Town Centre Regulatory News (TOWN)

TOWN CENTRE SECURITIES PLC

Final results for the year ended 30 June 2014

Town Centre Securities PLC ("TCS"), the Leeds based property investment, development and car parking company, today announces its unaudited final results for the year ended 30 June 2014.

Financial highlights

· Underlying* profit before tax £7.6m (2013: £7.4m)

· Underlying* earnings per share 14.4p (2013: 13.7p)

· Net assets per share 308p (2013: 267p); discount to net asset value of 25.3% at last night's closing share price of 230p

· Triple net assets per share 320p (2013: 285p per share); discount to triple net asset value of 28.1%

· Total dividends per share 10.44p (2013: 10.44p); proposed final dividend unchanged at 7.34p (2013: 7.34p)

· Statutory profit before tax (including revaluation gains) £27.4m (2013: £3.6m)

· Basic earnings per share (including revaluation gains) 51.6p (2013: 6.7p) 

*Excluding valuation movement

Operational highlights

· Another strong year's earnings

· 15.3% growth in net assets per share on the back of 10% like for like portfolio growth

· Total shareholder return over 19%

· Dividends unchanged at 10.44p per share

· Good progress with Merrion Centre on New Front. Car Park upgrade underway

· Morrisons lease renewed with 20% increase in the size of the store

· Land acquired at Milngavie and development of a Waitrose supermarket underway

· Property sales £8.9m with a further £7.5m completed in July

· Apperley Bridge, value now £4.5m (2013: £2.8m), to be sold this year

· Car park profit up 5% and first acquisition completed

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

"We have produced another strong trading performance and our properties are now starting to show some of the growth which we have seen in London recently.

Our returns to shareholders are showing the benefit of our continuing intensive management and regular churning of the portfolio. Recent letting deals in the Merrion Centre have been exceptional and we have seen excellent growth in value as well. The car park business has also out performed. We remain conservatively funded and committed to delivering superior cash returns to shareholders"

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Chairman and Chief Executive's statement

Introduction

I have now worked in Town Centre for 33 years and this is my eleventh year as Chairman. Throughout that time our strategy has been clear and constant - to produce exceptional cash returns for shareholders. We are extremely proud of our achievements - an investment of £1,000 in 1969 would now be worth £562,700. Against a sector average of £297,900 this is the 3rd best out of 12 comparable property companies.

These returns have been achieved through a combination of intensive management of our assets along with a conservative management style. We have extensively churned the portfolio in recent years to ensure that our funds are invested where there is likely to be growth. Our property management team have completed 184 transactions in the year in the process of maximising returns from the portfolio.

Portfolio performance

The like for like increase in value of our investment portfolio this year has been 10% which reflects an initial yield of 6.4% (2013: 7.2%) and a reversionary yield of 7.4% (2013: 7.5%). The total return from the portfolio is in line with the IPD index for all properties at 17.6%.

The strongest performing property was the Merrion Centre with a 16.3% increase in capital value and growth of over £1m pa in both passing rent and ERV, reflecting the benefit of the capital expenditure during the year. Overall the ERV has grown by 15% (£3m) to £22.7m.

After including acquisitions and developments the portfolio at the year end stood at £325.2m (2013: £301.0m). The current occupancy rate is 97.5%.

Results

Our underlying profit before tax and exceptional items of £7.6m (2013: £7.3m) (excluding property revaluation) is ahead of expectations. Both the property and the car park businesses are ahead of the prior year.

We report a statutory profit for the year, after revaluation, of £27.4m (2013: £3.6m) which reflects the property revaluation surplus of £19.8m this year (2013 deficit £3.8m). On a like for like basis the investment portfolio showed an increase in value of £27m or 9.9%.

Underlying earnings per share were 14.4p (2013: 13.7p). Basic earnings per share (including the property valuation surplus) were 51.6p (2013: 6.7p).

Net assets at 30 June 2014 were £163.9m, representing 308 pence per share (2013: £141.9m, 267 pence per share). Triple net asset value was £170.4m, representing 320 pence per share (2013: £156.1m, 285 pence per share), the change reflecting principally the valuation gains this year.

Dividend

The Board is recommending a final dividend of 7.34 pence per share, which, together with the interim dividend of 3.1 pence per share, provides an unchanged total dividend of 10.44 pence per share. The final dividend will be paid on 5 January 2015 to shareholders on the register on 5 December 2014.

Funding

Net debt at 30 June 2014 amounted to £160.5m (2013: £158.4m). This comprised £106.1m of 5.375% First Mortgage Debenture Stock 2031 and £54.4m of revolving credit facilities and overdrafts. Gearing stands at 97.9% (2013: 112%) and borrowings represent 49.4% of property values (2013: 52.6%)

Following the completion of a £10m extension of our facility with RBS to fund the Milngavie development, the company retains revolving credit facilities of £100m (expiring 2015/16) and an overdraft facility of £5m. Our interest cover was 2.01 times (2013: 1.95 times)

Property portfolio

Merrion Centre - this has been a special year for the Merrion Centre which celebrated its 50th anniversary in May and is very much at the heart of our portfolio being by far our largest asset. We continue to see good returns on our refurbishment and investment programme with our Arena Quarter retail, leisure and car park project (the New Front) opposite the new First Direct Arena nearing completion with further expenditure of £6.5m this year bringing the total to £9.4m. We leased a further four units, renewed the lease on MFA Bowl and as a result, 76% of the rental income is now secured on an average weighted unexpired term of 13.6 years. Interest in the remaining units is strong with the adjoining new Leeds Arena building upon an excellent first year hosting a diverse range of international concerts (from artists including: Prince, Bruce Springsteen, Andrea Bocelli, Rod Stewart and Elton John) family shows (Cirque du Soleil, Strictly Come Dancing, Ant and Dec) to national conferences for Teach First and sports events including BBC's Sports Personality of the Year and the launch of the Grand Depart to the Tour de France. The additional £7.6m refurbishment of the multi storey car park began in February and is scheduled to complete in December this year.

I am also delighted to announce that we have agreed a significant lease renewal with Morrisons. This will result in an expansion of their store by around 20% and will add approximately £500,000 pa to rental income. The transaction relocates Peacocks and 3 Store within the Centre significantly improving the overall retail offering.

We continue to work with Leeds City Council on Merrion House; the deal we have agreed will lead to the construction of 50,000 sq ft of new office space together with a complete refurbishment of the existing offices creating 170,000 sq ft of purpose designed space for their occupation. Upon completion the Council will take a new long lease and become a co-owner. The valuation of TCS' share of the asset will significantly increase as well as adding around £250,000 pa to rental income. Construction is scheduled to commence in 2015 for occupation in 2017.

We have other schemes coming through at Merrion and we continue to manage the income intensively. During the year in addition to the New Front, we completed 22 new leases and other transactions taking the non-car park income from £7,156,000 to £7,491,000 maintaining an average occupancy level of over 98%. There are now:

· Over 130 leases and licences with an average weighted unexpired term of 11.4 years

· 10 tenants including Leeds City Council that produce 62% of total income with an average weighted unexpired term of 14.6 years

Scotland - We regard ourselves as one of the few quoted property companies with specialist knowledge actively investing in provincial property in the North of England and Scotland. In these markets local know-how is crucial to delivering above average returns.

We await the outcome of the independence referendum in Scotland where we have £65m of investment property principally in Glasgow and Edinburgh. In the most part these properties are prime and very well let so we remain confident that their quality will ensure long term performance. Given the uncertainty created by the vote, during the last 12 months we have disposed of approximately 20% of the portfolio at prices in excess of book value to ensure that those properties that remain will perform whatever the outcome.

As testament to our confidence and commitment we have progressed our development in Milngavie near Glasgow of a 36,500 sq ft foodstore let to Waitrose with construction due for completion in late spring 2015. This will add over £10m to our current portfolio.

Residential Development - we obtained planning consent for our residential scheme at Apperley Bridge near Leeds. Demolition and site preparation is now nearing completion and we will report further progress in due course.

Whitehall Riverside - we have detailed planning consent for a 128 bedroom hotel and outline consent for 600,000 sq ft of mixed use development including 3 eight storey office buildings and a 500 space multi-storey car park. Tenant demand is growing as there is little or no grade A space with 25,000 sq ft floor plates available in Leeds. We are pursuing a number of preliminary discussions as we continue to maximise our development gain.

Property sales - we have sold 5 properties in Scotland this year for a total of £8.9m which is around £250,000 in excess of book value. We also exchanged a contract for the sale of 6/7 Park Row Leeds for £7.5m during the year with completion in July. There was an imminent lease expiry at this property which would have necessitated a significant refurbishment and as a result of the sale we have seen a total return of nearly 20% during our period of ownership.

These sales were at a blended yield of 8% so they will impact on income in future years; we believe that they had stagnated in value and income terms so the funds will be better utilised elsewhere.

Property acquisitions - we have added a property in Holloway Road London to our portfolio of suburban shops let to excellent covenants and, immediately after the year end we completed the purchase of a retail/office investment in Duke Street London W1 for £3.1m.

Car parking

Car parking revenue has increased by 4% to £5.1m and profit is up to £2.6m. Performance has been strong at Whitehall Road, Leeds (due to contraction of supply) and Manchester (due to increased business contracts). Revenue has decreased at Merrion due to the refurbishment works although the disruption has been minimised through intensive management. We are scheduled to complete the works in December this year and we will be aggressively marketing what will be one of the best car parks in Leeds.

We are also re-branding the business this year as CitiPark and we made our first acquisition of a 600 space multi-storey car park in Ilford. We acquired a long leasehold interest for £2.5m and we are currently upgrading it with a new parking management system. We will be controlling the operations from our 24/7 control room in Leeds to minimise local overheads and maximise customer service. We have a number of further deals in the pipeline and expect the portfolio to expand significantly over the next year.

We will also be upgrading the Manchester car park this year after which all of our branches will have state of the art technological systems. This will be our model for our future expansion.

Outlook

As we emerge from the problems of recent years we are seeing some extraordinary figures emanating from London and the South East. While we have seen growth in the regions it has been and remains patchy.

In this environment it is extremely important to keep focused on hands-on intensive management, to be selective in acquisitions and to sell assets which do not fit this strategy.

We expect to see continued growth from the Merrion Centre as we continue with its regeneration and we are optimistic about our Scottish portfolio once the disruption from the referendum settles down. Manchester as a city remains active and we hope to make further progress this year. We have also started investing selectively in London, particularly in suburban shops.

We expect to see good performance from all these sectors this year along with the expansion of the car park business; and we look forward to continuing to provide shareholders with above average cash returns.

 As ever, I would like to thank our loyal and dedicated staff for their commitment to Town Centre Securities PLC. They remain focused on maintaining and creating value on behalf of our shareholders.

Edward M ZiffChairman and Chief Executive17 September 2014

The fair value of the group's investment and development properties has been determined principally by independent, appropriately qualified external valuers Jones Lang LaSalle (in respect of £109,030,000) and CB Richard Ellis (in respect of £180,750,000 of investment properties and £7,500,000 shown in assets held for sale). The remainder of the portfolio comprising £27,916,000 of development properties have been valued by the Property Director.

Valuations are performed bi-annually and are performed consistently across all properties in the group's portfolio. At each reporting date appropriately qualified employees verify all significant inputs and review computational outputs. 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 been valued taking into account the income from car parking and the Property Director's assessment of their realisable value in their existing state and condition based on market evidence of comparable transactions.

The Property Director's valuation of residential property acquired for potential development is supported by market evidence available as at 30 June 2014.

The valuation of investment properties includes £0.02m (2013: £0.1m) in respect of borrowing costs capitalised during the year.