Final Results

TOWN CENTRE SECURITIES PLC

Final results for the year ended 30 June 2012

Town Centre Securities PLC ("TCS"), the Leeds based property investment and development company, today announces its final results for the year ended 30 June 2012.

Financial highlights

·; Underlying* profit before tax £7.3m (2011: £8.2m)

·; Underlying* earnings per share 13.6p (2011: 15.1p)

·; Net asset value per share 270p (2011: 288p)

·; Triple net asset value per share 294p (2011: 341p per share)

·; Total dividend per share 10.44p (2011: 10.44p). Proposed final dividend unchanged at 7.34p (2011: 7.34p)

·; After revaluation deficit of £11.4m, statutory loss before tax amounted to £4.2m (2011: profit of £15.3m after revaluation gain of £6.7m)

·; Basic loss per share (after revaluation deficit) 7.9p (2011: earnings per share of 28.8p)

·; Borrowings £144.6m (2011: £140.2m); gearing 101% (2011: 92%)

·; Discount to net asset value of 34.4% at last night's closing share price of 177p

·; Discount to triple net asset value of 39.8%

*Excluding valuation movement, exceptional items and profits and losses on disposals

Operational highlights

·; Results and performance in line with expectations

·; Asset management activity maintained occupancy level at 97.0% (2010: 96.9%)

·; Refinancing completed in December 2011, providing financing until 2015, 2016 and 2031

·; Planning permission granted for Merrion New Front project

·; Leeds City Council announced proposals to seek refurbishment and extension of Merrion House

·; Urban Exchange, Manchester fully let and trading well

·; Post year end acquisitions of Park Row, Leeds and Apperley Bridge, Bradford

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

"Overall Town Centre Securities is in good operational and financial condition. We have a number of exciting opportunities within our portfolio but we continue to take a cautious view of the market. Our strategy to invest in property in core cities protects us from the worst of the market downturn but we anticipate that pressures on rental income will remain for the foreseeable future. I am particularly excited about the opportunities we have to improve the Merrion Centre, the Merrion Way frontage, and offices occupied by Leeds City Council.

For further information, please contact:

CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT

Introduction

I am pleased to present the results of Town Centre Securities PLC and to provide shareholders with further news of our recent acquisitions, plans to improve the Merrion Centre and our overall portfolio.

Results

In a difficult market our underlying profit before tax of £7.3m (2011: £8.2m) (excluding property valuation, exceptional items and property disposal profits and losses) although lower than last year is in line with our expectations. Much of this reduction relates to increased finance costs, following a conscious decision to refinance early to avoid doing so at the same time as other companies who have significant volumes of property-related debt to refinance.

After a revaluation deficit of £11.4m (2011: surplus £6.7m), resulting from poor sentiment generally towards property outside London, we report a statutory loss after tax amounting to £4.2m (2011: profit £15.3m).

Underlying earnings per share were 13.6p (2011: 15.1p). Basic loss per share (including exceptional items and property disposal profits and losses) was 7.9p (2011: earnings per share 28.8p).

Following the most recent valuation of our properties their aggregate valuation is £287.6m (2011: £296.5m). Our investment portfolio declined by £6.5m (2.8%) during the period although after taking into account capital expenditure the total revaluation deficit was £11.4m. This excluded disposal of properties at Wood Green and Holloway Road in London for which net proceeds were £2.5m, resulting in a profit on disposal in the year of £31,000 (the profit on original cost, since acquisition in November 2009, amounted to £745,000).

Net assets at the year-end reduced to £143.7m (270p per share) (2011: £152.9m; 288p per share). This reduction reflected the impact of the revaluation deficit of £11.4m. Triple net asset value was £156.1m (294p per share) compared to £181.4m at 30 June 2011 (341p per share) taking into account the increase in the mark to market value of the debenture.

Administrative expenses of £4.1m and property expenses of £4.1m were in line with prior year (£4.1m and £4.1m respectively).

DIVIDEND

The Board is recommending an unchanged final dividend of 7.34p per ordinary share. Together with the interim dividend of 3.10p per share, the total dividend for the year of 10.44p is also unchanged. The final dividend comprises a Property Income Distribution (PID) of 5.02p per share and an ordinary dividend of 2.32p per share. The final dividend and PID will be paid on 8 April 2013 to shareholders on the register on 8 March 2013 to allow shareholders to benefit from forthcoming changes in prevailing tax rates.

FUNDING

In late 2011 we agreed £90m of revolving credit facilities with RBS, Lloyds and Handelsbanken to replace existing facilities of £85m. As a consequence our finance costs have increased. The timing of our loan renewals in the overall market context was excellent and the rates obtained, although higher, were very favourable considering the changes in market conditions subsequently.

Net debt at 30 June 2012 was £144.6m (2011: £140.2m). This comprised £105.8m of 5.375% debenture maturing in 2031 and £38.8m of revolving credit facilities and bank balances. The increase was due to capital expenditure and final REIT entry payments.

The company continues to operate comfortably within its facilities and covenants. On our overall borrowings loan to value stood at 50.3% (2011: 47.3%) at the end of June. Our gearing had increased to 101% from 92% due mainly to the fall in property values experienced during the year. Following post year end acquisitions, gearing has increased to 107% which remains comfortably within our facilities.

PROPERTY PORTFOLIO

Our objective remains to generate predictable returns to shareholders through delivery of strong income to support a sustainable dividend. Our investment strategy is to enhance our existing portfolio through active asset management and to acquire new property investments where we can add value.

We have progressed the implementation of our master plan for the Merrion Centre during the year. In the Property Review we set out our plans for redevelopment of the retail and leisure units on Merrion Way, adjacent to the new Leeds Arena which is due to be completed in mid-2013. In addition, Leeds City Council recently identified the Merrion Centre as a major part of its future occupation strategy in the city which includes a complete refurbishment and extension of Merrion House, currently leased to it until 2035. We completed the refurbishment of our Merrion Street retail units during the year.

We have continued to progress the opportunity for out of town development at Rochdale and at Milngavie, near Glasgow, where we have exchanged contracts with Waitrose for a new 36,000 sq ft store subject to planning permission. Interest in our development site at Whitehall Road in Leeds has been strong, although securing tenant commitment in the current economy is a slow process. We also continue to seek interest in our site at Piccadilly Basin where we are actively working to create a thriving environment.

Since the year end we have acquired two properties. 6/7 Park Row, Leeds, the former regional head office of Lloyds Bank, a landmark building in the heart of the city centre comprising 45,000 sq ft. Currently let in its entirety to Lloyds TSB we acquired the property for £7m reflecting a net initial yield of over 8.5%. Apperley Bridge is a 6.8 acre site straddling the Leeds/Bradford boundary comprising the head office and storage facilities occupied by Barratt Trading Ltd, which we purchased for £2.3m reflecting a 10% net initial yield, following shareholder approval in August 2012. 

Despite concerns about the economy our occupancy levels have remained consistently high throughout the year. We experienced 11 tenant administrations during the year (including Peacocks, Bonmarché and Game Group) but were able to retain or replace tenants for the majority of the affected units. At 30 June 2012 we had occupancy of 97% (2011: 97%). Merrion Centre retail occupancy was 98% (2011: 97%).

We incurred capital expenditure of £5.1m during the year. This included £0.4m on the installation of solar panels at Clarence Dock car park in Leeds, a further £0.3m on completing the reconfiguration of Urban Exchange in Manchester which is now fully let and £2.6m on the Merrion Centre including the Merrion Street refurbishment where new tenants, KFC and Coral, have helped to increase footfall in the Merrion Centre.

Pressure on rental income continues due to the prevailing economic conditions. On a like for like basis income at the Merrion Centre was unchanged. The increase in rental income from Urban Exchange has offset a decline in income from other properties.

Rental collections remain strong with almost 99% of rents collected within five days of the due date.

CAR PARKING

We operate car parking in the major city locations of Leeds and Manchester. As well as a planned major refurbishment of the 1,000 space Merrion Centre multi-storey car park we are seeking to identify new assets and income streams for the business. Towards the end of the year we took over management of two car parks at Edward Street and Templar Street in Leeds, adding 500 spaces to our total portfolio bringing the total number of spaces under our control to 4,500.

The car parking business has performed well in a competitive market. Income grew strongly in the second half of the year with increased revenues of £4.9m (2011: £4.8m) and a maintained underlying profitability of £2.3m.

OUTLOOK

Overall Town Centre Securities is in good operational and financial condition. We have a number of exciting opportunities within our portfolio but maintain a cautious view of the market. The continuing recession has affected overall confidence in the UK economy and consequently we must maintain financial headroom to be able to withstand any further falls in value at this point in the cycle. 

Our strategy to invest in property in core cities protects us from the worst of the market downturn but we anticipate that pressures on rental income will remain for the foreseeable future. I am delighted that we successfully refinanced our facilities although the full year cost of higher bank margins will be felt during 2012/13.

I am particularly excited about the opportunities we have to improve the Merrion Centre. We continue to plan for material changes to the Merrion Way frontage and anticipate this will increase footfall in the centre. The recent Leeds City Council announcement about its Merrion Centre occupancy is significant and potentially creates an office and customer service environment which will add future value to the centre.

Finally I would like to thank our loyal and dedicated staff for their continuing commitment to the business. Their efforts have ensured a good performance considering the difficult economic conditions that the business has faced and that we have been able to protect shareholder value during the year.

E M ZIFF

Chairman and Chief Executive

BUSINESS REVIEW

Property review

Hard work has ensured another stable year with our voids remaining just under 3% and our income consistent at £22m.

Portfolio performance

The value of our investment portfolio as at 30 June 2012, on a like for like basis, disappointingly fell in the year by 2.8% despite maintaining income and high occupancy. Jones Lang LaSalle and CB Richard Ellis undertook the independent valuations between them and market sentiment pushed yields out for provincial assets.

The external valuation of our investment portfolio now stands at £269m, reflecting an overall initial yield of 7.1% and a reversionary yield of 7.4%. Like for like income was static after another busy year with 60 new leases and lease renewals, and over 100 completed transactions. 

The lack of investment transactions and general market sentiment saw the Merrion Centre, which accounts for 42% of our investment portfolio, fall in value by 3.7% to £113m (2011: £117.3m). 

However, renewal of the Lloyds TSB Bank lease in Parliament Street, York and securing retail consents in Rochdale and for a Tesco Express in Goodramgate, York increased values to help counter some of the falls experienced elsewhere in the portfolio.

Acquisitions and disposals

We made no acquisitions during the year although two properties that we had under offer both completed after the year end. We believe these acquisitions will provide added-value opportunities and make good contributions going forward.

We sold the stand alone shops we held in Wood Green and Holloway Road, London with proceeds totalling £2.5m. Both these retail units had performed well and the sales represented a 42% return on cost as well as providing a 7% yield during the time we held them.

Portfolio review

With focus on the management of our existing portfolio, we have successfully kept our voids low, just under 3%, and income on a like for like basis remains constant with strategic investment in some asset management opportunities.

In Leeds the Merrion Centre continues to perform with retail voids of only 2% and our retail store in Urban Exchange, Manchester is now fully let and trading well.

We are particularly pleased with the results of our increased marketing activities. During the period we recruited marketing and social media managers and footfall at Merrion and Urban Exchange has increased significantly against a falling underlying national trend.

Although it is difficult these days to predict with any certainty how secure tenant income is, we believe we maintain good security of income which is reflected in our rent collection performance. At 30 June 2012 we had 3 tenants with three leases and 10 tenants with two leases.

Development

Despite gaining consent for our retail park in Rochdale, we have been unable to bring the scheme forward due to the intervention of the council in proposing a ring road extension through the site. Alternative routes are now being considered by the council which we hope will resolve the situation.

During the year, contracts were exchanged with Waitrose for a new store on land adjacent to our Homebase Unit in Milngavie, Glasgow. We are undertaking pre-planning submission consultations and should be in a position to formally submit in the first half of this financial year.

We are delighted that Leeds City Council has chosen the Merrion Centre to consolidate most of their office functions into a refurbished and extended Merrion House, including the provision of a new customer services facility providing a single point of access to all council services in the city centre. 

We continue to have meaningful discussions with some of the larger professional practices in Leeds regarding the potential for new offices at our Whitehall Riverside site. 

Town Centre Car Parks

In late May we increased our portfolio to 4,500 spaces when we took on a management contract for two car parks at Edward Street and Templar Street in Leeds. The new sites contributed revenue of £0.1m. We now have 2,980 multi-storey spaces and over 1,500 surface spaces in Leeds and Manchester.

Despite an extremely competitive marketplace and the impact of fuel price increases reducing car journeys, our like for like income was stable. Our investment in a sales team saw revenue increases in the second half offsetting the reduction in revenue we experienced in the first half.

At the Merrion Centre, marketing initiatives have significantly increased parking revenue and volumes with a resulting benefit to retail footfall.

We further developed our car park branding during the year and retained our Park Mark awards for safe, secure and crime-free car parks.

We plan to make further investment in the business during the new financial year. We have recently recruited a new operations manager to drive performance and efficiencies at our sites. We have also commenced the first installation of new parking management equipment at a site in Leeds as we see this as an opportunity to improve revenues and operating efficiencies across our portfolio.

R A LEWIS

Property Director

FINANCIAL REVIEW

Income statement

Our underlying profit before tax was £7.3m (2011: £8.2m). This result excludes all exceptional items and property disposal profits and losses. Rental income reduced by £0.5m, which can largely be explained by disposals in the prior year. On a like for like basis rental income was unchanged. Property and administrative expenses were comparable to last year resulting in underlying operating profit before interest of £14.5m (2011: £15.0m). Finance charges were £0.5m more than last year as a result of higher bank margins incurred in the second half following our refinancing and slightly higher net debt levels during the year.

The statutory loss after taxation amounted to £4.2m (2011: profit £15.3m). This is after charging a downward valuation movement on investment and development properties of £11.4m during the year compared to a surplus in 2011 of £6.7m.

Underlying administrative expenses amounted to £4.1m (2011: £4.1m) and underlying property expenses were £4.1m (2011: £4.1m). Property expenses can be further analysed between costs relating to the property portfolio of £1.8m (2011: £1.8m) and car park operations expenses of £2.3m (2011: £2.3m).

Net interest costs amounted to £7.3m (2011: £6.8m). In addition to the fixed interest debenture, swap and cap arrangements are in place until March 2014 over £30m of debt. Interest cover was 2.0 times (2011: 2.2 times).

Balance sheet

Net asset value was £143.7m at 30 June 2012, a reduction of £9.2m compared to the prior year. This was a consequence of the valuation reduction on investment properties. Net assets per share were 270 pence (2011: 288p per share). 

Our property portfolio (excluding properties owned by joint ventures) is now valued at £287.6m (2011: £296.5m). £269.0m (2011: £279.1m) of the properties were valued by external valuers and £18.6m by the Directors (2011: £17.4m).

Net borrowings increased during the year to £144.6m from £140.2m. This reflects £6.6m of capital expenditure and an increase of £1.5m in unamortised tenant lease incentives. Gross borrowings comprised £106.0m of debenture loan and £40.5m of bank loans under revolving credit facilities.

Following the reduction in the investment property portfolio valuation, gearing has increased to 101% (2011: 92%). Net borrowings represent 50.3% of property assets (2011: 47.3%).

Cash flow

Cash in flows from operations amounted to £13.2m (2011: £13.8m). After net interest payments of £7.0m (2011: £7.0m) and tax payments of £Nil (2011: £0.9m) the net cash generated of £6.1m (2011: £5.9m) was absorbed by £6.6m on improving and refurbishing investment properties and REIT entry payments of £1.3m. Property disposal proceeds amounted to £2.5m. Dividend payments amounted to £5.6m (2011: £5.3m) and £6.5m was drawn down against facilities resulting in a net increase in cash and cash equivalents of £1.4m.

Dividends

The interim dividend of 3.10p per share and the final dividend of 7.34p per share amount to a total dividend of 10.44p per share which is unchanged from 2011. The dividend comprises PID payments of 8.12p per share and an ordinary dividend of 2.32p per share.

C J KELLY

Finance Director

Consolidated income statement

for the year ended 30 June 2012

 Consolidated statement of comprehensive income

for the year ended 30 June 2012

All recognised income for the year is attributable to owners of the Parent.

Consolidated balance sheet

as at 30 June 2012

Consolidated statement of changes in equity

as at 30 June 2012

1 Other reserves on the balance sheet consist of hedging reserve and capital redemption reserve in the table above.

Consolidated cash flow statement

for the year ended 30 June 2012

The Cash Flow Statement should be read in conjunction with Note 11.

Basis of preparation

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2012 or 2011 but is derived from those accounts. Statutory accounts for 2011 have been delivered to the registrar of companies, and those for 2012 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, and (ii) did not contain a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for either year.

This preliminary announcement does not constitute the Group's annual report and accounts.

The financial information included in this preliminary announcement does not include all the disclosures required by IFRS and accordingly it does not itself comply with IFRS.

The accounting policies are consistent with those of the annual financial statements for the year ended 30 June 2011, as disclosed in those financial statements.

1. Segmental information

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments.

A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those segments operating in other economic environments.

The Group operates in two business segments; comprising property investment and development, and car park operations. The Group's operations are performed wholly in the United Kingdom. The chief operating decision maker has been identified as the Board. The Board reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

Segment assets

Segmental results

2. Gross revenue

3. Property expenses

4. Administrative expenses

The Income Statement charge for share-based payments in accordance with IFRS 2 is not material.

5. Taxation

6. Earnings per share (EPS)

Underlying earnings and earnings per share have been disclosed in order that the effects of disposal gains and losses, revaluation movements and non-recurring items can be fully appreciated.

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding those held in the employee share trust which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has three classes of dilutive potential ordinary shares: those under the Executive Share Option Plan, the Share Incentive Plan and the Save As You Earn Scheme.

7. Underlying profit

To assist shareholders in understanding the underlying results and compare to those results in previous accounting periods, adjustments made to (loss)/profit before taxation are:

8. Dividends

The Directors are proposing a final dividend in respect of the financial year ended 30 June 2012 of 7.34p per share, which will absorb an estimated £3,902,000 of shareholders' funds. This dividend will comprise an ordinary dividend of 2.32p per share and a Property Income Distribution ("PID") of 5.02p per share, and will be paid on 8 April 2013 to shareholders who are on the Register of Members on 8 March 2013.

9. Non-current assets

(a) Investment properties

Certain investment properties including operational car parks have been revalued as at 30 June 2012 on the basis of open market value by Jones Lang LaSalle and CB Richard Ellis at £268,995,000 (2011: £279,120,000) in accordance with the Royal Institution of Chartered Surveyors Appraisal and Investment Manual. Certain other freehold properties have been valued at £5,153,000 by the Directors (2011: £4,017,000).

The Directors' valuation of residential property acquired for potential development and industrial property is supported by market evidence available as at 30 June 2012.

Investment properties are analysed as follows:

(b) Development properties

The Directors have considered the valuation of development properties in light of current market conditions and have taken an impairment where market value is considered lower than cost.

(c) Fixtures, equipment and motor vehicles

10. Share capital

Authorised

164,879,000 (2011: 164,879,000) ordinary shares of 25p each. Nominal value of authorised share capital is £41,219,750 (2011: £41,219,750).

Issued and fully paid

12. "Triple" net asset value per share

To assist shareholders in understanding the results, the table below shows how the "triple" net asset value was arrived at: