Mckay Securities Share Discussion Threads

[nil desperandum] 19/11/2013 23:14

Hmmm yes, badly worded I think. Take a look at note 7 sub-note 5.
"5The counter party bank has given notice these breaks will be exercised."
I too am surprised that the notice period is so long, but it is a very long dated swap so a lengthy notice period would be in order I guess.

[scburbs] 19/11/2013 22:55

You don't exercise a 2016/17 market value break in 2013. Rumour has it that things could change in the meantime! Something missing here.

"Credit breaks were exercised by the counter party bank during the period in respect of £30.00 million of this notional sum, with expiries in 2016 and 2017." (this is a break not a notification of an intention to break).

[nil desperandum] 19/11/2013 22:26

No, they have indicated that they will break in Jan 2016 (£25m) and Dec 2017 (£5m). They may still offer to break earlier at reduced cost ... or the company may choose to hang on since the MTM's are heading in the right direction.

[scburbs] 19/11/2013 22:17

Instead they have broken at market value in 2013?

There was never any chance of them breaking at par in 2014 as that would be silly given the size of the liabilities, but how can they break at market ahead of the option to break at par? Presumably the disclosure has been incomplete and they have been able to break at market sooner than expected? If they have notified the break now are they breaking at current market or the market position come the break date in 2016? If it is the later why would they exercise now?

[nil desperandum] 19/11/2013 22:09

the bank could break in 2014 at par but unsurprisingly really has chosen not too - shame ;-)

[scburbs] 19/11/2013 22:02

Good to get more information on the swaps, but what is going on with the break clauses? There was an option to break at par in 2014 and an option to break at market from 2016. Looks like positive news, but rather inconsistent with previous disclosures!

"Provision is made within the terms of the financial instruments for the counterparty bank to terminate the instruments by invoking credit breaks, the first of which is in 2016. If such a credit break were exercised, a payment would be made between the parties dependent on market value at that time. The instruments also provide the counterparty bank with additional break options from 2014. Should these breaks be exercised, there would be no payment liability on the Group. The Group does not hold or issue derivative financial instruments for trading purposes."

[grahamburn] 19/11/2013 20:58

An "optimal capital structure for the Group" presumably refers to the balance (proportions) of equity finance to debt. So, the phrase may well refer to a return of capital to shareholders, rather than a fundraising. This may be connected to how the swaps are dealt with in the next few months.

[ursus] 19/11/2013 13:40

speedsgh - capital raising?

[speedsgh] 19/11/2013 11:11

What are they alluding to here re capital structure of the Group?

"The Group is well placed to deliver gains from its existing portfolio, supplemented by recent and potential acquisitions. In the light of these market opportunities, the Board will continue to assess the optimal capital structure for the Group."

[alanji] 19/11/2013 10:03

Very upbeat interims with the nav up, as expected.
Swap liabilities have (finally) been fully disclosed. The company has been given notice that the counterparty intends to exercise their break in 2016 (for £25m) and 2017 (for £5m). The current liability on these contracts is 13pps which, given the likelihood of increases in long term interest rates, is likely to decrease further before 2016. The first break clause on the £75m contract is 2022. This gives an adjusted EPRA nav, diluted, of 237pps (250p less the 13p liability) – a 16% discount to the current 200p offer price. Note also the following statement:
"In the meantime there is a regular dialogue with the two counter party banks to explore a range of scenarios, including the cost of cancelling or reconfiguring all or part of the notional sum."
The banks will be keen to get these contracts off their books and MCKS is very unlikely to agree a settlement unless it is substantially less than the current liability.

Also expected was the reduction in eps (to 3.54p, a bit lower than I had hoped), caused by the sale of Bothwell Street and higher rates on the swaps. However, the expiry of letting incentives will increase future eps by about 5.7pps. The final increase in swap rates in March will increase costs by about 0.6pps. On an ongoing basis I would hope for EPRA eps of at least 11p, ignoring any upward rent reviews or new lettings. The current dividend is 8.5p giving a yield of 4.3% As a REIT the company is required to distribute at least 90% of its property income (not the same thing as EPRA eps). I am not now expecting this year's final dividend to be increased (perhaps a very small amount) but indications are that it will not be reduced.

Highlights:
The external valuation of the portfolio secured an £8.49 million (3.9%) increase in value

Income retention from the portfolio remains an important priority and over the period, eight out of twelve tenants remained in occupation at lease break or expiry. This maintained a high tenant retention rate and secured annual rents totalling £1.14 million; 8.1% ahead of our valuers' estimated market rental value.

New income was generated over the period with two new leases at a combined contracted annual rent of £0.18 million, which was 12.1% ahead of estimated market rental value.

Over recent periods, valuation gains have come mainly from our London office portfolio. However, over the last six months performance has been more balanced with our London and South East office properties increasing in value by 4.8% and 2.9% respectively, and our industrial properties increasing by 4.8%.

At 30thSeptember 2013, the initial yield of the portfolio was 5.6% increasing to 6.8% on contracted rents once letting incentives expire. The potential reversionary yield was 7.2%

[janeann] 16/11/2013 18:37

Telegraph today talks about commercial property having further to go; all bodes well for mcks

[ruethewhirl] 11/11/2013 22:52

Rue likes.

[housemartin2] 05/11/2013 12:05

What - new lettings with no rent free period ?? Whatever next !
( maybe they just forgot to mention it)

[alter ego] 05/11/2013 08:57

yes, I thought of this as a rather pedestrian holding with a decent yield but it's getting a bit more exciting than I expected.

[janeann] 05/11/2013 08:10

Tha market liked the news today - surprised such a mark up in price but all very positive imho

[alanji] 16/10/2013 10:01

As I am now very overweight (thanks to the recent rises) I have done a bit more research. Obviously the swap liability is hanging heavily over the co. My understanding is:
Bank option to terminate with no payment in 2014
Earliest bank option to terminate with full payment:
£25m - 2016
£5m - 2017
£75m - 2022

At March the swap liability on the £75m was £30.8m or 67pps. The liability on the other £30m was 21pps. The bank is likely to exercise its option in 2016 (£25m) and 2017 (£5m). By that time long term rates are likely to have increased so the liability may well be much reduced – as at 12 July the liability had decreased by 16pps – so the nav is now 170pps, before swap add back. On a pessimistic view, if 15pps is payable in 2016, the adjusted nav at 31 March would be 223pps. With the share price at 182p, an 18% discount. With the dividend at 8.5p the yield is just under 5% and with the adjusted eps of 11.8p there is a fair chance it will increase. The swap rates increase in the current year and next year and refinancing in 2016/17 is likely to be more expensive but hopefully the new acquisitions, lettings and lease renewals will cover this.

I have decided to hold until the Nov interims, subject to moves in the share price

[patviera] 11/10/2013 21:59

Lord Gnome
sold 20/- at 177
got 160/ left in isa
on 182 offer in 20/- and will sell into 5p rises as think we are worth 200p so that way i will get a 195ish avge

[lord gnome] 11/10/2013 11:23

Looks like you've got your price patviera. I'll hold for a while or two yet. That chart is starting to look very horny.

[patviera] 09/10/2013 21:47

cos i bought at 120p
cos the nav is 220p
rates arent going up for a while so we still got derivative loss
never wrong to take a profit
sell 20pct at 175 and on 5p rises?
got 180/- so will have to sell on blue,,,easier that way

thoughts?

[patviera] 09/10/2013 21:41

tempted to sell at 175
any views?

[coolen] 09/10/2013 21:38

chart breakthrough pending ?

[yupawiese2010] 09/10/2013 11:23

Another large purchase just gone through 57,880 at £1.7185, likewise not me unfortunately !

[janeann] 05/9/2013 14:52

Looking strong today and someone has just paid 159 for a mere 94800 shares; not me unfortunately!