Half Yearly Report

McKay Securities PLC

City Profile

Simon Perkins, Managing Director

Simon Courtenay

Giles Salmon, Finance Director

020 7448 3244

0118 950 2333

Details of the programme for the payment of the interim dividend are as follows:

Ex-dividend date 30th November 2011

Record date 2nd December 2011

Interim dividend payment 12th January 2012

The Directors have declared an interim dividend of 2.7 pence per share, (2010 - 2.7 pence per share), which will be paid as a Property Income Distribution (PID).

CHAIRMAN'S STATEMENT

Results for the six month period to 30th September 2011.

Profit before tax, adjusted to exclude non recurring profit on sales, surrender premiums, and unrealised movements in the value of both the Group's property portfolio and its interest rate hedging instruments was £2.50 million, compared with £2.52 million for the six month period to 30th September 2010. Adjusted earnings per share was 5.38 pence (2010: 5.50 pence).

The external valuation of the Group's property portfolio at 30th September 2011 was £209.25 million, representing a 0.02% increase (£0.05 million) in book value for the half year period. The Group's interest rate hedging instruments reduced in value by £16.72 million. With the inclusion of these unrealised movements, the Group reported a loss before tax of £13.99 million (2010: £12.12 million loss).

Net asset value per share (EPRA) was 224 pence, an increase of 0.4% from 223 pence reported at 31st March 2011. Basic net asset value per share reduced from 197 pence to 161 pence mainly on account of the negative movement in the value of the interest rate hedging instruments.

The Board has declared an interim dividend of 2.7 pence per share (2010: 2.7 pence).

Review

The Group's properties have had a stable and positive start to the financial year. The office and industrial sectors of central London and South East England, the focus of our activity, have proved more resilient than other markets to date. The firm financial platform that we have established has been maintained, and adjusted profit before tax of £2.50 million was at a similar level to the equivalent period last year. 

The retention and generation of income and the release of value from the existing portfolio have continued to be key priorities which have contributed to this result. High occupancy levels have been maintained and we continue to collect in excess of 90% of rental income within seven days of the due date. The underlying strength of our tenant base, which supports this recurring income stream remains closely monitored and 65% of contracted rental income continues to be paid by tenants with net worth in excess of £15 million (source: Dun and Bradstreet). The high quality and established locations of our assets have also assisted performance as occupiers and investors have become more selective.

Towards the end of the last financial year the Group restructured its interest rate hedging facilities, significantly reducing the extent of these facilities in order to mitigate the previously over-hedged position. This was well timed as interest rate projections have fallen since then which would have made the restructure more expensive. The valuation of the retained facilities has reduced as a result of this fall in rates, and the loss reported for the period at headline level is directly attributable to these unrealised movements.

Across the Group's South East and central London markets, the improved conditions reported in June have generally been maintained. Demand from a diverse range of occupiers in our South East office market, which accounts for 40% of the portfolio by value, remains steady at 3.5 million sq ft; take up for the year as a whole is expected to be similar to the 2.0 million sq ft achieved last year. Grade A supply within this market has fallen by 11% over the last twelve months to a vacancy rate of 8% and new supply has reduced by 24% to a low vacancy rate of 3%. With continued take up of new buildings in particular there remains upward pressure on rental values in the most under-supplied centres for the best quality buildings. Considerable variations remain between centres and our market knowledge and contacts have continued to be of great importance in securing occupier interest and in assessing acquisition opportunities.

This market knowledge helped secure ten lettings over the period with a total contracted rent of £0.78 million pa. Of these, eight were new lettings and two were lease renewals. In general, the new lettings were of smaller portfolio voids, but of particular note was the letting of Units 1 & 2 (19,250 sq ft) at the McKay Trading Estate, Poyle. Interest was only secured after refurbishment of the units, which supports our view that properties generally benefit from refurbishment prior to marketing.

This proved to be the case at Eastgate House, Fleet (13,780 sq ft), where we received strong interest on completion of the refurbishment at the beginning of the summer. Although that interest did not lead to a letting, the refurbishment gives the building a competitive advantage and marketing continues, along with other void properties including the remaining three units at Poyle (24,250 sq ft); Switchback Office Park, Maidenhead (16,570 sq ft); and Pegasus Place, Crawley (17,750 sq ft).

Our active approach to portfolio management helped retain 78% of tenants at lease break or expiry, securing £0.80 million of contracted annual rent. Overall this was 6.6% ahead of valuation rental values, and 2.0% ahead of passing rents. 

The most significant break exercised was at Great Surrey House, SE1 (21,560 sq ft). This was anticipated and the payment by the outgoing tenant of a penalty of six months rent will provide cover for the remainder of the year whilst the building is marketed. This attractive office building is in a prominent location close to Southwark Underground and the new southern entrance to Blackfriars station. It is therefore in a highly accessible area which has improved significantly with recent investment in local infrastructure and amenities. This has helped attract occupiers into the area from the City and West End, which has generated rental growth and contributed to a low vacancy rate for Grade A product. A number of refurbishment options are being appraised to take best advantage of this evolving market.

The void level as a percentage of portfolio rental value reduced from 10.9% as at 31st March 2011 to 10.7%, increasing to 13.5% at the end of the period with the inclusion of Great Surrey House which was vacated on 28th September. 

We continue to monitor the City of London market closely as prospects for the timing and delivery of the redevelopment of 30/32 Lombard Street, EC3, which will replace the existing 30,000 sq ft building with a top quality 60,000 sq ft office building in this prime City location, are dependent on a predictable letting market. Design work is underway, and a review of the development options available will be carried out in the spring, ahead of potential vacant possession at the end of December 2012.

Elsewhere in the portfolio, the lease expiry at 100 Bothwell Street, Glasgow (100,000 sq ft) is due at the end of December 2013. A dialogue with the existing occupier regarding a lease extension has been maintained, and refurbishment and redevelopment proposals are also under consideration as the limited supply of good quality office buildings in the central Glasgow market makes this a potentially attractive way forward.

We continue our selective approach to the appraisal of earnings enhancing acquisition opportunities with the potential for capital gain through active management, refurbishment or development. Lending banks appear to be coming to terms with their distressed loan books, but the market is still waiting for a more significant flow of property to come from that source. However, investment values in a number of cases are now more reflective of the risks associated with lower rental levels and the cost of refurbishment.

Since the end of the period, the Group has taken advantage of this and acquired Doncastle House, Bracknell (33,600 sq ft) at a price of £2.71 million, generating an initial yield of 12.5% off low average rents in the region of £15 psf, with a potential yield of 17.5% when fully let. The purchase price equates to £85 psf, which is significantly below the cost of reinstatement. The property has excellent car parking and provides small flexible suites with good access to the motorway network. The intention is to improve the quality and occupancy of the building with limited external and internal improvement, keeping under review the possibility of renewing and implementing a recent planning consent for an additional 12,000 sq ft.

Valuation

The independent valuation of the Group's property portfolio as at 30th September 2011 totalled £209.25 million, representing a 0.02% (£0.05 million) increase in book value from 31st March 2011. Gains within the portfolio were mainly from London properties which increased in value by 2.6% overall, due to a combination of lettings and yield shift. The South East office portfolio declined in value by 1.8% and Glasgow by 2.2% due mainly to the valuation assumptions applied to those properties with approaching lease breaks or expiries. The industrial portfolio was up by 0.2%. The portfolio market rental value increased by 0.2% to £17.57 million. These compare with an increase of 0.6% in the capital value and 0.2% in the rental value of the IPD Monthly Index (All Property).

At 30th September 2011, the initial yield of the portfolio was 6.8% (March 2011 - 6.9%) increasing to 7.1% (March 2011: 7.4%) on contracted rents once letting incentives expire. The true equivalent yield was 7.7% (March 2011: 7.8%).

Finance

The Group continues to benefit from four favourable banking facilities totalling £155.00 million. The first facility (£45.00 million) will expire in February 2016. Compliance has been maintained with all covenants over the period, maintaining low margins, flexible terms and no near term refinancing risk.

Net debt at 30th September 2011 was £95.60 million (30th September 2010: £90.21 million). The ratio of drawn debt to portfolio value (LTV) was 47.2% (30th September 2010: 43.8%), and the gearing ratio to shareholders' funds, adjusted in accordance with banking covenants, was 91.6% (30th September 2010: 83.2%).

Financial hedging instruments remain in place to protect the Group against high interest rates in respect of a notional sum of £105.00 million, reduced from £155.00 million in February 2011. The mark to market value of these instruments declined in value by £16.72 million over the period to a negative value of £34.20 million. The Group is currently hedged at 106%, however purchases and anticipated capital expenditure on portfolio properties will see this reduce. The hedging position and the associated implications for the business remain under regular review.

The Group's average cost of debt for the period reduced to 5.4% (2010: 5.9%), reflecting the lower rates negotiated in the restructuring of the hedging instruments in February 2011.

Dividend

The Board is pleased to declare an interim dividend of 2.7 pence per share, which remains unchanged from the same period last year. This will be paid as a Property Income Distribution (PID) on 12th January 2012 to shareholders on the register on 2nd December 2011.

Future Prospects

At the beginning of the year there were encouraging signs that occupier markets were benefitting from a return of economic confidence, particularly in the South East and London, although since the summer this confidence has been eroded by the European debt crisis.

In what could prove to be a more challenging occupier market, growth in capital and rental values will increasingly be generated by those with the skills and finance to implement management and refurbishment initiatives, in the most resilient markets. Having continued to protect our stable financial base, and with detailed knowledge of our diverse occupier markets, we remain confident of the prospects to release value from an encouraging range of portfolio opportunities.

D.O. Thomas

Chairman

23 November 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

----------------------------------------------------------------------------------------

6 months

6 months 

12 months

to 30th

to 30th

to 31st 

September 

September

March

2011 

2010

2011

(Unaudited) 

(Unaudited)

(Audited)

Notes

£'000

£'000 

£'000 

Gross rents and service charges receivable

9,451

9,550

19,054

Surrender premiums received

-

467

582

Direct property outgoings

(2,577)

(2,496)

(4,893)

---------- 

--------- 

---------

Net rental income from investment properties

3

6,874

7,521

14,743

Administration costs

(1,647)

(1,725)

(3,470)

---------- 

--------- 

---------

Operating profit before investment property

disposals and revaluation movements

5,227

5,796

11,273

Profit on disposal of investment properties

-

11

11

Profit on disposal of listed investments

13

Movement in revaluation of investment properties

7

263

(972)

271

---------- 

--------- 

---------

Operating profit

5,490

4,835

11,586

Net finance costs - finance costs

6

(19,561)

(17,040)

(6,668)

- finance income

6

15

15

20

(19,546) 

(17,025)

(6,648)

Share of results of associated undertaking

71

68

(441)

---------- 

---------

----------- 

(Loss)/profit before taxation

(13,985) 

 (12,122)

4,497

Taxation

4

-

-

-

---------- 

----------

----------

(Loss)/profit for the period

(13,985) 

 (12,122)

4,497

---------- 

---------

----------- 

Other comprehensive income:

Actuarial movement on defined benefit pension

Scheme

-

-

(122) 

---------- 

---------

---------

Total comprehensive (loss)/income for the period

(13,985)

 (12,122) 

4,375 

(Loss)/earnings per share

5

Basic

(30.48)p

(26.46)p

9.81p

Diluted

(30.48)p

(26.59)p

9.54p

Adjusted earnings per share figures are shown in note 5

GROUP BALANCE SHEET

-------------------------------------

As at

As at

As at

30th 

30th

31st 

September

September

March

2011

2010

2011

(Unaudited)

(Unaudited)

(Audited)

Notes

£'000

£'000

£'000

Non-current assets

Investment properties

7

208,347 

204,630 

207,430 

Plant and equipment

15 

14 

13 

Investments

1,885 

2,372 

1,814 

-----------

-----------

-----------

210,247 

207,016 

209,257 

-----------

-----------

-----------

Current assets

Trade and other receivables

5,925 

7,157 

5,979 

Cash and cash equivalents

3,096 

2,837 

2,519 

-----------

--------

--------

9,021 

9,994 

8,498 

-----------

-----------

-----------

Total assets

219,268 

217,010 

217,755 

-----------

-----------

-----------

Current liabilities

Loans and other borrowings

-

(13,000)

-

Trade and other payables

(7,545)

(8,942)

(7,293)

Finance lease liabilities

(286)

(286)

(286)

Interest rate derivatives

8

(3,795)

(4,068)

(3,591)

----------

--------

----------

(11,626)

(26,296)

(11,170)

----------

--------

---------

Non-current liabilities

Loans and other borrowings

(98,348)

(78,177)

(97,313)

Pension fund liabilities

(1,047)

(1,093)

(1,090)

Finance lease liabilities

(4,122)

(4,123)

(4,123)

Interest rate derivatives

8

(30,402)

(32,606)

(13,888)

----------

-----------

-----------

(133,919)

(115,999)

(116,414)

----------

-----------

-----------

Total liabilities

(145,545)

(142,295)

(127,584)

----------

-----------

-----------

Net assets

73,723 

74,715 

90,171 

----------

----------

----------

Equity

Called up share capital

9,176 

9,176 

9,176 

Share premium account

2,478 

2,478 

2,478 

Capital reserve

49,792 

49,889 

49,792 

Revaluation reserve

 11,069

10,024 

10,780 

Retained earnings

1,208 

3,148 

17,945 

----------

----------

-----------

Total equity

73,723 

74,715 

90,171 

----------

----------

-----------

Net asset value per share

10

161p

163p

197p

EPRA net asset value per share

10

224p

231p

223p

GROUP CASH FLOW STATEMENT

------------------------------------------------

6 months

6 months 

12 months

to 30th 

to 30th

to 31st 

September

September

March

2011

2010

2011

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Operating activities

(Loss)/profit before tax

(13,985) 

(12,122) 

4,497 

Adjustments for:

Depreciation

4

4 

8 

Other non-cash movements

293

396 

721 

Profit on disposal of investment properties

-

(11)

(11)

Profit on disposal of listed investments

-

-

(31)

Movement in revaluation of investment properties

(263) 

972 

(271)

Net finance costs

19,546 

17,025

6,649 

Share of profit of associate undertaking

(71)

(68)

441

--------

------

---------

Cash flow from operations before changes in working capital

5,524 

6,196 

12,003 

Decrease/(increase) in debtors

10 

(926)

323 

Increase/(decrease) in creditors

469 

304 

(761) 

----------

--------

---------

Cash generated from operations

6,003 

5,574 

11,565 

Interest paid

(3,055)

(2,196)

(11,636)

Interest received

15 

15 

18 

----------

-------

--------

Cash flows from operating activities

2.963 

3,393 

(53) 

----------

-------

--------

Investing activities

Sale of investment properties

- 

11 

11 

Sale of listed investments

- 

- 

35 

Dividends from sundry investments

- 

1 

1 

Dividends from associated undertaking

- 

- 

45 

Purchase and development of investment properties

(809)

(724)

(2,534)

Purchase of other fixed assets

(8)

(2)

(5)

---------

----------

----------

Cash flows from investing activities

(817)

(714) 

(2,447) 

---------

----------

----------

Financing activities

Increase in borrowings

1,000 

2,000 

8,100 

Equity dividends paid

(2,569)

(2,519)

(3,758)

----------

--------

---------

Cash flows from financing activities

(1,569)

(519)

4,342

----------

--------

---------

Net increase in cash and cash equivalents

577 

2.160 

1,842

Cash and cash equivalents at beginning of period

2,519 

677 

677

----------

---------

---------

Cash and cash equivalents at end of period

3,096 

2,837 

2,519 

----------

---------

---------

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the parent company

Share capital

£'000

Share premium

£'000

Revaluation reserve

£'000

Capital reserve £'000

Retained earnings £'000

Total equity £'000

At 1st April 2010

9,159

2,495 

10,996

49,878 

16,631 

89,159 

Profit for the year

-

- 

- 

- 

4,497 

4,497 

Other comprehensive income:

Transfer surplus on

revaluation of properties

-

- 

271 

- 

(271)

- 

Transfer share of deficit on

revaluation of properties

in associated undertaking

-

- 

(566) 

- 

566

Transfer on disposal of

investment properties

-

- 

79 

(86)

7

- 

Actuarial loss on defined

benefit pension scheme

-

- 

- 

- 

(122)

(122)

---------

---------

---------

---------

---------

---------

Total comprehensive income

for the year

-

- 

10,780 

49,792

21,308 

93,534 

Dividends paid in year

-

- 

- 

- 

(3,758)

(3,758)

Fair value of share based

Payments

-

- 

- 

- 

395 

395 

Exercise of performance share plan awards

17

(17)

---------

---------

---------

---------

---------

---------

At 31st March 2011

9,176

2,478 

10,780 

49,792 

17,945 

90,171 

Loss for the period

-

- 

- 

- 

(13,985)

(13,985)

Other comprehensive income:

Transfer surplus on 

revaluation of properties

-

- 

289

-

(289) 

- 

---------

----------

---------

---------

----------

----------

Total comprehensive loss for

the period

-

- 

289

- 

(14,274)

(13,985)

Dividends paid in period

-

- 

- 

- 

(2,569)

(2,569)

Fair value of share based

Payments

-

- 

- 

- 

106 

106 

---------

---------

---------

---------

---------

---------

At 30th September 2011

9,176

2,478 

11,069 

49,792 

1,208 

73,723 

---------

---------

---------

--------

--------

---------

6 months

6 months 

12 months

to 30th 

to 30th

to 31st 

September

September

March

2011

2010

2011

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

(Loss)/profit before tax

(13,985) 

(12,122) 

4,497 

Surrender premiums received

- 

(467) 

(582)

Change in fair value of derivatives

16,717 

14,141 

(5,053)

Movement in revaluation of investment properties

(263) 

972 

(271)

Derivative contract cancellation costs

-

-

5,928

Profit on disposal of investment properties

-

(11)

(11)

Profit on disposal of listed investments

-

-

(31)

Associated undertaking disposals, revaluation movement and taxation

33 

11 

625

---------- 

-------- 

-------- 

Adjusted profit before tax

2,502 

2,524 

5,102 

---------- 

-------- 

-------- 

3

Net rental income from investment properties

6 months

6 months 

12 months

to 30th 

to 30th

to 31st 

September

September

March

2011

2010

2011

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Gross rents receivable

7,857 

7,813 

15,664 

SIC15 adjustment

(212) 

 116 

(5) 

---------- 

----------

--------- 

Gross rental income

7,645 

7,929 

15,659 

Service charges receivable

1,806 

1,621 

3,395 

---------- 

---------- 

--------- 

9,451 

9,550 

19,054 

Surrender premiums received

- 

467 

582 

Direct property outgoings

(2,577)

(2,496)

(4,893)

---------- 

---------- 

--------- 

6,874 

7,521 

14,743 

---------- 

---------- 

--------- 

Rent receivable under the terms of the leases is adjusted, in accordance with SIC15, for the effect of any incentives given.

4

Taxation

6 months

6 months 

12 months

to 30th 

to 30th

to 31st 

September

September

March

2011

2010

2011

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Total tax in the Statement of Comprehensive Income

- 

- 

- 

---------

--------

----------

Reconciliation to effective rate of tax:

(Loss)/profit before taxation

(13,985)

(12,122) 

4,497 

---------

-------

---------

Tax(credit)/ charge at full rate of 26% (2011 - 28%)

(3,636)

(3,394) 

1,259 

Effects of:

REIT tax exemption

2,947 

3,411

(841)

Permanent differences

705 

- 

(299)

Other timing differences

2 

2 

4

Associated company

(18)

(19)

(123) 

---------

-----

---------

Tax for period (as above)

- 

- 

- 

---------

-----

---------

5

Earnings per share

6 months

6 months 

12 months

to 30th

to 30th 

to 31st

September

September

March

2011

2010

2011

p

p

p

Basic (loss)/earnings per share

(30.48)

(26.46) 

9.81 

Derivative contract cancellation costs

-

-

12.93

Change in fair value of derivatives

36.43 

30.86

(11.02)

Movement in revaluation of investment properties

(0.57) 

2.12 

(0.59)

Surrender premium received

-

(1.02)

(1.27)

Profit on disposal of investment properties

-

(0.02) 

(0.02)

Profit on disposal of listed investments

(0.07)

Associated undertaking disposals and revaluation movement

- 

0.02 

1.36 

---------

--------

--------

Adjusted earnings per share

5.38 

5.50 

11.13 

---------

--------

-------

Basic (loss)/earnings per share on ordinary shares is calculated on the loss in the half year of £13,985,000 (2010 - loss: £12,122,000) and 45,879,174 (2010 - 45,816,698) shares, being the weighted average number of ordinary shares in issue during the period.

6 months

6 months

to 30th

to 30th

September

September

2011

2010

Weighted number of ordinary shares in issue

45,879,174 

45,816,698 

Number of shares under option

3,684,848 

3,514,354 

Number of shares that would have been issued at fair value

(2,243,475)

(3,745,224)

---------------

---------------

Diluted weighted average number of ordinary shares in issue

47,320,547 

45,585,828 

---------------

---------------

6 months

6 months 

12 months

to 30th

to 30th 

to 31st

September

September

March

2011

2010

2011

p

p

p

Diluted (loss)/earnings per share

(30.48)

(26.59)

9.54 

Effect of dilutive potential ordinary shares under option

0.92 

- 

- 

Derivative contract cancellation costs

-

-

 12.58

Change in fair value of derivatives

35.33 

31.02

(10.72)

Movement in revaluation of investment properties

(0.55) 

2.13 

(0.58)

Surrender premium received

-

(1.02) 

(1.24)

Profit on disposal of investment properties

-

(0.02)

(0.02)

Profit on disposal of listed investments

-

-

(0.07)

Associated undertaking disposals and revaluation movement

- 

0.02

1.33 

---------

--------

--------

Adjusted diluted earnings per share

5.22 

5.54 

10.82 

----------

--------

--------

EPRA earnings per share

5.22 

6.56 

12.06 

----------

--------

---------

6

Net Finance costs

6 months

6 months 

12 months

to 30th

to 30th 

to 31st

September

September

March

2011

2010

2011

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Interest on bank overdraft and loans

2,665

2,720

5,436

Derivative contract cancellation costs

-

-

5,928

Finance lease interest on leasehold property obligations

143

143

285

Finance arrangement costs

36

36

72

Fair value losses/(gains) on derivatives

16,717

14,141

(5,053)

---------

--------

---------

19,561

17,040

6,668

Interest receivable

 (15) 

(15) 

(20) 

19,546

17,025 

6,648 

7

Investment Properties

6 months

6 months

12 months

to 30th

to 30th 

to 31st

September

September

March

2011

2010

2011

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

At 1st April 2011

207,430 

204,896 

204,896 

Additions - development

674 

726 

2,303 

Revaluation surplus/(deficit)

51 

(856)

267 

Adjustment for rents recognised in advance under SIC15

212 

(116)

4 

Amortisation of grossed up headlease liabilities

(20) 

(20)

(40)

-----------

-----------

-----------

At 30th September 2011

208,347

204,630

207,430

------------

-----------

----------

Adjustment for grossing up of headlease liabilities

(3,926) 

(3,966)

(3,946)

Adjustment for rents recognised in advance under SIC15

4,824

5,156

5,036 

-----------

-----------

-----------

Adjusted valuation at 30th September 2011

209,245

205,820

208,520 

-----------

-----------

-----------

8.

Interest Rate Derivatives

The Group adopts a policy of ensuring that its exposure to interest rate fluctuations is mitigated by the use of financial instruments. Participating swaps and interest rate swaps have been entered into to achieve this purpose. The swaps mature over the next 27 years.

Each of the swaps contains a counter party bank credit break. If such a break were exercised payment would be made between the parties dependent on the market value at the time. The first of these arise in January 2016.

Each of the swaps contains an optional termination date which if triggered would not require payment between the parties.

The Group restructured the derivatives in February 2011.

The Group does not hold or issue derivative financial instruments for trading purposes.

As at 30th September 2011 (Unaudited)

Hedged amount

£'000

Current rate

Time first break/ter-mination - years

Fair value £'000

Interest rate swaps

75,000

14.80%

3.00

(26,429)

Interest rate swaps

25,000

23.00%

4.29

(6.255) 

Interest rate swaps

5,000

4.65%

6.25

(1,513)

----------

(34,197)

----------

As at 30th September 2010 (Unaudited)

Interest rate swaps

25,000

4.12%

(5,355)

Interest rate caps

130,000

5.00%

108 

Interest rate floors

130,000

3.06%

(3,014)

Forward start interest rate swaps

115,000

4.86%

(28,413)

----------

(36,674)

----------

As at 31st March 2011 (Audited)

Interest rate swaps

75,000

4.80%

3.50

(14,202)

Interest rate swaps

25,000

3.00%

4.79

(2,581) 

Interest rate floors

5,000

4.65%

6.75

(696)

-----------

(17,479)

----------

1rate steps up to 5.17% from 28th March 2014

2rate steps up to 4.31% from 9th April 2013

 As at 30th

As at 30th 

As at 31st

September

September

March

2011

2010

2011

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Current

(3,795)

(4.068)

(3,591)

Non-current

(30,402)

(32,606)

(13,888)

----------

----------

----------

(34,197)

(36,674)

(17,479)

----------

---------

----------

9

Dividends

6 months

6 months 

12 months

to 30th

to 30th 

to 31st

September

September

March

2011

2010

2011

(Unaudited)

(Unaudited)

(Audited)

£'000

£'000

£'000

Final dividend

Year ended 31st March 2011

2,569

-

-

Year ended 31st March 2010

-

2,519

2,519

Interim dividend

Year ended 31st March 2011

-

-

1,239

----------

----------

----------

2,569

2,519

3,758

----------

----------

----------

The final dividend of 5.6 pence per share (£2,569,000) for the year ended 31st March 2011 was paid on 4th August 2011. 

The Directors have declared an interim dividend of 2.7 pence per share (2010 - 2.7 pence per share).

Since becoming a REIT, the Group is required to distribute at least 90% of qualifying income profits each year as a Property Income Distribution (PID), and the interim dividend of 2.7 pence per share will be paid as part of this distribution. Further REIT information is available on the Company's website.

10 Net asset value per share

30th September 2011

30th September 2010

31st March 2011

Net

Net

Net

asset

asset

asset

value

value

value

Net

per

Net

per

Net

per

assets

Shares

share

assets

Shares

share

assets

Shares

share

£'000

'000

p

£'000

'000

p

£'000

'000

p

Basic

73,723

45,879 

161 

74,715 

45,879 

163 

90,171

45,879

197 

Number of

shares

under option

2,840

3,646 

(6) 

3,429

3,756 

(6)

2,872

3,592 

(9) 

-----------

--------

------

-----------

---------

-----

----------

---------

------

Diluted

76,563

49,525 

155 

78,144

49,635 

157 

93,043

49,471

188 

Adjustment for fair value of

derivatives

34,197 

_ 

69

36,674 

- 

74 

17,479 

- 

35 

---------

---------

-------

----------

--------

-------

-----------

---------

------

EPRA NAV

110,760

49,525

224

114,818

49,635

231

110,522

49,471

223

Adjustment for fair value of derivatives

(34,197)

-

(69)

(36,674)

- 

(74) 

(17,479)

- 

(35)

----------

---------

------

----------

--------

------

-----------

---------

------

EPRA NNNAV

76,563 

49,525

155 

78,144

49,635

157 

93,043 

49,471

188 

----------

--------

------

---------

--------

------

-----------

---------

------

11

Disclaimer

The Interim Report of McKay Securities PLC for the six months to 30th September 2011 has been drawn up and presented for the purposes of complying with English law. If any issue were to arise in relation to any liability under or in connection with the Interim Report for the six months to 30th September 2011, it would also be determined in accordance with English law.

12

Interim Report

The Interim Report is being posted to all shareholders on 2nd December 2011. Copies are available to members of the public from the Company's registered office at 20 Greyfriars Road, Reading, Berkshire RG1 1NL, and on the Company's website at www.mckaysecurities.plc.uk.