18 October 2023

 

TOWN CENTRE SECURITIES PLC

('TCS' or the 'Company')

Final results for the year ended 30 June 2023

 

Resilient performance - business further strengthened

 

Town Centre Securities PLC, the Leeds, Manchester, Scotland, and London property investment, development, hotel and car parking company, today announces its audited final results for the year ended 30 June 2023.

 

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

"It has been another year where we have further strengthened TCS through our disposal programme, the resulting repayment and redeployment of borrowings, and a successful tender offer."

 

"Our property rental business, car park and hotel operations delivered resilient underlying revenues and earnings against challenging macro-economic conditions, which have led to a further valuation reduction of our property portfolio and impairments to our car park assets. However, with low levels of variable interest rate bank debt and reduced loan to value I am confident that we are in a strong position to face up to the challenges that may present themselves. "

 

"Rising costs, interest rate increases and the ongoing geopolitical conflicts are affecting all stakeholders and we remain committed to supporting them, in particular our dedicated employees. We continue to focus on maintaining good landlord-tenant relationships, with open dialogue and collaboration the cornerstones of our approach."

 

"Having undertaken such a successful disposal programme over the past few years, our attention is now turning to opportunities to selectively acquire assets and invest in our development programme, ever mindful of adding value whilst retaining robust finances."

 

"Overall, we remain committed to continuing to reset and reinvigorate TCS by delivering on our accelerated four pillar strategy of: actively managing our assets, maximising available capital, investing in our development pipeline and acquiring and improving investment assets to diversify our portfolio."

 

Financial performance

·    Net assets - resilient relative performance:

o  Like for like portfolio valuation down 12.6% from June 2022:

§ outperformance versus the MSCI/IPD All Property Capital Index which fell by 19% over the period

§ reduction primarily due to real estate investor and market sentiment around the macro-economic outlook adversely impacting valuation yields

o  Statutory net assets of £141.1m or 291p per share (FY22: £179.3m, 341p). EPRA net tangible assets ('NTA')^$ measure at £137.7m or 284p per share (FY22 equivalent: £174.9.0m, 333p)

·    Statutory results - loss before tax reported due to valuation reduction:

o  Statutory loss before tax of £29.5m (FY22: profit of £11.0m) and statutory loss per share of 60.1p (FY22: earnings of 20.9p)

·    EPRA results - relative stability in underlying earnings:

o  EPRA earnings^$ before tax of £3.1m (FY22: £3.3m)

o  EPRA earnings per share^$ of 6.2p (FY22: 6.2p)

·    Loan to Value reduced in the period by 60bps to 45.8% following debt repayments and despite reduction in portfolio value

·    Shareholder returns - enhanced by share buy backs and tender offer:

o  Proposed final dividend of 2.5p, bringing the total dividend for the year to 5.0p (FY22: 5.0p) reflecting the relative stability in underlying earnings

o  Earnings and NAV enhancing tender offer and subsequent share buy back in the first half of the year (4,075,000 shares bought back in total) following on from those undertaken in FY22

 

* Alternative performance measures are detailed, defined and reconciled within Note 4 and the financial review section of this announcement

** LTV Calculation includes finance lease assets and liabilities

 

Protecting shareholder value whilst continuing to reset and reinvigorate the business for the future 

 

We have continued to reset the business in the past twelve months with four further sales, above book value, and two strategic acquisitions. Progress delivered under the four key strategic initiatives is as follows:

 

Actively managing our assets                                       

Our long-standing strategy of active management and redevelopment, to drive income and capital growth, has continued:

 

·    The proportion of retail and leisure assets in the portfolio has stabilised at 29%, whereas the proportion of residential assets has increased from 6% to 12% following the acquisition of the remaining half of Burlington House in the year

·    The void rate across our portfolio was 5.5% at 30 June 2023 (5.1% at 30 June 2022)

·    Strong rent collection for the year of over 99.1% (FY22: 99.0%)

·    14 new commercial lettings and lease renewals across the portfolio in the period

·    No tenants entered into a CVA during the period reflecting our resilient tenant portfolio; however, after the year end Wilko, trading from a 6,000 sq ft store on the edge of the Merrion Centre, entered administration

 

Maximising available capital

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

 

·    Aggregate net proceeds generated of £51.7m and crystalising a profit on disposal of £4.1m:

o  Four properties sold during the six months (in Glasgow, Uddingston, part of our Whitehall Road development site in Leeds and part of our Piccadilly Basin development site in Manchester) for a total gross consideration of £33.4m

o  The release in July 2022 of £18.7m of funds, originally generated from investment property sales, that had been locked into our debenture security pool

·    Completion of the sale of our investment in YourParkingSpace Limited in July 2022, generating initial cash proceeds of £11.6m, with a second receipt in July 2023 of £4.4m and further receipts due between November 2023 and July 2024 of up to £5.6m

·    Comfortable loan to value headroom over our bank facilities of £30.0m based on 30 June 2023 borrowings and valuations

·    Loan to value* reduced to 45.8% despite revaluation decreases and impairments in the year (FY22 equivalent 46.4%)

 

Investing in our development pipeline

Our development pipeline, with an estimated GDV of over £400m, is a valuable and strategic point of difference for TCS which we continue to progress and improve. Notably, in the past year:

 

·    In April 2023 we received planning permission for the Whitehall Riverside Masterplan in conjunction with Glenbrook. This included:

o  detailed planning consent for a 500 unit 'Build to Rent' scheme; a 12-storey office building; a 478-space multi-storey car park; and

o  an outline for further hotel/office buildings on the remainder of the site

·    Following submission in June 2022 of a pre-application presentation to Leeds City Council, we are now in the process of designing a 1,074 bed purpose built student accommodation scheme based on the redevelopment of Wade House and the adjacent 100MC site.

 

Acquiring and improving investment assets to diversify our portfolio

We continue to improve investment assets, and will consider new acquisition opportunities that offer the opportunity for both diversification and growth:

 

·    Sufficient headroom to conservatively progress development and investment across the portfolio having:

o  Acquired 45 Weymouth Street, London W1 for £7.5m, a prime mixed-use property comprising office space, including the new TCS London headquarters, and residential accommodation on the top floor

o  Acquired the remaining 50% of Burlington House, Manchester for £11.4m, a 91 unit PRS scheme in the heart of Manchester

Outlook

·    Resilient trading performance has continued into the second half of 2023:

o  Rent collections remain robust with over 99% of amounts invoiced in the last quarter of the year now collected

o  Car parks recovery momentum continues, other than for those reliant on office workers such as Merrion MSCP

o  Significant headroom of £30m on existing revolving credit facilities

o  Only 6% of borrowings at the year end subject  to variable interest rates

o  Weighted average cost of borrowings at year end 5.1%

o  Expansion of our electric vehicle charging network

o  ibis Styles Leeds City Centre Arena hotel benefitting from recovery, events and staycations

o  No further disposals expected

o  Now looking at selective acquisitions and bringing forward sections of our development pipeline

 

-Ends-

For further information, please contact:

 

Town Centre Securities PLC	www.tcs-plc.co.uk / @TCS PLC
Edward Ziff, Chairman and Chief Executive Stewart MacNeill, Group Finance Director	0113 222 1234
MHP	[email protected]
Reg Hoare / Matthew Taylor	020 3128 8572
Liberum	www.liberum.com
Jamie Richards  / Lauren Kettle / Nikhil Varghese	020 3100 2123
Peel Hunt	www.peelhunt.com
Carl Gough / Henry Nicholls / Capel Irwin	020 3597 8673 / 8640

 

​​Chairman & Chief Executive's Statement

 

Overview

The performance of the Company during the year has been resilient, particularly given the backdrop of macroeconomic challenges and an inflationary environment, and I want to begin by thanking my colleagues for their contributions to the success of the business.

 

In line with our strategy, we have almost halved our levels of debt over the last three years, with our strong balance sheet placing us in a good position to make selected acquisitions where we identify attractive opportunities. The interest rate for a significant proportion of our remaining debt is fixed, cushioning the business from the impact of rising interest rates.

 

The divestments we have made to bring down gearing have reduced our income, but, given macroeconomic developments, we are enjoying the Company's secure financial position.

 

As I have mentioned previously, it is disappointing that employers, particularly in the public sector, are taking a nonchalant approach to encouraging their employees to return to office working, with the proportion of time spent working from home surely having a negative impact on productivity and morale. If city centres are to thrive, they need large numbers of commuters as well as shoppers and tourists. In that sense our business is still affected by the ongoing repercussions of the Covid pandemic.

 

Operational performance

•    Our statutory loss in the year of £29.5m is due primarily to the performance from our investment property portfolio, including revaluation losses of £26.0m partially offset by surpluses generated from strategic disposals of £4.1m, and impairments to our car park business of £11.5m. Coupled with other comprehensive income gains of £1.6m, the cost of buying in shares for cancellation of £7.9m and dividends paid totalling £2.4m, moved the Company's balance sheet from a net asset value per share of 341p (at 30 June 2022) to 291p.

•    Net debt, including lease liabilities, reduced from £163.8m (at 30 June 2022) to £129.9m, with all but £5.8m benefiting from long term fixed interest rates.

•    EPRA earnings per share[1] are 6.2p for the year (2022: 6.2p), achieved despite the impact of asset disposals in both the current and previous year.

•    Rent collection was strong, with 99% of all rent and service charge income invoiced in the year collected.

•    £33.4m of disposals during the year, together with the YPS sale announced previously, contributed to a significant reduction in net debt.

 

CitiPark and our hotel have performed strongly as the post-Covid recovery continues. The location of our hotel benefited from an increase in people taking short city breaks, which has mitigated the effect of changes in the behaviour of business customers, to deliver a stellar year. Our car parks have seen high occupancy from shoppers and visitors, although those more reliant on business parking have performed less strongly. Our vehicle charging and enforcement businesses are doing well.

 

Strategy

We have successfully executed our strategy to dispose of retail and leisure assets and reduce borrowing to give us the headroom for future growth, accelerated by the disposal of our stake in YPS. The pace of divestments is slowing as our focus on paying down debt is behind us and we are now back to exploring opportunities to reestablish our income model. Examples include mixed-use properties in Central London combining retail, commercial and residential units. We are also looking to grow our car parks business and are open to considering attractive assets in any location, as well as in complementary areas such as vehicle charging. Retail is arguably at the bottom of the cycle, so we will also evaluate targeted acquisitions in that segment, identifying assets where we can put our property management expertise to greatest effect.

 

Although there is a sense of catching falling knives as valuations decline, buying property is our business, and we bring experience and expertise from our long heritage as well as our long-term approach. As we look to re-gear as appropriate, we were delighted that our tender offer for shares last September was oversubscribed, and we also bought back some of the debenture in the past year.

 

The Board has approved a final dividend of 2.5p, bringing the total for the full year to 5.0p (compared to a total of 5.0p last year).

 

People and culture

In a market where competition for talent is fierce, we are delighted to have such a strong team, without whose expertise and commitment the Company's positive performance wouldn't be possible. 

 

There have been no changes to the Board, with the exception of promoting Craig Burrow to the main Board as Group Property Director, a reflection of his contribution to the Company.

 

ESG and communities

Philanthropy has always been at the heart of the Company's ethos, and we are proud to be involved with a number of philanthropic and community-based programmes including Leeds Hospitals Charity, the Yorkshire Children's Charity and First Give.

 

We directed a portion of the proceeds from the sale of YPS to set up a staff charitable foundation with a view to colleagues suggesting the causes they want to support.

 

Sustainability is a priority for the Company in the assets we acquire and manage, as well as in our car parking business. 33.4% of our investment property portfolio has an EPC rating of B or above, and environmental credentials are at the forefront of the design of our developments at Whitehall Riverside.

 

Outlook

Looking ahead, we remain focused on optimising the performance of our estate and car parking business and are looking to capitalise on our secure financial position to acquire assets that meet our criteria. There is some hesitancy in the market, but our deep experience, agile approach and strong balance sheet make us well placed to seize attractive opportunities as they arise.

 

 

Edward Ziff OBE DL

Chairman and Chief Executive 

 

Portfolio review

 

Valuation summary

 

The like-for-like value of our portfolio decreased by 12.6% (£35.3m) after capital expenditure of £20.4m in the year. In addition, we recognised a further surplus of £4.1m arising on the disposal of investment properties in the year.

 

Significant valuation losses have been recognised across our retail, leisure, office and car park portfolios.

 

The valuation of all of our properties (except one) was carried out by CBRE and Jones Lang LaSalle.

 

Portfolio overview

 

	Passing rent	ERV		Value	% of portfolio	Valuation incr/(decr)		Initial yield	Reversionary yield
	£m	£m		£m
Retail & leisure	1.0	1.3		14.5	5%	-4.1%		6.4%	8.4%
Merrion Centre (ex offices)	4.6	4.9		51.4	19%	-12.8%		8.5%	9.0%
Offices	4.8	6.6		83.7	32%	-17.0%		5.5%	7.5%
Hotel	0.8	0.8		9.5	4%	4.4%		8.1%	8.1%
Out of town retail	1.0	1.1		13.0	5%	-10.4%		7.3%	7.8%
Residential	1.4	1.5		31.1	12%	0.5%		4.2%	4.6%
	13.6	16.2		203.2	77%	-11.8%		6.4%	7.6%
Development property				20.8	8%	-7.6%
Car parks				40.7	15%	-18.0%
Portfolio				264.7	100%	-12.6%

 

Note: includes our share of Merrion House within Offices (£30.7m - see Note 7 of these financial statements) and Car Park Goodwill of £3.0m arising on individual car park assets, but specifically excluding goodwill arising from the current year car park operation acquisitions. None of the above is included in the table set out in Note 6 of these financial statements.

Note: excludes IFRS 16 adjustments that relate to Right-of-Use car park assets (£23.1m) as the Directors do not believe it is appropriate to include in this analysis assets where there are fewer than 50 years remaining on their lease and the Group does not have full control over these assets. These assets are included in the table set out in Note 6 of these financial statements.

 

The table below reconciles the above table to that set out in Note 6 of these financial statements:

	FY23	FY22
	£m	£m
Portfolio as per Note 6	254.1	282.4
50% share in Merrion House	30.7	35.7
50% share in Burlington House	-	11.5
Goodwill - Car Parks - Property specific only	3.0	4.0
Less - IFRS 16 right-of-use car parks	(23.1)	(26.7)
As per the above table	264.7	306.9

 

Sales and Purchases

During the financial year ended 30 June 2023 we sold four properties above their 30 June 2022 book value, for gross proceeds of £33.4m.

Our continued commitment to asset recycling is clear. The table details the £168.2m of disposals since FY17, of which 71% were retail and leisure assets.

 

£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%
FY20	2.5		100%		1.7		100%
FY21	48.0		93%		-
FY22	37.9		59%		7.0		100%
FY23	33.4		21%		18.8		0%
	168.2		71%		56.5		26%

 

Retail and leisure

 

Retail has seen a perfect storm over the last few years with the pandemic accelerating changing shopping habits and the cost of living crisis affecting consumers' decision-making.

 

These factors and the wider macroeconomic outlook have negatively affected the retail sector and resulted in significant valuation reductions across our portfolio of retail properties. In particular, our Merrion Centre retail and leisure units have collectively seen a 12.8% valuation reduction in the year. This reduction is most prominent in our Morrisons supermarket investment, where the underlying value dropped by 19.4% over the 12 months, a trend that has been seen nationally across all foodstore investments.

 

Our leisure investments, particularly those facing the Leeds arena, fell in value by less than 1%, highlighting the benefits of having not only a portfolio diversified by sector, but also having diversity across significant assets.

 

Regional offices

 

As with retail, the office market is also facing significant macroeconomic challenges, and this is coupled with uncertainty around tenant requirements in terms of both size and location. With ESG requirements evolving, the environmental credentials of a building developed only five years ago are very different from those of a new build office. The flight to prime is being felt especially in the office market and the experience in regional offices is no different to that in central London.

 

Our office portfolio, located mainly in Leeds and Manchester, suffered a 17% reduction in value over the year, all of which related to market sentiment and the underlying investment yields.

 

Residential

 

Residential property values continued to grow, with supply constraints a factor, particularly in Manchester. Our residential property portfolio, increased through the acquisition in the year of the remaining half of Burlington House, performed well, with occupancy levels of 100% now the norm. This was reflected in a small valuation uplift of 0.5% in the year. As FY24 progresses we are expecting to see further valuation uplifts as the rental income earned should increase on a unit-by-unit basis.

 

Build-to-Rent schemes continue to perform well as an asset class with high occupancy, however consumer expectations are at an all-time high with levels of on-site amenity being a key deciding factor.

 

Car parks

 

During the year, the Company's freehold and long leasehold car park assets fell in value from £49.6m to £40.7m, a drop of 18%. Occupancy levels across the portfolio did not change in the 12 months, however increased operating costs and rental charges negatively impacted the underlying values.

 

Other valuation movements

 

The value of the Company's development sites decreased marginally by £0.5m in the year, reflecting weakening office sentiment, despite capital investment in the year of £1.1m.

 
 

Divisional review - Property

 

Overview

In line with our strategy to pay down debt, our work has focused largely on divestments and refreshing plans for the development pipeline. Having strengthened the balance sheet and now concluded our strategic disposal programme, we have begun to make targeted purchases and are cautiously evaluating further opportunities.

 

The landscape has been challenging in terms of yields and valuations, and rising costs that are suppressing rents in some segments. Retail and leisure occupiers have been hit hard by energy prices, and landlords have felt the impact, for example tenants looking to rebase rents at lease event dates, or consolidating the number of stores they have in a city, leading to voids. Similarly, some business tenants are rethinking whether they need the same amount of space as previously.

 

Despite this challenging environment and the various external factors impacting property, we have continued to invest to put our portfolio and business in a good position so we can move forward to realise our redevelopment ambitions, with our diverse portfolio in multiple sectors a source of resilience.

 

Disposals and acquisitions

Four disposals completed during the year, generating total proceeds of £33.4m. We made one office acquisition, 45 Weymouth Street in Marylebone, a small, Grade 2 listed freehold property that is now the location of the TCS London head office after the previous office on Duke Street was sold in 2021. TCS occupies part of the property, and the remainder was let quickly following the acquisition. In addition to Weymouth Street, we acquired from our JV partner the remaining 50% of Burlington House, a prime build to rent scheme in central Manchester.

 

Our divestments included Buchanan Street in Glasgow and Grove House in Uddingston, both of which completed in December. We also made some strategic disposals that had been agreed subject to planning for almost two years: in December we completed the sale of Port Street, part of the Manchester Piccadilly Basin scheme, to Select Property Group, who plan to develop 480 apartments on the site. In April 2023 we sold part of the Whitehall Riverside site in Leeds, with permission for 500 homes, to build-to-rent residential developers, Glenbrook.

 

Rent collection

Our rental collection performance has been very strong, with 99% collected or deferred. This exceeds levels seen before the pandemic, the circumstances of which contributed to closer relationships with tenants. We have also disposed of some assets that had been associated with more challenging rent collection.

 

Development pipeline highlights

The projects we are looking to bring forward demonstrate the diversity of our portfolio, including an office building, a car park, a residential building and some student buildings that we are in the process of planning, designing and moving towards development.

 

Piccadilly Basin

The sale of Port Street is enabling us to bring forward a refresh of the strategic regeneration framework (SRF) for Piccadilly Basin. We're looking at a mixed-use development and have been working with Manchester City Council to update plans for the rest of the site. We had been at an advanced stage in the design of a residential building in Manchester but have paused that until the SRF refresh has been completed, after which the intention would be to bring forward that application.

 

Whitehall Riverside

Having divested part of the Whitehall Riverside site, we now have detailed consent for an energy-efficient office building and multi-storey car park. We are looking to bring forward those elements of the master plan and we intend to begin construction of the car park in Q1 2024. The office will be best-in-class for the city in terms of its ESG credentials, and we will be seeking a pre-let occupier to develop the building.

 

Wade House

We are in the process of designing a purpose-built student accommodation (PBSA) scheme based on the redevelopment of Wade House, a 1960s office building, and the adjacent 100MC site. Together they would have capacity for around 1100 PBSA beds, adding to other student accommodation in the immediate vicinity of the Merrion Centre, which will further enhance the demand for and vibrancy of the retail and leisure outlets in the Centre.

 

Performance by segment

During the reporting period we experienced challenging market conditions that were exacerbated by the mini budget in September 2022, the impact of which is still being felt in certain sectors. Build cost inflation and rising interest rates are creating a difficult environment for developers. Some schemes that were viable when plans were submitted may no longer be so by the time planning permissions are granted, leading to the need to update development appraisals. A further consideration is the need to update designs to keep up with the evolving ESG requirements of tenants.

 

Office

The office market is seeing values reducing for secondary regional office buildings, where there is a flight to ESG-compliant buildings. Differing company policies in relation to working from home are also having an impact on office occupancy and related trade for surrounding businesses as well as car park utilisation. Employees of some tenants are working 5 days per week in the office, others 2 days per month, and employers are seeking to find a balance between the needs of their organisations and what suits their workforce. TCS's biggest tenant, Leeds City Council, is an example of an organisation whose office occupancy levels are very different to those before the pandemic.

 

Retail and leisure

We continue to evolve our retail and leisure offering, where demand is more for 'experiences', whether in shopping or in leisure destinations. We welcomed several new tenants to the Merrion Centre during the year, including Pret a Manger.

 

Residential

Our residential assets performed well, with demand outstripping supply in many cases. In Manchester, Leeds and Glasgow we've seen strong occupancy and rental growth although at the same time have felt the impact of inflation in energy prices and more widely, which is a challenge to manage.

 

Hotel

Our hotel has gone from strength to strength, seeing increasing occupancy levels throughout the year, and we are looking to invest in a refurbishment of the rooms, including new televisions and updated décor. The ground floor restaurant space has now been let to an independent operator and this is now opening, serving breakfasts as well as evening dining.

 

Asset management

Leeds

We speculatively refurbished office space at 123 Albion Street in Leeds and are also in the early stages of refurbishing and repositioning Town Centre House, the location of our head office. We are working with our tenants to understand their long-term needs.

Having worked with Leeds City Council for some years to bring forward development on their George Street site, we are working with them to develop a new hotel and are close to securing a pre-let of a 143-bedroom hotel with a national operator.

 

Manchester

Occupancy levels at Ducie House and Carvers Warehouse have been very high and included new tenants.

 

Scotland

Following the sale of Buchanan Street and Grove House, our only remaining asset in Scotland is 38 Bath Street. We are in the process of bringing forward a full refurbishment of the site, which comprises 20 apartments above leisure and retail outlets on the ground floor and basement level. The strength of the residential market there has given us confidence to invest and hold the asset for the long term.

 

London

During the year we acquired a vacant investment property in London. The Company now occupies one floor of this building as its London headquarters whilst the remaining space has been fully let.

 

Divisional review - CitiPark

 

Overview

With revenues of £13.1m (2022: £11.4m) and operating profit before valuation movements of £3.4m (2022: £3.5m) generated during the year, the CitiPark business remains on a path of recovery following the pandemic and is continuing to adapt to market conditions. The carrying value of the CitiPark portfolio has been impaired during the year, however this impairment has been driven by changes to the underlying interest rate environment which has increased the weighted average cost of capital metric used by the Company in assessing impairments.

 

Although this varies by location, the business continues to feel the effects of the sea change in commuting patterns as the move to working from home during the Covid lockdowns has become the norm for many people. Rather than Monday to Friday that was the default until Spring 2020, core days for commuter traffic are now Tuesday, Wednesday and Thursday.

 

Performance

Performance has varied depending on the location and associated demographics of each branch. For example, the largest user group of our Merrion Centre car park is Leeds City Council workers, most of whom now only work from the office one day per month, which has had a significant impact on our Monday to Friday utilisation levels.

 

In contrast, other car parks are seeing utilisation in excess of pre-pandemic levels. For example our Whitehall Road location in Leeds, which has been restricted by a Council-mandated operating model, is seeing high levels of utilisation, both during the week and also at weekends, helped by the car park's location adjacent to Leeds train station, the third busiest station outside of London. We have planning permission to build a 500-space multi-storey car park on this site, for which we expect construction to begin in Q1 of 2024.

 

Our car parks in Manchester have also outperformed pre-Covid levels, helped by their proximity to Manchester Piccadilly train station as well as the development of leisure, retail and hotel facilities in the area. We have explored alternative uses for some of our branches, for example the level of development in the city has provided an opportunity to lease off areas for use as construction site compounds. These, along with our more compact portfolio following the sale of assets such as Port Street, have allowed us to review tariffs and our offering to drive revenue, profitability and utilisation.

 

Our locations in London also traded well during the year and in line with pre-pandemic levels as large employers in those areas wanted their employees in the office. We have an investment programme planned for our London assets this year in relation to lighting, sustainability upgrades, CitiCharge's EV charging and infrastructure improvement to increase capacity.

 

In line with the rest of the economy, the business has faced inflationary pressures in utilities and other costs, although these were somewhat mitigated by one-off support received during the year through the Government's Covid Action Relief Fund and reduced business rates for car parks.

 

Technology and innovation

As part of our ongoing work to invest, develop and innovate, we have recently undertaken an upgrade programme that included the installation of 35 EV chargers throughout our CitiPark portfolio to improve reliability and customer experience of our CitiCharge network, as well as enabling us to commercialise our chargers. An added benefit of the investment has been the greater utilisation of the car parks by people seeking out these high performance, DC rapid chargers.

 

Other innovations during the year included the relaunch of our upgraded CitiPark app to integrate new payment options including Apple Pay and Google Pay.

 

Although we sold our equity stake in YourParkingSpace (YPS) at the beginning of the financial year for a total net consideration of £18.5m, we retain a commercial relationship with YPS and they continue to have a presence throughout our portfolio.

 

Outlook

We are not standing still; with growth, innovation and our development pipeline all key priorities for the coming years. We are looking to develop our own parking management system and hardware to bring operational cost efficiencies and customer journey improvements. We are also continuing to explore alternative uses for our larger, longer-term assets to make better use of our branches and deliver more revenue. Our approach to diversification also includes evaluating management agreements for new sites as well as acquiring further assets of our own.

 

The outlook for the business is positive, and we are confident that our approach to adapting and innovating positions us well to move with the changing times.

FINANCIAL REVIEW

 

"The financial performance of the Company during the year ended 30 June 2023 shows EPRA profits comparable to those of the previous period, however the statutory profit of the year is dominated by both reductions in investment property values and impairments to the group car parking portfolio, with these reductions primarily due to real estate investor and market sentiment around the macro-economic outlook"

 

 

The statutory loss for the year was £29.5m, compared to a profit of £11.0m in the previous year, with the current year heavily influenced by Investment Property losses of over £21.9m (£26.0m of revaluation losses, which includes £5.0m of valuation movements on joint venture properties and £4.1m of profits recognized on disposal).

 

EPRA Earnings* were a profit of £3.1m in the year, compared to a profit of £3.3m in the prior year, highlighting a resilient performance in the underlying business, despite the macroeconomic outlook. The profit for the current year included the cost to the Company of extraordinary YPS bonuses paid to the executive directors amounting to £0.8m, excluding these bonuses, the EPRA profit of the Company would have been £3.9m.

 

A final dividend of 2.5p per Ordinary Share has been approved by the Board, giving a full year dividend of 5.0p, which is the same as in the previous year.

 

During the year the Company sold four separate investment property assets which generated £33.4m of gross proceeds. In July 2022 the Company received both the initial proceeds from the sale of its investment in YPS, which generated £11.6m of proceeds, and £18.7m of funds were released from the debenture security group. In aggregate the Company generated over £63m from these activities.

 

The funds generated have been deployed in a number of ways:

·    £7.5m acquisition of 45 Weymouth Street, London

·    £3.5m to fund the acquisition of the remaining 50% of our Burlington House joint venture

·    £7.8m to fund a tender offer and also a small share buyback programme in the first five months of the year

·    £31.0m was used to part repay Group Borrowings

·    £13.3m was used to buy in for cancellation £13.6m of the Company's debenture stock

Net borrowings has reduced from £135.1m to £101.9m in the year. Net borrowings represent total financial borrowings of £131.5m less lease liabilities of £28.0m and net cash of £1.6m. 

 

* Alternative performance measures are detailed, defined and reconciled within Note 4 of this announcement

 

 

Income statement

EPRA Earnings* for the year ended 30 June 2023 were £3.1m.

 

£000s		FY23		FY22		YOY
Gross Revenue		30,363		28,141		7.9%
Impairment of debtors provision movement		0		49		(100.0%)
Property Expenses		(15,551)		(13,666)		13.8%
Net Revenue		14,812		14,524		2.0%
Other Income / JV Profit		1,764		2,497		(29.4%)
Other Expenses		0		0		-
Administrative Expenses		(6,780)		(6,531)		3.8%
Operating Profit		9,796		10,490		(6.6%)
Net Finance Costs		(6,733)		(7,215)		(6.7%)
EPRA Earnings		3,063		3,275		(6.5%)
Segmental		FY23		FY22		YOY
Property
Net Revenue		9,435		9,188		2.7%
Operating Profit		5,911		6,437		(8.2%)
CitiPark
Net Revenue		4,891		4,843		1.0%
Operating Profit		3,360		3,525		(4.7%)
ibis Styles Hotel
Gross Revenue		486		493		(1.4%)
Operating Profit		486		493		(1.4%)
Investments
Other income and operating profit		39		35		11.4%

 

 

Statutory profit

 

On a statutory basis the reported loss for the year was £29.5m.

The statutory profit reflects the EPRA Earnings* of £3.1m less £36.3m of non-cash valuation and impairment movements plus the profit on disposal recognised of £3.3m on the four investment properties and investments sold in the year plus £0.4m of profit recognized on the repurchase of debenture stock in the year.

Gross revenue

 

Gross revenue was up £2.2m or 7.9% year on year, with key drivers being:

· Property revenue during the year had a positive impact of £0.3m on the total Gross Revenue. The majority of property sales in the year related to development sites where temporary car park income was generated.

· CitiPark revenues have continued to grow strongly in the year, with gross revenue across the portfolio increasing by 14% in the year from £11.4m to £13.1m , with total occupancy now at just under 90% of pre COVD-19 levels.

· Income for the ibis Styles hotel, has also continued to grow with revenue of £3.1m in the year, up £0.3m from £2.8m last year.

 

Property expense

 

Property expenses have increased in the  year by 14.0%, reflecting both the increased trade experienced in both the Hotel and Car Park businesses but also inflationary pressures on both utility costs and index linked car park leases.

 

Other / JV income

 

Total Other / JV income was down 29.4% or £0.7m year-on-year, the majority of the difference relates to substantial dilapidation payments received by the Company in the previous year.

 

Administrative expenses

 

Administrative costs were higher year on year; however in the current year exceptional bonuses awarded and paid to the executive directors resulting form the YPS sale cost the Company £0.8m. Excluding these costs, administrative costs were 9% lower than in the previous period.

 

Finance costs

 

Finance costs were 6.7% or £0.5m lower year on year as a result of the reduction in both the Company's bank borrowings and the buyback of £13.6m of debenture stock.

 

* Alternative performance measures are detailed, defined and reconciled within Notes 4 of this announcement

 

Balance sheet

The below table shows the year-end balance sheet as reported.

 

£m	FY23		FY22		vs FY22
Freehold and Right to Use Investment Properties	162.9		158.5		2.8%
Development Properties	20.9		42.6		(50.9%)
Car Park related Assets, Goodwill and Investments*	74.4		97.9		(24.0%)
Hotel Operations	9.5		9.1		4.4%
	267.7		308.1		(13.1%)
Joint Ventures	7.1		18.0		(60.6%)
Listed Investments	4.1		4.1		0.0%
Other Non-Current Assets	1.3		1.0		30.0%
Total Non-Current Assets incl. Available for Sale	280.2		331.2		(15.4%)
Net Borrowings	(129.9)		(163.8)		(20.7%)
Other Assets/(Liabilities)	(9.2)		11.9		(177.3%)
Statutory NAV	141.1		179.3		(21.3%)
Statutory NAV per Share	291p		341p		(14.6%)
EPRA Net Tangible Assets (NTA)	137.7		174.9		(21.3%)
EPRA NTA per Share	284p		333p		(14.6%)
* includes Assets held for sale in FY22 of £20.4m

 

Non-current assets:

Our total non-current assets (including investments in JVs) of £280.2m (2022: £331.2m) have reduced by £51.0m during the year, this movement is made up of the following:

·    Disposals, including YPS receipts of £(39.7m)

·    Depreciation charge of £(2.3m)

·    Capital expenditure of £26.3m

·    Revaluation uplift/reversal of impairments totalling £(36.1m)

·    Operating profits generated and retained in JV entities and other movements of £0.8m

 

Borrowings:

 

During the year our Net Borrowings have reduced by £33.9m, from £163.8m as at 30 June 2022 to £129.9m. This was primarily as a direct consequence of the disposals made throughout the year. As part of this we bought back £13.6m of our £96.1m 2031 5.375% debenture stock with the remaining reduction spread across our bank facilities.

 

The acquisition of the remaining half of Burlington House, has resulted in the full consolidation of the Belgravia Living Group. The Company's investment in the Belgravia Living Group was previously categorized as a joint venture investment. As part of this consolidation a further 'ring-fenced' facility has been consolidated into the results and balance sheet of the Group. This facility expires in January 2029

 

We had two of our three revolving credit facilities expiring in June 2023. Our Lloyds Bank facility was refinanced immediately after the year end and is therefore classed as current liabilities in the balance sheet. . This facility has been reduced to a £30m revolving credit facility with a further £5m overdraft facility and expires in June 2026 (with two one-year optional extensions)

During the year we refinanced our £25m facility with Handelsbanken, for a further three years albeit at lower facility limit of £15m, this facility will expire in June 2026.

Loan to value has been reduced to 45.8%, down from 46.4% a year ago. Note the calculation of loan to value includes both the finance lease assets and liabilities.

 

EPRA net asset reporting

 

We focus primarily on the measure of Net Tangible Assets (NTA). The below table reconciles IFRS net assets to NTA, and the other EPRA measures.

There are three EPRA Net Asset Valuation metrics, namely EPRA Net Reinstatement Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal Value (NDV). The EPRA NRV scenario, aims to represent the value required to rebuild the entity and assumes that no selling of assets takes place. The EPRA NTA is focused on reflecting a company's tangible assets. EPRA NDV aims to represent the shareholders' value under an orderly sale of business, where, for example, financial instruments are calculated to the full extent of their liability. All three NAV metrics share the same starting point, namely IFRS Equity attributable to shareholders.

 

					FY23		FY22
£m	FY23		FY22		p per share		p per share
IFRS reported NAV	141.1		179.3		291		341
Purchasers Costs 1	19.3		19.1
EPRA Net Reinstatement Value	160.4		198.4		331		378
Remove Purchasers Costs	(19.3)		(19.1)
Remove Goodwill 2	(3.4)		(4.4)
EPRA Net Tangible Assets	137.7		174.9		284		333
Fair value of fixed interest rate debt 3	14.2		1.3
EPRA Net Disposal Value	151.9		176.2		313		335
1 Estimated purchasers' costs including fees and stamp duty and related taxes
2 Removal of goodwill as per the IFRS Balance Sheet - relates predominantly to goodwill paid to acquire two long term car park leaseholds in London
3 Represents the adjustment to fair value (market price) of the 2031 5.375% debenture

 

 

Future financial considerations

 

Future P&L pressure

 

As highlighted elsewhere in this report, our recent disposal programme and the wider economy has had a material impact on profitability in the year ended 30 June 2023, in particular the changing ways people work and their shopping habits. Both of which have had an effect on our retail and leisure tenants but also in the revenue derived from our car park operation. We have seen recoveries in all segments of our business, although there is still a risk if these recoveries are stalled.

As has been seen, the acceleration of our retail disposal programme has  enabled us to reduce Company borrowings and gearing, although the disposal of income producing assets has had an impact on the earnings of the business. The Board is continuing to review options for how the proceeds of any further sales could be utilised including debt repayment, asset purchases and share buybacks.

Although we have started to increase the level of the dividend, the gradual recovery of our car park business and the loss of income due to disposals are likely to lead to continued pressure on our ability to pay a higher covered dividend.

 

Future balance sheet

 

As identified in the Risk Report, we have highlighted the continued pressure on retail and office investments to be a significant risk to the business. As part of the going concern and viability statement review process the Company has prepared consolidated forecasts and identified a number of mitigating factors to ensure that the ongoing viability of the business was not threatened.

 

Going concern and headroom

 

One of the most critical judgements for the Board is the headroom in the Group's debt 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 30 June 2023 was £30.0m (2022: £18.5m), which was considered to be sufficient to support our going concern conclusion. The properties secured under the Group's debt facilities would need to fall 33.7% in value before this headroom number was breached.

 

In assessing both the viability and going concern status of the Company, the Board reviewed detailed projections including various different scenarios. A summary of the approach and the findings is set out in the Risk Report, forming part of the Strategic Report of these financial statements.

 

Total shareholder return and total property return

 

Total shareholder return of  minus 3.2% (2022: minus 4.5%) was calculated as the total of dividends paid during the financial year of 5.0p (2022: 5.0p) and the movement in the share price between 30 June 2022 (133.5p) and 30 June 2023 (125.0p), assuming reinvestment of dividends. This compares with the FTSE All Share REIT index at minus 22.1% (2022: minus 5.2%) for the same period.

 

The Company's share price continues to trade at a significant discount to its NAV, impacting total shareholder return.

Total shareholder returns % (CAGR)
Total shareholder returns		1 Year	10 Years	20 Years
Town Centre Securities		(3.2%)	0.3%	3.4%
FTSE All Share REIT index		(22.1%)	2.4%	1.8%

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 minus 6.0% (2022: 8.7%). This compared to the MSCI/IPD market return of minus 15.3% (2022: 19.3%).

 

Consolidated income statement

for the year ended 30 June 2023

		2023	2022
	Notes	£000	£000
Gross revenue (excl service charge income)		27,631	25,383
Service charge income		2,732	2,758
Gross revenue		30,363	28,141
Release of provision for impairment of debtors		-	49
Service charge expenses		(3,991)	(3,666)
Property expenses		(11,560)	(10,000)
Net revenue		14,812	14,524
Administrative expenses	2	(6,780)	(6,531)
Other income	3	880	1,612
Valuation movement on investment properties	6	(21,033)	3,489
Impairment of car parking assets	6	(10,467)	(384)
Impairment of goodwill	7	(991)	-
Loss on disposal of investments		(777)	(89)
Valuation movement on investments		1,162	-
Profit on disposal of investment properties		4,123	4,563
Share of post-tax (losses)/profits from joint ventures		(4,066)	1,315
Operating (loss)/profit		(23,137)	18,499
Finance costs		(6,948)	(8,063)
Finance income		594	576
(Loss)/profit before taxation		(29,491)	11,012
Taxation		-	-
(Loss)/profit for the year attributable to owners of the Parent		(29,491)	11,012
Earnings per share
Basic and diluted	4	(60.1p)	20.9p
EPRA (non-GAAP measure)	4	6.2p	6.2p
Dividends per share
Paid during the year	5	5.0p	4.25p
Proposed	5	2.5p	2.5p

 

Consolidated statement of comprehensive income

for the year ended 30 June 2023

		2023	2022
		£000	£000
(Loss)/profit for the year		(29,491)	11,012
Items that will not be subsequently reclassified to profit or loss
Revaluation gains on car parking assets	6	929	-
Revaluation gains on hotel assets	6	642	713
Revaluation gains on other investments		16	15,306
Total other comprehensive income		1,587	16,019
Total comprehensive (loss)/income for the year		(27,904)	27,031
All profit and total comprehensive income for the year is attributable to owners of the Parent.

 

Consolidated balance sheet

as at 30 June 2023

		2023	2022
	Notes	£000	£000
Non-current assets
Property rental
Investment properties	6	183,801	201,106
Investments in joint ventures	7	7,123	18,016
		190,924	219,122
Car park activities
Freehold and leasehold properties	6	60,791	72,226
Goodwill and intangible assets		3,674	4,912
		64,465	77,138
Hotel operations
Freehold and leasehold properties	6	9,500	9,100
		9,500	9,100
Fixtures, equipment and motor vehicles	6	1,269	976
Investments	8	7,503	4,506
Total non-current assets		273,661	310,842
Current assets
Trade and other receivables		3,264	21,708
Cash and cash equivalents		23,320	22,150
Investments		6,436	-
		33,020	43,858
Assets held for sale		-	20,368
Total current assets		33,020	64,226
Total assets		306,681	375,068
Current liabilities
Trade and other payables		(12,387)	(9,828)
Bank overdrafts		(21,700)	(23,414)
Financial liabilities		(4,665)	(34,655)
Total current liabilities		(38,752)	(67,897)
Non-current liabilities
Financial liabilities		(126,841)	(127,867)
Total liabilities		(165,593)	(195,764)
Net assets		141,088	179,304
Equity attributable to the owners of the Parent
Called up share capital	9	12,113	13,132
Share premium account		200	200
Capital redemption reserve		1,736	717
Revaluation reserve		2,784	1,213
Retained earnings		124,255	164,042
Total equity		141,088	179,304
Net asset value per share	11	291p	341p