strategic plan. Where appropriate, a sliding
scale of targets is set for each metric to encourage continuous improvement and the delivery of stretch performance.
3. There are currently no material differences in the broad structure of remuneration arrangements for the Executive Directors and the general employee population, aside from
participation rates in incentive schemes. While the appropriate benchmarks vary by role, the Company seeks to apply the philosophy behind this policy across the Company as a
whole. To the extent that the Group’s pay policy for Directors differs from its pay policies for groups of staff, this reflects the appropriate market rate position and/or typical practice
for the relevant roles. The Company takes into account pay levels, bonus opportunity and share awards applied across the Group as a whole when setting the Executive Directors’
remuneration policy.
4. For the avoidance of doubt, in approving this Directors’ Remuneration Policy, authority was given to the Company to honour any commitments entered into with current or former
Directors (such as the payment of the prior year’s annual bonus or the vesting/exercise of share awards granted in the past). Details of any payments to former Directors will be set out
in the Annual Report on Remuneration as they arise.
5. The Regulations and related investor guidance encourages companies to disclose a cap within which each element of the Directors’ Remuneration Policy will operate. Where
maximum amounts for elements of remuneration have been set within the Directors’ Remuneration Policy, these will operate simply as caps and are not indicative of any aspiration.
6. While the Committee does not consider it to form part of benefits in the normal usage of that term, it has been advised that corporate hospitality, whether paid for by the Company or
another, and business travel for Directors and in exceptional circumstances their families, may technically come within the applicable rules and so the Committee expressly reserves
the right for the Committee to authorise such activities within its agreed policies.
7. The Committee may make minor amendments to the Policy set out above for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation,
without obtaining shareholder approval for that amendment.
Directors’ Remuneration Report continued
75
Strategic Report Governance Financial Statements
Malus and clawback provisions
Malus and clawback provisions operate in
respect of the annual bonus and PSP:
• material misstatement of financial results
• an error in calculating a performance
condition
• gross misconduct
• significant reputational damage
• corporate failure or insolvency
How the views of shareholders are
taken into account
The Remuneration Committee considers
shareholder feedback received each year
following the AGM. This feedback, plus any
additional feedback received during any
meetings from time to time, is then
considered as part of the Company’s annual
review of the operation of our remuneration
practices. In addition, the Remuneration
Committee will seek to engage directly with
major shareholders and their representative
bodies should any material changes be
proposed to the Remuneration Policy.
Details of votes cast for and against the
resolution to approve this Remuneration
Policy and last year’s remuneration report
and any matters discussed with
shareholders during the year are set out in
the Directors’ Remuneration Report (subject
to issues of commercial sensitivity).
How the views of employees are
taken into account
When determining salaries and other
elements of remuneration for our Executives,
the Committee takes account of general pay
movement and employment conditions
elsewhere in the Group, as well as the
relevant general markets. The Committee
takes due account of employees’ views when
determining the design of the Group’s senior
executive Remuneration Policy although,
reflecting typical current practice, the
Committee does not formally consult with
employees when determining remuneration
of the Executive Directors.
Remuneration-related risk
The Committee is satisfied that the
Remuneration Policy, and the way that it is
operated, does not encourage inappropriate
risk taking or expose the Remuneration
Committee to material remuneration-related
risks. The remuneration arrangements at
McKay:
• have been designed to align the interests
of the Executives (and employees, given
that there is strong alignment of packages
internally) with shareholders and to
support the sustainable delivery of the
Company strategy; and
• contain a number of shareholder
protections (i.e. malus and clawback
provisions, shareholding guidelines,
bonus deferral and post-vesting holding
periods on PSP awards).
As such, the Committee remains satisfied the
controls and procedures in place to mitigate
remuneration-related risks for Executive
Directors and the employee population more
generally are appropriate and proportionate.
Share price growth
Long-term incentive
Annual bonus
Fixed pay
£0
£250
£500
£750
£1,000
£1,250
£1,500
£1,750
£0
£250
£500
£750
£1,000
£1,250
£1,500
£1,750
£0
£250
£500
£750
£1,000
£1,250
£1,500
£1,750
Minimum
100%
£510
£818
£1,332
£1,537
62%
25%
31% 27%
31% 27%
13%
13%
38% 33%
On-target Maximum Maximum
with share
price growth
Chief Executive Ocer
Minimum
100%
£339
£541
£877
£1,012
63%
25%
31% 27%
30% 27%
12%
12%
39% 34%
On-target Maximum Maximum
with share
price growth
Chief Financial Ocer
Minimum
100%
£282
£458
£753
£871
61%
25%
31% 27%
32% 27%
14%
13%
37% 32%
On-target Maximum Maximum
with share
price growth
Property Director
Share price growth
Long-term incentive
Annual bonus
Fixed pay
£0
£250
£500
£750
£1,000
£1,250
£1,500
£1,750
£0
£250
£500
£750
£1,000
£1,250
£1,500
£1,750
£0
£250
£500
£750
£1,000
£1,250
£1,500
£1,750
Minimum
100%
£510
£818
£1,332
£1,537
62%
25%
31% 27%
31% 27%
13%
13%
38% 33%
On-target Maximum Maximum
with share
price growth
Chief Executive Ocer
Minimum
100%
£339
£541
£877
£1,012
63%
25%
31% 27%
30% 27%
12%
12%
39% 34%
On-target Maximum Maximum
with share
price growth
Chief Financial Ocer
Minimum
100%
£282
£458
£753
£871
61%
25%
31% 27%
32% 27%
14%
13%
37% 32%
On-target Maximum Maximum
with share
price growth
Property Director
Share price growth
Long-term incentive
Annual bonus
Fixed pay
£0
£250
£500
£750
£1,000
£1,250
£1,500
£1,750
£0
£250
£500
£750
£1,000
£1,250
£1,500
£1,750
£0
£250
£500
£750
£1,000
£1,250
£1,500
£1,750
Minimum
100%
£510
£818
£1,332
£1,537
62%
25%
31% 27%
31% 27%
13%
13%
38% 33%
On-target Maximum Maximum
with share
price growth
Chief Executive Ocer
Minimum
100%
£339
£541
£877
£1,012
63%
25%
31% 27%
30% 27%
12%
12%
39% 34%
On-target Maximum Maximum
with share
price growth
Chief Financial Ocer
Minimum
100%
£282
£458
£753
£871
61%
25%
31% 27%
32% 27%
14%
13%
37% 32%
On-target Maximum Maximum
with share
price growth
Property Director
Performance scenario charts £’000
McKay Securities Plc
Annual Report and Financial Statements 2021
76
It has been the Committee’s general policy
that the service contracts of Executive
Directors (none of which are for a fixed term)
should provide for termination of
employment by giving up to 12 months’ notice
or by making a payment of an amount equal
to a maximum of 12 months’ basic salary
andpension contributions in lieu of notice.
Itis the Committee’s general policy that no
Executive Director should be entitled to a
notice period or payment on termination of
employment in excess of the levels set out in
his or her service contract. Any payments
made to a departing Executive Director may
include, but are not limited to, paying any fees
for outplacement assistance and/or the
Director’s legal and/or professional advice
fees in connection with his/her cessation of
office or employment.
Annual bonus may be payable in respect of
good leavers with respect to the period of the
financial year served although it will normally
be prorated and paid at the normal pay-out
date. Any share-based entitlements granted
to an Executive Director under the
Company’s share plans will be determined
based on the relevant plan rules. However,
incertain prescribed circumstances, such
asdeath, ill-health, disability, retirement
orother circumstances at the discretion of
the Committee, ‘good leaver’ status may be
applied. For good leavers, share awards will
normally vest on the normal vesting date,
andfor performance-based share awards,
vesting will normally be subject to the
satisfaction of the relevant performance
conditions at that time and the number of
shares under award would be reduced pro
rata to reflect the proportion of the
performance period actually served,
although the Remuneration Committee has
the discretion to: (i) vest awards at cessation;
and (ii) for performance-based awards,
disapply the application of time prorating
ifitconsiders it appropriate to do so.
External appointments
The Company’s policy is to permit an
Executive Director to serve as a Non-
Executive Director elsewhere when this
does not conflict with the individual’s duties
to the Company, and where an Executive
Director takes such a role they may be
entitled to retain any fees which they earn
from that appointment. Such appointments
are subject to approval by the Chair.
Atpresent no Executive Director holds
anysuch external appointments.
Service contracts
The Executive Directors’ service contracts
are terminable by the Company on not less
than one year’s notice. In each case the
contracts (which are available for inspection
at the Group’s head office) are subject to six
months’ notice by the Executive Director.
The service contracts are dated as follows:
Executive Director Date of service contract
S. Perkins 16 March 2004
G. Salmon 2 May 2011
T. Elliott 8 July 2016
The Non-Executive Directors have rolling
terms of appointment, providing for them
toretire by rotation in accordance with the
Articles of Association. In line with the UK
Corporate Governance Code all Directors
will submit themselves for re-election
annually. The terms of appointment for
theNon-Executive Directors are dated
asfollows:
Non-Executive Director Date of service contract
R. Grainger 1 May 2014
J. Austen 8 July 2016
N. Shepherd 21 January 2015
J. Bates 17 January 2017
H. Sachdev 13 April 2021
Directors’ Remuneration Report continued
Approach to recruitment
andpromotions
The remuneration package for a new
Executive Director would be set in
accordance with the terms of the Company’s
prevailing approved Remuneration Policy
atthe time of appointment and take into
account the skills and experience of the
individual, the market rate for a candidate of
that experience and the importance of
securing the relevant individual. Salary would
be provided at such a level as required to
attract the most appropriate candidate and
may be set initially at a below mid-market
level on the basis that it may increase once
expertise and performance has been proven
and sustained. The caps on fixed pay in the
Policy table will not apply to a new recruit, as
provided for in the Regulations. The annual
bonus potential would be limited to 100% of
salary, and grants under the PSP would be
limited to 100% of salary (up to 200% of
salary in exceptional circumstances).
Inaddition, the Committee may offer
additional cash and/or share-based
elements to replace deferred or incentive
pay forfeited byan executive leaving a
previous employer. It would seek to ensure,
where possible, that these awards would be
consistent with awards forfeited in terms of
vesting periods, expected value and
performance conditions. For an internal
Executive Director appointment, any variable
pay element awarded in respect of the prior
role may be allowed to pay out according to
its original terms. For external and internal
appointments, the Committee may agree
that the Company will meet certain
relocation and/or incidental expenses
asappropriate.
Approach to leavers
There are no predetermined provisions
forcompensation within the Executive
Directors’ service contracts in the event of
loss of office. The Committee considers all
proposals for the early termination of the
service contracts for Executive Directors
and senior executives and would observe
theprinciple of mitigation.
77
Strategic Report Governance Financial Statements
3. Annual Report
onRemuneration
Committee role and
membership
The Committee consists solely of Non-Executive Directors.
Themembers of the Committee who served during the year are:
NShepherd – Chair; J Austen; J Bates; R Grainger. H Sachdev
joinedthe Committee from 13 April 2021.
No member has any personal interest in the matters decided by
theCommittee, nor any day-to-day involvement in the running of
thebusiness and therefore all members are considered by the
Company to be independent. The Committee members have no
personal financial interest, other than as shareholders, in the
mattersto bedecided.
The Terms of Reference of the Remuneration Committee are
available on the Company’s website, www.mckaysecurities.plc.uk.
Details of the Committee members’ attendance at Committee
meetings during the financial year are as follows:
Committee member Number of meetings attended
N Shepherd 4 out of 4
J Austen 4 out of 4
J Bates 4 out of 4
R Grainger 4 out of 4
External and internal advisors
During the year the Committee received independent advice
fromFIT Remuneration Consultants LLP (“FIT”) on a range of
remuneration issues. FIT has no other connection nor does it provide
any other services to the Company. Total fees paid to FIT in respect
of its services to the Committee during the year, based on time
andmaterials, were £23,754 ex VAT. FIT are long standing
remuneration advisors and the Remuneration Committee is satisfied
their advice was objective and independent. FIT is a member of the
Remuneration Consultants Group and abides by the Remuneration
Consultants Group Code of Conduct, which requires its advice to
beobjective and impartial. The CEO attends meetings by invitation,
but is not involved in the discussion of his own remuneration.
Portsoken House, EC3
McKay Securities Plc
Annual Report and Financial Statements 2021
78
Directors’ remuneration for the year ended 31 March 2021 (audited)
Single figure table
The remuneration of the Directors for the years 2021 and 2020 was as follows:
Directors’
remuneration
Salary/Fees
£’000
Benefits
1
£’000
Pension
including
£’000
Tota l
fixed pay
£’000
Annual
bonus
2
£’000
Value of
long-term
incentives
4
£’000
Tota l
variable pay
£’000
Tota l
remuneration
£’000
Executive
S Perkins 2021 403 28 71 502 201 0 201 703
2020 403 27 71 501 235 155 390 891
G Salmon 2021 264 32 42 338 132 0 132 470
2020 264 34 43 341 154 102 256 597
T Elliott 2021 231 25 25 281 116 0 116 397
2020 231 26 26 283 135 89 224 507
Non-Executive
R Grainger 2021 90 – – 90 – – – 90
2020 90 – – 90 – – – 90
J Austen 2021 46 – – 46 – – – 46
2020 46 – – 46 – – – 46
J Bates 2021 41 – – 41 – – – 41
2020 41 – – 41 – – – 41
N Shepherd 2021 46 – – 46 – – – 46
2020 46 – – 46 – – – 46
Total 2021 1,792
2020 2,215
Notes
1. Benefits comprise car allowance and medical insurance.
2. Zero % of the 2021 bonus figures presented above will be deferred into shares for three years.
3. The values for long-term incentive provision in the table above for 2021 would be estimated based on the average three-month share price to 31 March 2021 of £2.02,
however the out-turn was zero.
4. The value of LTIP includes dividend equivalents.
Directors’ Remuneration Report continued
79
Strategic Report Governance Financial Statements
Annual bonus
The annual bonus for the year ended 31 March 2021 was based on the following targets:
Metric
Weighting
%
% of
salary
Threshold
%
Maximum
%
Actual
%
% of
maximum
% of
salary
NAV growth 30 30 RPI + 3 RPI + 10 <RPI + 3 0 0
EPS growth 45 45 90 110 >110 100 45
Strategic targets 25 25 See below 78 19.5
Total 100 100 64.5
Negative direction applied – see below
(14.5)
Revised bonus outcome
50.0
Strategic targets
Metric Weighting Target Committee assessment Out turn
Rent collection 5% 60% or more within 7 days
90% or more cash collection for 2020/21
Combined cash and ‘agreed’ target of 97%
ormore for 2020/21
72% of rent collected within 7 days
96% cash collected for year to
31 March 2021
98% cash agreed for year to
31 March 2021
5%
Voids 5% Portfolio void to be less than 10% at the year end Voids significantly higher than 10%,
so target not met
0%
Occupier retention 5% 50% or more, for lease events where the tenant
could exit
72% of tenants in this class were retained 5%
ESG 5% Performance against targets (see ESG section) Most targets met successfully 4.5%
Construction project
progress
5% Committee assessment of budget,
programmeand quality
Theale Logistics Park completed and
letearlier than assumed
5%
Total 25% 19.5%
The Committee reviewed the absolute outcomes of each of the three bonus elements. Whilst the Group has achieved significant successes
with the letting of Theale Logistics Park, sale of 30 Lombard Street, EC3 and the renewal at Swan Court, Wimbledon during a difficult
operating environment, it was felt negative discretion was appropriate this year.
Bonus payments (cash or shares) are subject to clawback. Overpayments may be reclaimed in the event of performance achievements
being found to be materially misstated or erroneous, or in the event of misconduct.
McKay Securities Plc
Annual Report and Financial Statements 2021
80
Long-term incentives – vesting of awards
The PSP award granted on 8 June 2018 was subject to performance, for the three years ended 31 March 2021. The performance conditions
attached to this award and actual performance against these conditions were as follows:
Metric
Weighting
% Performance condition Threshold target Maximum
Actual
performance
Vesting
%
NAV growth 40 Average NAV per share growth of 12% (threshold)
to35% (full vesting) over three financial years
12% 35% <12% 0%
Relative TSR 60 Relative TSR performance against a group of
quoted real estate sector companies over three
financial years. 30% of this part of the award
vests for achieving threshold performance,
increasing on a straight-line basis to full vesting
for achieving the stretch target.*
Median Upper < Median 0%
Total 0%
Based on the vesting percentage above, details of the shares under award and their estimated value (based on the three-month average
share price to 31 March 2021 of £2.02 per share) is as follows:
Number
of shares
at grant
Number
1
of shares
to lapse
Number
of shares
to vest
1
Estimated
dividend
equivalents
Total number
of shares
estimated
to vest
Value
of awards
vesting
Impact of
2
share price
on vesting
S Perkins 147,940 147, 9 40 0 0 0 0 n/a
G Salmon 96,816 96,816 0 0 0 0 n/a
T Elliott 84,869 84,869 0 0 0 0 n/a
1. Based on the three-month average share price to 31 March 2021 of £2.02.
2. Based on the number of shares vesting (excluding dividend equivalents) multiplied by difference between the share price at the date of grant (£2.67) and the three-month average
share price to 31 March 2021.
Long-term incentives – grant of awards (audited)
The following awards were granted to the Executive Directors on 23 June 2020:
Type of award Basis of award
Share price
at grant
1
Number
of shares
under award
1
Face value
of award
£
% of award
vesting at
threshold
Performance
period
S Perkins
Nil
cost
option
100%
of salary £2.01 200,448 402,900 25%
Three years to
31 March 2023
G Salmon
100%
of salary £2.01 131,194 263,700 25%
T Elliott
100%
of salary £2.01 114,975 231,100 25%
1. Based on the average five-day share price prior to 22 June 2020.
The performance targets were as follows:
Metric Weighting Performance condition Threshold target Maximum
NAV growth 40% NAV per share growth over three financial years 12% 35%
Relative TSR 60% Relative TSR performance against a group of quoted real
estatesector companies over three financial years.
25% of this part of the award vests for achieving threshold
performance, increasing on a straight-line basis to full vesting
forachieving the stretch target.
Median Upper quartile
* Details of the TSR comparator companies can be found here: www.mckaysecurities.plc.uk/investor-relations/performance-share-plan.
Directors’ Remuneration Report continued
81
Strategic Report Governance Financial Statements
Details of outstanding share awards (audited)
31 March
2020
Number of
shares
Granted in
2020/21
Number of
shares
Vested in
2020/21
Number of
shares
Lapsed in
2020/21
Number of
shares
31 March
2021
Number of
shares
Share price
at grant
£
Date from
exercisable/
vesting Expiry
PSP Awards
S Perkins
2017 PSP 167,467 – 80,987 86,480 – 2.29 18.07.2020 17.07. 2027
2018 PSP 147, 940 – – – 147,940 2.67 08.06.2021 07.06. 2028
2019 PSP 169,286 – – – 169,286 2.38 09.06.2022 09.06.2029
2020 PSP – 200,448 – – 200,448 2.01 22.06.2023 22.06.2030
484,693 200,448 80,987 86,480 517,674
G Salmon
2017 PSP 109,607 – 53,006 56,601 – 2.29 18.07.2020 17.07.2027
2018 PSP 96,816 – – – 96,816 2.67 08.06.2021 07.06. 2028
2019 PSP 110,798 – – – 110,798 2.38 09.06.2022 09.06.2029
2020 PSP – 131,194 – – 131,194 2.01 22.06.2023 22.06.2030
317, 221 131,194 53,006 56,601 338,808
T Elliott
2017 PSP 96,070 – 46,459 49,611 – 2.29 18.07.2020 17.07.2027
2018 PSP 84,869 – – – 84,869 2.67 08.06.2021 07.0 6 .2028
2019 PSP 97,1 01 – – – 97,101 2.38 09.06.2022 09.06.2029
2020 PSP – 114,975 – – 114,975 2.01 22.06.2023 22.06.2030
278,040 114,975 46,459 49,611 308,146
Deferred Bonus Awards
1
S Perkins
2018 Deferred bonus 25,227 – – – 25,227 2.67 08.06.2021 07.06. 2028
2019 Deferred bonus 22,820 – – – 22,820 2.38 10.06.2022 09.06.2029
2020 Deferred bonus – 16,995 – – 16,995 1.97 11.01.2023 10.01.2030
48,047 16,995 – – 65,042
G Salmon
2018 Deferred bonus 16,511 – – – 16,511 2.67 08.06.2021 07.0 6.2028
2019 Deferred bonus 14,934 – – – 14,934 2.38 10.06.2022 09.06.2029
2020 Deferred bonus – 11,123 – – 11,123 1.97 11.01.2023 10.01.2030
31,445 11,123 – – 42,568
T Elliott
2018 Deferred bonus 14,472 – – – 14,472 2.67 08.06.2021 07.06. 2028
2019 Deferred bonus 13,091 – – – 13,091 2.38 10.06.2022 09.06.2029
2020 Deferred bonus – 9,748 – – 9,74 8 1.97 11.01.2023 10.01.2030
27,563 9,748 – – 37,311
1. There was no deferred bonus award in 2017.
Prior year LTIPs
Value at
1
31 March 2020
Value
at vesting
S Perkins 142 152
G Salmon 93 100
T Elliott 81 87
1. In respect of the values down for the 2020 PSP awards, the table above shows the change in value between the year end estimate and the actual pre-tax value at the vesting date.
McKay Securities Plc
Annual Report and Financial Statements 2021
82
Statement of Directors’ shareholdings and share interests (audited)
5
Beneficially
owned at
31 March 2020
Beneficially
owned at
31 March 2021
Outstanding PSP
performance
awards
Outstanding
deferred bonus
awards
Shareholding
1, 4
as a % of salary
S Perkins 347,696 347,696
2
517,674 65,042 227%
G Salmon 167, 334 167,3 34 338,808 42,568 178%
T Elliott 39,073 39,073
3
308,146 37, 311 78%
R Grainger 47,638 57,638 N/A N/A N/A
J Austen 20,500 25,350 N/A N/A N/A
J Bates – – N/A N/A N/A
N Shepherd 23,315 23,315 N/A N/A N/A
1. Based on year end salaries and share price as at 31 March 2021 of £2.15 per share, and based on beneficially owned shares and vested PSP awards (using the net of tax numbers
where awards are yet to be exercised).
2. Beneficial holdings, as defined by the Companies Act, would include a further 5,602 shares.
3. Beneficial holdings, as defined by the Companies Act, would include a further 5,200 shares.
4. Executive Directors are required to build up a holding of shares in the Company to the value of 200% of salary.
5. H Sachdev appointed to the Board on 13 April 2021 holds no shares in the Company.
Payments for loss of office and payments to past Directors (audited)
No payments were made for loss of office and no payments were made to past Directors in the year ended 31 March 2021.
Percentage change in the remuneration of the Board
The table below shows the percentage change in each Director’s remuneration (excluding the value of any long-term incentives and pension
benefits receivable in the year) between 2019/20 and 2020/21 compared to that of the average for all employees of the Group.
% Change from 2019/20 to 2020/21
Salary Benefits Bonus
S Perkins 0% 8% -14%
G Salmon 0% 3% -14%
T Elliott 0% -4% -14%
R Grainger 0% N/A N/A
J Austen 0% N/A N/A
J Bates 0% N/A N/A
N Shepherd 0% N/A N/A
Average employees 0% -2% -14%
Directors’ Remuneration Report continued
83
Strategic Report Governance Financial Statements
TSR performance
The chart below shows the Company’s TSR compared to the FTSE Real Estate Index and the FTSE All Share Index over the past ten years.
This chart shows the value of £100 invested in the FTSE Real Estate Index and the FTSE All Share Index. These indices have been chosen by
the Remuneration Committee as they are considered to be an appropriate benchmark against which to assess the relative performance of
theCompany.
50
100
150
200
250
300
350
202120202019201820172016201520142013201231 March 2011
McKay Securities Plc FTSE 350 Real Estate Index FTSE All Share Index
Source: Datastream
CEO total remuneration
The total remuneration figures for the Chief Executive Officer during each of the last ten financial years are shown in the table below. The total
remuneration figure includes the annual bonus based on that year’s performance and PSP awards based on three-year performance periods
ending just after the relevant year end. The annual bonus payout and PSP vesting level, as a percentage of the maximum opportunity, are also
shown for each of these years.
31 March
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Total
remuneration
(£’000) £410 £413 £802 £1,139 £1,197 £690 £902 £805 £891 £703
Annual bonus
1
(% of salary) 10 13 45 55 70 28 68 64 58 50
PSP vesting
(% of max) 0 0 60 100 100 40 40 14 48 0
1. From 2019 onwards.
McKay Securities Plc
Annual Report and Financial Statements 2021
84
Relative importance of the spend on pay
The following table shows the Company’s actual spend on pay (for all employees) relative to dividends.
31 March
2020 2021 % change
Staff costs (£’m)
1
£3.70 £3.23 -13%
Dividends (£’m)
1
£6.79 £7.75 +14%
£1.57 million of the staff costs in 2020/21 figures relate to pay for the Executive Directors. This is different to the aggregate of the single figures
for the year under review due to the way in which the share-based awards are accounted for. The dividend figures relate to amounts payable
in respect of the relevant financial year.
1. The final dividend of 5.5 pence per share will be paid on 93.02 million shares subject to further buybacks until the record date of 28 May 2021 (94.26 million for 2019/20).
CEO pay ratio
CEO pay ratio data is presented below on a voluntary basis for the year ended 31 March 2021 (as McKay has fewer than 250 employees, it is
not required to disclose this information). The data shows how the CEO’s single figure remuneration for 2020/21 (as taken from the single
figure remuneration table) compares to equivalent single figure remuneration for full-time equivalent UK employees ranked at the 25th, 50th
and 75th percentiles. Comparatives in respect of the ratio data for the prior two years is also shown.
Year Method
25th percentile Median 75th percentile
2020/21 Option A 5:1 7:1 12:1
2019/20 Option A 5:1 8:1 13:1
2018/19 Option A 5:1 8:1 11:1
No components of pay and benefits have been omitted for the purpose of the above calculations. Option A was selected by the Committee
given that this method of calculation was considered to be the most robust approach statistically.
Option A is a single total remuneration figure for each employee on which to identify the lower quartile, upper quartile and median individuals
for the calculation.
Year
CEO salary
data:
Quartile salary data:
CEO single
figure:
Quartile total pay and benefits data:
25th %tile Median 75th %tile 25th %tile Median 75th %tile
2020/21 £402,900 £42,600 £56,100 £84,700 £703,850 £60,836 £99,929 £136,855
2019/20 £402,900 £42,600 £55,600 £96,500 £877,000 £67,4 33 £107,695 £172,870
2018/19 £395,000 £46,400 £54,400 £94,600 £805,000 £71,560 £100,434 £164,222
Gender pay
McKay is not required to publish gender pay statistics given that it has fewer than 250 employees. However, the Board considers gender pay
in detail and is committed to fairness. Voluntary disclosure will be kept under review although the calculations are not considered to be
statistically robust at the current time given McKay’s low number of employees.
Statement of shareholder voting
The following table presents the voting at the: (i) 2020 AGM in respect of the Directors’ Remuneration Policy; and (ii) the 2020 AGM in respect
of the Directors’ Remuneration Report:
Remuneration Policy
2020 AGM
Remuneration Report
2020 AGM
Number of votes % Number of votes %
Proxy votes cast in favour 52,965,150 95.99 53,272,229* 99.94
Proxy votes cast against 2,214,714 4.01 31,822 0.06
Total votes cast 55,179,864 100 53,304,051 100
Proxy votes withheld 53,408 1,929,221
* Includes discretionary votes of 880,161.
Directors’ Remuneration Report continued
85
Strategic Report Governance Financial Statements
Implementation of the Remuneration Policy for the year ending
31 March 2022
Salaries
Base salaries will be increased by 2% from 1 April 2021 in line with the general workforce increase.
Current salary levels are as follows:
Salary as at
1 April 2020
£
Salary as at
1 April 2021
£
S Perkins 402,900 411,000
G Salmon 263,700 269,000
T Elliott 231,100 235,700
Benefits and pension
No changes will be made to benefit or provision. However, as stated in last year’s Directors’ Remuneration Report:
• the Executive Directors have agreed to reduce their pension provision to 10% of salary by 31 December 2022 so that it is aligned with the
workforce provision from the start of 2023 onwards; and
• any new Executive Director appointment would receive a workforce-aligned pension from appointment.
Annual bonus scheme
The maximum annual bonus potential will continue to be set at 100% of salary and performance metrics will be 30% based on growth in Net
Asset Value (“NAV”) per share, 45% based on Earnings Per Share (“EPS”) growth and 25% based on Strategic targets with NAV and EPS targets
straddling internal and external forecasts. While the Committee is unable to share the target ranges for 2021/22 at this point, full retrospective
disclosure of the targets, result and any bonus award will be set out in the Directors’ Remuneration Report for the year ending 31 March 2022.
Annual bonus deferral, whereby any bonus award in excess of 50% of salary will be deferred into shares for three years, will remain unchanged.
Performance Share Plan
PSP awards to be granted in the year ending 31 March 2022 will be subject to the following targets:
Performance condition
Threshold target
(25% vesting)
Stretch target
(100% vesting)
End of
performance
period
Relative TSR against a bespoke group of quoted real estate companies
aslisted onthewebsite (60% of award) Median Upper quartile 31 March 2024
Absolute NAV per share growth (40% of award) Growth of 12% Growth of 35% 31 March 2024
The Committee considers the above targets to be appropriately challenging. Consistent with previous years, Executive Directors will receive
a PSP award equivalent in value to 100% of salary. Clawback provisions will continue to apply, as will a two-year post-vesting holding period.
Fees for the Chair and Non-Executive Directors
1, 2
Fees as at
1 April 2020
Fees as at
1 April 2021
R Grainger £90,000 £91,800
J Austen £45,500 £46,400
J Bates £40,500 £41,300
N Shepherd £45,500 £46,400
1. Helen Sachdev joined the Board on 13 April 2021 on an annual salary of £41,300.
2. Article 87 of the Company’s Articles of Association currently limits the payment of directors’ fees to £250,000 in aggregate each year, or any higher sum decided on by an ordinary
resolution at a general meeting. As part of a broader update to the Company’s Articles which will be proposed at the Company’s 2021 Annual General Meeting in order to bring the
Articles in line with market practice and the 2018 UK Corporate Governance Code, the proposed new Articles increase the aggregate limit on Directors’ fees to £400,000 per
annum. The new proposed aggregate limit has been calculated taking account of the recent appointment of a Non-Executive Director to the Company and in order to ensure that
there is adequate headroom for future appointments to the Board and/or for future changes to the fees payable to the Company’s Directors, where that is considered to be in the best
interests of the Company.
The Directors’ Annual Remuneration Report has been approved by the Board of Directors.
Signed on behalf of the Board of Directors.
By Order of the Board:
Nick Shepherd
Chair of the Remuneration Committee
17 May 2021
The Directors present their report
and audited financial statements for
the year ended 31 March 2021.
McKay Securities Plc
Annual Report and Financial Statements 2021
86
Directors’ Report
Introduction
This report is prepared in line with Schedule
7 of the Large and Medium Sized Companies
and Groups (Accounts and Reports)
Regulations 2008. As permitted under the
Companies Act 2006 Section 414C (11) and
Listing Rule 9.8.4R some of the matters in
this report have been included in the
following pages of the Annual Report:
Section Page
Business Model and Strategy 16 to 17
Business Purpose, Culture
andValues
4
Future Business Developments 7
Stakeholder Engagement 20 to 21
Principal Risks and Uncertainties 45 to 49
Viability and Going Concern
Statements 50 to 51
Greenhouse Gas Emissions 37
Financial Instruments 118
Corporate Governance Report 58 to 87
Statement of Directors’
Responsibilities 88
Diversity Policy 64
Payment of Creditors 117
Directors’ Engagement
withEmployees 60
Activity and assets
McKay Securities Plc is a Real Estate
Investment Trust (“REIT”) based in the United
Kingdom. The subsidiary undertaking
principally affecting the profits or net assets
of the Company in the year is listed in note
13 of the Annual Report and Financial
Statements. The Company is listed on the
main market of the London Stock Exchange.
Property valuations
The Company’s properties were valued by
an external professional valuer at 31 March
2021. A decrease in value of £28.51 million
(2020: decrease £2.20 million) has been
included in the Consolidated Profit and
Lossand Other Comprehensive Income
Statement.
After taking into account retained profits
anddividends paid during the year, basic
netasset value per share at 31 March 2021
was 309 pence (2020: 328 pence).
Profit and dividend
The profit for the year is set out in the
Consolidated Profit and Loss and Other
Comprehensive Income Statement.
Profit before tax was £9.96million (31 March
2020: £9.12 million).
Under the REIT regime the Company will,
inthe normal course of business, be required
to pay at least 90% of its relevant income
arising in each accounting period, by way
ofaPID, but in addition may also make
distributions to shareholders by way
ofnon-PID dividend payments.
The Directors have recommended a final
dividend of 5.5 pence per share, all of which
will be paid as an ordinary dividend, making a
total for the year of 8.3 pence per share
(2020: 7.2 pence).If approved at the AGM on
1 July 2021 the dividend will be paid on
22 July 2021 to shareholders recorded on
the register at the close of business on
28 May 2021.
Directors
The Board of Directors for the financial year
to 31 March 2021 was:
R Grainger
S Perkins
G Salmon
T Elliott
J Austen
J Bates
N Shepherd
Mrs H Sachdev joined the Board and
itsCommittees on 13 April 2021.
Details of the Chairs and members of the
Audit and Risk Committee, Nomination
Committee, and Remuneration Committee
are provided in each of the Committee Reports.
Appointment and replacement
of Directors
The rules about the appointment and
replacement of Directors are contained
inthe Companies Act 2006, legislation
andthe Company’s Articles. In accordance
with the Company’s Articles and the 2018 UK
Corporate Governance Code all the
Directors being eligible will offer themselves
for re-election at the 2021 AGM.
Biographical details of the Directors
aresetout on pages 56 and 57.
Directors’ interests
Apart from service contracts and share
options, details of which are set out in the
Directors’ Remuneration Report from page
68 onwards, no Director had a material
business interest during the year in any
contract with the Company.
Details of the Directors’ interests in the
ordinary shares of the Company and share
options are provided in the Directors’ Annual
Remuneration Report on pages 80 to 82.
Directors’ powers
The Company’s Directors have powers set
out within the Companies Act 2006,
legislation and the Company’s Articles of
Association, in particular powers in relation
to the allotment and repurchase of its own
Company shares as granted by shareholders
at the 2020 AGM.
Share buy-back programme
On 8 March 2021 the Company announced
ashare buy-back programme. The Board
setthe total size of the programme at up to
£10.0 million or approximately 5% of the
Company’s issued ordinary share capital.
Asat 17 May 2021, 1,321,376 shares at a
nominal value of £264,275.20 were
repurchased and cancelled. This amounts
to1.41% of ordinary issued sharecapital.
Directors’ and officers’
liability insurance
In accordance with Article 140 of the
Articlesand to the extent permitted by
theCompanies Act 2006, the Company
maintains Directors’ and officers’ liability
insurance, which is reviewed annually.
87
Strategic Report Governance Financial Statements
Substantial shareholdings
In addition to the Directors’ interests referred
to on page 82 of the Directors’ Annual
Remuneration Report, the Company has
been notified in accordance with the UK
Listing Authority’s Disclosure Guidance and
Transparency Rules of the following holdings
of the Company’s shares (see note 18 of the
financial statements) as at 31 March 2021:
Shares %
Aberforth Partners
LLP 13,185,559 14.02
Tristan Capital
Partners LLP 12,392,709 13.15
Bank of Montreal*
(BMO) 9,488,840 10.06
* 9.06% are held by Thames River Capital LLP.
Notification since 31 March 2021:
Shares %
Bank of Montreal*
(BMO) 9,272,324 9.97
* 8.42% are held by Thames River Capital LLP.
Political donations
No political donations were made during
theyear (2020: nil).
Charitable donations
The Company donates to local and national
charities as appropriate during the year.
Fordetails please see the Sustainability
Review onpage 40.
Change of control
Some of the Company’s banking
arrangements may be terminable upon a
change of control of the Company.
The Company’s Performance Share Plan
has provisions with regard to vesting of
awards in the event of a change of control.
There are no agreements between the
Company and its Directors or employees
providing for compensation for loss of
officeor employment that occurs because
ofa takeover.
Share capital
The issued share capital of the Company as
at 31 March 2021 was 93,800,933 ordinary
shares of 20 pence each. There are no
restrictions on transfer or limitations on the
holding of the ordinary shares. None of the
shares carry any special rights with regard to
control of the Company.
There are no known arrangements under
which financial rights are held by a person
other than the holder of the shares and no
known agreements or restrictions on share
transfers or voting rights. The Company has
employee share schemes in which the voting
rights in respect of the shares are
exercisable by the employees.
Articles of Association
Changes to the Articles must be approved by
shareholders in accordance with the Articles
and applicable legislation. It is proposed to
update the Company’s Articles at the 2021
AGM as referred to under special resolutions
and within note 19 of the Company’s Notice
of Meeting. The Company’s Articles will be
available for inspection at the AGM and in
accordance with applicable legislation.
AGM
The 75th Annual General Meeting of
theCompany will be held at The Royal
Thames Yacht Club, 60 Knightsbridge,
London SW1 on 1 July 2021 at 11.30am.
At the forthcoming AGM the following
special resolutions will be proposed which
constitute special business:
Power to allot shares¹
(special resolution)
The Directors were granted authority at
the last AGM held in 2020 to allot relevant
securities up to a nominal amount of
£6,284,266. That authority will apply until the
conclusion of this year’s AGM. At this year’s
AGM shareholders will be asked to grant an
authority to allot shares in the Company and
to grant rights to subscribe for or convert any
security into shares in the Company (i) up
to a nominal amount of £6,201,206 and
(ii)comprising equity securities up to a
nominal amount of £12,402,413 (after
deducting from such limit any shares or
rights allotted or granted under (i)), in
connection with an offer by way of a rights
issue, (the ‘Section 551 authority”), such
Section 551 authority to apply until the end
ofthe next AGM (or, if earlier, until close of
business on 30 September 2022).
Two special resolutions will also be proposed
to grant the Directors power to make
non-pre-emptive issues for cash
consideration with rights issues and
otherwise up to a total nominal amount
of£1,860,360.
Market purchase of shares¹
(special resolution)
At the 2020 AGM shareholders renewed the
Directors’ authority to repurchase up to 10%
of the Company’s issued share capital at that
time (9,426,399 ordinary shares) in the
market, subject to minimum and maximum
price constraints. That authority will apply
until the conclusion of this year’s AGM.
538,542 number of shares were
repurchased during the year to 31 March
2021 and cancelled. The Company does not
hold any shares in treasury. Renewal of this
authority by special resolution will be
proposed at the 2021 AGM and the authority
will be limited to a maximum of 9,301,809
ordinary shares.
1. These figures are as at 17 May 2021 and are subject to
change given the ongoing share buyback programme.
General meetings
The calling of general meetings other
thanthe AGM on not less than 14 days’
clearnotice.
Articles of Association
The Company will be looking to update the
Company’s current Articles of Association
(the ‘Current Articles”) which were adopted
in 2002 and adopt new Articles of
Association (the ‘New Articles”). The
principal changes introduced in the New
Articles are primarily to reflect changes to
the UK Corporate Governance Code 2018
(the ‘Code”) requirements as well as best
market practice.
Further information on the AGM including
notes to the resolutions and how to vote
hasbeen included within the Notice of
Meeting that has been sent to shareholders
and is available to view online at
mckaysecurities.plc.uk.
Auditor
Deloitte LLP undertook the audit for the year
to 31 March 2021.
In accordance with Section 489 of the
Companies Act 2006, a resolution for the
reappointment of Deloitte LLP as auditor
ofthe Company will be proposed at the
forthcoming AGM.
The Directors who held office at the date of
approval of this Directors’ Report confirm
that, so far as they are each aware, there is
norelevant audit information of which the
Company’s auditor is unaware and each
Director has taken all reasonable steps
thathe/she ought to have taken as a Director
tomake himself/herself aware of any
relevant audit information and to establish
that the Company’s auditor is aware of that
information. This confirmation is given
inaccordance with Section 418(2) of the
Companies Act 2006.
Important events since
31 March 2021
• The appointment of Helen Sachdev was
made on 13 April 2021
• The issued share capital as of 17 May 2021
was 93,018,099 ordinary shares
J McKeown
Company Secretary
17 May 2021
McKay Securities Plc
Annual Report and Financial Statements 2021
88
Statement of Directors’
Responsibilities
in respect of theAnnual Report and the
Financial Statements
Company law requires the Directors to
prepare Group and Parent Company
financial statements for each financial year.
Under that law they are required to prepare
the Group financial statements in
accordance with International Financial
Reporting Standards as adopted by the
European Union (“IFRSs as adopted by the
EU”) and applicable law and have elected to
prepare the Parent Company financial
statements on the same basis.
Under Company law the Directors must not
approve the financial statements unless they
are satisfied that they give a true and fair view
of the state of affairs of the Group and Parent
Company and of their profit or loss for that
period. In preparing each of the Group and
Parent Company financial statements, the
Directors are required to:
• select suitable accounting policies and
then apply them consistently;
• make judgements and estimates that are
reasonable, relevant and reliable;
• state whether they have been prepared in
accordance with IFRSs as adopted by
theEU;
• assess the Group and Parent Company’s
ability to continue as a going concern,
disclosing, as applicable, matters related
to going concern; and
• use the going concern basis of accounting
unless they either intend to liquidate the
Group or the Parent Company or to cease
operations, or have no realistic alternative
but to do so.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Parent
Company’s transactions and disclose with
reasonable accuracy at any time the financial
position of the Parent Company and enable
them to ensure thatits financial statements
comply with the Companies Act 2006.
They are responsible forsuch internal
control as they determine is necessary to
enable the preparation of financial
statements that are free from material
misstatement, whether due to fraud or error,
and have general responsibility for taking
such steps as are reasonably open to them
to safeguard the assets of the Group and to
prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the
Directors are also responsible for preparing
aStrategic Report, Directors’ Report,
Directors’ Remuneration Report and
Corporate Governance Statement that
complies with that law and those regulations.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the UK
governing the preparation and dissemination
of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of
the Directors in respect of the
Annual Financial Report
We confirm that to the best of our knowledge:
• the financial statements, prepared in
accordance with the applicable set of
accounting standards, give a true and fair
view of the assets, liabilities, financial
position and profit or loss of the Company
and the undertakings included in the
consolidation taken as a whole; and
• the report of the Directors includes a
fairreview of the development and
performance of the business and
theposition of the issuer and the
undertakings included in the consolidation
taken as a whole, together with a
description of the principal risks and
uncertainties that they face.
We consider that the Annual Report and
Accounts, taken as a whole, is fair, balanced
and understandable and provides the
information necessary for shareholders
toassess the Group’s position and
performance, business model and strategy.
S Perkins
Chief Executive Officer
17 May 2021
G Salmon
Chief Financial Officer
17 May 2021
The Directors are responsible for preparing
the Annual Report and the Group and Parent
Company financial statements in accordance
with applicable law and regulations.
89
Strategic Report Governance Financial Statements
Independent Auditor’s Report
For the year ended 31 March 2021
Report on the audit of the financial statements
1 Opinion
In our opinion:
• the financial statements of McKay Securities Plc (the ‘parent company”) and its subsidiaries (the ‘Group”) give a true and fair view of
the state of the Group’s and of the parent company’s affairs as at 31 March 2021 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 , and International Financial Reporting Standards (IFRSs) as adopted by the
European Union;
• the parent company financial statements have been properly prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the Consolidated Profit and Loss and other Comprehensive Income;
• the Consolidated and Company Statement of Financial Position;
• the Consolidated and Company Cash Flow Statements;
• the Consolidated and Company Statements of Changes in Equity; and
• the related notes 1 to 24.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law, and
international accounting standards in conformity with the requirements of the Companies Act 2006, and IFRSs as adopted by the European
Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable
law and international accounting standards in conformity with the requirements of the Companies Act 2006.
2 Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s”) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to the
Group and parent company for the year are disclosed in note 3 to the financial statements. We confirm that the non-audit services prohibited
by the FRC’s Ethical Standard were not provided to the Group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3 Summary of our audit approach
Key audit matters The key audit matters that we identified in the current year were:
• Valuation of the investment property portfolio; and
• Going concern and covenant compliance
Within this report, key audit matters are identified as follows:
!
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality The materiality that we used for the Group financial statements was £4.3m which was determined
on the basis of 1.5% of net assets. For testing of balances that impacted EPRA earnings, a lower
materiality threshold of £470,000 was used based on 5% of EPRA earnings.
Scoping We subject all components of the Group to full scope audit procedures, therefore accounting for
100% of the Group’s net assets, revenue and profit before tax.
Significant changes in
our approach
There have been no significant changes in our audit approach, other than adopting a controls
reliance approach in our testing of rental income.
McKay Securities Plc
Annual Report and Financial Statements 2021
90
Independent Auditor’s Report continued
4 Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and parent company’s ability to continue to adopt the going concern basis of
accounting is discussed in section 5.2.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group’s and parent company’s ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt
the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
5 Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
5.1 Valuation of the investment property portfolio
Key audit matter description The Group’s investment properties are valued by an external valuer at £437.9m on 31 March 2021
(31 March 2020: £510.0m), thereby representing the most quantitatively material balance in the
financial statements. Refer to note 10 for further disclosure on the investment property valuation.
The investment properties are carried at fair value based on an appraisal by the Group’s external
valuers. Valuations are carried out at six-monthly intervals for the Group in accordance with the
Royal Institute of Chartered Surveyors (RICS) Valuation Global Standards 2020 (Red Book).
The valuation of the investment property portfolio is a significant area of estimation that is
underpinned by a number of key assumptions, including property yields and estimated future
rental value.
The property fair values are calculated by a third party external valuation experts using factual
information, such as lease agreements and tenancy data, and their professional judgement in
respect of market conditions and transactional evidence, in addition to factors impacting individual
properties. Our key audit matter in relation to the valuation of the investment property portfolio is
focused on the key estimates and assumptions applied in the determination of the valuation,
specifically property yields and estimated future rental values. The property valuation has been
impacted by the COVID-19 pandemic, resulting in a change in the key estimates and assumptions,
resulting in an overall valuation loss in the year. We have identified a fraud risk pertaining to the
valuation of the investment property portfolio in relation to management’s incentive to manipulate
the overall valuation. Specifically the fraud risk is focused on Management’s ability to place
pressure and undue pressure on the external valuer, to change their key estimates to materially
misstate the valuation.
Further detail is provided within key sources of estimation uncertainty in note 1, note 10 to the
financial statements and the Audit and Risk Committee report on pages 65 to 67.
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Strategic Report Governance Financial Statements
5.1 Valuation of the investment property portfolio continued
How the scope of our
audit responded to the
key audit matter
We obtained an understanding of the Group’s relevant controls to address the risk over
propertyvaluations.
We assessed management’s process for reviewing the valuations of the property portfolio.
We obtained the external valuation report and held a virtual meeting with the external valuers of the
property portfolio to understand the valuation process, to discuss and challenge the performance
of the portfolio and, for a sample of properties, challenged significant assumptions and critical
estimation areas, including estimated rental values and property yields.
We worked with our internal real estate valuation specialists, who are chartered surveyors, to assist
us to challenge the significant estimates and assumptions applied in the valuation performed by the
Group’s external valuers. Our internal real estate valuation specialists also assisted us to assess the
impact of the COVID-19 pandemic on the movement in the significant estimates and assumptions,
and the external valuer’s treatment of pandemic on the portfolio valuation.
Our real estate specialist utilised relevant industry data to benchmark the portfolio performance
and key assumptions used, to assess whether the external evidence supported the assumptions
used by the external valuers. We considered the changes made to key valuation assumptions at a
macro-level on the properties held by the Group and benchmarked these against changes in the
wider market and against relevant market evidence including specific property sales and other
external data.
We assessed the valuation methodology being used and considered any departures from the Red
Book guidance and additionally, tested the integrity of the model used.
We compared the property specific assumptions made to ensure there is consistency within the
portfolio as well as consistency with related assumptions used in other estimates.
We tested the integrity of a sample of the data provided to the external valuer. This included
verifying a sample of information provided to the external valuer to underlying lease agreements.
We assessed the competence, independence and integrity of the external valuers.
As part of our disclosures testing, we have reviewed the disclosures made in the financial
statements and considered if the specific disclosures in relation to the estimation are
consideredreasonable.
Key observations We concluded that the estimates and assumptions applied in arriving at the fair value of the Group’s
property portfolio were appropriate.
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Independent Auditor’s Report continued
5 Key audit matters continued
5.2 Going concern and covenant compliance
Key audit matter description As at 31 March 2021, external borrowings had a carrying value of £141m (31 March 2020: £190.5m),
representing a £65.0m term loan and a £180.0m revolving credit facility, which mature in 2030 and
April 2024 respectively. The Group has £101m (31 March 2020: £51m) of undrawn revolving credit
facility, in addition of cash of £2.2m (31 March 2020: £2.2m).
We identified a key audit matter relating to the ability of the Group to meet the external loan
covenant requirements during the year and for a period of one year from the date of the
authorisation of the financial statements. The Group’s banking covenants are linked to the
borrowing to property valuation ratio and the interest cover achieved through rental income.
While there is headroom in these ratios throughout the forecast period, a downward movement in
property valuations because of the ongoing COVID-19 pandemic, where the valuation impacts may
be greater and quicker than evidenced in recent years, could affect the available headroom.
Under a downside forecast sensitivity scenario, the Group expects there to be a reduction in rental
income in the forecast period because of a future trading restrictions due to any further the
COVID-19 pandemic lockdowns that may arise. The impact of this potential reduction in rental
income could affect the ability of the Group to meet its interest cover calculations.
Management’s consideration of the going concern basis of preparation is set out in the Going
Concern statement on page 51 and note 1. Management has adopted the going concern basis of
accounting for the Group and parent company; they have concluded that there are no material
uncertainties that may cast significant doubt over the Group’s and parent company’s ability to
adopt this basis for a period of at least 12 months from the date when the financial statements are
authorised for issue.
As at the date of this report, COVID-19 lockdown restrictions are gradually easing in the United
Kingdom, however this is in contrast to the rest of Continental Europe, where lockdown restrictions
are increasing. Despite the improving situation in the United Kingdom, there is still a degree of
uncertainty in respect of the global outlook because of the COVID-19 pandemic. Should the
COVID-19 pandemic deteriorate, and exacerbate the impact on the Group’s tenants, compared to
the Directors current forecasts and sensitivities, the risk in the Group’s going concern status could
increase, as disclosed in the Audit and Risk Committee report on pages 65 to 67.
How the scope of our
audit responded to the
key audit matter
We challenged the judgements and assumptions applied by management in their going concern
assessment and associated forecasts of financial performance and financial position, considering
the reasonableness of assumptions regarding uncertain cash inflows and the timing and quantum
of cash outflows. As part of this, we assessed the historical accuracy of forecasts previously
prepared by management.
We assessed the appropriateness of Management’s downside sensitivities, taking into
consideration assumptions associated with rental collection levels impacted by the ongoing
COVID-19 pandemic. We challenged Management’s tenant risk assessment undertaken for the
most significant clients, utilising external market research obtained to assess the appropriateness
of these assumptions.
We reviewed the Group’s loan documentation to understand the principal terms, including financial
covenants, and performed a review of the Group’s existing and forecast compliance with debt
covenants. We tested the mechanical accuracy of Management’s covenant calculations, including
the consistency with the contractual definitions.
We assessed the appropriateness of the headroom available on covenants and compared
management’s projections with market information available associated with future income
and property.
As part of our disclosures testing, we have reviewed and assessed the appropriateness of the
Going Concern disclosures within the annual report and financial statements.
Key observations We concur with management’s conclusion to prepare the Group and parent company financial
statements on a going concern basis.
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Strategic Report Governance Financial Statements
6 Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Parent company financial statements
Materiality £4.3m (2020: £4.6m)
For testing balances that impacted EPRA
Earnings, a lower materiality threshold was
applied, of £470,000 (2020: £482,000)
£3.9m (2020: £4.2m)
Basis for determining materiality We have determined materiality for the Group and parent company based on:
• 1.5% of net assets (2020: 1.5% of net assets); and
• 5% of EPRA Earnings for testing of balances that impact that measure (2020: 5% of EPRA Earnings).
Rationale for the
benchmark applied
As an investment property company, the main focus of Management is to generate long-term
capital value for investors and shareholders from the investment property portfolio and, therefore,
we consider net assets to be the most appropriate basis for materiality to be applied for testing of
the Group’s and parent company’s balance sheet items.
We continue to consider EPRA earnings to be a critical performance measure for the Group and we
therefore calculated and applied a lower materiality to testing of those items impacting EPRA earnings.
NAV £289m
Group materiality £4.3m
Component materiality
£3.9m
Audit Committee
reporting threshold
£0.215m
NAV Group materiality
6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Group financial statements Parent company financial statements
Performance materiality 70% (2020: 70%) of Group materiality 70% (2020: 70%) of parent
company materiality
Basis and rationale for
determining performance
materiality
In determining performance materiality, we considered the following factors:
• Our risk assessment, including our understanding of the Group’s overall control environment
which we consider appropriate for the size and nature of the Group;
• Low turnover over of staff within the executive management and key accounting personnel; and
• Our past experience of the audit, which has indicated a low number of corrected and
uncorrected misstatements identifed in the current and prior years.
6.3 Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of £215,000 (2020:
£235,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the
Audit and Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
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94
7 An overview of the scope of our audit
7.1 Identification and scoping of components
We performed a full scope audit of the financial statements of the parent company and Group. These components subject to a full scope
audit account for 100% of the Group’s net assets, revenue and profit before tax.
7.2 Our consideration of the control environment
From our understanding of the relevant controls we adopted a controls reliance approach in our audit of rental income.
Our ability to adopt a controls reliance approach relied upon obtaining an understanding of the rental income process, identifying the relevant
controls, and testing the operating effectiveness of those relevant controls in the business process throughout the year.
In addition, we obtained an understanding of the relevant controls such as those relating to the financial reporting process and the investment
property valuation process.
8 Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report
thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9 Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to continue as
a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
10 Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11 Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration
policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of Management, and the Audit and Risk committee about their own identification and assessment of the risks of
irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; and
• the matters discussed among the audit engagement team and relevant internal specialists, including valuations, pensions, and analytics
specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.
Independent Auditor’s Report continued
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Strategic Report Governance Financial Statements
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified
the greatest potential for fraud in the following areas: investment property valuation owing to the risk of management override of controls
relating to the valuation process. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond
to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the Group operates in, focusing on provisions of those laws
and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and
regulations we considered in this context included the UK Companies Act, Listing Rules, pension’s legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance
with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. The key laws and regulations we considered in
this context included the Landlord and Tenant Act and the Health and Safety Act.
Audit response to risks identified
As a result of performing the above, we identified the valuation of the investment property portfolio as a key audit matter related to the
potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific
procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant
laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Audit and Risk Committee and external legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due
to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
HMRC; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the
business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal
specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Report on other legal and regulatory requirements
12 Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the parent company and their environment obtained in the course of
the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
13 Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 51;
• the directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is
appropriate set out on page 45;
• the directors’ statement on fair, balanced and understandable set out on pages 50 - 51;
• the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 45;
• the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on
page 66; and
• the section describing the work of the Audit and Risk committee set out on pages 65 - 67.
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96
14 Matters on which we are required to report by exception
14.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2 Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been
made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
15 Other matters which we are required to address
15.1 Auditor tenure
Following the recommendation of the Audit and Risk committee, we were appointed by the Board on 4 July 2019 to audit the financial
statements for the year ending 31 March 2020 and subsequent financial periods. The period of total uninterrupted engagement including
previous renewals and reappointments of the firm is 2 years, covering the years ended 31 March 2020 to 31 March 2021.
15.2 Consistency of the audit report with the additional report to the audit and risk committee
Our audit opinion is consistent with the additional report to the audit and risk committee we are required to provide in accordance with ISAs (UK).
16 Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Stephen Craig
FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
17 May 2021
Independent Auditor’s Report continued
97
Strategic Report Governance
Financial Statements
Financial Statements
98 Financial Statements
129 Glossary
131 Company and Shareholder
Information
98
McKay Securities Plc
Annual Report and Financial Statements 2021
Notes
2021
£’000
2020
£’000
Gross rents and service charges receivable 2 28,589 29,296
Other property income 157 69
Direct property outgoings (7,112) (7,3 8 4)
Net rental income from investment properties 2 21,634 21,981
Administration costs (5,175) (5,385)
IFRS 2 charge (489) 222
Total administration costs 3 (5,664) (5,163)
Operating profit before gains on investment properties 15,970 16,818
(Loss)/profit on disposal of investment properties (2,854) 1,668
Revaluation of investment properties 10 (23,356) (2,199)
Operating (loss)/profit (10,240) 16,287
Finance costs 5 (6,351) (6,805)
Finance income 5 8 5
(Loss)/profit before taxation (16,583) 9,487
Taxation 6 133 (1,392)
(Loss)/profit for the year (16,450) 8,095
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss
Remeasurement on defined benefit pension scheme (278) (185)
Total comprehensive (expense)/income for the year (16,728) 7,910
(Loss)/earnings per share 8
Basic (17.45)p 8.59p
Diluted (17.45)p 8.57p
Adjusted earnings per share figures are shown in note 8
Dividends 9
31 March 2020 final dividend of 4.4 pence (31 March 2019: 7.4 pence) paid during the year 4,148 6,965
30 September 2020 interim dividend of 2.8 pence (30 September 2019: 2.8 pence) paid during
the year 2,642 2,639
Proposed final dividend of 5.5 pence (31 March 2020: 4.4 pence) 5,116 4,148
The total comprehensive income for the year is all attributable to the equity holders of the Parent Company.
The accompanying notes on pages 105 to 125 form an integral part of these financial statements.
Consolidated Profit and Loss and Other
Comprehensive Income
For the year ended 31 March 2021
Strategic Report Governance Financial Statements
99
Notes
2021
£’000
2020
£’000
Non-current assets
Investment properties – Valuation as reported by the valuers 437,900 510,000
– Adjustment for tenant incentives recognised under IFRS 16 (7,403) (10,637)
– Assets held for sale (13,500) (79,365)
– Adjustment for grossing up of headleases 3,683 4,403
10 420,680 424,401
Plant and equipment 11 125 148
Other receivables 13 7,403 6,982
Total non-current assets 428,208 431,531
Current assets
Trade and other receivables 13 3,063 3,200
Assets held for sale 10 13,500 83,020
Cash 2,249 2,245
Total current assets 18,812 88,465
Total assets 447,020 519,996
Current liabilities
Trade and other payables 14 (9,233) (12,433)
Lease liabilities 15 (229) (180)
Current tax liability (654) –
Liabilities directly associated with assets classified as held for sale 15 – (1,520)
Total current liabilities (10,116) (14,133)
Non-current liabilities
Loans and other borrowings 14 (141,369) (190,505)
Pension fund deficit 23 (2,180) (2,097)
Deferred tax liability 6 – (1,392)
Lease liabilities 15 (3,453) (2,703)
Total non-current liabilities (147,002) (196,697)
Total liabilities (157,118) (210,830)
Net assets 289,902 309,166
Equity
Called up share capital 18 18,760 18,853
Capital redemption reserve 108 –
Share premium account 75,541 75,541
Retained earnings 80,598 81,531
Revaluation reserve 114,895 133,241
Total equity 289,902 309,166
IFRS net asset value per share 21 309p 328p
EPRA NTA/NRV value per share 21 309p 329p
The accompanying notes on pages 105 to 125 form an integral part of these financial statements..
These financial statements were approved by the Board of Directors on 17 May 2021 and were signed on its behalf by R Grainger
andSPerkins.
Consolidated Statement of Financial Position
As at 31 March 2021
100
McKay Securities Plc
Annual Report and Financial Statements 2021
Company Statement of Financial Position
As at 31 March 2021
Registration number 421479
Notes
2021
£’000
2020
£’000
Non-current assets
Investment properties – Valuation as reported by the valuers 433,400 437,500
– Adjustment for tenant incentives recognised under IFRS 16 (7,403) (6,982)
– Assets held for sale (13,500) (13,500)
– Adjustment for grossing up of head leases 3,682 2,883
10 416,179 419,901
Plant and equipment 11 77 84
Investments in subsidiary – –
Other receivables 13 7,404 6,982
Total non-current assets 423,660 426,967
Current assets
Trade and other receivables 13 3,062 46,933
Assets held for sale 10 13,500 13,500
Cash 2,249 2,245
Total current assets 18,811 62,678
Total assets 442,471 489,645
Current liabilities
Trade and other payables 14 (34,750) (12,423)
Lease liabilities (229) (180)
Total current liabilities (34,979) (12,603)
Non-current liabilities
Loans and other borrowings 14 (141,369) (190,505)
Pension fund deficit 23 (2,180) (2,097)
Lease liabilities (3,453) (2,703)
Total non-current liabilities (147,002) (195,305)
Total liabilities (181,981) (207,908)
Net assets 260,490 281,737
Equity
Called up share capital 18 18,760 18,853
Capital redemption reserve 108 –
Share premium account 75,541 75,541
Retained earnings 65,914 65,181
Revaluation reserve 100,167 122,162
Total equity 260,490 281,737
The accompanying notes on pages 105 to 125 form an integral part of these financial statements.
The loss for the financial year ended 31 March 2021 was £13,422,039 (2020 profit of: £8,340,645).
These financial statements were approved by the Board of Directors on 17 May 2021 and were signed on its behalf by R Grainger
andSPerkins.
Strategic Report Governance Financial Statements
101
Consolidated Cashflow Statement
For the year ended 31 March 2021
2021
£’000
2020
£’000
Operating activities
(Loss)/profit before tax (16,583) 9,487
Adjustments for:
Depreciation 47 50
Amortisation of leasehold properties 1 1
Deferred bonus write-off 94 68
Fair value of share options 396 (290)
Letting fees amortisation 652 668
Defined benefit pension scheme adjustments 45 44
Taxation 133 (1,392)
Loss/(profit) on sale of investment properties 2,854 (1,668)
Movement in revaluation of investment properties 23,356 2,199
Net finance costs 6,342 6,800
Cashflow from operations before changes in working capital 17,337 15,967
Increase in debtors (1,680) (203)
Decrease in creditors (2,394) (2,903)
Cash generated from operations 13,263 12,861
Interest paid (5,237) (6,061)
Interest received 8 5
Corporation tax paid (605) –
Cashflows from operating activities 7,429 6,805
Investing activities
Proceeds from sale of investment properties 70,777 8,056
Purchase and development of investment properties (19,925) (33,395)
Purchase of other fixed assets (24) (126)
Cashflows from investing activities 50,828 (25,465)
Financing activities
Gross debt drawdowns 20,000 34,000
Gross debt repayments (70,000) (5,000)
Bank facility fees paid (34) (2,569)
Equity dividends paid (6,790) (9,604)
Share buybacks (1,147) –
Headlease interest and capital paid (282) (285)
Cashflows from financing activities (58,253) 16,542
Net increase/(decrease) in cash and cash equivalents 4 (2,118)
Cash and cash equivalents at the beginning of the year 2,245 4,363
Cash and cash equivalents at the end of the year 2,249 2,245
The accompanying notes on pages 105 to 125 form an integral part of these financial statements.
102
McKay Securities Plc
Annual Report and Financial Statements 2021
2021
£’000
2020
£’000
Operating activities
(Loss)/profit before tax (13,422) 8,341
Adjustments for:
Depreciation 31 34
Amortisation of leasehold properties 1 1
Deferred bonus write-off 94 68
Fair value of share options 396 (290)
Letting fees amortisation 649 617
Defined benefit pension scheme adjustments 45 44
Profit on sale of investment properties – (1,668)
Movement in revaluation of investment properties 21,995 2,205
Net finance costs 6,205 5,374
Cashflow from operations before changes in working capital 15,994 14,726
Decrease/(increase) in debtors 43,403 (3,893)
Increase/(decrease) in creditors 24,677 (27)
Cash generated from operations 84,074 10,806
Interest paid (5,125) (6,061)
Interest received 92 1,327
Cashflows from operating activities 79,041 6,072
Investing activities
Proceeds from sale of investment properties – 8,056
Purchase and development of investment properties (20,813) (32,847)
Purchase of other fixed assets (24) (46)
Cashflows from investing activities (20,837) (24,837)
Financing activities
Gross debt drawdowns 20,000 34,000
Gross debt repayments (70,000) (5,000)
Bank facility fees paid (34) (2,569)
Headlease interest and capital paid (229) (180)
Repurchase of shares (1,147) –
Equity dividends paid (6,790) (9,604)
Cashflows from financing activities (58,200) 16,647
Net increase/(decrease) in cash and cash equivalents 4 (2,118)
Cash and cash equivalents at the beginning of the year 2,245 4,363
Cash and cash equivalents at the end of the year 2,249 2,245
The accompanying notes on pages 105 to 125 form an integral part of these financial statements.
Company Cashflow Statement
For the year ended 31 March 2021
Strategic Report Governance Financial Statements
103
Attributable to equity holders of the Parent Company
Share
capital
£’000
Capital
redemption
revenue
£’000
Restated
share
premium
£’000
Revaluation
reserve
£’000
Restated
retained
earnings
£’000
Tota l
equity
£’000
At 31 March 2019 18,825 – 75,541 132,625 84,092 311,083
Profit for the year – – – – 8,095 8,095
Other comprehensive income:
Transfer deficit on revaluation of properties – – – (2,200) 2,200 –
Transfer on disposal of investment properties – – – 2,816 (2,816) –
Remeasurement on defined benefit pension scheme – – – – (185) (185)
Total comprehensive income for the year – – – 616 7,294 7,910
Issue of new shares net of costs 28 – – – (28) –
Dividends paid in year – – – – (9,605) (9,605)
Deferred bonus – – – – 68 68
Costs of share-based payments – – – – (290) (290)
At 31 March 2020 18,853 – 75,541 133,241 81,531 309,166
Loss for the year – – – – (16,450) (16,450)
Other comprehensive (expense)/income:
Transfer deficit on revaluation of properties – – – (23,356) 23,356 –
Transfer on disposal of investment property – – – 5,010 – 5,010
Remeasurement on defined benefit pension scheme – – – – (278) (278)
Total comprehensive (expense)/income for the year – – – (18,346) 6,628 (11,718)
Issue of new shares net of costs 15 – – – (15) –
Repurchase of shares (108) 108 – – (1,247) (1,247)
Dividends paid in year – – – – (6,789) (6,789)
Deferred bonus – – – – 94 94
Costs of share-based payments – – – – 396 396
At 31 March 2021 18,760 108 75,541 114,895 80,598 289,902
The accompanying notes on pages 105 to 125 form an integral part of these financial statements.
Consolidated Statement of Changes in Equity
For the year ended 31 March 2021
104
McKay Securities Plc
Annual Report and Financial Statements 2021
Share
capital
£’000
Capital
redemption
revenue
£’000
Restated
share
premium
£’000
Revaluation
reserve
£’000
Restated
retained
earnings
£’000
Tota l
equity
£’000
At 31 March 2019 18,825 – 75,541 121,551 67,491 283,408
Profit for the year – – – – 8,341 8,341
Other comprehensive income:
Transfer deficit on revaluation of properties – – – (2,205) 2,205 –
Transfer on disposal of investment properties – – – 2,816 (2,816) –
Remeasurement on defined benefit pension scheme – – – – (185) (185)
Total comprehensive income for the year – – – 611 7,545 8,156
Issue of new shares net of costs 28 – – – (28) –
Dividends paid in year – – – – (9,605) (9,605)
Deferred bonus – – – – 68 68
Costs of share-based payments – – – – (290) (290)
At 31 March 2020 18,853 – 75,541 122,162 65,181 281,737
Loss for the year – – – – (13,422) (13,422)
Other comprehensive (expense)/income:
Transfer deficit on revaluation of properties – – – (21,995) 21,995 –
Transfer on disposal of investment properties – – – – – –
Remeasurement on defined benefit pension scheme – – – – (278) (278)
Total comprehensive (expense)/income for the year – – – (21,995) 8,295 (13,700)
Issue of new shares net of costs 15 – – – (15) –
Repurchase of shares (108) 108 – – (1,247) (1,247)
Dividends paid in year – – – – (6,789) (6,789)
Deferred bonus – – – – 93 93
Costs of share-based payments – – – – 396 396
At 31 March 2021 18,760 108 75,541 100,167 65,914 260,490
The accompanying notes on pages 105 to 125 form an integral part of these financial statements.
Company Statement of Changes in Equity
For the year ended 31 March 2021
Strategic Report Governance Financial Statements
105
1 Accounting policies
Basis of preparation
McKay Securities Plc (“the Company”) is a public company limited by shares incorporated in the United Kingdom under the Companies Act
and is registered in England and Wales. The address of the Company’s registered office is 20G20 Greyfriars Road, Reading, Berkshire RG1 1NL.
The principal activities of the Company and its subsidiaries (“the Group”) and the nature of the Group’s operations are set out in the
Strategic Report on pages 16 to 17.
These financial statements are presented in GBP sterling, which is the currency of the primary economic environment in which the Group
operates and are rounded to the nearest thousand.
The financial statements have been prepared in accordance with international accounting standards in conformity with the requirements
ofthe Companies Act 2006 and International Financial Reporting Standards (IFRS Standards) adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
The financial statements are prepared on a going concern basis as explained in the Principal Risks and Uncertainties and going concern
statement on page 51.
In accordance with Section 408 Companies Act 2006 a separate Profit and Loss and Other Comprehensive Income for the Company
isnot presented. The loss for the year after tax of the Company is £13,422,039 (2020: profit of £8,340,645).
The consolidated financial statements of the Company and its subsidiary (“the Group”) have been prepared on a historical cost basis,
except for investment property which is measured at fair value through the Profit and Loss and Other Comprehensive Income.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation
technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if
market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value
formeasurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for
share-based payment transactions that are within the scope of IFRS 2 and leasing transactions that are within the scope of IFRS 16.
New and revised IFRS Standards in issue but not yet effective
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS Standards that
havebeen issued but are not yet effective:
IFRS 17 Insurance Contracts
IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Amendments to IAS 1 Classification of Liabilities as Current or Non-current
Amendments to IFRS 3 Reference to the Conceptual Framework
Amendments to IAS 16 Property, Plant and Equipment – Proceeds before Intended Use
Amendments to IAS 37 Onerous Contracts – Cost of Fulfilling a Contract
Annual Improvements to IFRS Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards,
Standards 2018-2020 Cycle IFRS 9 Financial Instruments, IFRS 16 Leases, and IAS 41 Agriculture
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements
oftheGroup in future periods.
IFRS 16 was adopted for the first time for the year ended 31 March 2020.
For the year ended 31 March 2021 the following subsidiaries of the Company were entitled to exemption from audit under s479A
oftheCompanies Act 2006 relating to subsidiary companies:
Subsidiary Name Companies House Registration Number
Baldwin House Limited 00692181
Notes to the Financial Statements
For the year ended 31 March 2021
106
McKay Securities Plc
Annual Report and Financial Statements 2021
1 Accounting policies continued
Basis of consolidation
The subsidiary company is under the control of the Company. Control means being exposed or have rights to variable returns from its
involvement and has the ability to affect those returns through its power over the subsidiary.
Control is achieved when the Company: has the power over the investee; is exposed, or has rights, to variable returns from its involvement
with the investee; and has the ability to use its power to affects its returns.
All intra-Group assets and liabilities, equity, income, expenses and cashflows relating to transactions between the members of the Group
are eliminated on consolidation.
Critical accounting judgements and key sources of estimation uncertainty
In the process of preparing the Group’s financial statements management is required to make judgements, estimates and assumptions
when applying accounting policies that may affect the reported amounts of revenues, expenses, assets and liabilities. Any judgements,
estimates and associated assumptions used in the preparation of the financial statements are based on management’s best information
atthe time, however actual outcomes may differ from estimates used. Management does not consider there to be any critical accounting
judgements in the preparation of the Group’s financial statements. Management considers that the valuation of investment property
represents a key source of estimation uncertainty, for which qualified external advisers are used. As a result of Covid-19, the level of
estimation increased, as reflected by the inclusion of a material uncertainty clause within the valuation report, as at 31 March 2020.
Howeverno material uncertainty clause has been included for the year ended 31 March 2021. See further detail below and in note 10.
Investment properties
The Group’s properties are held as investments to earn rental income and for capital appreciation and are stated at fair value at the balance
sheet date. The value, reflecting market conditions, is determined at each reporting date by independent external valuers and any gain or
loss arising from a change in value is recognised in the Profit and Loss and Other Comprehensive Income and transferred to the revaluation
reserve in the Group Statement of Financial Position. Tenant incentives are recognised as a separate asset in accordance with the Group’s
accounting policy on lease incentives and are deducted from the external valuation.
Properties purchased are recognised on legal completion in the accounting period and measured initially at cost including transaction
costs. Sales of properties are recognised on legal completion. Gains and losses arising on the disposal of investment properties are
recognised in the Profit and Loss and Other Comprehensive Income, being the difference between net sale proceeds and the carrying
value of the property.
Subsequent expenditure on investment properties is capitalised only when it increases the future economic benefits associated with
theproperty. All other expenditure is charged to the Profit and Loss and Other Comprehensive Income.
Interest and other outgoings less rental income relating to investment properties in the course of development are capitalised, and added
tothe cost of the property. Interest capitalised is calculated on development outgoings, including material refurbishments to investment
property, using the weighted average cost of general Group borrowings for the year. A property ceases to be treated as being in the course
of development when substantially all the activities that are necessary to prepare the property for use are completed.
The Group owns a number of properties under long leaseholds. These are leased out to tenants under operating leases and included in
thebalance sheet at fair value (disclosed as head leases). The obligation to the freeholder for the buildings element of the leasehold is
included in the balance sheet at the present value of the minimum lease payments at inception. The minimum lease payments are
apportioned between finance charges in the Profit and Loss and Other Comprehensive Income and the reduction of the Group Statement
of Financial Position liability. Contingent rents are charged as an expense in the Profit and Loss and Other Comprehensive Income in the
period incurred.
Assets held for sale
Properties held for sale are classified as non-current assets if their carrying amount will be recovered principally through sale rather
thanthrough continuing use, they are available for immediate sale and sale is highly probable within one year.
Investment properties held for sale are carried at fair value in the Statement of Financial Position. Intangible assets and property, plant
andequipment once classified as held for sale or distribution are not amortised or depreciated.
Notes to the Financial Statements continued
For the year ended 31 March 2021
Strategic Report Governance Financial Statements
107
1 Accounting policies continued
Plant and equipment
Plant and equipment is stated at cost less accumulated depreciation. Depreciation is provided on a straight line basis at rates calculated
towrite off the cost less estimated residual value over their useful lives, which are estimated to be between three and five years.
Cash
Cash comprises cash at bank and short-term deposits held on call.
Financial assets
Financial assets do not carry any interest and are stated initially at fair value and subsequently at amortised cost as reduced by appropriate
credit loss allowances. The Group always recognises lifetime expected credit losses (“ECL”) on these financial assets are estimated using
aprovision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general
economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including
time value of money where appropriate. The Group derecognises a financial asset when the contractual right to the cashflows of the asset
expire or on transfer of the asset and the associated risks and rewards to another party.
Trade and other payables
Trade and other payables are not interest bearing and are initially recognised at fair value and subsequently at amortised cost. The Group
derecognises trade and other payables liabilities when they are extinguished, which occurs when the obligation associated with the liability
is discharged, cancelled or expires.
Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. Subsequent to initial recognition,
loans and borrowings are measured at amortised cost using the effective interest rate method.
Reserves
The revaluation reserve represents the unrealised surpluses and deficits arising on fair value measurement of the Group’s properties and
isnot available for distribution until realised through sale. This forms part of retained earnings.
Segmental analysis
All of the Group’s revenue is derived from the ownership of investment properties located in the South East and London. Themanagement
team works within a single structure which includes the Executive Directors acting as chief operating decision maker. Responsibilities are
not defined by type or location, each property being managed individually and reported on for the Group as a whole directly to the Board
ofDirectors. Properties under development generate no revenue and are treated as investment properties in the portfolio. The Directors
therefore consider there to be only one reporting segment.
Revenue
The Group has entered into commercial property leases on its investment property portfolio. The Directors consider, based on the terms
and conditions, the significant risks and rewards of ownership of the properties are retained and therefore account for the leases as
operating leases. Rental income receivable under operating leases less initial direct costs on arranging the leases is recognised on a
straight line basis over the non-cancellable term of the lease.
The aggregate value of incentives for lessees to enter into lease agreements, usually in the form of rent free periods or capital contributions,
is recognised over the lease term or to tenant option to break as an adjustment to rental income.
The revenue recognition policy for the following revenue streams are in line with IFRS 15, as revenue is recognised when it transfers control
over a product or service to a customer.
Premiums received from tenants to terminate leases are recognised as income from investment properties when they arise.
Service charges and other such receipts arising from expenses recharged to tenants, with the Group acting as principal, are recognised
inthe period that the expense can be contractually recovered and included gross in income from investment properties.
Interest received on short-term deposits is recognised in finance income as it accrues.
Operating profit
Operating profit is identified in the income statement and represents the profit on activities before finance costs and taxation.
Borrowing costs
Interest on borrowings, including interest on finance leases, is recognised in the Profit and Loss and Other Comprehensive Income in
theperiod during which it is incurred, except for interest capitalised in accordance with the Group’s policy on properties under development
(see investment properties above). Costs incurred on putting in place borrowing facilities are recognised in finance costs over the term of
thefacility.
108
McKay Securities Plc
Annual Report and Financial Statements 2021
1 Accounting policies continued
Share-based payments
The Group operates an equity-settled share-based performance plan outlined in the Directors’ Remuneration Report under which
Directors and employees are able to acquire shares in the Company. Equity-settled share-based payments to employees’ services
aremeasured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting
conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 17.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight line basis over the vesting
period, based on the Group’s estimate of the number of equity instruments that will eventually vest. At each reporting date, the Group
revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions.
The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised
estimate, with a corresponding adjustment to reserves.
Post employment benefits
The Group operates two pension schemes. The defined benefit scheme is based on final pensionable pay and has been closed to new
entrants since 1989. The assets of the scheme are held separately from those of the Group and are measured at fair value, the scheme
obligations being calculated at discounted present value, with any net surplus or deficit recognised in the Group Statement of Financial
Position. Current service cost and net interest on scheme liabilities and scheme assets are recognised as an expense in the Profit and Loss
and Other Comprehensive Income. Actuarial gains and losses on scheme assets and liabilities are recognised in equity through the Profit
and Loss and Other Comprehensive Income. The assumptions used by a qualified actuary are outlined in note 23.
The Group contributes to eligible employees’ defined contribution personal pension plans and does not accept any responsibility for the
benefits gained from these plans. The contributions are recognised as an expense in the Profit and Loss and Other Comprehensive Income
as incurred but the Group does not recognise any gains or losses arising from movements in the value of the personal pension plans.
Taxation
Any tax charge recognised in the Profit and Loss and Other Comprehensive Income comprises current and deferred tax except to the
extent that it relates to items recognised directly in equity, in which case the related tax is recognised in equity.
Current tax is the expected tax liability on the results for the year adjusted for items that are not taxable or deductible, or taxable and
deductible in other periods, together with any adjustment in respect of previous years calculated using tax rates and laws enacted or
substantively enacted at the balance sheet date.
Deferred tax is the tax expected to be paid or recovered on temporary differences arising between the carrying amounts of assets and
liabilities for financial reporting purposes and their tax base. The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance
sheet date. Tax liabilities are recognised for all taxable temporary differences and tax assets to the extent that future taxable profits will
beavailable against which the asset can be utilised.
The Group converted to REIT status on 1 April 2007 and as a consequence substantially all the Group’s activities as a property rental
business are exempt from tax, including rental profits and gains on rental property disposals that are compliant with the REIT rules.
2 Net rental income from investment properties
2021
£’000
2020
£’000
Gross rents receivable 22,854 22,873
IFRS 16 adjustment (spreading of rental incentives) 1,771 2,291
Gross rental income 24,625 25,164
Service charges receivable 3,964 4,132
Gross rents and service charges recievable 28,589 29,296
Other property income 157 69
Direct property outgoings (7,112) (7,3 8 4)
Net rental income from investment properties 21,634 21,981
Rent receivable under the terms of the leases is adjusted, in accordance with IFRS 16, for the effect of any incentives given.
Notes to the Financial Statements continued
For the year ended 31 March 2021
Strategic Report Governance Financial Statements
109
3 Administration costs
2021
£’000
2020
£’000
Group
Directors’ – remuneration 1,204 1,203
– bonus 449 523
Staff – costs 1,061 1,167
– bonus 252 239
Management fee service charge (361) (293)
National Insurance 227 507
Pension costs – defined benefit scheme 45 44
– defined contributions 308 275
Other staff costs 51 37
Share-based payment accounting charge (IFRS 2) 489 (222)
Staff related costs 3,725 3,480
Depreciation (note 12) 47 50
Office costs 676 575
Legal and professional fees 1,123 1,007
General expenses 93 51
Total administrations costs 5,664 5,163
The average number of persons employed by the Group and Company during the year was 18 (2020: 19).
Details of Directors’ remuneration can be found on page 78 in the Directors’ Annual Remuneration Report.
In advance of each audit, the Committee obtains confirmation from the external auditor that it remains independent and that the level and
nature of non-audit fees are not an independence threat. The table below details the total fees paid to the auditor. The Committee considers
the current auditor Deloitte to be independent of the Group and Company.
2021
£’000
2020
£’000
Fees paid to auditor
Statutory audit services
McKay Securities Plc audit 137 130
Subsidiary audit 10 10
Assurance services
Interim review 31 30
Service charge review 16 15
194 185
110
McKay Securities Plc
Annual Report and Financial Statements 2021
4 Alternative performance measures
APM IFRS Note reference
Adjusted profit before tax
The Group adjusts to present recurring profits by removing items not under
management control.
Profit before tax IFRS
Note 4
Total property return (“TPR”)
Note 4
Management’s indicator of return on portfolio during the period.
Debt to portfolio value (“LTV”)
Note 4
Management guide to gearing levels.
EPRA net tangible asset value per share (“NTA”) Net asset value per share
Note 21
Assumes that entities buy and sell assets, crystalising unavoidable deferred tax.
EPRA net reinstatement asset value per share (“NRV”) Net asset value per share
Note 21
Assumes that entities never sell assets, therefore the value required to rebuild the entity.
EPRA net disposal asset value per share (“NDV”) Net asset value per share
Note 21
Represents a disposal scenario where deferred tax and other adjustments
arecalculated.
EPRA net asset value per share
A future looking matrix by adding in share options that may vest.
Net asset value per share
Note 21
EPRA (“NNNAV”)
EPRA NNNAV in the EPRA NAV adjusted to reflect the fair value of debt and
derivatives and to include deferred taxation.
Net asset value per share
Note 21
Adjusted earnings per share
Adjusted earnings as above by using recurring profits.
Basic earnings per share
Note 8
EPRA earnings per share
Adjusted earnings per share except for surrender premiums (included inother
property income) and share based payments are addedback.
Basic earnings per share
Note 8
Portfolio valuation
Valuation of total property portfolio at period end as per Knight Frank valuation.
The Group uses a number of Alternative Performance Measures (“APMs”) which are not defined or specified within IFRS. The Directors use
these measures in order to assess the underlying operational performance of the Group and allow greater comparability between periods but
do not consider them to be a substitute for, or superior to, IFRS measures. The Directors consider adjusted profit before tax to be an additional
informative measure of the ongoing profits from core rental activities before taxation, adjusted as set out. See further detail in the glossary.
These alternative performance measures are commonly used within the property sector.
2021
£’000
2020
£’000
(Loss)/profit before tax (16,583) 9,487
Movement in revaluation of investment properties (see note 11) 23,356 2,199
Other property income (see note 2) (157) (69)
Loss/(profit) on disposal of investment properties 2,854 (1,668)
IFRS 2 adjustment to share-based payments 489 (222)
Adjusted profit before tax 9,959 9,727
Total property return (TPR)
2021
£’000
2020
£’000
Valuation (deficit)/surplus (21,579) 111
Profit realised on disposal (excluding IFRS 16 write off) 2,155 1,668
Income from investment properties 21,633 21,981
2,209 23,760
Book value 459,480 509,889
Total property return 0.5% 4.7%
As there are no remaining developments as at 31 March 2021, we have updated the table above to show TPR including developments to
provide a more appropriate comparison.
Notes to the Financial Statements continued
For the year ended 31 March 2021
Strategic Report Governance Financial Statements
111
4 Alternative performance measures continued
Debt to portfolio value (“LTV”)
2021
£’000
2020
£’000
Drawn debt 144,000 194,000
Cash balances (2,249) (2,245)
Net debt – bank debt net of cash balances 141,751 191,755
Valuation as reported by external valuers 437,900 510,000
LT V 32.4% 37.6%
5 Net finance costs
2021
£’000
2020
£’000
Interest on bank overdraft and loans 4,606 5,602
Commitment fee 564 462
Lease interest on leasehold property obligations 282 397
Finance arrangement costs 899 895
Capitalised interest (note 7) – (551)
6,351 6,805
Interest receivable (8) (5)
Net finance costs 6,343 6,800
The capitalisation of interest has no effect on taxation.
6 Taxation
2021
£’000
2020
£’000
Total tax in the Consolidated Profit and Loss and Other Comprehensive Income 133 (1,392)
Reconciliation to effective rate of tax:
(Loss)/profit on ordinary activities before tax (16,583) 9,487
Tax charge on profit at 19% (2020: 19%) (3,151) 1,803
Effects of:
REIT tax exemption 3,151 (1,803)
Tax provision movement 133 (1,392)
Tax for period (as above) 133 (1,392)
The taxation charge in the Consolidated Profit and Loss and Other Comprehensive Income relates to a movement in the taxation provision
of £133,000 on the sale of 30 Lombard Street, EC3. As a REIT, the Group is tax exempt in respect of qualifying capital gains and qualifying
rental income, which covers the majority of the Company’s activities. The tax provision relating to the sale of 30Lombard St arises as the
completion of the sale was within three years of practical completion and therefore triggers a chargeable capital gain under REIT regulations.
7 Capitalised interest
Interest relating to investment properties in the course of development is dealt with as explained in note 1.
Interest capitalised during the year amounted to nil (2020: £550,933 related to works to 135 Theale Logistics Park).
Total development interest capitalised amounts to £14,737,480 (2020: £14,737,480).
Interest is capitalised using the Group’s weighted average cost of borrowings and the effective rate applied in the year was 3.10% (2020: 3.35%).
112
McKay Securities Plc
Annual Report and Financial Statements 2021
8 Earnings per share
Basic earnings per share
2021
pence
2020
pence
Basic (loss)/earnings per share (17.45) 8.59
Movement in revaluation of investment properties 24.77 2.33
Other property income (0.17) (0.07)
Loss/(profit) on disposal of investment properties 3.03 (1.77)
Taxation (0.14) 1.48
Share-based payments 0.52 (0.24)
Adjusted earnings per share 10.56 10.32
Share-based payments (0.52) 0.24
Other property income 0.17 0.07
EPRA earnings per share 10.21 10.63
Basic (loss)/earnings per share on ordinary shares is calculated on the loss in the year of (£16,450,000) (2020: profit of £8,095,000) and
94,292,376 (2020:94,234,253) shares, being the weighted average number of ordinary shares in issue during the year.
EPRA earnings per share is calculated on the same profit after tax and on the weighted average number of shares in issue during the year
of94,292,376 (2020: 94,234,253) shares.
2021
Number of
shares
2020
Number of
shares
Weighted average number of ordinary shares in issue 94,292,376 94,234,253
Number of shares under option – 463,819
Number of shares that would have been issued at fair value – (244,272)
Diluted weighted average number of ordinary shares in issue 94,292,376 94,453,800
The following potential ordinary shares are anti-dilutive and are therefore excluded from the weighted average number of ordinary shares
for the purpose of diluted earnings per share.
2021
Number of
shares
2020
Number of
shares
Number of shares under option 144,921 –
Notes to the Financial Statements continued
For the year ended 31 March 2021
Strategic Report Governance Financial Statements
113
8 Earnings per share continued
Diluted earnings per share
2021
pence
2020
pence
Basic (loss)/earnings per share (17.45) 8.59
Effect of dilutive potential ordinary shares under option 0.00 (0.02)
(17.45) 8.57
Movement in revaluation of investment properties 24.77 2.33
Other property income (0.17) (0.07)
Loss/(profit) on disposal of investment properties 3.03 (1.77)
Share-based payments 0.52 (0.24)
Taxation (0.14) 1.47
Adjusted diluted earnings per share 10.56 10.29
Adjusted earnings per share excludes the after tax effect of profit from the disposal of investment properties, share-based payments,
deferred taxation, other property income, and the movement in revaluation of investment property.
The taxation charge in the Consolidated Profit and Loss and Other Comprehensive Income relates to a taxation provision movement of
£133,000 on the sale of 30 Lombard Street, EC3.
9 Dividends
The final dividend is not included in the accounts as a liability as at 31 March 2021, as it is subject to shareholder approval at the Annual
General Meeting. The final dividend for 2020 and interim for 2020 paid in the year are included in the Consolidated Statement of Changes in
Equity on page 103.
2021
£’000
2020
£’000
Ordinary dividends
31 March 2020 final dividend of 4.4 pence (31 March 2019: 7.4 pence) paid during the year 4,148 6,965
30 September 2020 interim dividend of 2.8 pence (30 September 2019: 2.8 pence) paid during
the year 2,642 2,639
Total recognised in financial statements 6,790 9,604
Proposed final dividend of 5.5 pence (31 March 2020: 4.4pence) 5,116 4,148
114
McKay Securities Plc
Annual Report and Financial Statements 2021
10 Investment properties
Group Company
Freehold
£’000
Long
leasehold
£’000
Tota l
£’000
Freehold
£’000
Long
leasehold
£’000
Tota l
£’000
Valuation
At 1 April 2020 401,998 101,768 503,766 401,998 31,402 433,400
Additions – capital expenditure 6,337 484 6,821 6,337 478 6,815
Additions – purchases 10,658 – 10,658 10,658 – 10,658
Revaluation deficit (18,445) (3,134) (21,579) (18,445) (3,128) (21,573)
Adjustment for tenant incentives recognised in advance under
IFRS 16 (449) (1,327) (1,776) (449) 28 (421)
Disposals – (69,520) (69,520) – – –
IFRS write off on disposal – 5,009 5,009 – – –
Headlease adjustment – 801 801 – 801 801
Amortisation of grossed up headleaseliabilities – (1) (1) – (1) (1)
Book value as at 31 March 2021 400,099 34,080 434,179 400,099 29,580 429,679
Adjustment for grossing up of headleaseliabilities – (3,682) (3,682) – (3,682) (3,682)
Adjustment for tenant incentives recognised in advance under
IFRS 16 7,301 102 7,403 7, 301 102 7,403
Valuation as at 31 March 2021 407,400 30,500 437,900 407,400 26,000 433,400
Group Company
Freehold
£’000
Long
leasehold
£’000
Tota l
£’000
Freehold
£’000
Long
leasehold
£’000
Tota l
£’000
Valuation
At 1 April 2019 378,125 100,653 478,778 378,125 30,790 408,915
Additions – development 16,396 555 16,951 16,396 57 16,453
Additions – purchases 16,438 – 16,438 16,438 – 16,438
Revaluation (deficit)/surplus (3,235) 3,346 111 (3,235) 393 (2,842)
Adjustment for tenant incentives recognised in advance under
IFRS 16 474 (2,785) (2,311) 474 163 637
Disposals (6,200) – (6,200) (6,200) – (6,200)
Amortisation of grossed up headleaseliabilities – (1) (1) – (1) (1)
Book value as at 31 March 2020 401,998 101,768 503,766 401,988 31,402 433,400
Adjustment for grossing up of headleaseliabilities – (4,403) (4,403) – (2,882) (2,882)
Adjustment for tenant incentives recognised in advance under
IFRS 16 6,852 3,785 10,637 6,852 130 6,982
Valuation as at 31 March 2020 408,850 101,150 510,000 408,850 28,650 437,500
In accordance with the Group’s accounting policy on properties there was an external valuation at 31 March 2021. These valuations were
carried out by Knight Frank LLP, Chartered Surveyors and Valuers. All valuations were carried out in accordance with the Appraisal and
Valuation Standards of RICS, on an open market basis.
The historical cost of properties stated at valuation is approximately £322 million (2020: £377 million) for the Group and £321 million
(2020:£315 million) for the Company.
The amount of interest capitalised during the year was nil (2020: £550,933). The Group is a REIT and therefore does not obtain relieffrom
Corporation Tax.
Investment property valuation method and assumptions
The fair value of the property portfolio has been determined using income capitalisation techniques, whereby contracted and market rental
values are capitalised with a market value for properties under development, the fair value is calculated by estimating the fair value of the
completed property using the income capitalisation technique less estimated costs to completion and a risk premium. The resulting
valuations are cross-checked against the equivalent yields and the fair market values per square foot derived from comparable recent
market transactions on arm’s length terms.
Notes to the Financial Statements continued
For the year ended 31 March 2021
Strategic Report Governance Financial Statements
115
10 Investment properties continued
These techniques are consistent with the principles in IFRS 13 Fair Value Measurement and use significant unobservable inputs suchthat
the fair value measurement of each property within the portfolio has been classified as Level 3 in the fair value hierarchy. There were no
transfers in or out of Level 3 for investment properties during the year.
Losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy amount to
£23.4 million (2020: £2.2 million) and are presented in the Group income statement in the line item ‘Revaluation of investmentproperties’.
Due to Covid-19 there was a material uncertainty clause attached to the Knight Frank valuation for the year ended 31 March 2020. Whilst
Covid-19 continues to impact financial markets and restrictions remain in place in many countries including the UK the stabilising conditions
have meant that no material uncertainty clause is included in the year ended 31 March 2021.
The asset held for sale is The Planets, Woking totalling £13.5 million, all of which has been reclassified from investment property. This
property remains held for sale at 31 March 2021, with the original exchange of sale contracts in March 2019. This sale remains conditional
on the receipt of planning consent being achieved by the purchaser. Whilst the submitted planning consent was not approved on initial
submission, management is confident that a successful appeal will be undertaken with an adjusted plan such that the disposal will be able to
be completed within 12 months of the balance sheet date.
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the Group’s
property portfolio, together with the impact of significant movements in these inputs on the fair value measurement, are shown below:
London offices South East offices South East industrial
Valuation technique
Income
capitalisation
Income
capitalisation
Income
capitalisation
Fair value £56,000,000 £235,600,000 £122,400,000
ERV (psf pa) – average £53.69 £23.62 £11.08
ERV (psf pa) – range £7.50–£100.00 £14.50–£48.00 £5.00–£17.00
True equivalent yield – average 4.95% 7.84% 5.20%
True equivalent yield – range 4.36%–6.06% 5.95%–10.58% 4.25%–6.23%
Capital value psf £741.20 £321.87 £216.70
A further £23.90 million has been designated ‘other’ and not included in the analysis above.
Definitions for ERV and true equivalent yield are provided in the glossary on page 129.
Change in ERV Change in equivalent yield
+5% -5% +0.25% -0.25%
Sensitivity analysis
Change in value of investment properties +£19m -£19m -£20m +£22m
116
McKay Securities Plc
Annual Report and Financial Statements 2021
11 Plant and equipment
Group
£’000
2021
Company
£’000
Group
£’000
2020
Company
£’000
Cost
Opening 231 151 133 133
Additions 24 24 132 52
Disposals (20) (20) (34) (34)
Closing 235 155 231 151
Depreciation
Opening 83 67 61 61
Charge for year 47 31 50 34
Disposals (20) (20) (28) (28)
Closing 110 78 83 67
Net book value 125 77 148 84
12 Investments
Shares in
subsidiary
undertakings
£’000
Company
At 1 April 2020 –
At 31 March 2021 –
At 31 March 2021 McKay Securities Plc owned 100% of the ordinary share capital of Baldwin House Limited, representing 100 shares
withnominal value of £1. Baldwin House Limited operates in England and is registered in England and Wales with a registered address
of20Greyfriars Road, Reading, Berkshire RG1 1NL.
The principal activity of the subsidiary undertaking is property investment and development.
The Directors are of the opinion that the investment in the subsidiary undertaking is not worth less than the current book value.
13 Trade and other receivables
Group
£’000
2021
Company
£’000
Group
£’000
2020
Company
£’000
Current
Rent receivables 2,072 2,072 2,360 2,360
Amounts due from subsidiary undertakings – – – 43,918
Prepayments 336 336 822 637
Other debtors 655 654 18 18
3,063 3,062 3,200 46,933
Non-current
IFRS 16 lease incentives 7,403 7,404 6,982 6,982
Rent receivables of £434,000 were written off during the year and are not included in the table above.
Group trade receivables that were past due but not impaired are as follows:
2021
£’000
2020
£’000
Less than three months due 2,072 2,360
Between three and six months due – –
Between six and 12 months due – –
2,072 2,360
The Group holds no collateral in respect of these receivables.
Notes to the Financial Statements continued
For the year ended 31 March 2021
Strategic Report Governance Financial Statements
117
14 Liabilities
Group
£’000
2021
Company
£’000
Group
£’000
2020
Company
£’000
Trade and other payables
Rent received in advance 5,806 5,806 5,389 5,389
Amounts due to subsidiary undertaking – 25,517 – –
Other taxation and social security costs 521 521 1,736 1,726
Accruals 2,612 2,612 4,551 4,551
Other creditors 294 294 757 757
9,233 34,750 12,433 12,423
The fair value of current liabilities is estimated as the present value of future cashflows which approximate their carrying amounts due to the
short-term maturities.
Creditor days for the Group were one day (2020: ten days).
Loans and other borrowings
The analysis of bank loans which are secured on certain of the freehold and leasehold properties of the Group is as follows:
2021
£’000
2020
£’000
Group and Company
Secured bank loans 144,000 194,000
Bank facility fees (2,631) (3,495)
141,369 190,505
The bank loans are secured against land and buildings with a carrying amount of £412,250,000 (2020: £476,750,000).
Group
£’000
2021
Company
£’000
Group
£’000
2020
Company
£’000
Repayable in:
Less than one year – – – –
One to two years – – – –
Two to five years 77,181 77,181 126,373 126,373
Five to ten years 64,188 64,188 – –
Greater than ten years – – 64,132 64,132
141,369 141,369 190,505 190,505
2021
£’000
2020
£’000
Changes in liabilities arising from financing activities
Current loans as at 1 April
Non-current loans as at 1 April 190,505 163,176
Total loans as at 1 April 190,505 163,176
Gross debt drawdowns 20,000 34,000
Gross debt repayments (70,000) (5,000)
Bank facility fees (cash) (34) (2,569)
Facility fee amortisation (non-cash) 898 898
Total loans as at 31 March 141,369 190,505
118
McKay Securities Plc
Annual Report and Financial Statements 2021
Notes to the Financial Statements continued
For the year ended 31 March 2021
14 Liabilities continued
2021
£’000
2020
£’000
Present value of lease liabilities as at 1 April 4,403 4,404
Headlease cash payments (282) (285)
Impact of unwind of discount rate (non-cash) 282 284
Headlease adjustment 800 –
Headlease write off on disposal (1,520) –
Present value of lease liabilities as at 31 March 3,683 4,403
Borrowing facilities
The Group has various undrawn committed borrowing facilities. The facilities available in respect of which all conditions precedent had
been met were as follows:
2021
£’000
2020
£’000
Expiring in less than one year – –
Expiring in one to two years – –
Expiring in two to five years 101,000 51,000
Expiring in five to ten years – –
101,000 51,000
Liquidity risk
Liquidity risk is managed through committed bank facilities that ensure sufficient funds are available to cover potential liabilities arising
against projected cashflows. The Group’s facilities are revolving in part, allowing the Group to apply cash surpluses to temporarily
reducedebt.
On 8 April 2019 the Company increased total facilities to £245 million. Three bilateral facilities (£125 million) were replaced with one
revolving credit facility (“RCF”) of £180 million.
The following table details the Group’s remaining contractual maturities for its non-derivative financial liabilities. The tables have been
drawn up based on the undiscounted cashflows of financial liabilities based upon the earliest dates on which the Group can be required to
pay. The table includes both interest and principal cashflows. When the amount payable is not fixed, the amount disclosed has been
determined by reference to the applicable interest rate as at the balance sheet date.
Financial instrument maturity
Contractual cashflows
Tota l
2 months
or less
2–12
months
1–2
years
2–5
years
More than
5 years
At 31 March 2021
Non-derivative financial liabilities
Bank overdraft – – – – – –
Secured bank loans 144,000 – – – 79,000 65,000
Bank interest 28,304 – 4,114 4,114 9,349 10,727
Lease liabilities 22,252 – 230 230 690 21,102
Other taxation and social security costs 521 – 521 – – –
Accruals 2,612 – 2,612 – – –
Other creditors 294 – 294 – – –
197,983 – 7,771 4,344 89,039 96,829
Strategic Report Governance Financial Statements
119
14 Liabilities continued
Contractual cashflows
Tota l
2 months
or less
2–12
months
1–2
years
2–5
years
More than
5 years
At 31 March 2020
Non-derivative financial liabilities
Bank overdraft – – – – – –
Secured bank loans 194,000 – – – 129,000 65,000
Bank interest 38,798 – 5,709 5,709 14,040 13,340
Lease liabilities 25,798 – 285 285 857 24,371
Other taxation and social security costs 1,736 – 1,736 – – –
Accruals 4,551 – 4,551 – – –
Other creditors 757 – 757 – – –
265,640 – 13,038 5,994 143,897 102,711
Credit risk
Credit evaluations are performed on all tenants looking to enter into lease or pre-lease agreements with the Group. Credit risk is managed
by tenants paying rent in advance. Outstanding tenants’ receivables are regularly monitored.
At the Statement of Financial Position date there were no significant concentrations of credit risk, except for the low risk lease commitments
which were either government departments or held a top credit rating. The maximum exposure to credit risk is represented by the carrying
amount of each financial asset including derivative financial instruments on the Group Statement of Financial Position.
The Group has no exposure to currency risks.
Market risk
The Group is exposed to market risk through changes in interest rates or availability of credit. The Group actively monitors these exposures.
Interest rate risk
The Group adopts a policy of ensuring that its exposure to interest rate fluctuations is mitigated by the use of financial instruments.
A 25 basis points change in interest rate levels would increase or decrease the Group’s annual profit and equity £197,500 (2020:
£322,500). This sensitivity has been calculated by applying the interest rate change to the variable rate borrowings at the year end.
Thecomparative figure for 2020 was also based on a 25 basis points change in interest rates. The 25 basis points change being used
shows how the profit or loss and equity would have been affected by changes in the relevant risk variable that were reasonably possible
atthe year end.
Interest rate derivatives
The Group does not hold any interest rate derivatives as at 31 March 2021.
2021 2020
Weighted average cost of borrowing 3.10% 3.35%
There are no liabilities at maturity and no material unrecognised gains or losses.
In both 2021 and 2020 there was no difference between the book value and the fair value of all the other financial assets and liabilities of the
Group and Company.
120
McKay Securities Plc
Annual Report and Financial Statements 2021
15 Lease liabilities
Minimum lease payments
2021
£’000
2020
£’000
Group lease liabilities are payable as follows:
Year one 230 285
Year two 230 286
Year three 230 286
Year four 230 285
Year five 230 285
Greater than five years 21,102 24,371
22,252 25,798
Less future finance charges (18,569) (21,395)
Present value of lease obligations 3,683 4,403
The above lease liabilities relate to investment properties with a carrying value of £26,000,000 (2020: £95,900,000). The terms of these
lease agreements are for periods of between 97 and 125 years. There are no restrictions imposed by the lease agreements.
No contingent rents are payable.
Lease liabilities are effectively secured as the rights to the leased assets revert to the lessor in event of default.
The annual obligation for the first five years is £230,000 pa.
16 Operating leases
The Group leases out all of its investment properties under operating leases.
The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows:
2021
£’000
2020
£’000
Not later than one year 20,081 20,224
Later than one year but not later than five years 52,613 52,964
Later than five years 24,987 55,336
97,681 128,524
Notes to the Financial Statements continued
For the year ended 31 March 2021
Strategic Report Governance Financial Statements
121
17 Share-based payments
During the year to 31 March 2021, the Group had one share-based payment arrangement, which is described below. In the case of the PSP
awards, the expected volatility was determined by calculating historical volatility of the Group’s share price.
Performance Share Plan
The performance targets for PSP awards are a combination of TSR and absolute NAV performance over a three-year period. If the
performance criteria have not been met at the end of the vesting period then the awards will lapse.
The nil cost awards outstanding at 31 March 2021 have been fair valued using a Monte Carlo valuation pricing model using the following
main assumptions:
23 June
2020
10 June
2019
8 June
2018
18 July
2017
Share price £1.94 £2.40 £2.67 £2.26
Term 3 years 3 years 3 years 3 years
Risk free rate (0.05)% 0.49% 0.80% 0.26%
Dividend yield 0% 0% 0% 0%
Volatility – Company 37.0% 31.0% 31.0% 29.0%
TSR fair value £1.10 £1.34 £1.73 £1.42
NAV fair value £1.94 £2.40 £2.70 £2.26
Share-based payments
2021
Number of
shares
2020
Number
of shares
Outstanding at the beginning of the period 1,721,829 1,732,473
Granted during the period 733,655 638,465
Forfeited during the period – (18,880)
Exercised during the period (75,477) (139,573)
Expired during the period (273,287) (490,656)
Outstanding at the end of the period 2,106,720 1,721,829
During the year 75,477 shares were issued to settle the 2017 PSP (First Grant) on 12 August 2020. These shares were issues out of
distributable revenues under the Company’s Articles of Association.
The above table includes outstanding shares at the end of the year relating to deferred bonus shares of 144,921 (2020: 107,055), of which
37,866 were granted during the year (2020: 50,845) and nil exercised in the period (2020: 57,480).
The weighted average life of the 2,106,720 shares outstanding is 7.82 years (2020: 8.29 years). The weighted average price on the date of
exercise for options exercised during the year was £1.88 (2020: £2.40).
18 Called up share capital
Issued
£
2021
Number of
shares
Issued
£
2020
Number of
shares
Ordinary 20 pence shares in issue
At 1 April 18,852,794 94,263,998 18,824,879 94,124,425
Issue of shares in year
1
15,095 75,477 27,915 139,573
Repurchase of shares (107,708) (538,542) – –
At 31 March 18,760,181 93,800,933 18,852,794 94,263,998
1. During the year 75,477 shares (2020: 139,573) were issued to settle the 2017 PSP (First Grant) on 12 August 2020.
122
McKay Securities Plc
Annual Report and Financial Statements 2021
19 Capital management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, to provide returns to shareholders
and to maintain an appropriate capital structure to minimise the cost of capital. The current capital structure of the Group comprises a mix of
equity and debt. Equity comprises issued share capital, reserves and retained earnings, as disclosed in the Group Balance Sheet.
The Group uses a number of key metrics¹ to manage its capital structure, including:
• gearing
• LT V
1
The Board monitors the ability of the Group to pay dividends out of available cash and distributable profits.
1. See glossary.
20 Related party transactions
Balance owed to/(owing from)
2021
£’000
2020
£’000
Subsidiary undertakings
Baldwin House Limited 25,516 (43,918)
25,516 (43,918)
There were no transactions with Directors, who are considered key management personnel, other than remuneration, details of which
areprovided in the Directors’ Annual Remuneration Report on pages 68 to 85.
See note 23 for details on the pension scheme.
These related party transactions are between Baldwin House Limited and the Company. They relate to property payments and receipts
forthe two properties held in Baldwin House Limited during the year. This balance is zero at Group level.
The Parent Company funded capital expenditure on behalf of Baldwin House in the year amounting to £6,088 (2020: £544,795).
2021
£’000
2020
£’000
Interest charge by McKay to Baldwin House 91 1,321
Management fee charged by McKay 174 338
Notes to the Financial Statements continued
For the year ended 31 March 2021
Strategic Report Governance Financial Statements
123
21 Net asset value per share
In October 2019, EPRA issued new best practice reporting guidelines for Net Asset Value (“NAV”) metrics. These recommendations are
effective for accounting periods starting on 1 January 2020 and have been adopted by the Group in reporting the 31 March 2021 position.
EPRA have introduced three new NAV metrics: Net Tangible Assets (“NTA”), Net Reinvestment Value (“NRV”) and Net Disposal Value
(“NDV”). EPRA NTA is considered to be the most appropriate measure for McKay’s operating activity and is now the primary measure of net
asset value, replacing EPRA NAV.
31 March 2021 31 March 2020
Net assets
£’000
Shares
’000
NAV
per share
pence
Net assets
£’000
Shares
’000
NAV
per share
pence
Basic 289,902 93,801 309 309,166 94,264 328
Number of shares under option – 145 – – 143 (1)
Diluted/EPRA NDV 289,902 93,946 309 309,166 94,407 327
Deferred taxation – – – 1,392 – 2
EPRA NTA 289,902 93,946 309 310,558 94,407 329
The table below shows the calculation for each of the three new EPRA metrics compared to those previously reported.
Current measures Previous measures
As at 31 March 2021
EPRA
NTA
£’000
EPRA
NRV
£’000
EPRA
NDV
£’000
EPRA
NAV
£’000
EPRA
NNNAV
£’000
Equity attributable to ordinary shareholders 289,902 289,902 289,902 289,902 289,902
Deferred taxation – – – – –
Net assets 289,902 289,902 289,902 289,902 289,902
Diluted shares (‘000) 93,946 93,946 93,946 93,946 93,946
Diluted net assets per share (pence) 309 309 309 309 309
Current measures Previous measures
As at 31 March 2020
EPRA
NTA
£’000
EPRA
NRV
£’000
EPRA
NDV
£’000
EPRA
NAV
£’000
EPRA
NNNAV
£’000
Equity attributable to ordinary shareholders 309,166 309,166 309,166 309,166 309,166
Deferred taxation 1,392 1,392 – 1,392 –
Net assets 310,558 310,588 309,166 310,558 309,166
Diluted shares (‘000) 94,407 94,407 94,407 94,407 94,407
Diluted net assets per share (pence) 329 329 327 329 327
22 Commitments and contingent liabilities
2021
Group
£’000
Company
£’000
2020
Group
£’000
Company
£’000
Capital expenditure committed but not provided for – – 672 672
The 2020 commitments related to the Group’s one development in place at the end of the year.
23 Pensions
The Group and Company operate a defined benefit pension scheme in the UK providing benefits based on final pensionable salary.
Theassets of the scheme are held separately from those of the Group, being invested with insurance companies and managed funds.
Thecontributions are determined by a qualified actuary on the basis of a triennial valuation using the attained age method.The most recent
actuarial valuation was as at 31 March 2020. The assumption which has the most significant effect on the results of the valuation are those
relating to the rate of return on investments. It was assumed that the investment returns would be 5.0% per annum.
124
McKay Securities Plc
Annual Report and Financial Statements 2021
23 Pensions continued
The Group contributes £240,000 per annum into the Scheme. This was reviewed as part of the 2020 triennial valuation.
At the 31 March 2020 actuarial valuation the scheme was 78.0% funded on the statutory funding objective basis. A recovery plan and
schedule of contributions has been agreed designed to address this shortfall.
The IAS 19 valuation for the pension scheme disclosures is based on the most recent actuarial valuation at 31 March 2020 and updated by First
Actuarial in order to assess the liabilities of the scheme at 31 March 2021. Scheme assets are stated at their market value at 31 March 2021.
The Scheme has been closed to new entrants since 1989.
The assets of the scheme have been taken at market value and the liabilities have been calculated using the following principal
actuarialassumptions:
2021 2020
Inflation 3.3% 2.6%
Salary increases n/a n/a
Rate of discount 1.7% 2.3%
Pension in payment increases 3.2% 2.6%
The mortality assumptions adopted at 31 March 2021 imply the following life expectancies for members currently aged 60:
Male = 27.8 years
2021
£’000
2020
£’000
The fair value of scheme assets are as follows:
Equities 2,134 1,693
Gilts 557 264
Corporate and overseas bonds 266 252
Absolute return portfolios 2,173 1,984
Property 152 120
Cash 315 443
Other 89 83
5,686 4,839
100.0% of the equities are in quoted equities.
The asset split is approximated using the current fund splits for each manager.
The plan assets do not expose the entity to any significant concentration risk.
2021
£’000
2020
£’000
Changes in the value of scheme assets over the year
Market value of assets at start of year 4,839 5,332
Return on scheme assets 109 115
Actuarial gain 931 (417)
Employer contributions 240 240
Benefits paid (433) (431)
Market value of assets at end of year 5,686 4,839
Notes to the Financial Statements continued
For the year ended 31 March 2021
Strategic Report Governance Financial Statements
125
23 Pensions continued
Analysis of changes in the value of the defined benefit obligation over the period:
2021
£’000
2020
£’000
Value of defined benefit obligation at start of period 6,936 7,440
Interest cost 155 159
Benefits paid (433) (431)
Actuarial gains: experience differing from that assumed 167 83
Actuarial gains: changes in demographic assumptions 313 –
Actuarial gains: changes in financial assumptions 728 (315)
Value of defined benefit obligation at end of period 7,866 6,936
Sensitivity analysis
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, expected salary increase and
mortality. The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions
occurring at the end of the reporting period, while holding all other assumptions constant. The sensitivity analysis presented above may
notbe representative of the actual change in the defined benefit obligation as it is unlikely that the changes in assumptions would occur in
isolation of one another as some of the assumptions may be correlated. The RPI inflation assumption sensitivity factors in the impact of
inflation on the rate of increase in pension in payment assumptions.
Change in
assumption
Change in defined
benefit obligation
Assumption
Discount rate +/-0.5% pa -/+5%
RPI inflation +/-0.5% pa +4%/-3%
Assumed life expectancy +1 year +6%
Analysis of the amount charged to operating profit:
2021
£’000
2020
£’000
Operating profit
Current service cost – –
Analysis of the amount (credited)/charged to finance (income)/costs
Return on pension scheme assets (109) (115)
Interest on pension scheme liabilities 155 159
Total charge to profit and loss 46 44
Analysis of the movement in the balance sheet deficit:
2021
£’000
2020
£’000
Deficit in scheme at beginning of year (2,097) (2,108)
Movement in year:
Current service cost – –
Net interest/return on assets (46) (44)
Contributions 240 240
Actuarial loss (277) (185)
Deficit in scheme at end of year (2,180) (2,097)
The last active member reached retirement age in May 2013.
The weighted average maturity profile of the defined benefit obligation at the end of the year is ten years (2020: ten years).
24 Post balance sheet events
There has been no material post balance events between the balance sheet date and the signing of the accounts.
126
McKay Securities Plc
Annual Report and Financial Statements 2021
Supplementary information (unaudited)
Table 1: EPRA Summary
2021
2020
Reference £’000
Pence per
share £’000
Pence per
share
EPRA Earnings Tab le 2 9,626 10.21 10,019 10.63
EPR A NTA Ta b le 3 290,556 309 310,558 329
EPRA NRV Table 3 290,556 309 310,558 329
EPRA NDV Table 3 289,902 309 309,166 327
EPRA NIY Table 4 4.5% 3.8%
EPRA NIY (topped-up) Table 4 5.2% 5.2%
EPRA Vacancy rate Table 5 14.6% 11.3%
EPRA Cost Ratio (excluding vacant property costs) Table 6 25.9% 25.3%
EPRA Cost Ratio (including vacant property costs) Tab l e 6 31.8% 34.3%
Table 2: EPRA Earnings
Notes
2021
£’000
2020
£’000
Earnings per IFRS income statement (16,450) 8,095
Adjustments to calculate EPRA Earnings:
Movement in revaluation of investment properties 23,356 2,200
Loss/(profit) on disposal of investment properties 2,854 (1,668)
Taxation (134) 1,392
EPRA Earnings 9,626 10,019
Basic number of shares (000's) 94,292 94,234
EPRA Earnings per share 10.21 10.63
Company specific adjustments:
Share Based Payments (IFRS 2) 489 (222)
Other property income (157) (70)
Adjusted earnings 9,959 9,727
Adjusted EPS 10.56 10.32
Strategic Report Governance Financial Statements
127
Table 3: EPRA Net Asset Measures
In October 2019, the European Public Real Estate Association (“EPRA”) published new Best Practices Recommendations (“BPR”) for
financial disclosures by public real estate companies. The BPR introduced three new measures of net asset value: EPRA net tangible
assets (“NTA”), EPRA net reinstatement value (“NRV”) and EPRA net disposal value (“NDV”).
These recommendations are effective for accounting periods starting on 1 January 2020 and have been adopted by the Group in reporting
the 31 March 2021 position.
EPRA NTA is considered to be most consistent with McKay Securities’ business as a UK REIT providing long-term progressive and
sustainable returns. EPRA NTA now acts as the primary EPRA measure of net asset value.
A reconciliation of the three new EPRA NAV metrics is shown in the table below. The previously reported EPRA NAV and EPRA NNNAV
have also been included for comparative purposes.
As at 31 March 2021
Current Measures Previous Measures
EPR A NTA
£’000
EPRA NRV
£’000
EPRA NDV
£’000
EPRA NAV
£’000
EPRA NNNAV
£’000
Equity attributable to ordinary shareholders 289,902 289,902 289,902 289,902 289,902
Deferred taxation – – – – –
Net assets 289,902 289,902 289,902 289,902 289,902
Diluted shares (‘000) 93,946 93,946 93,946 93,946 93,946
Diluted net assets per share (p) 309 309 309 309 309
As at 31 March 2020
Current Measures Previous Measures
EPR A NTA
£’000
EPRA NRV
£’000
EPRA NDV
£’000
EPRA NAV
£’000
EPRA NNNAV
£’000
Equity attributable to ordinary shareholders 309,166 309,166 309,166 309,166 309,166
Deferred taxation 1,392 1,392 – 1,392 –
Net assets 310,558 310,558 309,166 310,558 309,166
Diluted shares (‘000) 94,407 94,407 94,407 94,407 94,407
Diluted net assets per share (p) 329 329 327 329 327
Table 4: EPRA NIY
Notes
2021
£’000
2020
£’000
Investment property – wholly owned 4 37,9 00 510,000
Investment property – share of JVs/Funds – –
Trading property (including share of JVs) – –
Less: developments – (24,000)
Completed property portfolio 437,900 486,000
Allowance for estimated purchasers’ costs
Gross valuation of completed property portfolio A 437,900 486,000
Annualised cash passing rental income 22,197 21,897
Property outgoings (2,645) (3,252)
Annualised net rents B 19,552 18,645
Adjustment for notional rent and other lease adjustments 3,415 6,431
Topped-up net annualised rent C 22,967 25,076
EPRA NIY B/A 4.5% 3.8%
EPRA 'topped-up' NIY C/A 5.2% 5.2%
128
McKay Securities Plc
Annual Report and Financial Statements 2021
Table 5: EPRA Vacancy Rate
Notes
2021
£’m
2020
£’m
Annualised estimated rental value of vacant premises A 4.6 4.0
Annualised estimated rental value of the completed property portfolio B 31.5 34.9
EPRA Vacancy Rate A/B 14.6% 11.3%
Table 6: EPRA Cost Ratio
Notes
2021
£’000
2020
£’000
Administrative expenses 5,175 5,385
Net service charge costs 1,191 986
Direct vacancy costs 1,454 2,266
Management fees (361) (293)
Other operating income – –
EPRA costs (including direct vacancy costs) A 7,820 8,637
Group vacant property costs (1,454) (2,266)
EPRA costs (excluding direct vacancy costs) B 6,366 6,371
Gross rental income less ground rents C 24,624 25,164
EPRA costs ratio (including vacant property costs) A / C 31.8% 34.3%
EPRA costs ratio (excluding vacancy property costs) B / C 25.9% 25.3%
Supplementary information (unaudited) continued
Strategic Report Governance Financial Statements
129
Adjusted EPS
Earnings per share – based on profits and adjusted to exclude
certain items as set out in note 8.
Adjusted profit before tax
Profit before tax adjusted to exclude profit from the disposal of
investment properties, share-based payments, other property
income, the change in fair value derivatives and the movement in
revaluation of investment property. These items are excluded on the
bases that they relate to non-core rental activity as set out in note 4.
Book value
The amount at which assets and liabilities are reported in
theaccounts.
BREEAM
Building Research Establishment Environmental Assessment
Method. An environmental standard that rates the sustainability of
buildings in the UK.
Carrying value
The value of an asset based on prior valuation with the addition of
any subsequent capital expenditure.
Contracted rent
Rent payable under the terms of a lease, less ground rent, with no
allowance for the value of incentives granted at lease commencement.
CRC
Carbon Reduction Commitment. A mandatory emissions reduction
standard in the UK that covers all forms of energy excluding
transportation fuels.
Diluted figures
Reported amount adjusted to include the effects of potential shares
issuable under employee share schemes.
Dun and Bradstreet
Provider of business information and risk management insight.
Earnings per share (“EPS”)
Profit after taxation attributable to ordinary shareholders divided
bythe weighted average number of ordinary shares in issue during
theyear.
EPC
Energy Performance Certificate. Certificates carry ratings which
measure the energy and carbon emission efficiency of the property
using a grade from an ‘A’ to a ‘G’.
EPRA
Standard calculation methods for adjusted EPS, NTA, NRV and
NDV as set out by the European Public Real Estate Association
(“EPRA”) in their Best Practice and Policy Recommendations.
Equivalent yield (True)
The internal rate of return from an investment property, based on
the value of the property assuming the current rent passing reverts
to ERV and assuming the property becomes fully reoccupied over
time. It assumes that rent is received quarterly in advance.
Estimated Rental Value (“ERV”)
The valuers estimated amount for which floor space should let on
the date of valuation on appropriate lease terms net of ground rents
payable. Also known as MRV.
Extensible Business Reporting Language (“XBRL”)
A computer language for electronic transmission of business
andfinancial information.
Gearing
Drawn debt to shareholders’ funds.
GRESB
Global Real Estate Sustainability Benchmark.
Industrial property
Term used to include light industrial, industrial and distribution
warehouse property falling within classes B1c, B2 and B8 of the
Town & Country Planning Use Classes Order. The term does not
include retail warehousing, falling within class A1 of the Order.
Initial yield
Net rents payable at the valuation date expressed as a percentage
of the value of property assets after allowing for notional
purchasers’costs.
Interest cover (“ICR”)
The number of times Group net interest payable is covered by
adjusted profit before interest and taxation.
Interest rate swap
A financial instrument where two parties agree to exchange an
interest rate obligation for a pre-determined amount of time.
IPD/MSCI
Investment Property Databank. Leading provider of independent
statistical analysis to the commercial property sector.
Loan to value (“LTV”)
Drawn debt divided by the value of property assets.
Net asset value (“NAV”) per share
Total equity divided by the number of ordinary shares in issue at
theperiod end.
Net debt
Total borrowings less cash credit balances.
Portfolio capital return (“PCR”)
The annual valuation movement and realised surpluses/deficits
from the Company’s directly held investment portfolio expressed as
a percentage return on the value at the beginning of the period,
adjusted for acquisitions and capital expenditure.
Property Income Distribution (“PID”)
PID dividend payments are taxable as letting income in the hands of
shareholders who pay tax. They are paid after deduction of
withholding tax at the basic rate.
Glossary
130
McKay Securities Plc
Annual Report and Financial Statements 2021
Real Estate Investment Trust (“REIT”)
A tax efficient structure for the management of property. It must be
publicly quoted with 75% of its profits and assets derived from a
qualifying property rental business which is exempt from tax on
income and gains.
Rental value growth
Increase in rental value, as determined at the valuation date, over the
period on a like-for-like basis.
Reversion
Potential uplift in rental value to market rent, as determined at
the valuation date, likely to arise from a rent review, lease renewal
orletting.
RPIX
Retail Price Index excluding mortgage interest.
Shareholders’ funds
Total equity of the Company.
IFRS 16
The IFRS treatment in respect of letting incentives. It requires the
Company to offset the value of incentives granted to lessees
against the total rent due over the length of the lease, or to a break
clause ifearlier.
Stamp duty land tax
Government tax levied on certain legal transactions including
thepurchase of property.
Task Force on Climate-related Financial Disclosures
(“TCFD”)
The TCFDs recommendations are designed to promote
advancements in the availability and quality of climate-related
disclosure.
Total property return (“TPR”)
Valuation surplus/(deficit) plus profit on disposal plus income from
investment properties divided by the book value.
Total shareholder return (“TSR”)
The growth in the value of an ordinary share plus dividends
reinvested during the year expressed as a percentage of the share
price at the beginning of the year.
True equivalent yield
The constant capitalisation rate, which, if applied to all cashflows
from an investment property, including current net reversions and
such items as voids and expenditure, equates to the market value
having taken into account notional purchasers’ costs and assuming
rents paid quarterly in advance.
Weighted average unexpired lease term (“WAULT”)
The average lease term remaining to expiry across the portfolio
weighted by rental income. This is also disclosed assuming all break
clauses are exercised at the earliest date.
Glossary continued
131
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Financial calendar 2021
Annual Report posted to shareholders 2 June
Annual General Meeting 1 July
Final dividend 22 July
Interim announcement November
Interim Statement posted to shareholders November/December
2022
Interim dividend January
Financial year end March
Preliminary announcement May/June
Secretary
J McKeown ACIS
Registered office
20 Greyfriars Road
Reading
Berkshire RG1 1NL
Tel: 0118 950 2333
Registered number
421479
Website
www.mckaysecurities.plc.uk
Auditor
Deloitte LLP
London UK
Corporate solicitors
Slaughter and May
One Bunhill Row
London EC1Y 8YY
Registrar and transfer office
Equiniti Limited
Aspect House, Spencer Road
Lancing
West Sussex BN99 6DA
UK: 0371 384 2101*
Overseas: 44(0) 121 415 7047
Shareholder Information
Enquiries relating to shareholders, such as queries concerning
notification ofchange of address, dividend payments and lost
sharecertificates, should be made to the Company’s registrars.
TheCompany has a share account management and dealing facility
forall shareholders via Equiniti Limited Shareview. This offers
shareholders secure access to their account details held on the share
register to amend address information and payment instructions
directly, as well asproviding a simple and convenient way of buying
andselling the Company’s ordinary shares. For internet services
visitwww.shareview.co.uk or the investor relations sections of the
Company’s website. The Shareview Dealing service is also available
bytelephone on03456 037 037 between 8.30am and 4.30pm
Mondayto Friday.
The best way to ensure that dividends are received as quickly as
possible is to instruct the Company’s registrars to pay them directly
intoa bank or building society account; tax vouchers are then mailed
toshareholders separately. Dividend mandate forms are available from
the registrars. This method also avoids the risk of dividend cheques
being delayed or lost in the post.
Financial information about the Company including the Annual and
Interim Reports, public announcements and share price data are
available from the Company’s website at www.mckaysecurities.plc.uk
andon the internet at www.morningstar.co.uk.
* Lines are open 8.30am to 5.30pm, Monday to Friday, excluding
BankHolidays.
Company and Shareholder Information
Cautionary Statement
This Annual Report and McKay’s website may contain certain
‘forward-looking statements’ with respect to McKay Securities Plc
(“the Company”) and theCompany’s financial condition, results of its
operations and business, andcertain plans, strategy, objectives, goals
and expectations with respect to these items and the economies and
markets in which the Company operates.
Forward-looking statements are sometimes, but not always, identified
by their use of a date in the future or such works as ‘anticipates’, ‘aims’,
‘due’, ‘could’, ‘may’, ‘should’, ‘will’, ‘would’, ‘expects’, ‘believes’, ‘intends’,
‘plans’, ‘targets’, ‘goal’, or ‘estimates’, or, in each case, their negative
orother variations or comparable terminology. Forward-looking
statements are not guarantees of future performance by their very
nature, forward-looking statements are indefinitely unpredictable,
speculative and involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future.
Many of these assumptions, risks and uncertainties relate to factors
thatare beyond the Company’s ability to control or estimate precisely.
There are a number of such factors that could cause actual results and
developments to dier materially from those expressed or implied by
these forward-looking statements. These factors include, but are not
limited to, changes in the political conditions, economies and markets in
which the Company operates (including the outcome of the negotiations
to leave the EU and Covid-19 impacts); changes in the legal, regulatory
and competition frameworks in which the Company operates; changes
in the markets from which the Company raises finance; the impact of
legal or other proceedings against orwhich aect the Company;
changes in accounting practices and interpretation of accounting
standards under IFRS, and changes in interestand exchange rates.
Any forward-looking statements made in this Annual Report or McKay’s
website, or more subsequently, which are attributable to the Company
or any other member of the Group, or persons acting on their behalf, are
expressly qualified in their entirety by the factors referred to above. Each
forward-looking statement speaks only as of the date it is made. Except
as required by its legal or statutory obligations, the Company does not
intend to update any forward-looking statements.
Nothing in this Annual Report or McKay’s website should be construedas
aprofit forecast or an invitation to deal in the securities ofthe Company.
McKay Securities Plc Annual Report and Financial Statements 2021
McKay Securities Plc
20 Greyfriars Road,
Reading, Berkshire, RG1 1NL
T. 0118 950 2333
www.mckaysecurities.plc.uk