Final Results

22 May 2017

McKAY REPORTS STRONG PERFORMANCE, DELIVERING RECORD RENTAL INCOME AND PORTFOLIO VALUE

McKay Securities PLC, the only UK Real Estate Investment Trust (REIT) specialising exclusively in the London and South East office and industrial markets, today announces its Full Year results for the year ended 31 March 2017.

Financial Highlights

· Adjusted profit before tax up 8.3% to £8.60 million (31 March 2016: £7.94 million)

· EPS (adjusted basic) up 8.2% to 9.2pps (31 March 2016: 8.5pps)

· Gross rental income up 3.1% to a historic high of £20.79 million (31 March 2016: £20.16 million)

· IFRS profit before tax of £17.59 million (31 March 2016: £53.16 million), reflecting a lower valuation surplus contribution compared to prior year

· NAV (EPRA) per share up 0.7% to 303 pence (31 March 2016: 301 pence)

· NNNAV (EPRA) per share up 2.9% to 285 pence (31 March 2016: 277 pence)

· Loan to Value ratio of 31.6% (31 March 2016: 28.9%)

· Final dividend up 3.3% to 6.3 pence per share (2016: 6.1 pence per share)

· Total dividend for the year up 2.3% to 9.0 pence (2016: 8.8 pence)

Portfolio Highlights

· Overall increase in property portfolio value of 7.2% (£28.75 million) to a record £429.92 million, generating a 1.7% (£7.07 million) valuation surplus

· Good progress in contracted rental income, up 11.0% (£2.32 million pa) to £23.42 million pa, following 35 lettings over the period, 26 of which were new to the open market

· 3.9% growth in portfolio ERV (like-for-like) to £32.68 million

· Substantial portfolio reversion with potential to increase income by a further 39.5%

· Redevelopment schemes in Reading and Redhill completed and being marketed, with 10,643 sq ft debut letting at Prospero, Redhill quickly secured

· Redevelopment of 30 Lombard Street, EC3, on schedule for delivery in mid-2018, with marketing campaign to commence imminently

· Unconditional contracts exchanged on disposal of Pinehurst Park, Farnborough asset, at 11.5% premium to book value

Richard Grainger, Chairman of McKay Securities, said:

"In my first year as Chairman, I am pleased to be able to report another positive set of results for the Group, which continues to benefit from its exclusive focus on London and the South East. Despite market volatility surrounding the EU referendum, these results show the careful and effective deployment of capital following funds raised in 2014, delivering outperformance for the Group."

Simon Perkins, Chief Executive of McKay Securities, added:

"Our refurbishment programme and proactive asset management activities have continued to release the substantial portfolio potential that we have built up, with rental and capital growth out-performing the market, while two of our three development projects reached completion during the period and our third scheme remains on track for delivery next year.

"With both rental income and the portfolio value at a historic high for the Group, we're pleased to be in a position to deliver increases in shareholders' funds, profits and dividends at this Full Year. The increase in adjusted profit before tax, our measure of recurring earnings, enabled us to achieve our ambitious target of a covered dividend within three years of doubling the share capital in 2014. Looking forward, we will continue pursuing our strategy of building a resilient portfolio in our core markets and crystallising the portfolio reversion to deliver attractive returns for our investors over the long term."

About McKay Securities

McKay Securities PLC is a commercial property investment company with Real Estate Investment Trust (REIT) status, listed on the main market of the London Stock Exchange. It specialises in the development and refurbishment of good quality office and industrial buildings within established and proven markets of London and the South East. The portfolio, which is valued at over £400 million, comprises 36 properties in strong and established areas which deliver diversity in terms of both sector and location.

Forward looking statements

This announcement is for information purposes only and contains certain forward-looking statements which, by their nature, involve risk and uncertainty because they relate to or depend upon future events and circumstances.

There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by these forward looking statements, including a number of factors outside McKay Securities PLC's control. All forward-looking statements are based upon information known to McKay Securities PLC on the date of this announcement and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. McKay Securities PLC gives no undertaking to update forward-looking statements whether as a result of new information, future events or otherwise. Information contained in this announcement relating to the Company should not be relied upon as an indicator of future performance.

Details of the programme for the payment of the final dividend of the Ordinary Shares is as follows:

CHAIRMAN'S STATEMENT

In this, my first year as Chairman, I am pleased to be able to report on another positive year for the Group, which continues to benefit from its exclusive focus on London and the South East. I took on the role with the business in good shape, and despite market volatility surrounding the EU referendum, these results show further gains coming through from the funds invested following the 2014 Capital Raising.

Our refurbishment programme and proactive asset management activities over the period have continued to release the substantial portfolio potential that we have built up, with rental and capital growth out-performing the market. In addition, two of our three development projects reached completion and our third scheme remains on track for delivery next year. As a result of this progress, our rental income and portfolio value have reached historic highs for the Group, contributing to increases in shareholders' funds, profits and dividend.

To achieve our objective of delivering attractive and sustainable returns to shareholders over the long term, our focus has been on building a resilient portfolio in our core London and South East markets. Selective capital investment has continued to improve the quality and scale of the portfolio in established and proven locations, whilst retaining diversity across our core office and industrial sectors.

We also continue to aim for the highest standards of building management and occupier relations. Our refurbishment and development projects offer choice and flexibility in high quality, contemporary business space, with top environmental credentials. These are all essential design characteristics for an increasingly discerning occupier market. This focus on product and delivery contributed to 35 lettings over the period, of which 26 were new open market lettings with a combined rental value of £1.90 million pa, 6.4% ahead of estimated rental value (ERV). These lettings contributed to growth in contracted rental income, which ended the period up 11.0% (£2.32 million pa) at £23.42 million pa. In addition, the success of our refurbishment projects and other portfolio activity resulted in a 3.9% increase in the portfolio ERV to £32.68 million pa.

The full benefit of these lettings to our gross rental income, which increased by 3.1% to £20.79 million, will be seen next year. In addition, the £9.26 million difference between contracted rents and the full portfolio ERV represents the substantial further potential in our portfolio for growth in income and earnings.

Rents to be generated by our three office developments represent over half of this potential. The schemes in Reading (39,620 sq ft) and Redhill (50,370 sq ft) completed during the year, adding top quality new floor space to the portfolio in excellent locations. At the year-end we were 20% let at Redhill, and there is encouraging interest in the remaining space at both buildings. The redevelopment of 30 Lombard Street, our City of London scheme, remains on programme for delivery in mid-2018 and is progressing well. Demolition completed in February and construction of the lift core and steel frame is under way. This is a prime development with many attractive fundamental characteristics aside from its highly sought after location. We look forward to launching our marketing programme this month, and expect interest for either the whole building or individual floors.

As anticipated at the end of last year, the pace of capital growth seen in our markets in recent periods was not sustained. Commercial property has remained an attractive asset class to a wide range of investors, but the IPD Index showed small declines in capital values across most sectors over the period. Despite these more challenging market conditions, our asset selection and proactive management resulted in the open market valuation of the portfolio of £429.92 million (March 2016: £401.17 million) generating a valuation surplus of 1.7% (£7.07 million). This outperformed the IPD Monthly Index (All Property) which showed a deficit of 1.8%.

As a result of our strong operational performance, the 3.1% increase in gross rental income referred to earlier added £0.63 million to our profits, despite the loss of £1.03 million of income from property disposals made in the last financial year. As administration and non-recoverable property costs were held at similar levels to last year, adjusted profit before tax increased by 8.3% (£0.66 million) to £8.60 million (March 2016: £7.94 million). Profit before tax (IFRS), which includes unrealised movements in the value of the property portfolio and hedging instruments and other non-recurring items, was £17.59 million (March 2016: £53.16 million), reflecting the lower valuation contribution this year.

The increase in adjusted profit before tax, our measure of recurring earnings, achieved our ambitious target of a covered dividend within three years of doubling the share capital in 2014. This measure is set to increase over time as the portfolio reversion is crystallised, although earnings will be eroded by the carrying cost of the development properties until they are let.

With the benefit of the valuation surplus, shareholders' funds increased by 3.7% to £270.79 million. NAV per share (EPRA) increased by 0.7% to 303 pps.

Our financing position remains strong with supportive lenders and flexible loan facilities. In order to help reduce our cost of debt, in December 2016 we took the opportunity to further reduce the notional amount of our remaining interest swap from £45.00 million to £33.00 million. This was achieved at a cost of £5.1 million, with a negotiated contribution made by the counterparty bank, resulting in annualised savings at current rates of £0.50 million. Our weighted average cost of debt if fully drawn at current rates would be a competitive 3.7%

Dividend

The Board is recommending a 3.3% increase in the final dividend to 6.3 pence per share (March 2016: 6.1 pence). This will be paid as an ordinary dividend on 27th July 2017. This takes the total dividend for the year to 9.0 pence per share (2016: 8.8 pence).

This recommendation reflects the letting progress over the period, whilst recognising the importance of generating further income from the development programme. The Board intends to maintain a progressive dividend policy, with the scale and pace of increase dependent on growth in recurring earnings.

The Board

Over the year, we were pleased to announce the strengthening of the Board with the appointments of Jon Austen and Jeremy Bates as non-executive Directors, and Tom Elliott as an executive Director. These appointments add relevant and extensive experience and will be of great benefit as we continue to implement our growth plans. They also mark the end of the current phase of our succession planning, overseen by Nigel Aslin as Chairman of the Nomination Committee.

As a result, Nigel retires from the Board today and Viscount Lifford in September, having both served for over ten years. I would like to thank them for their invaluable support and counsel over the years. They have been an integral part of the Group's successful management through the challenges of the recession and the subsequent period of growth and leave with the Group in good health.

Future Prospects

We have created a strong platform from which we can continue to deliver capital and income growth from the extensive potential within our existing portfolio, underpinned by sound financing and sector and geographical diversity in the most resilient regions of the UK. Recent letting progress and further crystallisation of the portfolio's income potential provide the opportunity to increase earnings by a significant margin.

Despite the EU referendum and the imminent General Election, our markets and assets continue to prove robust, leaving us well placed to continue to deliver portfolio gains and further shareholder value.

Richard Grainger

Chairman

Property and Financial Review

Overview

McKay Securities is the only Real Estate Investment Trust (REIT) focused entirely on London and the South East. Our track record demonstrates careful guardianship of our shareholder capital while having sufficient agility, market knowledge and experience to outperform the markets in which we operate. We manage our assets in-house, resulting in productive tenant relationships as well as in depth knowledge of each property.

The Group's 36 assets were externally valued at £429.92m at 31st March 2017, consisting of 33 investment properties (£374.57 million) and three development properties (£55.35 million). By value the portfolio is 18.4% in London and 81.6% in the South East, with 78.0% of the portfolio in the office sector, 17.2% industrial and 4.8% in a range of other uses. The portfolio generated a total property return for the year of 6.8%, outperforming the IPD Monthly Index (All Property) return of 3.3%.

The £86.7 million of capital raised in early 2014 was committed by April 2015, strategically invested into eight new acquisitions in a rising investment market, and the delivery of four refurbishments and three development projects into the supply constrained office markets of London and the South East. The acquisitions and completed refurbishment projects have delivered a combined 32.3% profit over cost to date, and rental growth of 25.9%. The development projects, covered in more detail below, are making good progress and are set to add to this strong performance. These assets, combined with performance elsewhere in the portfolio, have delivered a 43.0% increase in contracted rents and a 72.5% increase in the full estimated rental value (ERV) of the portfolio since March 2014.

Furthermore, the office markets in which we operate are set to benefit considerably from the completion of national infrastructure projects, including Crossrail (2019) which will link the M4 corridor with central London and Canary Wharf and the Western Rail Access to Heathrow route (2024), improving access to Europe's busiest airport which sits in the heart of our South East market.

Our principal focus this year has been on retaining and increasing income through active management and our refurbishment and development programme. To that end, despite the EU referendum at the beginning of the period, our net contracted rent grew by 11.0% to £23.42 million (March 2016: £21.10 million) and the portfolio ERV grew, on a like for like basis, by 3.9% to £32.68 million (March 2016: £31.44 million). The difference between contracted

rent and ERV represents the substantial portfolio reversion and the potential to increase income by a further 39.5% by continued letting progress.

The portfolio void (by ERV) reduced over the period to 5.5% (March 2016: 7.2%) and to 22.7% (March 2016: 25.9%) including the three development properties.

The weighted average lease length to expiry reduced marginally to 5.18 years (March 2016: 5.45 years) and to 4.28 years (March 2016: 4.45 years) to the first lease break.

Four years ago we introduced a sustainability strategy with annual targets, reflecting our commitment to operate in an environmentally responsible manner. Last year we achieved 80% of the annual targets and have set further challenging targets for 2017/18. We were also awarded our first GRESB (Global Real Estate Sustainability Benchmark) Green Star, which is the highest benchmark award, and our completed development projects achieved our high BREEAM and EPC target levels.

Our sustainability strategy also addressed the implications of the Energy Act 2011, which will make it illegal to let any property with an EPC rating of F or below from 2018. Our proactive approach over the last four years has resulted in having only 1% of our assets (by ERV) rated F or G, and mitigation measures are in place to reduce this further.

Market review

The London and South East markets have proved to be resilient in a year dominated by the EU referendum. Two positive market fundamentals have underpinned this stability. Firstly, on the leasing side, there are still low levels of new supply which have helped sustain rental values, while on the investment side, commercial property is still delivering attractive yields relative to other asset classes in a prolonged low interest rate environment.

Throughout 2016, take up levels have been robust despite the uncertainty over Europe, but in many cases landlords are having to retain flexibility to accommodate a greater number of smaller deals, as some larger requirements are being postponed. Our portfolio is well placed for this market dynamic given our relatively small average building size of 44,000 sq ft and our willingness to deliver choice and flexibility in this evolving occupier market. We also have a deliberate policy of owning and procuring buildings capable of multiple occupation.

This increase in smaller transactions was clearly seen in the South East office market which accounts for 59.6% of our portfolio (by value). Take up in this market was steady at 1.96 million sq ft in 2016 compared to the 5-year average of 1.90 million sq ft and the 10-year average of 2.03 million sq ft. However, this quantum was the result of 127 different transactions in 2016 compared to the 5-year average of 109 and the 10-year average of 113. This trend looks set to continue in 2017, which has started positively with a first quarter take up of 554,321 sq ft across 41 transactions.

The supply of good quality office accommodation remains limited in the South East. At the end of the period, total availability stood at 8.83 million sq ft (March 2016: 9.04 million sq ft) which is 10.3% of the total market (March 2016: 10.5%), of which 6.81 million sq ft was either new or Grade A. This means that if a tenant wants to find either a new or Grade A quality office, the choice will be limited to 7.9% of the entire floor space in the South East. If that requirement is specifically for new space, such as our schemes at Redhill (50,370 sq ft) and Reading (39,620 sq ft) which completed in the period, then the percentage choice falls to just 2.7%. Set against this historically low supply is 3.82 million sq ft of named occupier demand, which is just 2.5% below the long term average (source: Strutt & Parker).

The City of London occupational market remains supported by balanced supply and demand and an increasingly diverse tenant base. The EU referendum has raised concerns over future occupier demand, but it has also limited the commencement of new schemes. Although supply has increased marginally, availability in the City core and fringe at the end of the period remains 16.9% below the long term average. Added to this, current named demand of 4.54 million sq ft is 24.4% higher than March 2016, and 14.9% ahead of its long term average.

Within the City core, there is forecast to be only one other new development of similar size band (50,000 sq ft - 80,000 sq ft) to 30 Lombard Street completing in 2018. The City core has a total pipeline of new and Grade A supply of 3.62 million sq ft scheduled to complete up to the end of 2018. Of this, 39.5% (1.43 million sq ft) is already pre-let or under offer. The balance of 2.19 million sq ft compares favourably with average annual take up of 1.70 million sq ft, and a low current vacancy rate of 3.3%. The recent increase in occupier demand is encouraging and, if maintained, will continue to support rental levels and letting prospects generally for this prime development (source: Knight Frank).

Acquisitions and disposals

The investment market remains competitive and, despite the EU referendum uncertainty, prices for prime assets in London and some regional locations remain above those achieved at the peak of the previous cycle in 2007. As a result, our focus has primarily been on delivering value from the existing portfolio and opportunistic sales. Nonetheless, in a market covering the whole of London and the South East, there will be value add acquisition opportunities, and we continue to appraise potential acquisitions on this selective basis.

In February 2017, we exchanged unconditional contracts to sell the freehold interest in our last remaining asset at Pinehurst Park, Farnborough for £5.88 million, representing an 11.5% premium to book value. The purchaser, who hopes to undertake a residential conversion, has paid a non-returnable deposit of £1.00m. We will retain income until completion of the sale in November 2017. At that point, from initial purchase of the entire site in 2012 for £3.50 million, we will have generated net disposal proceeds of £6.36m, representing a 71.9% return on cost, and rental income totalling £3.34 million.

We remain committed to recycling capital from opportunistic sales, particularly of our smaller and more mature assets into both acquisitions and existing opportunities within the portfolio.

Development programme

Over the period we completed two of our three speculative office schemes; both of which are excellent additions to the portfolio. In central Reading, 9 Greyfriars Road (39,620 sq ft) completed in July 2016. This remains the only office building outside central London to be awarded the top BREEAM sustainability rating of 'Outstanding', and offers occupiers attractive, high quality, environmentally friendly business space just a three minute walk

from the upgraded future Crossrail station. Our marketing campaign has attracted encouraging interest over the period, as prospective occupiers appreciate the combination of proximity to the station, on-site parking, and affordable rents for a top-quality building with a high standard of finish. Since the end of the period, this level of interest has been maintained with constructive discussions ongoing, and we hope to be able to make further letting announcements in due course.

In November 2016 we completed Prospero (50,370 sq ft), Redhill's first new office development for 10 years. This building has also been well received by the market, offering four large flexible floors, flooded with daylight through floor to ceiling windows. Within three months of completion we signed a 10-year lease of the top floor (10,643 sq ft) at a new rental high for the town of £31 psf. Good interest and regular inspections continue on the remaining space.

Our only remaining development on site is 30 Lombard Street, in the heart of the City of London. Construction works are progressing well and the scheme remains on target to complete in mid-2018. It will provide 58,000 sq ft of exceptional quality office space and has been designed to offer an attractive prospect to either a single occupier, looking for a core City and globally recognised address, or to a number of occupiers. It will provide regular floor plates over lower ground and nine upper floors and a large roof terrace. We look forward to launching the full marketing campaign shortly.

In addition to our three existing schemes, we continue to work on a number of future opportunities within the portfolio. Next in the pipeline is the potential to refurbish or redevelop one of our industrial assets - a 96,850 sq ft warehouse next to Junction 12 of the M4 at Theale, on the western outskirts of Reading. We purchased the property in April 2015 with a lease in place until February 2021 and a tenant break option in 2018. The industrial sector (which includes warehouse properties), has witnessed the strongest IPD returns this year, principally due to the continued increase of internet retailing which generates large requirements for last-mile delivery in the South East. This asset gives us the opportunity to create a product perfectly suited to satisfy this strong demand and we will be submitting planning applications shortly for the redevelopment of the site for up to four warehouse units totalling 135,000 sq ft.

Refurbishment and asset management

At the prominent Mille office building in Brentford (96,950 sq ft) we completed the refurbishment of the 4th (part), 6th and 7th floors (20,554 sq ft) and reception. We subsequently secured the letting of the newly refurbished part 4th floor (3,930 sq ft) at £26.00 psf, which is a 30.0% increase in ERV from acquisition in 2014, and another letting of over half of the 7th floor (4,732 sq ft) at £25.00 psf. The Mille is proving to be an attractive option for tenants who require both the proximity to central London and M4 access at occupational costs which are less than half those of nearby Hammersmith and Chiswick.

The rolling refurbishment of the reception, common areas and office floors at One Crown Square, Woking (52,115 sq ft) continues to attract multiple tenants. As with 329 Bracknell, we have responded to demand for smaller units and engaging communal break out areas - creating a co-working environment yet with direct control and management from the landlord. We signed nine new leases at this asset during the year at a combined contracted rent of £0.34 million pa, in line with an ERV of £24.00 psf. The most significant was the letting of the entire 6th floor (7,850 sq ft) on a ten-year term with no break options. The building is now 89.5% let by ERV.

We completed the refurbishment of Building Five, Switchback Office Park in Maidenhead in September 2016. This is the last of six buildings in our rolling refurbishment programme, providing 8,375 sq ft over two floors. During the refurbishment, we pre-let the upper floor on a 10-year lease at a rent of £0.11 million pa, equating to £26.75 psf. This is the highest rent achieved at the Park, leaving just the ground floor unit of 4,133 sq ft (out of the whole Park of 37,155 sq ft) to be let.

Small floors in the rapidly improving Victoria sub market in central London continue to be in high demand, as evidenced at Castle Lane, SW1 (14,250 sq ft). We have been actively managing leases and re-letting throughout the building, with minimal voids, taking rents from an ERV of £57.50 psf in March 2016 to the latest letting of £64.00 psf on the first floor. We have also secured a residential planning consent to protect future flexibility and value.

The 11.0% increase in net contracted rent for the portfolio was attributable in part to these new lettings, but also to the rigorous asset management by the team through lease regears, renewals and rent reviews. At Wimbledon Gate, SW19 (58,690 sq ft) we settled the February 2016 rent review during the period at £2.35 million pa which was an increase of £0.80 million pa (51.6%).

This fully endorsed our strategy of holding this high quality office asset for growth, having developed it in 2005. This is an increasingly popular London sub-market with good transport connections that continues to benefit from the recent growth in central London rents.

At Gainsborough House (18,660 sq ft), we completed a lease renewal with the existing tenant of this attractive office building in central Windsor. This extended their term by 10 years at an increased rent of £0.58 million pa (12.5% uplift) with no capital expenditure incurred by the Group. The rent achieved was 4.8% ahead of ERV.

Across the entire portfolio, the activity referred to above contributed to a total of 35 lettings over the period, 26 of which were open market lettings at a combined contracted rent of £1.90 million pa (6.4% ahead of ERV). The balance, being nine lease renewals, contributed to a tenant retention rate of 76.6% at lease break option and expiry, securing a combined contracted rent of £1.87 million pa, at a substantial 11.6% increase over the passing rent prior to these lease events.

We also benefitted from a one-off contribution to our income this year of £1.65 million. This was compensation paid by adjoining landowners for the potential impact of their redevelopment proposals on the rights to light of our two central Reading office properties.

Valuation

The independent valuation of the Group's portfolio as at 31st March 2017 totalled £429.92 million (March 2016: £401.17million), resulting in a surplus for the 12 months of 1.7% (£7.07 million) overall and 2.5% excluding the three development properties. This compared favourably to the market benchmark (IPD Monthly (All Property) Index) which returned negative capital growth of -1.8%. Our total portfolio return was 6.8%, outperforming the IPD Monthly (All Property) index of 3.4%.

Our greatest exposure (59.6% of the portfolio) is in the South East office sector, where our investment properties achieved capital growth of 3.6% compared to IPD of -2.6% and ERV growth of 5.8% compared to IPD of -1.7%. Our London office investment properties also outperformed the benchmark with capital growth of 2.5% (IPD City of London -2.1%) and ERV growth of 3.2% (IPD: 2.5%).

The only sector where we fell short of the index was our industrial assets (17.2% of the portfolio) where our surplus was 0.4% (IPD: 6.1%). This was mainly due to a 13.4% valuation deficit at Brunel Road, Theale where, as previously outlined, the tenant's break option early next year has had a negative impact on value.

The combined deficit for our three development properties was 3.5%. Prospero at Redhill returned a surplus as a result of letting progress, and 9 Greyfriars Road, Reading was little changed. At 30 Lombard Street, EC3 the valuation deficit of 12.4% was mainly due to an outward shift in yield and void assumptions in the first half of the year following the EU referendum, being the least advanced of the three schemes.

The portfolio initial yield of 4.6% (March 2016: 4.5%), increases to 5.1% (March 2016: 5.0%) on the expiry of letting incentives. Our significant potential to grow income is demonstrated by our reversionary yield, which would be 7.1% (March 2016: 7.4%) calculated using current capital values against ERV. The equivalent yield was 6.4% (March 2016: 6.3%), highlighting that our valuation gains were as a result of higher contracted rents and ERVs.

This valuation performance was achieved despite a lack of market momentum, as indicated by the IPD Index movements. Performance therefore relied on our pro-active asset management and well placed refurbishments. Examples in the portfolio are the significant lease regear at Windsor which generated 17.3% capital growth; 17.0% growth from the rolling refurbishment at Woking; and 13.2% from the rent review at Wimbledon.

Total shareholder return

Total Shareholder Return (TSR) for the three years to 31st March 2017 was 13.2%. This compares to a FTSE 350 Real Estate Index return of 14.6%. For the year to 31st March 2017, the sharp relative decline in share price following the EU referendum resulted in a negative TSR of 8.6% which compares to a FTSE 350 Real Estate negative return of 0.3%. Our share price reaction to the referendum result proved to be extreme and recent gains have outperformed the sector.

Dividends

The final dividend of 6.3 pence per share (March 2016: 6.1 pps) will be paid on 27th July 2017 to those on the register on 2nd June 2017. With the interim dividend of 2.7 pence per share, this takes the total dividend for the year to 9.0 pence per share, an increase of 2.3% on the previous year.

As a REIT, the Group is required to distribute at least 90% of rental income profits arising each financial year by way of a Property Income Distribution (PID), subject to exemptions. This is paid after deduction of withholding tax, at present 20%. The cost of cancelling interest rate hedging instruments over the period is treated as an exemption and has off-set the profits attributable to the PID. As a result, the final dividend will be paid as an ordinary dividend rather than a PID.

Income statement

Adjusted profit before tax increased by £0.66 million (8.3%) to £8.60 million (March 2016: £7.94 million) due primarily to a £0.63 million (3.1%) increase in gross rental income. A small decrease in administration costs was in part offset by an increase in property outgoings. Interest costs were steady.

This increase in gross rental income came as a result of the letting progress and asset management initiatives referred to above and in previous periods, offset by £0.95 million less income as a result of disposals last year.

Profit before tax (IFRS) totalled £17.59 million (March 2016:£53.16million). This included the unrealised surplus on valuation (including SIC15 and other adjustments) for the period of £7.62 million, an improvement of £0.42 million in the negative value of the interest rate hedging instruments and the £1.65 million rights of light compensation payment.

Administration costs decreased by 1.4% to £5.79 million (March 2016: £5.88 million). Staff pay increases of circa 2% were offset by a lower bonus cost for the period.

The interest cost for the year of £6.34 million was the same as last year. Interest capitalised against projects during the year was comparable to the prior year at £1.82 million (March 2016: £1.88 million) as the development programme continues. As a result, interest payable totalled £4.52 million (March 2016: £4.46 million).

The Group's weighted average cost of debt for the period reduced from 4.78% for the six months to 30th September 2016 to 4.42% (prior to amortisation and finance lease interest). Contributing to this was the decision made in December 2016 to reduce the notional value of the Group's interest rate hedging instrument by a further £12.00 million to £33.00 million at a net cost to the Group of £5.08 million, with the cost of cancellation offset by a lender

contribution. This reduction reduces annualised interest cost by £0.50 million at current rates.

The Group does not hedge account its interest rate derivatives and therefore includes the movement in fair value in the profit for the year.

Balance sheet

Shareholders' funds increased from £261.22 million to £270.79 million over the period, principally due to the £7.62 million valuation surplus (£7.07 million excluding SIC15 and other adjustments).

EPRA NAV per share increased by 0.7% over the period to 303 pence (March 2016: 301 pence). EPRA NNNAV per share increased by 2.9% to 285 pence (March 2016: 277 pence) and basic NAV per share increased by 3.2% to 289 pence (March 2016: 280 pence). The reduction in the difference between EPRA NAV and basic NAV (from 21p to 14p) is a consequence of the reduction in the notional value of the hedging instrument and the lender contribution.

The Group currently benefits from £175.00m of banking facilities, having refinanced three of the four facilities in 2015. The fourth facility is in the process of being refinanced ahead of expiry at the end of the year. Drawn debt at the end of the period was £136.00 million (March 2016: £116.00 million). The gearing ratio of drawn debt to portfolio value (LTV) as at 31st March 2017 was 31.6% (March 2016: 28.9%). The ratio of aggregate net borrowings to tangible net worth was 47.3% (March 2016: 40.9%). Both ratios have increased due to ongoing project expenditure of £20.06 million over the period, but remain at low levels relative to loan covenants which will continue to be carefully monitored.

Net cash inflow from operating activities was £16.50 million (March 2016: inflow £3.30 million) and interest cover based on adjusted profit plus finance costs as a ratio to finance costs was 1.96x (March 2016: 1.86x).

The interest rate hedging instrument of £33.00 million, coupled with the long dated £55.00 million fixed loan, give the Group £88.00 million of fixed or hedged debt (March 2016: £100.00 million). This equates to 64.7% fixed or hedged on the current drawings of £136.00 million.

The negative mark to market valuation of the hedging instrument at 31st March 2017 improved by £0.42 million to £16.92 million. Although the mark to market valuation is negative, this represents a non-cash timing difference. The Group closely monitors the market for these instruments and regularly reviews the strategic options for these products.

As a REIT, the Group is tax exempt in respect of capital gains and all qualifying rental income, which covers the majority of the Group's activities. Any residual income has been offset by relevant costs, and there is therefore no tax charge for the period (March 2016: nil).

Defined Benefit Pension Scheme

Under the application of accounting standard IAS19, the Group's pension deficit has increased over the period from £1.84 million to £2.28 million. The Group's annual contribution to the Scheme of £0.24 million, which includes part payment towards the deficit over a 7-year recovery plan, is not affected by the increase in the deficit. The increase in the deficit is in the main due to the fall in the gilt curve during the year, resulting in the discount rate applied

reducing from 3.3% to 2.3%. The Scheme was closed to new entrants in the 1980's, and now consists of six pensioners and no active members. The Scheme is currently subject to a triennial valuation for the year to 31st March 2017.

Signed on behalf of the Board of Directors.

S. Perkins

G. Salmon

The summary of the consolidated results of McKay Securities PLC and its subsidiary undertakings (the "Group") for the year ending 31st March 2017 are as follows:

CONSOLIDATED PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31st March 2017

The total comprehensive income for the year is all attributable to the equity holders of the parent company.

GROUP STATEMENT OF FINANCIAL POSITION

As at 31st March 2017

Non-current assets

Current assets

Current liabilities

Non-current liabilities

Equity

COMPANY STATEMENT OF FINANCIAL POSITION

As at 31st March 2017

Non-current assets

Current assets

Current liabilities

Non-current liabilities

Equity

GROUP CASH FLOW STATEMENT

For the year ended 31st March 2017

Operating activities

Investing activities

Financing activities

COMPANY CASH FLOW STATEMENT

For the year ended 31st March 2017

Operating activities

Investing activities

Financing activities

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31st March 2017

Attributable to equity holders of the parent company

COMPANY STATEMENT OF CHANGES IN EQUITY

For the year ended 31st March 2017

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31st March 2017

1 Accounting policies

Basis of preparation

The financial information set out in the final results announcement does not constitute the Group's statutory accounts for

the year ended 31st March 2017 or 2016, but is derived from those accounts. The statutory accounts for the period ended 31st March 2017 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The statutory accounts for the year ended 31st March 2016 have been delivered to the Registrar of Companies. The auditors have reported on the accounts for both the years ended 31st March 2017 and 2016; their reports were (i) unqualified (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards as adopted by the European Union(IFRS), this announcement does not itself contain sufficient information to comply with IFRS..

A number of accounting standards, amendments to and interpretations of standards become applicable for the first time this year. None had any material impact on the financial statements.

None of the new standards or amendments to existing standards or interpretations, which are endorsed but not yet effective, have been adopted, or are expected to have any material impact on the financial statements.

The financial statements are prepared on a going concern basis. 

Basis of consolidation

The consolidated financial statements of the Company and its subsidiaries (the Group) have been prepared on a historical cost basis, except for investment property and derivative financial instruments which are measured at fair value through the Profit or Loss and other Comprehensive Income. Subsidiary companies are those entities 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.

Intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in preparing the consolidated financial statements.

Significant judgements and estimates

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. Not all accounting policies require estimates and assumptions, however management consider them significant in applying to valuations, for which qualified external advisors are used, of investment properties, financial instruments, share-based payments and defined benefit pension obligations and are disclosed in the applicable policies and notes below.

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 or Loss and other Comprehensive Income and transferred to the revaluation reserve in the Group Statement of Financial Position. Any accrued rent receivable recognised as a separate asset in accordance with the Group's accounting policy on lease incentives is 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 unconditional exchange of contracts when the significant risks and rewards of ownership have been transferred. Gains and losses arising on the disposal of investment properties are recognised in the Profit or 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 or 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.

Properties held under long leases where the Group has substantially all the risks and benefits of ownership are accounted for as finance leases and carried at the lower of fair value or present value of future minimum lease payments. The present value of the future minimum lease payments is recognised as a liability with a corresponding asset added to the carrying value of the leasehold property. The minimum lease payments are apportioned between finance charges in the Profit or 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 or Loss and other Comprehensive Income in the period incurred.

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 3 and 5 years.

Cash and cash equivalents

Cash comprises cash at bank and short term deposits held on call. Cash equivalents comprise investments with minimal risk to changes in value that are readily convertible into cash with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose only of the cash flow statement.

Trade and other receivables and payables

Trade and other receivables are recognised at invoice cost unless an impairment provision has been made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote. Trade and other payables are recognised at invoice cost.

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 revaluation of the Group's properties and is not available for distribution until realised through sale.

Segmental analysis

All of the Group's revenue is derived from the ownership of investment properties located in South East England and central 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.