McKay Securities Annual Report 2020

FY2020 Annual Report · McKay Securities

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Annual Report and
Financial Statements
2020

Who we are

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.

Our
Purpose

Our
Vision

Our purpose is to deliver outstanding
services as a landlord with occupiers
at the heart of everything we do.

Our vision is 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.

Contents

Governance Report
42 Board of Directors
44 Chairman’s Letter
46 Corporate Governance Report
50 Audit and Risk Committee Report
53 Nomination Committee Report
56 Remuneration Committee Report
73 Directors’ Report
75 Statement of Directors’ Responsibilities
76

Independent Auditor’s Report

Timeline

Financial Highlights

Strategic Report
1
2 At a glance
Property Portfolio
3
4 Chairman’s Statement
6
8 Business Model
10 Chief Executive’s Review
12 Strategic Framework
14 Strategy in Action
16 Our Stakeholders
18 Property and Financial Review
28 ESG Review
34 Principal Risks and Uncertainties
38 Viability Statement
39 Section 172 Statement

Our
Mission

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. We deliver
sustainable returns by operating
an effective and established
business model.

Financial Statements
86 Financial Statements
113 Glossary
115 Company and Shareholder

Information

Financial
Highlights

Profits and earnings

£9.49m1

Profit before tax (IFRS)
(2019: £13.19 million)

£9.73m1

Adjusted profit before tax
(2019: £9.27 million)

Portfolio valuation

£510.00m5

(2019: £482.70 million)

8.6p2

IFRS earnings per share
(2019: 14.0 pence)

10.6p2

EPRA earnings per share
(2019: 8.8 pence)

£0.11m

Surplus5

0.0%

(2019: £6.47 million/1.4%)

Shareholders’ funds

£309.17m

(2019: £311.08 million)

329p3

328p3

EPRA net asset value per share
(2019: 326 pence)

Net asset value per share (IFRS)
(2019: 331 pence)

Total property return

Debt to portfolio value (LTV/net debt)

Proposed final dividend per share

4.7%4

(2019: 5.4%)

37.6%6

(2019: 33.3%)

4.4p

(2019: 7.4 pence), making the total
dividend per share for the year 7.2 pence
(2019: 10.2 pence)

1. See note 4 in financial statements.
2. See note 9 in financial statements.
3. See note 22 in financial statements.
4. See KPIs on page 27.
5. See note 11 in financial statements.
6. See note 5 in the financial statements.

Download the
2020 McKay Annual Report
mckaysecurities.plc.uk

McKay Securities Plc Annual Report and Financial Statements 2020At a glance

Portfolio

(31 March 2020)

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.

Properties

£510.00m

Portfolio value

1.49m sq ft

Internally managed

See more on page 18

Other
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McKay Securities Plc Annual Report and Financial Statements 2020

Property Portfolio
At 31 March 2020

£15m and over –
66.0% of portfolio

Brentford

The Mille, 1000 Great West Road (office)

Crawley

Oakwood Trade Park, Gatwick Road (industrial)

EC31

SW19

SW1

30 Lombard Street (office)

Portsoken House, Minories (office and ancillary retail)

Wimbledon Gate, Worple Road (office and ancillary retail)

1 Castle Lane (office)

Newbury

Rivergate, Newbury Business Park (office)

McKay Trading Estate, Blackthorne Road (industrial)

Great Brighams Mead, Vastern Road (office)

9 Greyfriars Road (office)

Prospero, London Road (office)

Theale Logistics Park, Brunel Road (logistics)

134,430

Poyle

Reading

Redhill

Theale

Crawley

Croydon

EC2

£10m to £15m –
18.1% of portfolio

£5m to £10m –
13.9% of portfolio

Pegasus Place, Gatwick Road (office)

Corinthian House, Dingwall Road (office)

66 Wilson Street (office)

Maidenhead Switchback Office Park, Gardner Road (office)

Weybridge

Sopwith Drive, Brooklands (industrial)

Woking

1 Crown Square (office and ancillary retail)

The Planets, Crown Square (other/leisure)

Bracknell

Building 329, Doncastle Road (office)

Farnborough Columbia House, 1 Apollo Rise (industrial)

Fleet

One Fleet, Ancells Road (office)

Folkestone

3 Acre Estate, Park Farm Road (industrial)

Leatherhead Ashcombe House, 5 The Crescent (office)

SW11

Reading

Staines

Windsor

Parkside, Knightsbridge (other/residential)

20/30 Greyfriars Road (office)

Mallard Court, Market Square (office and ancillary retail)

Gainsborough House, 59-60 Thames Street (office)

£2m to £5m –
1.7% of portfolio

Banbury

Lower Cherwell Street Industrial Estate (industrial)

Folkestone

5 Acre Estate, Park Farm Road (industrial)

Newbury

Strawberry Hill House, Bath Road (other/medical)

£2m and below –
0.3% of portfolio

Chobham

Castle Grove Road (other/land)

Staines

2 Clarence Street (office)

Percentages based on the valuation at 31 March 2020
1. Denotes leasehold properties.

Area sq ft

96,700

52,400

58,590

49,570

58,690

14,250

61,385

73,955

84,840

38,490

50,370

50,790

44,590

11,890

37,155

63,140

50,190

98,255

32,800

40,755

34,580

44,290

17,450

2,900

33,345

21,860

18,660

40,060

60,535

15,230

—

3,440

McKay Securities Plc Annual Report and Financial Statements 2020Chairman’s
Statement

outperformance of the MSCI Monthly Index
(All Property) at portfolio level in terms of
rental and capital values and total property
return.

We are clearly operating in
an unprecedented and challenging
environment, imposed on global
economies by the arrival of Covid-19 in
recent months. In normal circumstances
this statement would be focused on the
past financial year, but in view of the scale of
impact of the current pandemic there are
important new considerations for the year
ahead which warrant my attention below.

The net rental income generated by the
portfolio increased by 16.3% to £21.98 million
(31 March 2019: £18.90 million) due to lettings
secured at recently completed development
projects and other portfolio initiatives. This led
to adjusted profit before tax increasing by 5.0%
to £9.73 million (31 March 2019: £9.27 million).
IFRS profit before tax reduced to £9.49 million
(31 March 2019: £13.19 million), due to a lower
positive valuation movement than the prior year.

The financial results for the year under
review reflect another productive period
for the Company. The strategic investment
in our portfolio activity over recent years
has delivered strong growth in earnings,
and we ended the period with significant
existing portfolio potential and substantial
funds for future investment. However, this
successful continuation of our growth
strategy over the financial year has since
been overshadowed by Covid-19 at the very
end of the reporting period. The serious
implications of the virus are already being
seen across all our lives and are going to be
far reaching, but before considering these
further, there are many positive areas to
report on from the year under review.

Review of the year
We maintained our strategic focus on the office,
industrial and logistics sectors of the South
East and London, with three key priorities:

• Delivering our development programme
• Generating income from the substantial
potential created within the portfolio
Improving our scope for future growth by
capitalising on our progress to date.

•

This focus has delivered an increase in rental
income and adjusted profit before tax, a
strengthened balance sheet position and

The independent valuation of the portfolio at
the year end totalled £510.00 million. This
represented a 5.7% increase overall
(31 March 2019: £482.70 million), and
generated a small surplus of £0.11 million after
taking into account portfolio expenditure,
acquisitions and disposals (31 March 2019:
£6.47 million surplus). Our valuers, Knight
Frank, included a material uncertainty clause,
which is in line with the latest RICS
recommendation to all valuers. This reflects
the limited evidence of the impact of Covid-19
on the market at the valuation date, and the
challenge of estimating rental and capital
values at such an uncertain time.

Reflecting the limited valuation movement,
Shareholder’s funds remained steady at
£309.17 million (31 March 2019: £311.08
million) with net asset value per share (EPRA)
of 329 pence (31 March 2019: 326 pence),
and IFRS net asset value per share of 328
pence (31 March 2019: 331 pence).

We continued to position our portfolio to meet
the changing needs of modern business,
contributing to growth and outperformance.
The portfolio rental value (ERV) increased to
£34.91 million pa (31 March 2019: £33.83
million pa) representing a 2.4% increase on a
like-for-like basis, and the total property return
totalled 4.7%. This compares favourably with

the MSCI Monthly Index (All Property) which
reported a 4.8% fall in capital values, a 0.3% fall
in rental values, and a negative total return 0.1%.

We were pleased to complete our 134,430 sq ft
speculative warehouse development at Theale
Logistics Park shortly after the year end. This is
a project with great potential and an excellent
addition to the portfolio, which will further
increase earnings once let. Virus related
movement restrictions have delayed the full
launch of our marketing programme, but we
have been able to engage potential occupiers
with virtual tours and other promotional material
and look forward to further constructive
discussions as restrictions are lifted. This
completion leaves us with no development or
refurbishment projects on-site, removing
exposure to construction risk and committed
capital expenditure which we believe to be a
prudent position in the current environment.

This and other projects take the capital
expenditure invested on portfolio projects
and seven acquisitions since our 2014
Capital Raise to £186.19 million. Over the
same period, we completed 13 disposals,
which included Station Plaza, Theale this
year. These generated combined sale
proceeds of £76.20 million and a combined
24.3% surplus over book value of
£18.52 million.

This disciplined and proactive approach to
the recycling of capital, and our successful
property initiatives have enhanced the scale
and quality of our portfolio and contributed to
a 43.5% increase in shareholders’ funds of
£93.67 million since 2015. This approach has
also ensured that we have retained funds
available to reinvest in new opportunities and
maintained an acceptable loan to value
(‘LTV’), which ended the year at 37.6%
(31 March 2019: 33.3%).

Our scope for future investment improved
during the year when we increased our loan
facilities by £55.00 million to £245.00 million.
However, it remained a competitive market to
acquire new properties for the portfolio, as the
weight of investor demand was well ahead of
the limited stock available. We appraised 161
potential acquisitions that met our investment
criteria, and, although we were encouraged
that value-add opportunities were becoming
more attractive, prospects providing

£157.24m

44.6% increase in portfolio value
since 31 March 2015

£93.67m

43.5% increase in shareholders’
funds since 31 March 2015

McKay Securities Plc Annual Report and Financial Statements 2020Occupational costs in the South East are
significantly lower than central London. Travel
to work options are also more varied, with
generous car parking at many of our office
assets and local transport networks that avoid
reliance on the most congested public
transport networks. If these factors result in
further decentralisation, as widely speculated,
we are well placed to take advantage with our
existing portfolio, sector knowledge and
substantial funds for investment.

Dividend
The Board is recommending a final dividend
of 4.4 pence per share. This represents a
40.5% reduction as compared to the final
dividend paid last year (31 March 2019: 7.4
pence). The full year dividend therefore totals
7.2 pence per share, a 29.4% reduction from
last year (31 March 2019: 10.2pence).

At a time of such economic uncertainty,
the Board considers the lower
distribution represents a prudent and
balanced approach. This will maintain
a higher cash position until we achieve
greater visibility of market conditions
and business progress, including rent
collection. In the meantime, future
dividend policy will remain under review.

Outlook
While there remains insufficient clarity on the
potential duration and impact of Covid-19 to
provide a meaningful outlook for the year
ahead, economic conditions and the
operating environment are going to be
challenging. The full impact of Covid-19 on
the market generally and on rental and capital
values specifically remains to be seen, and
much will depend on the pace at which
businesses recover and decide on future
operational practices.

We face this period of uncertainty with a high
quality portfolio invested in resilient markets
and sectors, and with characteristics that
could benefit in the post Covid-19 world. We
have retained our funds for investment and
with unrivalled knowledge of our markets,
have the agility to respond to a variety of
conditions and capitalise on potential
opportunities as prospects become clearer.

Richard Grainger
Chairman
8 June 2020

acceptable returns were limited. With the
benefit of the increased loan facilities, and the
recycling of sale proceeds from Station Plaza,
Theale, this selective approach led to a single
acquisition in the year of Rivergate, a multi-let
office building fronting Newbury Business Park,
for £15.50 million at an attractive initial yield of
7.5%. This maintained the number of portfolio
assets at the year end at 33.

In view of the strong market, and in line
with our approach to recycling capital,
we took the decision in the autumn to test
investor interest in 30 Lombard Street,
EC3, our largest development project
over recent years, which was let on
completion in January 2019. We could
see that the strength of overseas interest
at that time provided an opportunity to
capture the high value generated as a
result of the long lease term and high rental
value we were able to achieve during the
construction of this exceptional building.

The sale, which remains conditional on the
completion of a highways agreement, will
deliver net proceeds of circa £65.00 million
(based on a headline sale price of £76.50
million), representing an excellent disposal
yield of 4.16%. Completion, which has been
delayed as a result of Covid-19 and is now
anticipated in Q3/2020, will reduce our LTV
to 28.0% (based on March 2020 values)
and provide us with the ability to reinvest
proceeds into higher yielding assets at what
could be an opportune time in the market.

The combination of undrawn facilities and
potential disposal proceeds from 30 Lombard
Street, EC3 positions the Company well with
substantial retained potential firepower for
portfolio expenditure and new acquisitions of
over £100.00 million. Although market
conditions will dictate the pace of investment,
this provides significant scope for future growth
in earnings and returns beyond the reversionary
portfolio potential that already exists.

This has also been the first year of our new
sustainability framework. We recognised the
increasing importance of sustainable
buildings to the occupier market in 2013
when we adopted our first formal
sustainability strategy. This has served us
well, but after a comprehensive review, we
updated it at the beginning of the year with a
three pillared approach to the full range of
environmental, social and governance issues
(‘ESG’) considerations under our new policy:
The Right Choice for a Sustainable Business.
This has helped us maintain a positive and
proactive framework and will continue to
permeate through all Company activities.

event on the Company remains to be seen, and
although it is creating significant levels of
uncertainty as well as some obvious threats, it
may also create opportunities for a business of
our size, with the benefit of our sector and
geographic focus.

In the short term, occupier relocation decisions
are likely to be put on hold, while businesses
review operating models and cashflow.
Investment activity has already been significantly
reduced and is likely to remain subdued while
investors take stock of the situation and try to
assess the balance between risk and return. The
divergence in value between sectors is likely to
be exacerbated with the shutdown of high street
retail, leisure and hospitality accelerating
declines compared with the office, industrial and
warehouse sectors.

Further to our Trading Update on 7 April 2020,
and after working closely with our occupiers,
73.0% of the rent due for the quarter to June
2020 has now been collected, increasing to
95.0% including rent which is being paid
monthly, or is subject to agreed deferment
plans. Our office, industrial and logistics
sectors were less affected by the lockdown
than other real estate sub-sectors, but it has
nevertheless been necessary to provide
selective support to some of our occupiers,
primarily those with short-term cashflow
issues and who generate income directly from
their premises, such as serviced offices. As the
impact of the lockdown continues, we
anticipate that rent collection will remain below
historic levels to a varying degree for the
remainder of the year.

The longer-term implications of Covid-19
on the commercial property market
will be determined by its impact on the
UK and global economy, and the extent
of structural change that the virus
necessitates for working practices.

The industrial and logistics sector has proved
resilient and our assets may indeed benefit
from increased demand generated by an
acceleration of the shift to online retail. The
inadequacies of global supply chains have been
exposed, which may also lead to operating
reviews and further support demand.

Office occupiers are likely to be faced with
more challenging decisions regarding future
operations and requirements, having to take
into account factors including culture, cost,
transportation and staff retention. Despite the
ability of many businesses, including our own,
to work remotely, we do not see this as the end
of the office as a place of collaboration and
cohesive business.

Covid-19
The election result in December provided a
welcome boost to our markets with a pick-up
in business confidence and investor appetite.
Unfortunately, this was short lived due to the
rapid and far reaching consequences of
Covid-19. The full impact of this unprecedented

There will inevitably be shifts in office working
practices, and we expect this to lead to an
acceleration of many of the trends we have
positioned the portfolio to respond to over
recent years, such as a flexible lease structure,
competitive operating costs, smart technology
and high standards of customer service.

McKay Securities Plc Annual Report and Financial Statements 2020Timeline

£180.00m

New loan completed
increasing facilities by £55.00m

McKay ++

Refurbishment of third and
sixth floor suites completed
at The Mille, Brentford

First suite achieved a new rental high

£27.50psf

Publication of
‘The McKay Way’, our
service commitment
to occupiers

Please visit our website for further
information including
properties available to let at:
mckaysecurities.plc.uk
Make the right
choice with
McKay

McKay Securities Plc is a
specialist in the development,
refurbishment and management
of commercial property -
ideally positioned to deliver
quality, innovation and growth.

March 2019

Our Promise
as your landlord

McKay is a principled business
with a simple promise. Our promise
is to create an environment that
supports your business.

Our Promise
as your landlord
McKay is a principled business
with a simple promise. Our promise
is to create an environment that
supports your business.
You will be welcomed and supported
by warm, friendly approachable
people - McKay people; servicing
and caring for McKay buildings and
their occupiers with high standards,
consistency and diligence.

Please visit our website for further
information including
properties available to let at:
mckaysecurities.plc.uk
Make the right
choice with
McKay

You will be welcomed and supported
by warm, friendly approachable
people - McKay people; servicing
and caring for McKay buildings and
their occupiers with high standards,
consistency and diligence.

£8.23m
94%

Sale of Station Plaza,
Theale 32.7% ahead
of valuation

Our latest occupier survey
indicated 94% of occupiers believe that
McKay has a strong or exceptional
understanding of each businesses’ needs.

£27.50psf

94%

Our latest occupier survey
indicated 94% of occupiers believe that
McKay has a strong or exceptional
understanding of each businesses’ needs.

Refurbishment of
Pegasus 2 completed.
Ground floor pre-let
at a new rental high

McKay Securities Plc
20 Greyfriars Road
Reading
Berkshire
RG1 1NL
T 0118 950 2333

Focused on achieving continued
growth, enhancing our reputation
and further establishing our
presence as a trusted landlord in
the office and industrial markets of
London & the South East; we offer
the right choice for occupiers and
investors alike.
Formed in 1946 and listed in 1959;
McKay is a unique and forward looking
commercial property investment
company with REIT status.

The
McKay
Way
Creating an
environment
to support
your business

McKay Securities Plc
20 Greyfriars Road
Reading
Berkshire
RG1 1NL
T 0118 950 2333

•

Face to face engagement with
your landlord and support
from day one
Direct contact with your dedicated
McKay Occupier Services
representative
Hands-on, collaborative, quick turn
around for approval process
Short-form simple lease - 3 pages
for 2,500 sq ft or less

•

• Fibre connectivity
•

Plug and play space if required
McKay + or McKay++
Controlled service charge
expenditure
Proactive response to regular
occupier surveys

•

Long-standing relationships with
loyal and trustworthy contractors
who we benchmark on a regular
basis. They can extend their
services to occupiers.
Sustainability at the heart of
everything we do –
GRESB* Green Star status
ranking McKay amongst the most
sustainable companies in the
commercial property sector.

• Flexibility –
grow with McKay

The
McKay
Way
Creating an
environment
to support
your business

McKay Securities Plc is a
specialist in the development,
refurbishment and management
of commercial property -
ideally positioned to deliver
quality, innovation and growth.

• Fibre connectivity

•

Plug and play space if required

McKay + or McKay++

Controlled service charge

expenditure

•

Proactive response to regular

occupier surveys

•

Face to face engagement with

your landlord and support

from day one

Direct contact with your dedicated

McKay Occupier Services

representative

•

Hands-on, collaborative, quick turn

around for approval process

Short-form simple lease - 3 pages

for 2,500 sq ft or less

•

Long-standing relationships with

loyal and trustworthy contractors

who we benchmark on a regular

basis. They can extend their

services to occupiers.

•

Sustainability at the heart of

everything we do –

GRESB* Green Star status

ranking McKay amongst the most

sustainable companies in the

commercial property sector.

• Flexibility –

grow with McKay

McKay Securities Plc Annual Report and Financial Statements 2020

Conditional sale of
30 Lombard Street, EC3
at a headline price of

£76.50m

ESG – GRESB Green
Star Award fourth year
in succession

Mallard Court, Staines
refurbishment completed
with first letting at a new
rental high

£31.50psf

Our Promise

as your landlord

McKay is a principled business

with a simple promise. Our promise

is to create an environment that

supports your business.

You will be welcomed and supported

by warm, friendly approachable

people - McKay people; servicing

and caring for McKay buildings and

their occupiers with high standards,

consistency and diligence.

94%

indicated 94% of occupiers believe that

Our latest occupier survey

McKay has a strong or exceptional

understanding of each businesses’ needs.

Please visit our website for further

information including

properties available to let at:

mckaysecurities.plc.uk

Make the right

choice with

McKay

McKay Securities Plc

20 Greyfriars Road

Reading

Berkshire

RG1 1NL

T 0118 950 2333

and further establishing our

investors alike.

Formed in 1946 and listed in 1959;

commercial property investment

company with REIT status.

The

McKay

Way

Creating an

environment

to support

your business

Focused on achieving continued
growth, enhancing our reputation
presence as a trusted landlord in
the office and industrial markets of
London & the South East; we offer
the right choice for occupiers and
McKay is a unique and forward looking

•

McKay Securities Plc is a
specialist in the development,
refurbishment and management
of commercial property -
ideally positioned to deliver
quality, innovation and growth.

•

• Fibre connectivity
Plug and play space if required
McKay + or McKay++
Controlled service charge
expenditure
Proactive response to regular
occupier surveys

•

• Flexibility –
grow with McKay

Acquisition of
Rivergate, Newbury £15.50m

Completion of
Theale Logistics
Park shortly after
the year end

92.6%

Portfolio
occupancy
(excluding
developments)

March 2020

80.0%

Tenant
retention

McKay Securities Plc Annual Report and Financial Statements 2020
Business
Model

What we do

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.

Key resources

Land and buildings
We focus on quality office, industrial
and logistics business space
within the established markets
of the South East and London.

Our team
Our experienced team are
experts in their field and
know the South East and
London markets intimately.

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.

Respected brand
We take pride in everything we
do and have developed a
reputation for quality, innovation,
sustainability, ambition and growth.

Financial flexibility
Strong banking relationships
and a robust balance sheet
allow flexibility to invest in the
portfolio throughout the cycle.

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Strategic
priorities

See more on page 12

Delivering our
development
programme

McKay Securities Plc Annual Report and Financial Statements 2020

s s e t s

t a i n a b l e

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n t h riv e a n d e nhance/deliver p

d d

h a
b i s
R e f
a ll y s
e n v i r o n m e n t
e
s
s
a n d b u s i n e

u
s c

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..

Occupiers
We offer our occupiers choice,
flexibility, quality and sustainable/
energy efficient business space.

Investors
We aim to deliver attractive
and sustainable returns
to shareholders.

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.

Read more about why our stakeholders matter
and how we have engaged with them on page 16

Releasing portfolio
income potential

Enhancing scope
for future growth

McKay Securities Plc Annual Report and Financial Statements 2020

Chief Executive’s
Review

These results reflect
the benefit of capital
investment in our
development and
refurbishment
programme, which over
the last five years has
totalled £96.90 million.

Overview
The review of an otherwise productive and
successful year is inevitably qualified by the
global impact of Covid-19 and the lockdown
that commenced on 23 March 2020. The full
impact of the virus on the UK economy and
our markets remains to be seen, and will
depend to a great extent on the duration and
nature of restrictions and the effectiveness of
government policy in support of the
economy. As a result of strategic decisions
taken during this and previous years, we have
many strengths to cushion the impact on the
Company and to respond to the
opportunities that future changes in working
practices may bring.

During the year, we maintained our strategic
focus on the office, industrial and logistics
markets of the South East and London.
These are the markets that we know well
after many years of focused experience, and
which proved to be the most resilient sectors
over the period, in the strongest economic
regions of the country.

Prior to lockdown, these markets were
beginning to emerge from protracted political
uncertainty, with investors showing greater
confidence in the prospects for growth in
rental and capital values. Although this
momentum has since been impacted by
Covid-19, our results reflect another positive
year, based on the strategic priorities of
completing our development programme,
releasing portfolio potential and enhancing
scope for future growth of the portfolio and
the business.

Good progress was made on all fronts as
covered in more detail below.

Location and sector (by value)
As at 31 March 2020

South East Offices
London Offices
South East industrial/logistics
Other

52%
25%
18%
5%

McKay Securities Plc Annual Report and Financial Statements 2020We also took the decision to sell Station
Plaza, Theale earlier in the year, having been
offered an excellent price of £8.23 million by
an owner occupier, which realised a
substantial 29.9% (£1.86 million) net surplus
over book value net of sale costs. These
funds were recycled into the £15.50 million
acquisition of Rivergate House, Newbury,
a multi-let office building, which was
identified as having better growth prospects.

Gains from these disposals, as well
as the unrealised portfolio gains from
our development and refurbishment
projects, remain an integral part of our
capital discipline to maintain balance
sheet resilience and a low LTV. At
the end of the period, LTV was 37.6%
(31 March 2019: 33.3%), which will
reduce to circa 28% on receipt of sale
proceeds from 30 Lombard Street, EC3
(based on 31 March 2020 values).

As a landlord, we continue to work with
a wide cross-section of occupiers from
different sectors to ensure that we are
providing the best environment for their
businesses to thrive. Full consideration of
ESG issues remains at the heart of this, and
is integral to the manner in which we conduct
our business. We committed over the year
to a set of service guidelines to emphasise
the benefits of this approach to existing and
future occupiers; one of our key stakeholder
groups. We also completed a full scale review
of our 2013 Sustainability Strategy and, at
the beginning of the year, replaced this with
our 2019 Sustainability Framework – The
Right Choice for a Sustainable Business.
This covers a wide range of ESG objectives
and targets which we report fully on our
website, and has proved to be an invaluable
guide to help align our business with our
corporate vision, mission and purpose,
enabling us to exceed the sustainability
requirements of our target markets and
to address the ESG considerations of
other stakeholders more generally.

Simon Perkins
Chief Executive Officer
8 June 2020

The headline value of our assets increased
by 5.7% to £510.00 million over the year, our
contracted rental income increased by 4.1%
to £28.33 million pa, and portfolio rental value
(ERV) increased by 3.2% to £34.91 million pa.
The difference of £6.58 million pa between
contracted rent and ERV reflects the
significant reversionary potential to grow
portfolio income by a further 23.3%. This is
based on our valuer’s opinions of ERV at the
valuation date of 31 March 2020, where it was
too early to estimate the impact of Covid-19.

This reflects our valuer’s opinion of ERV
at the valuation date of 31 March 2020,
when it was too early to estimate the impact
of Covid-19.

These results reflect the benefit of capital
investment in our development and
refurbishment programme, which over the
last five years has totalled £96.90 million.
This has improved the quality of the portfolio,
and has been selectively invested with the
objective of ensuring that we can continue to
meet market demand with good quality, well
specified space for modern business needs.
Of this capital expenditure, £16.84 million
was invested over the year to complete our
134,430 sq ft speculative logistics
warehouse development at Theale Logistics
Park, and to implement refurbishment
projects at 17 portfolio properties. These
projects, which have added to the potential
for further income and capital growth, were
substantially completed prior to lockdown,
leaving us with no current development
exposure across the portfolio.

We took the decision last autumn to put the
long leasehold interest of 30 Lombard Street,
EC3 on the market, to take advantage of the
strong investment demand in the City at that
time from overseas buyers. The marketing
exercise generated strong competition, with
investors attracted by the 15-year lease that
we had been able to secure prior to
completion of the redevelopment in January
2019, and the overall quality of the building in
such a core City location. This enabled us to
achieve a headline price of £76.50 million,
representing an outstanding yield of 4.16%,
and an exchange of contracts in December
2019. The sale, which remains conditional on
finalising an outstanding highways agreement,
will allow us to capture the development gains
we have generated from the success of the
scheme, reduce our weighting in this single
City asset and enable us to reduce debt and
the Company’s LTV. We will then be in a
position to replace the income lost on disposal
by reinvesting the sale proceeds of circa
£65.00 million (net), targeting higher yielding
assets with greater growth potential, and at a
potentially opportune time.

McKay Securities Plc Annual Report and Financial Statements 2020Strategic
Framework

Our strategy is to
apply entrepreneurial
property initiatives to
create sustainable
value from our assets
for our stakeholders.

A focus on sustainability is
embedded across our operations
and we integrate ESG issues into
our overall strategy.

See our ESG framework
page 28

Strategic priorities

2019/20 progress

Delivering our
development
programme

• Practical completion of
Theale Logistics Park
achieved shortly after the
year end

• This completes the final
phase of our current
development programme

Our development programme
focuses on the major refurbishment
and development of commercial
properties to generate income and
capital gains, and to create
environmentally sustainable
buildings and attractive work
spaces.

Releasing
portfolio
income
potential

Ensuring portfolio properties meet
evolving occupier needs in order to
capture full rental value through
lettings and rent reviews.

See The McKay Way on page 21

• Achieved 22 open market
lettings ahead of ERV at a
combined contracted rent of
£1.31 million pa

• Formally introduced

‘The McKay Way’, setting
out our customer service
commitment to our occupiers

• Settlement of ten rent

reviews, ahead of ERV and
the prior passing rent

• Direct relationship

maintaining a high occupier
retention rate at lease break
or expiry

Enhancing
scope for
future growth

Maintaining a strong balance sheet
and portfolio potential by recycling
capital through disposals into
acquisitions and portfolio initiatives
and maintaining scope for growth
through capital markets.

• Conditional sale of the long

leasehold interest of
30 Lombard Street, EC3 at a
4.16% yield to capture
development gains and to
recycle capital

• Sale of Station Plaza,

Theale for £8.23 million
realising a substantial 29.9%
(£1.86 million) net surplus over
book value

• £15.50 million acquisition of

Rivergate House, Newbury; a
multi-let office building with
growth potential

McKay Securities Plc Annual Report and Financial Statements 2020
Relevant
performance metrics

Future objectives

Risks

• Let Theale Logistics Park
Identify and progress
•
new schemes

Impact of Covid-19

•
• Market downturn
• Availability of new
opportunities

IFRS NAV £309.17m

PCR 0.3%

Reduction in energy1
consumption 14.0%

Reduction in C02
emissions 44.0%

GRESB score 75,
3-star rated

BREEAM rating on
new developments
Excellent

EPC rating B

• Responding to occupier
demand with short-form
leases and flexible leasing
terms

• Successfully trialled partially
fitting out vacant office floors
to assist marketing, branded
as McKay + and McKay ++

Tenant retention
rate 80.0%

Occupier
satisfaction
recommendation score
94.0%

IFRS NAV £309.17m

TPR 4.1%

• 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

Impact of Covid-19

•
• Market downturn
• Tenant default

• Securing a new £180.00

million loan facility providing
additional headroom for
acquisitions and projects of
£55.00 million

IFRS NAV £309.17m

3 year TSR 6.2%

Property portfolio
value £510.00m

• Continue to utilise increase

in loan facilities
• Maintain banking
relationships

Impact of Covid-19

•
• Lack of suitable investment

opportunities

• Overpricing restricting

• Secure earnings and

purchasing

value-enhancing acquisitions

• Covenant compliance

• Continue to capture value
from portfolio initiatives
• Enhance prospect for

strategic growth

1 Compared to base in 2015/16.

McKay Securities Plc Annual Report and Financial Statements 2020Strategy in Action

Delivering our
development programme

135 Theale Logistics Park

•
• Former 96,850 sq ft chilled warehouse

bought in 2015

• While retaining income, achieved

planning for new distribution/logistics
unit of 134,430 sq ft

• Floor area increase of 39%
• ERV increase of 97%

• Once ready to demolish, agreed early

surrender payment with tenant
• Practical completion now achieved

with marketing under way

McKay Securities Plc Annual Report and Financial Statements 202002

Releasing
portfolio income
potential

Enhancing
scope for
future growth

• Brooklands, Weybridge – prime industrial unit
purchased from an owner occupier in 2007
with benefit of leaseback

• We refurbished the warehouse content and

•

secured a lease to Hermes Parcelnet in 2008
In 2013, negotiated an overriding lease to
Hermes Parcelnet of the whole
In 2019, achieved a 12.1% rent review uplift,
ahead of ERV

• Conditional sale of 30 Lombard Street, EC3, with

completion estimated in Q3/2020

• Let prior to completion of development in January

2019 on a 15-year lease

• Net proceeds of circa £65.00 million to recycle
into new opportunities and existing portfolio

• New £180.00 million revolving credit facility secured

with syndicate of four banks

• On top of existing fixed Aviva debt, increases

facilities to £245.00 million

• Post-sale of 30 Lombard Street, EC3, circa

£100.00 million for new opportunities

McKay Securities Plc Annual Report and Financial Statements 2020Our
Stakeholders

We believe to secure
our long-term success,
we must take account
of what is important to
our key stakeholders.

We set out here our key stakeholders,
how we engage with them and what
they tell us is important to them. We will
continue to build on our strong
relationships with all our stakeholders.
It is important for us to listen and
understand their needs. This
understanding will support the decision
making process at all levels in the
business, enhance our reputation as a
trusted landlord, and further establish
our presence in the office, industrial
and logistics markets of the South East
and London.

Stakeholder

Why they matter

Occupiers

Our occupiers are at the heart of our business
and we take great pride in creating sustainable
environments where their businesses can thrive.

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.

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.

• Each occupier is appointed their own dedicated in-house asset

• Unique spaces – creating the right

manager who is available to discuss any aspect of an occupier’s

space for each individual occupier.

lease terms.

• A dedicated in-house occupier services representative is

• Flexible lease terms.

• Value for money.

assigned to each occupier. Their aim is to support each occupiers’

• Excellent customer service experience.

business needs on a day-to-day basis.

• We carry out regular customer services satisfaction surveys

• An approachable landlord.

• The environmental impact of

creating action plans and feedback on actions taken.

their space.

The McKay Way page 21

ESG Overview page 28

• Regular press releases and RNS announcements on business

events.

• There is a well established investor relations programme of

investor and analyst presentations. These presentations follow the

ESG strategy.

annual financial timetable and are undertaken following the

• Effective communication.

• Financial performance.

• A robust business model.

•

Implementation of a sound

ESG Overview page 28

Strategic Framework page 12

announcement of the end of year and half year results.

• All Directors attend the Annual General Meeting (‘AGM’) and are

available to engage with shareholders.

• The Chairman of the Remuneration Committee wrote to major

shareholders and governance bodies in February 2020 in relation

to the Remuneration Policy Renewal at the 2020 AGM.

• An Employee Representative Non-Executive Director (‘desNED’)

•

Inclusivity and empowerment.

was appointed in April 2019 and provides a conduit to the Board for

• Top-down communication.

the employee voice.

• Collaboration– sharing ideas and views.

• Executive Directors undertake year end and interim presentations

• Continual development of skills.

to employees and actively encourage attendance at the

Company’s AGM.

• A flexible working environment.

• Supportive employee health and

• We engage with employees through regular team meetings, annual

wellbeing services.

Corporate Governance page 46

Case Study – desNED page 47

ESG Overview page 28

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.

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.

• Supporter of the Reading University Pathways to Property

• Supporting selected charities.

programme. As part of this programme three of our team are now

• Working in partnership with the

mentors to students on their property course.

local community.

• A partner of Ethical Reading, a not-for-profit social enterprise

• Building close links with our

dedicated to making Reading a better place to live and work

local university.

ESG Overview page 28

through helping organisations become more ethical.

• Supporter of Land Aid, a property industry charity focused on

reducing youth homelessness.

•

In the current Covid-19 environment we have supported NHS

Charities Together, the umbrella organisation for the NHS’ official

charities in the UK and local charity Alexander Devine children’s

hospice service.

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.

• We engage with all suppliers at pre-qualification stage and with

• Building relationships based on a strong

See our website

every new contract or contract renewal.

ethical ethos and high standards.

mckaysecurities.plc.uk

• Key suppliers in the top five operational procurement categories

• Prompt payment practices.

for our Responsible Procurement

are audited on an annual basis to ensure compliance with our

• A responsible procurement policy.

Policy and our Anti-Slavery

procurement policy.

• Promoting human rights – Introduction

and Human Trafficking Policy

• We strive for continual improvement. We are committed to

advancing our policies and systems across the Company to

of our Human Trafficking and

Anti-Slavery Statement.

Statements.

ensure we address and monitor performance in all aspects of

• Reducing adverse environmental

See also ESG Overview page 28

impacts.

17
17

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.

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.

McKay Securities Plc Annual Report and Financial Statements 2020

Property
and Financial
Review

A positive year with
a sound platform
to grow.

Occupancy (excluding developments)

92.6%

(31 March 2019: 91.0%)

Reversion

£6.58m pa

(31 March 2019: £6.61m pa)

Tom Elliott MRICS
Property Director

Giles Salmon FCA
Chief Financial Officer

Market review
Over the year investor appetite for real
estate and rental growth was tempered by
an uncertain political climate. After the
election delivered a majority government,
there was a definite pick-up in both occupier
and investor demand, which was
subsequently cancelled out by Covid-19.
Since then, the majority of investment and
leasing transactions have been put on hold.

With this low growth environment, the
market as a whole was generally flat over
the year, with the MSCI Monthly Index (All
Property) registering a 4.8% decline in
capital values, a 0.3% decline in rental
values and a total return of -0.1%.

The headline numbers mask the
performance of the different sectors of the
Index, with shopping centres declining in
value by 20.5% compared with an increase
of 1.0% for the industrial and logistics
sector. With our sector weighting, and with
the benefit of our active management,
refurbishment and development initiatives,

our portfolio outperformed the Index with a
slight valuation surplus, like-for-like rental
growth of 2.4% and a total return of 4.7%.

The largest segment of our portfolio is
South East offices, located predominantly
in the M4 corridor. This market is
characterised by historically low levels of
vacancy and supply, resulting in a limited
choice of modern floorspace. The vacancy
rate across the market of 7.3% (2019: 7.6%)
has halved from 14.2% in 2014, and the
vacancy rate for new floorspace of 1.8% is
a further reduction on the historic low of
1.9% reported last year.

The constrained choice for occupiers is
likely to become more acute as over half
the office stock in the South East (within
the MSCI Index) is now older than the
generally held design lifespan of 25 years.
These buildings, many of which remain
occupied, are becoming increasingly unfit
for the demands of modern business, and
if refurbishment is unviable, will be lost to
alternative uses such as residential.

Table 1
Location and sector (by value: 31 March 2020)

Location/sector

South East Offices

London Offices

South East industrial/logistics

Other

Percentage of
total portfolio
by value
(£510.00m)

Number
of assets

52%

25%

18%

McKay Securities Plc Annual Report and Financial Statements 2020Top five
Assets

The top five
properties
represent 39.0%
of the portfolio
by value.

The Mille, Brentford

12-storey prominent ‘Golden Mile’
freehold office tower. Recently
refurbished and multi-let.

96,700 sq ft

See more on page 11

30 Lombard Street, EC3

City of London office development, let prior
to completion in 2019 to St James’s Place
plc for a 15-year term. Long leasehold sale
contracts exchanged at 4.16% initial yield.

58,590 sq ft

See more on pages 11 and 15

Redhill, Prospero

Wimbledon Gate, SW19

Highly specified freehold office
development completed in 2016. Multi-let
setting new rental levels in Redhill.

Prime Wimbledon freehold office
developed by McKay, let entirely to
Domestic & General Group Limited.

50,370 sq ft

58,690 sq ft

Portsoken House, EC3

Long leasehold, landmark multi-let office
building opposite Aldgate, tube well
positioned between EC3 and Whitechapel.

49,570 sq ft

See more on page 22

McKay Securities Plc Annual Report and Financial Statements 2020Property
and Financial
Review continued

By comparison, all our buildings would either
be described as Grade A in their respective
markets as a result of our proactive
refurbishment programmes.

The development pipeline of new and
refurbished office buildings in the South East
remains limited, with a total of 1.29 million sq ft
currently under construction and due for
completion in the next two years. This
additional supply is well below the five-year
average take-up for new and Grade A stock
of 1.73 million sq ft, and on this basis will be
insufficient to overcome supply constraints in
the major centres.

Occupier demand for offices within the South
East remained steady over the year at around
3.0 million sq ft. Over the last five years,
83.5% of office lettings have been for unit
sizes below 60,000 sq ft. This trend was
maintained in 2019, with take-up of 1.68
million sq ft in this size range, representing
94.2% of lettings. However total lettings for
the year of 1.73 million sq ft were 14.2% below
the five year average, with only one letting
over 60,000 sq ft compared with six in 2019,
highlighting the lack of larger lettings likely
due to the political and economic uncertainty
during the year. We have deliberately
positioned our portfolio to meet this trend
over many years, with the average size of our
South East office assets being 43,000 sq ft.

Of the total take-up, 90% was for new and
Grade A floorspace, also maintaining a trend
that we have been tracking, which
emphasises that in the event of an office
move, occupiers have been looking to
improve working environments.

Our four London office properties account
for 24.7% of the portfolio (by value). On
completion of the disposal of 30 Lombard
Street, EC3 this will reduce to 13.2% (based
on March 2020 values). Stable market
conditions were maintained over the period,
also supported by a shortage of Grade A
supply. The vacancy rate in central London
stands at 5.7%, below the ten-year average
of 6.7%.

The combination of a clear preference from
occupiers for Grade A product and a
shortage of supply across the South East
and London office markets is likely to cushion
rental falls in the short term as occupiers
review their requirements post Covid-19.
Named demand in the market since
lockdown has remained steady, with
occupiers still evaluating the often limited
alternatives available.

However, new lettings are likely to be
deferred while businesses review working
practices and resulting space requirements,
which would support our already high
levels of occupier retention. If occupiers
decide to decentralise in order to reduce
exposure to congested public transport,
the regional markets of the South East
can provide alternative business locations
at significantly lower occupational costs.
Furthermore, the anticipated requirement
for more space per employee as a
consequence of Covid-19 should help
support the office sector resilience.

The industrial and logistics sector remained
buoyant over the year, driven by the
distribution space required to meet growing
online demand. Demand could increase
further as the move to online retail
accelerates, and as a result of the Covid-19
crisis highlighting pressures on supply chains
and the possible need for on-shoring greater
storage capacity. Total supply in the South
East of 5.80 million sq ft reflects a vacancy
rate of 5.0% – the lowest of any region in the
UK. This represents just under one year’s
take-up based on the five-year average of
5.92 million sq ft.

The structural shift in retailing and the
shortage of supply support a positive outlook
for this segment of our portfolio (18.1% by
value) and for the letting prospects of our
recently completed warehouse scheme at
Theale Logistics Park.

Development programme
Having developed and successfully let three
major office schemes in prior periods, our
final development borne out of the 2014
capital raise is the 134,430 sq ft distribution
warehouse at Junction 12 of the M4 near
Reading, known as 135 Theale Logistics
Park. This highly specified, fit for purpose unit
reached practical completion shortly after
the year end, and is ideally placed to meet the
unrivalled growth in demand for conveniently
located units with large, self contained yards.
Marketing is under way with an active interest
schedule, though the Covid-19 crisis is
temporarily hindering building inspections
and progress with leasing prospects.

Asset management
Sustainability and flexibility have never been
more important as priorities for office
occupiers. At McKay, we began both our
sustainability drive and flexible office concept in
earnest back in 2014. Since then we have been
awarded Global Real Estate Sustainability
Benchmark (‘GRESB’) green star status for the
past four consecutive years and have evolved
a well received flexible leasing model across
several of our South East office properties.

We constantly strive to provide best in class,
relevant, good value business space with
excellent customer service for our occupiers.
All our property and asset management is
undertaken in-house giving us direct access
to our occupiers, enabling strong
relationships and quick decisions. In the
second half of the year we formally
introduced ‘The McKay Way’ which sets out
our customer service commitment to our
occupiers. This approach contributed to
improved portfolio occupancy (excluding
developments) at the year end of 92.6%
(31 March 2019: 91.0%) and helped us to
maintain a high occupier retention rate
(where occupiers elected to stay at lease
expiry or break) of 80.0% (31 March 2019:
75.8%), and a 6.4% increase in passing rent
for those retained.

The year will be remembered as a first half of
Brexit uncertainty, followed by a sharp
recovery after the clear election majority in
December, only to be cut short by the
Covid-19 lockdown. In spite of this uncertain
and often turbulent 12-month period we
completed 22 open market lettings at a
combined contracted rent of £1.31 million pa,
1.4% ahead of ERV. This increased the
portfolio contracted rent (net) to £28.33
million pa (31 March 2019: £27.22 million), still
with a healthy potential reversion of £6.58
million pa of growth to income based on
March 2020 rental values. Overall, our total
portfolio return of 4.7% significantly
outperformed the MSCI Index of -0.1%.

In addition to our day-to-day proactive
asset management, we completed two
major office refurbishments in Crawley and
Staines, as well as improving rental values
with rolling refurbishment programmes in
Brentford, Bracknell, Woking and Victoria
SW1. At our industrial and logistics assets
we carried out a significant refurbishment
in Folkestone and continued to drive
rents upwards at our trade parks.

The refurbishment of the entirety of Pegasus 2
at our Pegasus Place office park in Crawley
(12,720 sq ft) was rewarded with a pre-let
of the ground floor at a record Crawley
rent of £27.00 psf (£0.10 million pa) to an
expanding sub-tenant of neighbouring
Pegasus 3, which contributed to ERV
growth for the entire Pegasus Place estate
(50,790 sq ft) of 10.3% compared to the
benchmark of 0.9%. Likewise at Mallard
Court, Staines (21,860 sq ft) we carried out
a major refurbishment and secured an early
letting of the part first floor at a new rental
high for the building of £31.50 psf (£0.06
million pa) reflecting the appeal of not only
the improved reception and office space,
but also the latest building technology. This
included the Mallard app which enabled
all users and visitors to access the building
using mobile phones and giving temperature
and lighting control and information on
local amenities to the occupiers.

McKay Securities Plc Annual Report and Financial Statements 2020
The
McKay
Way

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’,
introduced earlier
in the year.

Lynda Perry
Head of Occupier Services

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.

01
Transparency

05
Unique spaces

If we say we will, it happens –
our word is our bond. Everything
is clear, easy to understand and
transparent.

We will help you to create a space
that meets your needs and is right
for your people, teams and business
to thrive.

02
Directly managed

06
Flexibility

McKay people in McKay buildings
– looking after your teams and your
business every day in the right way.

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.

03
Customer service

07
Approachable

You are at the heart of everything
we do. We give our best every day and
respond when you need to us to.

It all begins and ends with a
conversation. Talk to us – we are
here to help.

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.

08
Fitted space options
at McKay multi-let
office assets

‘McKay +’ Office space includes at least
one meeting room and a kitchenette
with fibre enabled cabling ready to lay.

‘McKay ++’ Office space is fully fitted
and cabled with desks, kitchen,
meeting rooms – ready to ‘plug
and play’.

2121

McKay Securities Plc Annual Report and Financial Statements 2020Property
and Financial
Review continued

This impressive technology also negated the
need for a receptionist, thereby reducing the
service charge and in turn improving the
affordability.

At One Castle Lane (14,250 sq ft) in Victoria,
SW1, we continued to push rental growth
ahead of the benchmark. On the third floor
we took an early surrender payment having
simultaneously agreed terms to let it to an
expanding occupier at ERV, securing a
25.0% increase in rent. Another occupier,
a leading firm of chartered surveyors in
Victoria, renewed its lease for an additional
five years (£0.10 million pa) further endorsing
the building.

Over the year, we continued to evolve ways to
facilitate occupancy which included the
introduction of short-form leases and flexible
leasing terms. We have also trialled partially
fitting out vacant office floors to assist
marketing, branded as McKay +, and
McKay ++ where the floors are fully fitted out.
We demonstrated the success of this at
Portsoken House, EC3 (49,570 sq ft) with
lettings ahead of ERV and minimal rent free.
We also introduced McKay ++ to part of our
refurbishment of The Mille at Brentford
(96,700 sq ft) and successfully let a suite of
1,451 sq ft at a new rental high for the building
of £27.50 psf (£0.05 million pa) with minimal
rent free on a five-year lease term.

Our flexible suites at One Crown Square,
Woking (50,190 sq ft) ranging in size from
500 sq ft to 2,500 sq ft remained in demand,
with nine lettings and renewals achieved
during the period. Of particular note was a
letting to Handelsbanken for their new local
office of 2,153 sq ft (£0.06 million pa) where
they committed to a ten-year lease with a
break at the end of the fifth year.

At the 5 Acre Estate in Folkestone, one of
the larger industrial units (17,845 sq ft)
became vacant after a considerable period
of continuous occupation. Prior to expiry,
we agreed terms to carry out modernisation
works for an expanding tenant on the estate
who signed a ten-year lease at ERV
(£0.09 million pa).

At the McKay Trading Estate in Poyle (73,955
sq ft), near Heathrow, our largest occupier
(32,251 sq ft) extended three leases for a
year, ahead of ongoing discussions for a
further five years at ERV (£0.44 million pa).

As refurbishments of our office and industrial
space create rental growth and new rental
evidence, this in turn feeds through to rent
reviews. During the period we settled ten rent
reviews (£2.31 million pa contracted rent),
4.1% ahead of ERV and 13.9% ahead of the
prior rent.

Acquisitions and disposals
Throughout the year the demand for office,
industrial and logistics investments in our
markets exceeded the low supply, thereby
supporting and enhancing capital values up
until the onset of Covid-19. This demand –
supply imbalance made for a competitive
environment, presenting difficulties in
securing good value opportunities.

We took advantage of the strength of investor
demand with the sale of the long leasehold
interest in 30 Lombard Street, EC3, our
recently completed 58,590 sq ft office
development which we pre-let to St James’s
Place plc on a 15-year lease without breaks
on completion of the scheme in January
2019. The headline sale price of £76.50
million (estimated at circa £65.00 million after
deductions for unexpired letting incentives
and fees) reflects a net initial yield of 4.16%
and will conclude this successful project
which began with the purchase of a 36,000
sq ft 1960s office building in 1999. While
maintaining income, we secured planning
consent, increasing the lettable area by 62%
and began development with funds from
the 2014 capital raise. The sale remains
conditional on completion of a revised
highways agreement which is progressing,
though taking longer than first anticipated
due to Covid-19 restrictions. We hope to be
able to meet this condition and complete the
sale in Q3/2020, ahead of the 12-month
longstop in December 2020.

We also achieved a good sale price for
Station Plaza (41,420 sq ft), a freehold office
asset in Theale, near Reading of £8.23
million. The three building campus was
bought in 2014 while fully let to a single tenant
with a lease expiry in July 2019, generating a
10.1% income yield (£0.91 million pa rent). In
the lead up to lease expiry, a number of asset
management options had been analysed, the
most suitable being a comprehensive office
refurbishment. However, the sale to an owner
occupier, 32.7% ahead of valuation, delivered
the anticipated refurbishment profit with no
letting or construction risk.

In addition to the above, the disposal of
The Planets (98,255 sq ft) in Woking, a
two-storey town centre leisure facility let to
Woking Borough Council until September
2021, remained conditional on the receipt of
planning consent at the end of the year. We
exchanged sale contracts in 2019 with a
housebuilder who is obliged to pursue
planning consent, with the end sale price
to be based on the number of consented
residential units. The purchaser, at its own
cost, applied for a 28-storey, high density
residential development in September 2019,
which was recommended by officers for
approval at the planning committee hearing
in March 2020. However, the committee
members went against the recommendation
and, as a result, an appeal currently looks
probable, with encouraging prospects for
a successful outcome to allow the sale to
complete within the next 12 months, ahead
of the longstop date of September 2021
if successful.

As noted above, it has been a competitive
investment market with a range of buyers
attracted by the potential returns available
and improving growth prospects. Over the
course of the year we continued to analyse
both on and off market investment
opportunities where we believe we can add
value through development, refurbishment
and other asset management initiatives. We
appraised 161 opportunities and formally
inspected 25. The main reason for discarding
the majority of these related to the potential
cost of entry providing limited returns either
on an initial yield basis or after forecasted
capital expenditure and letting risk.

The one opportunity that we did acquire
came through market contacts in October
2019, when we purchased Rivergate
(61,385 sq ft) a multi-let office building
fronting Newbury Business Park, for £15.50
million. The property had benefitted from a
recent comprehensive refurbishment and
has very generous on-site parking. It is fully
let to six occupiers with an average
unexpired lease term of 8.8 years (6.7 years
to break), at an overall rent of just £21.40 psf.
The purchase price reflected a net initial yield
of 7.5% and at the year end, five months after
purchase, the independent valuer of the
portfolio assessed its value 7.1% higher than
the purchase cost.

McKay Securities Plc Annual Report and Financial Statements 2020Table 2
Portfolio yields and reversions

Current rental income1

21.90

4.0%

£m
pa

Yield2 Occupancy3

£m
pa

21.24

Yield2 Occupancy3

4.1%

31 March 2020

31 March 2019

Contracted rental income1

Uplifts at rent review/lease expiry

Void properties (excluding developments3)

Void (developments)

Portfolio reversion

Total portfolio ERV

Equivalent yield

1. Net of ground rents.
2. Yield on portfolio valuation with notional purchaser’s costs (6.75%) added.
3. By ERV.

28.33

5.2%

88.7%

27.22

5.3%

88.0%

2.62

2.48

1.48

6.58

34.91

6.4%

5.7%

7.4%

3.9%

2.53

2.60

1.48

6.61

33.83

9.0%

3.0%

6.6%

5.7%

Valuation
Knight Frank’s independent valuation of
the Company’s property portfolio as at
31 March 2020 totalled £510.00 million,
resulting in a small valuation surplus of
£0.11 million for the year.

After a 1.0% valuation surplus at
30 September 2019 for the first half of the
year, the market continued to improve with
the clear election majority until Covid-19
emerged. This pulled values back,
contributing to a second half deficit for
our portfolio of 1.0%. Bearing in mind the
lockdown came only eight days prior to
the year end, this was a challenging time
to determine market value, with very little
market evidence on the impact of Covid-19
on rental and capital values.

As a result, the 31 March 2020 valuation
contained a material valuation uncertainty
clause in accordance with the guidance
issued to all valuers by the RICS.

As at 31 March 2020 the portfolio net initial
yield was 4.0% (31 March 2019: 4.1%) rising to
5.2% on the expiry of outstanding rent free
periods (31 March 2019: 5.3%). The
reversionary yield at full ERV reduced to
6.4% (31 March 2019: 6.6%) reflecting new
lettings achieved over the year, thereby
reducing the reversion and increasing the
capital value.

Any growth has come from proactive asset
management and development
demonstrated by the equivalent yield staying
flat over the 12 month period at 5.7%.

Our London office portfolio outperformed
the sector Index both in terms of rental and
capital growth. 30 Lombard Street, EC3,
showed 5.1% capital growth over the period
reflecting the conditional sale price ahead of
the prior valuation, and the leasing success at
One Castle Lane, SW1, delivered rental
growth of 5.8% with corresponding capital
growth of 4.9%.

Through our refurbishment programme of
upgrading assets and adapting them to meet
relevant occupational demand, our ERV
growth in South East offices of 3.0%
significantly outperformed the Index of 0.9%.
However, the capital growth of -4.3% was
below the sector Index (-2.0%). This was
mainly due to valuation assumptions
reflecting lease expiries at two of our larger
assets over the next two years, and the
inclusion of potential capital expenditure at a
further asset. Valuations reduce in these
circumstances, before increasing on lease
renewal or reletting.

Our industrial portfolio performed strongly in
line with the sector Index, showing both good
rental growth (2.9%) and capital growth
(3.3%), reflecting the quality of our assets.

135 Theale Logistics Park (134,430 sq ft) was
our only asset in development over the
period. This contributed a significant 18.4%
(£3.72 million) capital surplus, with the
enhanced value reflecting reduced
development risk as it reaches practical
completion.

Dividends
The final dividend of 4.4 pence per share
(31 March 2019: 7.4 pps) will be paid on
13 August 2020 to those on the register on
19 June 2020. With the interim dividend of
2.8 pence per share, this takes the total
dividend for the year to 7.2 pence per share,
a decrease of 29.4% 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.

Income statement
Profit before tax (IFRS) reduced to £9.49
million (31 March 2019: £13.19 million), mainly
as a result of the valuation surplus of £0.11
million being lower than the prior year
(31 March 2019: surplus £6.47 million). After
IFRS 16 adjustment, the reported movement
on valuation reduced to a deficit of £2.20
million (31 March 2019: surplus £4.83 million).

McKay Securities Plc Annual Report and Financial Statements 2020
Property
and Financial
Review continued

Table 3
Capital value movement

12 months to 31 March 20201

London offices

South East offices

Total offices

South East industrial/logistics

Other

Total (excluding developments)

Developments4

Total portfolio (like-for-like)

Disposals

Acquisitions

Total (overall)

1 Valuation movements (%) after allowing for capex incurred during the period.
2 MSCI Monthly Index by relevant sector MSCI London = City sector.
3 MSCI Monthly Index (All Property).
4 Theale Logistics Park.

Table 4
Rental value movement

12 months to 31 March 2020

London offices

South East offices

Total offices

South East industrial/logistics

Other

Total (excluding developments)

Developments3

Total portfolio (like-for-like)

Disposals

Acquisitions

Total (overall)

1 MSCI Monthly Index – by relevant sector. London = MSCI City sector.
2 MSCI Monthly index (All Property).
3 Theale Logistics Park.

2020 portfolio
valuation
£m

2019 portfolio
valuation
£m

12 month1
movement

MSCI2
movement

125.80

249.70

375.50

68.35

24.55

486.40

24.00

492.40

–

17.60

510.00

3.7%

-4.3%

-1.8%

3.3%

-1.2%

-1.1%

18.4%

-0.2%

1.1%

-2.0%

-0.8%

2.4%

–

-4.8%3

-4.8%

120.80

255.70

376.50

65.65

24.55

466.70

9.80

476.50

6.20

–

482.70

0.0%

-4.8%

2020 portfolio
ERV
£m pa

2019 portfolio
ERV
£m pa

12 month
movement

MSCI1
movement

7.15

19.72

26.87

3.96

1.17

32.00

1.48

33.48

–

1.43

34.91

1.0%

3.0%

2.5%

2.9%

1.4%

2.5%

0.0%

2.4%

1.6%

0.9%

1.6%

3.4%

–

-0.3%2

-0.3%

7.08

19.13

26.21

3.85

1.15

31.21

1.48

32.69

1.14

–

33.83

3.2%

-0.3%

McKay Securities Plc Annual Report and Financial Statements 2020Adjusted profit before tax, our measure of
recurring profit, increased by £0.46 million
(5.0%) to £9.73 million (31 March 2019: £9.27
million) primarily due to increased portfolio
rental income. Adjusted basic earnings per
share increased by 4.8% to 10.32 pps
(31 March 2019: 9.85 pps).

Gross rents, including IFRS 16 adjustments,
increased by 16.4% (£3.55 million) to £25.16
million (31 March 2019: £21.61 million). This
was due to increased income from a number
of portfolio properties, but particularly from
30 Lombard Street, EC3, which accounted
for £2.42 million of the increase as a result of
a full year contribution, supported by good
lettings at One Crown Square, Woking and
The Mille, Brentford.

The acquisition of Rivergate, Newbury
further contributed to rental income (£0.48
million), partially offsetting the income lost as
a result of the disposal of Station Plaza,
Theale (£0.62 million).

Property costs for the year of £3.25 million
were up £0.47 million on the previous
year (31 March 2019: £2.78 million)
mainly due to higher non recoverable
costs from our void properties, which
reduced as the year progressed.

Administration costs reduced to £5.16 million
(31 March 2019: £6.05 million), primarily due
to a downward adjustment to the IFRS 2
(share-based payments) forecast.

The interest cost (before capitalised interest)
for the year increased to £7.36 million
(31 March 2019: £6.13 million), due to higher
drawings, the April 2019 refinancing costs
and increased headroom resulting in a higher
commitment fee (until the monies are drawn).
The positive benefit of capitalised interest on
development projects has also reduced as a
result of the development programme
nearing completion. The weighted average
cost of debt prior to amortisation and finance
lease interest remained constant at 3.3%
(31 March 2019: 3.3%).

Balance sheet
Shareholders’ funds decreased from £311.08
million to £309.17 million over the period,
principally due to a £1.39 million deferred tax
liability relating to the conditional sale of
30 Lombard Street, EC3.

EPRA NAV per share increased by 0.9% over
the period to 329 pence (31 March 2019: 326
pence). NNNAV per share increased to 327
pence (31 March 2019: 326 pence) and IFRS
NAV per share reduced by 0.9% to 328
pence (31 March 2019: 331 pence).

On 8 April 2019, we announced an increase
in the level of bank facilities available to the
Company. Building on strong relationships
with our banking group, three bilateral
facilities (£125.00 million) were replaced by
one club facility of £180.00 million. The club
comprises Barclays, Lloyds, NatWest and
Santander, all contributing equally.

As a result, debt facilities at the year end
increased to £245.00 million (31 March 2019:
£190.00 million). Drawn debt totalled
£194.00 million (31 March 2019: £165.00
million), providing £51.00 million of headroom
over our current drawings to support
operational flexibility, deliver further portfolio
initiatives and provide increased scope for
new investments. This headroom will be
increased by circa £65.00 million on
completion of the agreed sale of 30 Lombard
Street, EC3.

The gearing ratio of net debt to portfolio value
(LTV) at the year end was 37.6% (31 March
2019: 33.3%). The increase in drawings over
the year was primarily a result of £16.84
million of capital expenditure on portfolio
development and refurbishment projects,
and the investment of a further £16.44 million
(including costs) on the acquisition of
Rivergate, Newbury. We have very limited
committed portfolio capital expenditure,
having completed our current development
and refurbishment programme. Future
decisions regarding expenditure will
continue to be made on a selective case by
case basis.

Net cash inflow from operating activities was
£6.81 million (31 March 2019: inflow £8.70
million) and interest cover based on adjusted
profit plus finance costs as a ratio to finance
costs was 2.28x (31 March 2019: 2.08x).

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. Any
residual income has been offset by allowable
costs, and there is therefore no tax charge
for the period (31 March 2019: nil). There is
however a deferred tax provision of £1.39
million relating to the planned sale of
30 Lombard Street, EC3, as the anticipated
completion of the sale would be within three
years of practical completion and would
therefore trigger a chargeable capital gain
under REIT regulations.

Defined benefit pension scheme
Under the application of accounting standard
IAS19, the Company’s pension deficit slightly
reduced over the period from £2.11 million to
£2.10 million.

A triennial valuation is due for the period to
31 March 2020, the results of which should
be available later in the year. The previous
triennial valuation showed a funding level of
87.5% on a continuing valuation basis,
resulting in an annual cash contribution to the
scheme which remains at £0.24 million. The
scheme was closed to new entrants in the
1980s, and now consists of six pensioners
and no active members.

Financial risks
The financial risks are documented in the
principal risks and uncertainty section of the
Strategic Report on page 35.

Signed on behalf of the Board of Directors

T Elliott
Property Director
8 June 2020

G Salmon
Chief Financial Officer
8 June 2020

McKay Securities Plc Annual Report and Financial Statements 2020
2020

25,164

21,981

9,487

9,727

2019

21,608

19,906

13,190

9,272

2018

21,844

20,453

43,443

9,067

2017

20,790

19,871

17,594

8,605

510,000

482,700

460,150

429,915

(190,505)

(163,176)

(144,598)

(134,100)

2016

20,159

17,664

53,160

7,943

401,170

(113,701)

309,166

311,083

306,440

270,792

261,223

7.2

8.6

10.3

328

329

2.2

10.2

14.0

9.9

331

326

2.1

10.0

46.3

9.7

326

322

2.0

9.0

18.8

9.2

289

303

2.0

8.8

57.2

8.5

280

301

1.9

Property
and Financial
Review continued

Table 5
Five year summary

Financial measure

Gross rental income (£’000)

Net rental income from investment properties (£’000)

Profit before taxation (£’000)

Adjusted profit before taxation (£’000)1

Investment properties (£’000)

Loans and borrowings (£’000)

Total equity (£’000)

Ordinary dividends per share (pence)

Earnings per share – basic (pence)

Earnings per share – adjusted basic (pence)1

Net asset value per share (pence)

EPRA net asset value per share (pence)1

Interest cover

Loan to value

1 See Note 4 of the Financial Statements for APMs .

McKay Securities Plc Annual Report and Financial Statements 2020Key performance
indicators

Financial KPIs

Portfolio capital return (capital)
(‘PCR’) (%)

Total portfolio return (capital and income)
(‘TPR’) (%)1

Net asset value return
(‘NAV’) (%)

15%

20%

25%

7.4

1.7

0.3

1.4

11.4

15.9

12.3

6.8

4.7

5.4

3.2

4.4

9.4

3.6

14.7

Definition
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.

Definition
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.

Definition
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
Flat returns as a result of the Covid-19 environment.

Link to strategy: 01

Performance
Positive income return coupled with flat
capital return.

Link to strategy: 01

1. See Note 5.

Non-financial KPIs

Performance
The dividend coupled with a flat capital return
contributing to the positive return.

Link to strategy: 01

Total shareholder return (‘TSR’) (%)

GRESB score (%)

50%

100

Portfolio carbon footprint (tonnes of CO2e)
4,000

36.2

3,294

2,933

2,632

2,071

1,835

-11.3

-8.6

-0.8

-22.6

-30%

Definition
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 impact of Covid-19 significantly affected
the real estate sector at the end of the year, turning
returns negative.

Link to strategy: 01

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
We first submitted to the GRESB Real Estate
Assessment in 2014 scoring 37. In 2019 we achieved
our highest ever score of 75 and maintained our 3
star rating. This improvement is the result of work we
have done to embed sustainability as a core part of
our strategy and the ongoing development of our
sustainability programme.

Link to strategy: 01

Definition
The portfolio carbon footprint is based on
landlord-controlled energy consumption. The
figures are calculated on a like-for-like basis of
the 5-year period using UK Government Emissions
Conversion Factors for Greenhouse Gas Company
Reporting.

Performance
Like-for-like carbon emissions have decreased from
3,294 tonnes in 2015/16 to 1,835 tonnes in 2019/20.
The significant reduction is due to energy efficiency
measures at our assets and the ongoing
decarbonisation of the grid.

Link to strategy: 01

McKay Securities Plc Annual Report and Financial Statements 2020
ESG Overview The Right Choice
for a Sustainable
Business

Following a comprehensive review of our 2013
sustainability strategy, we introduced our 2019
sustainability framework at the beginning of the
year. The objective of this is to ensure that our
business is resilient and responsive to changing
stakeholder expectations and future events. It is
fully aligned to our corporate vision, mission
and purpose and centred on the delivery of ten
objectives spread over three focus areas which
enable us to effectively manage the ESG issues
which are material to our business.

A customer-focused
and ﬂexible landlord

Low carbon, resource
efﬁcient and healthy
buildings

A progressive and
transparent business

We work in
partnership to
deliver high
quality, innovative,
sustainable
solutions that
provide the best
environment for
businesses to thrive.

Tom Elliott
Property Director and Head
of Sustainability

We have set out our key issues for each of our
three ESG pillars on the opposite page and
report here and in the sustainability section
of our website on our performance during
the year.

• Further energy and water-saving

technologies have been installed at our
properties, as well as photovoltaic (‘PV’)
panels at Theale Logistics Park

• Bolstered our climate risk management

During the year 2019/20, we continued to
build on our strong track record of
sustainability achievements. We are
particularly proud to report that:
• Our score in the 2019 GRESB improved
by 7 points, from 68 to 75, allowing us to
maintain our 3-star rating

• Landlord-controlled energy consumption
reduced by 4% on a like-for-like basis
compared to 2018/19, equating to a
reduction of 15% against our 2015/16
baseline

• Landlord-controlled, like-for-like carbon
emissions decreased by 11% against
2018/19, a 44% reduction against our
2015/16 baseline year

processes to support our response to the
Task Force on Climate-related Financial
Disclosures

• Health and wellbeing reviews were
carried out at four properties, with
reference to best practice defined in the
WELL standard.

Our sustainability adviser, JLL, continues to
provide ongoing support to implement our
strategy and reviews progress made against
targets on a quarterly basis.

For further detail on our ESG policies,
targets and results see our website
mckaysecurities.plc.uk.

McKay Securities Plc Annual Report and Financial Statements 2020
O1
Environment:
Low carbon, resource
efficient and healthy
buildings

Focusing on long-term
sustainability by creating
resource efficient and
healthy buildings

O2
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

O3
Governance:
A progressive and
transparent business

Upholding high
standards of corporate
governance, managing
and disclosing
sustainability risk and
unlocking sustainable
value

Case study

See more on page 31

See more on page 32

See more on page 33

Material issues
• Energy and carbon

– climate adaptation

• Building health, wellbeing and

productivity

• Waste and resource management
• Water
• Building labels and standards

Material issues
• Occupier attraction and retention
• Technological innovation
•
• Community wellbeing

Inclusivity

Objectives
• 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

Objectives
• 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

•

Material issues
• Compliance with corporate governance

guidelines
Investor attraction and retention

•
• Transparent disclosure
• Climate risk
• Sustainable procurement
• Health and safety
• Employee engagement and wellbeing

Objectives
• Protect and enhance the current and
future value of our assets and our
business by anticipating and responding
to evolving environmental and social
trends, for example climate risk and
health and safety considerations

• Communicate clearly and directly with
our stakeholders and maintain our
culture of sound corporate governance
• Monitor and report transparently on our
sustainable business performance by
using KPIs linked to each of our focus
areas, and maintain our position in
the GRESB

McKay Securities Plc Annual Report and Financial Statements 2020

reduction in carbon emissions since
2015/16

44%
100%

of new developments received
BREEAM ‘excellent’

Breakdown of EPC rating
across the portfolio by ERV

No EPC held
A
B
C
D
E

7%
14%
9%
20%
31%
19%

ESG Overview
continued
01 Environment
Low carbon, resource efficient
and healthy buildings

Over the past five years we’ve been taking 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 and circular
built environment that benefits our investors by
reducing risk and offers our occupiers a better-quality
workplace at a competitive service cost. We set ourselves
16 targets to deliver low carbon, resource efficient
and healthy buildings in 2019/20, of which 14 were
fully achieved.

Waste and resource management
•

Implemented the recommendations of
our waste management review, although
the recycling rate has not yet improved in
line with target
Initiated further engagement with
occupiers to support better waste
practices and held a CPD session for
staff on the circular economy

•

Water
• Water saving technologies installed as

part of refurbishment projects at Crawley
and Staines (sensor taps for controlling
water usage)

• Moving forward, our focus is on improving

water data quality

Building labels and standards
• BREEAM ‘Excellent’ and EPC ‘B’ rating

for Theale Logistics Park

• EPC ‘B’ rating for Pegasus 2, Crawley

refurbishment, which included boiler and
chiller plant replacement

Energy and carbon
• Reduced landlord-controlled,

like-for-like energy consumption by
4% against 2018/19

• New renewable electricity contract in
place covering 100% of 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
Installation of PV panels at Theale
Logistics Park to generate renewable
electricity

Building health, wellbeing and
productivity
• Conducted a review of the health and
wellbeing features of five assets to
develop McKay good practice building
health and wellbeing standards for the
portfolio as a whole

• Undertook a post-occupancy

evaluation with a tenant at Portsoken
House, to identify the extent to which
occupier experience matches with the
design intent

McKay Securities Plc Annual Report and Financial Statements 2020 Like-for-like energy consumption
(kWh)

3.3m

3.6m

2.6m

2.5m

6.0m

5.9m

5.7m

FY 2016/17

FY 2017/18

FY 2018/19

FY 2019/20

Electricity

Natural gas

Like-for-like greenhouse gas emission
(tonnes CO2e)

Case study Decarbonising
our portfolio

We are seeing an industry-wide shift
towards investment in low carbon
buildings, and as part of our sustainability
strategy, we are committed to reducing
the environmental impact of our portfolio.

Since 2015/16, we have made significant
progress in decarbonising our portfolio,
and like-for-like greenhouse gas
emissions have fallen by 44%. This has
been accomplished by adopting a
three-phased approach, aligned to the
World Green Building Council’s
recommendations:
• Diligently measuring and disclosing our

carbon emissions

• Reducing assets’ energy demand by

implementing efficiency measures, and
developing new buildings to higher
energy standards

• Supplying remaining energy demand
from renewable energy sources,
integrating on-site renewables in new
developments and switching to a
portfolio-wide green electricity tariff.
All landlord-supplied electricity is now
zero carbon.

Our strong track record to date gives us
confidence that we can forge a commercially
attractive decarbonisation pathway through
the next decade, and we plan to publish
further details of this in the coming year.

2,933

2,632

2,071

1,835

FY 2016/17

FY 2017/18

FY 2018/19

FY 2019/20

Waste recycling rate
(%)

5
6

5
3

9
5

1
4

2018/19

2019/20

Total recycled

Total non-recycled

Data qualifying notes
• This is the Company’s seventh year of disclosure under the

Mandatory Greenhouse Gas Emissions Reporting
regulations and first under the recently introduced
Streamlined Energy and Carbon Reporting regulations.
• The Company’s emissions for the year to March 2019 have
been restated due to Q4 2018/19 data not being available at
the time of reporting in 2019; this final period of data is
estimated in every Annual Report.

Sources of greenhouse gas emissions

Scope 1

Energy

Gas (EPRA sBPR
fuels – Abs)

2019/20
tonnes of CO2e
(location-based
calculation)1

2019/20
tonnes of CO2e
(market-based
calculation)1

2018/19
tonnes of CO2e
(location-based
calculation)2

2018/19
tonnes of CO2e
(market-based
calculation)2

415

478

Refrigerant emissions

De minimis

Fugitive
emissions

Scope 2 Energy

Scope 3 Energy

Landlord-controlled
electricity
(EPRA sBPR
Elec – Abs)

Landlord-obtained energy
sub-metered to tenants
and all transmission and
distribution losses
(EPRA sBPR 3.6)

1519

160

Emissions Emissions from employee

business travel for which
the Company does not
own or control

1714

181

Total

Carbon intensity: Scope 1+2 emissions of
tCO₂e/£m adjusted profit before tax

2,107

199

428

2,383

236

488

1. For the ‘location-based’ method of emissions calculations, standard emissions factors from the UK Government Emissions

Conversion Factors for Greenhouse Gas Company Reporting 2019 were used.

2. For the ‘market-based’ method, the Company’s contractual instruments for the purchase of certified renewable electricity

• This statement has been prepared in line with the main

were accounted for, resulting in a significant reduction in the Company’s real carbon footprint.

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.

• An operational control consolidation approach has been

adopted.

McKay Securities Plc Annual Report and Financial Statements 2020
Case study
More recycling,
less waste – our
challenge to our
occupiers

It’s part of our customer-focused
approach to help our occupiers to adopt
more sustainable business practices. In
2019/20, we chose to concentrate our
efforts on engaging with occupiers on
one specific issue – waste management.
We wanted to provide occupiers with
more information, encouragement and
better recycling stations so that we
could jointly improve recycling rates
across the portfolio.

We joined forces with waste contractor
Grundon who organised waste-focused
roadshows across our properties
before initiating a waste recycling
competition for occupiers which ran
between 1 November 2019 and
29 February 2020. Grundon and Calber,
our cleaning contractor, prepared a
recycling handbook for each of our sites,
and recycling guidance documents
were given out at the roadshows. Many
occupiers requested Grundon recycling
stations with colour-coded, labelled bins
for different waste streams and food
waste caddies, enabling them to set up
better recycling stations within their
workplaces and reducing the number
of general waste bins. Furthermore
we held meetings with our occupier’s
cleaning contractors to make them
aware of the new procedures, and
Calber delivered training to its own
staff on the new recycling procedures.

ESG Overview
continued
02 Social
A customer-focused and
flexible landlord
Building on our reputation for customer service
excellence, in 2019/20, we achieved all four of our annual
targets to further enhance our service to customers and
the quality of the workplaces we provide.

Technological innovation
•

Installed a smart buildings app
at Mallard Court, Staines

• Working with D2i to ensure the Building
Management System (BMS) installed in
our assets has the functionality to work
with the app for future developments/
refurbishments

• Secured wired certification for

Portsoken House, EC3 providing
evidence of the superior tech
capabilities offered to occupiers at
this asset.

Inclusivity
• Developed questions to be included

within the next customer survey, to ask
more specifically about customers’
needs and expectations with regards to
building-related features and amenities
to support diversity and inclusivity.

In 2018/19, McKay issued a detailed
customer satisfaction survey to its
occupiers which provided us with valuable
feedback on occupiers’ perceptions of
McKay as a landlord; the presentation of our
properties and their sustainability priorities.
We found that 85% of responses would be
very or highly likely to recommend McKay
as a landlord, and that employee health,
wellbeing and productivity was the most
important sustainability issue for occupiers.
The wider set of valuable data obtained
through the survey helped us to define
and deliver our 2019/20 targets.

Occupier attraction and retention
• Created a follow up action plan in

response to the 2019 customer survey,
with actions assigned at the asset level

• Actions range from facilities

management and maintenance
improvements to building stronger
relationships and increasing
communications

• Engaged with waste contractor to set
up a waste competition and roadshow
for occupiers to demonstrate the
benefits of adopting more sustainable
waste management practices.

Community wellbeing
• Established a charity committee which
selected three entities for support in
2019/20; these are: Pathway to
Property, LandAid and Ethical Reading.

How likely are you to recommend
McKay as a landlord?

How well does McKay understand
your business needs?

Highly likely
Very likely
Likely
Somewhat likely
Unlikely

47%
38%
9%
6%
0%

Source: Customer Survey 2019

Strong understanding
Exceptional understanding
Good understanding
Little understanding
No understanding

50%
25%
19%
6%
0%

McKay Securities Plc Annual Report and Financial Statements 202003 Governance
A progressive and
transparent business
Over the past year we’ve strengthened our approach
to sustainability risk management, aligning our
procedures to our updated focus areas and objectives.
We’re also working towards integrating the
requirements of the Task Force on Climate-related
Financial Disclosures (‘TCFD’) into our governance
and reporting.

Climate risk
• Bolstered our climate risk management
processes to support our response
to the requirements stemming from
the TCFD
Integrated climate risk into risk review
procedures including the corporate risk
register and acquisition due diligence
checklist

•

• Conducted a portfolio mapping

exercise looking at future climate risks

Sustainable procurement
• Continued to ensure compliance with
our Responsible Procurement Policy
through our annual auditing process

Health and safety
• Continued to implement our Health

and Safety Policy and Procedures with
oversight from the Safety Management
Company

We set ourselves nine targets to advance
our progressive and transparent business
objectives in 2019/20, all of which were
fully achieved. Moreover, the 7-point
increase in our 2019 GRESB score
provides evidence of the ongoing
strength and validity of our approach.

Investor attraction and retention
• Updated our acquisition and

development checklists to ensure
alignment with our refreshed
sustainability strategy.

• Created an asset level scorecard

for sustainability

Transparent disclosure
•

Improved our GRESB score for
2019 from 68 to 75, maintaining
our 3-star rating

• Expanded our collection of occupier
environmental data; contributing
to higher scoring in the GRESB
performance indicator section

Corporate governance
Corporate governance is a key material
issue to our business, it is covered in detail
on pages 42 to 74.

Employee wellbeing
• Employee wellbeing practices this year
have included: shared parental leave,
improved healthcare

• Training on a wide range of relevant
aspects for our staff – including
sustainability – our team this year
received a CPD session on the circular
economy as a new hot topic, along with
wellness in buildings

Case study
A rigorous
approach to
climate risk
management

In 2017, the TCFD released its final
recommendations, which provide a
framework for companies to develop
more effective climate-related financial
disclosures through their existing
reporting processes. In the UK, the
government has stated its expectation
for all listed companies and large asset
owners to disclose in line with TCFD by
2022. Worldwide, investors are rapidly
requesting companies to implement the
TCFD recommendations, including 340
investors with nearly $34 trillion in
assets under management who have
committed to engage the world’s largest
corporate greenhouse gas emitters to
strengthen their climate-related
disclosures in line with the framework.

In 2018/19 we carried out a gap analysis
of our current risk management
practices against the TCFD
recommendations in 2019/20 we
proceeded to strengthen our approach
based on the findings. As such, we have:
• Created a physical and transitional
climate risk assessment brief
• Commenced physical climate risk

•

mapping
Integrated climate risk into our
corporate risk management
processes and updated our risk
register

• Specifically, embedded climate risk

into our acquisitions and
development procedures.

Assessing and managing climate risk
in line with best practice guidelines
will help us to inform acquisition and
disposal decisions, and asset business
planning; maximise the long-term
attractiveness of assets to the market
and decrease obsolescence risk and
communicate to investors that risks to
their capital are being effectively
mitigated.

McKay Securities Plc Annual Report and Financial Statements 2020Principal Risks and
Uncertainties

Risk appetite
The Risk Sub-committee identified four key areas of risk to the business:

External

Financial

Portfolio

Corporate

Low

Medium
Risk appetite

High

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
2020, 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 51.

A robust assessment of the principal risks
facing the Company has been carried out
and the principal risks are listed on
pages 35 to 37.

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.

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
London and the South East 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.

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 future potential
risk exposure.

McKay Securities Plc Annual Report and Financial Statements 2020Key
Risk exposure in the last year has:

Link to strategy:

Increased

Unchanged

Reduced

Delivering our development programme

Releasing of portfolio income potential by capturing reversion

Enhancing scope for future growth

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.

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.

Financial

Compliance with government guidance and the Stay at Home
Measures legislated on 26 March 2020.
Continued investment in IT to ensure operational resilience with
closure of the Company’s head office.
Direct management of the portfolio properties to ensure close
communication with occupiers and continued operational
efficiency.
Scenario testing to provide headroom guidance to loan
covenants.
Market awareness of occupiers 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 an emerging
risk impacting the
Company and its
stakeholders from the
beginning of March 2020
onwards. The escalation of
consequential impact has
been unprecedented and
is likely to continue for the
rest of 2020 and into 2021.

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
and climate risk mapping will be complete by Q1 2020. These risk
assessments will help ensure existing and new assets at risk of
negative rental value impact are identified and the risk mitigated.

Ongoing climate of
uncertainty in relation to
the departure from the EU
that could impact on
corporate decision making
and increased sector risk.

Interest rate rise
Leading to lower profits.

The Board’s policy is to borrow at both fixed and floating rates
of interest.

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 sufficient funds are available to cover potential
liabilities arising against projected cashflows.

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.

A £65.00 million facility
with Aviva provides
27% of total facilities
fixed or hedged.
Further hedging
remains under review.

A £180.00 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 five years.

Throughout the period the
Company complied with all
such covenants. Covid-19
at the end of the period
increased this area of risk
exposure.

McKay Securities Plc Annual Report and Financial Statements 2020
Principal Risks and
Uncertainties continued

Principal risks and their impact How risk is managed

Risk exposure change in the year

Major occupier default
Losing a significant occupier
that materially impacts profits.

Taxation
REIT non-compliance.

Portfolio

Portfolio strategy
Strategy at odds with economic
conditions and occupier demand.

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.

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.
As part of our climate risk assessment process we have carried out a
high-level review of occupier business activities in light of carbon/
climate policies.
Internal management of portfolio properties maintains regular
dialogue with our occupier to provide a greater chance of prior
warning of occupier failure or departure.

Credit control
environment remains
constant.
Covid-19 at the end of
the period increased
this area of risk
exposure.

As a REIT, the Company is required to distribute at least 90% of
rental income profits each year. It is tax exempt in respect of capital
gains. Internal monitoring is in place to monitor compliance with the
appropriate rules.

Throughout the period the
Company complied with
the regulations.

Covid-19 has introduced
greater market and
economic uncertainty.

The one speculative
industrial development at
Theale is completed and
development risk is now
limited to ongoing
refurbishments.

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.

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’ and an EPC rating of at least ‘B’.
The newly updated development checklist takes into account
climate adaptation needs and carbon emissions mitigation
requirements up to 2030.

Reduction in rental values
Exposure to volatility of rental
values.

Developing, refurbishing and managing the portfolio in order to offer
new and Grade A space performing well on environmental matters
to attract and retain quality occupiers.
Actively managing the portfolio, identifying appropriate rental values
alongside lease length and maintaining an open dialogue and good
relationship with occupiers.
Climate risk mapping programmed for completion in Q1 2020. This
exercise will help ensure existing and new assets at risk of negative
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.

McKay Securities Plc Annual Report and Financial Statements 2020
Principal risks and their impact How risk is managed

Risk exposure change in the year

Reduction in capital values
Exposure to volatility of
capital values.

Corporate

Reputational risk
Adverse publicity/inaccurate media
reporting.
Major incident at a property.
Actions by Directors or staff 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.

Legal and regulatory risk
Non-compliance with regulations
and laws resulting in planning and
project delays, fines and loss of
reputation.

Retention/recruitment
Failure to retain or attract key
individuals could impact on major
decision making and the future
prosperity of the Company.

Health and safety
Accidents to employees, contractors,
occupiers and visitors to properties
resulting in injury, litigation or the delay
of refurbishment/redevelopment
projects.

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.
Constant review by management of occupier covenant, lease length
and asset management (including environmental performance) of
buildings to preserve/increase capital values.

As a result of Covid-19, the
portfolio valuation at
31 March 2020 carried a
material uncertainty
clause.
Investor appetite and
therefore capital values
may reduce as a result of
Covid-19.

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 staff 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 GRESB annually.

No significant main factors
to increase risk.

The Company employs experienced staff 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.

Reviews are undertaken with staff 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.

The Sustainability Management Group (‘SMG’) 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 SMG is
supported by specialist external advisers.
With Covid-19, the scale of exposure to risk has increase as 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
programmes are regularly backed up and backups are secured
off-site.
Implementation of Company’s business continuity plan.
Cyber fraud insurance is in place.

Business continuity
Business unable to operate due to
operational failure or unforeseen event
The Group 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.

Increase in global incidents
of this nature.

The impact of Covid-19
triggered the business
continuity plan. The
Company shut the Reading
office and operational
continuity was maintained
with all employees able
to work remotely.

McKay Securities Plc Annual Report and Financial Statements 2020
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.

McKay 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 timeframe 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 club 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

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 and full
details are set out on pages 35 to 37.

Assessment process
The four areas of principal risk were
subjected to quantitative and qualitative
analysis over the assessment period
referred above.

In order to stress test these risks on a
quantitative financial basis five key business
areas were identified:
• dividend cover
•
• REIT compliance
•
•

lending covenants (‘LTV’)
lending covenants (‘ICR’)

liquidity

Going Concern Statement
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 for the
next five years.

These key business areas were tested using
four base scenarios. The four core scenarios
identified were:

Scenario 1: a 25% reduction in rental income
Scenario 2: a 25% reduction in capital values
Scenario 3: a 3% increase in interest costs
Scenario 4: increased length in the period an
asset is vacant with specific emphasis upon
recently developed and refurbished assets.
In addition a Covid-19 scenario was also
identified:
Scenario 5: a 15% reduction in values and
10% reduction in income and a 2% increase
in interest costs.

Given the significant impact of Covid-19 on
the macro-economic 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
2020. The Company’s going concern
assessment considers the Company’s
principal risks (see pages 35 to 37) 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 above scenarios were selected in
response to our principal risks and
uncertainties that can be seen on pages 35
to 37.

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 new RCF 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 against 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

In April 2019 the Company successfully
renegotiated an increase in its facilities with
its long-term lenders and entered into a new
facility until 2024 on the basis of a pool of
lenders.

The going concern assessment of lending
covenants (LTV and ICR) took into account
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 to understand how much
rental income was required to meet these
covenants. Having taken into account rent
collection patterns there was considered to
be sufficient headroom to meet loan
covenants from a going concern perspective.

Should the impacts of the pandemic on trading
conditions be more prolonged or 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
during the going concern period a resilient
financial position.

The going concern period assessed is 15
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 2020.

Scenario testing, based on current economic
circumstances, was undertaken, including
consideration of:
•
• a decline in capital values
•
increasing interest costs
• an increased length in the period an asset

the implications of a decline in income

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 2025.

is vacant

This long-term viability statement was
approved by the Board on 3 June 2020.

McKay Securities Plc Annual Report and Financial Statements 2020Section 172 (1)
Statement

Our commitment
to Section 172

During the year we as the Board have maintained an
approach to decision making that promotes the long-
term success of the business and is in line with the
expectations of Section 172 of the Companies Act 2006.

The disclosures set out on this page demonstrate how
we have regard to the matters set out in Section 172(1)(a)
to (f). We have also included cross-references to other
sections of the report for more information.

Our stakeholders

Investors
Our shareholders are
fundamental to how we
operate as a business.

Occupiers
Occupiers are at the heart
of our business and we
take great pride in creating a
sustainable environment
where their businesses
can thrive.

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.

See more on stakeholder table page 16

See more in the ESG review page 28

Communities
We are committed to playing
our part in the local community
and supporting charitable,
educational or other causes
that might benefit from our
experience.

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.

Board decision making and
stakeholder considerations

We define principal decisions as both those that
are material to the Company, but also those that
are significant to any of our key stakeholder groups.
In making the following principal decisions the
Board considered 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 decision 1 – Sale of 30 Lombard Street, EC3
During 2019 the Board took the decision to crystallise profit on
the sale of the Company’s long leasehold interest at 30 Lombard
Street, EC3 following completion of the development and
successful letting to St James’s Place Wealth Management in
early 2019. Contracts were exchanged for the sale in December
2019 for a headline sale price of £76.50 million and completion is
subject to satisfaction of certain conditions relating to highways
matters. On completion of the sale, proceeds will initially be used
to pay down debt, prior to re-investment in new acquisitions and
portfolio opportunities to grow the business and continue to
provide sustainable returns to investors.

Principal decision 2 – Development of 135 Theale
Logistics Park
In April 2019 we appointed contractors to deliver a self-
contained high specification (BREEAM rated excellent) logistics
unit of 134,150 sq ft. This unit is situated in a prime location with
strong connectivity to the wider UK motorway network. With the
unit now complete we believe it will provide occupiers with a
modern, resource efficient and healthy environment to enjoy.
The development increases the Company’s investment in the
resilient South East logistics market and adds to a resilient
portfolio of assets.

Principal decision 3 – Covid-19
Our primary focus through this profoundly challenging period
has been the health and wellbeing of our employees, the
occupiers of our buildings and our suppliers, whilst maintaining
operational resilience and protecting the long-term value of the
Company. The decision to shut our head office was made in
mid-March and we enabled all our employees to work remotely.
This has meant that to date no employees have been furloughed.
We continue to maintain close relationships with our occupiers
and suppliers to provide support and assistance as appropriate.

We believe all the principal decisions made have been in the
interests of all our stakeholders to ensure the long-term success
of our business.

Approval of Strategic Report
The Strategic Report for the year end 31 March 2020 has been approved by the Board and was signed on its behalf by:

Simon Perkins
Chief Executive Officer
8 June 2020

McKay Securities Plc Annual Report and Financial Statements 2020

McKay Securities Plc
Annual Report and Financial Statements 2020

Governance Report

42 Board of Directors
44 Chairman’s Letter
46 Corporate Governance Report
50 Audit and Risk Committee Report
53 Nomination Committee Report
56 Remuneration Committee Report
73 Directors’ Report
75 Statement of Directors’ Responsibilities
76

Independent Auditor’s Report

Board
of Directors

Board
member

Position

01
Richard
Grainger ACA
Chairman

02
Simon
Perkins MRICS
Chief Executive Officer

03
Giles
Salmon FCA
Chief Financial Officer

Tom

Elliott MRICS

Property Director and

Head of Sustainability

Jon

Nick

Austen FCA

Shepherd FRICS

Jeremy

Bates MRICS

Senior Independent

Independent Non-Executive

Director

Appointed Chairman 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.

Joined the Company in
May 2011.

Joined the Company in

September 2016.

Appointed a Non-Executive

Director in July 2016 and

Appointed a Non-Executive

Director in January 2015 and

Appointed a Non-Executive

Director in January 2017.

Appointed a Director in
April 2001.

Appointed as Chief Financial
Officer in August 2011.

Appointed a Director

in April 2017.

Appointed the Chief
Executive Officer in
January 2003.

Member of the Nomination
Committee.

Senior Independent Director

desNED from April 2019.

Chairman of the Audit and

Remuneration Committee

from April 2017.

Risk Committee.

Member of the Nomination

and Remuneration

Committees.

Chairman of the

Committee.

Chairman of the Nomination

Member of the Audit and

Risk, and Nomination

Committees.

Member of the Audit and

Risk, and Remuneration

Committees.

Skills and
Experience

Chartered Accountant.

Chartered Surveyor.

Chartered Accountant.

Chartered Surveyor.

Chartered Accountant.

Chartered Surveyor.

Aged 59.

Aged 55.

Aged 54.

Aged 45.

Aged 64.

Aged 61.

Aged 54.

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.

Previous appointments:
Chairman of Close Brothers
Corporate Finance until
2009.

Chairman of Safestore Plc
until December 2013.

Chairman of Liberation
Group.

Simon has widespread
knowledge of the real estate
sector with direct operational
experience in management,
development and
refurbishment in the
commercial real estate
sector as well as strategic
focus and management skills
to successfully lead the
executive team.

Previous appointments:
nine years with business park
developer, Arlington Securities
PLC from 1990 to 1999.

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.

Previous appointments:
Finance Director at BAA
Lynton operating the Airport
Property Partnership from
2004/08 and Managing
Director from 2008/10.

Tom has over 20 years of

experience within the

commercial real estate

sector and specialises in

investment strategy,

transactions, asset

management and

development .

Previous appointments:

Head of Investment for the

London Portfolio of Land

Securities Group PLC

to 2016.

Jon has significant

experience within the real

estate sector in senior

financial roles and has

experience in corporate

takeovers and capital raising.

Previous appointments:

Group Finance Director of

Urban&Civic plc to July 2016.

Nick has worked at the

highest level of asset

management, investment

and development and has

experience in corporate

mergers and business

integration.

Previous appointments:

Senior Partner of Drivers

Jonas until 2010.

Vice Chairman of Deloitte UK

until May 2013.

Jeremy has over 25 years’

experience with Savills as a

leading agent within the

South East commercial real

estate sector, with significant

knowledge of occupier

services and trends.

None.

Chief Financial Officer of

Audley Group Limited.

Non-Executive Director of

Supermarket Income REIT.

Chairman of the Property

Income Trust for Charities.

Senior Adviser of Urban

Legacies Ltd.

Director of Savills UK Limited,

EMEA Head of Occupational

Markets and UK Head of

Transaction Services.

External
positions

McKay Securities Plc Annual Report and Financial Statements 2020

Board

member

Position

Richard

Grainger ACA

Simon

Giles

Perkins MRICS

Salmon FCA

Chairman

Chief Executive Officer

Chief Financial Officer

Appointed Chairman 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.

May 2011.

Appointed a Director in

April 2001.

Appointed as Chief Financial

Officer in August 2011.

Appointed the Chief

Executive Officer in

January 2003.

Member of the Nomination

Committee.

Richard has extensive Board

Simon has widespread

Giles has a wealth of

level experience in the

corporate finance and

commercial sectors. He

brings to the Group proven

leadership skills and

experience of complex

corporate negotiations.

Previous appointments:

Corporate Finance until

2009.

Chairman of Safestore Plc

until December 2013.

knowledge of the real estate

sector with direct operational

experience in management,

development and

refurbishment in the

commercial real estate

sector as well as strategic

focus and management skills

to successfully lead the

Previous appointments:

nine years with business park

developer, Arlington Securities

PLC from 1990 to 1999.

Chairman of Close Brothers

executive team.

experience at an operational

and strategic level of

corporate finance within the

real estate sector, including

corporate restructures and

managing business change.

Previous appointments:

Finance Director at BAA

Lynton operating the Airport

Property Partnership from

2004/08 and Managing

Director from 2008/10.

04
Tom
Elliott MRICS
Property Director and
Head of Sustainability

Joined the Company in
September 2016.

Appointed a Director
in April 2017.

05
Jon
Austen FCA
Senior Independent
Director

06
Nick
Shepherd FRICS
Independent Non-Executive
Director

07
Jeremy
Bates MRICS
Independent Non-Executive
Director

Appointed a Non-Executive
Director in July 2016 and
Senior Independent Director
from April 2017.

Chairman of the Audit and
Risk Committee.

Member of the Nomination
and Remuneration
Committees.

Appointed a Non-Executive
Director in January 2015 and
desNED from April 2019.

Chairman of the
Remuneration Committee

Member of the Audit and
Risk, and Nomination
Committees.

Appointed a Non-Executive
Director in January 2017.

Chairman of the Nomination
Committee.

Member of the Audit and
Risk, and Remuneration
Committees.

Skills and

Experience

Chartered Accountant.

Chartered Surveyor.

Chartered Accountant.

Chartered Surveyor.

Chartered Accountant.

Chartered Surveyor.

Aged 59.

Aged 55.

Aged 54.

Aged 45.

Aged 64.

Aged 61.

Aged 54.

Tom has over 20 years of
experience within the
commercial real estate
sector and specialises in
investment strategy,
transactions, asset
management and
development .

Previous appointments:
Head of Investment for the
London Portfolio of Land
Securities Group PLC
to 2016.

Jon has significant
experience within the real
estate sector in senior
financial roles and has
experience in corporate
takeovers and capital raising.

Previous appointments:
Group Finance Director of
Urban&Civic plc to July 2016.

Nick has worked at the
highest level of asset
management, investment
and development and has
experience in corporate
mergers and business
integration.

Previous appointments:
Senior Partner of Drivers
Jonas until 2010.
Vice Chairman of Deloitte UK
until May 2013.

Jeremy has over 25 years’
experience with Savills as a
leading agent within the
South East commercial real
estate sector, with significant
knowledge of occupier
services and trends.

External

positions

Group.

Chairman of Liberation

None.

Chief Financial Officer of
Audley Group Limited.
Non-Executive Director of
Supermarket Income REIT.

Chairman of the Property
Income Trust for Charities.
Senior Adviser of Urban
Legacies Ltd.

Director of Savills UK Limited,
EMEA Head of Occupational
Markets and UK Head of
Transaction Services.

McKay Securities Plc Annual Report and Financial Statements 2020

Chairman’s Letter

Dear shareholder,
I am pleased to introduce
our Corporate Governance
Report for the year ended
31 March 2020.

Richard Grainger
Chairman

McKay has always strived for high standards
of corporate governance throughout the
business and we remain committed to
working in the best interests of our
shareholders and other stakeholders in a
responsible, sustainable and ethical way.

The 2018 UK Corporate Governance
Code came into effect for companies
with reporting periods starting on or after
1 January 2019. As a result, this is our first
full year under this revised code. As I set
out last year, we adopted many of the
recommendations earlier than we were
required to. As a result, no material changes
were required when we reviewed the
Terms of Reference for the Board and its
Committees in February 2020. Copies of
the Committees’ Terms of Reference can
be found on the Company’s website
mckaysecurities.plc.uk.

One of our early adoptions of the 2018
UK Corporate Governance Code was the
introduction of a desNED in April 2019. Nick
Shepherd, an existing Non-Executive
Director, was appointed to the role. This has
been welcomed by our employees and has
proven to be to be a valuable conduit for
employee engagement. Further details can
be found within the Corporate Governance
Report on page 47.

This is also the first year we are required to
set out a statement under Section 172 of the
Companies Act 2006, providing 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 Board is
conscious that any decision is not made
in isolation and the result has an impact
on various stakeholder relationships. 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 12 and 13,
and the Section 172 statement on page 39.

There has also been increased debate
in the investor community surrounding
corporate reporting of ESG matters.
Last year we reported on our emerging
sustainability vision – The Right Choice for
a Sustainable Business, which replaced
our 2013 sustainability strategy. This
year we have taken this a step further
and integrated it into our ESG framework.
This is covered in further detail on pages
28 to 33, and provides a clear indication
of how these important issues in today’s
society are integral to the way we do
business. Within the report, there is
direction for shareholders to our website
to find further detailed environmental
targets and Company policies supporting
clear and transparent reporting.

McKay Securities Plc Annual Report and Financial Statements 2020Succession planning is an ongoing
responsibility of the Nomination Committee
and we have been mindful that the gender
and ethnic diversity spread within the
Company is not reflected in the composition
of the Board. We have to date not set specific
diversity targets but made appointments
based on the right balance of skills and
experience of the candidate. We are now
seeking a further appointment to the Board
and have taken the decision to specifically
focus on appointing a female Non-Executive
Director. The appointment process was well
under way with an external search agency, as
set out in the Nomination Committee Report
on page 54. Although Covid-19 has delayed
the interview process, we hope to be able to
make further progress in the near future.

This is the first year end audit by our new
auditor, Deloitte, and the impact of Covid-19
has also affected how the Company has been
audited. The introduction of social distancing
has presented difficulties for both the audit
team at Deloitte and the Company’s finance
team to overcome. Measures were put in
place to submit documents electronically
wherever possible and the process and
practicalities were monitored closely.

This year is the third anniversary of the
Group’s Remuneration Policy, which
was approved by shareholders at the
2017 AGM. In conjunction with our
external advisers, we have undertaken
a thorough review of the policy.

Having made changes over the life of the
policy, we concluded that the current
policy remained fit for purpose. We
engaged with our principal shareholders
and the main governance bodies on
this basis. Their support meant that
limited changes are being proposed and
these are set out in the Remuneration
Committee Report on pages 59 to 65.

In light of Covid-19, the Remuneration
Committee recommended cancellation
of the salary review for the financial
year to 31 March 2021 for all Directors
and employees and the Board agreed
with this prudent approach. The
Committee also recommended
the postponement of the payment
of any bonus until January 2021.

I would like to take this opportunity to thank
our employees for their exceptional response
to the Covid-19 lockdown and their continued
support, flexibility and commitment
to ensuring the business continues to
operate as smoothly and effectively as
possible in this uncertain environment.

Despite the introduction of social distancing
we have undertaken our annual Board,
Committee and individual Director
evaluations. The use of our online
questionnaire supported this exercise along
with 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.
Further details of this year’s evaluation
process and outcomes can be found within
the Nomination Committee Report on
page 55.

The Company can confirm that throughout
the year to 31 March 2020 it has complied
with the Codes’ principles and provisions
with the following judgement:

Code Provision 38. Pension contribution
rates for Executive Directors. Please see the
Remuneration Report on page 58 for the
strategy in this area.

2018 Corporate Governance Code
1. Board Leadership and Company Purpose

Board leadership and the Company’s purpose and values, the provision of resources
and advice along with stakeholder engagement can be found in the Corporate
Governance Report on pages 46 to 48 and pages 16 to 17.

2. Division of Responsibilities

The composition of the Board and its responsibilities, the role of the Chairman and
Directors and their external commitments can be found within the Corporate
Governance Report on pages 48 to 49.

3. Composition, Succession and Evaluation

Information on Board appointments, succession planning, evaluation and diversity
can be found within the Nomination Committee Report on pages 53 to 55.

4. Audit, Risk and Internal Control – Audit and Risk Committee Report

Information on financial reporting, external and internal auditing along with the review of
the 2020 Report and Financial Statements and how the risk management and internal
controls are considered can be found within the Audit and Risk Committee Report and
the Principal Risks and Uncertainties on pages 50 to 52 and 34 to 37 respectively.

5. Remuneration

How the Company links remuneration with strategy, the Remuneration Policy review
and performance outcomes based on strategic performance can be found in the
Remuneration Report on pages 56 to 72.

Annual General Meeting arrangements
and Covid-19
On behalf of the Board I am pleased to inform
you that this year’s Annual General Meeting
(‘AGM’) will be held at 10.30am on Thursday
23 July 2020 at 20 Greyfriars Road, Reading,
Berkshire RG1 1NL.

While in normal circumstances the Board
values the opportunity to meet shareholders
in person at the AGM to listen and respond to
their questions, current UK Government
measures are in force that limit public
gatherings, impose social distancing and
require that people do not make
unnecessary journeys. As a result of these
restrictions the 2020 AGM will be a closed
meeting and shareholders are regrettably
not permitted to attend.

In order to ensure that our AGM may proceed
on 23 July 2020 in compliance with UK
Government restrictions, arrangements have
been made for a quorum of two shareholders
to be present at our AGM, as required under
the Company’s Articles of Association, and
this will be facilitated by the Company.

Shareholder participation
Although you may not attend the AGM and
vote in person, your participation is important
to us. Therefore, this year the AGM will be
conducted by way of a poll rather than on a
show of hands. I would strongly encourage
you to vote ahead of the AGM by completing
and returning your Proxy Form and
appointing the Chairman 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. You are strongly encouraged to return
your Proxy Forms as early as possible prior
to the meeting.

Although it will not be possible to ask
questions during the AGM this year, 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 circular please
send them 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 21 July
2020. A response to the questions received
will be made available on the Company’s
website as soon as practicable following the
AGM.

The situation surrounding Covid-19 is
causing challenges on many fronts and I very
much hope that we will be able to revert to
our usual format next year.

Richard Grainger
Chairman
8 June 2020

McKay Securities Plc Annual Report and Financial Statements 2020Corporate Governance
Report

Introduction
McKay is a listed Company incorporated in
the United Kingdom and this year is reporting
in compliance with the 2018 UK Corporate
Governance Code, which can be found at
frc.org.uk.

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.

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 biographical detailed can be found on
pages 42 and 43.

Company purpose
The Company’s purpose is to deliver
long-term success that provides sustainable
returns to investors, at the same time as
offering the very best environment for its
customers to thrive while being alert to the
needs of its employees and the impact of
the business on the environment and
wider society.

Culture
The Chairman fosters a culture of openness,
honesty and integrity in the boardroom and
at every level throughout the Company.
Constructive debate is actively encouraged
and the Board is satisfied that no individual or
group of Directors dominate the Board’s
decision making. The Board is careful to
ensure the business is able to succeed in the
long term by promoting relationships with
stakeholders that are built on mutual respect
and trust and uphold the value of good
corporate governance. Further details of the
Company’s relationship with its stakeholders
can be found on pages 16 and 17.

Board leadership structure

Continuing professional development
training is available for Directors as
necessary.

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.

As part of the Company’s culture to foster
a sense of shared purpose and to increase
the level of engagement between the
leadership of the Company and employees,
Non-Executive Director Nick Shepherd
was appointed to the role of desNED from
1 April 2019. His role is set out in the table on
page 49 and further detail on his activities
during the year can be found on page 47.

All employees participate in an annual
evaluation process undertaken by their line
manager. This process is on a one-to-one
basis and gives an opportunity for employees
to discuss their role, progress goals, identify
any specific training needs and receive
individual feedback on current and future
objectives. Any consistent themes identified
across the process are fed back through to
the leadership team, reviewed and actioned
as appropriate.

Employee relationships are further
enhanced by investing in training for
individuals pertinent to their role within
the business and supporting continuing
professional development in line with
the individuals’ professional body.

McKay Securities Plc

Board Members
1 Non-Executive Chairman
3 Independent Non-Executive Directors
3 Executive Directors

During the year the Company focused
on enhancing its customer services and
supplier relationships and invested in
customer service training. Individuals
across departments within the business
were invited to participate in a training
day held in-house by an external provider.
Feedback from those who participated was
positive and many felt it consolidated or
built upon their existing knowledge base.

In addition, all employees are required to
complete the Company’s annual online
e-training programme made up of three
modules:
• Equality and diversity;
• Bribery prevention; and
• Data security.

A staff handbook, which includes workforce
policies and practices is included as part of
all employees’ induction and is available on
the Company’s intranet.

Whistleblowing policy
The Company operates a whistleblowing
policy. The purpose of the 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 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

Audit and Risk Committee Members
3 Independent Non-Executive Directors

Risk Sub-Committee Members
3 Executive Directors

Remuneration Committee Members
1 Non-Executive Chairman
3 Independent Non-Executive Directors

Nomination Committee Members
1 Non-Executive Chairman
3 Independent Non-Executive Directors
1 Executive Director

McKay Securities Plc Annual Report and Financial Statements 2020
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.

There is also 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.

This year the Company’s Remuneration
Policy is to be put to shareholders for
approval at the AGM. The Chairman of
the Remuneration Committee engaged
with the Company’s major shareholders
and governance bodies regarding the
content of the policy, and further details
are set out on page 58 of his report.

Shareholders are given at least 20 working
days’ notice of the Company’s AGM.
In normal circumstances, shareholders 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. These figures are posted on the
Company’s website mckaysecurities.plc.uk.

AGM arrangements and Covid-19
The Board values the opportunity to meet
shareholders in person at the AGM to listen
and respond to their questions. However,
current UK Government measures are in
force that limit public gatherings, impose
social distancing and require that people do
not make unnecessary journeys. As a result
of these restrictions the 2020 AGM will be a
closed meeting and shareholders are
regrettably not permit to attend.

In order to ensure that the AGM may proceed
on 23 July 2020 in compliance with UK
Government restrictions, arrangements have
been made for a quorum of two shareholders
to be present at the AGM, as required under
the Company’s Articles of Association, and
this will be facilitated by the Company.

Case study desNED

The 2018 UK Corporate Governance
Code introduced an increased emphasis
on the Board to be aware of and
understand the views of its key
stakeholders, with a particular reference
to engagement with the workforce.

The Board reviewed the various options
and considered the best option for McKay
was the introduction of an desNED and
Nick Shepherd was appointed to this
position in April 2019, ahead of the
required date under the 2018 UK
Corporate Governance Code. The main
purpose of his role is to enable and
encourage staff feedback (formal and
informal) to the Board, about internal and
external factors affecting the business.

Initially Nick contacted employees by
email introducing himself and the role
and confirming the commitment from the
Directors to enable employees to have
a voice at the Board table. A dedicated
email address and a direct telephone
number have been provided for
employees to contact Nick on any matter
outside the regular internal channels of
communication within the business.

This year Nick held two meetings with the
workforce, the first introductory meeting
was held in April 2019 and the second in
December 2019. The initial programme
split the meeting into two sessions, the
first with the property team and the
second with the finance team to keep
the size of each session small enough
to encourage participation. This was
appreciated by attendees. The second
meeting in December was in the same

format but with the two sessions attended
by a cross-section from both departments
to enable employees to understand views
across the business. Nick was encouraged
by the level of participation and fed back
to the Board employees’ views following
each meeting.

These views resulted in:
• a workforce strategy review day. Held in
September 2019 it was open to all of
the workforce to attend. The day was
structured around corporate strategy
and included two break-out sessions
to discuss themes such as the right
buildings, right locations, right space
and proactive and innovative marketing.
The outputs were presented to the
Board by a member of the workforce
at the Board Strategy Day in October
2019;
the introduction of workforce feedback
on the views of investors following the
investor and analyst presentations
held at the full and half year; and
the introduction of a senior
management investment committee to
track and discuss the strengths and
weaknesses of potential investment
opportunities.

•

The feedback from the introduction
of these meetings with the desNED
has all been positive, with individuals
reporting it made them feel part of a
whole McKay team and helped put their
own roles in context. The Board believes
it has been a positive step for workforce
engagement.

McKay Securities Plc Annual Report and Financial Statements 2020Corporate Governance
Report continued

Attendance at Board and Committee meetings to 31 March 2020 is set out below.

Board meeting attendance (for the financial year to 31 March 2020)

R Grainger
S Perkins
G Salmon
T Elliott
J Austen
J Bates
N Shepherd

Board
(11 meetings)

Audit and
Risk Committee
(three meetings)

Remuneration
Committee
(two meetings)

Nomination
Committee
(two meetings)

11
11
11
11
11
11
11

31
31
31
31
3
3
3

2
21
–
–
2
2
2

2
2
–
–
2
2
2

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,
mckaysecurities.plc.uk.

Audit and Risk Committee
Mr Jon Austen FCA is Chairman 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 2018 UK Corporate
Governance Code. Further details, along
with the Committee’s responsibilities and
activities are set out in the Audit and Risk
Committee Report on pages 50 to 52.

Nomination Committee
Mr Jeremy Bates MRICS is Chairman of the
Nomination Committee. The Committee met
twice in the last year and its responsibilities
and activities, including the appointment of
new Directors, their induction and the
performance evaluation of the Board are set
out in the Nomination Committee Report on
pages 53 to and 55.

Remuneration Committee
Mr Nick Shepherd FRICS is Chairman
of the Remuneration Committee which
met twice 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 56 to 72.

In attendance by invitation.

Although shareholders may not attend the
AGM and vote in person, their participation is
important. Therefore, this year the AGM will
be conducted by way of a poll rather than on
a show of hands. Shareholders are strongly
encouraged to vote ahead of the AGM by
completing and returning their Proxy Form
and appointing the Chairman of the AGM to
act as 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. Shareholders are strongly encouraged
to return Proxy Forms as early as possible
prior to the meeting.

Although it will not be possible to ask
questions during the AGM this year, if
shareholders would like to ask a question on
the Company’s Annual Report and Financial
Statements or any of the proposed
resolutions listed within the circular please
send them 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 21 July
2020. A response to the questions received
will be made available on the Company’s
website as soon as practicable following
the AGM.

Further information on the Company’s
Section 172 statement and stakeholder
engagement is set out on pages 16 and 39.

Division of responsibilities
The roles of the Chairman and Chief Executive
are, and will continue to be, separate. The
division of responsibilities between the
Chairman and the Chief Executive is set out
in writing and approved by the Board.

Board composition
The composition of the Board complies with
Provision 11 of the 2018 UK Corporate
Governance Code in that half of the Board,
excluding the Chairman, are Non-Executive
Directors whom the Board considers to be
independent. The Board is looking to further
strengthen its independence with the
appointment of an additional Non-Executive
Director. Further details can be found within
the Nomination Committee Report on
page 54.

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.

Board meetings
The Board had 11 meetings in the year to
31 March 2020, including the Board Strategy
Day which is set aside to focus specifically on
the Group’s long-term strategy. At least two
of the meetings during the year are held at
properties in the portfolio and the Board was
provided with full and timely information in
order to discharge its duties. In the current
climate of uncertainty surrounding the
Covid-19 pandemic since mid-March the
Board has been meeting remotely on a more
frequent basis to ensure the impact on the
Group and its stakeholders is considered
and where appropriate any mitigating action
is approved.

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.

Risk management and internal control
The following should be read in conjunction
with the principal risks and uncertainties
on pages 34 to 37 of the Strategic Report.
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.

McKay Securities Plc Annual Report and Financial Statements 2020The 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 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.

Board responsibilities
The Board of Directors has collective responsibility for the overall
leadership of the Company, for setting the Company’s values and
culture and approving its strategic aims and objectives. It has a duty,
as set out in Section 172 of the 2006 Companies Act, to promote
the success of the business by considering the impact of any
decisions on its various stakeholders.

• Financial reporting and controls, including approval of the

Interim Report and Annual Report and Financial Statements,
interim management statements and preliminary
announcements of interim and final results

• Dividend policy
• Company policies and significant changes therein
• Maintenance and review of the effectiveness of a sound system

A Schedule of Matters Reserved for the Board has been adopted. It
is reviewed annually and matters which the Board considers
suitable for delegation are contained in the Terms of Reference of
its Committees with ultimate responsibility remaining with the
Board. Key responsibilities include the oversight and/or approval of:
• Company operations, strategy and management, including

approval of annual operating and capital expenditure budgets
and any material changes to them

• Corporate structure and capital changes
• Acquisitions or disposals of property
• Major capital projects or contracts which are material

strategically

of internal control and risk management

• Communication with shareholders
• Board membership and other appointments, changes to the

structure, size and composition of the Board and
recommendations made by the Nomination Committee

• The Remuneration Policy for the Board and all employees and

the introduction of any new share incentive plans for
shareholder approval and recommendations made by the
Remuneration Committee
• Corporate governance matters

In addition, the Board receives reports and recommendations from
time to time on any other matter which it considers significant
to the Company.

Key responsibilities of the Chairman
• Provide coherent leadership to the Board
• Set the agenda, style and tone of Board discussions to

Key responsibilities of the CEO
• Lead the Executive Directors and the senior team in the

day-to-day running of the Company

promote effective decision making and constructive debate

• Develop the Company’s objectives and strategy having regard

• 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 performance 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

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

• Recommend to the Board budgets and financial projections
and ensuring their achievement following Board approval
• Optimise as far as reasonably possible the use and adequacy

of the Company’s resources
Identify 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

Role of the Senior Independent Director (‘SID’)
• Acts as a sounding board for the Chairman, providing support

Role of desNED
• To engage with the Company’s workforce to better understand

in delivering objectives

their views

• Serves as an intermediary for the other Directors and

• To facilitate the employees’ voice within the Boardroom

shareholders

• To be available to shareholders and other Non-Executive
Directors to address any concerns or issues outside of
alternative channels

• Leading the process to review the Chairman’s performance

McKay Securities Plc Annual Report and Financial Statements 2020Audit and Risk Committee
Report

Dear shareholder,
I am pleased to present the
Audit and Risk Committee
Report for the year ended
31 March 2020.

Jon Austen
Chairman of the Audit and Risk Committee

The primary focus of the Audit and Risk
Committee (‘the Committee’) this year has
been to oversee the smooth transition from
outgoing to incoming auditor.

As I reported last year, the Company
undertook a comprehensive tender exercise
which culminated in the appointment of
Deloitte LLP as external auditor. Their
appointment was approved by shareholders
at the 2019 AGM.

Deloitte LLP undertook the half year review
as at 30 September 2019. The audit for the
year ended 31 March 2020 was their first full
audit of the Group and their Audit Report can
be found on pages 76 to 83.

The work undertaken following the transition
was in great depth and detail and how this
was undertaken is set out within the
Committee Report.

The audit for the full year has been greatly
impacted by Covid-19. Further detail can be
found in my report below.

The Committee is also responsible for the
Company’s risk management and internal
control. This responsibility has been
delegated to the Risk Sub-committee who
report their findings to the Audit and Risk
Committee. Both Committees are cognisant
of the increased importance of ESG
including climate risk, it’s macro effects and
the impact on the Company and its
stakeholders.

In addition, the Risk Sub-committee met
specifically to review the risk to the Company
following the outbreak of the Covid-19 virus.
Further details on this and other risks can be
found in the Company’s Principal Risks and
Uncertainties on pages 34 to 37.

The Committee undertook an annual review
of its Terms of Reference which had been
updated in February 2019 to reflect the
requirements of the 2018 UK Corporate
Governance Code. No further material
amendments were made.

The aim of the Committee for 2020 will be
to continue 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

Jon Austen
Chairman of the Audit and Risk Committee
8 June 2020

McKay Securities Plc Annual Report and Financial Statements 2020Committee 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, ensuring 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 and objectivity.
Committee consideration is also
given annually to the requirement of
an internal audit function; and
• Compliance, whistleblowing and

fraud: reviewing the adequacy and
security of the Company’s
arrangements.

Committee membership
The Committee consists solely of
independent Non-Executive Directors.

The members of the Committee are:
J Austen FCA – Chairman
J Bates MRICS
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. The table of attendance is set out
in the Corporate Governance Report on
page 48.

The Chairman of the Board, the Chief
Executive (‘CEO’), Chief Financial Officer
(‘CFO’) and external auditors regularly
attend by invitation. The Committee
meets twice a year with the external audit
engagement partner to provide the
opportunity to discuss matters without
executive management being present.

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,
and the Committee gained comfort from
the valuer’s methodology and other
supporting market information. In line with
guidance issued to all valuers by the RICS,
the independent valuation as at 31 March
2020 includes a material uncertainty
clause as a result of Covid-19. In addition,
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, and concluded that the
methodology, assumptions and judgements
were in line with their own findings.

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 on page 93.

As requested by the Board, the Committee
undertook a review of the Annual Report
and Financial Statements for the year ended
31 March 2020 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 and advising on the current

and emerging risk exposure;

• 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 four times
during the year and reported its findings to
the Audit and Risk Committee through its
Chairman. For further information on the
Company’s risk appetite, principal risks and
uncertainties, the Company’s long-term
viability statement and going concern
statement please see pages 34 to 38.

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 ended 31 March 2020.

McKay Securities Plc Annual Report and Financial Statements 2020Audit and Risk Committee
Report continued

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 Chairman 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
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
2020. The Company’s going concern
assessment considers the Company’s
principal risks (see pages 34 to 37); 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 38.

External audit
At the 2019 AGM shareholders resolved to
authorise the appointment of Deloitte LLP
as auditors to the Group.

The Committee is responsible for overseeing
the relationship with the external auditor
and ensuring the transition from outgoing to
incoming auditors was a smooth process.
As part of this transition Deloitte LLP:
• undertook a review of the outgoing

auditor’s file for the year to March 2019;

• met with the Financial Controller and
other employees to understand the
Company’s key processes and controls;
• concentrated on key focus areas such as
investment property and key metrics and
undertook a thorough review in these
areas with the support of management;
and

• attended the audit close meeting

between the Company and the outgoing
auditor.

Deloitte undertook the half year review as
at 30 September 2019 and their first full audit
of the Group was for the year ended 31 March
2020. The audit partner is Stephen Craig.

The Committee reviewed Deloitte’s first
audit plan, its terms of engagement and
the engagement letter and authorised
management to sign the representation
letter.

The impact of Covid-19 has also affected
how the Company has been audited this year.
The introduction of social distancing has
presented difficulties for both the audit team
at Deloitte and the Company’s finance team
to overcome. Measures were put in place to
submit documents electronically wherever
possible and the process and practicalities
were monitored closely.

Once 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 is provided within the audit
report;

• an assessment of the quality of the audit;
• consideration on how the auditor dealt

•

with the Company’s significant
judgement, the portfolio valuation; 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 2019 AGM, the Directors authorised
the remuneration of the auditors. Audit fees
for the full year were £140,000 with related
assurance work of £45,000. Full details of
audit fees are set out in note 3 on page 97.

The Committee believe this assurance work
does not impact the objectivity of the audit
firm and are 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.

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.

McKay Securities Plc Annual Report and Financial Statements 2020Nomination Committee
Report

Dear shareholder,
I am pleased to present the
report of the Nomination
Committee for the year
ended 31 March 2020.

Jeremy Bates
Chairman of the Nomination Committee

Over the last year the Nomination Committee
(‘the Committee’) has reviewed the Board
and its composition in line with the 2018 UK
Corporate Governance Code. As part of this
review, the Company introduced the early
adoption of a desNED. Nick Shepherd was
appointed to the newly developed role and
following his appointment he initiated a
programme to meet with all employees
biannually. Any findings or subjects raised
through him are brought to Board or the
relevant Committee’s attention as they arise,
and we believe this has been a positive
development in employee engagement.
Further details on employee engagement
can be found in the case study on page 47.

In addition, as part of our succession
planning the Board agreed to the
appointment of an additional Non-Executive
Director to improve the balance of Non-
Executive representation and to address
the lack of gender diversity on the Board.
For this reason, the Committee was directed
to focus, in this instance, exclusively on
female candidates. Recruitment specialist
Spencer Stuart has been appointed and
the process is well under way, but has been
delayed by Covid-19. The appropriate
regulatory announcement will be made once
the position has been filled and details of the
process is outlined below within my report.

In February 2019, the Committee’s Terms
of Reference were reviewed and amended
to reflect the requirements of the 2018 UK
Corporate Governance Code. No further
material amendments have been made. The
Terms of Reference are available to view at the
Company’s website, mckaysecurities.plc.uk.

The focus of the Committee for the year
ahead will be to facilitate the appointment
of the new Board member and continue to
support the Board and its Committees, to
ensure they have the appropriate balance
of skills, experience, independence and
knowledge to enable them to discharge their
respective duties and responsibilities
effectively.

Jeremy Bates
Chairman of the Nomination Committee
8 June 2020

McKay Securities Plc Annual Report and Financial Statements 2020Nomination Committee
Report continued

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;

• making recommendations to the

Board concerning the re-election of
Directors by shareholders; and
• annual review of the Nomination
Committee Terms of Reference.

Committee membership
Members of the Nomination Committee are:
J Bates MRICS – Chairman
J Austen FCA
R Grainger ACA
N Shepherd FRICS
S Perkins MRICS

The Nomination Committee met twice in the
last year with 100% attendance.

The majority of the members of the
Committee are independent Non-Executive
Directors.

Succession planning
The Nomination Committee considers
succession planning for Directors and
other senior executives. The succession
plans are regularly reviewed and ensure a
formal, rigorous and transparent procedure
for new appointments.

The Committee has identified an
opportunity to engage an additional
independent Non-Executive Director to
strengthen and add value to the Board
and its Committees. Provision 11 of the
2018 UK Corporate Governance Code
states that at least half the Board should be
Non-Executive Directors. Currently the
Board comprises three Executive Directors
and four Non-Executive Directors but for
the purposes of this test the Chairman of
the Board is excluded which leaves a
50/50 split between Executive and
Non-Executive Directors.

The Committee also recognises the gender
imbalance of the Board. It supports the
principle of the Hampton-Alexander review
for greater female representation on the
Board and the Parker Review on ethnic
diversity and has ensured that any list of
candidates for any Board position included
both male and female candidates with a
wide range of backgrounds. The Board has
been mindful that the right balance of skills
and experience of the candidate is key
and therefore to date no diversity targets
were set.

Having taken these factors into
consideration the Board agreed to focus
exclusively on possible female candidates
for the upcoming Non-Executive position
and instructed the Committee to oversee
the search.

Appointment of Directors
The Nomination Committee is responsible
for the recruitment of Directors who will
make a positive contribution to Board
values, culture and strategic decision
making. In the first instance the Committee
undertook a skills gap analysis and
reassessed the composition of the
existing Board, considering experience,
knowledge and personal attributes. It then
prepared a description of the role along
with the professional and personal skills
required and agreed the process to be
undertaken. A third-party independent
recruitment consultant was identified and
appointed to undertake the search for
suitable candidates to put forward to the
Committee for consideration and interview.
The Committee is mindful that candidates
are fully aware of the time commitment
expected of them and 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.

The Committee appointed international
external recruitment consultant Spencer
Stuart to undertake the search for an
additional Non-Executive Director. Spencer
Stuart, who has no other connection nor
provided any other services to the Company
or individual Directors, proposed a number
of candidates to the Committee. The
selection process is under way but has
been hampered by Covid-19.

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
May 2014.

McKay Securities Plc Annual Report and Financial Statements 2020Our operations are based solely in the UK
and are low risk in relation to human rights
issues. No human rights issues have arisen
in the period. For details of the Company’s
Anti-Slavery, Human Trafficking and Child
Labour Policy Statement please see
our website.

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
2020 AGM. The biographical details of the
Directors are available on pages 42 and 43.

Board and Committee evaluations
Formal annual evaluations of the Board
and its Committees were undertaken in
February 2020.

The process this year was an internally run
exercise undertaken using the Company’s
digital board solution in the format of 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 and a high level
of challenging and constructive debate.

Future actions included reviewing the
induction programme for newly appointed
Non-Executive Directors. The programme
will facilitate a thorough understanding of the
Company’s future strategy, current practices
and policies and provide the opportunity to
meet with employees plus external advisers
relevant to the various Committees and
the Board.

Individual Director performance
evaluation
The individual Director performance
evaluations were undertaken in March 2020
and followed the same format as the Board
and Committees outlined above. The
completed questionnaires were submitted
to the Board Chairman who then discussed
these with individual Directors on a one-to-
one basis to review their responses and
provide feedback. The Senior Independent
Director undertook the exercise in relation
to the Chairman.

All evaluations identified the need for greater
diversity on the Board and demonstrated the
Directors’ commitment to making progress
in this area.

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.

Policy on diversity
The Company is committed to treating all
employees equally and considers all aspects
of diversity, including gender and ethnicity,
when considering recruitment at any level of
the business.

The Board takes overall responsibility for
the development of equality and diversity
and ensures that progress is reviewed, and
further actions taken as necessary. Every
employee has personal responsibility for the
implementation of the policy. Furthermore
all employees are required to complete an
annual online e-training programme made
up of three modules:
• Equality and diversity;
• Bribery prevention; and
• Data security.

The Company’s policy on equality and
diversity is available to view on the website.
The gender diversity of the Company is set
out below:

Gender diversity of the Company
as at 31 March 2020

Senior
management

Other
employees

Total
(excluding
the Board)

Male

Female

McKay Securities Plc Annual Report and Financial Statements 2020Remuneration Committee Report
1. Annual Statement

Dear shareholder,
I am pleased to present the
Directors’ Remuneration
Report for the year ended
31 March 2020, which
has been prepared by the
Remuneration Committee
(‘the Committee’) and
approved by the Board.

Nick Shepherd
Chairman of the Remuneration Committee

Over the last few years there have been
many developments in the regulatory
environment governing executive
remuneration. Although this is the first year
we are required to comply with the new
legislation and the updated corporate
governance code, we incorporated a number
of changes last year, and have strived to
ensure that our approach at McKay has
been, and continues to be, in line with
best practice.

Covid-19 has introduced market volatility,
and the Committee has given this careful
consideration in policy implementation this
year and in proposed changes to the policy
for shareholder approval at this year’s AGM.

This year the Committee has had an
extended remit to include oversight of the
remuneration policies for all employees.
I am glad to report that there is a close
alignment of workforce and Executive
Director remuneration policies.

Committee activities during the year
The Committee met twice during 2019/20.
The main Committee activities during the
year included:
• Considering the 2018 UK Corporate

Governance Code and new disclosure
requirements;

• Considering any conflicts of interest
(none were identified) and risk in
respect of the Remuneration Policy;
• Reviewing the Remuneration Policy
and consulting major shareholders
and representative bodies in respect
of its renewal at the 2020 AGM;

• Reviewing workforce related policies

and remuneration;

• Setting the Executive Directors’ bonus
targets for 2019/20 and agreeing the
outturn in respect of the 2018/19 annual
bonus;

• Determining Executive Directors’ base

salary levels for 2020/21;

• Considering the structure of the annual

bonus for 2020/21 to account for
Covid-19;

• Determining vesting of the 2017

Performance Share Plan (‘PSP’) awards
which reached the end of the three-year
performance period on 31 March 2020;
and

• Overseeing the grant of the PSP awards

in 2019/20.

McKay Securities Plc Annual Report and Financial Statements 2020Pay and performance
The performance for the year ended
31 March 2020 has been reflected in the
potential payments made to the Executive
Directors under the annual bonus plan –
performance against the EPS, NAV and
strategic targets resulted in a bonus of 58.3%
of salary. The proportion of bonus over 50%
of salary will be deferred into shares with a
three-year holding period. Payment of the
bonus has been deferred until January 2021.

The outcome of the three-year performance
period for the 2017 Performance Share Plan
(‘PSP’) grant has resulted in the investing of
48% of the award. Further details (including
information regarding the targets and
performance against them) are set out in
the Annual Report on Remuneration.

Discretion
The Committee has full discretion to vary
performance related pay, but this was not
considered necessary during the year or
prior to the results announcement.

The report is divided
into three sections:

01 My Annual Statement as

Chairman off the Remuneration
Committee for the year ended
31 March 2020, which
summarises the activities
of the Committee, how the
Remuneration Policy has
operated for the year ending
31 March 2020 , and the
Remuneration policy review
process.

The Directors’ Remuneration
Policy, which presents our
proposed Remuneration Policy
for the next three years, given
that our current Policy, originally
approved by shareholders at the
2017 AGM, will shortly reach the
end of its three-year life.

The Annual Report on
Remuneration, which provides
further detail on how the
Remuneration Policy was
implemented in the year ended
31 March 2020, and how the
proposed Remuneration Policy
will operate for the year ending
31 March 2021.

In addition, the Committee has considered
how the Remuneration Policy and practices
are consistent with the Provision 40 of the
2018 UK Corporate Governance Code,
which requires the Directors to promote the
success of the Company for the benefit of
stakeholders as a whole:
• Clarity – our Remuneration 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 Remuneration Policy has
been designed to reduce the risk of
inappropriate risk-taking through a variety
of measures: (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 (ie bonus
deferral, shareholding guidelines, malus/
clawback provisions);

• Predictability – our incentive plans are
subject to individual caps, with our share
plan 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
the office, industrial and logistics sectors
across the South East and London
combined with a number of successful
development projects and intensive
in-house portfolio management is fully
supported through performance metrics
in both the annual bonus and long-term
incentive schemes, which measure how
we perform against main KPIs that
underpin the delivery of our strategy.

McKay Securities Plc Annual Report and Financial Statements 2020Remuneration Committee Report continued
1. Annual Statement continued

used, details of the peer Groups for
unvested PSP awards can now be found
on the Company’s website.

• Careful consideration will be given to the
grant date and share price at which the
2020 PSP award is made to avoid
unintended windfall gains.

• Shareholding guidelines will remain at
200% of salary (albeit post cessation
guidelines will operate from the 2020
AGM as detailed above in respect of the
Policy changes).

Shareholder consultation in respect of
the new Policy
In formulating our revised Policy, the
Committee consulted with our ten largest
shareholders and the main representative
bodies. The Committee is grateful for the
level of support received for the proposals
which will be subject to shareholder approval
at the AGM.

Non-Executive Director fees
There will be no increase in Non-Executive
Director fees in 2020/21.

Conclusion
Implementation of the Policy for 2020/21
reflects the expected 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
revised policy and its implementation for
2020/21, and that you will therefore vote in
favour of the remuneration related
resolutions that will be tabled at the
forthcoming AGM.

Nick Shepherd
Chairman of the Remuneration Committee
8 June 2020

Proposed Changes to the Directors’
Remuneration Policy
After detailed consideration of the current
policy, and consultation with our independent
external advisers and with major
shareholders, the Committee is satisfied that
in general terms, the current Remuneration
Policy remains fit for purpose and well
aligned to both our strategy and
remuneration arrangements offered below
Board level. We are therefore proposing to
make a limited number of changes to
maintain compliance with good governance:
• The maximum pension contribution rate
of 20% of salary will be removed with
the intention that the pension contribution
for Executive Directors will be aligned
with the workforce (10%) by January
2023. 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 will be formalised and
introduced into Policy. Going forward,
Executive Directors will need to retain
shares equal to 100% of the shareholding
guideline (ie 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 will be updated
in line with best practice. Going forward,
deferred bonus/PSP awards will normally
vest at the normal vesting date, subject to
performance targets (where relevant) and
time prorating; and

• Malus and clawback provisions in the
bonus and PSP will be enhanced.

AGM shareholder approval
The Directors’ Remuneration Report
excluding the Policy will be subject to an
advisory shareholder vote at the AGM on
23 July 2020. The proposed Directors’
Remuneration Policy will be subject
to a binding vote at the same meeting.

This new Policy, subject to approval by
shareholders, will last for three years from
the forthcoming AGM or until another
Policy is approved in a general meeting.

Policy implementation for the year
ending 31 March 2021
The Committee has given careful
consideration to implementation of the Policy
(including the proposed changes) for
2020/21 to take account in particular of the
implications of Covid-19, including the risk
of windfall awards. As such, the following
changes are being proposed to the way the
Policy is implemented for 2020/21:
• There will be no base salary increases

•

for 2020/21.
In light of the FRC’s guidance in respect of
implementing the new UK Corporate
Governance Code, Executive Directors
have agreed to reduce their pension
provision by January 2023 so that they
are aligned with the workforce provision.
Any new Executive Director appointment
will receive a workforce aligned pension
immediately.

• The operation of the 2020/21 bonus

•

scheme will be reviewed in September
2020, at which time appropriate targets
will be set.
In the event that a NAV per share target is
adopted for 2020/21, or in subsequent
years, rather than adopting a ‘cross cycle’
NAV per share target growth range of
RPI +3% to RPI +10%, the Committee
anticipates setting targets in absolute
terms which reflect internal and external
forecasts. The removal of RPI will simplify
the targets, which will continue to be
appropriately stretching.

• 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 2021.

• 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 TSR
against the constituents of the FTSE
All Share Real Estate (Investment and
Services REITs) index, with minor
variations. Reflecting feedback received
in respect of the TSR comparator Groups

McKay Securities Plc Annual Report and Financial Statements 20202. Directors’ Remuneration Policy

• Our informal post cessation shareholding

guideline will be formalised and
introduced into Policy. Going forward,
Executive Directors will need to retain
shares equal to 100% of the shareholding
guideline (ie 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 has been
updated in line with best practice. Going
forward deferred bonus/PSP awards will
generally vest at the normal vesting date,
subject to performance targets (where
relevant) and time prorating; and
• Malus and clawback provisions in the
bonus and PSP have been enhanced.

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 long-term
performance share plan. The fixed portion of
remuneration comprises basic salary,
benefits and a payment in lieu of pension.

Policy scope
The Policy applies to the Chairman,
Executive Directors and Non-Executive
Directors.

Policy duration
Given that the current Directors’
Remuneration Policy Report (approved at
the AGM on 13 July 2017, receiving 99.56%
support) will shortly reach the end of its
three-year life, a new Policy will be put to
shareholders for approval at the 2020 AGM.
Subject to approval, the new Policy will apply
from that date for a maximum of three years.

Changes from the current Policy
As the Committee is satisfied that the current
Remuneration Policy remains fit for purpose
and well aligned to both our strategy and
remuneration arrangements offered below
Board level, we are only proposing to make
a limited number of changes to maintain
compliance with good governance.
Following consultation with the Company’s
major shareholders and the main
representative bodies, the Policy changes
being proposed and which are included in
the summary table overleaf are as follows:
• The maximum pension contribution rate
of 20% of salary has been removed.
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;
• Pension provision for current Executive
Directors will be reduced by January
2023 so that they are aligned with the
general workforce contribution rate;

McKay Securities Plc Annual Report and Financial Statements 2020Remuneration Committee Report continued
2. Directors’ Remuneration Policy continued

A summary of the Directors’ Remuneration Policy which will be taken to shareholders for approval at the 2020 AGM is as follows:

Purpose and
link to strategy

Operation

Maximum opportunity

Performance measures

To recruit and reward
executives of the quality
required and with
appropriate skills to
manage and develop the
Company successfully.

To provide appropriate
levels of benefits to
executives of the quality
required and appropriate
skills to manage and
develop the Group
successfully.

To provide appropriate
levels of pension
provision to executives of
the quality required and
appropriate skills to
manage and develop the
Group successfully.

To incentivise and reward
the delivery of the
Company’s strategic
objectives.

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 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).

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.

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).

n/a

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.

The aggregate value of any benefits

provided to any single Director will not

n/a

exceed £75,000.

New Executive Directors:

In line with the general workforce

contribution rate (as a percentage of salary).

n/a

Current Executive Directors:

The Executive Directors have agreed to

align their pension provision with the

general workforce by January 2023.

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 payout of more than

30% of the maximum portion of overall

annual bonus attributable to that measure,

with a sliding scale to full payout 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.

Element

Base
salary

Benefits

Pension

Annual
bonus

McKay Securities Plc Annual Report and Financial Statements 2020Purpose and

link to strategy

Operation

Element

Base

salary

To recruit and reward

Reviewed annually by the Committee, on the basis of the performance of the

executives of the quality

individual Executive Director and comparability with other similarly sized companies

required and with

appropriate skills to

Company successfully.

manage and develop the

Paid on a monthly basis.

within the sector and the market generally.

Benefits

To provide appropriate

levels of benefits to

The Company typically provides:

• Car allowance (paid monthly)

executives of the quality

• Medical insurance

required and appropriate

• Life assurance

skills to manage and

develop the Group

successfully.

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).

Maximum opportunity

Performance measures

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.

The aggregate value of any benefits
provided to any single Director will not
exceed £75,000.

n/a

Pension

To provide appropriate

Executive Directors can receive pension contributions to personal pension

levels of pension

arrangements or, if a Director is impacted by annual or lifetime limits on contribution

provision to executives of

levels to qualifying pension plans, the balance (or all) can be paid as a cash

New Executive Directors:
In line with the general workforce
contribution rate (as a percentage of salary).

n/a

the quality required and

supplement.

appropriate skills to

manage and develop the

Group successfully.

Annual

bonus

the delivery of the

Company’s strategic

objectives.

To incentivise and reward

Annual bonus plan levels and the appropriateness of measures are reviewed annually

Up to 100% of salary.

Current Executive Directors:
The Executive Directors have agreed to
align their pension provision with the
general workforce by January 2023.

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).

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 payout of more than
30% of the maximum portion of overall
annual bonus attributable to that measure,
with a sliding scale to full payout 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.

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
(eg 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. The Company seeks to apply the philosophy
behind this policy across the Company as a whole.
To the extent that the Company’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 Company as
a whole when setting the Executive Directors’
Remuneration Policy.

4. For the avoidance of doubt, in approving this Directors’

Remuneration Policy, authority is 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.

McKay Securities Plc Annual Report and Financial Statements 2020Remuneration Committee Report continued
2. Directors’ Remuneration Policy continued

A summary of the Directors’ Remuneration Policy which will be taken to shareholders for approval at the 2020 AGM is as follows:

Element

Purpose and
link to strategy

Operation

Maximum opportunity

Performance measures

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.

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.

Non-Executive
Director
fees

To attract and retain a
high-calibre Chairman
and Non-Executive
Directors by offering
appropriate fees.

The fees paid to the Chairman 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 Chairman’s fees determined by the Committee.

The Chairman 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.

In employment:

200% of salary.

n/a

Post employment:

100% of the shareholding guideline

(ie 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.

When determining fee increases, the

n/a

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

Chairman and Non-Executive Directors

will not exceed the limit from time to time

prescribed within the Company’s Articles

of Association (‘the Articles’) for such fees.

McKay Securities Plc Annual Report and Financial Statements 2020Element

Purpose and

link to strategy

Operation

Maximum opportunity

Performance measures

Performance

Share Plan

(‘PSP’)

To incentivise and reward

Awards under the PSP may be granted as nil/nominal cost options or conditional

the delivery of the

Company’s strategic

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.

objectives, and to provide

Part/all of vested awards may also be settled in cash. The PSP rules allow that the

further alignment with

number of shares subject to vested PSP awards may be increased to reflect the value

shareholders through the

of dividends that would have been paid in respect of any dividends payable falling

use of shares and to aid

between the grant and the release of shares.

retention.

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.

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.

Non-Executive

Director

fees

To attract and retain a

high-calibre Chairman

and Non-Executive

Directors by offering

appropriate fees.

The fees paid to the Chairman 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 Chairman’s fees determined by the Committee.

The Chairman 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.

n/a

In employment:
200% of salary.

Post employment:
100% of the shareholding guideline
(ie 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.

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
Chairman and Non-Executive Directors
will not exceed the limit from time to time
prescribed within the Company’s Articles
of Association (‘the Articles’) for such fees.

McKay Securities Plc Annual Report and Financial Statements 2020Remuneration Committee Report continued
2. Directors’ Remuneration Policy continued

Malus and clawback provisions
Malus and clawback provisions operate in
respect of the annual bonus and PSP:
• materially misstated its 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 Company, as well as the
relevant general markets. The Committee
does not formally consult with employees
when determining remuneration of the
Executive Directors. However, the
Committee takes due account of employees’
views when determining the design of the
Company’s senior executive Remuneration
Policy.

The new desNed appointment in April 2019
has increased the opportunity for employee
feedback.

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 Company 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 (ie malus and clawback
provisions, shareholding guidelines,
bonus deferral and post vesting holding
periods on PSP awards).

Chief Executive Officer (£’000)

Chief Financial Officer (£’000)

Property Director (£’000)

£1,508

£1,306

12%

£803

13%

25%

£500

31%

28%

31%

27%

£855

£987

14%

31%

26%

31%

27%

£272

£735

£850
14%

£446
13%
26%

32%

27%

31%

27%

£526
13%
25%

£328

100%

62%

38%

33%

100%

62%

38%

33%

100%

61%

37%

32%

Minimum

On-target

Maximum

Fixed pay

Annual bonus

Maximum
with share
price growth

Minimum

On-target

Maximum

Fixed pay

Annual bonus

Maximum
with share
price growth

Minimum

On-target

Maximum

Fixed pay

Annual bonus

Maximum
with share
price growth

Long-term incentive plan

Share price

Long-term incentive plan

Share price

Long-term incentive plan

Share price

Assumptions:

Basic

Target

Maximum

Maximum with share price

• Consists of base salary

to be paid in 2020/21 and
estimated values for
benefits and pension

• Fixed Pay: As per Basic
• Annual Bonus: 50% of maximum
opportunity of 100% of salary
• PSP: 25% vesting of awards of
100% of salary under PSP

• Fixed Pay: As per Basic
• Annual Bonus: 100% of base

salary

• PSP: 100% of salary under PSP

• As per the maximum scenario
albeit with a 50% share price
growth assumption on the
PSP awards

McKay Securities Plc Annual Report and Financial Statements 2020on 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 cessation of office or employment.

Annual bonus may be payable with respect
to the period of the financial year served
although it will normally be prorated
and paid at the normal payout 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.

As such, the Committee remains satisfied the
controls and procedures in place to mitigate
remuneration-related risks for Executive
Directors and employee population more
generally are appropriate and proportionate.

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 Chairman. At present no
Executive Director holds any such external
appointments.

Remuneration scenarios for
Executive Directors
The charts opposite illustrate how the
composition of the Executive Directors’
remuneration packages varies at four
performance levels, namely, at basic
(ie fixed pay only), target, maximum and
maximum plus share price growth.

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
G Salmon
T Elliott

16 March 2004
2 May 2011
8 July 2016

The Non-Executive Directors have rolling
terms of appointment, providing for them to
retire by rotation in accordance with the
Articles. In line with the 2018 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
J Austen
N Shepherd
J Bates

1 May 2014
8 July 2016
21 January 2015
17 January 2017

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 takes 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 have
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. 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

McKay Securities Plc Annual Report and Financial Statements 2020Remuneration Committee Report continued
3. Annual Report on Remuneration

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 – Chairman
J Austen
J Bates
R Grainger

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

N Shepherd
J Austen
J Bates
R Grainger

Number of
meetings attended

2 out of 2
2 out of 2
2 out of 2
2 out of 2

External advisers
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 or individual
directors. Total fees paid to FIT in respect of
its services to the Committee during the year,
based on time and materials, were £50,095
excluding VAT. 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.

Directors’ remuneration for the year ended 31 March 2020 (audited)
The remuneration of the Directors for the years 2020 and 2019 was as follows

Directors’ remuneration4

Executive
S Perkins

G Salmon

T Elliott

Non-Executive
R Grainger

J Austen

J Bates

N Shepherd

Total Directors

Fees/salary fees
£’000

Benefits
£’0001

Pension
including salary
supplement
£’000

Annual
bonus
£’000

Value of
long-term
incentives
£’000

Total
remuneration
£’000

403
395

264
259

231
227

90
90

46
45

41
40

46
45

27
28

31
34

26
27

–
–

71
69

43
42

26
25

–
–

235
252

154
165

135
144

–
–

2020
2019

155
61

102
40

89
33

–
–

891
805

594
540

507
456

90
90

46
45

41
40

46
45

2,215
2,021

Notes
1. Benefits comprise car allowance and medical insurance.
2. 8% of the 2020 bonus figures presented above will be deferred into shares for three years.
3. The values for long-term incentive provision in the table above were based on the average three-month share price at 31 March 2020 of £1.75.
4. No payments were made to Directors for loss of office during the year.

Prior year LTIPs
The table below shows the change in value between the year end and the vesting date.

S Perkins
G Salmon
T Elliott

Value at
31 March 2019
£’000

61
40
33

Value at
vesting
£’000

62
41
33

McKay Securities Plc Annual Report and Financial Statements 2020Annual Bonus
The annual bonus for the year ended 31 March 2020 was based on the following NAV per share targets, EPS and strategic targets:

Weighting

% of salary
maximum

30%
45%
25%

100%

Metric

NAV growth
EPS growth
Strategic targets

Total

Strategic targets

Target

1. Rent collection
2. Voids (excluding developments)
3. Tenant retention
4. Development progress
5. Sustainability Strategy and H&S delivery

Total

Threshold

Maximum

Actual

% of maximum

% of salary

RPI +3%
90%

RPI +10%
110%