REG - Town Centre Secs. - Final results for the year ended 30 June 2021
30/11/2021 07:00
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RNS Number : 0049U Town Centre Securities PLC 30 November 2021
30 November 2021
TOWN CENTRE SECURITIES PLC
('TCS' or the 'Company')
Final results for the year ended 30 June 2021
Further progress in resetting and reinvigorating the business
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 2021.
Commenting on the results, Chairman and Chief Executive Edward Ziff, said:
"It has been a challenging year, however I am pleased to see the business
recovering since pandemic related restrictions have been eased. We have
benefited from the decisions taken earlier in the year to accelerate our
disposal programme and reduce our net borrowings. As a result, the Company is
in a stronger financial position to benefit from the ongoing economic
recovery."
"I am pleased that our rent collection has remained robust throughout the
year. This demonstrates the resilience, quality and diversified nature of our
continuing portfolio as well as our collaborative, longstanding and strong
relationships with our tenants. With people steadily returning to offices and
normal life resuming, we are seeing improvements in both our car park and
hotel operations."
"Overall, we remain committed to 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:
o Statutory net assets of £155.4m or 292p per share up 0.2% on prior year
(2020: £155.1m, 292p)
o EPRA net tangible assets* measure introduced during the year at £151.0m
or 284p per share (2020 equivalents: £151.1m or 284p)
o Revaluation increase and reversal of impairment uplifts on property
portfolio, car parks and TCS share of properties held in Joint Ventures in the
year of £1.4m (2020: Reduction of £26.0m)
o Revaluation gain on other investments during the year of £2.8m (2020:
Reduction of £2.4m)
· Profits and earnings per share:
o Significantly reduced statutory loss before tax of £0.6m (2020: loss of
£24.1m) and statutory loss per share of 1.1p (2020: loss of 45.4p), including
total estimated negative impact of COVID-19 on the results for the year of
£6.2m
o EPRA earnings*, profit of £0.3m (2020: profit of £1.7m)
o EPRA earnings per share* of 0.6p (2020: 3.1p)
· Financing:
o Headroom of over £12.1m at year end based on June 2021 borrowings and
valuations. This stands at £12.1m as at 18 November 2021
o Nine properties were sold during the year, generating aggregate proceeds
of £48.0m
o Net debt (excluding finance leases liabilities) reduced by 21% to £145.6m
(FY20: £183.6m), with LTV reducing to 51.3% (FY20: 56.0%) - note LTV
calculation includes finance lease assets and liabilities
· Dividends:
o Final dividend of 1.75p proposed, following interim dividend of 1.75p paid
at the half-year
o Total dividend for the year of 3.5p (2020: 5p)
Prior year comparatives have been restated to reflect six adjustments, full
details of which are set out in Note 26 to the financial statements. The three
key adjustments are as follows:
o Reclassification of two of the Group's Multi Storey Car Parks ('MSCPs')
from freehold investment properties to freehold properties within car park
activities
o Application of a single accounting policy to all types of leasehold car
park properties, whether long term, short term or right of use asset
o Reclassification of the Group's investment in a listed entity from current
to non-current asset investments
* Alternative performance measures are detailed, defined and reconciled within
Notes 4 and 10 of this announcement
COVID-19 impact, response and recovery
Impact
· Estimated £6.2m impact on income from COVID-19 in the year, driven
by:
o £1.0m impact in the property business, primarily bad debt
o £4.5m CitiPark impact due to lost car parking income during the
nationwide lockdowns
o £0.7m ibis Styles hotel impact due to lockdowns and hotel closure
Response
· Temporary closure of car parks to minimise overhead costs,
furloughing CitiPark operational branch staff and some head office staff, and
TCS board took a 20% salary and fee reduction
· Our long history of engagement with tenants has ensured good outcomes
achieved in most cases
Recovery
· The revaluation gains on our office and development portfolio ensured
a net revaluation increase over the entire portfolio, despite further
reductions in retail and leisure assets
· Rent receipts remain strong; as at 18 November 2021 of the £41.4m
rent, service charge and VAT billed since March 2020, £38.3m or 92.6% has
been paid, with a further £0.4m or 0.8% agreed to be deferred, totalling
93.4%
· Of the remaining £2.7m, £2.1m has been waived, mostly in return for
improvements in the terms of length of leases. On the remaining £0.6m no
agreement has yet been reached
Resetting and reinvigorating the business for the future
We are now seeing a broadening recovery across all segments of our business.
As stated this time last year, the Board has focused on resetting and
reinvigorating the business, in particular accelerating the disposal and debt
reduction programme. Progress against the strategy is detailed below:
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
reduced to 29% from 40% in June 2020, and down from 60% in 2016. Pure retail
now represents only 21% of the total portfolio and of that, 52% is in the
resilient Merrion Estate
· The capital values of both 123 Albion Street and Ducie House have
increased, reflecting the completion of their respective refurbishments
· Whilst we saw six tenants either entering administration or CVAs (no
exposure to any high-profile retail failures), the exposure is modest,
representing circa 4% of income. We remain confident in maintaining occupation
in the majority of these units
Maximising available capital
A conservative capital structure, with a mix of short and long-term secure
financing, has always underpinned our approach:
· £40m of disposal proceeds were used to part repay Group borrowings
· Bought back for cancellation of £6.5m of our £106m 2031 5.375%
debenture
· Since the year end we have refinanced our NatWest facility, which now
expires in August 2024 and extended our Lloyds facility by two further years
out to June 2023
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 completed the works to implement the planning consent for our next
PRS development, Eider House, in Manchester's Piccadilly Basin
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:
· Completed the £4m redevelopment of the office space at 123 Albion
Street, Leeds and secured leases with StepChange Debt Charity and the Instant
office Group for all the remaining vacant space
· Potential valuable opportunity to redevelop and modernise our Wade
House office (having been vacated by StepChange Debt Charity), the third of
our four Merrion Estate offices
Current trading - strong first half performance expected
· Strong rent receipts in the first quarter ended 30 September 2021
· Recoveries in both the car park and hotel operations as the economy
has reopened
· Further disposals agreed and being marketed
-Ends-
For further information, please contact:
Town Centre Securities
PLC www.tcs-plc.co.uk
(http://www.tcs-plc.co.uk/) / @TCS PLC
Edward Ziff, Chairman and Chief
Executive
0113 222 1234
Stewart MacNeill, Group Finance Director
MHP
Communications 020
3128 8572
Reg Hoare / Alistair de Kare-Silver / Florence Mayo
tcs@mhpc.com (mailto:tcs@mhpc.com)
Chairman and Chief Executive's Statement
Overview
As we take steps towards returning to normal life, although COVID-19 has
indeed taken a considerable toll, I am pleased to see our business recovering
well. We have used the year wisely, driving forward on our key strategic
priorities to ensure we are in the best possible shape to bounce back. This
includes reducing our debt, completing refurbishment projects and continuing
to reduce the proportion of retail and leisure assets in our portfolio through
a substantial disposal programme.
As COVID challenges continued, our focus has been on preserving cash and
supporting our tenants, employees and communities. This challenge has
reinforced the importance of a committed and resilient team. I would like to
thank each and every one of them for their hard work and dedication in this
difficult year. Support from our shareholders and lenders has also been very
encouraging and greatly appreciated.
Despite the impact of COVID-19, the completion of two major refurbishments
during the pandemic is testament to the strength and culture of our
organisation and our commitment to building city centre environments fit for
the future.
Performance
The significant impact of COVID on our revenues and profits is clear,
resulting in earnings taking an estimated £6.2m hit during the year, £3.2m
in the first half and £3.0m in the second half. I am confident that the
gradual easing of lockdown measures will lead to a stronger first half in the
current financial year.
EPRA earnings per share* are 0.6p for the year (2020: 3.1p), which compares to
pre-COVID levels of 12p in FY19. EPRA net assets per share* are 292p and
remains unchanged from the 292p at the previous year end, the small increase
highlighting the resilience of our investment portfolio over what was a
turbulent year.
The focus on accelerating key strategic initiatives means net borrowing
(excluding finance lease liabilities) is down by £38.0m to £145.6m(2020:
£183.6m) and loan to value is down to 51.3% (2020: 56.0%) following a
proactive programme of disposals generating gross proceeds of £48.0m. This
has contributed to a reduction in the proportion of retail and leisure assets
in our portfolio to 29% from 40% in FY20.
Rent receipts over the entire COVID-19 period remain robust with 93.4% either
paid or agreed to be deferred, reflecting our long history of engagement with
our tenants and the hard work of our team to generate equitable solutions with
the majority of our retailers, albeit with some notable exceptions. We were
again disappointed to see the government's lack of support for landlords
continuing with an extension of the government's rent moratorium until March
2022.
Whilst we were fortunate to avoid any significant exposure to retail store
failures, we did see six tenants either entering administration or CVAs. Our
broad portfolio of tenants ensured our exposure was modest representing only
4% of income and we are in active discussions on re-letting all of this space.
Restatement of prior year figures
Prior year comparatives have been restated to reflect six adjustments, full
details of which are set out in Note 11 to this announcement. The three key
adjustments are as follows:
o Reclassification of two of the Group's Multi Storey Car Parks ('MSCPs')
from freehold investment properties to freehold properties within car park
activities
o Application of a single accounting policy to all types of leasehold car
park properties, whether long term, short term or right of use asset
o Reclassification of the Group's investment in a listed entity from current
to non-current asset investments
* Alternative performance measures are detailed, defined and reconciled within
Notes 4 and 10 of this announcement
Key achievements
Even in these challenging times, I have felt it is increasingly important to
look forward to the future and reinvigorate our business to maintain momentum.
Leeds
The completion of the refurbishment of 123 Albion Street, Leeds represents a
significant milestone in the year, creating a valuable asset which has already
become the home of the StepChange Debt Charity, an existing tenant. It is
particularly pleasing to report that, following the Instant Office Group
letting, the whole of the building is now let, illustrating the strength of
the development. This has in turn created a redevelopment opportunity in Wade
House, Merrion Centre, their previous location.
This places us firmly at the heart of an exciting plan to transform Leeds City
Centre, with investment in a leading-edge Innovation District including the
building of purpose built accommodation for over 3,500 students around
Merrion, which will drive footfall and create a vibrant, active community.
Manchester
The refurbishment of Ducie House, our multi-tenant office building in
Manchester is now complete. We are pleased to welcome both existing and new
tenants to the building.
We are also at the heart of one of Manchester's historic districts -
Piccadilly Basin. We operate a large prime site, Urban Exchange, which is let
to Aldi, M&S, Pure Gym and Go Outdoors. Go Outdoors was put into
administration by its owners in 2020. Since that point, we have been receiving
full rent from the administrator and are in active discussions regarding the
future of the store.
We have an exciting development pipeline in this vibrant area of Manchester,
including an implementable planning consent for Eider House, our second Build
to Rent (BTR) development, which follows on from the successful completion of
Burlington House in September 2019.
CitiPark
Our car parking business has been hit very hard by COVID-19. As a business
it is dependent on commuter, retail and leisure parking so each lockdown has
had a material impact on revenue. We are clearly not operating in a level
playing field when retailers can take advantage of rent and business rates
holiday, whereas we are expected to pay these in full. I find it hard to see
why a business like car parking, which is so closely related to retail, has
been completely ignored. The most we have been able to do is temporarily close
branches or sections of branches to claim small reductions in business rates.
As at the end of June 2021 we have opened all our car parks and we are seeing
a recovery now similar to that experienced in the summer of 2020 with our
portfolio of car parks operating at over 2/3(rds) of normal capacity.
As one of the most innovative parts of our business, through the creation of
CitiCharge, we are already providing electric vehicle (EV) charging points in
our branches, as part of the refurbishment of 123 Albion Street and winning
contracts to provide EV chargers to external organisations.
Our investment in Yourparkingspace, an online parking marketplace, has
continued to strengthen as this exciting business attracts new investors and
embarks on the next phase of its rapid growth.
We also see a great opportunity to use technology to develop a professional
and fair parking enforcement business as we add further contracts to BaySentry
Solutions, including the acquisition of KBT Cornwall Ltd at the end of the
year.
Stakeholder engagement
Tenants
Our staff have worked tirelessly to negotiate agreements with our tenants and
ensure that we fill any vacant space as quickly as possible. Whilst many of
our smaller tenants have worked collaboratively with us to meet their
obligations, in contrast some of our larger tenants have made this difficult.
For example, when Go Outdoors was put into administration and then bought back
in a pre-pack deal by owner JD Sports, it left its landlords including Town
Centre Securities (TCS) to shoulder the losses. JD Sports acquired Go Outdoors
in 2017 and I presume were properly advised of the obligations they took on at
that time. I find it outrageous and appalling that a company the size of JD
Sports is allowed to walk away freely from its legal obligations, incurring
only minor penalties and doing so without any reputational damage whatsoever.
It is a sad indictment that profit is now regarded more importantly than moral
and legal obligations. Bonuses for the JD Sports Directors this year seem
inappropriate to say the least.
Employees
Our employees have demonstrated their adaptability and flexibility whether
transitioning to working from home or taking periods of furlough. We topped up
salaries to 100% and continued open, regular communication with all employees
to maintain morale and engagement. Some Head Office staff were furloughed but
all have returned to work - many to our Merrion office working in COVID-safe
conditions.
Board
In February 2021, we said goodbye to our Group Finance Director, Mark Dilley.
Mark was invaluable during a period of significant change for TCS, both in his
careful management of our financial position, and his valuable insight into
our future direction. I am particularly grateful for his support and hard work
during the extremely challenging past time and we wish him and his family well
for the future.
On the 1(st) June 2021, we welcomed Stewart MacNeill to the Board as our new
Group Finance Director after an interim period. His experience and knowledge
have already made him a good addition to the TCS team and we are delighted he
has joined us on permanent basis.
Shareholders
Shareholder support has been important during this difficult period. We will
always follow the regulatory requirements to ensure shareholders are suitably
informed. On 17 June 2021 we commenced a share buy-back programme and we
acquired for cancellation 214,713 shares in the capital of the Company, for a
total consideration (incl SDRT and costs) of £304,940. If prices allow us, we
intend to use this authority again in the coming year.
Whilst we were pleased to declare a dividend at the half year, I am truly
sorry that we are not able to announce dividends that return to pre-COVID
levels. We need shareholders to remain patient as we secure the business for
the long term. The Board has approved a final dividend of 1.75p, totalling
3.5p for the full year - a step in the right direction.
ESG and communities
We have a five-part approach to ESG: minimising our environmental impact;
engaging with external stakeholders; having engaged and committed employees;
making a positive contribution to our local communities and always behaving
properly. We are committed to delivering environmentally friendly buildings
that meet the needs of our occupiers and make a positive contribution to the
communities they operate in.
Giving back to our local communities has always been an essential part of the
way we operate, right from the moment the Marjorie and Arnold Ziff Charitable
Foundation was set up in 1960. Offering free parking and concessionary hotel
accommodation to NHS staff is a continuation of that long-held tradition,
along with support for our retail partner initiatives during the year and our
ongoing support for young people.
Outlook
Whilst our diversified portfolio, strong development pipeline and strong
financial position gives me optimism for the future, I would like to reinforce
the point that our city centres need people and footfall so they can return to
the vibrant, busy spaces our communities thrive on. The government, local
authorities, local employers and large organisations all have a responsibility
to encourage their staff to return to their place of work to fill our public
transport, our shops, restaurants and coffee shops and encourage the
collaboration and innovation that fuels our growth and builds our future.
We remain committed to our strategy and will continue to actively manage our
assets, sell certain retail assets to maximise our available capital, invest
in our development pipeline and acquire assets to improve our portfolio.
COVID-19 of course remains the big risk as any further lockdowns would create
further damage, and the need for the Government to communicate its plans
clearly in advance is crucial.
I am confident that our focus on the two growing and exciting cities of Leeds
and Manchester, where we are helping to create a sense of place and purpose
for living and working, will enable us to generate value for all our
stakeholders as the world returns to normality.
Portfolio review
Valuation summary
TCS saw the like-for-like value of its portfolio increase by 0.3% (£1m) after
modest capex of £2.2m in the year. This has reversed the £2.6m like-for-like
reduction in value recorded in the six months to 31 December 2020. This
recovery bears testament to the diversified portfolio of the Company and the
continuing strategy of reducing our exposure to retail and leisure assets.
For the year to the 30(th) June 2021 the total portfolio, including
development assets, our share of properties held in joint ventures and car
parking assets, declined in value from £372.5m to £329.2m. However after
adjusting for a net movement of £44.2m of capex, sales and purchases the
underlying uplift in value of the portfolio was £1m. This represents an
increase of 0.3% year on year. This is set out in the table on page *, which
includes a reconciliation to the amounts disclosed in Note 12 to the financial
statements.
Our development assets increased in value by 9.7%, whilst our Office portfolio
increased by 6.1%, on a like for like basis. The combination of these
outweighed an 8.7% revaluation decrease in our retail and leisure portfolio.
Our retail and leisure investments outside of the Merrion Centre, primarily in
Scotland, fared the worst, with a 17.4% like-for-like revaluation deficit in
the year.
Our main and most complex asset, the Merrion Estate saw a 2.0% decline (after
capex) in value year on year from £148.0m to £145.0m. More than a shopping
centre, from initial inception, a true mixed-use asset, this comprises offices
including our share of Merrion House, retail space, a hotel and a multi-storey
car park. The initial yield across the whole Merrion Estate of 6.9% signifies
a robust performance against others in the sector where retail assets,
particularly shopping centres have continued to fall.
The valuation of all of our properties (except one) are carried out by CBRE
and Jones Lang LaSalle. Both companies have removed the 'material valuation
uncertainty' clause, as set out in the RICS Valuation Global Standards, which
was included last year at the time of peak COVID-19 uncertainty.
Sales and Purchases
The COVID-19 crisis prompted the Board to accelerate the retail and leisure
disposal programme. During the financial year ended 30 June 2021 we have sold
nine properties for gross proceeds of £48.0m.
Our continued commitment to asset recycling is clear. The table details the
£96.9m of disposals since FY17 of which 93% 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% 0.0
Total 96.9 93% 30.6 24%
Retail and leisure
The global pandemic has presented many challenges to the UK retail market
during the last 18 months. Structural shifts in consumer behaviour and the
move to multi-channel retailing have been accelerated by the pandemic.
However, as we move into the second half of 2021, the reopening phases
throughout Q2 2021, the widespread vaccination programme and pent-up demand
have triggered significant improvement to consumer sentiment.
Online sales accounted for 26.1% of total UK retail sales in June 2021. This
is notably below the peak of 36.3%, recorded in January 2021. Although
hospitality and leisure spend is reported as being subdued, within our own
portfolio, there is increasing evidence of a rapid return to pre-pandemic
levels.
Retail Parks continue to outperform with footfall down 4.1% on average in June
(Source: Springboard) whilst Shopping Centre and High Street locations
recorded 27.2% and 29.1% reductions respectively.
Changes to Government support packages including the changes to furlough, the
extension of the eviction moratorium to March 2022 and changes to the rates
support will all be relevant factors going forwards as operators consider
their particular market headwinds. There are high levels of retail vacancy
across the UK, however, Savills are reporting a slight softening in retail
rental decline.
Shopping Centre yields have risen by 75 bps over the last year. There is
evidence of this trend having turned a corner and in the first half of 2021,
£594m was invested in the UK Shopping Centre Market. This compares with
£343m in the whole of 2020. TCS's principal mixed-use scheme, The Merrion
Estate, anchored by Morrisons (the only full-line supermarket in Leeds City
Centre) is well placed to benefit from the interest of risk-averse investors
preferring the food store anchored schemes. The retail sector is
increasingly offering value for the opportunistic investor.
Unlike the Shopping Centre sector, High Street retail investment in 2021 is on
a par with 2020, with c£1.1bn of investment turnover for the first half of
2021. Institutional investors are increasingly turning away from this
sector. However there are still opportunities on the High Street, especially
in the essential retail category that will attract the risk-adverse investor.
Investor demand for food stores remains strong with the downward pressure on
prime yields. In the meantime, active landlords such as TCS are continuing
to build flexibility into their retail portfolios through active asset
management, planning consents and innovative terms.
From a TCS perspective, total retail and leisure assets fell by £9.0m or
8.7%. Merrion excluding offices and the MSCP delivered an Initial Yield of
7.7% reflecting the skew in tenant mix to supermarket and value retailers.
Merrion's value fell by £3.8m or 6.3%. TCS's out of town retail had an
initial yield of 7.9% representing its mix of food and value retailers, with
value falling £0.3m or 2.0%. Other retail and leisure assets fell by £4.9m
or 17.4%, with these more traditional standalone retail units being most
significantly impacted.
Our hotels, while both open for key workers during the start of COVID-19, were
then closed from the start of January 2021 to April 2021, but with a quick
recovery values have rebounded slightly with an increase of £0.6m or 2.4%.
The success of the 'staycation' has clearly had an effect and we are
continuing to see increased booking volumes in the months after June 2021.
Regional offices
Office investment volumes reached £1.07 billion outside of central London
in Q1 2021, which was a 25% decrease in volumes recorded in Q1 2020 and a 32%
decrease in the long-term average. (1)
Overseas investors were the most active investors across the regional office
investment market in Q1 2021. The investor type accounted for 58% of
investment which was the highest proportion from the sector in the last 10
years. (1)
The regional office markets have remained quiet during the period due to
changing working from home restrictions imposed by the pandemic and a general
lack of any new stock coming to the market. Investors are set to gauge
sentiment when occupiers return to buildings later this year in line with
restrictions easing.
Take up in most of the major regional cities remains significantly below the
ten-year averages. Enquiry levels have slowly started to increase with some
of the larger requirements gathering momentum as they establish what their
longer-term occupational requirements will be.
The prime regional office yield moved out by 25 basis points to 5.00% in April
2020 in response to investor caution arising from the coronavirus pandemic and
has remained at this level. (1) Office sector capital values increased 0.2%
in July, reflecting positive growth outside Central London, while Central
London values were unchanged. Office rental values increased 0.2%. Office
total returns were 0.5% for the month. (2)
1) Savills UK Regional Office Investment Market Watch 8(th) June 2021.
2) CBRE UK Monthly Snapshot July 2021.
Our office portfolio increased in value by £5.0m or 6.1% over the year, the
majority of which was due to the completion of the 123 Albion Street
refurbishment and the subsequent letting of all of the vacant space. The value
of TCS's share in Merrion House has also increased by £1.1m reflecting both
an improvement in the yield but also an increase in the estimated rental
value.
Residential
Residential property has been the surprise outperformer during the pandemic,
with fears of a repeat of 2008's housing market collapse proving unwarranted.
Investment levels into institutional rented property have been sustained and
are expected to hit new records throughout the coming years. Fiscal support
for the owner-occupied market has maintained prices and transaction levels,
though the risk of rising unemployment could stall this is in the coming
months.
At the end of Q2 there were just over £2.1bn of Buy-to-Rent transactions
under offer. The pipeline again highlights strong demand for regional markets,
with two-thirds located outside of London. There is currently close to £1.3bn
under offer across regional markets including Birmingham, Bristol, Cardiff,
Glasgow, Leeds, Manchester, Newcastle and Sheffield.
From a returns perspective, CBRE expect Residential to outperform other real
estate sectors over a five-year horizon. According to the Office for National
Statistics, rents across the UK have remained stable between January and June
2021. However, potential downside risks, including the ending of the furlough
scheme in September, mean they continue to forecast a marginal fall in rents
for the full year, but then expect a rebound in 2022. A highly competitive
market will underpin asset pricing and yields. Overall, they are forecasting
residential total returns to average 7.3% per year to 2025 and investment to
continue on an upward trend throughout a five-year horizon, with the
expectation of £9.8bn invested across the residential sector in 2021, rising
to £15.7bn by 2025.
TCS's residential assets are concentrated in the city centres of Leeds,
Manchester, suburban London and Glasgow. Overall, we saw an increase in the
value of our residential portfolio year on year of 3.5%. This was largely
driven by a rebound in the Manchester market, effectively reversing and
improving on the negative impact COVID-19 had on residential values at 30 June
2020 of -1.3% . Rents are expected to return to a 3% per annum growth rate
from 2022. As mentioned last year our Piccadilly Basin site remains one of the
most centrally located and accessible sites in the city and as such, we expect
it to outperform the market in the long term.
Passing rent ERV Value % of portfolio Valuation incr/(decr) Initial yield Reversionary yield
Retail & Leisure 1.6 1.9 23.4 7% -17.4% 6.4% 7.9%
Merrion Centre (ex offices) 4.6 4.9 56.7 17% -6.3% 7.7% 8.1%
Offices 4.5 6.2 91.4 28% 6.1% 4.7% 6.4%
Hotels 1.2 1.6 23.6 7% 2.4% 4.7% 6.5%
Out of town retail 1.2 1.2 14.5 4% -2.0% 7.9% 7.5%
Distribution 0.4 0.5 6.5 2% 7.7% 6.0% 6.8%
Residential 1.0 1.0 20.5 6% 3.5% 4.6% 4.6%
14.6 17.3 236.6 72% -1.0% 5.8% 6.9%
Development property 41.5 13% 9.7%
Car parks 51.2 16% -1.9%
Portfolio 329.2 100% 0.3%
Note: includes our share of Merrion House within Offices (£35.8m - see Note 7
of this announcement), our share of Burlington House within Residential
(£11.3m - see Note 7 of this announcement) and Car Park Goodwill of £4.0m
arising on individual car park assets, but specifically excluding goodwill
arising from the current year car park operation acquisitions. All of the
above are not included in the table set out in Note 6 of this announcement.
Note: excludes IFRS 16 adjustments that relate to Right-of-Use car park assets
(£27.8m) as the Directors do not believe it is appropriate to include in this
analysis assets where there is less 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 this announcement.
The table below reconciles the above table to that set out in Note 6 of this
announcement:
FY21 FY20
£m £m
Portfolio as per Note 6 305.9 354.3
50% share in Merrion House 35.8 34.7
50% share in Burlington House 11.3 10.9
Goodwill - Car Parks - Property specific only 4.0 4.0
Less - IFRS 16 right-of-use car parks (27.8) (29.7)
Less - addition recognised relating to an asset held for sale -
(1.7)
As per the above table 329.2 372.5
Location Value %
Leeds 222.4 68%
Manchester 71.9 22%
Scotland 11.4 3%
London 23.4 7%
329.2 100%
Sector Value %
Retail/leisure 94.6 29%
Hotels 23.6 7%
Office 91.4 28%
Car parking 51.2 16%
Distribution 6.5 2%
Residential 20.5 6%
Development 41.5 13%
329.2 100%
Lease Expiries Value %
0-5 years 6.8 46%
5-10 years 2.0 14%
Over 10 years 5.8 40%
14.6 100%
Divisional review - property
Overview
It has been an intense period for our dedicated team as they manage our estate
on a daily basis, securing income, extending lease terms, and working closely
with our tenants to support them through the current challenges. Despite the
immediate urgencies created by COVID-19, we have also continued to focus on
pursuing new opportunities to help create places that attract people and
create communities.
Over the course of the year our like-for-like void percentage has improved
marginally from 5.6% to 5.3%, again representing the resilience of our
portfolio. In measuring voids we include premises to let and also those in
Solicitor's hands, but where an agreement for lease has not yet been signed.
In measuring voids we specifically exclude premises that are temporarily unlet
pending redevelopment.
Our portfolio is largely focused in the vibrant Northern cities of Leeds and
Manchester, where we have resilient assets and a high-quality pipeline of
development opportunities.
Leeds
The last twelve months have demonstrated the resilience of our portfolio in
Leeds and the strength of the Merrion Estate which is at the heart of the
Arena Quarter and adjacent to the Innovation District in the City. The Arena
Quarter has been transformed in recent years with the development of the First
Direct Arena, substantial investment by the two largest universities in Leeds,
a brand-new Head Office for Leeds City Council and over 8,000 new residential
and student residential units. These new developments include the tallest
building in Leeds - IQ Altus, which is under construction and scheduled for
completion later this year. The same developer is preparing to invest
further in this location, underlying the industry's confidence in this area.
The Merrion Estate is a mixed-use scheme comprising supermarkets, offices,
retail, leisure, car parks and a hotel. Our largest office occupier is Leeds
City Council's Head Office (170,000 sq ft) and our supermarket tenants include
Iceland, Co-op and the only full line City Centre supermarket in Leeds,
Morrisons. Merrion represents 44% of the value of the portfolio.
Asset management
Merrion Centre
The Merrion Estate has continued its diversification and repurposing programme
that began over 10 years ago. Merrion's strategic location at the heart of
the Arena Quarter, adjacent to the Innovation District, is continuing to
deliver new customer sources for our Estate. Domino's Pizza, Co-op, Leeds
Teaching Hospitals Trust and 7 independent and regional tenants all opened
premises during the last year. It is particularly pleasing to see existing
tenants invest further in Merrion, such as the popular Blue Sakura Restaurant
taking their second restaurant premises at Merrion and Morrisons' investment
in their brand new 'Market Kitchen' concept.
Our teams have worked extremely hard to ensure that our rent collection rates
have remained high, ending the year at over 93% either collected or deferred.
This is testament to the close relationships we have built with tenants over
the years and the collaborative approach we have taken to build arrangements
that work for both parties.
Despite challenging footfall levels, many employees working from home and
lower student numbers, our retail and leisure portfolio has proven resilient
given the emphasis on essential retailing, namely grocery, health, convenience
and discount retailing. Fortunately, we have had no exposure to any of the
larger high street retail failures such as Arcadia or Debenhams.
Since July 2020, just four Merrion Estate tenants have entered into CVAs or
administration: Deltic Group, Café Nero, Slam Trading and Select. These four
tenants, together with two non-Merrion Estate tenants, are the only TCS
tenants to enter administration/CVA during the last financial year. The
billable rent for these represents circa 4% of property income.
Encouragingly, all but one of these tenants are capable of being replaced via
a new letting or proposed new assignment. We have completed or renewed 11
leases in the financial year including eight new retailers moving into the
Merrion Centre - examples include the Leeds Rhinos shop, Teisha's Hair and
Beauty Salon, and Youshi. It is also encouraging to note a further seven new
lettings or lease renewals have completed after the year end.
123 Albion Street
Acquired in 2018, we have now completed a net £4m refurbishment of 123 Albion
Street adjacent to the Leeds Innovation district and the Merrion Estate. The
newly refurbished building comprises 21,000 sq ft of flexible commercial space
on the ground floor, with 56,000 sq ft of good quality office space over three
upper floors. In a collaboration with our CitiPark's division, the
refurbishment programme includes two CitiCharge EV chargers as well as plenty
of parking, cycle storage and electricity regeneration lifts.
The whole building has already been let, illustrating the strength of the
location. The ground floor will
now trade as a 'Job Centre Plus' focused on coaching people out of work due to
COVID-19 and in
December 2020 we agreed a new 12-year lease for the remaining 46,000 sq ft to
StepChange Debt Charity. StepChange is the UK's leading debt charity
offering free expert advice to individuals enabling them to tackle and manage
their debts. This letting at 123 Albion Street involves the charity moving out
of our Wade House office (on the Merrion Estate) into this newly refurbished
building. StepChange has been a valuable Town Centre Securities tenant for
almost 20 years and the business has now reached a stage where larger
floorplate offices were required to take the business forward. It is pleasing,
both for TCS and for the wider City of Leeds, that we have been able to
satisfy StepChange's new office requirement, enabling them to continue their
important and valuable work.
123 Albion Street was valued at £12.1m twelve months ago and has increased to
in excess of £20m, following the renovation and successful letting programme.
The completion of 123 Albion Streets' refurbishment now presents us with an
opportunity to redevelop or refurbish Wade House, on the back of the new
demand for the area. Wade House represents the last of the four main office
buildings that form part of the Merrion Estate, this being one that is now in
need of investment, following the redevelopment of Town Centre House and
Merrion House. We are in detailed discussions with potential partners and are
confident in delivering on this new opportunity.
ibis Styles Hotel
It's been a roller coaster of a year for our hotel, ibis Styles. During the
first lockdown in 2020, we were able to keep the hotel open for key workers
and offer concessionary rates to essential workers, especially NHS staff. The
hotel was then fully open and trading well in early autumn 2020, only to shut
down completely from January to April 2021. Trading has rebounded since its
reopening in May 2021, although different trading patterns are emerging. The
initial lack of corporate business during the week has been replaced by
leisure bookings that extend over the weekend into the traditionally quiet
Sunday nights. Early signs of the corporate market returning have recently
started to emerge. ibis Styles is on track to return to full strength very
soon.
Manchester
Our Manchester portfolio represents 22% of our total assets and is centred
around the Piccadilly Basin area - a historic and exciting contribution to
Manchester's development. This is a 12.5-acre mixed use development site
situated next to the Northern Quarter, Ancoats and New Islington, all of which
have experienced significant investment and development over recent years.
The value and appeal of the immediate and surrounding areas is rising and our
most recent developments at Burlington House and Ducie House are showing
strong potential.
We have an approved Strategic Regeneration Framework in place with Manchester
City Council which identifies 800 residential units, a 500 space multi-storey
car park and 200,000 sq ft of canal-side commercial development over the
coming years.
Asset Management
Ducie House
We have now completed our £2.1m refurbishment of the iconic Ducie House in
Manchester. Originally a petticoat factory, Ducie House is a 33,000 sq ft
multi-tenant office building. The work included essential fabric and M&E
repairs post acquisition. This included full roof, façade, and window repairs
as well as new boilers, lifts, air conditioning and heating. We adopted a
strategy of restructuring the building's configuration to provide three
additional meeting rooms, shower facilities and booth spaces. The common areas
on the upper floors have also been refurbished to provide further amenity
space including break-out booths with balcony space and improved
toilet/kitchen facilities.
We have seen a very positive response following our investment and continue to
expect the investment to deliver increased net income of circa £0.3m per
annum and a post investment return in excess of 8.5%. The value of Ducie House
increased by £1.0m to £9.0m reflecting the additional capex spent in the
first half of FY2020. In January, we signed the first new lease for one of
the larger duplex offices with textile company NB Avenue Limited, who supply
and manufacture clothing to online retailers internationally. Many existing
tenants who moved out temporarily during the refurbishment are returning and
the building is now home to around 20 companies from various sectors(Including
technology, marketing and fashion).
Urban Exchange
Urban Exchange is a 120,000 sq ft retail outlet within our Piccadilly Basin
ownership in the centre of Manchester. It is let to Aldi, M&S, Pure Gym,
and Go Outdoors. As previously reported, Go Outdoors was put into
administration by its owners in 2020. Since that point, we have been receiving
full rent from the administrator and are in active discussions regarding the
future of the store which is likely to continue to trade and stay open.
However, once again this presents TCS with an opportunity to look at
alternative uses and development options for this large, prime site.
Other assets in our portfolio are performing well. Carver's Warehouse
continues to be strategically important and voids are filled promptly.
Burlington House, which was completed two years ago, has proved resilient
during the COVID-19 challenge. This was the first residential scheme in
Manchester to be awarded a Wiredscore Silver rating for connectivity.
London and Scotland
Overview
Following a number of disposals in the year, our portfolio in Scotland now
comprises three mixed use properties in Glasgow and restaurant premises in
Edinburgh. In addition to our prime office premises at Duke Street, London W1,
our London investments are in good-quality secondary high street locations and
primarily consist of retail and residential mixed-use assets.
Scotland
Our activity in Scotland this year has centred around the disposal of mature
assets, largely in the retail sector.
These include two Waitrose stores in Milngavie and Glasgow sold for £23.2m
and a recently completed retail development in Milngavie, let to Home Bargains
and Aldi, for £10.7m.
We have, however, following our tenant in Buchanan Street, Glasgow entering a
CVA, exercised our right to exit the lease agreement. Whilst this did incur
rental losses, it has given us the opportunity to look at an alternative
future for this property. We have submitted a planning application to convert
the top three floors into six luxury apartments and will let the remaining
retail outlet to Watches of Switzerland. This greatly improves the quality
of tenancy and lease.
London
Activity in London has also centred around disposals of mature assets,
including retail units in Chiswick and Wood Green for a total of £6.2m. Our
other assets are performing well and, whilst our key focus is on Leeds and
Manchester, we will continue to take advantage of good-quality opportunities
as they arise.
Development Pipeline
Our portfolio is peppered with development opportunities, great and small;
from our strategically important sites at Piccadilly Basin, Whitehall
Riverside and Merrion Estate to smaller residential flat conversion
opportunities in Glasgow. We are now actively exploring the impact of the
booming residential and co-living sector on our development pipeline.
Our development pipeline is significant, with an estimated GDV of over £600m
and we see this as a strategic point of difference.
The key components of the development pipeline include:
·Piccadilly Basin, Manchester. Mixed residential, commercial, and car-parking
with a total estimated GDV of circa £300m.
·Whitehall Road, Leeds. Office, car-parking, and potentially leisure
provision with a total estimated GDV of over £170m.
·Merrion, Leeds. Office and residential towers with a total estimated GDV of
over £100m.
The value of our development pipeline value increased by £3.7m or 9.7% since
June 2020, driven by a 15.6% increase in the value of our Piccadilly Basin,
Manchester holding as the market value of development land there has
increased.
We are also exploring different options for Vicar Lane, Leeds, as well as
delivering new apartments, alongside Urban Splash at Brownsfield Mill,
Manchester.
The changing property landscape has led us to reimagine the Whitehall
Riverside development to ensure the master plan is fit for the future.
Initially focused on constructing three office buildings, we are now active on
site assessing a mixed-use scheme to capitalise on the vibrant Build to Rent
(BTR) in Leeds and planning how best to bring forward plans for 3.5 acres of
undeveloped land.
The success of Burlington House and the buoyant BTR sector in Manchester have
proved to be a springboard for our next development in the vibrant Piccadilly
Basin area. Planning permission for Eider House was implemented in January
2021 for a new development of 128 luxury apartments opposite Ducie House and
adjacent to Dakota hotel. We are currently reviewing the proposed scheme to
ensure that our next residential development builds on the success of
Burlington House and delivers a best in class scheme.
We take a conservative approach to development to ensure we never over-commit
ourselves, which has proven crucial following the COVID-19 crisis. However,
TCS does have a successful track record in obtaining planning and delivering
strategic developments. In the last four years, TCS has delivered Merrion
House office, two new hotels in Leeds, and the Burlington House BTR scheme in
Manchester. In addition, over that time frame we have secured planning
permission for Eider House, our second BTR scheme in Manchester, and for a
17-storey office tower at the Merrion Estate. This will be our first high-rise
development at Merrion and strategic partnerships are now being put in place
for this ambitious project.
Divisional review - CitiPark
Overview
It's been a challenging year for our CitiPark business. It has taken the full
impact of COVID-1 related lockdowns, with no support from government or local
authorities on rent or rates relief, leading to a material impact on revenue
and profitability. Gross revenue for FY 2021 was £6.7m, 34% down year on year
with operating profit reduced to £0.2m, compared to £2.7m in the prior year.
Now lockdown is easing, we are seeing a strong recovery. All our car parks are
now open and short-term income is rising in line with expectations, although
season ticket revenue remains affected by the slow return to the office.
Interestingly, discussions with our larger commercial clients suggest that
nervousness about travelling on public transport may lead to a rise in demand
for parking, as employees choose to drive as they return to the office.
We have remained flexible throughout the period, temporarily closing branches
when it was economically sensible and using the government furlough scheme
where appropriate. Now we are responding to changing working patterns with
restructured products, for example, new style season tickets and commercial
promotions to support hybrid working.
Mindful of the needs of our local communities, we provided free parking for
NHS staff in the first lockdown, tailoring ongoing concessions on a location
by location basis as we manage capacity.
We have also fully supported our staff throughout the year, topping up
furlough salaries and carefully managing their return to work safely.
Throughout this period of stop/start and moving goal posts, they have proved
remarkably resilient and we are very pleased to see them all back at work.
Technology and innovation
Our strategic technology initiatives have made significant advances in the
year as we continue to expand beyond traditional car park ownership, using
technology as a key differentiator and to underpin our focus on sustainable
growth.
EV charging/CitiCharge
Launched shortly after the year end, in July 2021, our CitiCharge app allows
users to search for our electric vehicle (EV) charging points around the
country and will offer pre-booking facilities in the future. We own and
operate 30 charging points in Leeds and 22 in Central and Greater London,
where the congestion charge is a key driver of demand. 35 EV charging points
for a Coventry NHS hospital will be live by the end of the calendar year and
we see this as an important future income stream as electric car numbers
increase.
Our three solar energy farms in Manchester and Leeds provide the capacity to
underpin this growth, in addition to selling excess power to the National
Grid.
CitiPark App
Launched last year, this app has come into its own with COVID-19 accelerating
take-up as digital payments replaced cash. Our early promotional message - 'a
pay station in your pocket' - emphasised the benefits of paying for your
parking safely on the app and today 60% of all digital parking fees are paid
via the CitiPark App.
BaySentry Solutions
Our parking management company, BaySentry Solutions Ltd, has expanded
significantly during the year, acquiring a Cornwall-based parking enforcement
company with 270 sites and 75 enforcement contracts from an independent
operator covering East, West & North Yorkshire. We see opportunities to
use technology to grow these businesses, using ANPR cameras and other
electronic payment systems, both here and in 25 of our own branches. As the
market for electric vehicles grows, we will look to exploit our presence in
all these locations to expand our EV charging network.
YourParkingSpace.co.uk (YPS)
Our equity share in innovative online marketplace - YourParkingSpace.co.uk -
has continued to increase in value. This platform connects drivers with over
350,000 privately owned and commercially operated parking spaces across the
UK, available to book hourly, daily, or on a monthly basis. Drivers can book
parking on-demand through its website and mobile applications. In September
2020, YPS completed a significant fund raise from a new private equity
investor, which will fuel its future expansion as demand recovers to
accommodate returning workers who don't want to use public transport. As part
of the transaction, we exercised our third and final investment option and now
have a 19.9% voting share with additional 1.2% non-voting shares, convertible
to voting on exit. Our cost of equity investment totals £1.0m, which
following an external fair value exercise undertaken after the recent fund
raise is valued at £1.5m as at 30 June 2021. We continue to retain a Board
position and are looking forward to working closely with the founders and new
investors as we rapidly grow this very exciting business.
Multistories at the Merrion Centre
An innovative venue at the Merrion Centre in Leeds helped maximise the use of
space in the Centre car park that would have otherwise been empty and breathe
new life into the hard-hit hospitality industry.
The top floor of the Merrion Centre car park was rented to a third party for a
series of unique summer pop-up events delivering music, food and drinks in a
setting not normally associated with social gatherings. The various events
were branded using the Multistories name, inspired by the unique car park
setting.
Outlook
CitiPark is set to benefit from a strong recovery in the car parking sector as
concerns over safety influence the return to work and leisure pursuits,
although we are anticipating regional differences in our car parking estate.
For example, our management contract for Manchester Arena has only just come
back on stream with the restarting of events in September 2021.
Looking forward, we see technology as the key driver of growth as we
transition to a cashless society, developing and enhancing our CitiPark and
CitiCharge apps. We expect our EV charging business to grow at a steady pace,
building our sustainability point of difference, and to look for strategic
acquisition opportunities for BaySentry Solutions.
FINANCIAL REVIEW
"The financial performance of the Company was significantly impacted by
COVID-19 during the year ended 30 June 2021 and a degree of uncertainty
remains. However, we have seen consistently improving rent receipts throughout
the year, strong recoveries in both our Car Park and Hotel businesses
following the easing of the last lockdown and the acceleration of our disposal
and debt reduction programme."
The statutory loss for the year was £0.6m, compared to a loss of £24.1m in
the previous year, with the prior year heavily influenced by a negative
revaluation movement in Investment Properties of £26.0m.
EPRA Earnings* were a profit of £0.3m in the year, compared to a profit of
£1.7m in the prior year. These amounts are presented in accordance with IFRS
16 which affects how we account for right-of-use leases that we have entered
into. IFRS 16 was brought in and adopted for the first time in the results for
the year ended 30 June 2020.
COVID-19 had a material impact on our financial performance during the year,
and we estimate a total impact to earnings of £6.2m, compared to pre-COVID-19
levels. We estimate that our Investment Property business has been impacted by
£1.0m, primarily as a result of the fair valuation of rental income and
service charge income that would ordinarily be recognised but due to COVID-19
is not expected to be recovered. The impact to our CitiPark business is £4.5m
due to a significant reduction in car parking income with many fixed costs,
such as rent and rates. Our ibis Styles hotel has also been impacted by £0.7m
in the year.
With EPRA Earnings at historically low levels it would not be prudent to
increase our dividend. The unprecedented impact of COVID-19 and the level of
uncertainty that has arisen means we believe this is the only responsible
action to maintain the long-term prosperity of the Company. The final dividend
for the year will be 1.75p per share, giving a full year dividend of 3.5p per
share.
During the year the Company sold nine separate investment property assets
which generated £48.0m of proceeds. The funds generated were in the first
instance applied to reduce the Company's borrowings, which has reduced from
£183.6m to £145.6m in the year. Net borrowings represent total financial
borrowings of £176.1m less lease liabilities of £29.9m and cash and cash
equivalents of £0.6m. These disposals, combined with the inevitable gap
between asset sales and any asset purchases, and the gradual recovery from
COVID-19, will lead to a longer period of reduced earnings which will
inevitably lead to a lower level of dividend payment than in recent years.
* Alternative performance measures are detailed, defined and reconciled within
Notes 6 and 10 of this announcement
Restatement of prior year figures
Prior year comparatives have been restated to reflect six adjustments, full
details of which are set out in Note 11 of this announcement
o Reclassification of two of the Group's Multi Storey Car Parks ('MSCPs')
from freehold investment properties to freehold properties within car park
activities
o Application of a single accounting policy to all types of leasehold car
park properties, whether long term, short term or right of use asset
o Disclosure of amounts received under the Coronavirus Job Retention Scheme
o Reversal of an historic provision for future anticipated repairs and
maintenance costs on an Investment Property owned by the Group
o Separately identifying service charge income and expenses within the
consolidated income statement as opposed to disclosing a net amount
o Reclassification of the Group's investment in a listed entity from current
to non-current asset investments
Income statement
EPRA Earnings* for the year ended 30 June 2021 were £0.3m.
Restated
£000s FY21 FY20 YOY
Gross Revenue 21,429 30,792 (30.4%)
Impairment of debtors 788 (1,478) (153.3%)
Property Expenses (11,145) (13,681) (18.5%)
Net Revenue 11,072 15,633 (29.2%)
Other Income / JV Profit 2,962 2,018 46.8%
Other Expenses - (777) -
Administrative Expenses (5,585) (6,197) (9.9%)
Operating Profit 8,449 10,677 (20.9%)
Finance Costs (8,145) (9,009) (9.6%)
EPRA Earnings 304 1,668 (81.8%)
Segmental FY21 FY20 YOY
Property
Net Revenue 10,196 11,694 (12.8%)
Operating Profit 8,471 7,849 7.9%
CitiPark
Net Revenue 1,053 3,802 (72.3%)
Operating Profit 155 2,691 (94.2%)
ibis Styles Hotel
Net Revenue (177) 137 (229.2%)
Operating Profit (177) 137 (229.2%)
Statutory profit
On a statutory basis the reported loss for the year was £0.6m.
The statutory profit reflects the EPRA Earnings* of £0.3m plus £1.4m of
non-cash valuation and impairment movements less the loss on disposal
recognised of £2.3m on the nine investment properties sold in the year.
Gross revenue
Gross revenue was down £9.4m or 30.4% year on year, with key drivers being:
· Property sales during the year accounted for £3.0m of this reduction and a
further £1.6m due to COVID-19 related voids and rent concessions.
· CitiPark revenues were materially reduced due to COVID-19, in particular
with the three significant UK lockdowns and the stay at home/work from home
policies. Whilst some monthly subscription income continued to be received,
daily receipts were again down over 90% during the various lockdowns. This has
reduced revenue on a year on year basis by £3.5m.
· Income for the ibis Styles hotel was impacted by COVID-19 by an estimated
£1.3m, in particular during the period from January 2021 to April 2021 when
the hotel was fully closed.
Property expense
Property expenses were down 18.5% or £2.5m year on year. Key drivers of this
underlying decrease were:
· Property: operating expenses were £0.8m lower year on year predominantly
due to a one-time write-off of historic service charges in the prior period.
· CitiPark: operating expenses were £0.7m lower year on year primarily
because of savings initiated as a result of COVID-19 including furlough
savings, reduced rates costs where branches were closed, and operational cost
savings due to the significantly reduced level of transactions.
· Ibis Hotel: operating expenses were £1.0m lower year on year, driven
primarily by the response to the COVID-19 crisis. With the hotel closed for
over three months in the year, the operation was able to reduce variable
operating costs including the furloughing of some staff and reduced rates
costs.
Other / JV income
Total Other / JV income was up 46.8% or £0.9m year-on-year, the majority of
which relates to dilapidations payments received by the Company as tenants
vacate but there was also an increase in the underlying profits within the
joint ventures the Company has a 50% interest in.
Other expenses
There are no recurring costs in relation to the proposed George Street
aparthotel joint venture with Leeds City Council. The write down of this joint
venture resulted in the prior year charge of £0.8m.
Administrative expenses
Administrative costs were £0.6m lower year on year. This is as a result of
significantly reduced spend on bonuses, advertising, travel, entertaining and
other expenditure as a result of our response to COVID-19.
Finance costs
Finance costs were 9.6% or £0.9m lower year on year as a result of the
reduction in both the Company's bank borrowings and the buyback of £6.5m of
debenture stock.
* Alternative performance measures are detailed, defined and reconciled within
Notes 6 and 10 of this announcement.
Balance sheet
The below table shows the year-end balance sheet as reported including the
IFRS 16 implementation.
Restated
£m FY21 FY20 vs FY20
Freehold and Right of Use Investment properties* 181.3 239.4 (24.3%)
Development properties 41.5 37.8 9.8%
Car Park related Assets, Goodwill and Investments 82.7 83.2 (0.6%)
Hotel operations 8.6 0.0 n/a
314.1 360.4 (12.8%)
Joint ventures 16.2 13.8 17.4%
Listed Investments 5.8 3.5 65.7%
Other non-current assets 1.0 1.1 (9.1%)
Total non-current assets inc available for sale 337.1 378.8 (11.0%)
Net borrowings (incl. lease liabilities) (174.6) (214.2) (18.5%)
Other assets/(liabilities) (7.1) (9.5) (25.9%)
Statutory and EPRA NAV 155.4 155.1 0.2%
Statutory and EPRA NAV per share 292p 292p 0.0%
* includes Assets held for sale in FY20 of £23.2m, FY21 £3.9m
Non-current assets:
Our total non-current assets (including investments in JVs) of £337.1m (2020:
£378.8) include £222.8m of investment properties (2020: £279.1m), £82.7m
of non-current car parking assets (2020: £83.2m) and £8.6m of Operational
Hotel assets (2020: £nil). The car parking assets include £4.8m (2020: £4m)
of goodwill and intangible assets arising on business combinations.
The reduction in non-current assets of £41.7m during the year comprises:
· Disposals of £(49.5m)
· Depreciation charge of £(1.8m)
· Capital expenditure of £3.0m
· Movement in tenant lease incentives £1.5m
· Revaluation uplift/reversal of impairments totalling £4.2m
· Operating profits generated and retained in JV entities £0.9m
Although we paused the vast majority of our capital expenditure from March
2020 onwards in order to preserve cash during the uncertainty of the COVID-19
crisis, across the year we invested a total of £3.0m of capital expenditure
in our properties and car parking operations.
Borrowings:
During the year our Net Borrowings have reduced by £39.6m, from £214.2m as
at 30 June 2020 to £174.6m. This was primarily as a direct consequence of the
targeted retail sales made in the first six months. As part of this we bought
back £6.5m of our £106m 2031 5.375% debenture stock with the remaining
reduction spread across our bank facilities.
Two of the three bank facilities expire within twelve months of the year end
and are therefore classed as current liabilities in the balance sheet. Since
the year end we have had bank credit approval and have refinanced our £33m
facility with NatWest, for a further three years on the same terms and margin
albeit at lower facility limit of £25m, this facility will expire in
September 2024, with an option for two further one-year extensions.
Our Lloyds Bank facility's initial three-year term expired in June 2021.
However, the facility allows for two one-year extensions and these were both
actioned prior to the year end, the second extension is subject to a bank
instructed valuation exercise, which is in progress. The Lloyds facility is a
£35m revolving credit facility with a further £5m overdraft facility and
once the valuation exercise is completed will expire in June 2023.
Finally, our £35m Handelsbanken facility does not expire until June 2023.
Loan to value has been reduced to 51.3%, down from 56.0% a year ago. Note the
calculation of loan to value includes both the finance lease assets and
liabilities.
After the year end, the Company breached a financial covenant on its
Handelsbanken facility for the covenant reporting period from 6 July 2021 to 5
October 2021. The Company had made the bank aware prior to formally reporting
this breach. On 24 November 2021 the bank confirmed in writing to the Company
that it had waived its right to take any action as a consequence of this
breach.
At the time of the breach, the Company had drawndown £6.3m out of a total
facility of £35m. At the date of this report, the total amounts drawndown
were £2.6m.
EPRA net asset reporting
Following the introduction of the EPRA net asset reporting, we will focus
primarily on the measure of Net Tangible Assets (NTA). The below table
reconciles IFRS net assets to NTA, and the other new EPRA measures.
There are three new 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.
Restated
Restated FY21 FY20
£m FY21 FY20 p per share p per share
IFRS reported NAV 155.4 155.1 292 292
Purchasers Costs (1) 21.1 24.1
EPRA Net Reinstatement Value 176.5 179.2 332 337
Remove Purchasers Costs (21.1) (24.1)
Remove Goodwill (2) (4.4) (4.0)
EPRA Net Tangible Assets 151.0 151.1 284 284
Fair value of fixed interest rate debt (3) (10.2) (17.7)
EPRA Net Disposal Value 140.8 133.4 265 251
(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, COVID-19 had a material impact on
profitability in the year ended 30 June 2021, 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. However we are seeing 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 reviewing options for how the proceeds of any further sales could be
utilised including debt repayment, asset purchases and share buybacks.
Whilst the reduction in the dividend in the current year is due to the impact
of COVID-19, 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 and covenant pressure
As identified in the Risk Report, we have highlighted the continued pressure
on retail and leisure assets to be a significant risk to the business. A
further risk is the pressure on the financial covenants of the Company's
banking facilities, especially after the recent breach on the Handelsbanken
facility. 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.
Our expectation is that continued asset sales and debt repayments, will
strengthen this further.
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 2021 was £12.1m (2020:
£14.8m), 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 19.8% 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 55.8% (2020: minus 50.4%) was calculated as the
total of dividends paid during the financial year of 3.5p (2020: 11.75p) and
the movement in the share price between 30 June 2020 (95p) and 30 June 2021
(144p), assuming reinvestment of dividends. This compares with the FTSE All
Share REIT index at 23.1% (2020: minus 10.1%) 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 55.8% 1.6% 5.4%
FTSE All Share REIT index 23.1% 6.4% 3.3%
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 4.3%
(2020: (2.1%)). This compared to the MSCI/IPD market return of 6.4% (2020:
(2.9%)).
A key driver of the All Property MSCI index being higher than TCS is due to
the strong market performance of industrial property of which TCS only has a
small amount.
Consolidated income statement
for the year ended 30 June 2021
2021 2020
Restated
Notes £000 £000
Gross revenue (excl. service charge income) 18,703 27,989
Service charge income 2,726 2,803
Gross revenue 21,429 30,792
Release of provision/(provision for) impairment of debtors 788 (1,478)
Service charge expenses (3,656) (4,011)
Property expenses (7,489) (9,670)
Net revenue 11,072 15,633
Administrative expenses 2 (5,585) (6,197)
Other income 3 1,989 1,218
Other expenses - (777)
Valuation movement on investment properties 63 (26,024)
Impairment of car parking assets (111) 414
(Loss)/profit on disposal of investment properties (2,320) 168
Share of post-tax profits from joint ventures 2,461 450
Operating profit/(loss) 7,569 (15,115)
Finance costs (8,145) (9,009)
Loss before taxation (576) (24,124)
Taxation - -
Loss for the year attributable to owners of the Parent (576) (24,124)
Earnings per share
Basic and diluted 4 (1.1)p (45.4)p
EPRA (non-GAAP measure) 4 0.6p 3.1p
Dividends per share
Paid during the year 5 3.5p 11.75p
Proposed 5 1.75p 1.75p
Consolidated statement of comprehensive income
for the year ended 30 June 2021
2021 2020
Restated
£000 £000
Loss for the year (576) (24,124)
Items that will not be subsequently reclassified to profit or loss
Revaluation gains/(losses) on other investments 2,795 (2,363)
Total other comprehensive income/(loss) 2,795 (2,363)
Total comprehensive income/(loss) for the year 2,219 (26,487)
All profit and total comprehensive income for the year is attributable to
owners of the Parent.
Consolidated balance sheet
as at 30 June 2021
2021 2020 2019
Restated Restated
Notes £000 £000 £000
Non-current assets
Property rental
Investment properties 6 218,909 254,014 297,300
Investments in joint ventures 7 16,212 13,751 13,387
235,121 267,765 310,687
Car park activities
Freehold and leasehold properties 6 74,502 76,513 50,810
Goodwill and intangible assets 4,841 4,024 4,024
79,343 80,537 54,834
Hotel operations
Freehold and leasehold properties 6 8,630 - -
8,630 - -
Fixtures, equipment and motor vehicles 955 1,113 1,609
Investments 9,217 6,164 8,381
Total non-current assets 333,266 355,579 375,511
Current assets
Assets held for sale 6 3,850 23,199 -
Trade and other receivables 5,311 3,468 5,354
Cash and cash equivalents 21,670 12,643 23,692
Total current assets 30,831 39,310 29,046
Total assets 364,097 394,889 404,557
Current liabilities
Trade and other payables (32,612) (23,236) (34,593)
Financial liabilities (42,260) (61,984) -
Total current liabilities (74,872) (85,220) (34,593)
Non-current liabilities
Financial liabilities (133,830) (154,591) (182,152)
Total liabilities (208,702) (239,811) (216,745)
Net assets 155,395 155,078 187,812
Equity attributable to the owners of the Parent
Called up share capital 8 13,282 13,290 13,290
Share premium account 200 200 200
Capital redemption reserve 567 559 559
Revaluation reserve 500 500 -
Retained earnings 140,846 140,529 173,763
Total equity 155,395 155,078 187,812
Net asset value per share 10 292p 292p 353p
Consolidated statement of Changes in Equity
as at 30 June 2021
Share capital Share Capital redemption reserve Revaluation reserve Retained earnings Total equity
premium account
£000 £000 £000 £000 £000 £000
Balance at 30 June 2019 - restated 13,290 200 559 - 173,763 187,812
Comprehensive income for the year
Loss for the year - - - - (24,124) (24,124)
Other comprehensive income - - - - (2,363) (2,363)
Transfer - - - 500 (500) -
Total comprehensive income for the year - - - 500 (26,987) (26,487)
Contributions by and distributions to owners
Final dividend relating to the year ended 30 June 2019 - - - - (4,519) (4,519)
Interim dividend relating to the year ended 30 June 2020 - - - - (1,728) (1,728)
Balance at 30 June 2020 - restated 13,290 200 559 500 140,529 155,078
Comprehensive income for the year
Loss for the year - - - - (576) (576)
Other comprehensive income - - - - 2,795 2,795
Total comprehensive loss for the year - - - - 2,219 2,219
Contributions by and distributions to owners
Arising on purchase and cancellation of own shares (8) - 8 - (42) (42)
Final dividend relating to the year ended 30 June 2020 - - - - (930) (930)
Interim dividend relating to the year ended 30 June 2021 - - - - (930) (930)
Balance at 30 June 2021 13,282 200 567 500 140,846 155,395
Consolidated cash flow statement
for the year ended 30 June 2021
2021
2020
Notes £000 £000 £000 £000
Cash flows from operating activities
Cash generated from operations 9 4,644 14,433
Interest paid (6,920) (7,648)
Net cash (absorbed by)/generated from operating activities (2,276) 6,785
Cash flows from investing activities
Purchase and construction of investment properties - (1,610)
Refurbishment of investment properties (2,637) (5,442)
Payments for leasehold property improvements - (25)
Purchases of fixtures, equipment and motor vehicles (198) (93)
Proceeds from sale of investment properties 48,049 2,494
Payments for business acquisitions (874) -
Payments for acquisition of non-listed investments (258) (146)
Repayment of loans from joint ventures - 86
Net cash generated from/(used in) investing activities 44,082 (4,736)
Cash flows from financing activities
Proceeds from non-current borrowings 4,000 8,000
Repayment of non-current borrowings (44,091) -
Principal element of lease payments (1,659) (1,650)
Dividends paid to shareholders (1,860) (6,247)
Net cash generated from/(used in) financing activities (43,610) 103
Net (decrease)/increase in cash and cash equivalents (1,804) 2,152
Cash and cash equivalents at beginning of the year 2,361 209
Cash and cash equivalents at end of the year 557 2,361
Cash and cash equivalents at the year end are comprised of the following:
Cash balances 21,670 12,643
Overdrawn balance (21,113) (10,282)
557 2,361
Audited preliminary results announcements
The financial information for the year ended 30 June 2021 and the year ended
30 June 2020 does not constitute the company's statutory accounts for those
years.
Statutory accounts for the year ended 30 June 2020 have been delivered to the
Registrar of Companies. The statutory accounts for the year ended 30 June 2021
will be delivered to the Registrar of Companies following the Company's Annual
General Meeting.
The auditors' reports on the accounts for 30 June 2021 and 30 June 2020 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 2021 2020
Restated
£000 £000
Property rental 275,661 306,407
Car park activities 79,658 79,852
Hotel operations 8,778 8,630
364,097 394,889
Segmental results 2021 2020
Restated
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 (excl. service charge income) 11,358 6,719 626 18,703 15,875 10,198 1,916 27,989
Service charge income 2,726 - - 2,726 2,803 - - 2,803
Gross revenue 14,084 6,719 626 21,429 18,678 10,198 1,916 30,792
Release of provision/ (provision for) impairment of debtors 788 - - 788 (1,478) - - (1,478)
Service charge expenses (3,656) - - (3,656) (4,011) - - (4,011)
Property expenses (1,020) (5,666) (803) (7,489) (1,495) (6,396) (1,779) (9,670)
Net revenue/(costs) 10,196 1,053 (177) 11,072 11,694 3,802 137 15,633
Administrative expenses (4,687) (898) - (5,585) (5,086) (1,111) - (6,197)
Other income 1,989 - - 1,989 1,218 - - 1,218
Other expenses - - - - (777) - - (777)
Share of post-tax profits from joint ventures 973 - - 973 800 - - 800
Operating profit/(loss) before valuation movements 8,471 155 (177) 8,449 7,849 2,691 137 10,677
Valuation movement on investment properties 63 - - 63 (26,024) - - (26,024)
Impairment of car parking assets - (111) - (111) - 414 - 414
(Loss)/profit on disposal of investment properties (2,320) - - (2,320) 168 - - 168
Valuation movement on joint venture properties 1,488 - - 1,488 (350) - - (350)
Operating profit/(loss) 7,702 44 (177) 7,569 (18,357) 3,105 137 (15,115)
Finance costs (8,145) (9,009)
Loss before taxation (576) (24,124)
Taxation - -
Loss for the year (576) (24,124)
All results are derived from activities conducted in the United Kingdom.
The car park results 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 development sites for the year ended 30 June 2021,
arising from car park operations, was £1,005,000. After allowing for an
allocation of administrative expenses, the operating profit at these sites was
£646,000.
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
2021 2020
£000 £000
Employee benefits 3,444 3,893
Depreciation 163 227
Charitable donations 7 49
Other 1,971 2,028
5,585 6,197
Depreciation charged to the Consolidated Income Statement as an administrative
expense relates to depreciation on central office equipment, including
fixtures and fittings, computer equipment and motor vehicles. Depreciation on
operational equipment and right of use assets within both the car park and
hotel businesses are charged as direct property expenses within the
Consolidated Income Statement.
3. Other income and expenses
2021 2020
£000 £000
Commission received 166 172
Dividends received 34 33
Management fees receivable 245 245
Dilapidations receipts and income relating to surrender premiums 1,103 715
Other 441 53
1,989 1,218
Other expenses
During the prior year a provision of £777,000 was recognised in relation to
costs incurred on a project that may not be recoverable. Costs had been
incurred over a number of years on the planned George Street aparthotel joint
venture however there was some doubt over the future viability of the project,
therefore a full provision was recognised against the costs incurred to date.
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
(2020: 53,161,950).
2021 2020
Restated
Earnings Earnings
Earnings per share Earnings per share
£000 p £000 p
Loss for the year and earnings per share (576) (1.1) (24,124) (45.4)
Valuation movement on investment properties (63) (0.1) 26,024 49.0
Impairment of car parking assets 111 0.2 (414) (0.8)
Valuation movement on properties held in joint ventures (1,488) (2.8) 350 0.6
Profit/loss on disposal of investment and development properties 2,320 4.4 (168) (0.3)
EPRA earnings and earnings per share 304 0.6 1,668 3.1
There is no difference between basic and diluted earnings per share.
There is no difference between basic and diluted EPRA earnings per share.
5. Dividends
2021 2020
£000 £000
2019 final paid: 8.50p per 25p share - 4,519
2020 interim paid: 3.25p per 25p share - 1,728
2020 final paid: 1.75p per share 930 -
2021 interim paid: 1.75p per share 930 -
1,860 6,247
An interim dividend in respect of the year ended 30 June 2021 of 1.75p per
share was paid to shareholders on 25 June 2021. This dividend was paid
entirely as a Property Income Distribution (PID).
A final dividend in respect of the year ended 30 June 2021 of 1.75p per share
is proposed. This dividend, based on the shares in issue at 23 November 2021,
amounts to £0.9m which has not been reflected in these accounts and will be
paid on 21 January 2022 to shareholders on the register on 30December 2021.
The entire dividend will be paid as an ordinary dividend.
6. Non-current assets
(a) Investment properties
Freehold Right of use asset Development Total
£000 £000 £000 £000
Valuation at 30 June 2019 - restated 239,565 21,284 36,451 297,300
Additions at cost 1,610 - - 1,610
IFRS 16 adjustments - 518 - 518
Other capital expenditure 5,630 - 348 5,978
Purchase of freehold 14,129 (13,594) - 535
Disposals (2,425) - - (2,425)
Transfer to assets held for sale (23,199) - - (23,199)
Deficit on revaluation (24,906) (2,070) 952 (26,024)
Movement in tenant lease incentives (279) - - (279)
Valuation at 30 June 2020 - restated 210,125 6,138 37,751 254,014
Capital expenditure 2,146 - 22 2,168
Disposals (26,319) - - (26,319)
Transfer to hotel operations (8,630) - - (8,630)
Transfer to assets held for sale - (3,850) - (3,850)
Valuation movement (4,095) 480 3,678 63
Movement in tenant lease incentives 1,463 - - 1,463
Valuation at 30 June 2021 174,690 2,768 41,451 218,909
At 30 June 2021, investment property valued at £213,720,000 (2020:
£247,985,000) was held as security against the Group's borrowings.
Right of use investment property assets include long leasehold property
interests.
(b) Freehold and leasehold properties - car park activities
Freehold Right to use asset Total
£000 £000 £000
Valuation at 30 June 2019 - restated 30,950 19,860 50,810
Additions - 25 25
IFRS 16 adjustment - 27,021 27,021
Depreciation (285) (1,472) (1,757)
(Impairment)/reversal of impairment (15) 429 414
Valuation at 30 June 2020 - restated 30,650 45,863 76,513
IFRS 16 adjustment - (95) (95)
Depreciation (329) (1,476) (1,805)
(Impairment)/reversal of impairment (421) 310 (111)
Valuation at 30 June 2021 29,900 44,602 74,502
The historical cost of freehold properties and right of use assets relating to
car park activities is £30,153,000 (2020: £30,506,000).
At 30 June 2021, freehold properties and right of use assets relating to car
park activities, held as security against the Group's borrowings are held at
£43,650,000 (2020: £44,450,000).
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.
(c) Freehold and leasehold properties - hotel operations
Freehold
£000
Valuation at 30 June 2020 -
Transfer from investment properties 8,630
Valuation at 30 June 2021 8,630
At 30 June 2021, freehold and leasehold property relating to hotel operations
valued at £8,630,000 was held as security against the Group's borrowings.
The Group owns and operates a hotel that has previously accounted for within
Investment Property, on the basis that it was marketing the property for a
letting to a hotel operator. The hotel was closed between January and April
2021 due to the Covid pandemic. Since re-opening, trading at the hotel has
been strong and given there was no firm interest for a third party letting the
directors have decided to continue to operate the hotel, therefore this
property has been transferred to freehold and leasehold properties with effect
from 30 June 2021.
The fair value of the Group's investment and development properties, freehold
car parks, hotel operations and assets held for sale have been determined
principally by independent, appropriately qualified external valuers CBRE and
Jones Lang LaSalle. The external valuation reports for June 2020 explicitly
mentioned material valuation uncertainty due to Novel Coronavirus (COVID- 19)
in their portfolio valuation reports to management for certain properties
within the TCS portfolios. This reference has not been considered necessary in
the valuation reports for June 2021. 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 an assessment of their realisable value in
their existing state and condition based on market evidence of comparable
transactions and residual land value calculations.
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 1,589 1,947 23,445 6.4% 7.9%
Merrion Centre (excluding offices) 4,630 4,857 56,654 7.7% 8.1%
Offices 2,872 4,568 55,546 4.9% 7.8%
Hotels 1,180 1,630 23,630 4.7% 6.5%
Out of town retail 1,205 1,155 14,500 7.9% 7.5%
Distribution 411 463 6,470 6.0% 6.8%
Residential 504 492 9,175 5.2% 5.1%
12,391 15,112 189,420 6.2% 7.5%
Development property 41,451
Car parks 74,502
IFRS 16 Adjustment - Right of use assets held within investment property 518
305,891
Investment properties (freehold and right of use), freehold properties (PPE),
hotel operations and assets held for sale
The effect on the total valuation (excluding development property and car
parks of £189.4m 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%
- £163.1m, Valuation at 5.2% - £226.0m.
Valuation in the Consolidated Financial Statements at a reversionary yield of
8.5% - £167.2m, Valuation at 6.5% - £218.4m.
Investment properties (development properties)
The key unobservable inputs in the valuation of one of the Group's development
properties of £27.4m is the assumed per acre or per unit land value. The
effect on the development property valuation of applying a different assumed
per acre or per unit land value would be as follows:
Valuation in the Consolidated Financial Statements if a 5% increase in the
residual land value - £428.8m, 5% decrease in the residual land value -
£26.0m.
The other key development property in the Group is valued on a residual land
value basis, the effect on the development property valuation of applying
reasonable sensitivities would not create a material impact.
Freehold car park activities
The effect on the total valuation of the Group's freehold car park properties
of £29.9m in applying a different yield/discount rate would be as follows:
Valuation in the Consolidated Financial Statements based on a 1% decrease in
the yield/discount rate - £35.3m, 1% increase in the yield/discount rate -
£26.0m
Property valuations can be reconciled to the carrying value of the properties
in the balance sheet as follows:
Assets held for sale
Investment Properties Freehold and Leasehold Properties
Hotel operations Total
£000 £000 £000 £000 £000
Externally valued by CBRE 108,150 24,500 8,630 3,850 145,130
Externally valued by Jones Lang LaSalle 110,190 5,400 - - 115,590
Investment properties valued by the Directors 51 - - - 51
Properties held at valuation 218,391 29,900 8,630 3,850 260,771
IFRS 16 right to use assets 518 44,602 - - 45,120
218,909 74,502 8,630 3,850 305,891
Valuation of investment properties (freehold and right of use),freehold
properties (PPE), hotel operations and assets held for sale at fair value
All investment properties, freehold properties held in property plant and
equipment, hotel operations and assets held for sale are measured at fair
value in the consolidated balance sheet and 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 external
valuers and the Directors 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.
Assets held for sale
As at 30 June 2021, one property with a value of £3,850,000 (2020: two
properties with a total value of £23,199,000) was in the process of being
sold and was therefore classified within current assets as Assets held for
sale. The valuation surplus recognised through the Income Statement in
relation to this property for the year ended 30 June 2021 was £230,000 (2020:
deficit of £3,471,000).
(d) Fixtures, equipment and motor vehicles
Accumulated
Cost depreciation
£000 £000
At 1 July 2019 4,390 2,781
Additions 93 -
Depreciation - 589
At 30 June 2020 4,483 3,370
Net book value at 30 June 2020 1,113
At 1 July 2020 4,483 3,370
Additions 198 -
On acquisition of subsidiaries 30 -
Depreciation - 386
At 30 June 2021 4,711 3,756
Net book value at 30 June 2021 955
7. Investments in joint ventures
2021 2020
£000 £000
At the start of the year 13,751 13,387
Repayments of loans from joint ventures - (86)
Loan interest 110 156
Valuation movement 1,488 (350)
Share of profits after tax 863 644
At the end of the year 16,212 13,751
Investments in joint ventures are broken down as follows:
2021 2020
£000 £000
Equity 10,376 8,452
Loans 5,836 5,299
16,212 13,751
Investments in joint ventures primarily relate to the Group's interest in the
partnership capital of Merrion House LLP and share capital of Belgravia Living
Group Limited.
Also within Investments in Joint Ventures exist loan balances due from joint
ventures as they are considered to form part of the net investment in the JV.
Repayment of the loans is neither planned nor likely to occur in the
foreseeable future. These loan balances are held at amortised cost and are
assessed for impairment on an annual basis using an expected credit loss
model, in accordance with IFRS 9. Where a joint venture is loss making (as was
the case for Belgravia Living Group Ltd in the prior year) and the losses
exceed the equity investment in the joint venture, any excess losses are
allocated to the loan balance which reduces the loan receivable's carrying
amount. If the joint venture becomes profitable (as is the case for Belgravia
Living Group Ltd in the current year) the profits are allocated first to the
loan to reverse previous losses allocated and are subsequently allocated to
the equity investment.
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:
2021 2020
£000 £000
Non-current assets 71,650 69,400
Current assets 664 689
Current liabilities (2,307) (2,269)
Non-current liabilities (48,929) (50,532)
Net assets 21,078 17,288
The profits of Merrion House LLP for the current and previous year are as
stated below:
2021 2020
£000 £000
Revenue 3,328 3,328
Expenses (8) (5)
Finance costs (1,780) (1,832)
1,540 1,491
Valuation movement on investment properties 2,250 -
Net profit 3,790 1,491
Belgravia Living Group Limited completed construction of a block of
residential apartments in Manchester in 2019. These apartments have been let
to residential tenants during the year. The Group's financial interest in this
joint venture is primarily in the form of a loan with a value as at 30 June
2021 of £5.7m (2020: £5.3m).
The assets and liabilities of Belgravia Living Group for the current and
previous year are as stated below:
2021 2020
£000 £000
Non-current assets 22,783 22,923
Current assets 3,168 3,014
Current liabilities (11,286) (11,365)
Non-current liabilities (14,634) (14,725)
Net liabilities 31 (153)
The income and expenses of Belgravia Living Group Limited for the current and
previous year are as stated below:
2021 2020
£000 £000
Revenue 1,262 1,215
Expenses (514) (538)
Finance costs (571) (751)
177 (74)
Valuation movement on investment properties 726 (700)
Net profit/(loss) 903 (774)
The Group's interest in other joint ventures are not considered to be
material. The book value of the Group's investment in Bay Sentry Limited is
£nil (2020: £nil)
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 (2020: 164,879,000)
Ordinary Shares of 25p each. The nominal value of authorised share capital is
£41,219,750 (2020: £41,219,750).
Issued and fully paid up
Number Nominal value
of shares
000 £000
At 30 June 2020 53,162 13,290
Purchase and cancellation of own shares (31) (8)
At 30 June 2021 53,131 13,282
The Company has only one type of Ordinary Share class in issue. All shares
have equal entitlement to voting rights and dividend distributions.
At the year end the Company had authority to buy back for cancellation a
further 7,943,377 Ordinary Shares.
9. Cash flow from operating activities
2021 2020
Restated
£000 £000
Loss for the financial year (576) (24,124)
Adjustments for:
Depreciation 2,191 2,346
Amortisation 37 -
Loss/(profit) on disposal of investment properties 2,320 (168)
Finance costs 8,145 9,009
Share of post tax profits from joint ventures (2,461) (450)
Movement in valuation of investment properties (63) 26,024
Movement in lease incentives (1,463) 279
Impairment of/(reversal of impairment of) car parking assets 111 (414)
(Increase)/decrease in receivables (2,675) 1,097
(Decrease)/increase in payables (922) 834
Cash generated from operations 4,644 14,433
10. EPRA net asset value per share
The Basic and EPRA net asset values are the same, as set out in the table
below.
2021 2020
£000 £000
Net assets at 30 June 155,395 155,078
Shares in issue (000) 53,131 53,162
Basic and EPRA net asset value per share 292p 292p
11. Restatement of prior year figures
During the year the Directors identified that a number of the Group's
accounting policies were either not in compliance with the relevant accounting
standard or where not applied correctly. For this reason prior year figures
have been restated and the details are summarised below:
1) Classification of owner-occupied assets
The Group operates a number of car parks on freehold land owned by the Group.
Under the relevant accounting standards these owner-occupied car parks are
required to be classified as Property, Plant and Equipment. During the year
two car parks were identified that were mis-classified as Investment Property.
The prior year comparatives have been restated to:
· Re-classify investment property as Freehold and Leasehold
Properties (car park activities) within the Consolidated balance sheet, the
amount being £27,200,000 at 1 July 2019 and £26,900,000 at 30 June 2020.
· Recognise a depreciation charge of £285,000 within the
Consolidated income statement for the year ended 30 June 2020
· Recognise an impairment of £15,000 on Freehold and Leasehold
Properties within the Consolidated income statement for the year ended 30 June
2020
· Reduce the valuation movement on investment properties in the
income statement by £300,000 for the year ended 30 June 2020
The adjustment has no overall effect on the total net assets of the Group at
30 June 2020 or on the Group's loss for the year ended 30 June 2020.
2) Measurement of leasehold properties (car park activities)
The group operates a number of car parks from leasehold properties
(right-of-use assets). The Directors consider that the leased sites upon which
these car parks are operated fall into one class of asset because they are of
similar nature and use in the Group's operations. Accounting standards require
right-of-use assets within the same class of assets to be measured
consistently using either the cost model or the revaluation model.
In the prior year, leasehold properties were inconsistently split between two
classes of assets, being long leasehold and right-of-use assets. Within these
classes a mixed measurement approach was applied with two sites held at
valuation and the remaining held under the cost model.
The prior year comparative figures have been restated to present all leased
car park sites as right-of-use assets within note 12(B) and to consistently
apply the cost model to the entire class of assets. The effect of this
restatement is:
· A decrease in Freehold and leasehold properties and of £584,000
at 1 July 2019 and £546,000 at 30 June 2020
· Recognise an additional depreciation charge of £141,000 within
the Consolidated income statement for the year ended 30 June 2020
· Recognise an additional reversal of impairment of £179,000 on
Freehold and Leasehold Properties within the Consolidated income statement for
the year ended 30 June 2020
The adjustment results in a reduction in net assets of £546,000 June 2020.
The adjustment also results in a £38,000 decrease to the Group loss for the
year ended 30 June 2020.
3) Disclosure of employee benefits
Company law requires the Group to disclose the total amount of employee
benefits paid or payable in respect of the year. In the prior year, employee
benefits were presented net of monies received under the Coronavirus Job
Retention Scheme (furlough grant) and excluded some benefits payable to
employees where the cost was later re-claimed via a service charge. As a
result, the disclosure did not comply with the requirements of the Companies
Act.
The comparatives in note 6 have been restated to provide correct information.
The effect of this restatement is to increase the disclosed total employee
benefits payable for the year ended 30 June 2020 by £377,000.
The adjustment has no overall effect on the total net assets of the Group at
30 June 2020 or on the Group's loss for the year ended 30 June 2020.
4) Provisions / trade and other payables
In the prior year a provision of £146,000 was recognised in relation to
future anticipated repairs and maintenance costs on an Investment Property
owned by the Group. The provision was presented within trade and other
payables. The provision should not have been recognised as the amount relates
to a future operating cost of the Group. The prior year comparatives have been
restated to:
· Reduce trade and other payables within the Consolidated Balance
Sheet by £146,000 at 1 June 2019 and £146,000 at 30 June 2020.
The adjustment results in an increase in net assets of £146,000 at 30 June
2020. The adjustment has no effect on the income statement for the year ended
30 June 2020.
5) Service charge income and expenses
In the prior year Consolidated income statement service charge income and
service charge expenses were presented as a net amount within property
expenses. The amounts should not have been presented net under the relevant
accounting standards. The prior year comparatives in the consolidated income
statement have been restated to present service charge income of £2,803,000
and service charge expenses of £4,011,000 as gross amounts in the year to 30
June 2020.
The adjustment has no overall effect on the total net assets of the Group at
30 June 2020 or on the Group's loss for the year ended 30 June 2020.
6) Classification of Investments
The Group owns shares in a company listed on the AIM market of the London
Stock Exchange. The total value of the investment at 30 June 2020 was
£3,508,000 and this was presented in the Consolidated balance sheet within
current asset investments. The investment should not have been classified as
current because on 30 June 2020 management did not expect to realise the asset
within twelve months of the reporting date.
The Group additionally holds shares in an unlisted company which were valued
at £2,656,000 at 30 June 2020. Previously this investment was presented
within car park activities as a non-current investment. This investment has
been re-classified outside of car park activities and presented the investment
together with the Group's listed investment, the investment remains in
non-current assets.
The prior year comparatives have been restated to:
· Decrease current investments in the Consolidated balance sheet by
£5,871,000 at 1 July 2019 and 3,508,000 at 30 June 2020
· Decrease non-current investments (car park activities) in the
Consolidated balance sheet by £2,510,000 at 1 July 2019 and £2,656,000 at 30
June 2020
· Increase non-current investments in the Consolidated balance
sheet by £8,381,000 at 1 July 2019 and £6,164,000 at 30 June 2020.
The adjustment has no overall effect on the total net assets of the Group at
30 June 2020 or on the Group's loss for the year ended 30 June 2020.
The above restatements do not have any tax implications as the Group's
activities are tax exempt due to its REIT status.
The impact on the Balance Sheet as at 30 June 2020 is as follows:
2020 (1) (2) (4) (6) 2020
Previously reported Car parking assets Leasehold properties Sinking fund provision Listed investments Restated
£000 £000 £000 £000 £000 £000
Non-current assets
Property rental
Investment properties 280,914 (26,900) - - - 254,014
Investments in joint ventures 13,751 - - - - 13,751
294,665 (26,900) - - - 267,765
Car park activities
Freehold and leasehold properties 50,159 26,900 (546) - - 76,513
Goodwill and intangible assets 4,024 - - - - 4,024
Investments 2,656 - - - (2,656) -
56,839 26,900 (546) - (2,656) 80,537
Fixtures, equipment and motor vehicles 1,113 - - - - 1,113
Investments - - - - 6,164 6,164
Total non-current assets 352,617 - (546) - 3,508 355,579
Current assets
Investments 3,508 - - - (3,508) -
Assets held for sale 23,199 - - - - 23,199
Trade and other receivables 3,468 - - - - 3,468
Cash and cash equivalents 12,643 - - - - 12,643
Total current assets 42,818 - - - (3,508) 39,310
Total assets 395,435 - (546) - - 394,889
Current liabilities
Trade and other payables (23,382) - - 146 - (23,236)
Financial liabilities (61,984) - - - - (61,984)
Total current liabilities (85,366) - - 146 - (85,220)
Non-current liabilities
Financial liabilities (154,591) - - - - (154,591)
Total liabilities (239,957) - - 146 - (239,811)
Net assets 155,478 - (546) 146 - 155,078
Equity attributable to the owners of the Parent
Called up share capital 13,290 - - - - 13,290
Share premium account 200 - - - - 200
Capital redemption reserve 559 - - - - 559
Revaluation reserve 750 - (250) - - 500
Retained earnings 140,679 - (296) 146 - 140,529
Total equity 155,478 - (546) 146 - 155,078
The impact on the Balance Sheet as at 30 June 2019 is as follows:
2019 (1) (2) (3) (4) 2019
Previously reported Car parking assets Leasehold properties Sinking fund provision Listed investments Restated
£000 £000 £000 £000 £000 £000
Non-current assets
Property rental
Investment properties 324,500 (27,200) - - - 297,300
Investments in joint ventures 13,387 - - - - 13,387
337,887 (27,200) - - - 310,687
Car park activities
Freehold and leasehold properties 24,194 27,200 (584) - - 50,810
Goodwill and intangible assets 4,024 - - - - 4,024
Investments 2,510 - - - (2,510) -
30,728 27,200 (584) - (2,510) 54,834
Fixtures, equipment and motor vehicles 1,609 - - - - 1,609
Investments - - - - 8,381 8,381
Total non-current assets 370,224 - (584) - 5,871 375,511
Current assets
Investments 5,871 - - - (5,871) -
Assets held for sale - - - - - -
Trade and other receivables 5,354 - - - - 5,354
Cash and cash equivalents 23,692 - - - - 23,692
Total current assets 34,917 - - - (5,871) 29,046
Total assets 405,141 - (584) - - 404,557
Current liabilities
Trade and other payables (34,739) - - 146 - (34,593)
Financial liabilities - - - - - -
Total current liabilities (34,739) - - 146 - (34,593)
Non-current liabilities
Financial liabilities (182,152) - - - - (182,152)
Total liabilities (216,891) - - 146 - (216,745)
Net assets 188,250 - (584) 146 - 187,812
Equity attributable to the owners of the Parent
Called up share capital 13,290 - - - - 13,290
Share premium account 200 - - - - 200
Capital redemption reserve 559 - - - - 559
Revaluation reserve 250 - (250) - - -
Retained earnings 173,951 - (334) 146 - 173,763
Total equity 188,250 - (584) 146 - 187,812
The impact on the income statement is as follows:
2020 (1) (2) 2020
Previously reported Car parking assets Leasehold properties Restated
£000 £000 £000 £000
Gross revenue 27,989 - - 27,989
Provision for impairment of debtors (1,478) - - (1,478)
Service charge income 2,803 - - 2,803
Service charge expenses (4,011) - - (4,011)
Property expenses (9,244) (285) (141) (9,670)
Net revenue 16,059 (285) (141) 15,633
Administrative expenses (6,197) - - (6,197)
Other income 1,218 - - 1,218
Other expenses (777) - - (777)
Valuation movement on investment properties (26,324) 300 - (26,024)
Impairment of car parking assets 250 (15) 179 414
Profit on disposal of investment properties 168 - - 168
Share of post-tax profits from joint ventures 450 - - 450
Operating loss (15,153) - 38 (15,115)
Finance costs (9,009) - - (9,009)
Loss before taxation (24,162) - 38 (24,124)
Taxation - - - -
Loss for the year attributable to owners of the Parent (24,162) - 38 (24,124)
The impact on the cash flow statement is as follows:
2020 (1) (2)
Previously reported Car parking assets Leasehold properties 2020
Restated
£000 £000 £000 £000
Loss for the financial year (24,162) - 38 (24,124)
Adjustments for:
Depreciation 1,920 285 141 2,346
Profit on disposal of investment properties (168) - - (168)
Finance costs 9,009 - - 9,009
Share of post tax profits from joint ventures (450) - - (450)
Movement in valuation of investment and development properties 26,324 (300) - 26,024
Movement in lease incentives 279 - - 279
Impairment of car parking assets (250) 15 (179) (414)
Decrease in receivables 1,097 - - 1,097
Increase in payables 834 - - 834
Cash generated from operations 14,433 - - 14,433
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