Town Centre Regulatory News (TOWN)

26 February 2019

Town Centre Securities PLC(The 'Group' or the 'Company') 

Half year results for the six months ended 31 December 2018

Continuing to focus on long-term growth through repositioning portfolio and progressing development pipeline 

Town Centre Securities PLC, the Leeds based property investor and car park operator, today announces its results for the six months ended 31 December 2018.

 Financial Performance

· Interim dividend held at 3.25p (2017: 3.25p)

· Net assets per share down 6% since 30 June 2018 at 361p (2017: 375p; 30 June 2018: 384p)

· EPRA Earnings before tax decreased to £3.7m (2017: £4.0m), impacted by short term tenant changes and one-off costs

· EPRA earnings per share at 6.9p (2017: 7.6p)

· Statutory loss before tax of £8.7m as a result of unrealised valuation movements and a loss on sale of an investment property (2017: £12.4m profit)

· Like for like portfolio decrease in value of 2.2%

· Loan to value ratio of 46.8% (2017: 47.0%; 30 June 2018: 47.5%); gearing fell to 88% (2017: 91%) following completion of the Merrion House refinancing

Operational Performance

· Robust underlying operational performance

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

· Like-for-like (LFL) passing rent up by 0.9% (FY18: 4.1%) versus a year ago, supported by the Merrion House lease to Leeds City Council

· Latest sales and purchases reduced Retail & Leisure exposure to 52%, from 70% in 2016

· CitiPark grew its revenues and operating profits

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

"Our focus remains on continuing to deliver our strategy, weathering the variations in valuations and market sentiment, and continuing to build on the intrinsic strength of the business. Our sixty years of history has taught us to treat property investment as a long-term undertaking - TCS's strength lies in our conservative management approach and our focus on long-term opportunities.

"Whilst it is disappointing to report half year valuation reductions and profits slightly down due to short term market fluctuations and some one-off costs, I remain confident in the quality and potential of our portfolio and the changes we are making to it. Our substantial development pipeline also underlines the opportunity for meaningful long-term growth. This confidence is reflected in continuing our long history of increasing or maintaining our dividend."

Operational Highlights

TCS continues to focus on repositioning the portfolio, and unlocking the latent potential within the sizeable development pipeline. Particular progress to be highlighted includes:

· Continued capital recycling activity increases diversity of the portfolio:

o Sale of Rochdale Central Retail Park for £13.2m

o Acquisition of The Cube, an office building with ground floor leisure, for £12.0m yielding 12.5% which diversifies income and provides future asset management opportunity

o Overall reduction in the retail and leisure proportion of the portfolio from 70% two years ago, 55% in June 2018 to 52% at the half-year end

· TCS continues to invest to increase resilience and improve future income and capital values:

o Redevelopment of the former Homebase unit in Milngavie, Glasgow into two units for Aldi and Homebase is nearing completion with valuation already increasing 12.5% as a result

o Consolidation of TCS's head office into one floor of Town Centre House to provide further letting opportunity for PureGym

· TCS has been quick to replace tenants impacted by the recent spate of retail CVAs and administrations and improve income:

o Eight CVAs / Insolvencies in the last year representing 2.5% of the total rent roll. Includes Poundworld, Mothercare, Crawshaws, and Berketex

o These have adversely impacted net income in the first half by £0.25m, and will continue to have further impact in H2

o However, six of the eight have now been re-let with rents ahead, on average, of previous levels. New tenants include Iceland and The Works. Two remaining units account for just 0.5% of total rent roll

· TCS continues to improve its development pipeline:

o Pipeline has a potential Gross Development value of over £590m

o Burlington House, Piccadilly Basin, Manchester is a 91-unit Private Rented Sector (PRS) joint venture development and is on track to complete in May 2019

o George Street, Leeds proposed aparthotel in joint venture with Leeds City Council has received detailed planning consent with development planned to commence this year

o Submitted a planning application to develop a 17-storey office above the Merrion Centre in Leeds, representing the next key stage of its development

· CitiPark performance strengthened and the business continues to diversify:

o Income up 6.4% year on year, with operating profit up 12.8%

o Investment in YouParkingSpace.co.uk continues to deliver promising results

o Increasing our investment in "PropTech" opportunities, TCS has taken a small equity stake in WiredScore, a rating system for buildings' digital infrastructure

-Ends-

For further information, please contact:

Town Centre Securities PLC www.tcs-plc.co.uk / @TCS PLC

Edward Ziff, Chairman and Chief Executive 0113 222 1234

Mark Dilley, Group Finance Director

MHP Communications  0203 128 8572

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

Chairman and Chief Executive's Statement

Results

EPRA earnings for the six months ended 31 December 2018 decreased by 8.8% to £3.7m (2017: £4.0m) and EPRA earnings per share decreased to 6.9p (2017: 7.6p). Reflecting the challenging market conditions for retail property in particular, the like for like portfolio decreased in value by 2.2%, the principle reason for the unrealised revaluation deficit incurred of £11.2m (2017: increase of £6.4m). This, and a loss on disposal of investment properties, resulted in the statutory loss after tax of £8.7m (2017: profit of £12.4m).

Our EPRA earnings are down year on year, and this is driven by four items, predominantly of a short term or one-off nature:

· The short-term effect of tenant departures with associated costs, including CVA related exits and the current redevelopment of Milngavie (c. £0.6m YOY)

· The cost associated with the change of restaurant attached to the ibis Hotel at The Merrion Centre (c. £0.1m YOY)

· The increase in LIBOR impacting interest costs (c. £0.2m YOY)

· A number of one-off administrative costs including professional and advisory costs associated with updating Certificates of Title in relation to our renewed banking facilities, and non-recurrence of a provision release in the prior year (£0.5m YOY)

Offsetting a proportion of this is an underlying improvement in rental income driven partly by the reported LFL rental increase, as well as the net benefit of asset sales and purchases (in particular the purchase of the Cube ahead of selling Rochdale Retail Park). In addition, our car parking business, CitiPark, performed strongly, resulting in its income being up £0.4m year on year. Overall Net Revenue is up £0.2m compared with the same period last year. Whilst a number of these items were already built into our expectations, the net impact is larger than expected and will flow through to our full year results.

Whilst it is disappointing to see profitability decline year on year, we continue to focus on delivery of our strategy; diversifying the portfolio and moving forward with our development plans. We have always focused on running this business for its long-term success and we feel strongly that the actions taken in recent years have been very positive for the business.

Principally as a result of the unrealised revaluation deficit and loss on disposal of investment property, the Group's net assets decreased by 6% to £191.8m in the six-month period (June 2018: £204.1m). Net assets per share decreased to 361p (2017: 375p; 30 June 2018: 384p).

Borrowings

We have continued to lower our borrowing levels. As at 31 December 2018 net borrowings stood at £186.9m, £5.7m lower than at the year end. This excluded the £13.2m sales proceeds from the disposal of Rochdale Retail Park. This money was received in early January.

Including the Rochdale cash receipt our Loan to Value level reduced 70bps from the June year end to 46.8%. Gearing stood at 88.2% (2017:91%).

The funding received as a result of our Merrion House financing arrangement with Leeds City Council enabled our purchase of The Cube ahead of the disposal of Rochdale, helping to protect income. It also has improved leverage and headroom.

Dividends

The interim dividend of 3.25p per share (2017: 3.25p) will be paid as a Property Income Distribution and will amount to £1.7m. It will be paid on 21 June 2019 to shareholders registered on 24 May 2019. The final dividend for 2018 of 8.50p per share was paid on 4 January 2019.

Succeeding in an uncertain market

The real estate industry is in a period of significant uncertainty; with the combination of Brexit, material change in the retail environment, and continued speculation as to the late stage nature of the property cycle all contributing. These factors combine to put pressure on property values, rental growth becomes extremely tough, and we are seeing higher than usual numbers of retail tenants experiencing difficulties.

TCS has not been immune from these factors, and they can be seen in our rent roll, our valuations, and ultimately our profitability. That said, we believe that TCS is well placed to succeed in this environment, and that our strategy and key points of difference should give shareholders confidence about the opportunities ahead for TCS. In particular we highlight:

· We are a regional investor - with 77% of the portfolio located in Leeds and Manchester, TCS offers exposure to these two strong and growing northern cities.

· The Merrion Centre is a good quality, high footfall mixed use property with significant development opportunity.

· We have an increasingly more diversified portfolio, with current investments further improving that.

· We have a resilient and strong tenant base with the like of Leeds City Council, Morrisons and Waitrose representing our largest tenants.

· We have a long history of delivering value through intensive asset management, and we are currently actively progressing a number of such opportunities.

· There is a very strong alignment between management and shareholder interests with the Ziff family concert party owning 52% of the business. The business has a history of long-term thinking and is focused on income delivery.

· The company has a significant development pipeline with an estimated GDV of over £590m. This is primarily non-retail and includes a sizable PRS element.

· TCS's CitiPark car parking operation adds further diversity with strong profit delivery and future growth potential.

· TCS continues to expand its "PropTech" investments, and now has equity investments in YourParkingSpace.co.uk, WiredScore, and GetRentr.

Recent retail insolvency and CVA activity is a prime example of where TCS has been able to strengthen its business for the medium term, despite the immediate challenges posed by the difficulties that a number of retailers are facing. During 2018 TCS had eight tenants enter into administration or CVAs, with the annual rent from those tenants representing 2.5% of the total rent roll. By January 2019 six of the eight units had been re-let with the remaining two (representing 0.5% of total rent roll) being the most recent instances which are now being actively marketed.

Departing tenants include Poundworld, Mothercare and Crawshaws. In the first half of the financial year we have lost £144k of income from the vacated units. However, in all but one of the six units now re-let, new rents have either been held flat or increased. The largest impact was the loss of Poundworld in the Merrion Centre. They were paying £180k a year in rent and had seven years left on the lease. Poundworld has been replaced by Iceland, at the same rent and an extended ten-year lease.

We continue to monitor tenant performance and outlook to ensure we react quickly to manage the risks of tenant administrations or CVAs.

Continuing to implement our strategy:

The Company continues to focus on strengthening the portfolio, implementing the next phase of our development pipeline and further adding to the pipeline opportunities. Key highlights include:

· Reducing reliance on Retail - as a result of the latest sales and purchases Retail & Leisure exposure drops to 52%, down from 70% in 2016

· Intensive Asset Management - significant future growth opportunities have been created with new schemes identified at The Cube and Vicar Lane in Leeds and Ducie House in Manchester. Furthermore, we are underway with a scheme in Milngavie, Scotland to divide a former Homebase unit into new units for Aldi and Home Bargains. This is due to be handed over for tenant fit out in February/March.

· Delivering the next phase of Development - Burlington House, Manchester PRS scheme is nearing practical completion, with Eider House being the next Piccadilly Basin PRS scheme to commence. In Leeds the George Street aparthotel scheme in JV with Leeds City Council is soon to commence.

· Strengthening the Pipeline - we continue to add to the development pipeline. Most recently the Ducie House purchase in Manchester offers the opportunity of a development on its car park. In Leeds we have recently submitted a scheme to planning for a 17-storey office development above a disused cinema at the Merrion Centre.

· Improving leverage and generating investment funds - we have now completed the innovative refinancing of Merrion House which generated upfront cash of £26.4m, net of costs, as a result of the council advancing 25 years of rent on Merrion House. This led to LTV reducing to 46.8%.

Portfolio Overview:

Investing in acquisition and development opportunities in Leeds:

The Merrion Centre and Arena Quarter

We continue to improve the Merrion Centre and Arena Quarter, having most notably, in December, presented a new development scheme for planning approval. The proposal is for a 17-storey office development to be known as 100MC, and would include over 168,000 sqft of commercial office space, being a place of work for over 2,000 people. The key tenant will be the StepChange Debt Charity, providing them with a new head office. StepChange are currently a tenant in our ageing Wade House office and this move would ensure the charity remained a tenant of TCS and would unlock Wade House for redevelopment.

With an estimated GDV of over £60m, and a build cost of over £50m, if planning consent is achieved TCS will need to put in place funding for the development. This development is the next phase in the on-going transformation of the mixed-use Merrion Centre, further future-proofing the Centre, reducing the proportion of retail income (already below 50%), and continuing to deliver on our long-term plan for the Centre.

Key activity in the first half of the year includes:

· Contracts exchanged with Pizza Express to occupy one of the new units created under Merrion House. Tenant fitout now underway.

· In the process of agreeing terms for a Starbucks to occupy another of the new units under Merrion House.

· Poundworld administration has allowed us to welcome Iceland to the Merrion Centre on a 10-year lease at the same rental levels.

· Following the departure of the Marco Pierre White restaurant that adjoined our ibis Styles we have opened a new restaurant, Arnolds, which has opened to good initial reviews, run for TCS by a well-known Leeds restaurateur.

· TCS has reconfigured our own office space in Town Centre House, consolidating onto a single floor and allowing us to free up space for a new letting for PureGym's expanding office requirement.

Leeds Commercial

TCS completed the acquisition of The Cube in October 2018. With a £12m purchase price and a passing yield of over 12.5%. This represented a strategic purchase for the Company for a number of key reasons:

· As a predominantly office-based building (50,000 sqft of offices and 22,000 sqft of ground floor leisure units), this purchase further diversifies our portfolio and reduces the relative proportion of retail.

· The building is opposite the Merrion Centre and further increases our presence in this high footfall location on the north side of the city centre.

· The building has a high yield as a result of a number of key tenancies coming to their end, but as a result offers TCS a significant opportunity for asset management and potentially redevelopment.

Since acquisition TCS has entered into discussions with existing tenants regarding new leases and is actively marketing the space to create demand ahead of lease expiries. Furthermore, the Company is in the process of drawing up plans to re-configure the space in order to create flexible and higher value space.

The Cube represents exactly the sort of high yield asset that strategically the Company is looking to add to its portfolio; namely one that has opportunity for TCS to apply its asset management and development expertise to add income and capital value over time.

TCS continues to progress plans for its Whitehall Road development site. Currently run as a CitiPark car park, the plot has the potential for three office / leisure buildings totalling c. 340,000 sqft, and a 500-space multi-storey car park. TCS are in detailed discussions with a number of potential tenants for the first 180,000 sqft office.

Investing in acquisition and development opportunities in Manchester:

TCS owns a c. 13-acre site in Central Manchester, a stone's throw from the main Piccadilly train station. This land, Piccadilly Basin, represents the Company's single largest and most valuable development opportunity. Already consisting of 160,000 sqft of retail, 55,000 sqft of office space, and 625 car parking spaces, this site has considerable future development potential. This includes:

· Greater than 730 residential units

· 177,000 sqft of commercial space

· 524-space multi-storey car park

In the first half of this year progress in Piccadilly Basin has included:

· Construction of Burlington House, a 91-unit Private Rental Sector (PRS) asset, is well progressed, with practical completion estimated for May 2019. This joint venture development with Highgrove Group now has a completed show apartment and JLL have been appointed to manage the building. Given the desirable nature of the building and its location the apartments are expected to let quickly once marketed.

· Eider House is expected to be the second PRS building to be developed in Piccadilly Basin. Detailed planning consent is in place for a 128-unit scheme, although the Company is now exploring increasing this to 149-units. Renewed planning consent is likely to be required should we decide to update the scheme.

· Ducie House, a 33,000 sqft office conversion, was acquired in May 2018. We are now actively managing this asset with plans underway to upgrade and improve the space this year. We expect this to further improve rental income. Furthermore, we are in the process of drawing up plans for a longer-term development of the 63-space car park.

Beyond Leeds and Manchester - the balance of the portfolio

Rochdale Sale

The most significant piece of activity outside of Leeds and Manchester is the sale in December of an out of town retail park in Rochdale. Rochdale Central Retail Park and its adjoining 4.7 acres of land was sold to Rochdale Council for £13.2m. TCS acquired the land originally as part of its ownership of the Rochdale Canal Company and successfully developed the site over many years. Utilising its asset management expertise TCS continued to improve the site, including most recently extending a unit let to Poundstretcher. As a consequence, the park was well let at an average of £16.50 per sqft. Consistent with TCS's strategy of recycling mature assets and with a view on the pressure on out of town retail the Company determined that a sale was appropriate. The sale price was below the June valuation, and with costs included, the half year results include a £1m disposal impact. The sale does however lower valuation risk and helps further reduce exposure to retail within the portfolio.

Annual income from the park totalled £1.15m, however the loss of this income was mitigated ahead of sale by the purchase of The Cube in Leeds in October 2018.

Milngavie, Glasgow redevelopment

As previously reported, we are in the process of sub-dividing and improving our retail asset on Main Street in Milngavie, an upmarket commuter town outside of Glasgow. This asset was previously let to Homebase who gave notice in late 2017 to exit. Whilst this has impacted income in the half year by over £0.3m, it has given us the opportunity to improve the asset for the long term. We are in the process of sub-dividing the main building into two units for Aldi and Home Bargains to occupy, with total income ahead of the Homebase rent. In addition, the site gives us the potential to create a third smaller retail unit.

The units are in the process of being handed over to Aldi and Home Bargains for their tenant fit out. On completion rental income will be 8% above previous levels. In the latest valuation this asset has increased in value by 12.5% to £9.5m reflecting the advanced status of the development work and the leases being in place.

Our future development pipeline

As previously presented TCS owns a significant development pipeline which gives the Company a clear and material opportunity to grow over time. The current pipeline has an estimated Gross Development Value of over £590m, with the majority of the developments already being part of the relevant local government approved Strategic Planning Frameworks or actually in possession of detailed planning permission.

TCS has a successful track record in obtaining planning permission and delivering strategic developments. In the last two years TCS has delivered Merrion House let to Leeds City Council, and two new hotels in Leeds. Burlington House PRS scheme in Manchester is due to complete this May.

The key components of the pipeline include:

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

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

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

· George Street, Leeds. Apart hotel with an estimated GDV of £10m.

Unlocking these opportunities over time will require capital and we continue to explore how we might fund these future developments.

CitiPark performs strongly

Operating income for CitiPark of £6.2m was 6.4% higher year on year. The increase in operating income was translated strongly into Profit of £2.4m, 12.8% better than prior year.

A strong and profitable standalone business in its own right, CitiPark also plays a valuable role in monetising what would otherwise be empty, non-income producing, development assets in Leeds and Manchester.

CitiPark has seen particularly strong income growth in the Merrion Centre and Whitehall Road car parks in Leeds. Strong demand for these branches, partly driven by reduction of capacity elsewhere in the city has also allowed rate increases to be introduced. Clipstone Street, London has also delivered a strong increase in revenue as a result of a letting of space for a storage firm to operate in.

Increasingly the CitiPark business is looking to expand beyond traditional car parking. The business already runs three solar energy farms in Manchester and Leeds, and through its relationships with Tesla and provision of electric vehicle charging points in all its branches, is continuing to explore how to develop a sustainability focused point of difference. The Company has detailed planning consent on Whitehall Road in Leeds for a c. 500-space multi-storey car park, and is now exploring options to ensure that this new facility can be built to be fully ready for the next stage in the country's transition to a large electric vehicle population.

Investing in "PropTech"

Beyond energy and sustainability, the Company has in recent years looked to invest in "PropTech" opportunities. The business continues to consider opportunities in this space, and currently has the following investments:

- A 15% stake in YourParkingSpace.co.uk (YPS), an internet and app-based business that matches customers to available car parking spaces across the UK. We have options to take our share up to 30%. The business is growing rapidly and is currently working on the next round of fund-raising to accelerate growth. TCS expects to be fully involved in this process.

- TCS recently participated in the latest fund-raising round of WiredScore, a US based company that provides a commercial real estate rating system that empowers landlords to understand, improve, and promote their buildings' digital infrastructure. TCS has made an equity investment of US$500k.

- In 2018 TCS made a £25k investment in a start-up called GetRntr, a company that provides data-driven technology solutions to simplify property licensing in the PRS arena.

Financing

Total net borrowings at 31 December 2018 were £186.9m (2017: £185.5m; 30 June 2018: £192.6m) giving a loan to value ratio of 46.8% (2017: 47.0%; 30 June 2018: 47.5%). 

The total borrowings comprise of £105.9m (net of £0.2m unamortised lease incentives) of 5.375% First Mortgage Debenture Stock 2031, and £108m of revolving credit facilities, of which we had drawn £76.8m at the half-year. Finance leases of £4.4m and cash of £0.2m make up the remaining balance.

We announced in July 2018 the agreement for an innovative financing agreement with Leeds City Council ('LCC') in respect of our joint venture investment in Merrion House. The agreement with LCC is similar in nature to a Credit Tenant Loan where we effectively borrow against the income stream provided by the 25-year lease to the council. As a result, TCS received net cash of £26.4m in July 2018. This transaction significantly increased cash reserves and enabled us to acquire The Cube in Leeds ahead of selling the Central Retail Park in Rochdale, and therefore protecting income.

Portfolio Performance

The value of investment properties, developments, joint ventures and car parks at the half-year stood at £368.5m (2017: £392.2m; June 2018: £403.5m). A significant part of this reduction is cosmetic, being the change to value in Investments in joint ventures (down £27.3m since June 2018). The reduction in the carrying value of the investment is due to the distribution received from the joint venture of £27.3m following the re-financing of Merrion House.

On a like for like basis the whole portfolio decreased in value by 2.2% since June (30 June 2018: 3.2% increase). The like for like decrease in the value of our investment property portfolio is 2.5% (30 June 2018: 0.5% increase) which reflects a reversionary yield of 6.7% (30 June 2018 6.4%). The like for like value of the development properties is flat on the year end (30 June 2018: 33.9% increase).

The 2.5% like for like reduction in the investment portfolio drives an £8.1m reduction in value. The vast majority of this reduction has been within our Retail Portfolio which in total saw a 4.3% reduction in value compared to June 2018. The main changes being:

- The Merrion Centre (£4.8m or 2.9% reduction) driven by a 20bps shift in yield. Consistent with our strategy of creating a true mixed-use asset, stable valuations in the offices, hotel, car park and Morrisons supermarket have helped reduce the impact. However, CBRE has moved the yield on the remaining retail and leisure by 75bps due to concerns in the wider retail and leisure market.

- Our Vicar Lane island site in Leeds (£1.1m or 8.4% reduction) driven by a 70bps shift in yield, mostly as a result of wider market factors, and partly due to shortening lease lengths.

- Our Wood Green, London properties (£1.1m or 13.0% reduction) driven by an 80bps shift in yield as a result of wider market factors.

On a positive note, where we make improvements or redevelopments to our retail properties, we are able to step up income and valuations. The most notable example in these results being the former Homebase in Milngavie, Glasgow. As identified earlier, the conversion into two units let to Aldi and Home Bargains will deliver an 8% increase in rental income, and the December valuation reflected a 12.5% increase in value to £9.5m with further upside anticipated on completion.

In the rest of the portfolio valuations were very stable compared to the June year end.

The other material valuation change relates to Ducie House in Manchester, where the valuation has reduced by £2m from the original purchase price. The purchase of Ducie House was a strategic purchase for TCS for two reasons. Firstly, the building had a Right of Light claim in relation to our proposed PRS development opposite, Eider House. This was externally estimated as being in the region of a £1.5m cost. Secondly, we identified a development opportunity on the 63-space carpark of Ducie House. As we don't currently have detailed plans for that development no value has been assigned to that opportunity in the valuation. We are underway with formulating plans for that development, and at the appropriate time expect that will improve the value of the site. Therefore, the valuation reflected in these accounts values only the Ducie House investment property. We have identified significant opportunities to improve the rental income in the existing building which should also improve value over time.

The final significant difference in valuation from the June 2018 year end relates to the newly acquired Cube office in Leeds. This has reduced in value by £1m compared to its purchase price (including fees). This was to be expected and is due to the very short nature of a number of the tenancies in the building. We are in the process of both marketing the office and looking at renovation and redevelopment plans for The Cube and remain confident in regaining the short-term valuation decline and extracting the longer-term potential in income and value.

Outlook

Our focus remains on continuing to deliver our strategy, weathering the variations in valuations and market sentiment, and continuing to build on the intrinsic strength of the business. Our sixty years of history has taught us to treat property investment as a long-term undertaking - TCS's strength lies in our conservative management approach and our focus on long-term opportunities.

Whilst it is disappointing to report half year valuation reductions and profits slightly down due to short term market fluctuations and some one-off costs, I remain confident in the quality and potential of our portfolio and the changes we are making to it. Our substantial development pipeline also underlines the opportunity for meaningful long-term growth. This confidence is reflected in continuing our long history of increasing or maintaining our dividend.

Responsibility statement of the directors

The Directors confirm that, to the best of their knowledge, these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union. The interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

· an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related party transactions in the first six months of the financial year and any material changes in the related party transactions described in the last Annual Report and Accounts.

A list of current Directors is maintained on the Town Centre Securities PLC Group website: www.tcs-plc.co.uk.

Principal risks and uncertainties

The Group set out on page 64 of its Annual Report and Accounts 2018 the principal risks and uncertainties that could impact its performance; these remain largely unchanged since the Annual Report was published. The Group operates a structured risk management process, which identifies and evaluates risks and uncertainties and reviews mitigation activity.

The key risks previously identified relate to major economic downturn, major tenant failure, cost of finance, and the availability of investment opportunities at economic prices.

We have identified a worsening in risk profile in two areas. Both are driven by the uncertainty caused by Brexit. Firstly, in relation to Development, where the combination of uncertainty with regards to cost and availability of skilled labour post Brexit, and the macro-economic impact on demand for new property makes outcomes less certain. Secondly, in relation to Valuation where the combination of Brexit uncertainty and the tough climate for Retail businesses are already putting pressure on valuations.

TCS continues to operate in a conservative manner with processes and procedures in place to ensure risk management is central to all business planning and decision making. These processes and procedures remain as detailed in the 2018 Annual Report.

Forward-looking statements

Certain statements in this half year report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Edward Ziff OBE Mark Dilley

Chairman and Chief Executive Group Finance Director

26 February 2019

Consolidated income statement

for the six months ended 31 December 2018

Consolidated statement of comprehensive income

for the six months ended 31 December 2018

All recognised income for the period is attributable to equity shareholders.

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Consolidated balance sheet

as at 31 December 2018

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Consolidated statement of changes in equity

for the six months ended 31 December 2018

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Consolidated cash flow statement

for the six months ended 31 December 2018

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Notes to the consolidated interim financial information

1. Financial information

General information

Town Centre Securities PLC (the "Company") is a public limited company domiciled in the United Kingdom. Its shares are listed on the main market of the London Stock Exchange. The address of its registered office is Town Centre House, The Merrion Centre, Leeds LS2 8LY. The principal activities of the Group during the period remained those of property investment, development and trading and the provision of car parking.

This interim financial information was approved by the board on 26 February 2019.

The comparative financial information for the year ended 30 June 2018 in this half-yearly report does not constitute statutory accounts for that year. The statutory accounts for the year ended 30 June 2018 have been delivered to the Registrar of Companies. The auditors' report on those accounts was 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.

Basis of preparation

These condensed consolidated financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting", as adopted by the European Union. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the accounts for the year ended 30 June 2018. The financial information for the six months ended 31 December 2018 and 31 December 2017 is unaudited.

Significant accounting policies

The accounting policies adopted are consistent with those of the previous financial year.

The Group's financial performance is not seasonal.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The following new standards, amendments and interpretations are effective for the first time in these financial statements but none have had a material effect on the Group and so have not been discussed in detail:

· IFRS 2 Share Based Payments (Amendment - Classification and Measurement of Share Based Payment Transactions)

· IFRS 4 Insurance Contracts (Amendment - Applying IFRS 9 Financial Instruments

· Annual Improvements to IFRSs 2014 - 2016 Cycle (IFRS 1 First-time Adoption of IFRS and IAS 28 Investments in Associates and Joint Ventures)

· IAS 40 Investment Property (Amendment - Transfers of Investment Property)

· IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration

The Company has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its June 2018 annual financial statements, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2018, and will be adopted in the 2019 annual financial statements. New standards impacting the Group that will be adopted in the annual financial statements for the year ended 30 June 2019, and which have given rise to changes in the Group's accounting policies are:

· IFRS 9 Financial Instruments; and

· IFRS 15 Revenue from Contracts with Customers

These standards have been fully adopted in the period but have had no material impact on the Group.

Use of estimates and judgements

There have been no changes in estimates of amounts reported in prior periods which have a material impact on the current half year period.

Going concern

The Directors have reviewed the cash flow forecasts of the Group and the underlying assumptions on which they are based. The Directors consider that the Group has adequate financial resources, tenants with appropriate leases and covenants, and properties of sufficient quality to enable them to conclude that the Company and the Group will continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis of accounting in preparing its consolidated interim financial statements.

2. Segmental information

The chief operating decision-maker has been identified as the Board. The Board reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

Segmental assets

Segmental results

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

The results for the car park operations include the car park at the Merrion Centre. As the value of the car park cannot be separated from the value of the Merrion Centre as a whole, the full value of the Merrion Centre is included within the assets of the property rental business.

The car park results also include car park income from sites that are held for future development. The value of these sites has been determined based on their development value and therefore the total value of these assets has been included within the assets of the property rental business.

The total net revenue at the Merrion Centre and development sites for the six months ended 31 December 2018, all arising from car park operations, was £2,012,000 (2017: £1,868,000). After allowing for an allocation of administrative expenses, the operating profit at these sites was £1,659,000 (2017: £1,531,000).

3. Finance costs

4. Dividends

A final dividend in respect of the year ended 30 June 2018 of 8.25p per share was approved at the Company's Annual General Meeting (AGM) on 20 November 2018 and was paid to shareholders on 4 January 2019. This dividend was paid entirely as a Property Income Distribution (PID).

An interim dividend in respect of the year ending 30 June 2019 of 3.25p per share is proposed. This dividend, based on the shares in issue at 26 February 2019, amounts to £1.7m which has not been reflected in these interim accounts and will be paid on 21 June 2019 to shareholders on the register on 24 May 2019. This dividend will be paid entirely as a PID.

5. Earnings per share

The calculation of basic earnings per share has been based on the profit for the period, divided by the number of shares in issue. The number of shares in issue during the period was 53,161,950 (2017: 53,161,950).

The calculation of EPRA earnings per share has been based on the profit for the period, divided by the number of shares in issue throughout the period. It has been disclosed to demonstrate the effects of property disposal profits and losses, revaluation and impairment movements and other non-recurring items on earnings.

6. Tangible fixed assets

(a) Investment properties - property rental business

 (b) Freehold and leasehold properties - car park activities

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

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

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

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

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

The effect on valuation of applying a different yield and a different ERV would be as follows:

Valuation at an initial yield of 7.1% - £311.5m, Valuation at 5.1% - £408.3m

Valuation at an initial yield of 8.0% - £408.3m, Valuation at 6.0% - £400.3m

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

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

(c) Fixtures, equipment and motor vehicles

7. Goodwill

Goodwill represents the difference between the fair value of the consideration paid on the acquisitions of car park businesses and the fair value of the assets and liabilities acquired as part of these business combinations.

8. Investments in joint ventures

Investments in joint ventures primarily relates to the Group's interest in the partnership capital of Merrion House LLP. The investment property held within this partnership has been externally valued by CBRE at each reporting date.

9. Called up equity share capital

Authorised

164,879,000 (30 June 2018: 164,879,000) ordinary shares of 25p each.

10. Cash flows from operating activities

11. Net asset value per share

Net asset value per share is calculated as the net assets of the Group attributable to shareholders at each balance sheet date, divided by the number of shares in issue at that date.

12. Related party information

There have been no material changes in the related party transactions described in the 2018 Accounts.

INDEPENDENT REVIEW REPORT TO TOWN CENTRE SECURITIES PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2018 which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Cash Flow Statement and related notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of and has been approved by the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting'', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

BDO LLP

Chartered Accountants

London, United Kingdom

26 February 2019

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).