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Town Centre Securities PLC  -  TOWN   

Final results for the year ended 30 June 2018

Released 07:00 26-Sep-2018

RNS Number : 9162B
Town Centre Securities PLC
26 September 2018
 

 

Wednesday 26 September 2018

 

TOWN CENTRE SECURITIES PLC

('TCS' or the 'Company')

Final results for the year ended 30 June 2018

 

STRONG PORTFOLIO MANAGEMENT DRIVES 6.8% INCREASE IN NAV

 

Town Centre Securities PLC, the Leeds, Manchester, Scotland, and London property investment, development and car parking company, today announces its audited final results for the year ended 30 June 2018.

 

Financial highlights

·     Net assets:

EPRA net assets per share up 6.8% at 384p (2017: 359p)

·     Dividends:

Full year, fully covered, dividend increased to 11.75p (2017: 11.50p)

TCS has now held or improved its dividend every year for the past 58 years

·     Profits and earnings per share:

Statutory profit before tax £18.4m (2017: £6.7m) and statutory earnings per share 34.6p (2017: 12.7p), reflecting portfolio revaluation gain and disposals

EPRA profit before tax down 1.9% to £6.9m (2017: £7.0m), due to timing of strategic disposals

EPRA earnings per share down 1.9% to 13.0p (2017: 13.2p)

·     Financing:

Headroom of over £30m following Merrion House financing and Ducie House purchase in July 2018 (2017: £12m)

Loan to value of 47.5% as at 30 June 2018 (2017: 49.3%), and proforma LTV of 45.3% post Merrion House financing in July 2018

 

Operating performance

·     Total property return of 9.4% (2017: 6.0%) vs MSCI (IPD) All Property 9.3% (2017: 5.5%)

·     Passing rent up 4.1% like for like ('LFL')

·     Investment portfolio (inc. Joint Ventures) initial yield at 5.7%, with reversionary yield at 6.4%

·     Overall LFL portfolio valuation up 3.2% (2017: unchanged)

·     LFL investment property valuation increase of 0.5% (2017: decrease 1.4%), LFL development property increase of 33.9% (2017: 20.1%)

·     Occupancy remains high at 95% (2017: 99%), although lower level reflects newly created units now being marketed and a temporary vacancy in Scotland whilst we redevelop and improve the asset

 

Operational highlights

·     Leeds portfolio strengthened:

Continued Merrion Centre development further enhances its mixed-use status

Merrion House, a 170,000 square foot office, completed and fully occupied by Leeds City Council ('LCC'), our joint venture partner

New leisure units created as part of Merrion House development now being marketed.

Recent acquisition of The Cube, a high yielding mixed use property

TCS in process of entering into new Joint Venture with LCC for development of an apart-hotel on George Street alongside Victoria Gate and Leeds City Market

·     Piccadilly Basin site in Manchester further enhanced:

Purchase of Ducie House, a 33,000 sqft multi-let office, includes a car park with future development potential

Burlington House residential joint venture construction is underway, on time and on budget, with completion scheduled for May 2019

Eider House residential scheme has full planning approval and construction is anticipated to begin in 2019

·     Strategic repositioning of the portfolio continues:

Seven properties sold 6% above valuation for over £32m in the last two years, with three of those sold for £10.1m in the last financial year

Ducie House in Manchester purchased in the last financial year for £9m

Three further properties purchased since the year-end; The Cube, Leeds for £12m, a property in Chiswick, London for £1.6m and on Gordon Street, Glasgow for £2.4m

Following sales, acquisitions and developments in the last two years, the proportion of retail and leisure units in our portfolio has reduced from 70% to 55%

·     Development pipeline opportunity further enhanced:

The acquisition of the car park attached to Ducie House, Manchester adds another development opportunity in Piccadilly Basin

The estimated total potential Gross Development Value of the Company's pipeline now stands at over £580m

·     CitiPark business continues to grow organically:

Income up 5% year on year - despite business rates increasing, operating profit up 3.7%

Yourparkingspace.co.uk investment now at 15% equity stake, and we are supporting the Company as it looks for further growth capital

·     Innovative financing deal, and bank refinancing increased available capital and reduced leverage:

New financing arrangement for Merrion House agreed with Leeds City Council resulting in TCS receiving £26.4m in cash in July 2018

All three bank facilities extended or renewed with improved terms. Average bank maturity increased to 4.3 years

·     New Property Director appointed:

Lynda Shillaw (formally Divisional Chief Executive Officer, Property at Manchester Airports Group) appointed to replace Richard Lewis as TCS Property Director

 

Commenting on the results, Chairman and Chief Executive Edward Ziff, said:

 

"The business has undergone considerable change in recent years as part of a strategy to reposition the portfolio, ensure a resilient income stream, and to unlock growth for the future. In the past two years we have reduced our exposure to retail and leisure from 70% to 55% of the portfolio. We are very pleased with the progress made and feel confident about the future.

"In those two years we have disposed of over 8% of the portfolio, during which time we have managed to hold EPRA profitability broadly flat and have increased NAV by 8%. Furthermore, we have strengthened the balance sheet, improved our banking facilities and lowered leverage. Our recent financing activity increased capital headroom, however we continue to explore new capital raising options in order to facilitate our significant development pipeline."

 

-Ends-

 

 

 

For further information, please contact:

 

Town Centre Securities PLC                                                                        www.tcs-plc.co.uk / @TCS PLC

Edward Ziff, Chairman and Chief Executive                                                                         0113 222 1234

Mark Dilley, Group Finance Director      

 

MHP Communications                                                                                                              0203 128 8100

Reg Hoare / Alistair de Kare-Silver                                                                                          tcs@mhpc.com

 

 

Chairman and Chief Executive's Statement

We have delivered considerable change in the last year, making great progress in our strategy of reshaping the portfolio in order to ensure on-going strong returns. With asset recycling, strategic purchases, and the continued exploitation of our development pipeline we have been able to deliver an overall portfolio valuation increase of 3.3%. In addition, like-for-like ERV is up 1.6%. I am very proud of our unbroken, now 58-year, history either maintaining or increasing our dividend.

Portfolio performance

The total like for like valuation of the portfolio is up 3.2% year on year (FY17: unchanged)

The like for like increase in the value of our investment property portfolio (including Joint Ventures) this year has been 0.5% (2017: decrease of 1.4%) which reflects a reversionary yield of 6.4% (2017: 6.5%). The like for like increase in development property is 33.9% (2017: 20.1%). The Total Property Return is 9.4% (2017: 6.0%).

The investment properties, developments, joint ventures and car parks value at the year-end stood at £403.5m (2017: £381.1m).

Results

Net assets and EPRA net assets at 30 June 2018 were £204.1m, representing 384 pence per share (2017: £191.1m, 359 pence per share). This represents an increase of 6.8% year on year.
 

We report a statutory profit for the year of £18.4m (2017: £6.7m) which includes the property revaluation surplus of £9.8m this year (2017: deficit of £1.1m).


Our EPRA profit before tax of £6.9m (2017: £7.0m) (excluding property revaluation and property disposals) is in line with expectations following strategic disposals and the effect of the redevelopment of our Milngavie, Scotland property. CitiPark's operating profit (before funding costs) was up 3.7%.

Statutory earnings per share (including property revaluation and property disposals) were 34.6p (2017: 12.7p). EPRA earnings per share were 13.0p (2017: 13.2p).

 

Dividends

The Board is recommending a final dividend of 8.50p per share, which, with the interim dividend of 3.25p per share gives a total of 11.75p (2017: 11.50p).

The final dividend of 8.50p is entirely a Property Income Distribution. The final dividend will be paid on 4 January 2019 to shareholders on the register on 7 December 2018.

Improving leverage and securing on-going financing

Over the last year we have extended or renewed all our bank debt facilities. Following the bank refinancing we have £108m of revolving credit facilities with average maturity of 4.3 years including extensions.

 

Furthermore, in July 2018 we announced the completion of an innovative financing agreement with Leeds City Council ('LCC') in respect of our joint venture investment in Merrion House. The joint venture nature of the asset made it a challenge for us to leverage the significant value created in this asset. The innovative agreement with LCC is similar in nature to a Credit Tenant Loan where we effectively borrow against the income stream provided by the 25-year lease to the council. As a result, TCS received net cash of £26.4m in July 2018. Further details can be found in the Finance Section.

 

Following the extension and renewal of our bank debt facilities and including the effect of the Merrion House financing and Ducie House purchase, our borrowing headroom stood at over £30m at the end of July 2018.

 

Net debt at 30 June 2018 amounted to £192.6m (2017: £188.8m). This comprised £105.9m (net of £0.2m of unamortised arrangement fees) of 5.375% First Mortgage Debenture Stock 2031 and £108m of revolving credit facilities, of which we had drawn £87.8m at the year end. Finance leases of £4.4m, and net of cash of £5.5m make up the remaining balance. The increase in the level of net debt is principally due to capital expenditure on the development schemes. Borrowings represent 47.5% of property values (2017: 49.3%).

This reported loan to value ('LTV') is impacted by the fact that the year end balance sheet includes the full value for the Ducie House and recognises the sale of Princes Street, although the cash was not transferred until July.

In addition, the new Merrion House financing arrangement which completed in July further improves LTV and leverage.

Adjusting for all these items, the pro-forma LTV drops to 45.3% (2017: 49.3%) and leverage drops to 81.7% (2017: 96.5%). A more detailed analysis can be found in the Finance section.

We are particularly pleased with the re-financing activity undertaken, which has the combined effect of providing longer term borrowing security, lowering LTV and leverage, and providing the Company with funds for future investment.

Creating Places in Leeds and Manchester

Leeds and Manchester combined represent 74% of the portfolio by value and remain core to the strategy and growth prospects of the business. In the last 12 months significant progress has been made in further strengthening our regional presence:

Leeds:

The Merrion Centre is the Company's largest single asset. This is now a true mixed-use asset and with the re-development of the Merrion House office and the ibis Styles hotel, the dependence on traditional "mall" retail income has reduced to less than a quarter of the total.

The Company is in the process of developing plans to consider building a new office tower above part of the centre, in the on-going delivery of its long-term plans for further diversification. In the meantime, footfall and rental income continue to be strong with underlying LFL rents up 2.0%, increasing to 13.4% with the inclusion of Merrion House.

In addition, the Company has:

·     completed the development and occupation of Merrion House with our joint venture ('JV') partner and tenant Leeds City Council.

·     Created three new ground floor units as part of the Merrion House development.

·     exchanged contracts to acquire The Cube, 123 Albion Street in Leeds. Completion is expected on 1 October 2018. The purchase price of £12m represents an initial yield of over 12.5% on the passing income. With lease expiries in 2019 and 2020 the yield will reduce to around 9%, a strong and sustainable return for a city-centre asset. This is not included in the year-end portfolio. This acquisition further diversifies the portfolio, and will enable further asset disposals.

·     agreed to enter into a joint venture with Leeds City Council for construction of an apart-hotel with retail units on George Street, alongside Leeds City Market and Victoria Gate. We expect work to commence in early 2019.

·     been developing plans to update and improve the central Leeds Vicar Lane island site, following our acquisition of 100% ownership of the site in June 2017

Manchester:

Piccadilly Basin is the Company's most significant development opportunity and will drive future income and capital growth. Important progress has been made with this strategic site in the last year. This includes:

·     Construction of our Burlington House residential development, is proceeding to time and budget. This scheme, being developed in joint venture with our partner Highgrove Group, will be held for private rental sector use, with completion targeted for May 2019.

·     We are planning on beginning work on the next residential development, Eider House, in 2019.

·     The acquisition of Ducie House has now completed. Ducie House is a 33,000 sq ft office building and effectively increases the size of our Piccadilly Basin site. In addition to gross annual income of £675,000, the plot includes a 63-space surface car park which provides a further development opportunity for the Basin.

Continuing to reposition the portfolio

Since June 2017 we have sold another three properties. In Edinburgh we have sold 1-23 Shandwick Place for £6.3m in line with valuation, and also a retail unit on Princes Street for £3.3m significantly ahead of valuation.  We also sold a retail unit in East Kilbride for £0.5m again well ahead of valuation. In the last two years we have sold seven properties raising over £32m in proceeds with all properties selling at or above valuation, averaging 6% above book value.

Furthermore, since June 2018, we have continued to be active in further improving our portfolio:

·     We have completed the purchase of Ducie House, Manchester, as highlighted above, and included in our year end portfolio.

We have also either completed or exchanged contracts on a further three property acquisitions as follows (none of which are included in our year-end portfolio):

·     We have exchanged contracts to acquire The Cube, 123 Albion Street in Leeds, as highlighted above.

·     We have completed the acquisition of a property on Chiswick High Road in London for £1.6m. The property comprises a long-standing florist in the ground floor retail unit with two 2-bed apartments above. The net initial yield is 4.6% with ERV opportunity to get to above 5%.

·     We have completed the acquisition of a retail unit on Gordon Street, Glasgow, let to Mountain Warehouse. This unit is adjacent to our Buchanan Street ownership in this extremely popular part of the city. At a purchase price of £2.4m this unit will deliver a 5.25% net initial yield.

These purchases fulfil the dual purpose of continuing to build and diversify the portfolio, whilst also creating new sources of income which will enable future sales of more mature assets within our current portfolio without impacting historic income levels. We continue to critically review our portfolio with the aim of recycling assets where we believe we have maximised our return. The cash raised from the Merrion House financing has enabled this more proactive portfolio management.

In addition to these purchases, and as highlighted earlier we have made good progress with our development pipeline with the completion of Merrion House, Leeds, the on-going construction of the residential building Burlington House, Manchester, and the appointment as joint venture partner with Leeds City Council for the George Street, Leeds apart-hotel development.

These ongoing changes reflect our continuing strategy to reposition and rebalance the portfolio, in particular given the challenges being seen in certain parts of the retail environment. The changes already delivered have seen the proportion of the portfolio represented by retail and leisure reduce from 70% to 55% in the last two years.

We remain, where appropriate, committed to investing in retail property, and the strength, for example, of our retail assets in Glasgow and Milngavie, are testament to the capital and income returns that can be derived from good quality retail assets. Nonetheless the retail environment is challenging and changing and therefore we are clear about our strategy in relation to our portfolio, specifically by:

·     Ensuring we create retail and leisure destinations.

·     Broadening our portfolio, increasing the proportion of leisure, offices and residential.

·     Having a predominantly regional focus, but continuing our approach of targeted investments in suburban London

Growing our development pipeline

Over many years we have built up a development pipeline of significant quality and value. This pipeline gives the business a clear and significant opportunity to grow over time. The quality of the pipeline is reflected in the on-going increases in its valuation recognised by our valuers, with a 33.9% increase in value this past year.

The current pipeline has an estimated Gross Development Value ('GDV') on completion of £588m, with the majority of the developments already being part of the relevant local government approved Strategic Planning Frameworks or actually in possession of detailed planning permission.

The key components of the pipeline include:

·     Piccadilly Basin, Manchester. Mixed residential, commercial, and car-parking with a total estimated GDV of over £300m.

·     Whitehall Road, Leeds. Office, car-parking, and potentially leisure provision with a total estimated GDV of over £150m.

·     Merrion, Leeds. Office and residential towers with a total estimated GDV of over £90m.

·     George Street, Leeds. Apart hotel with an estimated GDV of £10m

Unlocking these opportunities over time will require capital and we continue to explore how we might fund these future developments.

CitiPark continues to grow Revenue and Profits

Our car parking business goes from strength to strength and has seen income grow by 5% and profitability grow by 3.7% despite increases in business rates. We continue to innovate in technology including advances in the year in online booking, new car park management systems, and Automatic Number Plate Recognition barrier-less and cashless systems. EV charging is available in all branches and we continue to increase our provision in this area. We are in the process of installing a DC Rapid Charger in the Merrion Centre car park which can provide a full charge in 20 minutes, the first of its type in Leeds City Centre.

Crucially for the wider business, CitiPark represents a powerful way to generate income from our property development portfolio which would otherwise be sitting idle. Of the £4m operating profit (before revaluation) reported c.40% was generated from the development sites.

We continue to work closely with Yourparkingspace.co.uk, the online parking service that matches available spaces with drivers. We now own a 15% stake in the business with options to extend this, and our close working partnership benefits both businesses. We continue to be a strategic partner in the start up's growth and expansion plans.

Recruitment and Succession Planning

Recent years have seen a significant amount of well planned and seamlessly executed change around the Board table. I have been in discussion with our Property Director Richard Lewis for some time regarding his desire to retire. Richard has been with the Company for 18 years and joined the Board in 2001. His contribution has been outstanding, beginning with the construction and sale of No1 Whitehall Riverside in Leeds, the continued development of Piccadilly Basin in Manchester, and most recently the re-development of Merrion House in Leeds. We will miss Richard and wish him a long, happy, and healthy retirement.

With Richard's decision to retire we have been fortunate enough to be able to appoint Lynda Shillaw as the new Property Director. Lynda joins Town Centre Securities from Manchester Airports Group ('MAG') where she has served as the Divisional Chief Executive Officer, Property since June 2014. Lynda is a member of the MAG Executive Committee, responsible for MAG's £525m Investment portfolio and 1,000-acre development land bank across its 4 UK airports, and also MAG's interest in the £1bn Airport City Joint Venture.  Prior to MAG, Lynda has been Director of Real Estate at Scottish Widows Investment Partnership, Managing Director and Global Head of Corporate Real Estate for Lloyds Banking Group, Managing Director of Co-Operative Estates, and Director of Property at BT plc. Lynda holds Non-Executive Director positions on the board of the Crown Estate and VIVID housing association. Lynda joins the Company and Board in November 2018.

We are very excited with Lynda's appointment, and see this as another key component of the Company's future growth plans.

Outlook

The business has undergone considerable change in recent years as part of a strategy to reposition the portfolio, ensure a resilient income stream, and to unlock growth for the future. In the past two years we have reduced our exposure to retail and leisure from 70% to 55% of the portfolio. We are very pleased with the progress made and feel confident about the future.

In those two years we have disposed of over 8% of the portfolio, during which time we have managed to hold EPRA profitability broadly flat and have increased NAV by 8%. Furthermore, we have strengthened the balance sheet, improved our banking facilities and lowered leverage. Our recent financing activity increased capital headroom, however we continue to explore new capital raising options in order to facilitate our significant development pipeline."

 

Edward Ziff OBE DL

Chairman and Chief Executive

 

CREATING PLACES IN LEEDS

Our properties in Leeds comprise 60% of our overall portfolio. As a city Leeds continues to go from strength to strength.

Leeds - The Arena Quarter & The Merrion Centre

 

Square feet

Passing rent

ERV

 

000s

£'m

%

£'m

Office

                  283

3.3

29%

3.3

Mall Retail

                  134

2.7

23%

2.8

Leisure

                  179

2.2

19%

1.8

Car Parking

                  271

1.6

14%

1.8

Morrisons

                    60

1.2

10%

1.2

Hotel

                    80

0.6

5%

1.0

 

1,007

11.6

100%

11.9

 

The Merrion Centre has been transformed over the last 10 years from a shopping centre to a true mixed-use destination property. With over £40m of capital invested by TCS in the last five years to ensure that the Centre is reinvented and remains relevant, we have seen valuations improve by over £62m, and ERV increase by 21% over that timeframe.

Retail Mall income now accounts for less than a quarter of the Centre's income, with key drivers of the shift to a multi-use destination being:

·   Re-development of Merrion House into a state-of-the-art main office for Leeds City Council, including the creation of three new leisure units currently being marketed

·   Opening of the ibis Styles hotel with restaurant

·   Creation of the Arena Quarter leisure front to serve customers visiting the Leeds First Direct Arena

·   Extension and improvement of the anchor Morrisons supermarket

·   Modernisation and redesign of the 950 space Merrion Centre Car Park

Footfall continues to be strong and we welcomed 11.7m visitors in the year. With the full opening of Merrion House we expect all our tenants to benefit from over 2,000 council employees and the significant number of members of the public who will be visiting their customer hub.

Overall like for like rent in the Merrion Centre was up 13.4%, albeit this includes the increase in Merrion House following the full occupation of the office. Excluding this LFL rent was up 2.0%.

The combination of the Leeds Arena and a strong and growing student population makes the Merrion Centre an obvious destination, particularly in terms of the leisure offer. The popular supply of local restaurants including the long-standing Japanese institution Fuji Hiro, Bulgogi (the first Korean grill in Leeds) and My Thai which recently won "Best Restaurant in Leeds" in the British Restaurant Awards, provides a vibrant night time economy.

Occupancy levels in the Centre remain high at 97%, and the mall's focus on convenience and discount retailing protects us from much of the disruption being seen on the high street. The one exception to that has been Poundworld going into administration. However, the strength of the unit in the Merrion Centre has meant that our store has been one of a small handful that have been sold to Iceland, with the lease being assigned with no change in terms.

Our ibis Styles hotel has now been open for over a year and has traded very strongly, beating expectations both in terms of rooms sold and room rate achieved. The restaurant has under-performed against expectations, and we are in the process of re-launching the restaurant creating a more bespoke local offer. The success of surrounding independent restaurants gives us reassurance that the demand is there, but that our offer to date has not been right. Although there will be costs in the coming year to relaunch the restaurant we are confident that we will see a strong step up in performance.

There remains considerable latent opportunity within the Merrion Centre which we believe provides a platform for future growth, and we are currently working on plans for the first stage of the next 10-year plan. These opportunities include:

·   Building a 16-20 story office tower above the currently unused old Merrion Cinema

·   Redeveloping the existing Wade House office, potentially in a manner similar to Merrion House

·   Building an office / residential tower on the Merrion Street / Woodhouse Lane corner of the Centre

We are at an early stage with these developments but are in the process of developing detailed architects plans for the Cinema Tower in conjunction with town planners and potential tenants.

Merrion House

The completion, occupation and refinancing of Merrion House marks a significant moment for the Company, and it is worthy of a summary of the journey we have been on:

- Originally a deteriorating 1970's office building occupied by Leeds City Council ('LCC') and valued at £20m at the beginning of the project, producing £1.4m pa rental income.

- In October 2013 TCS and LCC enter into a joint venture to redevelop the building

- Plans agreed to update and extend the building adding 50,000 additional square feet to create a 170,000 square feet state of the art principal office for LCC

- With a sale of a 50% share of the building to LCC and a modest c.£5m cash investment by TCS, the input of cash from LCC enabled the work to get underway in March 2016

- The £33m capital project was delivered on time and on budget with practical completion effected in January 2018

- During the full period of the build TCS continued to receive £0.7m pa rental income from the council under the terms of the existing lease.

- At completion LCC entered into a new 25-year lease with capped RPI increases, and through the Joint Venture TCS began to receive £1.7m pa as its share of rental income from the new lease.

- Following completion and occupation the new building is valued at June 2018 at £69.4m of which half consolidates into TCS

- In July 2018 TCS completed a refinancing agreement with LCC effectively monetising the base rental streams of the 25-year lease, providing TCS with £26.4m of net cash after costs.

In addition, as part of the build TCS has also created three leisure units on the ground floor totalling 9,000 square feet, with an ERV of £0.2m. These units are currently being marketed with an expectation that Pizza Express will occupy one of the units.

Leeds - Retail

We own three properties in the retail centre of Leeds. Consistent with the strategy elsewhere in our portfolio wherever possible we look to develop ground floor retail / leisure units with residential above.

We announced last year the acquisition of the remaining 50% of Buckley House on Vicar Lane, with the Company now owning the entire island site immediately outside the Victoria Gate shopping centre and the Leeds City Market. This is a prime site and early scoping suggests a significant opportunity for income and capital value improvement. Currently this is a multi-tenanted property and therefore development is likely to take some time, however the longer-term growth opportunity is clear.

Intensive asset management continues to be a key element of our strategy, and recent changes highlight the value that can be created. For example, in our Central Road property a development in the basement has allowed our tenant The Travelling Man to expand his shop floor, increasing rental income for TCS by £24k. Similarly, as previously announced we have also developed the basement of our Vicar Lane property allowing Michelin starred chef Michael O'Hare to re-site and increase in size his "The Man Behind the Curtain" restaurant, increasing rental income by £75k.

Sitting close to our existing properties is the site on George Street where we have been selected by Leeds City Council as their joint venture partner to undertake an exciting new development. This site is part of the Leeds City Market, and under the terms of the agreement we will jointly develop a 126 room Apart-Hotel with 9 units on the ground floor. This property sits alongside the Victoria Gate shopping centre and forms the key next step in the regeneration of this historic part of the city. TCS will acquire a 50% stake in the building and we expect a yield of c.6.5% on our £9m contribution. The application for planning permission is at an advanced stage and the legal partnership agreement is being drawn up. We expect work to commence in early 2019.

Leeds - Commercial

Our latest acquisition, The Cube, 123 Albion Street, Leeds is a strategic addition to our commercial offering in the City. Contracts were exchanged in August 2018 with completion planned for 1 October 2018. The Cube is located opposite the Merrion Centre, TCS's largest asset. It is a refurbished and extended former 1960's office building, comprising 22,000 sqft of ground floor leisure units with leases to Hard Rock Café and Mecca Bingo, together with 50,000 sqft of offices over three floors let to Capita and the Government. It also includes the freehold for 84 apartments which are leased to Persimmon Homes at a peppercorn rent. The acquisition is consistent with our focus on true mixed-use assets and lowering our exposure to retail, which has helped ensure we have been protected from the worst of the turmoil on the high street.

The purchase price of £12m represents an initial yield of over 12.5% on the passing income. With lease expiries in 2019 and 2020 the yield will reduce to around 9%, a strong and sustainable return for a city-centre asset. This acquisition gives the Company flexibility to consider further asset disposals from the portfolio.

 

Whitehall Riverside and Whitehall Road form the West End commercial heart of the city. In 2017, we completed development of a new Premier Inn on Whitehall Road. This property with a 25-year lease, and annual rent of £680k with RPI uplifts is a highly sought-after asset. We have seen its valuation increase by 8% in the past year to £15.3m reflecting the strength of the asset and its covenant.

The hotel sits on the corner of our Whitehall Riverside development site, with the remainder currently trading as a successful 460-space surface car park. This 4.35 acre site represents a significant future growth opportunity for the Company. This part of the city, close to Leeds railway station, has seen substantial commercial development and is now the premier office location and soon to be home to the new 378,000 sqft Government Property Unit hub, for some 6,000 civil servants. The supply of space for new office developments is now very limited which continues to strengthen our development asset. We are in conversation with a number of businesses with regards to new office requirements.

Specifically, the development masterplan for our site currently includes:

·     No.2 Whitehall Riverside - 180,000 sq ft office scheme with detailed planning permission

·     500 space multi-story car park - detailed planning permission granted

·     No.3 WR - c. 90,000 sq ft office building

·     No.7 WR - c. 70,000 sq ft office building

 

CREATING PLACES IN MANCHESTER

Our properties in Manchester comprise 15% of our overall portfolio, although a large proportion of this value is in development land, and therefore we expect this percentage to substantially increase over time as we continue to build out the developments.

Manchester is the jewel in the crown of northern cities, with significant growth and development already achieved and much more promised. We remain very excited about the role we have to play in the continued future success of the City, and with the relationship we have with the City Council.

Introducing Piccadilly Basin

Our Piccadilly Basin site is c.13 acres in size and comprises retail, office, residential and car parking.

Being a stone's throw from Manchester's main Piccadilly train station which will be the terminus for HS2, Piccadilly Basin is a very central and historic part of the city. The excellent transport links into Piccadilly and the popularity of the creative Northern Quarter neighbourhood make this a highly sought-after location and a valuable source of future growth for the business.

Piccadilly Basin is the Company's largest development asset, with potential to create significant value.  At this time, it comprises:

Retail

Urban Exchange is a 160,000 square foot 3 storey building developed in 2006. It is let to Aldi, Marks & Spencer, Go Outdoors, and Pure Gym with 190 car parking spaces and generates an annual rental income of £1.1m pa.

Offices

Carvers Warehouse is a multi-let 22,000 listed office which we converted in 2007, and over 4 floors is home to architects, engineers and planners. We continue to see high demand for this type of space in the Basin, which has driven rental growth.

In addition, we recently announced the acquisition of Ducie House, further extending our ownership in Piccadilly Basin. Ducie House is a 33,000 square foot contemporary conversion providing highly flexible work space solutions for businesses of varying size. Previously a petticoat factory, it now provides 64 office and studio spaces ranging in size from 82 to 3,900 sq ft. These spaces have been occupied by iconic Manchester bands such as 808 State and Simply Red, as well as ANS, UK Fast, Ask Developments and Ear to the Ground. There are approximately 50 tenants based in the building at present, with a number of unique units available to let with the majority of units let on an all-inclusive flexible lease basis producing a gross annual income of £675,000.

 

The building also has a 63-space surface car park which has future development potential.

 

Car Parking

 

The car parking facility in the Basin provides c 625 spaces, of which 232 are provided by a dedicated multi-story car park. The remaining spaces are on development land, where the car parking business provides valuable income ahead of developing out the sites. Operating profit from these car parking operations total £1.1m pa.

 

As detailed below the future development plans for the Basin include a 500 space multi-story car park to supplement the existing Tariff Street multi-story and replace those lost to redevelopment.

 

Residential

 

Piccadilly Basin represents a unique residential development opportunity for the Company and we are pleased to be making good progress with the first such development, Burlington House.

On completion in May 2019 Burlington House will be an iconic 91 apartment building which TCS will hold and manage in joint venture as a Private Rental Sector investment asset. We are in 50/50 joint venture with Highgrove Group, with the construction of the building being undertaken on a fixed price basis. Construction is on time and budget. TCS has invested £4.9m into the joint venture, alongside Highgrove Group with a total of £13m in development funding provided by the Greater Manchester Housing Fund. On completion we anticipate net rental income to be c. £1.2m pa in total for the joint venture.

This iconic building will help further create appeal and demand for the Basin.

In addition, we announced last year the sale of Brownsfield Mill, the former AVRO aircraft factory, to urban regeneration specialist Urban Splash. TCS received an initial £1m in consideration for the sale, plus 12.5% of the gross sales proceeds from the 31 apartments to be created and sold. Progress on the conversion by Urban Splash is going well, with almost half already under offer. In our accounts for the year we have recognised £1.5m of proceeds, £1.0m from the initial sale to Urban Splash, and £0.5m based on unit sales agreed at the time of our year-end. In total we expect to receive in excess of £1.5m on top of the initial £1m received once all the apartments are sold.

Future Plans for Piccadilly Basin

It is pleasing to have made good progress in Piccadilly Basin in the last year, and we look forward to moving onto the next residential scheme, once Burlington House is near to completion. The next phase of development in Piccadilly Basin will be:

·     Eider House -a 128 unit residential unit, with an estimated Gross Development Value ('GDV') of £40m. Detailed planning consent is already in place

In addition, an agreed Strategic Framework is in place for:

·     Residential Tower A - estimated 255 apartments, with an estimated GDV of £82m

·     Residential Tower B - estimated 173 apartments, with an estimated GDV of £56m

·     Residential Block D - estimated 82 apartments, with an estimated GDV of £28m

·     Commercial Block - 177,000 square feet of mixed use commercial space, with an estimated GDV of £76m

·     Multi-Story Car Park - 524 space car park, with an estimated GDV of £12m

·     Ducie House - scheme on the car park. Plans currently being developed, but not part of Strategic Framework

 

CREATING PLACES IN SCOTLAND

The Company has a long and proud history in Scotland, and we continue to be firmly committed to investment in the country. Our investment has focused on Edinburgh and Glasgow and their surrounding communities. However, in recent years we have undertaken a considerable amount of asset recycling in Scotland. We have long applied the strategy that when we believe we have maximised the return and growth we can deliver from an asset then the time is right to dispose and reinvest where we see more opportunity for us to add value.

In the last two years to the year-end we have disposed of six properties in Scotland for a total consideration of £28m, all above valuation and with an average sales yield of 5.9%. Since the year-end we have also sold a further small retail unit on Shandwick place, Edinburgh for £0.8m in line with valuation.

Our key Scottish assets are:

·     Byers Road, Glasgow - retail unit let to Waitrose

·     Buchanan Street, Glasgow - retail unit let to Dune

·     Buchanan Street / Gordon Street, Glasgow - two retail units let to Timpsons and an independent newsagent

·     Gordon Street, Glasgow - retail unit let to Mountain Warehouse, purchased following the year end and not included in the balance sheet valuation

·     Bath Street, Glasgow - ground floor retail unit let to a wedding dress retailer, with 20 residential units above

·     Milngavie, Glasgow - retail unit let to Waitrose

·     Main Street, Milngavie, Glasgow - single retail previously let to Homebase now being converted

·     Shandwick Place, Edinburgh - three retail units let to Amplifon, Morrisons and a local restaurant

In addition to the asset recycling activity, we are in the process of sub-dividing and improving our retail asset on Main Street in Milngavie, an upmarket commuter town outside of Glasgow. This asset was previously let to Homebase who gave notice last year to exit following an on-going strategic review of their business. Whilst this has put pressure on income in the year, it has given us the opportunity to improve the site for the long term. We are in the process of sub-dividing the main building into two units and have agreed terms with both Aldi and Home Bargains to occupy these units, with total income ahead of the Homebase rent. In addition, the site gives us the potential to create a third retail unit which we will develop once the main two units are completed and occupied. On completion of this first phase we expect valuation to rise significantly above its current and previous levels.

As an indication of our continued commitment to investing in Scotland we have completed the purchase of an additional retail unit on Gordon Street in Glasgow. This unit forms part of a block on the corner of Gordon Street and the popular Buchanan Street where we already own 3 retail units.  At a purchase price of £2.4m this new unit, let to Mountain Warehouse will deliver a 5.25% net initial yield.

 

CREATING PLACES IN SUBURBAN LONDON

Whilst TCS is, and will remain, a primarily regional property investor, we have in recent years built up and small and valuable suburban London portfolio. At the year end and including Car Parks this represented 8% of the portfolio at a value of £32.2m.

Our properties are:

Retail & Residential:

·     9-13 Cheapside, Wood Green - comprising four ground floor retail units, and twelve upper floor residential let apartments.

·     106A Kilburn High Road - comprising ground floor retail, and three upper floor residential let apartments.

·     448 Holloway Road - a retail unit let, with opportunity to create two upper floor apartments.

·     Chiswick High Street - a ground floor retail unit and two upper floor residential let apartments. Purchased for £1.6m in July 2018 (not included in the year end portfolio)

Car Parks:

·     Ilford - a 640 space long lease car park.

·     Rickmansworth - a 140 space freehold car park next to Rickmansworth train station.

·     In addition, we have the following occupational leasehold car parks in London and surrounding areas with leases between 21 and 32 years:

Watford - three car parks totalling 1688 spaces, where CitiPark has leases to run the Council Car Parks.

Clipstone Street - a 200 space car park in Central London

Bell Street - a 200 space car park in Central London

Offices:

·     6 Duke Street, Marylebone - a converted London townhouse purchased in 2014, and consisting of our London Office, a ground floor retail unit and upper floor offices for an upmarket watch retailer.

Our strategy in London is simple and complementary to the Company as a whole. We will look to invest in specific investment opportunities in London as follows:

·     In suburban London communities where values and tenant demand have long proven to be resilient. Most likely to be ground floor retail units with residential upper floors.

·     Where we see high return car parking opportunities that build on the existing CitiPark portfolio. We will seek freeholds if we also see a potential future development opportunity

·     As a moderate value and income hedge to any potential weakness in our core regional markets.

 

IN CONTROL OF OUR FUTURE - OUR DEVELOPMENT PLAN

As described earlier in this report, we have the benefit of owning a very significant development pipeline, with all of the opportunity within our ownership, and much of it already benefiting from either strategic or detailed planning approval.

As the pipeline is significant, so is the capital required to develop it out, and as such this forms part of a longer-term strategic plan that will, in some form, require new capital. The Company continues to explore options in relation to capital raising.

The below table identifies the development pipeline as it currently stands with an estimated gross development value ('GDV'), and an estimated income level assuming a blanket 5% yield. Clearly this is illustrative, but importantly highlights the material scale of the opportunity with a total GDV of £588m.

 

Development Type

Status

Estimated GDV

Income @ 5%

 

 

 

 

 

Burlington House (JV at 50%)

Residential

Underway

£13m

£0.6m

George Street (JV at 50%)

Leisure

Detailed planning

£10m

£0.5m

Eider House

Residential

Detailed planning

£40m

£2m

Leeds Car Park

Car Park

Detailed planning

£12m

£0.6m

Merrion Cinema Tower

Offices

Detailed scoping

£42m

£2.1m

Whitehall Road No2

Offices

Detailed planning

£71m

£3.5m

Leeds Vicar Lane

Retail & Leisure

High level scoping

£9m

£0.4m

White Hall Road No3

Offices

Strategic Framework

£40m

£2m

Whitehall Road No7

Offices / Leisure

Strategic Framework

£28m

£1.4m

Manchester Residential Tower A

Residential

Strategic Framework

£82m

£4.1m

Manchester Residential Tower B

Residential

Strategic Framework

£55m

£2.7m

Manchester Residential D

Residential

Strategic Framework

£28m

£1.4m

Ducie House

Residential

Unscoped

£15m

£0.8m

Manchester Commercial

Mixed Use

Strategic Framework

£76m

£3.8m

Manchester Car Park

Car Park

Strategic Framework

£12m

£0.6m

Rickmansworth

Residential

Unscoped

£5m

£0.2m

Merrion Corner Tower

Residential / Mixed Use

Unscoped

£50m

£2.5m

 

 

 

 

 

 

 

 

£588m

£29.2m

 

DETAILED PORTFOLIO PERFORMANCE

The overall market has been resilient, with sentiments of a peak having been reached proving premature. That said, there is considerable variation by sector and by region in the market place. Our continued approach of capital recycling, combined with intensive asset management has meant that we have seen a 3.2% LFL increase in the value of the portfolio (2017: unchanged).

Overall the portfolio has increased in value by 3.3% year on year, with the effect of the acquisition of Ducie House for £9.5m including costs, broadly being offset by the sale of three properties in Scotland in the year.

Looking at the component parts of the portfolio our investment properties have increased in value by 0.5% LFL (2017: 1.4% decrease), car parks have increased in value by 4.3% LFL (2017: 6.3%), and our development assets have increased in value by 33.9% LFL (2017: 20.1%).

Our investment properties are delivering an initial yield of 5.7% (2017: 5.6%) and we continue to demonstrate a good level of reversionary potential in the portfolio.

As shown in the below table TCS has also seen the variations in performance by sector, and it has been of no surprise to us to find that retail properties, particularly 'high street' and 'out of town' have come under yield pressure. Within the investment property portfolio our investments seeing the biggest falls in valuation are our retail park in Rochdale, and some of our central Leeds retail units. Conversely the most material increases in value have been seen in our Hotels, our prime real estate in Glasgow, and where we have added value through development (Merrion House, Leeds and also our two Leeds hotels which were both developed last year).

Our development portfolio has seen another large increase in valuation. Both our holding in Piccadilly Basin, Manchester and Whitehall Road, Leeds have seen strong improvements. These rises in value are directly driven by our improving the quality of the development rather than a market led increase. In Manchester, values have been driven by starting the build of Burlington House, alongside achieving detailed planning permission for Eider House residential scheme, and further clarifying the Strategic Framework surrounding the Basin. In Leeds achieving detailed planning permission for a 180,000 square foot office building and a 500 space multi-story car park has had the same effect.

We have always been very proud of our industry leading occupancy levels, historically delivering 98-99% occupancy. In the year just completed we are reporting a drop in Occupancy levels to 95% (2017: 99%). On first sight, whilst still high, this would seem disappointing given our history. However, there are two key drivers of this reduction. This first being the exit from our Milngavie property of Homebase at the end of 2017. As described earlier in this report, we are taking this as an opportunity to subdivide the unit with the intention of increasing income and value. We have secured pre-lets to both Aldi and Home Bargains and anticipate these units trading again by Q2 2019. Secondly the occupancy percentage includes the effect of three empty leisure units that we have created as part of the Merrion House development. We are in detailed discussions with tenants for this new space including being in the final stages of agreeing a lease with Pizza Express for one of these units.

 

 

Passing rent
£m

ERV
£m

 

Value
£m

% of portfolio

Valuation incr/(decr)

 

Initial yield

Reversionary yield

 

 

 

 

 

 

 

 

 

 

Retail & Leisure

3.6

4.1

 

67.6

17%

-3.9%

 

5.1%

5.8%

Merrion Centre (ex offices)

7.4

7.9

 

97.7

25%

-0.8%

 

7.1%

7.6%

Offices

3.9

4.3

 

70.1

18%

7.3%

 

5.3%

5.8%

Hotels

1.2

1.6

 

27.2

7%

10.5%

 

4.1%

5.7%

Out of town retail

2.9

3.6

 

52.1

13%

-3.8%

 

5.3%

6.6%

Distribution

0.4

0.4

 

5.8

1%

2.8%

 

6.4%

6.3%

Residential

0.6

0.6

 

10.9

3%

1.5%

 

5.2%

5.4%

 

 

 

 

 

 

 

 

 

 

 

20.0

22.6

 

331.3

84%

0.5%

 

5.7%

6.4%

 

 

 

 

 

 

 

 

 

 

Development property

2.0

2.0

 

36.7

9%

33.9%

 

 

 

Other Car parks

1.4

1.4

 

26.0

7%

4.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

Let portfolio

23.4

26.0

 

394.0

100%

3.3%

 

 

 

 

Note: The above table includes Merrion House within Offices and therefore differs to the table in note 12 of the accounts.

 

Location

Value

%

Leeds

234.7

60%

Manchester

58.2

15%

Scotland

52.9

13%

London

32.2

8%

Other

16.0

4%

 

394

100%

 

 

 

Sector

Value

%

Retail/leisure

217.4

55%

Hotels

27.2

7%

Office

70.1

18%

Car parking

26.0

7%

Distribution

5.8

1%

Residential

10.9

3%

Development

36.7

9%

 

394

100%

 

 

 

Lease Expiries

Value

%

0-5 years

9.6

48%

5-10 years

4.5

22%

Over 10 years

6.1

30%

 

20.2

100%

 

Top Ten Tenants:

£1m+

Leeds City Council

Waitrose

Morrisons

 

£0.5m - £1m

Premier Inn

PureGym

Matalan

 

£0.25m - £0.5m

Step Change

Dune

Go Outdoors

Aldi

 

We have a diverse and low risk portfolio. Our top ten tenants constitute 42% of our Gross Property Income.

Whilst we have not been immune to the turbulence in retail we believe that the quality of our portfolio and our low dependency on single tenants have given us a level of protection. Impacts in the last year are:

· Homebase strategic review - impact on income in the year, but has unlocked opportunity for income and capital growth at Milngavie.

· Poundworld administration - quality of Merrion Centre store has meant that the lease will be assigned to Iceland with no change to terms.

· Mothercare CVA - revised terms proposed a c 30% reduction in rent, however we are instead re-letting and have offers at the original rental levels from retailers with good covenants.

 

Richard Lewis

Property Director

 

FINANCIAL REVIEW

TCS aims to deliver strong and reliable returns consistently and for the long-term. As such a conservative approach to portfolio management and associated financing is key. In the past year the Company has disposed of mature assets, continued to invest in the development programme for long term growth, strengthened the balance sheet with new bank facilities, and in July 2018 completed an innovative financing arrangement with Leeds City Council. During the period TCS has delivered this on-going change programme whilst holding EPRA profit almost flat and increasing Accounting Profit before Revaluation from £6.1m in FY17 to £8.6m in FY18.

As the below summary table demonstrates TCS has made solid progress financially in the last 12 months:

£m

2014

2015

2016

2017

2018

 

 

 

 

 

 

Gross Revenue £m

22.6

22.7

26.3

27.5

30.2

 

 

 

 

 

 

EPRA Profit £m

7.6

6.5

6.6

7.0

6.9

 

 

 

 

 

 

Statutory Profit before Revaluation £m

7.6

4.0

7.7

7.3

8.6

 

 

 

 

 

 

Statutory Profit after Revaluation £m

27.4

24.0

11.9

6.7

18.4

 

 

 

 

 

 

NAV per Share p

308

344

357

359

384

 

 

 

 

 

 

Total Property Return

14.1%

12.2%

7.8%

6.0%

9.4%

 

 

 

 

 

 

Total Shareholder Return

49.3%

19.1%

-3.9%

9.6%

3.2%

 

 

 

 

 

 

Loan to Value

49.6%

49.7%

49.2%

49.3%

47.5%

 

 

 

 

 

 

Gearing

96.1%

95.5%

95.0%

96.5%

92.1%

 

Note: LTV and Gearing for 2018 quoted before Merrion House Financing. Post this financing LTV improves to 45.3% and Gearing to 81.7%.

Income Statement

EPRA profit for the year ended 30 June 2018 was £6.9m, down slightly on the prior year profit of £7.0m. As the below table demonstrates this decrease was all driven by the Property part of the business as a result of the timing of strategic disposals in the year, and the exit in Scotland of Homebase midway through the year. Profit in the Car Parking business was up year on year by 3.7%.

£'000s

 

2018

 

2017

 

YOY

 

 

 

 

 

 

 

Gross Revenue

 

30,178

 

27,540

 

9.6%

Property Expenses

 

(10,896)

 

(8,148)

 

33.7%

 

 

 

 

 

 

 

Net Revenue

 

19,282

 

19,392

 

(0.6%)

 

 

 

 

 

 

 

Other Income / JV Profit

 

2,084

 

1,578

 

32.1%

Administrative Expenses

 

(6,574)

 

(6,295)

 

4.4%

 

 

 

 

 

 

 

Operating Profit

 

14,792

 

14,675

 

0.8%

 

 

 

 

 

 

 

Finance Costs

 

(7,887)

 

(7,639)

 

3.2%

 

 

 

 

 

 

 

EPRA Profit

 

6,905

 

7,036

 

(1.9%)

 

 

 

 

 

Segmental £'000s

 

2018

 

2017

 

YOY

 

 

 

 

 

 

 

Property

 

 

 

 

 

 

Net Revenue

 

13,850

 

14,675

 

(5.6%)

Operating Profit

 

10,307

 

10,788

 

(4.5%)

 

 

 

 

 

 

 

CitiPark

 

 

 

 

 

 

Net Revenue

 

4,979

 

4,717

 

5.6%

Operating Profit

 

4,032

 

3,887

 

3.7%

 

 

 

 

 

 

 

ibis Styles Hotel

 

 

 

 

 

 

Net Revenue

 

453

 

0

 

n/a

Operating Profit

 

453

 

0

 

n/a

 

Gross Revenue:

Gross revenue was up 9.6% year on year, with key drivers being:

- Ibis Styles hotel income for the first full year of £2.8m. Excluding this gross revenue was down 0.5% year on year

- Organic growth of 5.0% in CitiPark

- Property revenues were down 4.1% due to the timing effect of properties being sold, and the exit in Milngavie of Homebase half way through the year

Property Expense:

At a total company level property expenses were up 33.7% year on year. This is driven by the fact that this now includes the running costs of the ibis Styles hotel for the first full year. Excluding this Property Expenses were up 5.3%. Key drivers of this underlying increase are:

- Property - empty property business rates for six months in the old Homebase unit account for a 1.3% increase

- CitiPark - further increases in business rates account for a 2.0% increase

Other / JV Income:

Total Other / JV income was up 32% year on year. This is explained by two key items:

- Income from joint ventures was up £0.3m year on year driven by the increased income from Merrion House following completion in January and the start of the new lease with Leeds City Council

- We received £0.3m of income from Homebase as a result of dilapidations charges following their vacating our property in Milngavie

Administrative Expenses:

These costs were up 4.4% year on year. The primary driver of this increase is as a result of higher levels of consulting and professional fees incurred in the year. The activities driving this spend include:

- Corporate Finance advice and Tax advice which ultimately led to the Merrion House financing transaction.

- One off IT infrastructure and Security audit.

- Legal costs associated with moving charged properties to different bank facilities in order to maximise borrowing headroom

- Engaging Link Company Matters as Company Secretary

- Engaging Edison and RMS to assist with equity research and investor relations respectively

Finance Costs:

Finance costs were 3.2% or £0.25m higher year on year. Underlying interest costs are actually broadly flat year on year with the increase in costs being driven by £0.4m of interest capitalised last year.

 

Balance Sheet

Our total non-current assets (including JVs) of £407.2m (2017: £385.1m) include £376.1m of investment properties (2017: £354.6m) and £29.6m of non-current car parking assets (2017: £28.5m). The Merrion Centre car park is included in the investment property asset. The car parking assets include £4m (2017: £4m) of leasehold car parks which are accounted for under IFRS as goodwill. There are two such car parks with operating leases of 21 and 31 years.

We have continued to invest in our properties with a total of £6.5m of capital expenditure this year (majority being on Merrion House through the joint venture). We also invested £3.9m into our Burlington House Joint Venture. Capital recycling comprised £10.1m of sales and £10.6m of purchases. Along with other cash movements this resulted in an increase in borrowings from £188.8m to £192.6m.

The property and car parking balances reflect valuation gains of £5.9m in respect of the investment and development properties, gains of £2.6m in respect of joint ventures and gains of £1.0m in respect of car parks (which includes a loss of £0.4m which is shown in the Statement of Changes in Equity as other comprehensive income).

Borrowings:

We have undertaken a significant amount of refinancing activity in the past year which consisted of:

Lloyds: This £35m facility was due to end on the 31 December 2018, with the option to extend for a further year. Instead a new three-year facility with two one-year extension options has been put in place as at the end of June 2018. Margins have remained consistent with the previous facility, with an updating and improving of contract terms.

Handelsbanken: This three-year £35m facility was due to end on 30 November 2018. Effective from the end of June 2018 this facility has been renewed for a five-year term with a small (20bps) increase in margin. Terms have been updated and improved including adding the ability to charge car parks and development assets.

RBS: This facility was due to end on 29 April 2020, however the Company has exercised an option to extend this by a further year to 2021 at the same price. In addition, the facility has been amended to allow the charging of car park and development assets.

The Company has certainty over its debt position for the next three to five years, along with improved and more flexible terms. Alongside the 2031 £106m debenture which expires in November 2031, the Company is securely financed, and remains committed to lowering debt levels over time. On a weighted average basis our debt maturity at the end of June was 8.6 years compared to 8.2 years last year.

In addition, we announced in July 2018 an innovative financing arrangement with Leeds City Council in relation to Merrion House. As described earlier in this report a significant amount of value was created by the redevelopment of this building, however as the building sits in a Joint Venture raising traditional bank financing against the asset was unconventional. Instead a facility, similar to a Credit Tenant Loan, has been finalised.

As a result, Merrion House LLP ('MH LLP'), the joint venture vehicle reached agreement for LCC to advance all base rent due from 1 October 2018 until the lease end on 11 February 2043, discounted at an annual equivalent rate of 3.5% plus costs.

Following this, TCS received £26.4 million in cash. This is net of estimated costs. From an accounting perspective this transaction will be treated as a financing arrangement within MH LLP. On that basis MH LLP will continue to recognise quarterly rent (£0.8 million per quarter) offset by an interest charge calculated on an effective interest rate basis. TCS 50% share of the accounting net income will continue to be recognised in its income statement.

The balance sheet of the LLP will reflect the full market value of the building, less the deferred income balance, which will reduce quarterly to zero at the lease end. Half of the net asset value of the entity is then consolidated into TCS.

The lease allows for capped RPI increases every five years. These will continue to apply and will flow as normal rental payments through MH LLP.

Going concern and headroom

One of the most critical judgements for the Board is the headroom in the Group's bank facilities. This is calculated as the maximum amount that could be borrowed taking into account the properties secured to the funders and the facilities in place. The total headroom at the end of June 2018 was £10.6m (2017: £12.2m) Following the Merrion House financing deal and receipt of the cash, and the completion of the Ducie House purchase, headroom at the end of July 2018 stood at over £30m and is considered to be sufficient to support our going concern conclusion.

Total shareholder return and total property return

Total shareholder return of 3.2% (2017: 9.6%) is calculated as the total of dividends paid during the financial year of 11.50p (2017: 11.15p) and the movement in the share price between 30 June 2017 (290p) and 30 June 2018 (288p), and assumed dividends are reinvested. This compares with the FTSE All Share REIT index at 9.8% (2017: 9.2%) for the same period.

Although behind the market in the last 12 months TCS has strong outperformance in Total Shareholder Return on both a 5-year and 10-year basis.

 

Total shareholder returns % (CAGR)

 

 

 

 

 

 

 

 

Total shareholder returns

1 Year

5 Years

10 Years

 

Town Centre Securities

3.2%

14.1%

9.1%

 

FTSE All Share REIT index*

9.8%

10.2%

4.9%

 

 

 

 

 

 

 

 

Total property returns

 

 

 

 

 

 

 

TCS

MSCI Quarterly index

Retail

 

 

4.1

4.5

 

 

Retail Warehouses

 

1.3

5.5

 

 

Shopping Centres

 

7.8

-1.1

 

 

Rest of England Offices

 

11.2

9.8

 

 

Standard Retail

 

2.0

6.3

 

 

All Property

 

9.4

9.3

 

 

                   

 

(12 months ending June 2018)

Total Property Return is calculated as the net operating profit and gains / losses from property sales and valuations as a percentage of the opening investment properties.

Total Property Return for the business for the reported 12 months is 9.4% (2016: 6.0%). This compared to the MSCI/IPD market return of 9.3% (2016: 5.5%).

Risk

The directors have carried out a robust assessment of the principal risks facing the Group, including those that would threaten the business model, future performance, solvency and liquidity. The risk review is detailed in the Corporate Governance section of this report.

 

Mark Dilley

Group Finance Director

 

 

CITIPARK

It has been a year of good organic growth for CitiPark with revenues up 5.0% and profits up 3.7%. Furthermore, we have made significant progress with technological and electric charging developments which both improve efficiency and enhance the customer experience.

Financial:

We are pleased with our ability to continue to increase profitability within the CitiPark business. Despite a reduction in spaces at Ducie St, Manchester to allow for property development, significantly increased business rates, National Minimum Wage increases, and increased repairs and maintenance costs across the branches - we continue to deliver strong revenue and profit growth for CitiPark.

We have seen strong organic revenue growth in a number of branches in the year, with key drivers being:

-      The completion of Merrion House improving customer utilisation at our Merrion Centre branch

-      The introduction of the CitiPark online pre-booking platform, in which we developed our own software code to operate this to best maximise revenues

-      Increased and improved marketing, online and social campaigns to drive further awareness and customer interaction with CitiPark branches

-      Continued third party development and investment in the Whitehall Road riverside area driving further growth and profitability at our 7 Whitehall Road branch

 

In addition, we continue to look for ways to supplement income in order to improve profitability. For example, we have in place a new agreement with a storage company at Clipstone St, London, utilising space not required for parking.

We have worked closely with YourParkingSpace.co.uk ('YPS'), where TCS now holds a 15% equity share, with the opportunity to increase this. This partnership has allowed us to improve revenue generation and branch occupancy through the YPS consolidation platform. We continue to work with YPS as they develop plans for their next phase of growth and expansion, and we remain very excited about this opportunity.                     

Technology:

We believe that technology can, and will be the key to continually improving the car parking customer experience, whilst at the same time improving operational efficiencies. We have demonstrated this in the past with our introduction of our Engine Room control centre. Electric vehicle charging is becoming more mainstream by the day, and is certainly here to stay. We believe that CitiPark can play an important role in serving the growing demands for electric vehicle charging.

The below summarises some of the key improvements made in the last year:

-      Continued investment in improving our car park management systems - newly installed at Leeds Dock

-      Developed one of the first Skidata ANPR barrierless and cashless solution in the UK for our Rickmansworth branch

-      Anytime pre-booking platform went live in December 2017 for Merrion and the rest of the portfolio in March 2018

-      YPS integration now live with our pre-booking platform - significantly reducing the workload in the Engine Room and provides a seamless customer journey to YPS customers

-      QR/Digital Season tickets development now underway - removal of all plastic season tickets with a significant cost saving to the business

-      EV charging infrastructure now available throughout CitiPark portfolio - recent installations include Whitehall Road, Rickmansworth and Church, Watford.

-      Live occupancy data throughout the portfolio - the online platform developed in house

-      Investment in Leeds City Centre's first EV Rapid Charger at Merrion Centre

-      Investment in voltage optimisation hardware at Merrion Centre

 

Customer Service:

Clearly providing great customer service is an important point of difference for CitiPark and we continually look for opportunities to further improve our service:

-      Investment in Zendesk and Zenchat for use in the Engine Room - we actively track customer interaction and satisfaction with our customer service staff. Allows us to set KPIs and regularly review the quality of our work

 

Going Green:

-      Micro-site is now live and utilised to highlight our green credentials, commitment and achievements

-      Achieved 'Go Ultra Low' business status

-      Finalist for 'Clean Air Initiative of the year' - Emissions based tariff at Clipstone St, London

-      Development of eSeason tickets will significantly reduce our requirements for plastic cards and associated waste

 

Continued Investment in our assets:

-      4 new lifts in Watford - improving customer experience and perception of the branches

-      Entrance improvement works at Clipstone Street

-      Improvement works and installation of our new parking management system (PMS) at Rickmansworth

 

Marketing/PR:

-      National coverage of our Clipstone emissions based tariff in July '17

-      Campaigns run throughout the year include: CitiFit, Blue Monday, Ilford Discounted parking, Watford FC, Leeds Dock discounted parking, pre-booking launch, Easter, April fools, Father's Day, Royal Wedding, World Cup, Clean Air Day, Watford discounted parking, London Pride

-      Significantly increased online engagement through social media platforms - Twitter, Facebook, Instagram:

 

Twitter

-      Organic impressions increased by 65.6%

-      The number of engagements increased by 245.8%

-      The number of organic impressions per Tweet increased by 42.1%

-      Total followers increased by 50.6%

 

Facebook

-      The number of posts sent increased by 255%

-      Total impressions increased by 193.2%

-      Total engagements increased by 19.6%

-      Total fans increased by 28.4%

 

CitiPark website

-      May YoY total traffic shows an increase of +40% and an increase of +42% in "new users" to the site.

-      MoM total traffic has increased by +21% there is also a +24% increase of "new users" to the site. 

-      Organic traffic showing an increase of +24% YoY and an increase of +11% MoM. 

-      Direct showing a MoM increase of +49% and a YoY increase of +111%. 

-      Referral MoM traffic showing an increase of +14% however we do see a YoY increase of +10%.

We look forward to identifying new and exciting opportunities over the next 12 months to increase our portfolio and grow the CitiPark brand.

 

Ben Ziff

Managing Director

CItiPark

 

 

Consolidated income statement

for the year ended 30 June 2018

 

 

 

2018

 

2017

 

Notes

£000

£000

Gross revenue

 

30,178

27,540

Property expenses

 

(10,896)

(8,148)

Net revenue

 

19,282

19,392

Administrative expenses

2

(6,574)

(6,295)

Other income

3

888

707

Valuation movement on investment properties

 

5,932

(2,085)

Reversal of impairment of car parking assets

 

1,300

1,000

Profit on disposal of investment properties

 

1,677

303

Share of post tax profits from joint ventures

 

3,757

1,342

Operating profit

 

26,262

14,364

Finance costs

 

(7,887)

(7,639)

Profit before taxation

 

18,375

6,725

Taxation

 

-

-

Profit for the year attributable to owners of the Parent

 

18,375

6,725

Earnings per share

 

 

 

Basic and diluted

4

34.6p

12.7p

EPRA (non-GAAP measure)

4

13.0p

13.2p

Dividends per share

 

 

 

Paid during the year

5

11.50p

11.15p

Proposed

5

8.5p

8.25p

 

 

Consolidated statement of comprehensive income

for the year ended 30 June 2018

 

 

 

2018

2017

 

 

£000

£000

Profit for the year

 

18,375

6,725

Items that may be subsequently reclassified to profit or loss

 

 

 

Revaluation gains on car parking assets

 

(350)

100

Revaluation gains on other investments

 

1,136

324

Total other comprehensive income

 

786

424

Total comprehensive income for the year

 

19,161

7,149

 

All profit and total comprehensive income for the year is attributable to owners of the Parent.

 

Consolidated balance sheet

as at 30 June 2018

 

 

 

2018

 

2017

 

Notes

£000

£000

Non-current assets

 

 

 

Property rental

 

 

 

Investment properties

6

336,311

326,771

Investments in joint ventures

7

39,742

27,852

 

 

376,053

354,623

Car park activities

 

 

 

Freehold and leasehold properties

6

23,423

22,495

Goodwill

 

4,024

4,024

Investments

 

2,125

1,950

 

 

 29,572

28,469

Fixtures, equipment and motor vehicles

 

 1,544

1,972

Total non-current assets

 

 407,169

385,064

Current assets

 

 

 

Investments

 

 3,530

2,394

Trade and other receivables

 

 6,288

3,311

Cash and cash equivalents

 

 5,473

3,124

Total current assets

 

 15,291

8,829

Total assets

 

 422,460

393,893

Current liabilities

 

 

 

Trade and other payables

 

(20,278)

(10,846)

Total current liabilities

 

(20,278)

(10,846)

Non-current liabilities

 

 

 

Financial liabilities

 

(198,057)

(191,969)

Total liabilities

 

(218,335)

(202,815)

Net assets

 

204,125

191,078

Equity attributable to the owners of the Parent

 

 

 

Called up share capital

8

 13,290

13,290

Share premium account

 

 200

200

Capital redemption reserve

 

 559

559

Revaluation reserve

 

 250

600

Retained earnings

 

 189,826

176,429

Total equity

 

 204,125

191,078

Net asset value per share

10

384p

359p

 

 

Consolidated statement of Changes in Equity

as at 30 June 2018

 

 

 

Share capital

Share

premium account

Capital redemption reserve

Revaluation reserve

Retained earnings

Total equity

 

£000

£000

£000

£000

£000

£000

Balance at 30 June 2016

13,290

200

559

500

175,308

189,857

Comprehensive income for the year

 

 

 

 

 

 

Profit

-

-

-

-

6,725

6,725

Other comprehensive income

-

-

-

100

324

424

Total comprehensive income for the year

-

-

-

100

7,049

7,149

Contributions by and distributions to owners

 

 

 

 

 

 

Final dividend relating to the year ended 30 June 2016

-

-

-

-

(4,200)

(4,200)

Interim dividend relating to the year ended 30 June 2017

-

-

-

-

(1,728)

(1,728)

Balance at 30 June 2017

13,290

200

559

600

176,429

191,078

Comprehensive income for the year

 

 

 

 

Profit

-

-

-

-

18,375

18,375

Other comprehensive income

-

-

-

(350)

1,136

786

Total comprehensive income for the year

-

-

19,511

19,161

Contributions by and distributions to owners

 

 

 

 

 

 

Final dividend relating to the year ended 30 June 2017

-

-

-

-

(4,386)

(4,386)

Interim dividend relating to the year ended 30 June 2018

-

-

-

-

(1,728)

(1,728)

Balance at 30 June 2018

13,290

200

559

250

189,826

204,125

 

 

 

Consolidated cash flow statement

for the year ended 30 June 2018

 

 

2018

 

 

2017

 

 

Notes

£000

£000

 

£000

£000

Cash flows from operating activities

 

 

 

 

 

 

Cash generated from operations

9

14,235

 

 

18,159

 

Interest paid

 

(7,595)

 

 

(8,051)

 

Net cash generated from operating activities

 

 

6,640

 

 

10,108

Cash flows from investing activities

 

 

 

 

 

 

Purchase and construction of investment properties

 

(900)

 

 

(12,136)

 

Refurbishment of investment properties

 

(1,806)

 

 

(10,612)

 

Payments for leasehold property improvements

 

(153)

 

 

(498)

 

Purchases of fixtures, equipment and motor vehicles

 

(340)

 

 

(586)

 

Proceeds from sale of investment properties

 

7,534

 

 

21,574

 

Proceeds from sale of fixed assets

 

-

 

 

61

 

Payments for acquisition of non-listed investments

 

(175)

 

 

(1,950)

 

Investments in joint ventures

 

(8,809)

 

 

(4,250)

 

Distributions received from joint ventures

 

676

 

 

1,031

 

Net cash used in investing activities

 

 

(3,973)

 

 

(7,366)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from non-current borrowings

 

5,796

 

 

7,197

 

Dividends paid to shareholders

 

(6,114)

 

 

(5,928)

 

Net cash (used in)/generated from financing activities

 

 

(318)

 

 

1,269

Net increase in cash and cash equivalents

 

 

2,349

 

 

4,011

Cash and cash equivalents at beginning of the year

 

 

3,124

 

 

(887)

Cash and cash equivalents at end of period of the year

 

 

5,473

 

 

3,124

 

 

 

 

 

 

 

Cash and cash equivalents at the year end are comprised of the following:

 

 

 

 

 

 

 

 

 

 

Cash

 

 

5,473

 

 

3,124

 

 

 

5,473

 

 

3,124

 

Audited preliminary results announcements

The financial information for the year ended 30 June 2018 and the year ended 30 June 2017 does not constitute the company's statutory accounts for those years.

Statutory accounts for the year ended 30 June 2017 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 June 2018 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The auditors' reports on the accounts for 30 June 2018 and 30 June 2017 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

1. Segmental information

Segmental assets

2018

2017

 

£000

£000

Property rental

379,901

364,120

Car park activities

30,659

29,773

Hotel operations

11,900

-

 

422,460

393,893

 

Segmental results

2018

 

2017

 

Property

Car park

Hotel

 

 

Property

Car park

 

 

rental

activities

operations

Total

 

rental

activities

Total

 

£000

£000

£000

£000

 

£000

£000

£000

Gross revenue

15,891

11,516

2,771

30,178

 

16,571

10,969

27,540

Service charge income

2,556

-

-

2,556

 

2,346

-

2,346

Service charge expenses

(3,387)

-

-

(3,387)

 

(3,284)

-

(3,284)

Property expenses

(1,210)

(6,537)

(2,318)

(10,065)

 

(958)

(6,252)

(7,210)

Net revenue

13,850

4,979

453

19,282

 

14,675

4,717

19,392

Administrative expenses

(5,627)

(947)

-

(6,574)

 

(5,465)

(830)

(6,295)

Other income

888

-

-

888

 

707

-

707

Share of post-tax profits from joint ventures

1,196

-

-

1,196

 

871

-

871

Operating profit before valuation movements

10,307

4,032

453

14,792

 

10,788

3,887

14,675

Valuation movement on investment properties

5,932

-

-

5,932

 

(2,085)

-

(2,085)

Reversal of impairment of car parking assets

-

1,300

-

1,300

 

-

1,000

1,000

Profit on disposal of investment properties

1,677

-

-

1,677

 

303

-

303

Valuation movement on joint venture properties

2,561

-

-

2,561

 

471

-

471

Operating profit

20,477

5,332

453

26,262

 

9,477

4,887

14,364

Finance costs

 

 

 

(7,887)

 

 

 

(7,639)

Profit before taxation

 

 

 

18,375

 

 

 

6,725

Taxation

 

 

 

-

 

 

 

-

Profit for the year

 

 

 

18,375

 

 

 

6,725

All results are derived from activities conducted in the United Kingdom.

Hotel operations commenced in April 2017, however for the year ended 30 June 2017 the results were not material and have therefore been included in the result of the property rental business.

The results for the car park activities include the car park at the Merrion Centre. As the value of the car park cannot be separated from the value of the Merrion Centre as a whole, the full value of the Merrion Centre is included within the assets of the property rental business.

The car park results also include car park income from sites that are held for future development. The value of these sites has been determined based on their development value and therefore the total value of these assets has been included within the assets of the property rental business.

The net revenue at the Merrion Centre and development sites for the year ended 30 June 2018, arising from car park operations, was £3,658,000. After allowing for an allocation of administrative expenses, the operating profit at these sites was £2,962,000.

 

2. Administrative expenses

 

 

 

2018

2017

 

£000

£000

Employee benefits

 3,919

3,844

Depreciation

 339

318

Charitable donations

 116

78

Other

 2,200

2,055

 

 6,574

6,295

 

3. Other income

 

 

 

 

2018

2017

 

 

£000

£000

 

Commission received

142

169

 

Dividends received

29

27

 

Management fees receivable

198

241

 

Dilapidations receipts and income relating to lease premiums

438

195

 

Other

81

75

 

 

 888

707

 

 

 

4. Earnings per share (EPS)

 

 

 

 

 

 

 

 

The calculation of basic earnings per share has been based on the profit for the period, divided by the weighted average number of shares in issue. The weighted average number of shares in issue during the period was 53,161,950 (2017: 53,161,950).

 

 

2018

 

2017

 

 

 

Earnings

 

 

Earnings

 

 

 

Earnings

per share

 

Earnings

per share

 

 

 

£000

p

 

£000

p

 

Basic and diluted profit/EPS

 

18,375

34.6

 

6,725

12.7

 

Valuation movement on investment properties

 

(5,932)

(11.2)

 

2,085

3.9

 

Reversal of impairment of car parking assets

 

(1,300)

(2.4)

 

(1,000)

(1.9)

 

Valuation movement on properties held in joint ventures

 

(2,561)

(4.8)

 

(471)

(0.9)

 

Profit on disposal of investment and development properties

 

(1,677)

(3.2)

 

(303)

(0.6)

 

EPRA earnings and earnings per share

 

6,905

13.0

 

7,036

13.2

 

                     

 

There is no difference between basic and diluted earnings per share and EPRA earnings per share.

 

5. Dividends

 

 

 

2018

2017

 

£000

£000

2016 final paid: 7.90p per 25p share

-

4,200

2017 interim paid: 3.25p per 25p share

-

1,728

2017 final paid: 8.25p per 25p share

4,386

-

2018 interim paid: 3.25p per 25p share

1,728

-

 

 6,114

5,928

 

An interim dividend in respect of the year ended 30 June 2018 of 3.25p per share was paid to shareholders on 22 June 2018. This dividend was paid entirely as a Property Income Distribution (PID).

 

A final dividend in respect of the year ended 30 June 2018 of 8.5p per share is proposed. This dividend, based on the shares in issue at 25 September 2018, amounts to £4.5m which has not been reflected in these accounts and will be paid on 4 January 2019 to shareholders on the register on 7 December 2018. This entire dividend will be paid as a PID.

 

 

6. Non-current assets

 

 

 

 

 

(a) Investment properties

 

 

 

 

 

Freehold

Long

leasehold

Development

Total

 

£000

£000

£000

£000

Valuation at 30 June 2016

273,010

22,701

29,602

325,313

Additions at cost

4,074

-

-

4,074

Other capital expenditure

12,174

40

8,260

20,474

Interest capitalised

176

-

235

411

Disposals

(18,596)

-

(2,675)

(21,271)

(Deficit)/surplus on revaluation

(6,444)

(132)

4,491

(2,085)

Transfers

12,612

 

(12,612)

-

Movement in tenant lease incentives

(145)

-

-

(145)

Valuation at 30 June 2017

276,861

22,609

27,301

326,771

Additions at cost

9,483

-

-

9,483

Other capital expenditure

1,656

-

140

1,796

Disposals

(9,507)

(15)

-

(9,522)

(Deficit)/surplus on revaluation

(3,326)

(2)

9,260

5,932

Transfers

900

(900)

-

-

Movement in tenant lease incentives

1,851

-

-

1,851

Valuation at 30 June 2018

277,918

21,692

36,701

336,311

 

 

(b) Freehold and leasehold properties - car park activities

 

Freehold

Long

leasehold

Total

 

£000

£000

£000

Valuation at 30 June 2016

2,000

19,075

21,075

Additions

-

498

498

Depreciation

-

(178)

(178)

Surplus on revaluation

-

100

100

Reversal of impairment

-

1,000

1,000

Valuation at 30 June 2017

2,000

20,495

22,495

Additions

-

153

153

Depreciation

-

(175)

(175)

Deficit on revaluation

-

(350)

(350)

Reversal of impairment/(impairment)

1,000

300

1,300

Valuation at 30 June 2018

 3,000

 20,423

 23,423

 

The historical cost of freehold and leasehold properties relating to car park activities is £22,425,000 (2017: £22,245,000).

 

The Company occupies an office suite in part of the Merrion Centre and also at 6 Duke Street in London. The Directors do not consider this element to be material.

 

The fair value of the Group's investment and development properties has been determined principally by independent, appropriately qualified external valuers CBRE and Jones Lang LaSalle. The remainder of the portfolio has been valued by the Property Director.

 

Valuations are performed bi-annually and are performed consistently across the Group's whole portfolio of properties. At each reporting date appropriately qualified employees verify all significant inputs and review computational outputs. The external valuers submit and present summary reports to the Property Director and the Board on the outcome of each valuation round.

 

Valuations take into account tenure, lease terms and structural condition. The inputs underlying the valuations include market rents or business profitability, incentives offered to tenants, forecast growth rates, market yields and discount rates and selling costs including stamp duty.

 

The development properties principally comprise land in Leeds and Manchester. These have also been valued by appropriately qualified external valuers Jones Lang LaSalle, taking into account the income from car parking and an assessment of their realisable value in their existing state and condition based on market evidence of comparable transactions.

 

Property income, values and yields have been set out by category in the table below.

 

 

Passing rent

ERV

Value

Initial yield

Reversionary yield

 

£000

£000

£000

%

%

3,646

4,127

67,610

5.1%

5.8%

7,366

7,867

97,700

7.1%

7.6%

2,235

2,648

35,442

6.0%

7.1%

1,180

1,630

27,150

4.1%

5.7%

2,919

3,611

52,050

5.3%

6.6%

392

386

5,750

6.4%

6.3%

596

621

10,865

5.2%

5.4%

 

18,334

20,890

296,567

5.8%

6.7%

Development property

 

 

36,701

 

 

Car parks

 

 

22,022

 

 

Finance lease adjustments

 

 

4,444

 

 

 

 

 

359,734

 

 

 

The effect on the valuation of applying a different yield and a different ERV would be as follows:

 

Valuation in the Consolidated Financial Statements at an initial yield of 6.8% - £316.4m, Valuation at 4.8% - £420.9m.

 

Valuation in the Consolidated Financial Statements at a reversionary yield of 7.7% - £321.0m, Valuation at 5.7% - £412.1m.

 

 

Property valuations can be reconciled to the carrying value of the properties in the balance sheet as follows:

 

 

Investment Properties

 

Freehold and Leasehold Properties

 

 

Total

 

£000

£000

£000

Externally valued by CBRE

199,375

-

199,375

Externally valued by Jones Lang LaSalle

126,060

16,300

142,360

Acquisitions recognised at cost

9,483

-

9,483

Investment properties valued by the Property Director

251

-

251

Finance lease obligations capitalised

1,142

3,302

4,444

Leasehold improvements

-

3,821

3,821

 

336,311

23,423

359,734

 

Leasehold improvements primarily relate to expenditure incurred on the refurbishment of three car parks in Watford that are held under operating leases.

 

All investment properties measured at fair value in the consolidated balance sheet are categorised as level 3 in the fair value hierarchy as defined in IFRS13 as one or more inputs to the valuation are partly based on unobservable market data. In arriving at their valuation for each property (as in prior years) both the independent valuers and the Property Director have used the actual rent passing and have also formed an opinion as to the two significant unobservable inputs being the market rental for that property and the yield (i.e. the discount rate) which a potential purchaser would apply in arriving at the market value. Both these inputs are arrived at using market comparables for the type, location and condition of the property.

 

 

 

 

(c) Fixtures, equipment and motor vehicles 

 

 

 

         

 

 

 

Accumulated

 

Cost

depreciation

 

£000

£000

At 1 July 2016

4,373

2,222

Additions

586

-

Disposals

(140)

(103)

Depreciation

-

728

At 30 June 2017

4,819

2,847

Net book value at 30 June 2017

 

1,972

At 1 July 2017

 4,819

 2,847

Additions

 339

-

Disposals

(1,526)

(1,517)

Depreciation

-

758

At 30 June 2018

3,632

 2,088

Net book value at 30 June 2018

 

1,544

 

 

7. Investments in joint ventures

 

2018

2017

 

£000

£000

At the start of the year

27,852

25,093

Investments in joint ventures

8,809

4,250

Disposal of joint venture interest

-

(1,800)

Dividends and other distributions received in the year

(676)

(1,033)

Share of profits after tax

3,757

1,342

At the end of the year

39,742

27,852

 

Investments in joint ventures primarily relate to the Group's interest in the partnership capital of Merrion House LLP and Belgravia Living Group Limited.

 

Merrion House LLP owns a long leasehold interest over a property that is let to the Group's joint venture partner, Leeds City Council ('LCC'). The interest in the joint venture for each partner is an equal 50% share, regardless of the level of overall contributions from each partner. The investment property held within this partnership has been externally valued by CBRE at each reporting date.

 

 

The net assets of Merrion House LLP for the current and previous year are as stated below:

 

 

2018

2017

 

£000

£000

Non-current assets

69,400

53,860

Current assets

1,754

431

Current liabilities

(1,374)

(1,839)

Net assets

69,780

52,452

 

The profits of Merrion House LLP for the current and previous year are as stated below:

 

 

2018

2017

 

£000

£000

Revenue

2,134

1,400

Expenses

(92)

(109)

 

2,042

1,291

Valuation movement on investment properties

5,691

941

Net profit

7,733

2,232

 

Belgravia Living Group Limited owns a leasehold interest in some development land in Piccadilly Basin, Manchester and is currently constructing a block of residential apartments. The Group's financial interest in this joint venture is primarily in the form of a loan with a value as at 30 June 2018 of £5.1m (2017: £1.0m).

 

The net assets of Belgravia Living Group for the current and previous year are as stated below:

 

 

2018

2017

 

£000

£000

Non-current assets

10,466

3,876

Current assets

363

-

Current liabilities

(9,745)

(3,890)

Non-current liabilities

(1,129)

-

Net liabilities

(45)

(14)

 

 

The profits of Belgravia Living Group Limited for the current and previous year are as stated below:

 

 

2018

2017

 

£000

£000

Expenses

(32)

(14)

Net profit

(32)

(14)

 

The Group's interest in other joint ventures are not considered to be material.

 

The joint ventures have no significant contingent liabilities to which the Group is exposed nor has the Group any significant contingent liabilities in relation to its interest in the joint ventures.

 

A full list of the Group's joint ventures, which are all registered in England and operate in the United Kingdom, is set out as follows:

 

 

Beneficial Interest

Activity

 

%

 

Merrion House LLP

50

Property investment

Belgravia Living Group Limited

50

Property Investment

Bay Sentry Limited

50

Software Development

 

 

8. Share capital

 

Authorised

 

The authorised share capital of the company is 164,879,000 (2017: 164,879,000) ordinary shares of 25p each. The nominal value of authorised share capital is £41,219,750 (2017: £41,219,750).

 

Issued and fully paid up

 

Number

 of shares

Nominal value

 

000

£000

At 30 June 2017 and 30 June 2018

53,162

13,290

 

The Company has only one type of ordinary share class in issue. All shares have equal entitlement to voting rights and dividend distributions.

The Company has no share option schemes in current operation and there are no unexercised options outstanding at 30 June 2018.

 

9. Cash flow from operating activities

 

 

 

 

2018

2017

 

£000

£000

Profit for the financial year

18,375

6,725

Adjustments for:

 

 

Depreciation

933

905

Profit on disposal of fixed assets

-

(23)

Profit on disposal of investment properties

(1,677)

(303)

Finance costs

7,887

7,639

Share of post tax profits from joint ventures

(3,757)

(1,342)

Movement in valuation of investment and development properties

(5,932)

2,085

Movement in lease incentives

(1,851)

145

Reversal of impairment of car parking assets

(1,300)

(1,000)

Decrease in receivables

144

4,192

Increase in payables

1,413

(864)

Cash generated from operations

14,235

18,159

 

10. EPRA net asset value per share

 

 

 

 

 

 

 

The Basic and EPRA net asset values are the same, as set out in the table below.

 

2018

2017

 

£000

£000

Net assets at 30 June

204,125

191,078

Shares in issue (000)

53,162

53,162

Basic and EPRA net asset value per share

384p

359p

 

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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Final results for the year ended 30 June 2018 - RNS