Final results for the year ended 30 June 2019

RNS Number : 3614N

Town Centre Securities PLC

24 September 2019

Tuesday 24 September 2019

TOWN CENTRE SECURITIES PLC

('TCS' or the 'Company')

Final results for the year ended 30 June 2019

Delivering in an uncertain market

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 2019.

Financial performance

· Dividends:

o Full year, fully covered, dividend maintained at 11.75p (2018: 11.75p)

o TCS has now held or improved its dividend every year for the past 59 years

· Net assets:

o EPRA net assets per share down 7.8% to 354p (2018: 384p)

o Devaluation of like for like investment portfolio limited to 3.8%

· Profits and earnings per share:

o EPRA profit before tax down 7.9% to £6.4m (2018: £6.9m), driven by various factors including investments, the short-term effect of retail CVAs, and a one-off dilapidation benefit in the prior year

o EPRA earnings per share down 7.9% to 12.0p (2018: 13.0p)

o Statutory loss before tax £12.5m (2018: profit of £18.4m) and statutory loss per share 23.5p (2018: profit of 34.6p), primarily reflect the unrealised £18.3m valuation movement on our investment properties

· Financing:

o Headroom of over £26m at period end, following Merrion House financing

o Loan to value of 49.3% as at 30 June 2019 (2018: 47.5%), driven by the unrealised valuation movement

o Net cash borrowing at its lowest level for over three years

Operational performance

· Robust underlying operational performance with like for like passing rent up 2.6% (2018: 4.1%) driven by the redevelopment at Milngavie

· Overall occupancy level increased to 96% (2018: 95%)

· Retail and Leisure exposure reduced to below 50% from 70% in 2016

· Investment portfolio (including Joint Ventures) initial yield at 6.0%, with reversionary yield at 6.8%

Actively managing our assets

Our long-standing strategy has been to build a portfolio of assets that have opportunity for income and capital growth following active management and redevelopment. In the year this included:

· Conversion of the retail unit in Milngavie vacated by Homebase, creating two units let to Aldi and Home Bargains, driving an 8% increase in rent and a net 23% increase in value

· Purchase of The Cube in Leeds and Ducie House in Manchester, both presenting significant opportunities for growth with redevelopment schemes underway in both buildings

· Continued strengthening of our portfolio and responding quickly to changes in physical retailing enabled TCS to weather the current market challenges of retail CVAs and administrations:

o Eight tenants either went into administration or launched a CVA during the year

o Of those eight units, four have been re-let to new tenants and a further three have seen the incumbent retailer choose to remain at the same rent

o One unit now void and in the process of being re-let. This unit represent just 0.4% of the total rent roll.

· Our CitiPark business continued to grow and contribute a diversified source of earnings with net revenues up 8.2% year on year, and operating profit up 9.7% year on year

Maximising available capital

A conservative capital structure, with a mix of short and long-term secure financing, has always underpinned our approach. During the year:

· TCS completed the innovative financing of Merrion House with Leeds City Council resulting in a cash advance of £26.4m in July 2018

· We continue to dispose of ex-growth assets, most notably selling Rochdale Retail Park in January for £13.2m

Investing in our development pipeline

Our development pipeline, with an estimated GDV of over £600m, is a valuable and strategic point of difference for TCS which we continue to progress and improve. Notably in the past year:

· We have completed construction of our 91-unit PRS scheme Burlington House in Manchester in joint venture with Highgrove Group. The scheme is already 99% let and is ahead of our rental expectations

· We achieved planning approval for a 17-storey office tower above the Merrion Centre, adding to immediate value, and further improving the value of our development pipeline

Acquiring investment assets to diversify our portfolio

We continue to seek out diversification opportunities through the acquisition of investment assets that offer the opportunity for growth. In the year:

· Reduced exposure to Retail. The proportion of Retail & Leisure assets by value within the portfolio fell to below 50%, from 55% last year and 70% in 2016

· More specifically, when excluding Leisure tenants, the pure Retail proportion represents only 36% of the portfolio

· In October 2018 we acquired The Cube in Leeds for £12m. The asset has provided valuable income in the year. We have re-let 20% of the office space, and are now in the process of redeveloping the remaining space for improved longer-term return

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

"We have delivered a robust underlying performance, whilst continuing to re-position the portfolio for the long-term and maintaining our 59-year dividend record, despite a challenging retail sector context and ongoing economic uncertainty.

"Short-term fluctuations in valuations do not shake our confidence in our business model and conservative management approach. The strength of our portfolio and the quality of our development pipeline substantiate the potential for long-term growth. Although we see an ongoing role for the type of retail assets that we own in the areas we know intimately, we continue to increase our exposure to non-retail sectors.

"Given the current sector challenges and the growing gap between our share price and the underlying value of the business, we continue to look at our potential strategic options. We believe it is appropriate to accelerate the disposal of ex-growth retail properties, which despite the potential short-term impact to income, will de-risk the portfolio and free up capital to re-invest. We are in the process of reviewing priorities within our development pipeline where we see latent value, whilst the opportunity for an earnings and NAV enhancing share buy-back given our deeply discounted share price is also under consideration."

-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 8572

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

Chairman and Chief Executive's Statement

We remain committed to pursuing our strategy for long-term value creation, despite market fluctuations.

Delivering in an uncertain market

Against a challenging retail sector context and ongoing economic uncertainty, we have delivered a robust underlying performance, whilst importantly continuing to re-position the portfolio for the long-term, and maintaining our long-standing dividend record.

Overall occupancy reached 96% (2018: 95%), and like-for-like passing rent increased by 2.6% relative to a year ago. The value of our portfolio stands at £394m, with less than 50% of the portfolio comprising Retail and Leisure assets, which compares to 55% a year ago, and 70% three years ago. To have generated these results against such a backdrop is testament to the hard work of the TCS team.

The like for like valuation of our portfolio reduced by 3.8% in the year (FY18: up 3.2%). This reduction has been driven by the continued pressure on retail valuations. However, in comparison to some of our peers, we believe the combination of the quality of our assets alongside the reducing proportion of retail assets in our portfolio, has played an important role in limiting the level of devaluation.

EPRA earnings in the year were £6.4m (FY18: £6.9m) resulting in EPRA EPS of 12.0p (FY18: 13.0p). As discussed in more detail in the Finance section the year on year reduction was driven by a number of factors including the effect of Retail CVAs and administrations, legal and professional fees, and a one-off dilapidation credit in the prior year.

We report a statutory loss for the year of £12.5m (FY18: Profit of £18.4m), which is as a result of the unrealised devaluation of our investment properties of £18.3m.

We continue to benefit from a secure mix of debt funding, which was strengthened last year following the renewal or extension of our bank facilities, and further improved at the beginning of this financial year by the completion of the innovative Merrion House financing arrangement with Leeds City Council. Following a number of years of reporting reducing levels of leverage, we have this year seen our Loan to Value level increase to 49.3% (FY18: 47.5%). However, this is completely driven by the reduction in value of our like for like investment portfolio, and we have seen absolute borrowing levels drop to £182m (FY18: £193m).

In tough times such as these it is important that we stick to our strategy and ethos of focusing on long-term income and capital gain, even if this means riding out short-term challenges:

· Actively managing our assets to optimise income and capital growth;

· Maximising available capital by selling sites that no longer meet our growth criteria and maintaining conservative financing, with the aim of reducing gearing over the longer term;

· Investing in our development pipeline, continuing to unlock existing opportunities and create new ones;

· Acquiring investment assets to diversify our portfolio across sectors, with a focus on Leeds and Manchester.

Actively managing our assets

The travails of the retail sector are well documented, with long established household names struggling for survival and Company Voluntary Arrangements (CVAs) increasingly common as a means of reducing retailers' rental liabilities. Although we have not been immune to the surge of retail CVAs, our agile approach to intensive asset management has mitigated their ongoing impact. During the financial year, eight of our tenants entered into administration or CVAs. By June four units had been re-let to new tenants and a further three have seen the incumbent retailer remain, such that, on average, we have generated rents of at least the previous level. The remaining unit represents only 0.4% of the total rent roll.

An example of this is the former Mothercare site on the Holloway Road in north London, where the terms of the CVA resulted in a rent reduction to 30% of the contracted amount. We gave notice to Mothercare, re-let the outlet to The Works and are converting the upper storey to residential use, such that the total rent for the property will be 24% greater than it was with our former tenant. Similarly, when Poundworld, one of our Merrion Centre tenants, went into administration we re-let the site to Iceland at the same rent as part of a new, 10-year lease. These cases underline our strongly held belief that retail assets acquired in the right locations at the right price have a valuable role in our portfolio, although we monitor tenant performance and outlook to ensure we act swiftly to manage risk.

New schemes to generate growth have been identified at The Cube and Vicar Lane in Leeds, and Ducie House in Manchester. Again, further detail of our active asset management approach, including lease restructures and rent reviews, is provided in our Portfolio Review.

Maximising available capital

A conservative capital structure, with a mix of short- and long-term secure financing, has always underpinned our approach. During the year we completed the innovative financing of the Merrion House office complex, following the most recent part of the last decade's redevelopment and letting to Leeds City Council. Under the agreement, the Council paid all of the base rent due for the term of the 25-year lease. The resulting net cash injection of £26.4 million allowed us to complete the acquisition of The Cube, an office, leisure and residential property in Leeds, ahead of selling our Rochdale Retail Park asset, thereby protecting income. In addition to the financial flexibility Merrion House has given us, it is gratifying to have turned a tired, 1970s office block into a vibrant, successful building occupied by a long-term tenant with more than 2,200 employees.

We continue to proactively dispose of ex-growth assets in order to provide capital to invest in future growth. Since FY14 we have sold over £101m of assets representing almost a third of our current investment property portfolio, including most recently Rochdale Retail Park for £13.2m.

Investing in our development pipeline

Over the years we have established a high quality pipeline of development opportunities, reflected in ongoing increases in valuation. Centred on Piccadilly Basin in Manchester, and Whitehall Road and Merrion in Leeds, our pipeline has an estimated Gross Development Value of over £600m, and comprises predominantly office and residential assets.

Most of the developments are part of local authority approved Strategic Planning Frameworks or have detailed planning permission. We have an abundance of opportunity within our development pipeline, but with the economic environment as challenging and unsettled as it currently is, it is important that we take our time and ensure we take the most appropriate next steps. Following the appointment of Lynda Shillaw as Group Property Director in November, we have been reviewing our development assets to evaluate the scope to create even more value than the current plans deliver. As a result, we are in the process of reviewing the prioritisation of the development pipeline.

We recognise that further capital is required to unlock the latent value in the development pipeline and we continue to look at all options, but this is not a time to hurry and we will proceed when the time is right to create long-term value for shareholders.

Acquiring investment assets to diversify our portfolio

Although it is important to differentiate between segments of the retail sector, the overall market context validates our strategy to diversify our portfolio to maximise returns. Retail and Leisure now accounts for 50% of our portfolio value, down from 70% in 2016. Capital recycling has been key to this strategic repositioning, with divestment of ex-growth assets, targeted acquisitions and the ongoing unlocking of our development pipeline all playing a part.

Half of the value of our retail portfolio relates to the Merrion Centre, our longest held and largest single asset that continues to generate attractive income following a £70m investment programme over the last decade. This year we celebrated the Merrion Centre's 55^th year, its longevity and success a testament of the long-term focus and vision of the Company. In the last year occupancy was 96% and we collected record levels of rent. Around 50% of income from this 1m sq ft mixed use site relates to retail and leisure. Of this, Morrisons accounts for half, and the majority of our other retail tenants operate in discount and convenience, the more resilient segments of the market.

Other assets acquired and developed during the year enhanced our position in non-retail sectors, with our network of contacts and entrepreneurial mindset allowing us to capitalise on attractive opportunities as they have arisen. The completion of Burlington House in May signals our first material participation in the purpose built, private rented sector and this is now 99% let. We are advancing other residential projects, with Eider House being the likely next phase of our Piccadilly Basin development to commence, and our development pipeline is skewed towards office and residential uses. More detail is available in the Portfolio Review. Our car parking activities are also a core part of our diversification strategy. They are discussed in a dedicated section below.

We operate in geographical areas that have been less exposed to the more extreme swings of the property cycle seen in the South East. 77% of our portfolio is in Leeds and Manchester, both of which are thriving. In Leeds, the plans for Channel 4 to open offices and the consolidation of HMRC's satellite tax offices into a building opposite one of our sites serve to drive up values in the city centre, as does the heightened interest from institutional investors looking beyond London. In the longer term, if both Northern Powerhouse Rail (HS3) and HS2 go ahead, the economies of both Leeds and Manchester would benefit significantly.

Growing CitiPark

This area of our business has continued to grow, with revenue up by 8.2% and profitability by 9.7%. Accounting for 28% of Group revenues and 31% of operating profits, CitiPark is an important source of value creation for TCS. Well invested branches with technological innovations to enhance the customer experience and our operational efficiency have been central to our growth strategy. Customers of our strategic branches benefit from online booking, and barrier and cash-less systems enabled by automatic number plate recognition. We recently launched a mobile app to further facilitate customer interaction, with strong early take-up. Electric vehicle charging is available in all branches, and we recently installed a 50kW rapid charger in the Merrion Centre, the first of its type in Leeds City Centre.

We also continue to work closely with Yourparkingspace.co.uk, which matches drivers with available spaces across the country via its website and mobile app. We own a 15% stake in the business, which is in the process of undertaking a new round of fundraising to further its ambitions.

Aside from our strategic car parking facilities, CitiPark has provided a valuable means of generating income from areas of our property development portfolio that otherwise would be unutilised as they await investment.

Investing in 'PropTech'

Sparked by our work with Yourparkingspace.co.uk, in recent years we have evaluated opportunities to invest in property-related technology companies. During the year we made a US$0.5m equity investment in WiredScore, a US based company that provides a commercial real estate rating system that empowers landlords to understand, improve, and promote their buildings' digital infrastructure. We also have a £25,000 investment in GetRntr, a start‐up company that provides data‐driven technology solutions to simplify property licensing in the PRS space.

Creating long-term value for shareholders

Our objective has always been to generate value for our shareholders, with a particular emphasis on income and dividend, and we are very proud of our unbroken, 59-year history of maintaining or increasing dividends. A source of frustration in recent times has been the disconnect between our share price and net asset value per share. We firmly believe that our long history of value creation combined with our material development pipeline should present an excellent investment opportunity for investors.

£1,000 invested in TCS shares 50 years ago would today be worth circa £580,700 on a total return basis, equivalent to a CAGR of 13.6% per annum (Source: Datastream). Furthermore, again over the last 50 years, the TCS share price has increased in value by an average annual rate of 9.1%, compared to the FTSE All Share at 7.0% (As at 9/8/19)

Despite a tough year, the Board is pleased to recommend a final dividend of 8.50p per share. With the interim dividend of 3.25p per share, this gives a total of 11.75p per share (2018: 11.75p). Of the final dividend of 8.50p, 4.50p will be made up of a Property Income Distribution, and will be paid on 7 January 2020 to shareholders on the register on 6 December 2019.

Operating responsibly

Contributing to our local areas through fundraising activities, volunteering and events has always been an important part of our ethos. We support a wide range of not-for-profit organisations, and helped raise a total of over £150,000 for charities in the past year. We are also proud of the role we play in developing attractive spaces for our tenants and creating thriving communities.

We strive to minimise our impact on the environment. Our newly developed and refurbished properties are fitted to achieve efficient energy performance, we operate solar farms on three of our sites, and use electric hybrid vehicles in our fleet.

Looking ahead

We have delivered a robust underlying performance, whilst continuing to re-position the portfolio for the long-term and maintaining our 59-year dividend record, despite a challenging retail sector context and ongoing economic uncertainty.

Short-term fluctuations in valuations do not shake our confidence in our business model and conservative management approach. The strength of our portfolio and the quality of our development pipeline substantiate the potential for long-term growth. Although we see an ongoing role for the type of retail assets that we own in the areas we know intimately, we continue to increase our exposure to non-retail sectors.

Given the current sector challenges and the growing gap between our share price and the underlying value of the business, we continue to look at our potential strategic options. We believe it is appropriate to accelerate the disposal of ex-growth retail properties, which despite the potential short-term impact to income, will de-risk the portfolio and free up capital to re-invest. We are in the process of reviewing priorities within our development pipeline where we see latent value, whilst the opportunity for an earnings and NAV enhancing share buy-back given our deeply discounted share price is also under consideration.

Strategy in action

Acquiring investment assets: The Cube

In October 2018 we acquired The Cube from Aviva for £12m, at a net initial yield of over 12.5%. Originally a 1960s office building, The Cube has been refurbished and extended, and now comprises 22,000 sq ft of ground floor leisure units together with 50,000 sq ft of offices over three floors.

This acquisition is a great example of our strategic approach to improving the portfolio by acquiring stock for growth in locations where we already have a strong presence.

· Location: Leeds City Centre, in close proximity to the Merrion Centre

· Yield: extremely attractive yield, primarily due to the office leases coming to an end by the end of 2019

· Diversification: Largely office space, the acquisition helps reduce the Company's exposure to Retail

· Growth potential: With intensive asset management and possible capital investment, there is significant opportunity for long-term capital growth and maintenance of strong levels of income

The Cube is typical of the assets that TCS looks to invest in, where the lot size and the building's need for intensive asset management puts off larger buyers, giving TCS the opportunity to acquire attractive assets at a competitive price. At the purchase date, £1.25m (77% of the income) was generated through two leases to the Government and to Capita, with both leases due to expire in 2019. It was clear that Capita, the largest tenant, would seek to leave by September 2019.

Consistent with our strategy of delivering for the long term, we expect income levels and value to dip whilst the tenant change and capital investment are delivered, with the aim of securing long term income and creating capital growth.

Actions so far:

We have now:

· Replaced £180k of at-risk income with a renewed five-year lease with the Secretary of State for 10k sq ft

· The 2^nd floor, 3^rd floor and half the 1^st floor are currently being marketed, with strong interest

To secure the final lettings and to optimise value from the asset, we are investing capital to:

· Reconfigure and improve the remaining office space

· Improve communal and reception space

We are also looking at opportunities to:

· Repurpose some of the ground floor leisure space

· Create flexible co-working space

We believe that once the building is fully let, we will be ahead of our initial investment case. As we progress with the expected tenant changes and invest in the space, we do expect FY20 income to drop year on year.

Actively managing assets: Milngavie

One of our properties in Milngavie, an upmarket commuter town outside of Glasgow, was previously let to Homebase, who exited having settled our dilapidations claim in December 2017.

Having sub-divided and improved this 36,500 sq ft unit, it was let to Aldi and Home Bargains. This change created a significant opportunity for TCS. Through actions aligned to our strategic drivers, we unlocked value through:

· Intensive asset management: The change allowed for investment in the building and dividing it into two, improving rental levels and valuation

· Diversification: Whilst the new tenants are also retailers, we have been able to significantly improve the covenants. In addition, the development will include two EV chargers in the car park as part of our CitiCharge initiative

· Growth potential: The development work has also future-proofed the site infrastructure, enabling c. 9k sq ft of additional usable land which will be able to deliver further new rental income in the future

Whilst impacting on income as a result of the building being vacant for c. 18 months, we have created significant value:

Before:

Expired poor covenant Homebase lease delivering c. £560k rent pa, valued at £7.8m.

After:

Two new high-quality leases to Aldi and Home Bargains, delivering 8% more rent and valued at £11.1m, following a £1.5m net capital investment.

Looking forward:

We have an option to purchase and develop a sizable site which sides adjacent to this unit giving future development opportunities for TCS

Investing in our development pipeline and maximising available capital: Burlington House

Burlington House is our first dedicated Private Rented Sector (PRS) property. Located in our Piccadilly Basin development site in Manchester, the 91-unit property has now achieved practical completion, is being actively marketed and is 99% let already.

Completion of Burlington House highlights the potential of TCS's development pipeline and underlines how we continue to strategically unlock value from the pipeline:

· Invest in development pipeline: The latest development under the Strategic Planning Framework at Piccadilly Basin, Burlington House is an iconic building that will form the centre of our PRS investment in Manchester

· Maximise available capital: The investment was undertaken in 50/50 joint venture with Highgrove Group, with c. 60% development finance being provided by the Greater Manchester Housing Fund, thereby minimising the capital required by TCS to unlock the scheme

· Diversification: This investment in PRS seeks to benefit from the strong demand for residential property in Manchester, whilst helping to effectively reduce the proportion of retail within the portfolio

In detail:

· 91-unit luxury waterfront scheme designed by acclaimed architects SimpsonHaugh incorporates 29 one-bed, 56 two-bed, and 6 three-bed apartments in the heart of Manchester

· £22.7m asset created (100% of the asset), valued on a PRS basis (value for vacant sale estimated at over £26m), for the joint venture, for which TCS invested £5.3m including the value attributed to the land

· Estimated mature net income of £1.1m yielding circa 5% return on cost, albeit TCS's return on cash spent is significantly higher

· Development finance in the process of being replaced with longer term secured financing

· Belgravia Living branding established for further PRS rollout in Piccadilly Basin - the next planned PRS unit being Eider House, with the potential for 128 units

Portfolio Review

We continually strive to enhance our high quality portfolio through active asset management and capital recycling.

With good quality assets and development land at the heart of two key regional cities, TCS's portfolio is both resilient and adaptable to meet market conditions. The strategy to reposition the portfolio away from retail over the last few years has enabled us to diversify our income streams by adding more office, hotel and PRS assets. The Merrion Estate has been a key asset in our portfolio for 55 years and one that we continue to evolve, most recently securing planning permission for a new 180,000 sq ft office tower.

We believe that our focus on the cities of Leeds and Manchester (77% of our portfolio) creates a point of strategic difference. The economies of both cities go from strength to strength, and, from a property perspective, while northern regional cities don't achieve the same highs, there is less volatility through the cycle than seen in London and the South East. Our existing portfolio, combined with the scale of opportunity within our development pipeline, gives TCS a significant strategic advantage.

TCS prides itself on the active management of our property portfolio, and we have a long history of active property selling and buying in order to maintain returns. Whilst the Merrion Estate has long played a key role and material role in our portfolio, beyond Merrion we have made significant changes to the portfolio in recent years.

Since FY14 we have sold over £101m of the portfolio, representing over 30% of the property portfolio. This has resulted in a material diversification of assets in recent years, with the proportion of Retail & Leisure within the overall portfolio reducing to 50% from over 80% ten years ago.

In addition, whilst we are long-term owners of the Merrion Centre, our continued investment in the asset has ensured it has moved with the times and remains as relevant today as it was when it opened 55 years ago. We celebrated the Merrion Centre's 55^th birthday this year and highlighted its transition to a mixed-use investment asset.

Sales and Purchases

It has been an important year in terms of sales and purchases. The most significant transactions were the acquisition of The Cube in Leeds for £12.0m in October 2018 and the sale of Rochdale Retail Park for £13.2m in January 2019. In addition, we disposed of a retail property on Shandwick Place in Edinburgh for £0.8m, and acquired two retail properties in London and Glasgow for £1.6m and £2.4m respectively.

As the table indicates, the combined acquisitions and sales of over £75m have substantially altered the mix of properties in our portfolio.

£m	Sales		Purchases
		% Retail & Leisure		% Retail & Leisure
FY17	22.3	88%	4.0	46%
FY18	10.1	95%	9.0	0%
FY19	14.0	100%	16.0	25%

	46.4	91%	29.0	20%

Rochdale Retail Park was sold to Rochdale Council for £13.2m. The park totalled 70,000 sq ft with current tenants Argos, Halfords, Matalan and Poundstretcher, all with relatively short leases. Through its prior ownership of the Rochdale Canal Company, TCS actively managed a number of developments around Central Retail Park. As a result, the park was strongly let at an average of £16.50 per sq ft, which was ahead of current market rents. At the time of sale, the property was valued on our balance sheet at £14.0m, but for TCS the asset was ex growth and the decision to sell was to avoid further declines in value.

Details on the acquisition of The Cube can be found in the Strategy in Action section above.

Valuation

These are uncertain times for property investors, with valuations, particularly in the retail sphere, coming under significant pressure. As of the June 2019 year end our overall portfolio valuation decreased by 4.6%. The key drivers of this movement are:

· A like for like decrease in the portfolio of 3.8% - this is all driven by devaluations of retail assets

· A reduction in value of non like for like assets, mainly Ducie House in Manchester which had dropped by £2.0m at the half year, as the purchase price included the value of a right of light claim the building had over our Piccadilly Basin development site.

TCS has a strategy of investing in core Leeds and Manchester, providing diversification into the portfolio through investments in Scotland and London and creating value through intensive asset management and development of assets. In a difficult market our performance has been steady. The fall in value across our portfolio has largely been driven by the stresses in the market on high street retail which, while part of our core asset base, accounts for 36% of our assets by value (our portfolio is 50% retail and leisure by value). The resilience of our portfolio in the current market comes from the mixed-use nature of the majority of our investments and our lack of exposure to brands such as Arcadia Group, BHS, Debenhams and House of Fraser and other high street fashion retailers.

Retail

The retail sector has had a turbulent 12 months. Major high street brands have experienced trading difficulties attributable largely to structural change in consumer trends, oversized portfolios and the impact of wider economic uncertainties such as the devalued pound and increased costs.

Pressure has been felt by landlords as tenants have gone into administration and entered into CVAs or opened up a dialogue on rent affordability in the current trading climate. Where rents have been rebased through CVAs for some tenants, others who have stronger balance sheets and have typically managed their real estate growth more effectively are beginning to seek some level of equilibrium in rents with their CVA competitors. This will stall rental growth/recovery over the short to medium term for all but the super prime retail stock.

Due to stresses in the trading environment the valuation of the retail elements of our portfolio deteriorated by 2.7% during the second half of the year and 5.6% overall year on year. This relatively robust performance is largely down to the active asset management and targeted investment across the estate and the mixed-use nature of much of our portfolio where our strategy has been to invest in and develop assets which have diversity of uses. That said within our overall portfolio we have also seen some significant shifts in value on an asset by asset basis.

Merrion Estate

At the northern edge of Leeds city centre Merrion is the original mixed-use development and consists of retail and leisure, office and car parking assets. Adjacent to Leeds Arena and very much at the centre of a growing student community from both existing student developments and c 3,500 new student beds under construction around the centre.

The Merrion valuation (including the hotel) is down by £8.6m year on year, with the equivalent yield moving out from 7.79% to 7.91%. While the fall in valuation continues to reflect the softening of retail yields much of the second half drop (£3.6m) is attributable to a reduction in the value of the hotel, reflecting the performance of the restaurant where it has taken us some time to find the correct format.

The underlying performance of Merrion minus the hotel was reasonably stable compared to the market with a 5.9% (£7.0m) fall in value over the year reflecting yield shift rather than a decline in income. As with other landlords we experienced a number of CVAs and administrations over the year from tenants such as Poundworld, Crawshaws and Smoke BBQ, but we do not have any exposure to tenants such as Debenhams, Arcadia Group and House of Fraser where their CVA actions have had a major impact on shopping centres. The void rate in Merrion is currently 3.5% and where we have experienced vacancies we have re-let much of what has come back to us at the same (or improved) rent levels to tenants such as Iceland and Ramshaws.

The diversity of our offer has also been maintained as we continue to curate a good mix of independent and national food and beverage operators at the centre concluding lettings to Pizza Express, Starbucks, Chatime and Blue Sakura - which has proved to be highly popular in particular with the surrounding student population. We have also continued to invest in Merrion with a redevelopment of the Wade Lane Mall, securing new leases from existing tenants and by securing a planning consent for 100MC, a 17 storey, 180,000 square foot office tower.

TCS Retail Overview

Scotland - The cornerstones of our Scottish portfolio are the prime Glasgow retail assets and our investment in Milngavie. Yield shift and the Berkertex CVA at our Bath Street asset were the primary factors in declines in value. Where Bath Street is concerned the location of the asset is fundamentally strong and following the tenant CVA we moved quickly to refresh and market the asset and now have lettings in solicitors' hands in line with previous rent levels. Any declines in value in our Scottish portfolio have been more than offset by the redevelopment of the former Homebase in Milngavie and the conclusion of the lettings to Aldi and Home Bargains, adding £3.7m of value year on year.

In London our investments (c£8.7m) are in good quality secondary high street locations and consist of primarily retail and residential mixed-use assets, providing geographical diversity into our portfolio through the cycle. However, yield shift particularly in the retail elements of these assets has driven some of the steepest declines in value year on year (-8% to -26%), coupled with lack of competition from retailers for sites at this point in the cycle we are seeing rents rebalancing to lower levels with a corresponding impact on valuation.

Leeds - The valuation of the Vicar Lane retail asset fell by c 22% year on year (£2.45m) through a combination of yield shift and the remaining terms of the occupational leases / current voids. With an existing tenant wishing to expand their premises and three new lettings in solicitors' hands, we anticipate some recovery in value in 2020. Situated in the heart of the new retail area of Leeds between Hammerson's Victoria Gate development and Victoria Quarter investment this asset has strong development potential and we are working up a longer-term scheme to drive value

In Harrogate, 8-10 West Park saw a 16.7% decline in value to £3m through a combination of yield shift and the timing of lease renewals to existing tenants. Once the current negotiations are concluded we expect the value to recover.

The value of our Urban Exchange asset in Manchester, fell by 2.6% year on year to £17.1m. All of this reduction was in the first half of the year and largely attributable to yield shift. No further outward yield movement was seen in the second half of the year due primarily to the opportunity for future rental growth driven by the significant amount of development activity in and around Piccadilly Basin, including the completion of our Burlington House scheme.

Offices

Our key office holdings are in Leeds and Manchester and are a mixture of new developments (Merrion House) and secondary assets, located close to our strategic sites with short-term asset management opportunities. Office values across our portfolio held steady year on year, largely underpinned by Merrion House at £34.7m. Carvers Warehouse in Manchester saw a 7% uplift in value reflecting that it is fully let and that we have successfully moved rents on.

The office markets in both Leeds and Manchester are strong and there is a shortage of Grade A and good quality secondary stock in both cities with much of the development pipeline over the next 18 months pre-let. During the year we acquired Ducie House, adjacent to our Piccadilly Basin development and The Cube, adjacent to Merrion in the first half of the year.

Our acquisitions are typical of where we see an opportunity to drive value. Both had known voids / voids pending and require investment to reposition them and drive rents on. We have seen dips in value against purchase price in both assets, reflecting tenant exits and have worked up investment schemes to reposition the asset. Both are delivering rents ahead of business plan and we are on site with the works to Ducie House and ready to go at The Cube once the exiting tenant hands the space back. Once our works and the new lettings complete, we expect to see the value of the assets increase in line with our investment case.

Development

The market for both residential and commercial development in Leeds and Manchester remains robust with relatively strong growth forecast for both cities over the next five years fuelled by tech sector growth and north-shoring.

Our two main development sites are in prime central Leeds and Manchester and both have licences to operate as car parks in advance of development which is brought forward in phases for residential, or as we secure a pre-let on a commercial element of the scheme.

Development site valuations were slightly up year on year at £36.45m, reflecting the execution of our masterplan in Piccadilly Basin and the increasingly prime nature of the Whitehall Riverside site as MEPC build out their adjacent scheme.

We completed the development of Burlington House, a 91-unit residential scheme in joint venture with GMI during the second half of the year and our share in the joint venture is now held as an investment asset.

Our top tenants

We believe we have a high quality tenant base, which has continued to play an important role in mitigating some of the current challenges, particularly in the Retail space.

Key statistics include:

Our top 15 tenants represent 51% of total rental income

These tenants are:

Leeds City Council	9%
Waitrose	7%
Wm Morrison	7%
Pure Gym	4%
Premier Inn	4%
Aldi Stores	4%
StepChange	3%
Home Bargains	3%
Dune	2%
Go Outdoors	2%
The Deltic Group	2%
Flannels	1%
First Secretary of State	1%
Carphone Warehouse	1%
The Works	1%

	51%

Looking forward

Intensive asset management:

We will continue to intensively manage our existing portfolio, looking to create additional value and income. In particular we are currently working through schemes for The Cube, The Merrion Centre and Vicar Lane in Leeds. We are already underway with improvements to Ducie House and Carvers Warehouse in Manchester.

We expect overall LFL income levels to reduce in FY20 as we invest in The Cube and Ducie House, ahead of reletting the improved space, driving future rental growth.

We work closely with our tenants to understand how we can help them get the most out of the space they rent from us, and how creating place and community in our key locations can add value for our tenants.

Asset sales:

We constantly review our portfolio with the aim of disposing of properties that become ex-growth. In the current retail climate this exercise is more important than ever, and we dedicate significant management time to reviewing our options in this space.

Investment purchases:

We are continually looking for opportunities to create value through the purchase of investment assets, both retail and non-retail. In particular we look to purchase assets at competitive prices due to the need for tenant and asset management, and / or that have development opportunities. Examples include the recently acquired assets Ducie House and The Cube.

Development:

Our development pipeline has substantial potential, with an estimated Gross Development Value of over £600m. There is a significant capital requirement to unlock this value, and we continue to evaluate funding options. With our focus on long-term value creation we are not under pressure to develop, and we manage our risk and exposure by ensuring that the timing is right to bring an asset forward.

Given the changing needs within the cities in which we operate, we are reviewing the planned timing for the next phase of developments including George Street, Eider House and 100MC and the scope for our Masterplans to be developed further and rephased to create more value for the business.

Portfolio Overview:

	Passing rent £m	ERV £m	Value £m	% of portfolio	Valuation incr/(decr)	Initial yield	Reversionary yield

Retail & Leisure	3.7	4.2	62.7	16%	-13.0%	5.6%	6.3%
Merrion Centre (ex offices)	7.1	7.8	92.5	23%	-6.6%	7.3%	7.9%
Offices	5.5	6.0	80.4	20%	-3.7%	6.5%	7.1%
Hotels	1.2	1.6	25.8	7%	-5.0%	4.3%	6.0%
Out of town retail	1.8	2.5	41.8	11%	3.6%	4.0%	5.6%
Distribution	0.4	0.4	6.1	2%	6.8%	6.3%	6.6%
Residential	1.2	1.3	21.8	6%	-4.0%	5.1%	5.7%

	20.9	23.8	331.0	84%	-5.6%	6.0%	6.8%

Development property	2.1	2.1	36.5	9%	-0.1%
Other Car parks	1.5	1.5	26.7	7%	3.8%

Let portfolio	24.5	27.4	394.2	100%	-4.6%

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

Location	Value	%
Leeds	236.9	60%
Manchester	68.2	17%
Scotland	56.4	14%
London	31.2	8%
Other	1.6	0%
	394.2	100%

Sector	Value	%
Retail/leisure	196.9	50%
Hotels	25.8	7%
Office	80.4	20%
Car parking	26.7	7%
Distribution	6.1	2%
Residential	21.8	6%
Development	36.5	9%
	394.2	100%

Lease Expiries	Value	%
0-5 years	11.2	54%
5-10 years	3.4	16%
Over 10 years	6.3	30%
	20.9	100%

CASE STUDY: Challenges in the Retail sector

Stories of retailer in distress have been rife and appear to be on-going, and TCS has not been immune from the effects of these challenges. CVAs seem now to be the retailers' tool of choice to reduce their cost base and attempt to re-invent their customer and economic models in the face of the continued growth in internet retailing.

Property owners of retail units are facing their own commercial challenge as a result. TCS has a clear strategy to do all it can to mitigate this effect, focusing on three key elements:

1. Continue to divest of weak retail assets and reinvest in more diversified assets

2. Where we are confident in the quality of our retail assets, continue to invest and develop multi-use destinations

3. Prioritise tenants that are largely convenience, discount, grocery, or high-volume leisure focused

TCS does not have any exposure to the large retail names such as Debenhams, House of Fraser or Arcadia, and as a result have managed to avoid significant impact. In the year ended 30 June 2019 TCS was impacted by tenant CVAs and Administrations by £228k. When the impact of the vacant ex-Homebase property in Milngavie, Scotland is included this impact rises to £800k.

In the year the Company experienced 8 new tenants either going into administration or launching a CVA. Of those 8 new impacts 4 have been re-let to new tenants and a further 3 have seen the incumbent retailer choose to remain, leaving 1 unit now void and in the process of being re-let.

Across those 8 properties, once re-let or where occupancy has continued, we have actually seen a modest 1% increase in base rent. Clearly there is a cost to the Company in the form of void periods and new tenant incentives, however the continued speed with which we ensure that the units are occupied is a testament to the quality of our portfolio. Key examples are:

· Despite Cotswold Outdoors (Harrogate) and Select (Merrion Centre) launching CVAs both retailers remain in occupation paying full rent and service charge

· Following the administration of Berkertex, the bridal retailer, and their departure from our unit in Glasgow, we split and re-let the unit to a successful local beautician and the Scotch Malt Whiskey Society, with total rent increasing 8%

We have previously highlighted the success in the Merrion Centre where Poundworld went into administration and we successfully re-let the unit with only 7 weeks lost rent to Iceland on a new 10-year lease at the same level of rent as paid by Poundworld. This clearly reaffirms the strength of the footfall making the mixed-use Merrion Centre a destination for members of the public.

Creating Places in Leeds

Leeds portfolio overview

	Value £m	%

Merrion Morrisons	18.1	8%
Merrion Offices	54.1	23%
Merrion Retail & Leisure	49.2	21%
Merrion Car Park	25.2	11%
ibis Styles Hotel	10.3	4%

Total Merrion	156.9	66%
Other Leeds assets:
Retail & Leisure	18.3	8%
Offices	12.4	5%
Hotels	15.5	7%
Residential	3.9	2%
Industrial	6.1	3%
Car Parks	10.3	4%
Development	13.5	6%

TOTAL LEEDS	236.9	100%
LEEDS AS % OF TOTAL		60%

Key achievements in the year

· Despite increased CVA activity we continued to re-let properties on average at or above previous rent levels. In the Merrion Centre, particular successes include the arrival of Iceland and Ramshaws.

· The strong attraction of the Arena Quarter section of the Merrion Estate (facing the Leeds Arena) continued, with new lettings to a number of food and beverage tenants including PizzaExpress, Starbucks, Blue Sakura, and Union Square.

· We completed a refurbishment of our TCS office in Town Centre House (part of the Merrion Centre), allowing us to move to a single floor and release a floor that has been let to PureGym.

· We acquired The Cube for £12m in October, and subsequently renewed the lease to the Secretary of State - see Strategy in Action

Market context

Leeds is part of the fourth largest conurbation in the UK, with the city itself having a population of almost 770,000, and a work force of almost 2 million. With three universities, a millennial population of close to 200,000 and 24% of employees educated to degree level or higher, the city is attracting investment, with more than 9,000 professional jobs set to be added in the centre over the next decade and forecast economic growth of 8.3% over the next five years (5.7% over the last five). The relocation of the Channel 4 headquarters has increased the profile of the city. Leeds is also recognised as the 4^th best shopping destination in the UK, with over 660,000 people claiming the city as their primary shopping destination.

Demand for space

Private sector office-based employment within the region has grown by 15% over the last five years and is forecast to grow by a further 7.9% over the next five. The 10-year average office take-up was exceeded in 2018 by 34%, with developments largely being pre-let or fully let prior to completion. Prime yields remain at 4.75%. Availability of office space in Leeds has been gradually falling since 2015, with 2018 seeing a reduction of 31% in total office supply and a 9% decrease in Grade A space. Overall vacancy stood at 6.96%. Rents are expected to continue to grow through to 2020, with Leeds still offering the lowest rents among the big six regional cities.

As a fast-growing city Leeds has a supply shortfall in housing, particularly in the city centre. Typically, residential values are lower in Leeds than York and Harrogate, which has generally meant that regardless of a number of sites capable of delivering a total of in excess of 10,000 units, other property asset classes where there are also supply constraints drive better returns. 2019 has seen a shift, against a backdrop of strong demand rents, and capital values are forecast to grow by in excess of 3% per annum. The city currently has a 1300-unit pipeline under construction for investors such as with MODA Living, CEG, Legal & General and Aberdeen Asset Management.

Opportunities for TCS

Our development site at Whitehall Riverside is one of the last prime sites for office development in the city, sitting opposite Hermes/MEPC's Wellington Place at the heart of the new West End business district and 5 minutes away from the city's train station and the rapidly developing South Bank. Whitehall Riverside will deliver a minimum of 340,000 sq ft of new grade A office space. The planning consent has already been implemented for the 180,000 sq ft No2 building and the 524 space multi storey car park, making the development one of the most immediately deliverable in the city.

Adjacent to the Merrion Estate significant development of student accommodation (3500+ beds) is underway, much of which is planned to be available for the September 2019 and 2020 academic years. This will bring a fresh influx of students into the estate and create opportunities to enhance our retail and food & beverage offers and unlock the next phase of development. The estate's immediate neighbours, the Universities and Leeds General Infirmary both have significant masterplans to bring forward a pipeline of c £750m GDV, including a new children's hospital, commercial and residential buildings and the landmark new Nexus Development, providing rentable offices, research and innovation space. All of this will increase footfall to the area, further strengthening our existing offer and improving our development opportunities.

Source: Savills - UK Market in Minutes - Leeds Offices February 2019, CBRE - Tech Cities Research 2019

CASE STUDY: The Merrion Estate

With a total combined value of £157m the Merrion Estate is our largest single asset and has significant further development potential.

Development of the Leeds Arena and the growth of the universities have already brought significant investment and regeneration to the Merrion Estate. We have invested significantly in recent years to develop the Arena Quarter, ibis Styles and Merrion House, and undertaken extensive refurbishment of the CitiPark car park and the retail mall.

The Merrion Estate has been pivotal in providing new offerings and amenity to the city centre, supporting both the vibrant nightlife of the city and the growing commercial community.

Our vision for the Merrion Estate is to continue to evolve what we offer, delivering greater choice and enhancing the mix of uses across the estate, and the recently approved planning proposal to develop a 17-storey office tower above the existing centre demonstrates this intention.

Our continuing investment in the Merrion Centre has materially reinvented the whole of the asset creating a unique mixed-use property in the heart of Leeds that now includes:

- 283,000 sq ft of offices including Merrion House, the main public facing office for Leeds City Council

- 950 spaces of car parking

- A strongly trading 60,000 sq ft Morrisons superstore with 20 years of their lease remaining, accounting for a third of the total retail rent in the Centre

- A 134 bedroom ibis Styles hotel with restaurant

Since 2012 we have invested £42m in the Centre, and despite recent retail valuation pressures valuation is still up £55m over the same period, and income up over 20%. Our most recent investment was the extension and improvement to the Wade Lane section of the retail mall. This comprised:

- Capital spend of £0.7m

- Increasing chargeable space by 500 sq ft, and agreeing new leases with incumbent tenants

- The new leases with higher rents, the new space added for existing tenants, and the refurbishment of a void unit combined to increase income by over £75,000 pa

- With the investment ensuring the renewed commitment from quality tenants such as The Works and Max Spielman, the total amount of rent secured was £162,000 pa with a WAULT of 8.25 years.

Creating Places in Manchester

Manchester portfolio overview

	Value £m	%

MANCHESTER Retail & Leisure	17.1	25%
MANCHESTER Offices	13.1	19%
MANCHESTER Residential	11.3	17%
MANCHESTER Car Parks	3.8	5%
MANCHESTER Development	23.0	34%

TOTAL MANCHESTER	68.2	100%
MANCHESTER AS % OF TOTAL		17%

Key achievements in the year

· Carvers Warehouse - Through active management of the tenant base and continued investment in the asset we have been able to improve rental levels, with the most recent lease at £19 per sq ft, up from £14. The ERV of this asset improved by 13% since commencing the improvement plan.

· Ducie House - following last year's acquisition of Ducie House, we commenced physical improvement of the asset, which will drive lettings and income. In addition, we are reviewing architect plans for the development of office space on the car park and are looking to progress to planning shortly.

· Burlington House - we have now completed and fully let our first dedicated Private Rented Sector (PRS) asset - see Strategy in Action.

Market context

Manchester is part of the second largest conurbation in the UK, with over 7 million people within one hour's drive of the city and a primary retail catchment of 1.6m people. The centre has a population of over 550,000, and more than 105,000 students attend the city's five universities. As the leading professional and business service centre outside of London, the city has clusters of life sciences, manufacturing, creative, media and digital industries, with the BBC and ITV having a key presence. Around 50% of Manchester's graduates stay in the city for work, a rate second only to London in the UK. There are plans to develop a minimum of 25,000 new homes in Manchester over the next 10 years.

Greater Manchester's economy is forecast to grow at a rate of 14% over the next five years, well ahead of the UK average of 11%, with 110,000 jobs expected to be created in the next 5 years.

Demand for space

Vacancy rates for grade A office stock are relatively low, and rents have risen steadily over the last five years. With a lack of new build space, the city is also seeing significant growth in the Grade B refurbishment market, as these buildings offer an attractive alternative to new developments, evidenced by the narrowing gap between rents for top-class refurbishments and new build space.

Manchester's city centre residential market is set to expand significantly over the next couple of years to support the rapid growth of the city centre population. With more than 30 schemes underway, there are some 12,000 units currently under construction to be delivered into the market over the next few years. Manchester has seen the perfect storm of increases in the pricing of new build residential property and increasing rents/ returns for investors as a relative lack of new development and an increase in city centre living have put pressure on available stock. It has become the go to city outside of London for investors in the Build To Rent sector, while also seeing a significant amount of stock built for sale. The wave of units coming onto the market during 2019/20 may see rental growth slow until the market has absorbed the supply. Beyond this the fundamentals look good for residential investment in the city.

Opportunities for TCS

Piccadilly Basin is well located to capitalise on the burgeoning demand for office space and city living residential homes. Our Carver's Warehouse and Ducie House sites offer 55,000 sq ft of office space, and our development masterplan includes a further 180,000 sq ft of Grade A space. It also includes over 600 residential units.

The area is positioned for investment and growth, with much of the land surrounding Piccadilly Railway Station the subject of Strategic Regeneration Frameworks (SRF), and the planned HS2 station integral to the Mayfield site. The schemes will bring in excess of 15,000 homes into Piccadilly, East Manchester and the Northern Gateway. Mayfield and North Campus are expected to jointly deliver in excess of 2.5m sq ft of new commercial space, and Manchester City Council's acquisition of Central Retail Park will bring forward a commercial led mixed use scheme and new car parking, immediately opposite TCS's Piccadilly Basin development.

Piccadilly Basin is unique among the SRFs with its mix of heritage, water frontage and proximity to Manchester's vibrant Northern Quarter and major transport hub. The Piccadilly Basin SRF gives TCS the opportunity to create a best in class city centre neighbourhood with a mix of office, residential, retail and leisure accommodation. With the early developments soon to be complemented by Burlington House and the Dakota Hotel, and the next building Eider House (residential) having planning consent, Piccadilly Basin will cement itself as a destination and an area where a new community is rapidly establishing itself. This momentum puts TCS in a position ahead of much of the proximate competition as we continue to deliver the remainder of the masterplan.

CASE STUDY: Ducie House

Ducie House is a 33,000 sq ft office converted from a former petticoat factory and is located on the boundary of TCS's Piccadilly Basin site. The property is a multi-tenanted office, occupied predominantly by technology and creative industry companies. The variety of product provides a wide choice for tenants, as well as the flexibility for businesses to expand within the building as they grow.

TCS bought the site in July 2018 for £9.0m as a strategic acquisition, in part to eliminate the potential rights of light claim (valued at £1.5 - £2m) on our Eider House development and also to increase land holdings around Piccadilly Basin. The acquisition produces income and has the opportunity to be grown organically. In addition, there is capacity for a future office development in the rear car park.

The current valuation is £7.5m, revalued from the purchase price as there is no longer a right of light claim as TCS owns the asset. Current income levels are below ERV primarily as a result of us having vacated tenants out of the areas identified for improvement and reconfiguration in advance of extensive refurbishment in order to better position the asset in the local office market place. We expect completion of this work to increase both income and value.

The development strategy for the Ducie House building is split into two phases including essential repairs, refurbishment of common parts and creating some larger office spaces. We have undertaken an initial feasibility exercise on the redevelopment of the car park to provide an interlinking 7 storey office premises of 60,000 sq ft. An indicative appraisal has been prepared yielding a profit on cost of nearing 25%, with an ERV of £1,340,000 and delivering an end value of £21,300,000. This further strengthens our development pipeline.

Creating Places in Scotland & London

Scotland and London portfolio overview

22% of our portfolio is located outside of Leeds and Manchester. We have had a long-standing presence in Scotland, however following disposals over the past couple of years we have sold the majority of our Edinburgh assets and now focus solely on Retail and Residential assets in Glasgow and its close commuter town of Milngavie.

In London our investments are in good quality secondary high street locations and primarily consist of retail and residential mixed-use assets.

Our assets in Scotland and London offer a level of geographical diversity in our portfolio away from our Leeds and Manchester focus and provide balance through the cycle. Similar to Leeds and Manchester, London and Glasgow have strong local economies and growing populations.

	Value £m	%

SCOTLAND & LONDON Retail & Leisure	67.5	77%
SCOTLAND & LONDON Offices	0.8	1%
SCOTLAND & LONDON Residential	6.6	8%
SCOTLAND & LONDON Car Parks	12.8	15%

TOTAL SCOTLAND & LONDON	87.6	100%
SCOTLAND & LONDON AS % OF TOTAL		22%

Key achievements in the year

· Bath Street, Glasgow - Following the CVA of bridal retailer Berkertex, we secured two lettings to replace them on both floors they occupied. The new tenants are the Scotch Malt Whiskey Society and a local beautician and income levels have been increased by 8% compared to previous levels.

· Milngavie - Since the exit of Homebase in December 2018 we have now completed the conversion of the unit into two, with both Aldi and Home Bargains now trading. As a result of this conversion we have seen valuation increase by a net 23% and income increase by 8% compared to the pre-Homebase exit levels. Read more about our Strategy in Action.

· Holloway Road, London - Following the CVA from Mothercare which reduced rent by around one third, we re-let the lower floors to The Works and converted the upper floors to residential, giving a total increase in rent of 24% compared to the pre-CVA Mothercare income.

· In August 2018 we acquired a retail unit on Gordon Street, Glasgow, adjoining units we already own on Buchanan Street / Gordon Street. The purchase price was £2.4m with a Net Initial Yield (NIY) of 5.3%.

· In July 2018 we acquired a retail and residential unit on Chiswick High Road, London for £1.6m with a Net Initial Yield of 4.7%.

Building a strong development pipeline

Our substantial development pipeline gives us a clear path to grow over time, subject to financing.

We own a significant development pipeline, totalling an estimated gross development value ('GDV') of over £600m. The pipeline comprises multi-sector assets in Leeds and Manchester, much of which have either strategic or detailed planning approval. We are in the process of reviewing our plans to ensure that we direct our resources in the optimal manner, but the most sizeable components of our pipeline are:

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

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

· Merrion, Leeds: Office and residential towers with a total estimated GDV of over £100m.

Maximising value from these opportunities will require capital, and we continue to explore how we might fund these future developments, including through joint ventures where appropriate.

Key achievements in the year

· Burlington House - 91-unit PRS building in Manchester completed (see Strategy in Action).

· 100 MC - in April 2019 we achieved planning approval for a 17-storey office tower above the Merrion Centre, replacing a cinema which had been empty for decades.

· Whitehall Riverside, Leeds - we are in detailed discussions with a number of potential tenants for our main No2 WHR 167,000 sq ft office building with the aim of achieving a material pre-let commitment. In addition, we are in the process of reviewing the Strategic Planning Framework for this site to ensure we maximise value.

· Ducie House, Manchester - we are in the process of reviewing the first set of designs for a new office block on the car park of our relatively newly acquired Ducie House at Piccadilly Basin.

· Brownsfield Mill, Manchester - this building has been sold for development to Urban Splash, with TCS set to receive 12.5% proceeds on all sales. The full year results for FY19 include £263k of income from the share of proceeds in the year.

· Eider House, Manchester - our likely next PRS scheme in Piccadilly Basin. We have planning consent for a 128-unit scheme and are reviewing options to increase expected value and returns. We are in the process of determining if a new planning approval will be required and with an eye on the volume of residential stock being delivered into the Manchester market and the success of our Burlington development, determining the right time to start on site.

CitiPark, CitiCharge, and PropTech

CitiPark is delighted to have delivered another successful year of revenue and profit growth, whilst further accelerating our technological advancements and launching new sources of income generation.

CitiPark operates over 6,800 spaces across 15 branches. Of those branches:

3 are freehold dedicated multi-storey car parks (MSCPs)
7 are leasehold dedicated MSCPs with lease lengths ranging from 22 years to 31 years
4 are property development sites being operated as car parks in order to monetise vacant land
1 is operated by CitiPark under a management contract arrangement (John Lewis Cheltenham)

CitiPark performance continues to go from strength to strength, with net revenue of £5.4m, up 8.2% year on year, and operating profit of £4.4m, up 9.7% year on year.

Three branches drove the vast majority of the improvement in both income and profit in the year. Those were:

- Merrion Centre, Leeds - increased occupancy following the completion and occupation of Merrion House, combined with improvements in tariffs

- Whitehall Road, Leeds - reduced competitor supply, in particular due to the development of the MEPC site directly opposite which had formally been run as a car park, drove occupancy and rate improvements

- Clipstone Street London - improved occupancy levels combined with a sublet of part of the space to a storage company drove income

Furthermore, the strong growth in revenue, combined with on-going operational efficiency programmes, have allowed us to leverage our cost base, lowering costs as a proportion of income, and therefore driving profit growth ahead of revenue growth.

We continue to see technology as a point of difference for this part of the business, whether that be car parking, EV charging, energy production, or "PropTech" investments. Key achievements in year include:

· We launched CitiCharge, a new initiative looking to provide electric vehicle charging across our locations and beyond. The first example of this is in the form of a 50kW rapid charger at the Merrion Centre, the first of its kind in central Leeds. We are developing plans to offer EV charging capability as a B2B and B2C service in the parking, retail and commercial sectors.

· We have grown our internal EV network by 25% - new EV bay locations include 7 Whitehall Road, Leeds, Rickmansworth, and further increased our provision in Clipstone Street, London branch.

· CitiPark launched its own mobile app available on both iOS and Android. Developed fully in house and directly integrated with our parking management systems throughout the portfolio. The app brings ease and convenience to our customers, allowing them to either pay for their parking or pre-book a space.

· We continue to invest in our pre-booking system, creating a new customer account portal, allowing customers to amend, cancel and refund their bookings all online, in real time, without the need for our customer service team to action this on their behalf. Improving service and generating cost saving to the business.

· The commencement of the John Lewis car park management contract for the new Cheltenham store.

· We continue to uphold the highest standards expected for our brand and parking standards by achieving Park Mark status for both Rickmansworth and the John Lewis, Cheltenham branches, meaning that all of our branches now have this status

· Increased investment in PropTech

- We made a $500k equity investment in WiredScore, a US based company that provides a commercial real estate rating system that empowers landlords to understand, improve and promote their buildings' digital infrastructure.

- We currently hold a 15% equity stake in YourParkingSpace.co.uk, an internet and app-based business that matches customers to available car parking spaces across the UK. The company is in the process of a further round of fundraising that could see TCS convert an element of its debt funding to the business to new equity, increasing our share to over 20% (read more in the Finance Review).

· We continue to look for innovative ways to be environmentally responsible and recently ran a programme in Leeds exchanging plastic bottles for recycling for parking discounts.

CASE STUDY: John Lewis management contract

In October 2018, CitiPark partnered with leading UK retailer, John Lewis, to manage a fully renovated car park in Cheltenham serving their new flagship store.

The CitiPark-run car park has 345 spaces, spread across 5-storeys. As part of the renovations, the car park was fully rebranded with the CitiPark branding, which includes updated wayfinding, internal and external signage. There are 12 'Click and Collect' parking bays which entitles John Lewis customers free parking to collect online orders. This is managed through our digital validation system, which is directly integrated with our parking management system.

The car park employs the latest smart solutions such as ANPR (Automatic Number Plate Recognition) technology to ensure the customer journey is as quick and hassle-free as possible. Shoppers are also able to pre-book and pay for their parking at the Cheltenham branch via the CitiPark app, further improving customer satisfaction for both CitiPark and the retailer. The branch boasts round-the-clock customer support, either on-site or remotely via our 'Engine Room' in Leeds. Other products and services offered include season tickets, YourParkingSpace.co.uk integration, permits and discounted partnership parking for JL&P staff.

This is a significant new venture for CitiPark and represents an excellent way to expand the CitiPark presence, offering the best of our technology innovation and management capability to retailers and other parties.

Whilst we manage the car park and employ the staff, all costs plus our management fee are recharged back to John Lewis. In addition, we have a revenue sharing agreement in place once the operation reaches set revenue thresholds.

We see this as a significant opportunity for future growth and are currently pursuing other live opportunities.

Financial Review

The Company has continued to strengthen its underlying financial position.

We made progress towards our aim of reducing our exposure to the retail sector and unlocking future growth through our development pipeline. TCS has a proud history of focusing and delivering on long-term shareholder return, and - consistent with this - the activity of the past year was undertaken with long-term value creation in mind.

EPRA Earnings in the year were 7.9% lower than last year. Despite that we continued to deliver a fully covered dividend, proud of our 59-year history of maintaining or improving the dividend. This year we propose holding the dividend constant at 11.75 pence, delivering a 6.4% yield based on the share price as at 13 September 2019.

The table below highlights the key financial measures over the past 5 years. It is clear that 2019 was a challenging year for the Company financially driven by the unrealised devaluation of our retail assets. In addition, it is disappointing to see Total Shareholder Return at such a level for the year. This is all driven by the significant, and in our minds unfounded, deterioration in our share price. Our fully covered dividend, our well-funded balance sheet, our development pipeline, and the fact that we continue to invest in the long-term future of TCS are testament to the underlying strength of the business.

£m	2015	2016	2017	2018	2019

Gross Revenue £m	22.7	26.3	27.5	30.2	31.2

EPRA Profit £m	6.5	6.6	7.0	6.9	6.4

Statutory Profit after Revaluation £m	24.0	11.9	6.7	18.4	-12.5

NAV per Share p	344	357	359	384	354

Total Property Return	12.2%	7.8%	6.0%	9.4%	1.3%

Total Shareholder Return	19.1%	-3.9%	9.6%	3.2%	-25.0%

Loan to Value	49.7%	49.2%	49.3%	47.5%	49.4%

Gearing	95.5%	95.0%	96.5%	92.1%	92.5%

Absolute Borrowing £m	179.1	185.8	188.9	192.6	182.0

Income Statement

EPRA Earnings for the year ended 30 June 2019 were £6.4m, down on the prior year profit of £6.9m.

£'000s	FY19	FY18	YOY

Gross Revenue	31,189	30,178	3.4%
Property Expenses	(11,600)	(10,896)	6.5%

Net Revenue	19,589	19,282	1.6%

Other Income / JV Profit	1,649	2,084	(20.9%)
Administrative Expenses	(6,857)	(6,574)	4.3%

Operating Profit	14,382	14,792	(2.8%)

Finance Costs	(8,025)	(7,887)	1.7%

EPRA Earnings	6,356	6,905	(7.9%)

Segmental	FY19	FY18	YOY

Property
Net Revenue	13,970	13,850	0.9%
Operating Profit	9,725	10,307	(5.6%)

CitiPark
Net Revenue	5,388	4,979	8.2%
Operating Profit	4,425	4,032	9.7%

ibis Styles Hotel
Net Revenue	231	453	(49.0%)
Operating Profit	231	453	(49.0%)

There were six key drivers of the reduction in profit year on year:

· Retail CVAs, administrations and bad debt write offs: £0.4m. During the year eight tenants entered into CVAs or administration.

· Investing in our assets: £0.2m. During the year we saw a level of income reduction as we took the opportunity of leases coming to an end to invest in and improve our assets. In the short term this had the effect of reducing rental levels, but will create future value. Milngavie in Scotland is the most significant example.

· ibis Hotel and Restaurant: £0.2m. Whilst the hotel room performance was robust, we were disappointed by the performance of the rebranded restaurant. We have now launched a new more mass-market offer, with a focus on the bar facilities.

· Admin expenses: £0.3m. On top of inflationary cost rises we experienced a number of one-off costs, primarily for professional services relating to financing costs and renewing old certificates of title for our development land.

· Other income: £0.4m. This was lower year on year due to a significant one-off dilapidation payment from Homebase in the prior year, and also the interest effect of the new Merrion House financing agreement, which is consolidated into our accounts within other income.

· LIBOR increase: £0.2m.

These reductions were partly offset by the timing benefit of purchasing The Cube ahead of selling Rochdale Retail Park.

Gross Revenue:

Gross revenue was up £1.0m or 3.4% year on year, with key drivers being:

· Acquisitions including The Cube in Leeds and Ducie House in Manchester, ahead of the sale of Rochdale Retail Park in January, gave a net benefit of £1.1m, accounting for 3.7% points of the increase.

· Organic growth of £0.6m or 5.5% in CitiPark, accounting for 2.1% points of the increase.

· These increases were partly offset by the impact of CVAs and bad debt of £0.4m year on year.

· In addition, the effect of the former Homebase property in Milngavie being vacant for almost the whole year further reduced income by £0.2m year on year.

Property Expense:

At a total Company level property expenses were up 6.5% or £0.7m year on year. Key drivers of this underlying increase were:

· Property: our recent acquisition, Ducie House, has a higher level of operating expense than the rest of our portfolio. Due to the nature of the property most leases have historically been fully inclusive of costs with no service charge. This accounted for £0.3m or 3.0% points of the increase.

· CitiPark: greater operating expenses accounted for 2.2% points of the increase, although these rose below the level of revenue growth, improving cost leverage.

· ibis Hotel: operating expenses were £0.1m higher year on year, driven primarily by the change in restaurant operation, part of which was a one-off payment to terminate our agreement with Marco Pierre White's operating company. This accounted for 0.7% points of the increase.

Other / JV Income:

Total Other / JV income was down 20.9% or £0.4m year on year. This is explained by two key items:

· Income from joint ventures was down £0.1m year on year driven by the onset of the financing agreement in respect of Merrion House, where our share of income is reduced by the effective interest cost.

· Last year we received £0.3m of income from Homebase as a result of dilapidations charges following their vacating our property in Milngavie, which was understandably not repeated in FY19.

Administrative Expenses:

Administrative costs were up 4.3% or £0.3m year on year. The increase was primarily driven by staff costs, where the combination of annual pay awards, the joining of our new Property Director and a provision release in the prior year drove costs up £0.4m year on year. This was partially offset by the halving of the bonus accrual to £0.25m as a result of performance.

In addition, professional costs were circa £0.1m higher year on year, driven primarily by additional legal work required to renew Certificates of Title for some of our development land, following last year's renewal of our bank loan facilities.

Finance Costs:

Finance costs were 1.7% or £0.1m higher year on year. Despite the receipt of £26.4m following the Merrion House refinancing, the combination of purchasing The Cube ahead of selling our Rochdale Retail Park asset and the increase in LIBOR drove higher interest costs in the year.

Balance Sheet

Our total non-current assets (including JVs) of £370.2m (2018: £407.2m) include £337.9m of investment properties (2018: £376.1m) and £30.7m of non-current car parking assets (2018: £29.6m). The Merrion Centre car park is included in the investment property asset value. The car parking assets include £4m (2018: £4m) of goodwill arising on business combinations.

It is worth noting that the largest single factor that reduced the value of our non-current assets was the financing of Merrion House. Previously the Investment in Joint Ventures value reflected the full value of our share of the Merrion House joint venture vehicle. The reduction in value of £27.3m is due to the distribution received from the joint venture following Leeds City Council's forward payment of 25 years of discounted rent.

We continued to invest in our properties with a total of £3.7m of capital expenditure during the year, including £1.3m into the Merrion Centre and £1.5m net into the redevelopment of our property in Milngavie. We also invested £0.4m into our Burlington House Joint Venture. Capital recycling comprised £14.0m of sales and £17.0m of purchases. Along with other cash movements this resulted in a decrease in borrowings from £192.6m to £181.9m.

The property and car parking balances reflect valuation losses of £18.3m in respect of the investment and development properties, no movement in respect of joint ventures and gains of £0.7m in respect of car parks (which includes a gain of £0.5m which is shown in the Statement of Changes in Equity as other comprehensive income).

Borrowings:

As reported in last year's Annual Report, we extended or renewed all of our banking facilities in 2018. There have been no changes since that point meaning that we remain with three RCF facilities as follows:

· Lloyds: A £35m three-year facility with the opportunity for two one-year extensions, with the three-year element expiring in June 2021. We also have a £5m overdraft facility.

· NatWest/RBS: A £33m three-year facility expiring in April 2021.

· Handelsbanken: A £35m five-year facility expiring in June 2023.

These facilities, combined with a £106m long-term debenture scheduled to expire in 2031, give the Company a good level of certainty over its funding over a long time frame.

In addition, again as reported in last year's annual report, we finalised a funding arrangement with Leeds City Council whereby they paid upfront their 25 years of rental payments at a discount for their occupation of Merrion House. TCS received £26.4m in July 2018.

We have sought to lower our Loan to Value (LTV) levels in recent years, making good progress whilst still investing in our portfolio. It is disappointing to see LTV increase to 49.3% at the 30 June 2019. This was unfortunately fully due to the reduction in valuation of the portfolio seen in the last year. The like for like reduction in valuation of £13.8m in the year had a 3.7% point impact on LTV levels, which would otherwise have shown a continuing reduction in leverage. Looking at cash debt levels in the above summary table it can be seen that, at £182m, net borrowing levels were lower than in any of the past three years.

Case Study: Protecting income through flexibility

Demonstrating:

Innovative financing arrangement enabling portfolio flexibility.

Snap shot:

TCS raised £26.4m leveraging Merrion House, enabling the acquisition of The Cube in Leeds ahead of selling Rochdale Retail Park, thereby protecting income in the year.

The background:

Following the completion of the redevelopment of Merrion House in Leeds, in joint venture with Leeds City Council (LCC), LCC took occupation of the building in early 2018, using the building as their main public facing office building on a new 25-year lease, with built in 5-yearly CPI uplifts.

In order to leverage the asset TCS entered into an innovative financing arrangement with LCC where they effectively advanced 25 years of discounted base rent in July 2018, providing TCS with £26.4m of working capital. The inflationary rental increases will still apply, providing TCS with further cash funds from year 5 onwards.

The problem to be solved:

TCS was keen to sell Rochdale Retail Park, a strongly rented but ex-growth asset where valuation was coming under pressure. However, yielding income of £1.15m per annum, the business wanted to ensure this income was suitably replaced, with little or no loss of income in the year.

The solution:

The working capital provided by the Merrion House financing allowed TCS to purchase The Cube for £12.0m (see Strategy in Action) three months ahead of selling Rochdale for £13.2m.

This positive timing resulted in a positive net revenue effect of over £0.6m in the year, as well as the disposal of an ex-growth asset and the purchase of a strategically important one.

Future financial considerations

A number of commercial and accounting considerations are currently being assessed by the Company that are worthy of comment:

Yourparkingspace.co.uk (YPS)

The business currently owns a 15% stake in YPS, and accounts for it as an investment. We hold no significant influence over the company at the reporting date. We review the value of our investment for balance sheet purposes, and from an income perspective look at dividends paid. To date, we have determined that the value of our investment remains consistent with our quantum invested, and with no dividends paid we have not reflected any income.

However, YPS is in the process of undergoing a potential further fundraising, and as part of our existing arrangement with YPS we have the ability to increase our equity stake on the basis of the original valuation. We also have the ability to convert part or potentially all of our loan to YPS into equity on the basis of the new fund raise valuation. These two possibilities may increase our equity share to more than 20%. This would require us to account for the investment on an equity basis. Should this fundraising be successful, we would envisage it having a positive effect on our balance sheet valuation given the expectation that the new fundraising exercise will highlight a significant increase in value of the company. However, at the year end, this outcome remains uncertain and the current carrying value is management's best estimate of fair value. We also however expect this accounting approach to depress EPRA Earnings in the near term as a result of the current loss-making status of this start up. None of this affects the FY19 accounts, but it is possible in the future that we will need to report on an adjusted EPRA Earnings figure to enable investors to understand performance of the underlying Company on a like for like basis.

IFRS16

We will have to apply IFRS16 (lease accounting) for the year ended June 2020. We have a small number of leased operational car parks. We are in the process of finalising our review of the impact of IFRS16.

Future P&L events

As highlighted elsewhere in this report, we have not escaped the impact of CVAs and administrations from retail tenants, and, given the current climate, it is prudent to assume that this risk will continue. Our experience to date suggests that the strength and diversity of our assets will enable re-letting with minimal or no medium-term income loss, although we would expect continued short-term impacts to income and value.

The situation with regards to the uncertainty around retail property reinforces our intention to continue to recycle retail assets and to identify the most appropriate use of the proceeds. Whilst we have been able to protect the income line this year with the purchase of The Cube ahead of the sale of our Rochdale Retail Park site, it is unlikely that we will be able to continue to repeat this, and therefore it is likely that we will see income impacted as we work our way through a continued sale of retail assets.

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 2019 was £26.1m (2018: £10.6m), which was considered to be sufficient to support our going concern conclusion.

Total shareholder return and total property return

Total shareholder return of minus 25.0% (2018: +3.2%) was calculated as the total of dividends paid during the financial year of 11.75p (2018: 11.50p) and the movement in the share price between 30 June 2018 (288p) and 30 June 2019 (205p), assuming reinvestment of dividends. This compares with the FTSE All Share REIT index at minus 5.2% (2018: +9.8%) for the same period.

Despite the long-term improvement in dividend payments, the material reduction in share price in the past 12 months has significantly impacted our reported total shareholder return in the year and in the 5 and 10 year reported figure.

Total shareholder returns % (CAGR)

Total shareholder returns	1 Year	5 Years	10 Years
Town Centre Securities	(25.0%)	(0.6%)	9.9%
FTSE All Share REIT index	(5.2%)	4.5%	10.9%


Total property returns
	TCS	MSCI Quarterly index
Retail	(1.7)	(4.0)
Retail Warehouses	5.6	(5.5)
Shopping Centres	(3.4)	(8.8)
Offices	3.1	4.6

All Property	1.3	3.1

(12 months ending June 2019)

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 was 1.3% (2018: 9.4%). This compared to the MSCI/IPD market return of 3.1% (2018: 9.3%).

A key driver of the All Property MSCI index being higher that TCS is due to the strong market performance of Industrial property of which TCS has only a small amount of.

Mark Dilley

Group Finance Director

Consolidated income statement

for the year ended 30 June 2019

		2019	2018
	Notes	£000	£000
Gross revenue		31,189	30,178
Property expenses		(11,600)	(10,896)
Net revenue		19,589	19,282
Administrative expenses	2	(6,857)	(6,574)
Other income	3	574	888
Valuation movement on investment properties		(18,308)	5,932
Reversal of impairment of car parking assets		200	1,300
(Loss)/profit on disposal of investment properties		(709)	1,677
Share of post tax profits from joint ventures		1,067	3,757
Operating (loss)/profit		(4,444)	26,262
Finance costs		(8,025)	(7,887)
(Loss)/profit before taxation		(12,469)	18,375
Taxation		-	-
(Loss)/profit for the year attributable to owners of the Parent		(12,469)	18,375
Earnings per share
Basic and diluted	4	(23.4)p	34.6p
EPRA (non-GAAP measure)	4	12.0p	13.0p
Dividends per share
Paid during the year	5	11.75p	11.50p
Proposed	5	8.5p	8.5p

Consolidated statement of comprehensive income

for the year ended 30 June 2019

	2019	2018
	£000	£000
(Loss)/profit for the year	(12,469)	18,375
Items that may be subsequently reclassified to profit or loss
Revaluation gains/(losses) on car parking assets	500	(350)
Items that will not be subsequently reclassified to profit or loss
Revaluation gains on other investments	2,341	1,136
Total other comprehensive income	2,841	786
Total comprehensive (loss)/income for the year	(9,628)	19,161
All profit and total comprehensive income for the year is attributable to owners of the Parent.

Consolidated balance sheet

as at 30 June 2019

		2019	2018
	Notes	£000	£000
Non-current assets
Property rental
Investment properties	6	324,500	336,311
Investments in joint ventures	7	13,387	39,742
		337,887	376,053
Car park activities
Freehold and leasehold properties	6	24,194	23,423
Goodwill		4,024	4,024
Investments		2,510	2,125
		30,728	29,572
Fixtures, equipment and motor vehicles		1,609	1,544
Total non-current assets		370,224	407,169
Current assets
Investments		5,871	3,530
Trade and other receivables		5,354	6,288
Cash and cash equivalents		23,692	23,149
Total current assets		34,917	32,967
Total assets		405,141	440,136
Current liabilities
Trade and other payables		(34,739)	(37,954)
Total current liabilities		(34,739)	(37,954)
Non-current liabilities
Financial liabilities		(182,152)	(198,057)
Total liabilities		(216,891)	(236,011)
Net assets		188,250	204,125
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	250
Retained earnings		173,951	189,826
Total equity		188,250	204,125
Net asset value per share	10	354p	384p

Consolidated statement of Changes in Equity

as at 30 June 2019

	Share capital	Share premium account	Capital redemption reserve	Revaluation reserve	Retained earnings	Total equity
	£000	£000	£000	£000	£000	£000
Balance at 30 June 2017	13,290	200	559	600	176,429	191,078
Comprehensive income for the year
Profit for the year	-	-	-	-	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
Comprehensive income for the year
Loss for the year	-	-	-	-	(12,469)	(12,469)
Other comprehensive income	-	-	-	-	2,841	2,841
Total comprehensive loss for the year	-	-	-	-	(9,628)	(9,628)
Contributions by and distributions to owners
Final dividend relating to the year ended 30 June 2018	-	-	-	-	(4,519)	(4,519)
Interim dividend relating to the year ended 30 June 2019	-	-	-	-	(1,728)	(1,728)
Balance at 30 June 2019	13,290	200	559	250	173,951	188,250

Consolidated cash flow statement

for the year ended 30 June 2019

		2019		2018
	Notes	£000	£000	£000	£000
Cash flows from operating activities
Cash generated from operations	9	11,090		14,235
Interest paid		(7,678)		(7,595)
Net cash generated from operating activities			3,412		6,640
Cash flows from investing activities
Purchase and construction of investment properties		(25,517)		(900)
Refurbishment of investment properties		(3,740)		(1,806)
Payments for leasehold property improvements		(255)		(153)
Purchases of fixtures, equipment and motor vehicles		(814)		(340)
Proceeds from sale of investment properties		17,089		7,534
Proceeds from sale of fixed assets		23		-
Payments for acquisition of non-listed investments		(385)		(175)
Investments in joint ventures		(723)		(8,809)
Distributions received from joint ventures		28,145		676
Net cash generated from/(used in) investing activities			13,823		(3,973)
Cash flows from financing activities
(Repayment of)/proceeds from non-current borrowings		(16,252)		5,796
Dividends paid to shareholders		(6,247)		(6,114)
Net cash used in financing activities			(22,499)		(318)
Net (decrease)/increase in cash and cash equivalents			(5,264)		2,349
Cash and cash equivalents at beginning of the year			5,473		3,124
Cash and cash equivalents at end of the year			209		5,473

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

Cash balances			23,692		23,149
Overdrawn balance			(23,483)		(17,676)
			209		5,473

Audited preliminary results announcements

The financial information for the year ended 30 June 2019 and the year ended 30 June 2018 does not constitute the company's statutory accounts for those years.

Statutory accounts for the year ended 30 June 2018 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 June 2019 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The auditors' reports on the accounts for 30 June 2019 and 30 June 2018 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	2019	2018
	£000	£000
Property rental	363,375	397,577
Car park activities	31,466	30,659
Hotel operations	10,300	11,900
	405,141	440,136

Segmental results		2019				2018
	Property		Car park	Hotel		Property	Car park	Hotel
	rental		activities	operations	Total	rental	activities	operations	Total
	£000		£000	£000	£000	£000	£000	£000	£000
Gross revenue	16,408		12,154	2,627	31,189	15,891	11,516	2,771	30,178
Service charge income	2,976		-	-	2,976	2,556	-	-	2,556
Service charge expenses	(3,990)		-	-	(3,990)	(3,387)	-	-	(3,387)
Property expenses	(1,424)		(6,766)	(2,396)	(10,586)	(1,210)	(6,537)	(2,318)	(10,065)
Net revenue	13,970		5,388	231	19,589	13,850	4,979	453	19,282
Administrative expenses	(5,889)		(968)	-	(6,857)	(5,627)	(947)	-	(6,574)
Other income	569		5	-	574	888	-	-	888
Share of post-tax profits from joint ventures	1,075		-	-	1,075	1,196	-	-	1,196
Operating profit before valuation movements	9,725		4,425	231	14,381	10,307	4,032	453	14,792
Valuation movement on investment properties	(18,308)		-	-	(18,308)	5,932	-	-	5,932
Reversal of impairment of car parking assets	-		200	-	200	-	1,300	-	1,300
(Loss)/profit on disposal of investment properties	(709)		-	-	(709)	1,677	-	-	1,677
Valuation movement on joint venture properties	(8)		-	-	(8)	2,561	-	-	2,561
Operating (loss)/profit	(9,300)		4,625	231	(4,444)	20,477	5,332	453	26,262
Finance costs					(8,025)				(7,887)
(Loss)/profit before taxation					(12,469)				18,375
Taxation					-				-
(Loss)/profit for the year					(12,469)				18,375

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

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 2019, arising from car park operations, was £3,961,000. After allowing for an allocation of administrative expenses, the operating profit at these sites was £3,249,000.

Revenue received within the car park and hotel segments is the only revenue recognised on a contract basis under IFRS 15. All other revenue within the Property segment comes from rental lease agreements.

2. Administrative expenses
	2019	2018
	£000	£000
Employee benefits	4,240	3,919
Depreciation	339	339
Charitable donations	92	116
Other	2,186	2,200
	6,857	6,574

3. Other income
			2019				2018
			£000				£000
Commission received			172				142
Dividends received			33				29
Management fees receivable			207				198
Dilapidations receipts and income relating to lease premiums			85				438
Other			77				81
			574				888
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 (2018: 53,161,950).
	2019				2018
				Earnings		Earnings
		Earnings		per share	Earnings	per share
		£000		p	£000	p
(Loss)/profit for the year and earnings per share		(12,469)		(23.4)	18,375	34.6
Valuation movement on investment properties		18,308		34.5	(5,932)	(11.2)
Reversal of impairment of car parking assets		(200)		(0.4)	(1,300)	(2.4)
Valuation movement on properties held in joint ventures		8		0.0	(2,561)	(4.8)
Loss/(profit) on disposal of investment and development properties		709		1.3	(1,677)	(3.2)
EPRA earnings and earnings per share		6,356		12.0	6,905	13.0

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

5. Dividends
	2019	2018
	£000	£000
2017 final paid: 8.25p per 25p share	-	4,386
2018 interim paid: 3.25p per 25p share	-	1,728
2018 final paid: 8.50p per 25p share	4,519	-
2019 interim paid: 3.25p per 25p share	1,728	-
	6,247	6,114

An interim dividend in respect of the year ended 30 June 2019 of 3.25p per share was paid to shareholders on 21 June 2019. This dividend was paid entirely as a Property Income Distribution (PID).

A final dividend in respect of the year ended 30 June 2019 of 8.5p per share is proposed. This dividend, based on the shares in issue at 24 September 2019, amounts to £4.5m which has not been reflected in these accounts and will be paid on 7 January 2020 to shareholders on the register on 6 December 2019. This dividend will comprise an ordinary dividend of 4.0p per share and a PID of 4.5p.

6. Non-current assets
(a) Investment properties
	Freehold	Long leasehold	Development	Total
	£000	£000	£000	£000
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
Additions at cost	16,968	-	-	16,968
Other capital expenditure	3,469	-	271	3,740
Disposals	(14,290)	-	(500)	(14,790)
Deficit on revaluation	(17,879)	(408)	(21)	(18,308)
Movement in tenant lease incentives	579	-	-	579
Valuation at 30 June 2019	266,765	21,284	36,451	324,500

(b) Freehold and leasehold properties - car park activities

	Freehold	Long leasehold	Total
	£000	£000	£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	1,000	300	1,300
Valuation at 30 June 2018	3,000	20,423	23,423
Additions	-	255	255
Depreciation	-	(184)	(184)
Surplus on revaluation	500	-	500
Reversal of impairment/(impairment)	250	(50)	200
Valuation at 30 June 2019	3,750	20,444	24,194

The historical cost of freehold and leasehold properties relating to car park activities is £22,425,000 (2018: £22,425,000).

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

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

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

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

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

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

	Passing rent	ERV	Value	Initial yield	Reversionary yield
	£000	£000	£000	%	%
Retail and Leisure	3,704	4,179	62,650	5.6%	6.3%
Merrion Centre (excluding offices)	7,126	7,759	92,500	7.3%	7.9%
Offices	3,867	4,335	45,685	8.0%	9.0%
Hotels	1,180	1,630	25,800	4.3%	6.0%
Out of town retail	1,752	2,477	41,750	4.0%	5.6%
Distribution	411	427	6,140	6.3%	6.6%
Residential	617	636	10,500	5.6%	5.7%
	18,657	21,443	285,025	6.2%	7.1%
Development property			36,451
Car parks			22,793
Finance lease adjustments			4,425
			348,694

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 7.2% - £309.1m, Valuation at 5.2% - £403.9m.

Valuation in the Consolidated Financial Statements at a reversionary yield of 8.1% - £313.6m, Valuation at 6.1% - £395.3m.

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

	Investment Properties	Freehold and Leasehold Properties	Total
	£000	£000	£000
Externally valued by CBRE	195,345	-	195,345
Externally valued by Jones Lang LaSalle	127,780	17,000	144,780
Investment properties valued by the Property Director	251	-	251
Finance lease obligations capitalised	1,124	3,301	4,425
Leasehold improvements	-	3,893	3,893
	324,500	24,194	348,694

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

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


(c) Fixtures, equipment and motor vehicles
		Accumulated
	Cost	depreciation
	£000	£000
At 1 July 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
At 1 July 2018	3,632	2,088
Additions	814	-
Disposals	(56)	(42)
Depreciation	-	735
At 30 June 2019	4,390	2,781
Net book value at 30 June 2019		1,609

7. Investments in joint ventures

	2019	2018
	£000	£000
At the start of the year	39,742	27,852
Investments in joint ventures	723	8,809
Dividends and other distributions received in the year	(28,145)	(676)
Share of profits after tax	1,067	3,757
At the end of the year	13,387	39,742

Investments in joint ventures are broken down as follows:

	2019	2018
	£000	£000
Equity	7,792	34,650
Loans	5,595	5,092
	13,387	39,742

Investments in joint ventures primarily relate to the Group's interest in 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:

	2019	2018
	£000	£000
Non-current assets	69,400	69,400
Current assets	1,178	1,754
Current liabilities	(2,702)	(1,374)
Non-current liabilities	(52,080)	-
Net assets	15,796	69,780

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

	2019	2018
	£000	£000
Revenue	3,328	2,134
Expenses	(33)	(92)
Finance costs	(1,406)	-
	1,889	2,042
Valuation movement on investment properties	(17)	5,691
Net profit	1,872	7,733

Belgravia Living Group Limited has recently completed construction of a block of residential apartments in Piccadilly Basin, Manchester. The Group's financial interest in this joint venture is primarily in the form of a loan with a value as at 30 June 2019 of £5.5m (2018: £5.1m).

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

	2019	2018
	£000	£000
Non-current assets	22,736	10,466
Current assets	540	363
Current liabilities	(23,355)	(9,745)
Non-current liabilities	-	(1,129)
Net liabilities	(79)	(45)

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

	2019	2018
	£000	£000
Expenses	(14)	(32)
Net profit	(14)	(32)

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

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

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

	Beneficial Interest	Activity
	%
Merrion House LLP	50	Property investment
Belgravia Living Group Limited	50	Property Investment
Bay Sentry Limited	50	Software Development

8. Share capital

Authorised

The authorised share capital of the company is 164,879,000 (2018: 164,879,000) ordinary shares of 25p each. The nominal value of authorised share capital is £41,219,750 (2018: £41,219,750).

Issued and fully paid up

Number

of shares

Nominal value

000

£000

At 30 June 2018 and 30 June 2019

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 2019.

9. Cash flow from operating activities

	2019	2018
	£000	£000
(Loss)/profit for the financial year	(12,469)	18,375
Adjustments for:
Depreciation	919	933
Profit on disposal of fixed assets	(9)	-
Loss/(profit) on disposal of investment properties	709	(1,677)
Finance costs	8,025	7,887
Share of post tax profits from joint ventures	(1,067)	(3,757)
Movement in valuation of investment and development properties	18,308	(5,932)
Movement in lease incentives	(579)	(1,851)
Reversal of impairment of car parking assets	(200)	(1,300)
(Increase)/decrease in receivables	(2,074)	144
(Decrease)/increase in payables	(473)	1,413
Cash generated from operations	11,090	14,235

10. EPRA net asset value per share

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

	2019	2018
	£000	£000
Net assets at 30 June	188,250	204,125
Shares in issue (000)	53,162	53,162
Basic and EPRA net asset value per share	354p	384p

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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