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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Town Centre Securities Plc | LSE:TOWN | London | Ordinary Share | GB0003062816 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -3.50 | -2.41% | 141.50 | 136.00 | 144.00 | 1,500 | 16:35:23 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 31.2M | -29.88M | -0.5687 | -2.55 | 76.17M |
From Apr 2019 to Apr 2024
TIDMTOWN
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:
o EPRA net assets per share up 6.8% at 384p (2017: 359p)
-- Dividends:
o Full year, fully covered, dividend increased to 11.75p (2017: 11.50p)
o TCS has now held or improved its dividend every year for the past 58 years
-- Profits and earnings per share:
o Statutory profit before tax GBP18.4m (2017: GBP6.7m) and statutory earnings per share 34.6p (2017: 12.7p), reflecting portfolio revaluation gain and disposals
o EPRA profit before tax down 1.9% to GBP6.9m (2017: GBP7.0m), due to timing of strategic disposals
o EPRA earnings per share down 1.9% to 13.0p (2017: 13.2p)
-- Financing:
o Headroom of over GBP30m following Merrion House financing and Ducie House purchase in July 2018 (2017: GBP12m)
o 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
Hot Features
Premium
-- 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:
o Continued Merrion Centre development further enhances its mixed-use status
o Merrion House, a 170,000 square foot office, completed and fully occupied by Leeds City Council ('LCC'), our joint venture partner
o New leisure units created as part of Merrion House development now being marketed.
o Recent acquisition of The Cube, a high yielding mixed use property
o 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:
o Purchase of Ducie House, a 33,000 sqft multi-let office, includes a car park with future development potential
o Burlington House residential joint venture construction is underway, on time and on budget, with completion scheduled for May 2019
o Eider House residential scheme has full planning approval and construction is anticipated to begin in 2019
-- Strategic repositioning of the portfolio continues:
o Seven properties sold 6% above valuation for over GBP32m in the last two years, with three of those sold for GBP10.1m in the last financial year
o Ducie House in Manchester purchased in the last financial year for GBP9m
o Three further properties purchased since the year-end; The Cube, Leeds for GBP12m, a property in Chiswick, London for GBP1.6m and on Gordon Street, Glasgow for GBP2.4m
o 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:
o The acquisition of the car park attached to Ducie House, Manchester adds another development opportunity in Piccadilly Basin
o The estimated total potential Gross Development Value of the Company's pipeline now stands at over GBP580m
-- CitiPark business continues to grow organically:
o Income up 5% year on year - despite business rates increasing, operating profit up 3.7%
o 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:
o New financing arrangement for Merrion House agreed with Leeds City Council resulting in TCS receiving GBP26.4m in cash in July 2018
o All three bank facilities extended or renewed with improved terms. Average bank maturity increased to 4.3 years
-- New Property Director appointed:
o 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 GBP403.5m (2017: GBP381.1m).
Results
Net assets and EPRA net assets at 30 June 2018 were GBP204.1m, representing 384 pence per share (2017: GBP191.1m, 359 pence per share). This represents an increase of 6.8% year on year.
We report a statutory profit for the year of GBP18.4m (2017: GBP6.7m) which includes the property revaluation surplus of GBP9.8m this year (2017: deficit of GBP1.1m).
Our EPRA profit before tax of GBP6.9m (2017: GBP7.0m) (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 GBP108m 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 GBP26.4m 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 GBP30m at the end of July 2018.
Net debt at 30 June 2018 amounted to GBP192.6m (2017: GBP188.8m). This comprised GBP105.9m (net of GBP0.2m of unamortised arrangement fees) of 5.375% First Mortgage Debenture Stock 2031 and GBP108m of revolving credit facilities, of which we had drawn GBP87.8m at the year end. Finance leases of GBP4.4m, and net of cash of GBP5.5m 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 GBP12m 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 GBP675,000, 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 GBP6.3m in line with valuation, and also a retail unit on Princes Street for GBP3.3m significantly ahead of valuation. We also sold a retail unit in East Kilbride for GBP0.5m again well ahead of valuation. In the last two years we have sold seven properties raising over GBP32m 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 GBP1.6m. 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 GBP2.4m 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 GBP588m, 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 GBP300m.
-- Whitehall Road, Leeds. Office, car-parking, and potentially leisure provision with a total estimated GDV of over GBP150m.
-- Merrion, Leeds. Office and residential towers with a total estimated GDV of over GBP90m. -- George Street, Leeds. Apart hotel with an estimated GDV of GBP10m
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 GBP4m 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 GBP525m Investment portfolio and 1,000-acre development land bank across its 4 UK airports, and also MAG's interest in the GBP1bn 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 GBP'm % GBP'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 GBP40m 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 GBP62m, 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 GBP20m at the beginning of the project, producing GBP1.4m 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.GBP5m cash investment by TCS, the input of cash from LCC enabled the work to get underway in March 2016
- The GBP33m 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 GBP0.7m 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 GBP1.7m pa as its share of rental income from the new lease.
- Following completion and occupation the new building is valued at June 2018 at GBP69.4m 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 GBP26.4m 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 GBP0.2m. 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 GBP24k. 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 GBP75k.
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 GBP9m 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 GBP12m 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 GBP680k with RPI uplifts is a highly sought-after asset. We have seen its valuation increase by 8% in the past year to GBP15.3m 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 GBP1.1m 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 GBP675,000.
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 GBP1.1m 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 GBP4.9m into the joint venture, alongside Highgrove Group with a total of GBP13m in development funding provided by the Greater Manchester Housing Fund. On completion we anticipate net rental income to be c. GBP1.2m 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 GBP1m 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 GBP1.5m of proceeds, GBP1.0m from the initial sale to Urban Splash, and GBP0.5m based on unit sales agreed at the time of our year-end. In total we expect to receive in excess of GBP1.5m on top of the initial GBP1m 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 GBP40m. 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 GBP82m -- Residential Tower B - estimated 173 apartments, with an estimated GDV of GBP56m -- Residential Block D - estimated 82 apartments, with an estimated GDV of GBP28m
-- Commercial Block - 177,000 square feet of mixed use commercial space, with an estimated GDV of GBP76m
-- Multi-Story Car Park - 524 space car park, with an estimated GDV of GBP12m
-- 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 GBP28m, 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 GBP0.8m 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 GBP2.4m 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 GBP32.2m.
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 GBP1.6m 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:
o Watford - three car parks totalling 1688 spaces, where CitiPark has leases to run the Council Car Parks.
o Clipstone Street - a 200 space car park in Central London
o 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 GBP588m.
Development Type Status Estimated Income
GDV @ 5%
Burlington House (JV Residential Underway GBP13m GBP0.6m
at 50%)
------------------ -------------------- ---------- ---------
George Street (JV at Leisure Detailed planning GBP10m GBP0.5m
50%)
------------------ -------------------- ---------- ---------
Eider House Residential Detailed planning GBP40m GBP2m
------------------ -------------------- ---------- ---------
Leeds Car Park Car Park Detailed planning GBP12m GBP0.6m
------------------ -------------------- ---------- ---------
Merrion Cinema Tower Offices Detailed scoping GBP42m GBP2.1m
------------------ -------------------- ---------- ---------
Whitehall Road No2 Offices Detailed planning GBP71m GBP3.5m
------------------ -------------------- ---------- ---------
Leeds Vicar Lane Retail & Leisure High level scoping GBP9m GBP0.4m
------------------ -------------------- ---------- ---------
White Hall Road No3 Offices Strategic Framework GBP40m GBP2m
------------------ -------------------- ---------- ---------
Whitehall Road No7 Offices / Leisure Strategic Framework GBP28m GBP1.4m
------------------ -------------------- ---------- ---------
Manchester Residential Residential Strategic Framework GBP82m GBP4.1m
Tower A
------------------ -------------------- ---------- ---------
Manchester Residential Residential Strategic Framework GBP55m GBP2.7m
Tower B
------------------ -------------------- ---------- ---------
Manchester Residential Residential Strategic Framework GBP28m GBP1.4m
D
------------------ -------------------- ---------- ---------
Ducie House Residential Unscoped GBP15m GBP0.8m
------------------ -------------------- ---------- ---------
Manchester Commercial Mixed Use Strategic Framework GBP76m GBP3.8m
------------------ -------------------- ---------- ---------
Manchester Car Park Car Park Strategic Framework GBP12m GBP0.6m
------------------ -------------------- ---------- ---------
Rickmansworth Residential Unscoped GBP5m GBP0.2m
------------------ -------------------- ---------- ---------
Merrion Corner Tower Residential / Unscoped GBP50m GBP2.5m
Mixed Use
------------------ -------------------- ---------- ---------
GBP588m GBP29.2m
------------------ -------------------- ---------- ---------
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 GBP9.5m 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 ERV Value Valuation Initial Reversionary
GBPm GBPm GBPm % of portfolio incr/(decr) yield 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:
GBP1m+
Leeds City Council
Waitrose
Morrisons
GBP0.5m - GBP1m
Premier Inn
PureGym
Matalan
GBP0.25m - GBP0.5m
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 GBP6.1m in FY17 to GBP8.6m in FY18.
As the below summary table demonstrates TCS has made solid progress financially in the last 12 months:
GBPm 2014 2015 2016 2017 2018 Gross Revenue GBPm 22.6 22.7 26.3 27.5 30.2 EPRA Profit GBPm 7.6 6.5 6.6 7.0 6.9 Statutory Profit before Revaluation GBPm 7.6 4.0 7.7 7.3 8.6 Statutory Profit after Revaluation GBPm 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 GBP6.9m, down slightly on the prior year profit of GBP7.0m. 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%.
GBP'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 GBP'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 GBP2.8m. 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 GBP0.3m 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 GBP0.3m 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 GBP0.25m higher year on year. Underlying interest costs are actually broadly flat year on year with the increase in costs being driven by GBP0.4m of interest capitalised last year.
Balance Sheet
Our total non-current assets (including JVs) of GBP407.2m (2017: GBP385.1m) include GBP376.1m of investment properties (2017: GBP354.6m) and GBP29.6m of non-current car parking assets (2017: GBP28.5m). The Merrion Centre car park is included in the investment property asset. The car parking assets include GBP4m (2017: GBP4m) 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 GBP6.5m of capital expenditure this year (majority being on Merrion House through the joint venture). We also invested GBP3.9m into our Burlington House Joint Venture. Capital recycling comprised GBP10.1m of sales and GBP10.6m of purchases. Along with other cash movements this resulted in an increase in borrowings from GBP188.8m to GBP192.6m.
The property and car parking balances reflect valuation gains of GBP5.9m in respect of the investment and development properties, gains of GBP2.6m in respect of joint ventures and gains of GBP1.0m in respect of car parks (which includes a loss of GBP0.4m 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 GBP35m 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 GBP35m 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 GBP106m 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 GBP26.4 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 (GBP0.8 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 GBP10.6m (2017: GBP12.2m) 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 GBP30m 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:
- 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%
- 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 GBP000 GBP000
--------------------------------------------- ------ --------- --------
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
GBP000 GBP000
----------------------------------------------- ------- -------
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 GBP000 GBP000
------------------------------------------------- ------ ---------- ----------
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 Capital Revaluation Retained Total equity
premium account redemption reserve earnings
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- -------------- ---------------- --------------- ---------------- ---------------- -------------
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 - - - (350) 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 GBP000 GBP000 GBP000 GBP000
------------------------------------------- ------ -------- -------- --------- --------
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
GBP000 GBP000
--------------------- -------- --------
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
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- --------- ----------- ----------- --------- --------- ----------- --------
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 GBP3,658,000. After allowing for an allocation of administrative expenses, the operating profit at these sites was GBP2,962,000.
2. Administrative expenses
2018 2017
GBP000 GBP000
------------------------------ ------- -------
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
GBP000 GBP000
----------------------------------------------- ------------------------------------ ---------
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 Earnings per
share share
GBP000 p GBP000 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
GBP000 GBP000
-------------------------------- ------- -------
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 4,386 -
share
2018 interim paid: 3.25p per 1,728 -
25p share
-------------------------------- ------- -------
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 GBP4.5m 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 Development Total
leasehold
GBP000 GBP000 GBP000 GBP000
------------------------------------- --------- ----------- ------------ ---------
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 Total
leasehold
GBP000 GBP000 GBP000
------------------------------------- --------- ----------- --------
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 GBP22,425,000 (2017: GBP22,245,000).
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 ERV Value Initial Reversionary
rent yield yield
GBP000 GBP000 GBP000 % %
--------------------------- -------- ------- -------- -------- -------------
Retail and Leisure 3,646 4,127 67,610 5.1% 5.8%
Merrion Centre (excluding
offices) 7,366 7,867 97,700 7.1% 7.6%
Offices 2,235 2,648 35,442 6.0% 7.1%
Hotels 1,180 1,630 27,150 4.1% 5.7%
Out of town retail 2,919 3,611 52,050 5.3% 6.6%
Distribution 392 386 5,750 6.4% 6.3%
Residential 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% - GBP316.4m, Valuation at 4.8% - GBP420.9m.
Valuation in the Consolidated Financial Statements at a reversionary yield of 7.7% - GBP321.0m, Valuation at 5.7% - GBP412.1m.
Property valuations can be reconciled to the carrying value of the properties in the balance sheet as follows:
Investment Freehold
Properties and Leasehold Total
Properties
GBP000 GBP000 GBP000
--------------------------------------- ------------- ---------------- --------
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
GBP000 GBP000
-------------------------------- -------- -------------
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
GBP000 GBP000
-------------------------------------------- ------- --------
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
GBP000 GBP000
--------------------- -------- --------
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
GBP000 GBP000
--------------------------------------------- ------- -------
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 GBP5.1m (2017: GBP1.0m).
The net assets of Belgravia Living Group for the current and previous year are as stated below:
2018 2017
GBP000 GBP000
------------------------- -------- --------
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
GBP000 GBP000
------------ ------- -------
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 Activity
Interest
%
------------------------------- ----------- ---------------------
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 GBP41,219,750 (2017: GBP41,219,750).
Issued and fully paid up
Number Nominal
of shares value
000 GBP000
----------------------------- ----------- --------
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
GBP000 GBP000
--------------------------------------------- -------- --------
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
GBP000 GBP000
-------------------------- -------- --------
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.
END
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