15th Nov 2016 08:51
LONDON (Alliance News) - McKay Securities PLC on Tuesday said the decline in capital values to-date has "generally been limited", particularly for prime assets with secure income, though it swung to a pretax loss in the first half of its financial year.
The real estate investor, which invests in office and industrial properties in London and the south east of England, said capital and rental values have stood up well in its core South East and London markets.
A reduction is capital values by 0.7% and rental growth of 2.5% over the six-month period ended September 30 "out-performed market indices and highlights the benefit of the investment we continue to make in upgrading our properties and the resilient characteristics of our portfolio", McKay said.
Contracted rental income increased by 6.4% year-on-year to GBP22.5 million per annum , whilst gross rental income grew 2.4% year-on-year to GBP10.4 million.
However, a valuation deficit of GBP3.3 million, compared to the GBP25.9 million valuation surplus the prior year, and increased finance costs meant McKay swung to a pretax loss of GBP3.8 million from a pretax profit of GBP34.6 million.
McKay said investment volumes across its market were lower over the period than in recent times which, though in part a result of the EU referendum, also was expected as the market recovery matured and the prospect of cyclical gains reduced.
The group said property returns remain attractive, however, with the devaluation of the sterling driving continued appetite from overseas buyers, particularly in London as well as the emergence of other buyers outside London such as local authorities.
Low supply of new and grade A buildings in the markets continues to limit occupier choice, meanwhile, with the Brexit vote having the potential to constrain development pipelines and reduce the risk of oversupply.
Within the south east office market, which accounts for 60% of McKay's portfolio, the group said the supply of new and grade A Buildings remains low and there is continued occupier demand.
However, McKay noted the referendum may "result in the short-term deferral of larger strategic requiements of over 60,000 square feet" and "occupiers are increasingly facing building obsolescence issues that will continue to underpin demand and new requirements".
Meanwhile, in the City of London, McKay said the referendum has raised uncertainty regarding future occupier demand, particularly from the banking sector, and take-up levels are expected to be lower for calendar year 2016 than the last two years. However, constrained supply continues to support rental values.
McKay declared an interim dividend of 2.70 pence per share, in line with the prior year.
"The property market generally suffered a loss of confidence following the EU referendum result, but more recently, we have seen markets stabilise and improved recognition in our core markets of the attraction of property as an asset class," said Chief Executive Simon Perkins.
Shares in McKay were up 2.0% at 186.00p on Tuesday morning.
By Hannah Boland; [email protected]; @Hannaheboland
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