Proud to be making a difference
Annual Report &
Accounts 2018
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Town Centre House
The Merrion Centre
Leeds LS2 8LY
6 Duke Street
Marylebone
London W1U 3EN
+44 (0)113 222 1234
+44 (0)20 3370 0080
info@tcs-plc.co.uk | tcs-plc.co.uk |
Proud to
be making
a difference
Introduction
Who we are and what we do
Business Model and Strategy
Financial Highlights
5 Year Record
Strategic Report
Chairman and Chief Executive’s Statement
Introduction
Creating Places in Leeds
Leeds - The Arena Quarter and The Merrion Centre
Merrion House
Leeds Retail
Leeds Commercial
Creating Places in Manchester
Introducing Piccadilly Basin
Future Plans for Piccadilly Basin
Creating Places in Scotland
Creating Places in Suburban London
In control of our future - our Development Plan
Detailed Portfolio Performance
Financial Review
Key Performance Indicators
CitiPark
2
3
4
5
6-81
6-45
6-9
10-11
12-14
15-16
17-18
19-21
22-23
24-27
28-29
30-31
32-33
34
35-36
37-40
41
42-45
Corporate Social Responsibility
46-49
Environmental Report
Locations of Property Portfolio
The Board
Valuers Report
JLL
CBRE
Corporate Governance
Introduction
Nominations Committee Report
Audit Committee Report
Risk Management
Viability Statement
Directors Remuneration Report
Report of the Directors
Statement of Directors’ Responsibilities
Independent Auditors’ Report
Financial Statements
Consolidated Financial Statements
Company Financial Statements
Notice of Annual General Meeting
Investor Information
50
51
52-53
54-55
54
55
56-85
56-60
61
62-63
64-70
70
71-78
79-80
80-81
82-85
86-119
86-108
109-118
119-125
126
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
01
Town Centre Securities Plc
are a specialist regional property
investor with a portfolio of over £400m.
Operating principally in Leeds, Manchester, Scotland and London, we have a
long track record as a listed company with 58 years of dividend payments either
maintained or increased. Our strategy is focused on active management of
income based on local knowledge. We are conservatively funded and we have
delivered high long term returns for shareholders which compare favourably
against market indices.
Vicar Lane, Leeds
02
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
58 YEARS OF
UNBROKEN DIVIDENDS
BUSINESS MODEL AND STRATEGY
We aim to maximise shareholder value by investing in property and car parking assets.
Our strategic priorities are:
Intensive Management
For many years we have managed our properties
intensively to maximise income. This has translated
into excellent total returns and has allowed us to
maximise and maintain our long term outstanding
dividend growth.
We concentrate our portfolio in the strong regional
cities of Leeds, Manchester and Glasgow along with
suburban London.
Property Sales and Re-Investment
Property can reach a plateau in respect of value and
income in a low growth economy. It is crucial that such
properties are sold and the capital re-invested in
opportunities where growth can be achieved.
The Company has a significant development pipeline
and continues to seek to add value by developing this
portfolio over time.
Investment in Car Parking
We have always believed that car parking can
generate above average returns. We built up a
substantial business in the 1990’s and we intend
to do the same again.
Secure Funding
We are conservatively funded - the majority of our
borrowings are long term fixed interest. Our loan
to value is moderate at 45% and we have £30m of
headroom as protection for the future (including
Merrion House financing).
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
03
Financial Highlights
TOTAL DIVIDENDS PER SHARE
STATUTORY PROFIT BEFORE TAX
11.75p
2017: 11.5p
£18.4m
2017: £6.7m
EPRA NET ASSETS PER SHARE
EPRA PROFIT BEFORE TAX
384p
2017: 359p
£6.9m
2017: £7.0m
TOTAL PROPERTY RETURN
STATUTORY EARNINGS PER SHARE
9.4%
2017: 6.0%
34.6p
2017: 12.7p
TOTAL SHAREHOLDER RETURN
EPRA EARNINGS PER SHARE
3.2%
2017: 9.6%
13.0p
2017: 13.2p
58 YEARS OF UNBROKEN DIVIDENDS
10
7.5
5.0
2.5
04 TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
5 Year Record
EPRA NET ASSETS PER SHARE
EPRA EARNINGS PER SHARE
384p
308
344
357
359
384
13.0p
14.4
12.1
12.4
13.2
13.0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
DIVIDENDS PER SHARE
EPRA PROFIT BEFORE TAX (000’s)
11.75p
11.50p
10.44
10.44
11.00
11.50
11.75
7,629
6,451
6,595
7,036
6,906
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
PROPERTIES AND BORROWINGS (£m):
50%
321
362
377
50%
49%
383
406
49.3%
47.5%
160
174
186
189
45.3%
193
2014
2015
2016
2017
2018
Portfolio
Borrowings
Loan to Value
Pro Forma Loan to Value (includes effect of Merrion House financing)
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
05
Chairman and Chief Executive’s Statement
Portfolio performance
The total like for like valuation of the portfolio is up 3.2% year
on year (FY17: unchanged)
The like for like increase in the value of our investment property
portfolio (including joint ventures) this year has been 0.5%
(2017: decrease of 1.4%) which reflects a reversionary yield
of 6.4% (2017: 6.5%). The like for like increase in development
property is 33.9% (2017: 20.1%). The Total Property Return is
9.4% (2017: 6.0%).
The investment properties, developments, joint ventures and
car parks value at the year-end stood at £403.5m (2017: £381.1m).
Results
Net assets and EPRA net assets at 30 June 2018 were £204.1m,
representing 384 pence per share (2017: £191.1m, 359 pence per
share). This represents an increase of 6.8% year on year.
We report a statutory profit for the year of £18.4m (2017: £6.7m)
which includes the property revaluation surplus of £9.8m this
year (2017: deficit of £1.1m).
Our EPRA profit before tax of £6.9m (2017: £7.0m) (excluding
property revaluation and property disposals) is in line with
expectations following strategic disposals and the effect of
the redevelopment of our Milngavie, Scotland property.
CitiPark’s operating profit (before funding costs) was up 3.7%.
Statutory earnings per share (including property revaluation and
property disposals) were 34.6p (2017: 12.7p). EPRA earnings per
share were 13.0p (2017: 13.2p).
Dividends
The Board is recommending a final dividend of 8.50p per share,
which, with the interim dividend of 3.25p per share gives a total
of 11.75p (2017: 11.50p).
The final dividend of 8.50p is entirely a Property Income
Distribution. The final dividend will be paid on 4 January 2019
to shareholders on the register on 7 December 2018.
Improving leverage and securing on-going financing
Over the last year we have extended or renewed all our bank
debt facilities. Following the bank refinancing we have £108m
of revolving credit facilities with average maturity of 4.3 years
including extensions.
Furthermore, in July 2018 we announced the completion of an
innovative financing agreement with Leeds City Council (‘LCC’)
in respect of our joint venture investment in Merrion House.
The joint venture nature of the asset made it a challenge for
us to leverage the significant value created in this asset. The
innovative 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. Further details
can be found in the Finance Section.
Following the extension and renewal of our bank debt facilities
and including the effect of the Merrion House financing and
Ducie House purchase, our borrowing headroom stood at over
£30m at the end of July 2018.
We have delivered considerable
change in the last year, making
great progress in our strategy
of reshaping the portfolio in
order to ensure on-going strong
returns. With asset recycling,
strategic purchases, and the
continued exploitation of our
development pipeline we have
been able to deliver an overall
portfolio valuation increase of
3.3%. In addition, like-for-like
ERV is up 1.6%. I am very proud
of our unbroken, now 58-year,
history either maintaining or
increasing our dividend.
06
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Net debt at 30 June 2018 amounted to £192.6m (2017: £188.8m). This comprised £105.9m (net of £0.2m of unamortised arrangement
fees) of 5.375% First Mortgage Debenture Stock 2031 and £108m of revolving credit facilities, of which we had drawn £87.8m at the year
end. Finance leases of £4.4m, and net of cash of £5.5m make up the remaining balance. The increase in the level of net debt is principally
due to capital expenditure on the development schemes. Borrowings represent 47.5% of property values (2017: 49.3%).
This reported loan to value (‘LTV’) is impacted by the fact that the year end balance sheet includes the full value for the Ducie House and
recognises the sale of Princes Street, although the cash was not transferred until July.
In addition, the new Merrion House financing arrangement which completed in July further improves LTV and leverage.
Adjusting for all these items, the pro-forma LTV drops to 45.3% (2017: 49.3%) and leverage drops to 81.7% (2017: 96.5%). A more detailed
analysis can be found in the Finance section.
We are particularly pleased with the re-financing activity undertaken, which has the combined effect of providing longer term borrowing
security, lowering LTV and leverage, and providing the company with funds for future investment.
Creating Places in Leeds and Manchester
Leeds and Manchester combined represent 74% of the portfolio by value and remain core to the strategy and growth prospects of the
business. In the last 12 months significant progress has been made in further strengthening our regional presence:
Leeds:
The Merrion Centre is the Company’s largest single asset. This is
now a true mixed-use asset and with the re-development of the
Merrion House office and the ibis Styles hotel, the dependence
on traditional “mall” retail income has reduced to less than a
quarter of the total.
The Company is in the process of developing plans to consider
building a new office tower above part of the centre, in the
on-going delivery of its long-term plans for further diversification.
In the meantime, footfall and rental income continue to be
strong with underlying LFL rents up 2.0%, increasing to 13.4%
with the inclusion of Merrion House.
In addition, the Company has:
• Completed the development and occupation of Merrion
House with our joint venture (‘JV’) partner and tenant Leeds
City Council
• Created three new ground floor units as part of the Merrion
House development
• Exchanged contracts to acquire The Cube, 123 Albion
Street in Leeds. Completion is expected on 1 October
2018. The purchase price of £12m represents an initial yield
of over 12.5% on the passing income. With lease expiries in
2019 and 2020 the yield will reduce to around 9%, a strong
and sustainable return for a city-centre asset. This is not
included in the year-end portfolio. This acquisition further
diversifies the portfolio, and will enable further asset disposals
• Agreed to enter into a joint venture with Leeds City Council
for construction of an apart-hotel with retail units on George
Street, alongside Leeds City Market and Victoria Gate.
We expect work to commence in early 2019
• Been developing plans to update and improve the central
Leeds Vicar Lane island site, following our acquisition of
100% ownership of the site in June 2017
Manchester:
Piccadilly Basin is the Company’s most significant development
opportunity and will drive future income and capital growth.
Important progress has been made with this strategic site in the
last year. This includes:
• Construction of our Burlington House residential
development, is proceeding to time and budget.
This scheme, being developed in joint venture with
our partner Highgrove Group, will be held for private
rental sector use, with completion targeted for May 2019
• We are planning on beginning work on the next residential
development, Eider House, in 2019
• The acquisition of Ducie House has now completed.
Ducie House is a 33,000 sq ft office building and effectively
increases the size of our Piccadilly Basin site. In addition to
gross annual income of £675,000, the plot includes a
63-space surface car park which provides further
development opportunity for the Basin
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
07
Chairman and Chief Executive’s Statement
Continuing to reposition the portfolio
Since June 2017 we have sold another three properties.
In Edinburgh we have sold 1-23 Shandwick Place for £6.3m in
line with valuation, and also a retail unit on Princes Street for
£3.3m significantly ahead of valuation. We also sold a retail
unit in East Kilbride for £0.5m again well ahead of valuation.
In the last two years we have sold seven properties raising
almost £32m in proceeds with all properties selling at or above
valuation, averaging 6% above book value.
Furthermore, since June 2018, we have continued to be active
in further improving our portfolio:
• We have completed the purchase of Ducie House,
Manchester, as highlighted above, and included in
our year end portfolio
We have also either completed or exchanged contracts on a
further three property acquisitions as follows (none of which
are included in our year-end portfolio):
• We have exchanged contracts to acquire The Cube,
123 Albion Street in Leeds, as highlighted above
• We have completed the acquisition of a property on
Chiswick High Road in London for £1.6m. The property
comprises a long-standing florist in the ground floor retail
unit with two 2-bed apartments above. The net initial yield is
4.6% with ERV opportunity to get to above 5%
• We have completed the acquisition of a retail unit on Gordon
Street, Glasgow, let to Mountain Warehouse. This unit is
adjacent to our Buchanan Street ownership in this extremely
popular part of the city. At a purchase price of £2.4m this unit
will deliver a 5.25% net initial yield
These purchases fulfil the dual purpose of continuing to build
and diversify the portfolio, whilst also creating new sources of
income which will enable future sales of more mature assets
within our current portfolio without impacting historic income
levels. We continue to critically review our portfolio with the aim
of recycling assets where we believe we have maximised our
return. The cash raised from the Merrion House financing has
enabled this more proactive portfolio management.
In addition to these purchases, and as highlighted earlier we
have made good progress with our development pipeline
with the completion of Merrion House, Leeds, the on-going
construction of the residential building Burlington House,
Manchester, and the appointment as joint venture partner with
Leeds City Council for the George Street, Leeds apart-hotel
development.
These ongoing changes reflect our continuing strategy to
reposition and rebalance the portfolio, in particular given the
challenges being seen in certain parts of the retail environment.
The changes already delivered have seen the proportion of the
portfolio represented by retail and leisure reduce from 70% to
55% in the last two years.
We remain, where appropriate, committed to investing in retail
property, and the strength, for example, of our retail assets in
Glasgow and Milngavie, are testament to the capital and income
returns that can be derived from good quality retail assets.
Nonetheless the retail environment is challenging and changing
and therefore we are clear about our strategy in relation to our
portfolio, specifically by:
• Ensuring we create retail and leisure destinations
• Broadening our portfolio, increasing the proportion of leisure,
offices and residential
• Having a predominantly regional focus, but continuing our
approach of targeted investments in suburban London
Growing our development pipeline
Over many years we have built up a development pipeline of
significant quality and value. This pipeline gives the business a
clear and significant opportunity to grow over time. The quality
of the pipeline is reflected in the on-going increases in its
valuation recognised by our valuers, with a 33.9% increase in value
this past year.
The current pipeline has an estimated Gross Development
Value (‘GDV’) on completion of £588m, 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.
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 £90m
• 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 continues to grow revenue and profits
Our car parking business goes from strength to strength and
has seen income grow by 5% and profitability grow by 3.7%
despite increases in business rates. We continue to innovate in
technology including advances in the year in online booking,
new car park management systems, and Automatic Number
Plate Recognition barrier-less and cashless systems.
EV charging is available in all branches and we continue to
increase our provision in this area. We are in the process of
installing a DC Rapid Charger in the Merrion Centre car park
which can provide a full charge in 20 minutes, the first of its type
in Leeds City Centre.
Crucially for the wider business, CitiPark represents a powerful
way to generate income from our property development
portfolio which would otherwise be sitting idle. Of the £4m
operating profit (before revaluation) reported c40% was
generated from the development sites.
We continue to work closely with Yourparkingspace.co.uk,
the online parking service that matches available spaces with
drivers. We now own a 15% stake in the business with options
to extend this, and our close working partnership benefits both
businesses. We continue to be a strategic partner in the start
up’s growth and expansion plans.
08
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Recruitment and Succession Planning
Recent years have seen a significant amount of well planned
and seamlessly executed change around the Board table.
I have been in discussion with our Property Director Richard
Lewis for some time regarding his desire to retire. Richard has
been with the Company for 18 years and joined the Board in
2001. His contribution has been outstanding, beginning with the
construction and sale of No1 Whitehall Riverside in Leeds, the
continued development of Piccadilly Basin in Manchester, and
most recently, the re-development of Merrion House in Leeds.
We will miss Richard and wish him a long, happy, and healthy
retirement.
With Richard’s decision to retire we have been fortunate enough
to be able to appoint Lynda Shillaw as the new Property Director.
Lynda joins Town Centre Securities from Manchester Airports
Group (‘MAG’) where she has served as the Divisional Chief
Executive Officer, Property since June 2014. Lynda is a member
of the MAG Executive Committee, responsible for MAG’s £525m
investment portfolio and 1,000-acre development land bank
across its 4 UK airports, and also MAG’s interest in the £1bn
Airport City Joint Venture. Prior to MAG, Lynda has been Director
of Real Estate at Scottish Widows Investment Partnership,
Managing Director and Global Head of Corporate Real Estate
for Lloyds Banking Group, Managing Director of Co-Operative
Estates, and Director of Property at BT Plc. Lynda holds Non-
Executive Director positions on the board of the Crown Estate
and VIVID housing association. Lynda joins the Company and
Board in November 2018.
We are very excited with Lynda’s appointment, and see this as
another key component of the Company’s future growth plans.
Outlook
The business has undergone considerable change
in recent years as part of a strategy to reposition the
portfolio, ensure a resilient income stream, and to
unlock growth for the future. In the past two years we
have reduced our exposure to retail and leisure from
70% to 55% of the portfolio. We are very pleased with
the progress made and feel confident about the future.
In those two years we have disposed of over 8% of the
portfolio, during which time we have managed to hold
EPRA profitability broadly flat and have increased NAV
by 8%. Furthermore, we have strengthened the balance
sheet, improved our banking facilities and lowered
leverage. Our recent financing activity increased capital
headroom, however we continue to explore new capital
raising options in order to facilitate our significant
development pipeline.
Edward Ziff OBE DL
Chairman and Chief Executive
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
09
Chairman and Chief Executive’s Statement
Creating Places in Leeds
Our properties in Leeds comprise 60% of our overall portfolio.
As a city Leeds continues to go from strength to strength.
£21.3 billion
per annum
Estimated worth of the
Leeds economy
3 million
Combined population
5,665
jobs created by
overseas investors
in 2017 (+14% versus PY)
3 Major
universities
(+1 University Technical College)
which welcome over
80,000 students
per annum.
511,000
Working age population (16 - 64)
Best UK city for
quality of life
£64.6 billion
Economic output
+11.5%
growth
of Leeds’ economy 2010 - 2015
4 Million
passengers per year
at Leeds Bradford Airport
120,000
Passengers transiting
through Leeds Station
per day.
(The busiest station in the north
of England and 3rd in the UK)
Major commercial property schemes
totalling £7 billion
are currently under construction and in the development pipeline in Leeds, while
£3.9 billion worth of projects have been completed over the last ten years
Companies with
more than 1,000 employees based in Leeds include...
Source - Leeds City Council
10
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Creating Places in Leeds
14
1
3
2
4
12
15
11
5
7
16
6
13
9
8
10
1
2
3
4
5
6
First Direct Arena
Merrion House
Merrion Centre
Town Hall
Vicar Lane
Corn Exchange
7
8
9
Trinity Shopping Centre
No. 1 Whitehall Riverside
Premier Inn
10
CitiPark Whitehall Road Car Park
1313
14
15
16
11
12
Victoria Gate
Victoria Quarter
Leeds Station
The Cube
George Street (forthcoming)
Central Road
TCS Assets
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
11
Chairman and Chief Executive’s Statement
Leeds - The Arena Quarter and The Merrion Centre
The Merrion Centre has been transformed over the last 10
years from a shopping centre to a true mixed-use destination
property. With over £40m of capital invested by TCS in the last
five years to ensure that the Centre is reinvented and remains
relevant, we have seen valuations improve by over £62m, and
ERV increase by 21% over that timeframe.
Retail Mall income now accounts for less than a quarter of the
Centre’s income, with key drivers of the shift to a multi-use
destination being:
• Re-development of Merrion House into a state-of-the-art main
office for Leeds City Council, including the creation of three
new leisure units currently being marketed
• Opening of the ibis Styles hotel with restaurant
• Creation of the Arena Quarter leisure front to serve customers
visiting the Leeds First Direct Arena
• Extension and improvement of the anchor Morrisons
supermarket
• Modernisation and redesign of the 950 space Merrion Centre
Car Park
The combination of the Leeds Arena and a strong and growing
student population makes the Merrion Centre an obvious
destination, particularly in terms of the leisure offer. The popular
supply of local restaurants including the long-standing
Japanese institution Fuji Hiro, Bulgogi (the first Korean grill in
Leeds) and My Thai which recently won “Best Restaurant in
Leeds” in the British Restaurant Awards, provides a vibrant night
time economy.
Occupancy levels in the Centre remain high at 97%, and the
mall’s focus on convenience and discount retailing protects
us from much of the disruption being seen on the high street.
The one exception to that has been Poundworld going into
administration. However, the strength of the unit in the Merrion
Centre has meant that our store has been one of a small handful
that have been sold to Iceland, with the lease being assigned
with no change in terms.
Our ibis Styles hotel has now been open for over a year and
has traded very strongly, beating expectations both in terms of
rooms sold and room rate achieved. The restaurant has under-
performed against expectations, and we are in the process of
re-launching the restaurant creating a more bespoke local offer.
The success of surrounding independent restaurants gives us
reassurance that the demand is there, but that our offer to date
has not been right. Although there will be costs in the coming
year to relaunch the restaurant we are confident that we will see
a strong step up in performance.
Footfall continues to be strong and we welcomed 11.7m visitors
in the year. With the full opening of Merrion House we expect all
our tenants to benefit from over 2,000 council employees and
the significant number of members of the public who will be
visiting their customer hub.
Overall like for like rent in the Merrion Centre was up 13.4%, albeit
this includes the increase in Merrion House following the full
occupation of the office. Excluding this LFL rent was up 2.0%.
By Sector
SQ FT 000
‘000
PASSING RENT
%
£m
ERV
£m
MALL RETAIL
MORRISONS
LEISURE
HOTEL
OFFICE
CAR PARKING
134
60
179
80
283
271
2.7
1.2
2.2
0.6
3.3
1.6
23
10
19
5
29
14
2.8
1.2
1.8
1.0
3.3
1.8
TOTAL
1,007
11.6
100
11.9
There remains considerable latent opportunity within the
Merrion Centre which we believe provides a platform for future
growth, and we are currently working on plans for the first stage
of the next 10-year plan. These opportunities include:
• Building a 16-20 storey office tower above the currently
unused old Merrion Cinema
• Redeveloping the existing Wade House office, potentially in a
manner similar to Merrion House
• Building an office/residential tower on the
Merrion Street/Woodhouse Lane corner of the Centre
We are at an early stage with these developments but are in the
process of developing detailed architects plans for the Cinema
Tower in conjunction with town planners and potential tenants.
12
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Leeds - The Arena Quarter and The Merrion Centre
7
2
5
6
4
8
3
1
1
2
3
4
First Direct Arena
Town Centre House
CitiPark Merrion Centre &
Arena Car Park
ibis Styles Leeds City Centre
Arena Hotel
5
6
7
8
Merrion House
Wade House
Merrion Centre
The Cube (forthcoming)
TCS Assets
Non TCS Assets
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
13
Chairman and Chief Executive’s Statement
Leeds - The Arena Quarter and The Merrion Centre
14
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Merrion House
The completion, occupation and refinancing of Merrion House marks a significant moment for the Company, and it is worthy of
a summary of the journey we have been on:
- Originally a deteriorating 1970’s office building occupied by Leeds City Council (‘LCC’) and valued at £20m at the beginning
of the project, producing £1.4m pa rental income
- In October 2013 TCS and LCC enter into a joint venture to redevelop the building
- Plans agreed to update and extend the building adding 50,000 additional square feet to create a 170,000 square feet state
of the art principal office for LCC
- With a sale of a 50% share of the building to LCC and a modest c£5m cash investment by TCS, the input of cash from LCC
enabled the work to get underway in March 2016
- The £33m capital project was delivered on time and on budget with practical completion effected in January 2018
- During the full period of the build TCS continued to receive £0.7m pa rental income from the council under the terms of the
existing lease
- At completion LCC entered into a new 25-year lease with capped RPI increases, and through the Joint Venture TCS began to
receive £1.7m pa as its share of rental income from the new lease
- Following completion and occupation the new building is valued at June 2018 at £69.4m of which half consolidates into TCS
- In July 2018 TCS completed a refinancing agreement with LCC effectively monetising the base rental streams of the 25 year
lease, providing TCS with £26.4m of net cash after costs
In addition, as part of the build TCS has also created three leisure units on the ground floor totalling 9,000 sq ft, with an
ERV of £0.2m. These units are currently being marketed with an expectation that Pizza Express will occupy one of the units.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
15
Chairman and Chief Executive’s Statement
Merrion House
Edward Ziff OBE DL and Councillor Judith Blake CBE officially
open Merrion House, 10 July 2018
Merrion House pre-development
16
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Leeds Retail
George
Street
We own three properties in the retail centre of Leeds. Consistent
with the strategy elsewhere in our portfolio wherever possible we look
to develop ground floor retail/leisure units with residential above.
We announced last year the acquisition of the remaining 50%
of Buckley House on Vicar Lane, with the company now owning
the entire island site immediately outside the Victoria Gate
shopping centre and the Leeds City Market. This is a prime site
and early scoping suggests a significant opportunity for income
and capital value improvement. Currently this is a multi-tenanted
property and therefore development is likely to take some time,
however the longer-term growth opportunity is clear.
Intensive asset management continues to be a key element
of our strategy, and recent changes highlight the value that
can be created. For example, in our Central Road property a
development in the basement has allowed our tenant, The
Travelling Man, to expand the size of his shop floor, increasing
rental income for TCS by £24k. Similarly, as previously
announced we have also developed the basement of our Vicar
Lane property allowing Michelin starred chef Michael O’Hare
to re-site and increase in size his “The Man Behind the Curtain”
restaurant, increasing rental income by £75k.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
17
Chairman and Chief Executive’s Statement
Leeds Retail
Sitting close to our existing properties is the site on George Street where we have been selected by Leeds City Council as their joint
venture partner to undertake an exciting new development. This site is part of the Leeds City Market, and under the terms of the
agreement we will jointly develop a 126 room Apart-Hotel with 9 units on the ground floor. This property sits alongside the Victoria Gate
shopping centre and forms the key next step in the regeneration of this historic part of the city. TCS will acquire a 50% stake in the
building and we expect a yield of c6.5% on our £9m contribution. The application for planning permission is at an advanced stage and
the legal partnership agreement is being drawn up. We expect work to commence in early 2019.
Current
Proposed
18
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Leeds Commercial
Our latest acquisition, The Cube,
123 Albion Street, Leeds is a strategic
addition to our commercial offering in
the City. Contracts were exchanged in
August 2018 with completion planned
for 1 October 2018. The Cube is located
opposite the Merrion Centre, TCS’s
largest asset. It is a refurbished and
extended former 1960’s office building,
comprising 22,000 sq ft of ground floor
leisure units with leases to Hard Rock
Café and Mecca Bingo, together with
50,000 sq ft of offices over three floors
let to Capita and the Government.
It also includes the freehold for 84
apartments which are leased to
Persimmon Homes at a peppercorn
rent. The acquisition is consistent with
our focus on true mixed-use assets
and lowering our exposure to retail,
which has helped ensure we have been
protected from the worst of the turmoil
on the high street.
The purchase price of £12m represents
an initial yield of over 12.5% on the
passing income. With lease expiries in
2019 and 2020 the yield will reduce to
around 9%, a strong and sustainable
return for a city-centre asset. This
acquisition gives the Company
flexibility to consider further asset
disposals from the portfolio.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
19
Chairman and Chief Executive’s Statement
Leeds Commercial
2
1
4
3
5
6
1
2
3
7 Whitehall Road. Strategic plan for 67k sq ft building
CitiPark MSCP. Planning in place for 500 spaces
3 Whitehall Road. Strategic plan for 93k sq ft Office
4
5
6
2 Whitehall Road. Strategic plan for 167k sq ft Office
TCS Assets
Premier Inn. Completed and kept in 2017
Non TCS Assets
Whitehall Riverside 1. Completed and sold in 2007
Whitehall Riverside and Whitehall Road form the West End
commercial heart of the city. In 2017 we completed development
of a new Premier Inn on Whitehall Road. This property with a
25-year lease, and annual rent of £680k with RPI uplifts is a highly
sought-after asset. We have seen its valuation increase by 8% in
the past year to £15.3m reflecting the strength of the asset and its
covenant.
The hotel sits on the corner of our Whitehall Riverside development
site, with the remainder currently trading as a successful 460-space
surface car park. This 4.35 acre site represents a significant
future growth opportunity for the company. This part of the city,
close to Leeds railway station, has seen substantial commercial
development and is now the premier office location and soon to
be home to the new 378,000 sq ft Government Property Unit hub,
for some 6,000 civil servants. The supply of space for new office
developments is now very limited which continues to strengthen
our development asset. We are in conversation with a number of
businesses with regards to new office requirements.
Specifically, the development masterplan for our site currently
includes:
• No.2 Whitehall Riverside – 180,000 sq ft office scheme with
detailed planning permission
• 500 space multi-storey car park – detailed planning permission
granted
• No.3 WR – c90,000 sq ft office building
• No.7 WR – c70,000 sq ft office building
20
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Leeds Commercial
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
21
Chairman and Chief Executive’s Statement
Creating Places in Manchester
Our properties in Manchester comprise 15% of our overall portfolio, although a large proportion of this value is in
development land, and therefore we expect this percentage to substantially increase over time as we continue to build
out the developments.
Manchester is the jewel in the crown of northern cities, with significant growth and development already achieved and
much more promised. We remain very excited about the role we have to play in the continued future success of the City,
and with the relationship we have with the City Council.
£8.1 billion
Economic impact
to Greater Manchester
(1)
15.1%
forecasted population increase
2016-2036 (6)
25,000
Expected bedroom
count by the end of 2018 (1)
£12 billion
Annual expected
income
generated by SME’s by 2020 (2)
28 Million
Approximate number of
Manchester Airport
passengers in 2017 (3)
2.6 million
Manchester population.
Second largest
economic hub after London (4)
Highest
rental yields in the UK – 7-8% (4)
Established
as the UK’s second financial capital (4)
1.38 million
international visitors to
Greater Manchester in 2016 (1)
36% rise
in the number of active small and
medium-sized enterprises (SMEs)
since 2010 (2)
324,000
employees working
in Greater Manchester (7)
10
metropolitan
boroughs
of Greater Manchester
(the largest city region economy
outside London) (8)
99,000
students across 4 universities (5)
Source - (1) Marketing Manchester | (2) National Insurance
and Guarantee Corporation - NIG | (3) Transport for
Manchester | (4) Alliance Manchester | (5) Invest in
Manchester | (6) Recruitment Entrepreneur | (7) New
Economy Manchester | (8) Centre for Cities 2018
Companies with base in Manchester...
s
22
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Creating Places in Manchester
13
11
3
12
6
Urban Exchange
CitiPark Tariff Street. Multi-storey Car Park
Dakota Deluxe Hotel Development
5
4
10
7
8
9
Jacksons Warehouse
CitiPark Port Street Car Park
AVRO (formerly Brownsfield Mill)
2
1
7
8
9
CitiPark Dale Street Car Park
10
Burlington House Development Site
Carvers Warehouse
Ducie House
TCS Assets
11
12
13
BDP Office
Planned location of Eider House
Piccadilly Station
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
23
1
2
3
4
5
6
Chairman and Chief Executive’s Statement
Introducing Piccadilly Basin
Our Piccadilly Basin site is c13 acres in size and comprises retail, office, residential and car parking.
Being a stone’s throw from Manchester’s main Piccadilly train station which will be the terminus for HS2, Piccadilly Basin is a very
central and historic part of the city. The excellent transport links into Piccadilly and the popularity of the creative Northern Quarter
neighbourhood make this a highly sought-after location and a valuable source of future growth for the business.
Piccadilly Basin is the Company’s largest development asset, with potential to create significant value. At this time, it comprises:
24
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Introducing Piccadilly Basin
Retail
Urban Exchange is a 160,000 sq ft 3 storey
building developed in 2006. It is let to Aldi,
Marks & Spencer, Go Outdoors, and Pure
Gym with 190 car parking spaces and
generates an annual rental income of £1.1m pa.
Offices
Carvers Warehouse is a multi-let 22,000
sq ft listed office which we converted
in 2007, and over 4 floors is home to
architects, engineers and planners. We
continue to see high demand for this type
of space in the Basin, which has driven
rental growth.
In addition, we recently announced the
acquisition of Ducie House, further
extending our ownership in Piccadilly
Basin. Ducie House is a 33,000 sq ft
contemporary conversion providing
highly flexible work space solutions for
businesses of varying size. Previously a
petticoat factory, it now provides 64 office
and studio spaces ranging in size from 82
to 3,900 sq ft. These spaces have been
occupied by iconic Manchester bands
such as 808 State and Simply Red, as well
as ANS, UK Fast, Ask Developments and
Ear to the Ground. There are approximately
50 tenants based in the building at present,
with a number of unique units available
to let with the majority of units let on an
all-inclusive flexible lease basis producing
a gross annual income of £675,000.
The building also has a 63-space surface
car park which has future development
potential.
Car Parking
The car parking facility in the Basin
provides c625 spaces, of which 232 are
provided by a dedicated multi-storey
car park. The remaining spaces are on
development land, where the car parking
business provides valuable income ahead
of developing out the sites. Operating
profit from these car parking operations
total £1.1m pa.
As detailed below the future development
plans for the Basin include a 500 space
multi-storey car park to supplement the
existing Tariff Street multi-storey and
replace those lost to redevelopment.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
25
Chairman and Chief Executive’s Statement
Introducing Piccadilly Basin
Current build stage of Burlington House, September 2018
CGI of proposed Burlington House
26
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Introducing Piccadilly Basin
Residential
Piccadilly Basin represents a unique residential development opportunity for the company and we are pleased to be making good
progress with the first such development, Burlington House.
On completion in May 2019 Burlington House will be an iconic 91 apartment building which TCS will hold and manage in joint venture
as a Private Rental Sector investment asset. We are in 50/50 joint venture with Highgrove Group, with the construction of the building
being undertaken on a fixed price basis. Construction is on time and budget. TCS has invested £4.9m into the joint venture, alongside
Highgrove Group with a total of £13m in development funding provided by the Greater Manchester Housing Fund. On completion we
anticipate net rental income to be c£1.2m pa in total for the joint venture.
This iconic building will help further create appeal and demand for the Basin.
In addition, we announced last year the sale of Brownsfield Mill, the former AVRO aircraft factory, to urban regeneration specialist Urban
Splash. TCS received an initial £1m in consideration for the sale, plus 12.5% of the gross sales proceeds from the 31 apartments to be
created and sold. Progress on the conversion by Urban Splash is going well, with almost half already under offer. In our accounts for the
year we have recognised £1.5m of proceeds, £1.0m from the initial sale to Urban Splash, and £0.5m based on unit sales agreed at the
time of our year-end. In total we expect to receive in excess of £1.5m on top of the initial £1m received once all the apartments are sold.
AVRO, formerly Brownsfield Mill
AVRO, formerly Brownsfield Mill
Jacksons Warehouse
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
27
Chairman and Chief Executive’s Statement
Future Plans for Piccadilly Basin
6
28
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Future Plans for Piccadilly Basin
1
2
3
4
5
7
It is pleasing to have made good progress in
Piccadilly Basin in the last year, and we look
forward to moving onto the next residential
scheme, once Burlington House (4) is near to
completion. The next phase of development in
Piccadilly Basin will be:
5. Eider House – a 128 unit residential unit, with
an estimated Gross Development Value (‘GDV’)
of £40m. Detailed planning consent is already
in place
In addition, an agreed Strategic Framework is in
place for:
1. Residential Tower A – estimated 255
apartments, with an estimated GDV of £82m
2. Residential Tower B – estimated 173
apartments, with an estimated GDV of £56m
3. Residential Block D – estimated 82
apartments, with an estimated GDV of £28m
6. Commercial Block – 177,000 sq ft of mixed
use commercial space, with an estimated GDV
of £76m
6. Multi-Storey Car Park – 524 space car park,
with an estimated GDV of £12m
7. Ducie House – scheme on the car park.
Plans currently being developed, but not part
of Strategic Framework
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
29
Chairman and Chief Executive’s Statement
Creating Places in Scotland
The Company has a long and proud history in Scotland, and we continue to be firmly committed to investment in the country.
Our investment has focused on Edinburgh and Glasgow and their surrounding communities. However, in recent years we have
undertaken a considerable amount of asset recycling in Scotland. We have long applied the strategy that when we believe we have
maximised the return and growth we can deliver from an asset then the time is right to dispose and reinvest where we see more
opportunity for us to add value.
In the last two years to the year-end we have disposed of six properties in Scotland for a total consideration of £28m, all above valuation
and with an average sales yield of 5.9%. Since the year-end we have also sold a further small retail unit on Shandwick place, Edinburgh
for £0.8m in line with valuation.
Waitrose, Milngavie
Gordon Street, Glasgow
Gordon Street, Glasgow – retail unit let to Mountain Warehouse,
purchased following the year-end and not included in the balance
sheet valuation
30
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Creating Places in Scotland
In addition to the asset recycling activity, 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 last year to exit following
an on-going strategic review of their business. Whilst this has put pressure on income in the year, it has given us the opportunity to
improve the site for the long term. We are in the process of sub-dividing the main building into two units and have agreed terms with
both Aldi and Home Bargains to occupy these units, with total income ahead of the Homebase rent. In addition, the site gives us the
potential to create a third retail unit which we will develop once the main two units are completed and occupied. On completion of this
first phase we expect valuation to rise significantly above its current and previous levels.
As an indication of our continued commitment to investing in Scotland we have completed the purchase of an additional retail unit on
Gordon Street in Glasgow. This unit forms part of a block on the corner of Gordon Street and the popular Buchanan Street where we
already own 3 retail units. At a purchase price of £2.4m this new unit, let to Mountain Warehouse will deliver a 5.25% net initial yield.
Byers Road, Glasgow – retail unit let to Waitrose
Buchanan Street, Glasgow – retail unit let to Dune
Buchanan Street / Gordon Street, Glasgow – two retail units let to
Timpsons and an independent newsagent
Bath Street, Glasgow – ground floor retail unit let to a wedding
dress retailer, with 20 residential units above
Main Street, Milngavie, Glasgow – single retail unit previously let to
Homebase now being converted
Shandwick Place, Edinburgh – three retail units let to Amplifon,
Morrisons and a local restaurant
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
31
Chairman and Chief Executive’s Statement
Creating Places in Suburban London
Whilst TCS is, and will remain, a primarily regional property investor, we have in recent years built up and small and valuable suburban
London portfolio. At the year end and including Car Parks this represented 8% of the portfolio at a value of £32.2m.
Car Parks
Ilford – a 640 space long lease carpark.
Rickmansworth – a 140 space freehold car park next to
Rickmansworth train station.
In addition, we have the following occupational leasehold car
parks in London and surrounding areas with leases between
21 and 32 years:
Watford – three car parks totalling 1688 spaces, where CitiPark
has leases to run the Council Car Parks.
Clipstone Street – a 200 space car park in Central London.
Bell Street – a 200 space car park in Central London.
Offices
6 Duke Street, Marylebone – a converted London townhouse
purchased in 2014, and consisting of our London Office, a
ground floor retail unit and upper floor offices for an upmarket
watch retailer.
Retail & Residential
9-13 Cheapside, Wood Green – comprising four ground floor
retail units, and twelve upper floor residential let apartments.
106A Kilburn High Road – comprising ground floor retail, and
three upper floor residential let apartments.
448 Holloway Road – a retail unit let, with opportunity to
create two upper floor apartments.
Duke Street, London
Chiswick High Street – a ground floor retail unit and two
upper floor residential let apartments. Purchased for £1.6m
in July 2018 (not included in the year end portfolio).
Our strategy in London is simple and complementary to
the Company as a whole. We will look to invest in specific
investment opportunities in London as follows:
•
In suburban London communities where values and tenant
demand have long proven to be resilient. Most likely to be
ground floor retail units with residential upper floors
• Where we see high return car parking opportunities that
build on the existing CitiPark portfolio. We will seek
freeholds if we also see a potential future
development opportunity
• As a moderate value and income hedge to any potential
weakness in our core regional markets
CitiPark Rickmansworth Car Park
32
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Creating Places in Suburban London
Chiswick High Street
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
33
Chairman and Chief Executive’s Statement
In control of our future - our Development Plan
As described earlier in this report, we have the benefit of
owning a very significant development pipeline, with all of
the opportunity within our ownership, and much of it already
benefiting from either strategic or detailed planning approval.
As the pipeline is significant, so is the capital required to develop
it out, and as such this forms part of a longer-term strategic
plan that will, in some form, require new capital. The Company
continues to explore options in relation to capital raising.
The table below identifies the development pipeline as it
currently stands with an estimated gross development value
(‘GDV’), and an estimated income level assuming a blanket 5%
yield. Clearly this is illustrative, but importantly highlights the
material scale of the opportunity with a total GDV of £588m.
DEVELOPMENT TYPE
STATUS
ESTIMATED GDV
INCOME
BURLINGTON HOUSE (JV AT 50%)
RESIDENTIAL
UNDERWAY
GEORGE STREET (JV AT 50%)
LEISURE
DETAILED PLANNING
EIDER HOUSE
LEEDS CAR PARK
MERRION CINEMA TOWER
WHITEHALL ROAD No.2
RESIDENTIAL
DETAILED PLANNING
CAR PARK
OFFICES
OFFICES
DETAILED PLANNING
DETAILED SCOPING
DETAILED PLANNING
LEEDS VICAR LANE
RETAIL & LEISURE
HIGH LEVEL SCOPING
WHITEHALL ROAD No.3
OFFICES
STRATEGIC FRAMEWORK
WHITEHALL ROAD No.7
OFFICES/LEISURE
STRATEGIC FRAMEWORK
MANCHESTER RESIDENTIAL TOWER A
RESIDENTIAL
STRATEGIC FRAMEWORK
MANCHESTER RESIDENTIAL TOWER B
RESIDENTIAL
STRATEGIC FRAMEWORK
MANCHESTER RESIDENTIAL D
RESIDENTIAL
STRATEGIC FRAMEWORK
DUCIE HOUSE
RESIDENTIAL
UNSCOPED
MANCHESTER COMMERCIAL
MANCHESTER CAR PARK
MIXED USE
CAR PARK
STRATEGIC FRAMEWORK
STRATEGIC FRAMEWORK
RICKMANSWORTH
RESIDENTIAL
UNSCOPED
MERRION CORNER TOWER
RESIDENTIAL/MIXED USE
UNSCOPED
£13m
£10m
£40m
£12m
£42m
£71m
£9m
£40m
£28m
£82m
£55m
£28m
£15m
£76m
£12m
£5m
£50m
£588m
£0.6m
£0.5m
£2.0m
£0.6m
£2.1m
£3.5m
£0.4m
£2.0m
£1.4m
£4.1m
£2.7m
£1.4m
£0.8m
£3.8m
£0.6m
£0.2m
£2.5m
£29.2m
Eider House Development, Manchester Piccadilly Basin
34
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Detailed Portfolio Performance
The overall market
has been resilient,
with sentiments
of a peak having
been reached
proving premature.
That said, there
is considerable
variation by sector
and by region in
the market place.
Our continued
approach of capital
recycling, combined
Richard Lewis
Property Director
with intensive asset management has meant that we have
seen a 3.2% LFL increase in the value of the portfolio (2017:
unchanged).
Overall the portfolio has increased in value by 3.3% year on
year, with the effect of the acquisition of Ducie House for
£9.5m including costs, broadly being offset by the sale of three
properties in Scotland in the year.
Looking at the component parts of the portfolio our investment
properties have increased in value by 0.5% LFL (2017: 1.4%
decrease), car parks have increased in value by 4.3% LFL (2017:
6.3%), and our development assets have increased in value by
33.9% LFL (2017: 20.1%).
Our investment properties are delivering an initial yield of 5.7%
(2017: 5.6%) and we continue to demonstrate a good level of
reversionary potential in the portfolio.
As shown in the below table TCS has also seen the variations
in performance by sector, and it has been of no surprise to us
to find that retail properties, particularly ‘high street’ and ‘out of
town’ have come under yield pressure. Within the investment
property portfolio our investments seeing the biggest falls in
valuation are our retail park in Rochdale, and some of our central
Leeds retail units.
Conversely the most material increases in value have been seen
in our Hotels, our prime real estate in Glasgow, and where we
have added value through development (Merrion House, Leeds
and also our two Leeds hotels which were both developed last year).
Our development portfolio has seen another large increase
in valuation. Both our holding in Piccadilly Basin, Manchester
and Whitehall Road, Leeds have seen strong improvements.
These rises in value are directly driven by our improving the
quality of the development rather than a market led increase.
In Manchester, values have been driven by starting the build
of Burlington House, alongside achieving detailed planning
permission for Eider House residential scheme, and further
clarifying the Strategic Framework surrounding the Basin. In
Leeds achieving detailed planning permission for a 180,000 sq ft
office building and a 500 space multi-storey car park has had
the same effect.
We have always been very proud of our industry leading
occupancy levels, historically delivering 98-99% occupancy.
In the year just completed we are reporting a drop in occupancy
levels to 95% (2017: 99%). On first sight, whilst still high, this
would seem disappointing given our history. However, there
are two key drivers of this reduction. This first being the exit
from our Milngavie property of Homebase at the end of
2017. As described earlier in this report we are taking this as
an opportunity to subdivide the unit with the intention of
increasing income and value. We have secured pre-lets to both
Aldi and Home Bargains and anticipate these units trading
again by Q2 2019. Secondly the occupancy percentage
includes the effect of three empty leisure units that we have
created as part of the Merrion House development. We are in
detailed discussions with tenants for this new space including
being in the final stages of agreeing a lease with Pizza Express
for one of these units.
Portfolio Analysis
RETAIL & LEISURE
MERRION CENTRE (EX OFFICES)
OFFICES
HOTELS
OUT OF TOWN RETAIL
DISTRIBUTION
RESIDENTIAL
DEVELOPMENT PROPERTY
OTHER CAR PARKS
LET PORTFOLIO
PASSING
RENT
ERV
£m
VALUE
£m
% OF
PORTFOLIO
VALUATION
+/-%
INITIAL
YIELD
REVERSIONARY
YIELD
3.6
7.4
3.9
1.2
2.9
0.4
0.6
20.0
2.0
1.4
23.4
4.1
7.9
4.3
1.6
3.6
0.4
0.6
22.6
2.0
1.4
26.0
67.6
97.7
70.1
27.2
52.1
5.8
10.9
331.3
36.7
26.0
17%
25%
18%
7%
13%
1%
3%
84%
9%
7%
394.0
100%
-3.9%
-0.8%
7.3%
10.5%
-3.8%
2.8%
1.5%
0.5%
33.9%
4.3%
3.3%
5.1%
7.1%
5.3%
4.1%
5.3%
6.4%
5.2%
5.7%
5.8%
7.6%
5.8%
5.7%
6.6%
6.3%
5.4%
6.4%
Note: The above table includes Merrion House within Offices and therefore differs to the table in Note 12 of the Accounts
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
35
Chairman and Chief Executive’s Statement
Detailed Portfolio Performance
TOP TEN TENANTS
£1m+
LEEDS CITY COUNCIL
MORRISONS
WAITROSE
£500k-£1m
PREMIER INN
PURE GYM
MATALAN
£250k-£500k
STEP CHANGE
DUNE
GO OUTDOORS
ALDI
We have a diverse and low risk portfolio. Our top
ten tenants constitute 42% of our Gross Property
Income.
Whilst we have not been immune to the turbulence
in retail we believe that the quality of our portfolio
and our low dependency on single tenants have
given us a level of protection. Impacts in the last
year are:
• Homebase strategic review – impact on income
in the year, but has unlocked opportunity
for income and capital growth at Milngavie
• Poundworld administration – quality of Merrion
Centre store has meant that the lease will
be assigned to Iceland with no change to terms
• Mothercare CVA – revised terms proposed a
c30% reduction in rent, however we are instead
re-letting and have offers at the original
rental levels from retailers with good covenants
Portfolio Analysis
By Location:
Total Value: £394m
60% LEEDS
15% MANCHESTER
13% SCOTLAND
8% LONDON
4% OTHER
By Sector:
Total Value: £394m
55% RETAIL/LEISURE
7% HOTELS
18% OFFICE
7% CAR PARKING
1% DISTRIBUTION
3% RESIDENTIAL
9% DEVELOPMENT
By Lease Expiries:
TPR: £20m
48% 0-5 YEARS
22% 5-10 YEARS
30% 10+ YEARS
Bath Street, Scotland
36
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Financial Review
TCS aims to deliver strong and reliable returns consistently and for the long-term. As such a
conservative approach to portfolio management and associated financing is key. In the past
year the Company has disposed of mature assets, continued to invest in the development
programme for long term growth, strengthened the balance sheet with new bank facilities,
and in July 2018 completed on an innovative financing arrangement with Leeds City Council.
During the period TCS has delivered this on-going change programme whilst holding EPRA
profit almost flat and increasing Accounting Profit before Revaluation from £6.1m in FY17 to
£8.6m in FY18.
Mark Dilley
Group Finance Director
As the below summary table demonstrates TCS has made solid progress financially in the last
12 months:
GROSS REVENUE £m
EPRA PROFIT £m
STATUTORY PROFIT BEFORE REVALUATION £m
STATUTORY PROFIT AFTER REVALUATION £m
NAV PER SHARE
TOTAL PROPERTY RETURN
TOTAL SHAREHOLDER RETURN
LOAN TO VALUE
GEARING
2014
22.6
7.6
7.6
27.4
308
14.1%
49.3%
49.6%
96.1%
2015
22.7
6.5
4.0
24.0
344
12.2%
19.1%
49.7%
95.5%
2016
26.3
6.6
7.7
11.9
357
7.8%
-3.9%
49.2%
95.0%
2017
27.5
7.0
7.3
6.7
359
6.0%
9.6%
49.3%
96.5%
2018
30.2
6.9
8.6
18.4
384
9.6%
3.2%
47.5%
92.1%
Note: LTV and Gearing for 2018 quoted before Merrion House Financing. Post this financing LTV improves to 45.3% and Gearing to 81.7%.
Income Statement
EPRA profit for the year ended 30 June 2018 was £6.9m, down
slightly on the prior year profit of £7.0m. As the table below
demonstrates this decrease was all driven by the Property part
of the business as a result of the timing of strategic disposals in
the year, and the exit in Scotland of Homebase midway through
the year. Profit in the Car Parking business was up year on year
by 3.7%.
£000’s
2018
2017
GROSS REVENUE
30,178
27,540
YOY
9.6%
PROPERTY EXPENSES
(10,896)
(8,148)
33.7%
NET REVENUE
19,282
19,392
(0.6%)
OTHER INCOME / JV PROFIT
2,084
1,578
32.1%
ADMINISTRATIVE EXPENSES
(6,574)
(6,295)
OPERATING PROFIT
14,792
14,675
FINANCE COSTS
(7,887)
(7,639)
4.4%
0.8%
3.2%
EPRA PROFIT
6,905
7,036
(1.9%)
SEGMENTAL £000’S
2018
2017
YOY
PROPERTY
NET REVENUE
13,850
14,675
OPERATING PROFIT
10,307
10,788
CitiPark
NET REVENUE
OPERATING PROFIT
IBIS STYLES HOTEL
NET REVENUE
OPERATING PROFIT
4,979
4,032
453
453
4,717
3,887
-
-
(5.6%)
(4.5%)
5.6%
3.7%
N/A
N/A
Gross Revenue
Gross revenue was up 9.6% year on year, with key drivers being:
- Ibis Styles hotel income for the first full year of £2.8m.
Excluding this gross revenue was down 0.5% year on year
- Organic growth of 5.0% in CitiPark
- Property revenues were down 4.1% due to the timing effect
of properties being sold, and the exit in Milngavie of
Homebase half way through the year
Property Expense
At a total company level property expenses were up 33.7%
year on year. This is driven by the fact that this now includes
the running costs of the ibis Styles hotel for the first full year.
Excluding this Property Expenses were up 5.3%. Key drivers
of this underlying increase are:
- Property – empty property business rates for six months
in the old Homebase unit account for a 1.3% increase
- CitiPark – further increases in business rates account for
a 2.0% increase
Other / JV Income
Total Other/ JV income was up 32% year on year. This is
explained by two key items:
- Income from joint ventures was up £0.3m year on year
driven by the increased income from Merrion House
following completion in January and the start of the
new lease with Leeds City Council
- We received £0.3m of income from Homebase as a result
of dilapidations charges following their vacating our property
in Milngavie
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
37
Chairman and Chief Executive’s Statement
Financial Review
Merrion House, Leeds
Administrative Expenses
These costs were up 4.4% year on year. The primary driver of this increase is as a result of higher levels of consulting and professional fees
incurred in the year. The activities driving this spend include:
- Corporate Finance advice and Tax advice which ultimately led to the Merrion House financing transaction
- One off IT infrastructure and security audit
- Legal costs associated with moving charged properties to different bank facilities in order to maximise borrowing headroom
- Engaging Link Company Matters as Company Secretary
- Engaging Edison and RMS to assist with equity research and investor relations respectively
Finance Costs
Finance costs were 3.2% or £0.25m higher year on year. Underlying interest costs are actually broadly flat year on year with the increase
in costs being driven by £0.4m of interest capitalised last year.
Balance Sheet
Our total non-current assets (including JVs) of £407.2m (2017: £385.1m) include £376.1m of investment properties (2017: £354.6m) and
£29.6m of non-current car parking assets (2017: £28.5m). The Merrion Centre car park is included in the investment property asset. The
car parking assets include £4m (2017: £4m) of leasehold car parks which are accounted for under IFRS as goodwill. There are two such
car parks with operating leases of 21 and 31 years.
We have continued to invest in our properties with a total of £6.5m of capital expenditure this year (majority being on Merrion House
through the joint venture). We also invested £3.9m into our Burlington House Joint Venture. Capital recycling comprised £10.1m of sales
and £10.6m of purchases. Along with other cash movements this resulted in an increase in borrowings from £188.8m to £192.6m.
The property and car parking balances reflect valuation gains of £5.9m in respect of the investment and development properties, gains
of £2.6m in respect of joint ventures and gains of £1.0m in respect of car parks (which includes a loss of £0.4m which is shown in the
Statement of Changes in Equity as other comprehensive income).
38
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Financial Review
Borrowings
We have undertaken a significant amount of refinancing activity in
the past year which consisted of:
Lloyds: This £35m facility was due to end on 31 December 2018,
with the option to extend for a further year. Instead a new three-
year facility with two one-year extension options has been put in
place as at the end of June 2018. Margins have remained consistent
with the previous facility, with an updating and improving of
contract terms.
Handelsbanken: This three-year £35m facility was due to end on
30 November 2018. Effective from the end of June 2018 this facility
has been renewed for a five-year term with a small (20bps) increase
in margin. Terms have been updated and improved including
adding the ability to charge car parks and development assets.
RBS: This facility was due to end on 29 April 2020, however the
Company has exercised an option to extend this by a further
year to 2021 at the same price. In addition, the facility has been
amended to allow the charging of car park and development
assets.
The Company has certainty over its debt position for the next
three to five years, along with improved and more flexible terms.
Alongside the 2031 £106m debenture which expires in November
2031, the company is securely financed, and remains committed
to lowering debt levels over time. On a weighted average basis
our debt maturity at the end of June was 8.6 years compared
to 8.2 years last year.
In addition, we announced in July 2018 an innovative financing
arrangement with Leeds City Council in relation to Merrion House.
As described earlier in this report a significant amount of value
was created by the redevelopment of this building, however as
the building sits in a Joint Venture raising traditional bank financing
against the asset was unconventional. Instead a facility, similar to a
Credit Tenant Loan, has been finalised.
As a result, Merrion House LLP (‘MH LLP’), the joint venture vehicle
reached agreement for LCC to advance all base rent due from
1 October 2018 until the lease end on 11 February 2043, discounted
at an annual equivalent rate of 3.5% plus costs.
Following this, TCS received £26.4 million in cash. This is net of
estimated costs. From an accounting perspective this transaction
will be treated as a financing arrangement within MH LLP. On that
basis MH LLP will continue to recognise quarterly rent (£0.8 million
per quarter) offset by an interest charge calculated on an effective
interest rate basis. TCS 50% share of the accounting net income
will continue to be recognised in its income statement.
The balance sheet of the LLP will reflect the full market value of
the building, less the deferred income balance, which will reduce
quarterly to zero at the lease end. Half of the net asset value of the
entity is then consolidated into TCS.
The lease allows for capped RPI increases every five years.
These will continue to apply and will flow as normal rental
payments through MH LLP.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
39
Chairman and Chief Executive’s Statement
Financial Review
Going concern and headroom
One of the most critical judgements for the Board is the headroom in the Group’s bank 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 the end of June 2018 was £10.6m (2017: £12.2m) Following the Merrion House financing deal and receipt of the cash, and the
completion of the Ducie House purchase, headroom at the end of July 2018 stood at over £30m and is considered to be sufficient
to support our going concern conclusion.
Total shareholder return and total property return
Total shareholder return of 3.2% (2017: 9.6%) is calculated as the total of dividends paid during the financial year of 11.50p (2017: 11.15p)
and the movement in the share price between 30 June 2017 (290p) and 30 June 2018 (288p), and assumed dividends are reinvested.
This compares with the FTSE All Share REIT index at 9.8% (2017: 9.2%) for the same period.
Although behind the market in the last 12 months TCS has strong outperformance in Total Shareholder Return on both a 5-year and
10-year basis.
Total shareholder returns % (CAGR)
Total property returns
TCS
FTSE All Share REIT Index
14.1
9.8
10.2
9.1
TCS
MSCI Quarterly Index
3.2
4.9
4.5
4.1
11.2
9.8
9.4
9.3
7.8
5.5
1.3
-1.1
6.3
2.0
1 YEAR
5 YEARS
10 YEARS
RETAIL
RETAIL
WAREHOUSE
SHOPPING
CENTRES
REST OF
ENGLAND
OFFICES
STANDARD
RETAIL
ALL
PROPERTY
12 months ending June 2018
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 is 9.4% (2016: 6.0%). This compared to the MSCI/IPD market return
of 9.3% (2016: 5.5%).
Risk
The Directors have carried out a robust assessment of the principal risks facing the Group, including those that would threaten the
business model, future performance, solvency and liquidity. The risk review is detailed in the Corporate Governance section of this
report.
Mark Dilley
Group Finance Director
40
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Key Performance Indicators
2017
2018
01
DELIVERING RETURNS
TO SHAREHOLDERS
•
•
•
•
NAV per share 359p up 0.6%
TSR over 3 years 7.9% (market 6.1%)
Dividends 11.50p – 57 years unbroken record
Dividend cover 1.2 times
•
•
•
•
NAV per share 384p up 6.9%
TSR over 3 years 2.8% (market 3.2%)
Dividends 11 .75p – 58 years unbroken record
Dividend cover 1.1 times
02
CREATING VALUE
THROUGH DEVELOPMENT
•
Two hotel schemes completed on time and to
budget
•
Merrion House progressing to completion in January
2018 on budget
•
Development schemes are expected to deliver £1.8m
pa extra profit and £10.5m of additional net assets
Passing rent of portfolio at £22.3m and £25.8m of ERV
LFL Rent increased 2.3%
•
Merrion House office completed and fully
occupied on a 25-year lease by Leeds City
Council
•
Burlington House residential scheme under
construction with completion expected in
May 2019
•
New George Street, Leeds venture agreed
with Leeds City Council
•
Passing Rent of portfolio at £23.4m with ERV
of £26.0m increasing YOY
•
LFL Rent increased 4.1%
04
CAPITAL RECYCLING
•
Sales of ex growth properties £19.5m exit yield 7%
ahead of previous valuation
•
£23m re-invested in development schemes
•
Sales of ex growth properties £10.1m all at or
above valuation
•
Purchases £10.6m, including Ducie House in
Manchester for £9m
•
•
•
•
•
•
03
CREATING VALUE
THROUGH ASSET
MANAGEMENT
05
CAR PARKING
06
CONSERVATIVE
FINANCING
Refurbishment and upgrade spend £4m
Profits from refurbished sites £0.5m effective yield
on cost 12.5%
Growth in net revenue 10.3%
Engine Room fully operational handling 5,700 calls
per month
•
•
•
•
•
Interest cover 1.9 times
56% of debt long term (14 yrs) fixed interest
Headroom £26m
Loan to value 49%
Average interest cost 3.9%
•
Income up 5% YOY with Profit increased 3.7%
YOY
•
Technology improvements helping drive
organic growth
•
YPS investment increased to 15% share with
opportunity to increase further
•
•
•
Interest cover 1.9 times
55% of debt long term (13 yrs) fixed interest
Headroom £44.2m after Merrion House
financing
•
Loan to value 45% post Merrion House
financing
•
Average interest cost 3.9%
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
41
Chairman and Chief Executive’s Statement
CitiPark
It has been a year of good organic
growth for CitiPark with revenues up
5.0% and profits up 3.7%. Furthermore,
we have made significant progress
with technological and electric
charging developments which both
improve efficiency and enhance the
customer experience.
Ben Ziff
Managing Director, CitiPark
42
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
CitiPark
Financial
We are pleased with our ability to continue to increase profitability
within the CitiPark business. Despite a reduction in spaces at Ducie
St, Manchester to allow for property development, significantly
increased business rates, National Minimum Wage increases, and
increased repairs and maintenance costs across the branches - we
continue to deliver strong revenue and profit growth for CitiPark.
We have seen strong organic revenue growth in a number of
branches in the year, with key drivers being:
- The completion of Merrion House improving customer
utilisation at our Merrion Centre branch
- The introduction of the CitiPark online pre-booking platform, in
which we developed our own software code to operate this to
best maximise revenues
- Increased and improved marketing, online and social
campaigns to drive further awareness and customer
interaction with CitiPark branches
- Continued third party development and investment in the
Whitehall Road riverside area driving further growth and
profitability at our 7 Whitehall Road branch
In addition, we continue to look for ways to supplement income
in order to improve profitability. For example, we have in place a
new agreement with a storage company at Clipstone St, London,
utilising space not required for parking.
We have worked closely with YourParkingSpace.co.uk (‘YPS’),
where TCS now holds a 15% equity share, with the opportunity to
increase this. This partnership has allowed us to improve revenue
generation and branch occupancy through the YPS consolidation
platform. We continue to work with YPS as they develop plans for
their next phase of growth and expansion, and we remain very
excited about this opportunity.
Technology
We believe that technology can, and will be the key to continually
improving the car parking customer experience, whilst at the same
time improving operational efficiencies. We have demonstrated
this in the past with our introduction of our Engine Room control
centre. Electric vehicle charging is becoming more mainstream
by the day, and is certainly here to stay. We believe that CitiPark
can play an important role in serving the growing demands for
electric vehicle charging. The below summarises some of the key
improvements made in the last year:
- Continued investment in improving our car park management
systems – newly installed at Leeds Dock
- Developed one of the first Skidata ANPR barrierless and cashless
solution in the UK for our Rickmansworth branch
- Anytime pre-booking platform went live in December 2017 for
Merrion and the rest of the portfolio in March 2018
- YPS integration now live with our pre-booking platform –
significantly reducing the workload in the Engine Room and
provides a seamless customer journey to YPS customers
- QR/Digital Season tickets development now underway –
removal of all plastic season tickets with a significant cost saving
to the business
- EV charging infrastructure now available throughout
CitiPark portfolio – recent installations include Whitehall Road,
Rickmansworth and Church, Watford
- Live occupancy data throughout the portfolio – the online
platform developed in house
- Investment in Leeds City Centre’s first EV Rapid Charger at
Merrion Centre
- Investment in voltage optimisation hardware at Merrion Centre
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
43
Chairman and Chief Executive’s Statement
CitiPark
Customer Service
Clearly providing great customer service is an important point of
difference for CitiPark and we continually look for opportunities to
further improve our service:
-
Investment in Zendesk and Zenchat for use in the Engine Room -
we actively track customer interaction and satisfaction with our
customer service staff. Allows us to set KPIs and regularly review
the quality of our work
Going Green
- Micro-site is now live and utilised to highlight our green
credentials, commitment and achievements
- Achieved ‘Go Ultra Low’ business status
- Finalist for ‘Clean Air Initiative of the year’ – emissions based
tariff at Clipstone St, London
- Development of eSeason tickets will significantly reduce our
requirements for plastic cards and associated waste
Continued Investment in our assets
- 4 new lifts in Watford – improving customer experience
and perception of the branches
- Entrance improvement works at Clipstone Street
- Improvement works and installation of our new parking
management system (PMS) at Rickmansworth
Marketing/PR
- National coverage of our Clipstone emissions based tariff in July ‘17
- Campaigns run throughout the year include: CitiFit, Blue
Monday, Ilford Discounted parking, Watford FC, Leeds Dock
discounted parking, pre-booking launch, Easter, April Fools,
Father’s Day, Royal Wedding, World Cup, Clean Air Day, Watford
discounted parking, London Pride
- Significantly increased online engagement through social media
platforms – Twitter, Facebook, Instagram:
Twitter
- Organic impressions increased by 65.6%
- The number of engagements increased by 245.8%
- The number of organic impressions per Tweet increased by 42.1%
- Total followers increased by 50.6%
44
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
CitiPark
Facebook
- The number of posts sent increased by 255%
- Total impressions increased by 193.2%
- Total engagements increased by 19.6%
- Total fans increased by 28.4%
CitiPark website
- May YoY total traffic shows an increase of +40% and an increase
of +42% in “new users” to the site
- MoM total traffic has increased by +21% there is also a +24%
increase of “new users” to the site
- Organic traffic showing an increase of +24% YoY and an increase
of +11% MoM
- Direct showing a MoM increase of +49% and a YoY increase of
+111%
- Referral MoM traffic showing an increase of +14% however we
do see a YoY increase of +10%
We look forward to identifying new and exciting opportunities
over the next 12 months to increase our portfolio and grow the
CitiPark brand.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
45
Corporate Social Responsibility
46
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Corporate Social Responsibility
We remain committed to the local community and charitable causes.
Our designated CSR Coordinator, Charlotte Daisy Ziff, has continued
to expand our grass roots involvement in local charitable and
community organisations, and to encourage engagement amongst
our staff in charitable activities through our employee involvement
programme.
This year, we have continued to partner with a number of charities
with which we have enjoyed longstanding relationships: including
The British Legion, for which we raised £12,000 as part of the annual
Poppy Appeal, LionHeart and The Leeds Jewish Welfare Board.
We are also excited to have undertaken a number of new initiatives
with established partners. For instance, we were very proud to
donate a mini bus to East SILC John Jamieson School in conjunction
with Variety, the Children’s Charity, to work with Autism Angels on
a number of innovative fund and awareness raising efforts during
Autism Awareness Month, and to partner with Candlelighters in
raising £10,000 at our first autism friendly Santa’s Grotto.
This year, we have also begun a new partnership with Leeds Cares,
formerly known as the Leeds Hospital Charitable Foundation, whose
rebranding we helped to launch in the Merrion Centre in May. Our
Chairman and Chief Executive, Edward Ziff, is Chairman and Trustee
of the charity and we have been involved with a number of their
fundraising efforts. Notably, Jacob Ziff, one of our members of staff,
raised £30,000 for the charity when he ran the British 10k 2018 in July.
In addition to our partnerships we have supported a number of
standalone initiatives: we were the main sponsor of the Physcap
Three Peaks Challenge, we raised money for World Cancer Day and
we hosted a number of events in the Merrion Centre and Urban
Exchange in support of Leeds Pride.
In total, charitable donations by the company amounted to £144,500
(£125,000 in 2016-17), around £28,500 of which we raised through
events, collections and competitions in the Merrion Centre alone.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
47
Corporate Social Responsibility
A key element of our work in the local community remains our
partnerships with local schools and children’s charities. As well
as our continued support of Child Friendly Leeds, with which
we ran a number of fun activities for children during the
summer holidays, we worked with the social enterprise The
Ahead Partnership on a project that asked school children to
design an event in the Merrion Centre that would entice young
people to visit. The winning school collected a cash prize.
It is our firm belief that by supporting children and young
adults in the local community, we can ensure a brighter
future for the city of Leeds. We are therefore actively seeking
further partnerships and opportunities to further our work
in this area and already have some exciting initiatives in the
pipeline, including our sponsorship of First Give, a charity that
encourages school children to give their time and energy to
charitable and community projects.
As the promotion of renewable energy and clean technology
has become an increasing focus for our business, we have
also sought to develop our charity work in this area. This year,
we marked World Clean Air Day by running a project with local
schools. In partnership with Nissan, we asked school children to
design a new electric vehicle with the winning designer being
given the opportunity to take a market leading electric car for a spin.
Finally, although not the aim of our charity involvement and
community participation, we are always delighted when the
work of our people in this regard is recognised: in recognition
not only of his achievements in business and his tireless
charitable work, but in particular for his prominent role in local
community life, Edward Ziff was appointed a Deputy Lieutenant
for West Yorkshire.
48
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Corporate Social Responsibility
Human Rights
We have a relatively small team in our Head Office and we pride
ourselves on our treatment of our employees. However, we do
not see a role for the company in affecting wider human rights.
Emissions
The occupancy rate of our properties is 95% and therefore our
tenants effectively control the emissions from our properties.
We occupy a small part of the Merrion Centre and the top two
floors of Duke Street, London for our own use and hence our
emissions are not significant.
The CitiPark subsidiary business operates a fleet of electric
hybrid vehicles for the management of its branch network.
These vehicles emit 39g/km of CO2.
Health and Safety
We are committed to achieving a safe and secure working
environment both in our own office locations and in our
properties, particularly those where we maintain an on-site
management function such as the Merrion Centre. We have
an established Group health and safety policy, which is
approved at Board level annually, and we review health and
safety issues and incidents at every Board meeting.
Our operational teams have clear health and safety objectives
and review procedures regularly taking action where necessary.
Richard Lewis is the Board member with this responsibility and
he is supported by specialist external advisers.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
49
Environmental Report
This sustainability report focuses on the Merrion Centre. As our
largest and most complicated asset, the Merrion Centre requires
TCS to drive and manage energy usage and sustainability in
a way not required in the majority of the rest of our portfolio.
However as covered in the CitiPark section of this report we are
heavily focused on sustainable energy usage with key actions
including:
• Taking considerable steps forward in increasing the provision
of EV charging for customers electric vehicles
• Having three of our own Solar Photovoltaic Farms in Leeds
and Manchester which in the previous year on their own
avoided over 500 tonnes of Carbon Dioxide
• CitiPark being awarded “Go Ultra Low” company status in
December 2017 recognising CitiPark’s commitment to EV
vehicles within their own fleet
• CitiPark having an innovative emission-based parking tariff
currently being trialled in one of our London branches
This Report does not include metrics related to the rest of the
estate. The majority of our estate is let to third party tenants
who are responsible for the generation of, and reporting on,
their environmental footprint. Therefore, other than with the
Merrion Centre, the residual footprint is not deemed to be
material and is not included within this report.
The Merrion Centre:
Waste Initiative
Further to the great work started last year on achieving zero
waste to landfill, we are pleased to confirm this is now being
achieved. Our close work with service partners and stakeholders
has seen the waste strategy evolve into a tailor-made service
that benefits all parties and 100% of our waste is either recycled
or sent to an Energy Recovery Facility (ERF).
Instrumental to achieving our goals:
• Liaison with stakeholders to ensure appropriate segregation
•
Introduction of Recycling Points
• Reduction of General Waste Containers
• Migration to a Service Partner with greater innovation on
waste management
In summary, over the past 12 months the Merrion Centre has
produced 552 tonnes of waste, 206 tonnes of that waste was
recycled/recovered, which equates to 88%. However, from
April 2018 100% of waste was diverted from landfill.
50
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Sustainability Projects
We continue to improve the Merrion Centre’s sustainability
by implementing a number of measures including:
• Roofing upgrade – a programme is in place to install a
Europolymers insulation system across all of our roofs
over the next five years. Currently we have upgraded five
of our existing roofs, the result being improvements
against both energy usage and meeting our EPC targets
• Power distribution – a scheme is being developed that
will assist in making the Centre’s power distribution more
aligned with the latest technology
• A survey of the current network has determined that
efficiencies could be achieved by replacing or reorganising
how we deliver power around the Centre – new initiatives
based around this scheme include the installation of a power
factor corrector and the provision of supplies to introduce
further EV charging
• As part of our ongoing drive towards energy saving initiatives
we continue to install LED lighting, including large sections of
the Centre lighting and Office common areas
• External lighting to the Service Yard has been upgraded to
both LED and time sensitive lighting. This provides
savings on energy and has been installed with consideration
to third parties
• Sustainable Cleaning System – a review of the Merrion
Centre cleaning protocols was undertaken and a number
of initiatives identified to improve our sustainable impact,
including:
• Migrating our cleaning system onto a microfibre system,
reducing cleaning product usage
• A cleaning product has been sourced that not only reduces
the number of cleaning chemicals on site, but is a non-irritant,
non-hazardous and 100% biodegradable
• Procurement - greater focus has been applied to the Merrion
Centre’s supply chain, with focus on consideration to
the environment. A main consumable supplier has been
sourced based on their eco friendly product range, especially
materials from ethical and sustainable sources
• Toilet refurbishment programme – Our toilet upgrade
continues taking into account where we can introduce
sustainable initiatives. The next phase will include the
installation of Encore Cisterns which draws two thirds of its
water supply from condensate pumps in the air conditioning
and thereby reducing our mains water consumption. The
system is BREEAM & LEED compliant. We continue to operate
an Ecocap system in the Town Centre House wc’s, which
saves water and money whilst protecting the environment
and is a fully biodegradable product. From using the Ecocap
system in Town Centre House, in the past year we have saved
approximately 373,220 litres of water
Utilities
Through the introduction of our initiatives, last year the Merrion
Centre was able to save £23,400, which equates to a 15%
reduction on electrical consumption for our tenants compared
with the previous year. Our gas and water consumption
continue to be driven by our previous initiatives and will be
further enhanced when we have completed the install of the
new Encore Cisterns.
Locations of Property Portfolio
Edinburgh
Shandwick Place
Glasgow City Region
Bath Street
Buchanan Street
Byres Road
King Street, Kilmarnock
Tannochside Business Park, Uddingston
Main Street, Milngavie
Waitrose, Milngavie
Gordon Street*
Ilford
CitiPark: Clements Road
Leeds City Region
CitiPark: Leeds Dock
CitiPark: Merrion Centre
CitiPark: Whitehall Road
Thorntons Chambers, Leeds
The Merrion Centre, Leeds
TCS Head Office, Town Centre House
Wade House
Merrion House
Central Road
Vicar Lane
Buckley House
Waterside Business Park
Premier Inn, Whitehall Road
ibis Styles Hotel
West Park, Harrogate
The Cube, Albion Street *
London
CitiPark: Bell Street
CitiPark: Clipstone Street
Cheapside, Wood Green
Duke Street
Holloway Road
Kilburn High Road
Chiswick High Road *
Manchester City Region
CitiPark: Dale Street
CitiPark: Ducie Street
CitiPark: Port Street
CitiPark: Tariff Street
Dale Street
Carver’s Warehouse
Belgravia Living – Burlington House
Abingdon Street Market, Blackpool
Urban Exchange
Ducie House
Rochdale Retail Park
Rickmansworth
CitiPark: Rickmansworth
Watford
CitiPark: Church
CitiPark: Gade
CitiPark: Sutton
*
Properties acquired after 30 June 2018 and not
on the balance sheet at 30 June 2018
Property Valuation Reconciliation
EXTERNALLY VALUED BY CB RICHARD ELLIS
EXTERNALLY VALUED BY JONES LANG LASALLE
ACQUISITIONS RECOGNISED AT COST
INVESTMENT PROPERTIES VALUED BY THE PROPERTY DIRECTOR
FINANCE LEASE OBLIGATIONS CAPITALISED
LEASEHOLD IMPROVEMENTS
INVESTMENT
PROPERTIES
£000
FREEHOLD & LEASE
PROPERTIES
£000
199,375
126,060
9,483
251
1,142
-
336,311
-
16,300
-
-
3,302
3,822
23,424
The CBRE Valuation Report amalgamates valuations of investment properties and joint venture properties as follows:
INCLUDED WITHIN INVESTMENT PROPERTIES
INCLUDED WITHIN JOINT VENTURES
VALUATION PER VALUERS REPORT
199,375
34,700
234,075
TOTAL
£000
199,375
142,360
251
251
4,444
3,822
359,734
199,375
34,700
234,075
The Jones Lang Lasalle Valuation Report includes the valuation of a property sold before 30 June 2018 and therefore not in the
Investment Property valuation at 30 June 2018 as follows:
INCLUDED IN YEAR END BALANCE SHEET
PRINCES STREET PROPERTY SOLD JUNE 2018
VALUATION PER VALUERS REPORT
142,360
3,300
145,660
142,360
3,300
145,660
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
51
Chairman and Chief Executive’s Statement
The Board
Edward Ziff OBE DL (58)
Chairman and Chief Executive
Richard Lewis (63) FRICS
Property Director
Edward Ziff joined the Company in 1981 before being appointed
to the Board in 1985, becoming Managing Director in 1983, Chief
Executive in 2001 and succeeded his father and founder of the
Company as Chairman in 2004. Edward is a life-long supporter
of Leeds the city and plays an active role in the community.
A passionate family man, Edward brings a strong pastoral care
aspect to the business, encouraging individual leadership and
an active role in the community through local charities. He is
Chair and Trustee of Leeds Cares formally the Leeds Hospital
Charitable Foundation.
In 2013 he was awarded an Honorary Doctorate of Business
Administration by Leeds Beckett University. Edward was
awarded an OBE for services to the Leeds community and
economy in the 2017 Queen’s birthday honours list and more
recently, in July 2018 he was appointed a Deputy Lieutenant
for the County of West Yorkshire.
Richard joined TCS in April 2000 to rejuvenate the development
side of the business and was appointed to the Board in 2001.
Following a restructuring, he took over responsibility for the
Group property portfolio becoming Property Director in 2008.
Richard is a firm believer in the need to deliver quality and
sustainable schemes and is an advocate of public/private
partnering. Richard is a Board member of CityCo, a company
that strives to make Manchester city centre a better place
to work, visit and live. Richard has been presented with the
Lifetime Achievement Awards at the Yorkshire Property Awards
due to his work on some of the biggest city schemes in Leeds.
Mark Dilley (46) ACMA
Group Finance Director
Ben Ziff (31)
Managing Director CitiPark and TCS Energy
Mark joined the Board on 10 July 2017 from Asda Stores Limited
(part of Walmart) where he held a number of senior finance
roles over fourteen years, including most recently as Vice
President, Retail and Property Finance where he was responsible
for all Asda stores and distribution centres as well as the new
store acquisitions. Prior to Asda, Mark held senior finance
positions at JP Morgan in London for six years, and began his
career at Unilever. Mark is a graduate of the University of Oxford
and is a qualified accountant.
Ben joined TCS in 2008, becoming CitiPark Managing Director
in 2009. In September 2015, Ben was appointed to the
Board of Directors. In 2013, he successfully led a team in the
redevelopment of the Merrion Centre multi-storey car park,
which turned a 1960’s structure into a state-of-the-art facility
featuring cutting edge systems; Skidata, ApplePay, Contactless
Payment and ANPR technologies. Since 2014, Ben has led the
acquisitions programme which has doubled the size of the
car park division. Ben’s personal interest in combining tech,
renewable energy and Electric Vehicle Charging led to the
development of TCS Energy in 2012 which pursues renewable
energy production and storage. Ben has ensured the Group
uses cutting edge technology to revolutionise and maximise
its operations, including guiding the board’s financial investment
of YourParkingSpace.co.uk.
52
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
The Non-Executive Board
Michael Ziff (65) Hon DUniv (Brad)
Nominations Committee
Dr Michael Ziff was appointed to the Board in July 2004. He is a
Director of W Barratt & Co Ltd, Transworld Business Advisors UK
Ltd and Mr Arkwrights Emporium Franchise Ltd. He is President
of Maccabi GB and a member of the International Board of
Trustees of Maccabi World Union. He is also President of UK
Israel Business.
Ian Marcus (59) FRICS
Remuneration Committee, Nominations Committee
and Audit Committee
Ian Marcus was appointed to the Board on 1 January 2015.
He spent over 32 years as an investment banker latterly at Credit
Suisse. Ian is Trustee of The Princes Foundation, a Crown Estate
Commissioner and a member of Redevco’s Advisory Board.
Senior Advisor to Eastdil Secured and the Senior Independent
Director for Secure Income REIT. He is a former chairman of
the Bank of England Commercial Property Forum and a Past
President of the British Property Federation.
Paul Huberman (57) FCA CTA
Remuneration Committee, Nominations Committee
and Audit Committee
Paul Huberman was appointed a Director on 1 January 2015.
He brings over 30 years’ experience in the property and
finance sector. Paul was previously Finance Director at 3 quoted
companies. He is currently a Non-Executive Director of Galliard
Homes Limited, a London housebuilder, a Non-Executive Director
at GRIT Real Estate Income Group Ltd, a pan-African property
investment company listed on the London, Johannesburg and
Mauritian Stock Exchanges, a Non-Executive Director at LiFE At
Ltd, a multi-branch London based residential estate agency and
a Non-Executive Director at a privately-owned property group.
Until its recent MBO, Paul was a Non-Executive Director at JCRA
Group Ltd, the holding company of JC Rathbone Associates Ltd,
the independent advisors on interest rate risk management,
debt finance and foreign exchange exposure.
Jeremy Collins (58)
Jeremy was appointed to the Board on 1st February 2018 and
has over 35 years’ experience in retail property development
and management. In addition to his TCS responsibility Jeremy
is Property Director and Executive Board member at Fenwick.
Jeremy spent 15 years at John Lewis including as Property
Director until 2018. Previous experience includes working for
Lend Lease, MEPC and Grosvenor Square Properties. Jeremy’s
first job was at Wirral Metropolitan Borough Council, which gave
him an insight into the workings of local authorities and began
his passion for urban regeneration. He graduated from the
University of Reading, qualified as a chartered surveyor, and
is a Past President of the British Council of Shopping Centres.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
53
Chairman and Chief Executive’s Statement
Valuers Report
The Directors
Town Centre Securities Plc
Town Centre House
The Merrion Centre
Leeds
LS2 8LY
30 June 2018
Dear Sirs
Town Centre Securities Plc – Property Portfolio Valuation – 30 June 2018
In accordance with your written instructions we have inspected and valued the various freehold and leasehold properties held
by Town Centre Securities Plc and its various subsidiary companies, for year end accounts purposes as at 30 June 2018.
We confirm that these valuations have been prepared in accordance with the RICS Valuation – Global Standards 2017, published
by the Royal Institution of Chartered Surveyors and the RICS Valuation - Professional Standards UK January 2014 (revised April
2015) (the RICS Red Book) on the basis of Market Value. No allowances have been made for expenses of realisation or for taxation
that might arise in the event of a disposal, deemed or otherwise. All rental and capital values stated are exclusive of Value Added
Tax. Each property has been considered as if free and clear of all mortgages or other charges which may have been secured
thereon. The interests have been valued subject to and with the benefit of any lettings which have been disclosed.
Having regard to the foregoing we are of the opinion that the aggregate Market Value of the freehold and leasehold interests
owned by the Group and valued by JLL, as at 30 June 2018, subject to and with the benefit of the tenancies currently subsisting,
is:
Freehold
£100,810,000
Long leasehold £44,850,000
Total
£145,660,000
In accordance with our standard practice, we confirm that our valuations have been prepared for Town Centre Securities Plc
and for the purpose to which this certificate refers. No responsibility is accepted to any third party in respect of the information
or advice contained herein, except in circumstances where our prior written approval has been granted.
Yours faithfully
Richard W Longton MRICS
Director
For and on behalf of Jones Lang LaSalle Limited
54
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Chairman and Chief Executive’s Statement
Valuers Report
The Directors
Town Centre Securities Plc
Town Centre House
The Merrion Centre
Leeds
LS2 8LY
28 July 2018
Dear Sirs
Town Centre Securities Plc – 30 June 2018 valuations
In accordance with your written instructions we have inspected and valued the following properties held by
Town Centre Securities Plc and its various subsidiary companies for accounts purposes as at 30 June 2018:
The Merrion Centre, Leeds;
The Merrion Hotel, Leeds;
Merrion House, Leeds;
Homebase, Main Street, Milngavie;
Waitrose, Milngavie;
363-381 Byres Road and 9-19 Grosvenor Lane, Glasgow;
Phases 1 and 2, Central Retail Park, Rochdale;
6 Duke Street, London;
106A Kilburn High Road, London;
9 Cheapside, 9-10 Cheapside, and 12-13 Cheapside, Wood Green;
448 Holloway Road, London.
The valuations have been prepared in accordance with the RICS Valuation - Global Standards 2017 - including the International
Valuation Standards and the RICS Valuation - Professional Standards UK January 2014 (revised April 2015) (the Red Book) and
should be read in conjunction with our Valuation Report as at 30 June 2018 on behalf of Town Centre Securities Plc.
The valuations have been prepared in our capacity as external valuers, on the basis of Fair Value. No allowance has been made for
expenses of realisation or for taxation that might arise in the event of a disposal, deemed or otherwise and the capital value stated
is exclusive of Value Added Tax.
The properties have been considered as if free and clear of all mortgages or other charges which may have been secured thereon.
The properties have been valued subject to and with the benefit of any lettings which have been disclosed.
Having regard to the foregoing we are of the opinion that the Fair Value of the freehold interests in the above properties owned
by the Group, as at 30 June 2018, subject to and with the benefit of the tenancies currently subsisting, is:
£234,075,000 (TWO HUNDRED AND THIRTY FOUR MILLION AND SEVENTY FIVE THOUSAND POUNDS)
In accordance with our standard practice, we confirm that our valuations have been prepared for Town Centre Securities Plc
and for the purpose to which this certificate refers. No responsibility is accepted to any third party in respect of the information
or advice contained herein, except in circumstances where our prior written approval has been granted.
Yours faithfully
Yours faithfully
Max Field MRICS
For and on behalf of CBRE Limited
RICS approved valuer
Director
Michael Brodtman FRICS
For and on behalf of CBRE Limited
RICS approved valuer
Executive Director
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
55
Town Centre Securities Plc became
a listed company 58 years ago and
has throughout its history provided
superior returns to shareholders.
As Chairman, I take my responsibilities
for ensuring strong corporate
governance very seriously.
We have always had a strong independent presence of Non-
Executive Directors on our Board and those Directors have
provided invaluable support and guidance for me and my fellow
Executives having challenged and tested our decisions and
strategies. Following the retirement of John Nettleton last year,
I was pleased to announce the appointment of Jeremy Collins,
formally of John Lewis, to the Board as an Independent Non-
Executive Director.
We try wherever possible to comply with the various rules
which apply to our Corporate Governance.
Those rules are primarily focussed on much bigger companies
than ours and sometimes we have to make pragmatic
compromises because of our size and the nature of our
shareholder base. Those compromises are always made
using common sense and with due consideration of the best
interests of all shareholders. That said, we recognise the need
to keep up with required changes in the reporting around
Corporate Governance, and we continue to increase our
level of disclosure. With the appointment of Link Company
Matters Limited as Company Secretary and the use of other
external experts we have sought to strengthen our governance
processes and reporting this year. This will be developed further
during the year as the Board looks at how it will implement the
new UK Corporate Governance Code.
With the continued evolution of our Board, both at the Executive
and Non-Executive level I continue to believe that our Board is
one of the most experienced in our sector and should provide
investors with absolute confidence that their interests are in safe
hands.
Edward Ziff OBE DL
Chairman and Chief Executive
26 September 2018
Corporate Governance
56
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Corporate Governance
Board of Directors
Details of the Board of Directors are given on pages 52 to 53
of this report. At the end of the year the Board comprised four
Non-Executive Directors and four Executive Directors, including
the Chairman and Chief Executive.
The key roles and responsibilities are as follows:
Chairman:
Edward Ziff OBE DL
Leadership of the Board and the Company
Successful achievement of objectives and execution of strategy
Responsible for identifying and recruiting Board members
Ensure long-term business sustainability
Management and implementation of Board decisions
Property Director:
Richard Lewis
Identify and propose commercial acquisitions and/or disposals
Manage development programme
Propose major projects or bids
Manage commercial expenditure
Manage marketing activity of the Company
Group Finance Director:
Mark Dilley
Provide advice and guidance on financial strategy
Ensure the Group’s financial commitments, targets and
obligations are met
Budget setting and performance management
Ensure compliance with statutory regulations
Assist with shareholder communications
Oversee all banking and debt facilities
Board responsibility for IT and data security
Managing Director:
Ben Ziff
Provide advice and guidance on car parking strategy
Implement agreed business plan for CitiPark
Identify and recruit CitiPark senior management team
Identify and propose car park acquisitions and/or disposals
Identify and lead relationship with Property and Car Park related
technology investments
Our four Non-Executive Directors bring considerable experience
and expertise to the work of the Board and provide a significant
independent view to our deliberations. They regularly challenge
and question the conclusions of the Executive and have a
particular focus on the interests of the non-family shareholders.
Under the UK Corporate Governance Code, one of the
Non-Executive Directors, Michael Ziff, is not considered to be
independent, due to his shareholding and his close family ties.
The Board consider that he brings extensive experience and
expertise and provides an invaluable contribution to the work
of the Board. The remaining three Non-Executive Directors are
considered to be independent.
Additionally, under the Code, the Company is required to
identify a Senior Independent Non-Executive Director. Ian
Marcus and Paul Huberman were appointed on the same day
and, while they have different skills and experience neither is
senior to the other. Therefore, for the purpose of compliance
with the Code, the position will alternate on an annual basis –
from the date of this report until the next, it will be Ian Marcus.
The full Board met eight times in the year and the record of
Directors’ attendance at the Board meetings is set out overleaf.
Additionally, the Board meets once a year to review the strategic
direction of the Group. The Board manages overall control of
the Group’s affairs by the schedule of matters reserved for its
decision. These include the approval of Financial Statements,
business plans, all major acquisitions and disposals, risk
management strategy and treasury decisions.
The Board has established two divisional Boards, the Property
Review Board and CitiPark Board, which comprise Executive
Directors and senior managers and each met ten times during
the year. The Board has delegated responsibility to the divisional
Boards for assisting the Executive Directors on measures
relating to the Board’s strategies and policies, operational
management and the implementation of the systems of internal
control, within agreed parameters.
There is an agreed procedure for Directors to take independent
professional advice at the Company’s expense, if necessary, in
the performance of their duties. This is in addition to the access
which every Director has to the Company Secretary. The Group
maintains liability insurance on behalf of Directors and Officers
of the Company.
On appointment, the Directors are provided with information
about the Group’s operations, the role of the Board, the
Group’s corporate governance policies and the latest financial
information. Additionally, upon appointment, Directors are
provided with induction including training in respect of all their
responsibilities in accordance with the UK regulatory regime.
Subsequent training is also undertaken as appropriate.
The appointment and removal of Directors is governed by
the Company’s Articles of Association, the UK Corporate
Governance Code and the Companies Act 2006 and other
related legislation. The Articles are available on application to
the Company Secretary at the Company’s registered office.
The Chairman and Chief Executive meets with the Non-
Executive Directors at least once a year without the other
Executive Directors present to discuss the performance of
the Board and to appraise the Chairman and Chief Executive’s
performance.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
57
Corporate Governance
Performance of the Board
The effectiveness of the Board, its committees and Directors were reviewed
during the year as part of the September Board proceedings. Given the size
of the Board and nature of the business the Directors performed an internal
board evaluation.
The evaluation of the Board and its committees, which did not highlight any
areas of concern, considered:
• The Directors’ understanding of the roles and responsibilities of the Board
and of its committees
• The structure of the Group, including succession planning in keys areas
of the business
• The Board’s understanding of the Group’s activities and the appropriateness
of its strategic plan
• Whether Board meetings effectively monitor and evaluate progress towards
strategic goals
• Board composition and the involvement of each Director in the business
of the Group
• The overall effectiveness of the Board in the provision of the necessary
experience required to direct the business efficiently; and
Committees of the Board
Nominations Committee
EDWARD ZIFF (CHAIR)
IAN MARCUS
PAUL HUBERMAN
JEREMY COLLINS
MICHAEL ZIFF
Audit Committee
PAUL HUBERMAN (CHAIR)
IAN MARCUS
JEREMY COLLINS
Remuneration Committee
IAN MARCUS (CHAIR)
PAUL HUBERMAN
JEREMY COLLINS
• The effectiveness of the Board committees in performing their roles
Attendance at Board Meetings
The evaluation of the performance of individual Directors was undertaken by
the Chairman and Chief Executive and the performance of the Chairman and
Chief Executive was evaluated by the Non-Executive Directors led by the Senior
Non-Executive Director, taking into account the views of the Executive Directors.
EDWARD ZIFF
MARK DILLEY
RICHARD LEWIS
BEN ZIFF
DUNCAN SYERS
MICHAEL ZIFF
IAN MARCUS
PAUL HUBERMAN
JEREMY COLLINS
JOHN NETTLETON
8/8
8/8
8/8
8/8
1/1
8/8
8/8
8/8
5/5
3/3
Attendance at Audit Committee Meetings
PAUL HUBERMAN
IAN MARCUS
JEREMY COLLINS
JOHN NETTLETON
2/2
2/2
1/1
1/1
Premier Inn, Whitehall Road, Leeds
58
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Corporate Governance
Statement of compliance with the UK Corporate
Governance Code
The UK Corporate Governance Code (‘the Code’) can be
found on the FRC’s website: www.frc.org.uk. Under the Code,
the Board is required to make a number of statements. These
statements are set out below:
1. Compliance with the Code
As a Company listed on the London Stock Exchange TCS Plc is
subject to the requirements of the Code. The Board is required
to comply with the Code and, where it does not, explain the
reasons for non-compliance.
Statement of compliance with the Code
The Board has considered the principles and provisions of the
Code, published by the Financial Reporting Council (‘FRC’).
The Code contains five main principles: leadership,
effectiveness, accountability, remuneration and relations with
shareholders. The Board of Directors has complied with the
Code throughout the year except for the following matters:
Explanation of departures from the Code
Provision A.2.1
The roles of the Chairman and Chief Executive should not
be exercised by the same individual. EM Ziff became Chief
Executive in 2001 and succeeded his father and founder of
the Company as Chairman in 2004. The Board unanimously
agreed that, for cost efficiency, that taking on both roles would
be in the Company’s best interests. The Board is focused on
the commercial success of the Company and believes that
continuing the combined position of Chairman and Chief
Executive is the best way to achieve this.
EM Ziff was offered for reappointment at the 2016 Annual
General Meeting (‘2016 AGM’), with his appointment being
approved by 91% of shareholders.
Provision B.7.1
All Directors of FTSE 350 companies should be subject to
annual election by shareholders. Although the Company is
outside the FTSE 350, the Chairman and Chief Executive
and the Executive Directors voluntarily offer themselves for
retirement by rotation at the AGM. Details of the re-election
proposed are provided in the Notice of AGM on pages 119 to 120.
Provision D.1.5
Notice or contract periods should be set at one year or less.
The Chairman and Chief Executive has a service contract with
a notice period greater than one year.
Given the long term knowledge and experience of the
Chairman and Chief Executive, the Board believes the longer
notice period continues to be appropriate.
2. Going Concern
The Board is required to confirm that the Group has adequate
resources to continue in operation for at least 12 months.
The Directors are satisfied that the Group has adequate
resources to continue to be operational as a going concern
for the foreseeable future and therefore have adopted the
going concern basis in preparing the Group’s 2018 financial
statements. More details can be found in the Risk Report on
page 64 and the Director’s Report on page 79.
3. Viability Statement
The Board is required to assess the viability of the Company
taking into account the current position and the potential
impact of the principal risks and uncertainties facing the
business.
The Directors have a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities as
they fall due over the next three years. Our Viability Statement
can be found in the Risk Report on page 70.
4. Principal Risks facing the Group
The Board is required to confirm that a robust assessment of
the principal risks facing the Company has been carried out
and should describe those risks and explain how they are being
managed or mitigated.
A robust assessment of the principal risks facing the Company
was undertaken during the year, including those that would
threaten its business model, future performance, solvency
or liquidity. These risks and how they are being managed or
mitigated can be found in the Risk Report starting on page 64.
5. Risk Management and Internal Control
The Board is required to monitor the Company’s risk
management and internal control systems and, at least annually,
carry out a review of their effectiveness.
The Board conducted a review of the effectiveness of the
systems of risk management and internal control during the
year, and considers that there is a sound system in place. More
detail can be found in the Audit Committee Report on page 62.
6. Fair, balanced and understandable
The Board should confirm that it considers the Annual Report,
taken as a whole, to be fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Company’s position and performance, business model and
strategy.
The Directors consider, to the best of each person’s knowledge
and belief, that the Annual Report, taken as a whole is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position
and performance, business model and strategy. This is
considered in the Audit Committee Report on page 62 and the
Statement of Director’s Responsibilities on page 80.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
59
Corporate Governance
Relations with Shareholders
The Board is committed to maintaining good communications with shareholders. The Chairman and Chief Executive and Finance
Director maintain a dialogue with institutional shareholders and analysts immediately after the announcement of the half year and
full year results. Their views are reported to the Board as appropriate. The Company also encourages communications with private
shareholders throughout the year and welcomes their participation at shareholder meetings.
The principal communication with private shareholders is through the Annual Report and Accounts, the Half Year report and the
Annual General Meeting (AGM). The Notice of AGM and related papers are communicated to shareholders at least 20 working days
before the meeting to give shareholders sufficient time to consider the business of the meeting. All Directors attend the AGM and
shareholders are given the opportunity to ask questions of the Board and meet all the Directors informally after the meeting.
Separate resolutions are proposed for each item of business and the proxy votes for, against and withheld are announced.
An announcement confirming resolutions passed at the AGM is made through the London Stock Exchange immediately after
the meeting. The Senior Independent Director is available to shareholders at all times if they have concerns they wish to raise.
The Group has a comprehensive website on which up to date information is available to all shareholders and potential investors
(www.tcs-plc.co.uk).
Merrion House, Leeds
60
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Corporate Governance
Nominations Committee Report
Dear Shareholder,
Following the retirement from
the Board of John Nettleton,
I am pleased to have taken
over as Chairman of the
Nominations Committee. In
addition to my appointment our
newest Non-Executive Director,
Jeremy Collins has joined the
Committee. Therefore, together
with Ian Marcus and Paul
Huberman, the Committee has
three independent members plus myself and Michael Ziff.
The Committee meets when circumstances require it to do so.
Responsibilities of the Nominations Committee
The Committee is responsible for the regular review of the structure,
size and composition (including the skills, knowledge, independence
and experience) of the Board and it makes recommendations to the
Board with regard to any changes.
The Committee also considers succession planning for the Executive
Board in the course of its work, taking into account the challenges and
opportunities being faced and the skills and expertise required.
Work of the Committee during the year
The Committee undertook two main activities in the year. Firstly, the
appointment of Jeremy Collins as an independent Non-Executive
Director. Secondly, the appointment of Lynda Shillaw as Property
Director to succeed Richard Lewis who had informed the Board of
his intention to retire.
Jeremy formally joined the Board in February 2018, and his knowledge
of the retail environment has already been invaluable to the Board.
The Board recognised the benefits to the Company of additional retail
experience. With Jeremy, and his experience, already known to some
members of the Board, no external consultancy firm was used. He
spent time with all members of the Board and his appointment was
subsequently approved. In replacement of Richard Lewis a detailed
search process was undertaken with support of Thomas Cole Kinder
the executive search firm. Thomas Cole Kinder had previously been
used in the appointment of Mark Dilley as Group Finance Director.
We were delighted as a Board to appoint someone of Lynda’s
experience and look forward to welcoming her to the Company.
Diversity
The Board embraces the supporting principles on diversity in its
broadest sense enshrined in the UK Corporate Governance Code.
The Board is committed to ensuring an appropriate balance of skills,
knowledge and experience on its board. Diversity is a vital part of the
continued assessment and enhancement of board composition, and
the Board recognises the benefits of diversity amongst its members,
and the senior team.
All Board appointments are made on merit and we are pleased that
the appointment of Lynda Shillaw as Property Director broadens the
Board from the perspective of diversity in addition to the significant
experience that Lynda brings to the Company.
With Lynda’s appointment, the Board will consist of seven men and
one woman. At the Senior Management level within the business,
below the Board, there are five men and one woman.
Edward Ziff OBE DL
Chairman of Nominations Committee
Carvers Warehouse, Manchester
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
61
Corporate Governance
Audit Committee Report
Dear Shareholder,
As Chairman of the Audit
Committee (‘the Committee’) I
am pleased to present the report
of the Committee for the year
ended 30 June 2018.
The Audit Committee consists
of three of the Board’s
Independent Non-Executive
Directors. As Chairman of the
Audit Committee I am a qualified
Chartered Accountant and
Paul Huberman
Chairman, Audit Committee
experienced senior finance executive having been Finance
Director of three different listed companies, and more recently
as a Non-Executive Director at Galliard Homes and Grit Real
Estate Income Group. Ian Marcus has a breadth of experience
in Investment Banking, and as a Non-Executive Director with
past Audit Committee responsibilities. Jeremy Collins joined
the Committee upon his appointment to the Board earlier this
year. Jeremy was, until recently, Property Director at John Lewis.
Executive Directors, including Edward Ziff and Mark Dilley, join
Committee meetings by invitation. The Committee meets alone with
the External Auditor without Executives present at least twice a year.
The Audit Committee carries out an annual review of its Terms
of Reference following which it recommended to the Board that
the Terms of Reference were amended in order to reflect best
practice. This is available to view on the TCS website.
Responsibilities
The Committee’s role includes assisting the Board to
discharge its responsibilities and duties for financial reporting,
internal control, management of risk and the appointment,
reappointment and remuneration of an independent external
Auditor. The Committee is responsible for reviewing the scope,
terms of engagement and results of the audit work and the
effectiveness of the Auditor. The Committee is responsible
for monitoring the integrity of the financial statements,
announcements and judgements, as well as reviewing the
Company’s internal financial controls. The Committee also
satisfies itself of the Auditor’s independence and objectivity,
reviews and approves the level of non-audit services, and the
Group’s arrangements on whistleblowing. Any matter the Committee
considers needs action or improvement is reported to the Board.
Report on the Committee’s activities during the year
During the year, the Committee met two times and discharged
its responsibilities by:
• Reviewing the Group’s draft annual report and financial
statements and its interim results statement prior to
discussion and approval by the Board
• Reviewing the continuing appropriateness of the Group’s
accounting policies
• Reviewing BDO’s plan for the 2018 Group audit and approving
their terms of engagement and proposed fees
• Reviewing reports prepared by management on internal
control issues as necessary
• Considering the effectiveness, objectivity and independence
of BDO as external Auditor and recommending to the Board
their reappointment
• Reviewing management’s biannual risk review report and
the effectiveness of the material financial, operational and
compliance controls that help mitigate the key risks
62
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
• Reviewing the effectiveness of the Group’s whistleblowing
policy
• Monitored the level of non-audit fees and the scope of
non-audit services provided in the year by the Auditor
• Reviewing the IT audit undertaken to review IT
infrastructure and security
• Considering management’s approach to the Viability
Statement in the 2018 Annual Report
• Reviewing and updating the terms of reference of the
Audit Committee
• Carrying out an annual performance evaluation exercise and
noting the satisfactory operation of the Committee
Significant issues considered in relation to the financial
statements
During the year, the Committee considered key accounting
matters and judgements in respect of the financial statements
relating to:
•
Investment Property Valuation - The Committee reviewed
the Reports of the Independent Valuers JLL and CBRE
• Treatment of property sales and acquisitions in the year
including the sales of 1-23 Shandwick Place and
Princes Street, and the acquisition of Ducie House -
The Committee agreed with the approach of these
transactions being recognised in the reported year given
contracts have been exchanged and were binding,
even where completion had not occurred
• The additional investment in YourParkingSpace, and the
likely future accounting treatment required to meet
fair value requirements - The Committee agreed that the
current valuation reflects fair value, although this needs to
be kept under regular review
• Going concern and covenant compliance - The Committee
reviewed and approved the Going Concern analysis
• Viability Statement and appropriateness of the period of the
statement - The Committee reviewed and agreed the longer
term viability analysis and recommended timeframe
•
Income recognition accounting treatment relating to
the disposal of Brownsfield Mill - The Committee reviewed
the options considered by management for income
recognition and approved the approach of recognising
income based on a risk weighted assessment of units
sold and units under offer
• Accounting treatment in relation to Merrion House Financing -
The Committee reviewed the analysis provided by management
with the advice of third parties, and approved the approach of
treating the transaction as a loan for accounting purposes
Fair, balanced and understandable
In its review the Audit Committee has determined that the
2018 Annual Report, taken as a whole, is fair, balanced and
understandable and provides shareholders with the necessary
information to assess the Company’s position and performance,
business model and strategy.
Risk Management and Internal Controls
Provision C.2.3 of the UK Corporate Governance Code
provides that the Directors should monitor the company’s risk
management and internal control systems and, at least annually,
Corporate Governance
Audit Committee Report
carry out a review of their effectiveness and should report to
shareholders in the Annual Report.
The monitoring and review should cover all material controls,
including financial, operational and compliance controls. The
Board recognises that effective risk management is critical to
the achievement of the Group’s strategic objectives, and the
Audit Committee plays a key role in reviewing identified risks
and assessing the effectiveness of mitigation plans.
The principal risks and uncertainties identified by the Board and
the processes in place to manage and mitigate such risks are
summarised in the Risk Management section.
The system is designed to give the Board confidence that
the risks are being managed or mitigated as far as possible.
However, it should be noted that no system can eliminate the
risk of failure to achieve the Group’s objectives entirely and can
only provide reasonable but not absolute assurance against
material misstatement or loss.
The key elements of the internal control framework are as
follows:
• A comprehensive system of financial budgeting and
forecasting based on an annual budget in line with strategic
objectives. Performance is monitored and action is taken
throughout the year based on variances to budget
and forecast
• Rolling eighteen month cash flow forecasting that is
reviewed by the Board on a monthly basis
• An organisational structure with clearly defined roles,
separation of duties, and authority limits
• Close involvement of the Executive Directors in day to
day operations, and regular formal meetings with senior
management to review the business
• Monthly meetings of the Executive, the Property Review
Group, the CitiPark Board, and quarterly meetings of the
IT and Data Governance Committee
• A documented appraisal and approval process for all
significant capital expenditure
• Approval by the Board for all material acquisitions,
disposals and capital expenditure
• The maintenance of a risk register, and a formal review
of significant business risks twice a year
• A formal whistleblowing policy and anti-bribery policy
The Board has delegated responsibility for reviewing the
effectiveness of the risk management framework and
internal control to the Audit Committee.
Oversight of the external Auditor
BDO were appointed as the Company’s auditors following
a formal tender process in 2015/16.
Current UK regulations require rotation of the lead audit partner
every five years, a formal tender of the auditor every ten years
and a change of auditor every twenty years. The 2018 audit was
the third audit by Russell Field and we anticipate him continuing
in role in 2019.
BDO presented their audit plan for the year end to the Board,
where the key audit risks and areas of judgement were
highlighted and the level of audit materiality agreed.
BDO presented detailed reports of their findings to the
Committee before the Interim and Full Year results. The
Committee questioned and challenged the work undertaken
and the key assumptions made in reaching their conclusions.
The Committee recognises the importance of auditor
objectivity and independence and understands that this
can be compromised by the provision of non-audit work.
All taxation advice is provided separately by PwC. However,
there may be certain circumstances where, due to BDO’s
expertise and knowledge of the Company, it’s appropriate for
them to under-take non-audit work. In the last year two main
topics have been deemed appropriate, namely the accounting
for the Merrion House financing arrangement and the detailed
audit of IT Infrastructure and Security. BDO have confirmed to
the Audit Committee that they remain independent and have
maintained internal safeguards to ensure the objectivity of the
engagement partner and audit staff is not impaired.
Audit fees for the year are broken down as follows:
Audit of Year End Consolidated Financial Statements
Audit of Company subsidiaries pursuant to legislation
Interim review of half year results
Review of accounting for Merrion House financing
Total Audit Services
IT Audit
Other non-audit services
Total Auditor’s remuneration
£000’s
82
10
14
4
110
35
4
149
Internal Audit
The Group does not have a dedicated stand-alone internal audit
function. This decision is made taking into account the size and
complexity of the Group. Where appropriate reviews are either
carried out by staff members, or where appropriate by third
party experts.
The need for an internal audit function is considered by the
Audit Committee annually.
Whistleblowing
The Group has in place a whistleblowing policy which encourages
employees to report any malpractice or illegal acts or omissions
or matters of similar concern by other employees or former
employees, contractors, suppliers or advisors. The policy
provides a mechanism to report any ethical wrongdoing or
malpractice or suspicion thereof. The Committee review this
policy annually.
Committee Evaluation
As part of the Board and Committee self-evaluation process
it was felt that the Committee continues to operate at a high
standard and was effective in its support to the Board during
the year.
Paul Huberman
Chairman of Audit Committee
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
63
Corporate Governance
Risk Management
We take Risk Management very seriously within the business, such that reference to, and consideration of, key risks form part of the day
to day workings of the Company. Whilst we recognise that a level of risk taking is inherent within the running of a commercial enterprise,
we work to ensure that risk assessment and mitigation is central to business planning and decision making.
The business has a number of formal meetings during the year where Risk Assessment is an essential element of the agenda. They
include but are not limited to:
Annual Strategy Review – begins with a review of key risks facing the business and a review of how the strategy will best mitigate those risks.
Bi-annual Audit Committee – undertakes a formal review of the risk register and mitigating action plans.
Quarterly IT and Data Governance Committee – Chaired by the Group Finance Director, this committee of senior management
reviews IT and data specific risks and ensures that key risks are understood and managed. Includes a review of adherence to the new
GDPR regulations.
Monthly Board Meetings – Each meeting includes a review of financial performance, debt levels and banking covenants, an IT update,
and a review of the papers and actions from the Property Review Group (see below).
Monthly Property Review Group – A meeting of the Executive Board and senior Property and Finance management, tasked at
undertaking a review of the Property Portfolio. This includes occupancy levels, tenancy changes, adherence to payment terms and bad
debt levels, and Health and Safety and IT related matters.
Monthly CitiPark Board Meeting – a meeting of the Executive Board and senior CitiPark, Property, and Finance management, tasked
at reviewing the performance of the CitiPark business, including key risks and areas such as IT and Health and Safety.
Joint Venture Board Meetings – Formal Board structures and quarterly Board meetings are in place for the Company’s two main joint
venture companies; Merrion House LLP and Belgravia Living Group Ltd.
YourParkingSpace.co.uk (‘YPS’) – Following investment in YPS, TCS Board Directors sit on the Board of YPS, which meets formally
on a quarterly basis.
Our Principal Risk Register is summarised as follows:
Risk
Likelihood
Impact
Change YOY
Macro Economic
Economic and Political Outlook
High
Medium
No Change
Corporate
Strategy
People
Systems, Process and Financial Management
GDPR
Regulatory and Tax Framework
Major Incident / Business Disruption
Property
Investment Risk
Development Risk
Valuation Risk
Tenant and Sector Risk
Financing
Capital and Financial Risk
Cost of Debt
Low
Low
Low
Low
Low
Low
Medium
Low
Low
Medium
Low
High
High
High
High
High
High
High
Low
High
Medium
Medium
No Change
No Change
Improving
Improving
Improving
No Change
Improving
No Change
Improving
Worsening
High
No Change
Medium
Improving
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Annual Report and Accounts 2018
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
65
Corporate Governance
Risk Management
MACRO-ECONOMIC RISKS
Economic and Political Outlook
CORPORATE RISKS
Strategy
The Risk:
A broad economic downturn, potentially as a result of Brexit,
or broader cyclical reasons.
The Risk:
The Company’s strategy is inappropriate for the current stage of
the property cycle and the economic climate.
Likelihood:
High.
Likelihood:
Low.
Impact:
Medium. Impact could be seen in tenant failures, falling asset
values, rising debt costs, or less debt availability.
Impact:
High. Impact would be in the ultimate form of lower profits and
therefore a pressure on dividend and shareholder return.
Mitigation:
An economic downturn at some point in the cycle is inevitable,
with the risk accentuated as a result of Brexit. TCS would not
escape the impact of an economic downturn, however specific
mitigating factors for TCS include:
- Rents paid in advance, and with a steady and predictable
property income stream, we should be better protected from
sudden shifts in the economy
- We have a market leading level of occupancy and a long
history of ensuring payment on time from tenants
- We do not generally undertake speculative developments,
therefore minimising risk in that part of the business
- The CitiPark business is more susceptible to quicker changes
in income and would need closer management. However,
with a concentrated portfolio of Car Parks in highly sought-
after locations we believe demand is unlikely to swing
dramatically
- With new bank agreements in place ranging from 3 to 5 years
in length, and the long-term debenture accounting for c60%
of our debt we are well protected from changes in the
lending markets
Movement in year:
No change.
Mitigation:
The Board undertakes regular reviews of the Strategy and
believe the following help mitigate risk:
- All key decisions are reviewed and approved at Board level
- The strategy of developing diverse multi-use sites and
lowering exposure to retail helps to mitigate the risk
- The experience and expertise of the team, particularly in
relation to the property markets of Leeds and Manchester
is a key strength
- The presence of the Ziff Concert Party ensures a strong
alignment of management and shareholder aims
Movement in year:
No change.
People
The Risk:
The inability to attract and retain high calibre staff.
Likelihood:
Low.
Impact:
High. The ongoing success of the company is reliant upon the
delivery and engagement of management and staff.
Mitigation.
The company benefits from the long service of a number of
key individuals, including family members of the Concert Party
which helps guarantee stability. In addition:
- Base salary packages are kept competitive within the market
- The Remuneration Committee reviews succession plans and
pay levels annually
- New recent appointments, including at Board level
demonstrate the attractiveness of the business to
new recruits at all levels
- Continued financial success of the business combined with
the development opportunities the company has makes the
Company attractive to new recruits
Movement in year:
No change.
Wade House, Leeds
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Annual Report and Accounts 2018
Corporate Governance
Risk Management
Systems, Processes and Financial Management
Regulatory and Tax Framework
The Risk:
Weak controls putting at risk the protection of the Company’s
assets and ability to deliver on its strategy.
Likelihood:
Low.
Impact:
High. Risk of financial loss, fraud, and suboptimal returns.
Mitigation:
The company has a strong culture of safe-guarding assets,
being conservative in its approach, and using professional
experts to ensure risk levels are low:
- IT systems are supported in house, and are updated as
necessary
- A new property and accounting IT solution has been
implemented in the last few years to ensure we remain
well controlled in this respect
- A recent IT review highlighted opportunities to go
further and actions are being taken to ensure we remain
robust in this respect
- Financial processes relating to cash are tight, robust, and
regularly reviewed. Clear and separated authorisation
processes are in place and robustly adhered to
- Insurance policies are fully in place to safe guard assets
- Staff are trained in all aspects of cyber security and
penetration and phishing tests are carried out to test for
weaknesses
- A summary of the internal financial control review
processes can be found in the Audit Committee report
Movement in year:
Improving following audit and GDPR related actions.
GDPR
The Risk:
Financial and reputational risk arising from a breach of GDPR regulations.
Likelihood:
Low.
Impact:
High. Potential fines and impact of customer trust are both
significant.
Mitigation:
Given the nature of the business we do not hold significant
amounts of customer data, with the CitiPark business our
highest risk area. That said, the company has taken seriously
the requirements of the new legislation and have implemented
a detailed action plan that has been reviewed at Board level.
Key aspects include:
- Updating all Privacy related statements and policies
- Training all staff on theirs and the company’s responsibilities
- Instigating an IT & Data Governance Committee to oversee all
aspects of GDPR and wider cyber security
- Commissioned DLA to review the company’s plan and ensure
it is fit for purpose
Movement in year:
Improved following higher requirements of GDPR.
The Risk:
Non-compliance with tax, legal, or regulatory obligations.
Likelihood:
Low.
Impact:
High. Risk of financial penalties, reputational damage, and
incurring higher levels of cost than required.
Mitigation:
The Company takes its legal responsibilities seriously. Matters
are reviewed regularly at Board and Audit Committee level, and
the company makes use of third party professional services to
ensure compliance. Actions include:
- Link Company Matters engaged as formal Company
Secretary for the business, with full Board attendance and in
the giving of advice and recommendations to the Company
- PwC are engaged as the Company’s tax advisors and are
tasked with ensuring we remain compliant in all aspects of Tax
Movement in year:
Improved following appointment of Link as Company Secretary.
Major Incident / Business Disruption
The Risk:
The cost and business down-time as a result of a major incident.
Likelihood:
Low.
Impact:
High. Primarily the risk associated with disruption at the Merrion
Centre, partly due to the proportion it makes up of the portfolio
and partly as it houses the Company’s head office.
Mitigation:
The provision of insurance across the portfolio is the main
mitigation to this risk, with policies in place to protect income
as a result of disruption. In terms of disruption to the head office
the following actions are in place:
- Key personnel have laptops to enable remote working
- Back up procedures are in place to ensure minimal loss of
data in the event of damage to IT hardware
- IT audit has recommended further protections which we
are in the process of putting in place
Movement in year:
No Change.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
67
Corporate Governance
Risk Management
PROPERTY RISKS
Investment Risk
The Risk:
New investment opportunities cannot be sourced at economic
prices.
Likelihood:
Medium.
Development Risk
The Risk:
The potential risks arising from Development projects including
keeping to cost estimates and renting newly developed
properties.
Likelihood:
Low.
Impact:
Low. Although we are seeing signs of this within the market
place, our strategy and mitigating actions minimise the impact.
Mitigation:
The company has clear plans in place to minimise the impact
of this risk. This includes:
- For the majority of investment targets the Company is looking
to position itself seeking assets of higher value than the
majority of individual investors, but lower than many of the
larger property or overseas investors. (eg recent Chiswick
High Street purchase)
Impact:
High. Scale of such projects inevitability means they are of
material size to the Company.
Mitigation:
The company has numerous actions in place to mitigate such
risks including:
- Build projects are generally contracted with third parties on
a fixed cost basis (eg recent Merrion House development)
- Where possible the company will only undertake a
development where there is a significant level of pre-let
commitments
- The Company looks to build strong relationships with other
Partners with the aim of generating opportunities that can
be exploited together. For example, our Belgravia Living PRS
venture, and our partnership with Leeds City Council to
develop George Street in Leeds
- Where that is not possible (eg PRS residential investments)
a detailed market analysis will be undertaken, and the
Company will ensure that locations are in high demand and
that target rental levels are achievable (eg Piccadilly Basin,
Manchester)
- In addition, the existing portfolio has more than enough
development opportunity to ensure that the company has
the opportunity to grow even if asset purchase prices
continue to rise
- When in Joint Venture, formal Board structures are created
with at least quarterly meetings to review progress
and performance and to ensure that all development risks
are being appropriately managed
Movement in year:
Improving following recent partnerships.
Piccadilly Basin, Manchester
Piccadilly Basin, Manchester
68
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Movement in year:
No change.
Valuation Risk
The Risk:
The impact on the business of a material devaluation in assets.
Likelihood:
Low.
Impact:
Medium.
Mitigation:
The key mitigation to this risk is ensuring there is enough
headroom in terms of uncharged assets of undrawn, charged
facilities. Key actions include:
- All three bank facilities renewed or extended in the June ’18,
extending the life of the facilities to between 3 and 5 years
- All three facilities now able to take development and car park
assets, maximising our drawdown ability
- In addition, Lloyds facility has removed any cap on such assets.
- The long-term debenture provides protection specifically in
the fact that asset cover can drop from the required
1.67x to 1.5x without triggering a covenant break
- The implementation of the Merrion House financing
agreement will further lower borrowing levels and gearing
Movement in year:
Improving position given increased facility headroom.
Corporate Governance
Risk Management
Tenant and Sector Risk
Cost of Debt
The Risk: Risk of individual tenant failures, or exposure to a
specific sector.
The Risk:
The financial impact of rising debt costs.
Likelihood:
Medium.
Impact:
Medium.
Likelihood:
High.
Impact:
Medium.
Mitigation:
The following actions help mitigate the risk to the Company:
- Fixed long term debenture borrowing in place to 2031
accounts for over 50% of debt
- Having renewed or extended all three bank facilities in
June ’18, bank margins are locked in for 3-5 years
- Covenant testing highlights the significant amount of income
to interest headroom the company has
- Moving Libor rates will impact the Company’s P&L and the
Board takes this into account when considering
3-year budgets and affordability
Movement in year:
Improved following bank re-financings.
GOING CONCERN
The Directors confirm that they have a reasonable expectation
that the Company has adequate resources to continue in
operational existence for at least 12 months from the signing
of these financial statements. This confirmation is made having
taken into account the Company’s latest rolling forecast, in
particular the cash flows, borrowings and undrawn facilities.
Furthermore, the Directors consider headroom under the
Company’s financial covenants, and its options for recycling
capital. The Board also consider the principal risks that could
impact on the Company’s liquidity and solvency over the next
12 months.
Based on the above, the Directors continue to adopt the going
concern basis in preparing the accounts for the year ended
30 June 2018.
Mitigation:
Despite the recognised difficulties in Retail the risk remains low
for the Company for the following reasons:
- In the last 5 years the Company has significantly reduced
its exposure to Retail from 78% to 58% of income at
December ’18
- The Merrion Centre shift to a mixed-use asset, now only
depends upon Mall Retail for 24% of its income
- We have a broad and diversified range of tenants with limited
exposure to individual tenants with our top tenants being
Leeds City Council, Waitrose, Morrisons and Pure Gym
- CitiPark income helps further mitigate the reliance on specific
property tenants
Movement in year:
Worsening given challenges in Retail market.
FINANCING RISKS
Capital and Financial Risk
The Risk:
Company has insufficient funds / lines of credit.
Likelihood:
Low.
Impact:
High.
Mitigation:
The majority of mitigating actions are contained with the
Valuation Risk category above. In addition:
- The Board reviews cash balances, forecast cash flow,
borrowing levels and headroom on a monthly basis
- The Company has long standing relationships with it’s banks,
and demonstrated during the last down turn the strength of
its conservative approach and strong bank relationships
Movement in year:
No change.
Urban Exchange, Manchester
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
69
Corporate Governance
Risk Management
VIABILITY STATEMENT
In accordance with the requirements of the UK Corporate Governance Code, the Board have assessed the prospects of the Company
and future viability over a three-year period, longer than the 12 months required by the Going Concern provision. The Board conducted
this review taking into account the Company’s long-term strategy, principle risks, attitude to risk, and the current health of the company’s
finances, and future plans.
The Board conducted this review considering a three-year future period, consistent with the three-year budgeting process than the
company undertakes annually. The three-year period allows the business to review cash flows, dividend cover, borrowing headroom
and other key financial ratios. It also considers alternative scenarios, and it requires the business to have clarity on its approach to bank
financing over a longer period.
In reviewing this longer term view the Board considers the risks covered in this Risk Management review. In particular the key risks
identified are:
- Changes in the Macro-economic environment effecting rental income levels and property values
- Changes in level of Tenant and Sector risk effecting occupancy levels and lettings
- Changes in availability of Capital effecting committed expenditure and investment transactions
The Board have also taken into consideration the strong current financial position and the secure, newly updated debt facilities.
Based on the results of their review, the Directors have a reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the three-year period of their assessment.
Man Behind the Curtain, Vicar Lane, Leeds (image courtesy of MBTC)
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Corporate Governance
Directors Remuneraton Report
Dear Shareholders,
On behalf of the Board I am
pleased to present the Directors’
Remuneration Report of the
Remuneration Committee (the
‘Committee’). The report is divided
into three sections:
• This annual statement for the
year ended 30 June 2018,
which summarises remuneration
outcomes and how the
Remuneration Policy will operate
for the year ending 30 June 2019
• The Remuneration Policy
Ian Marcus
Chairman, Remuneration
Committee
Report, which details the Group’s policy on the remuneration
of Executive and Non-Executive Directors which was approved
by shareholders at the 2017 AGM
• The Annual Report on Remuneration which explains how
the Remuneration Policy was implemented in the year
ended 30 June 2018, and how the Remuneration Policy
will be implemented for the year ended 30 June 2019
As no changes are being proposed to the Remuneration Policy
which was approved by shareholders last year, only the Annual
Statement and Annual Report on Remuneration will be subject
to a vote at the forthcoming 2018 AGM.
As the Remuneration Policy will not be subject to a vote at the
2018 AGM, the Remuneration Policy report remains unchanged
from 2017, with the addition of scenario charts which were
disclosed in the Annual Report on Remuneration last year.
This policy was approved at the 28 November 2017 AGM.
Following the retirement of John Nettleton, I have taken over as
Chairman of the Committee, which also includes Paul Huberman
and Jeremy Collins. We formally met twice during the year.
Pay and performance during 2018
In determining the bonus award levels for the year ended
30 June 2018 the Remuneration Committee have taken full
account of the progress made by the Company in the past year.
Continued strong profit delivery and resultant dividend levels,
combined with the material repositioning and strengthening of
the portfolio, have made for a very successful year of change for
the Company.
Bonus award for year ended 30 June 2018
The maximum bonus for the Executive Directors was
unchanged from 2017 at 60% of base salary. The Committee
has approved actual awards in the region of 40% – 45% of base
salary for 2018.
The financial performance assessment considered the following
achievements:
• EPRA profit broadly maintained year on year (‘YOY’) despite
significant portfolio change and improvement
• Profit before revaluation of £8.6m, up 16.9% YOY
• CitiPark operating profit up 3.7% YOY
• NAV per share up 6.8% YOY at 384p
In addition to financial performance, the strength and security
of the Group has been materially improved in the last year, with
key factors being:
• Completion and refinancing of Merrion House
• Reduction in exposure to Retail to 55% of the portfolio from
70% in two years
• Complete refinancing, extension and terms improvements
of all the bank facilities in the year
• Further improving the quality and opportunity of the
development pipeline with the purchase of Ducie House,
Manchester, the partnership with Leeds City Council
on George Street, Leeds, and the advanced stage of
construction of Burlington House, Manchester
• Gains from asset sales above valuation
• Net increase in asset valuation. Although this is often
market driven we suggest this improvement in valuation
is largely as a result of management actions including the
strong management of assets such as the Merrion Centre,
the achievement of detailed planning permissions within
the development pipeline, and the increase in valuation of
more recently completely assets such as the two hotels
• Successful recruitment and effective induction and
integration of a new Group Finance Director, and
Non-Executive Director, and beginning the process of
recruiting a new Property Director
Other activities and key decisions of the Committee during
the year
In accordance with its terms of reference, the Committee
continues to review the remuneration policy periodically to
seek to ensure a clear linkage between Executive Directors
pay and Group performance. In reviewing the policy, the
Committee not only assesses the alignment between policy,
strategy and shareholder interests, but also the extent to which
remuneration is sufficiently competitive to recruit, motivate and
retain key talent. As part of this year’s review, the Committee
commissioned Willis Towers Watson to undertake a market
benchmarking exercise for sector peers of a similar size. Willis
Towers Watson have no previous connection with the Company.
As a result of this review the Committee has come to a number
of conclusions;
• Overall Maximum Potential Remuneration (‘MPR’) for
Executive Directors is low in comparison to the Company’s
property sector peers. Whilst base salaries are competitive,
maximum bonus opportunity is significantly lower than that
of peers
• Actual remuneration is also low relative to peers, with an
average bonus pay-out of 18% of base salary over the last 5
years
• The lack of a Long-Term Incentive Plan (‘LTIP’) contributes
to lower overall pay levels and means that remuneration
does not actively assist to align Executives to longer-term
shareholder interests
• Loan to Value, after Merrion House financing down to 45.3%
from 49.3% last year
As a result of these conclusions the Committee has made the
following decisions:
• Dividend proposed at 11.75p, being the 58th year without
reduction, with the dividend being fully covered
• A more detailed review of the remuneration policy is required
to focus on reviewing the bonus opportunity and targets, and
the potential introduction of an LTIP
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
71
Corporate Governance
Directors Remuneraton Report
In order for the Committee to give the matter due
•
consideration, it is the Committee’s intention to continue
this review during the 2018/19 financial year with a view to
setting forth proposals for our shareholders to consider at
the 2019 AGM or before if appropriate
Implementation of the remuneration policy in 2019
• From October 2018 salaries will increase by 5% for Edward
Ziff, 5% for Mark Dilley, and 20% for Ben Ziff. These
award levels have been informed by the total remuneration
benchmarking exercise undertaken for the Remuneration
Committee
• The annual bonus opportunity will remain at a maximum of
60% of salary. The bonus will be based on similar measures
to 2018. The weightings, measures and targets will be
disclosed retrospectively in our subsequent report, owing
to commercial sensitivity
• Pension and benefits will operate as per 2018
Building on work carried out in 2018, we are continuing to
improve the level of disclosure provided in the Directors’
Remuneration Report for the benefit of our shareholders.
Board changes
As aforementioned in this report, following Richard Lewis’
decision to retire, the Committee has undertaken a significant
market exercise to appoint a replacement capable of continuing
the excellent work undertaken by Richard to reposition the
portfolio. As of 21 August 2018 we were delighted to announce
the appointment of Lynda Shillaw as Property Director.
Lynda Shillaw will join the Company on a Salary of £395,000 pa,
with benefits, pension contributions and bonus schemes to
match Executive Directors Mark Dilley and Ben Ziff. This package
was agreed following negotiation with Lynda and input from
the executive search firm Thomas Cole Kinder to ensure an
appropriate position was reached that benefited both Lynda
and the Company. Lynda Shillaw will not receive any one-off
awards nor share incentive or bonus buy-outs.
This report has been approved by the Board.
Ian Marcus
Chairman of Remuneration Committee
72
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
REMUNERATION POLICY REPORT
Policy Report
The Remuneration Committee implements the Group’s policy,
which is to provide remuneration packages with fixed and
variable elements that fairly award the Executive Directors for
their contribution to the business. It seeks to ensure that the
packages are sufficiently competitive to attract, retain and
motivate the Directors to manage the Group successfully,
without making excessive payments. The policy seeks to
achieve the Group’s strategic and financial objectives by
aligning the interests of the Directors and shareholders.
Fixed remuneration
The fixed element of Directors’ remuneration comprises base
salary, benefits and pension (see below for the pension).
This element seeks to ensure that the Group attracts and retains
appropriately talented individuals and provides a framework
for them to save for retirement. The Committee considers the
overall balance between the elements. Salaries are determined
with regard to individual and Group performance and to market
rates and comparable roles at comparable companies. Benefits
principally comprise company cars or a salary alternative,
permanent health and medical insurance premiums.
The Chairman and Chief Executive receives re-imbursement
of the costs of maintaining a flat in London which is regularly
used for company meetings. The value of the benefits are not
pensionable.
Edward Ziff and Richard Lewis receive no pension contributions.
The Group makes payments to a defined contribution scheme
for Mark Dilley of 13% of salary and for Ben Ziff of 13% of salary.
Variable remuneration
The Group operates an annual bonus plan under which
awards are discretionary and the Committee considers the
performance of each individual Director and of the Group in
assessing the level of payments under the plan. In particular
profit and growth in shareholder value (measured by the
increase in net asset value per share and dividends paid as well
as any increase in share value) were carefully considered by the
Remuneration Committee in awarding the bonus reported when
such increases were the result of Directors’ input. The maximum
award is up to 60% of salary. This bonus is not pensionable. It is
Group policy to reward exceptional growth or performance.
The Directors participate annually in the Share Incentive Plan (All
Employee Incentive Plan) which was approved by shareholders
in December 2003. The current investment limit is £1,800 per
annum with a share matching element equal to 100% of the
investment made subject to forfeiture should the individual
cease to be employed during the first three years of the plan.
Corporate Governance
Directors Remuneraton Report
Service agreements and external appointments
The Chairman and Chief Executive has a service contract that is subject to not less than 2 years notice. Richard Lewis has no service
contract; Mark Dilley and Ben Ziff have service contracts with one years’ notice. The contracts provide for retirement at 65. The Group
can discharge any obligation in relation to the unexpired portion of their notice period or any notice required to be given under their
service contracts by making a payment in lieu thereof. If the Group terminates the contract without giving notice and/or makes a
payment in lieu of any damages to which the Executive may be entitled the payment is to be calculated in accordance with common
law principles including those relating to mitigation of loss and accelerated receipt. Executive Directors are permitted to accept
Non-Executive appointments by prior arrangement and approval and provided there is no conflict with the Group’s objectives.
All Non-Executive positions are listed in the Director’s biographies; none of the Executive Directors receive any remuneration for those activities.
Non-Executive Director Remuneration
The Non-Executive Directors do not have service contracts. They are appointed for an initial three-year period and this may be renewed
on expiry of that period. The Non-Executive Directors are not entitled to participate in bonus, or share based payments schemes or any
other benefits.
Remuneration of other employees
Remuneration of other employees is set at a level to attract, motivate and retain talented individuals. This may include a company car
or car allowance as appropriate. Remuneration levels are recommended by the Executive Directors and noted by the Remuneration
Committee.
Employees are eligible to participate in the Group bonus scheme and the SIP scheme. The Group makes pension contributions for
eligible employees at rates which vary depending on seniority.
Consideration of shareholder views
The Group welcomes comments on its remuneration from shareholders, although no such comments have been received during the
year. These comments are reviewed by the Remuneration Committee who consider the comments particularly with a view to overall
levels of remuneration.
Board Remuneration including theoretical maximum bonuses
Year ended 30 June 2018. £’000s
EM Ziff OBE DL
585
94
235
118
Salary (100%)
M Dilley
RA Lewis
CBA Ziff
313
326
159
45
128
64
25
131
66
35
76
25
Benefits including pension
and SIP shares (100%)
Bonus (Paid)
Bonus (Unpaid)
£000
0
100
200
300
400
500
600
700
800
900
1000
1100
Note: The unpaid element of the bonus represents the difference between the maximum possible bonus award of 60% of salary
and the actual amount awarded.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
73
Corporate Governance
Directors Remuneraton Report
ANNUAL REPORT ON REMUNERATION
Single Total Figure of Remuneration for each Director
The following table sets out the total single figure of remuneration for each Director for the years ended 30 June 2018 and 30 June 2017.
Directors Remuneration
EXECUTIVE CHAIRMAN
AND CHIEF EXECUTIVE
SALARIES & FEES
BONUSES
TAXABLE BENEFITS
SIP SHARES
PENSION CONTRIBUTIONS
TOTAL
2018
£000
2017
£000
2018
£000
2017
£000
2018
£000
2017
£000
2018
£000
2017
£000
2018
£000
2017
£000
2018
£000
2017
£000
E M ZIFF OBE DL
585
571
235
115
92
121
EXECUTIVE DIRECTORS
M DILLEY
R A LEWIS
C B A ZIFF
D S SYERS
NON EXECUTIVE DIRECTORS
M A ZIFF
P HUBERMAN
I MARCUS
J COLLINS
J A NETTLETON
Notes:
313
326
159
37
-
319
123
223
128
131
76
-
-
64
33
-
4
25
12
9
-
24
11
20
1,420
1,236
571
212
142
176
47
49
49
31
19
47
47
47
-
47
-
-
-
-
-
-
-
-
-
-
195
188
1,615
1,424
0
571
0
212
-
-
-
-
-
0
8
-
-
-
-
8
142
184
2
-
-
2
-
4
-
-
-
-
-
0
4
2
-
2
2
-
6
-
-
-
-
-
0
6
-
41
-
21
4
66
-
-
-
-
-
0
66
-
-
-
16
22
38
-
-
-
-
-
0
38
914
809
486
-
482
409
270
50
185
265
2,203
1,668
47
49
49
31
19
55
47
47
0
47
195
196
2,398
1,864
1. Taxable benefits include cash and non-cash benefits principally company cars or a cash alternative, permanent health and medical
insurance premiums. The Chairman and Chief Executive receive re-imbursement of the costs of maintaining a flat in London which is
regularly used for Company meetings. The value of the benefits are not pensionable.
2. No long-term incentive plan was in operation for the relevant years although Directors were awarded shares under the Company SIP.
3. EM Ziff and RA Lewis received no pension contribution. The Group makes payments to a Defined Contribution scheme for M Dilley
(13% base salary) and C B A Ziff (13% base salary).
4. Jeremy Collins joined the Board in February 2018. Duncan Syers and John Nettleton retired from the Board in September and
November 2017 respectively.
Notes to the single figure table - Annual bonus targets and outcomes for 2018
The current AGM approved bonus scheme allows for a maximum pay-out of 60% of base salary.
For the year ended 30 June 2018, the Executive Directors received bonus pay-outs of 40-45% of salary (67-75% of the maximum).
The table below sets out the performance measures, targets and outcomes for the 2018 annual bonus:
WEIGHTING
TARGET
50% OF MAX
ACHIEVED
PAYOUT LEVEL
(% OF MAX)
EPRA Profit
Profit before Revaluation
NAV per share
Total Shareholder Return
Personal Targets
25%
20%
20%
10%
25%
7.2
7.2
368
5.0%
6.9
8.6
384
3.2%
WEIGHTED PAYOUT LEVEL
BONUS AS % SALARY
49%
82%
68%
32%
85%
67%
40%
The Committee has approved a cash bonus award of 40% of salary for Edward Ziff, Mark Dilley, and Richard Lewis, and 45% of salary for
Ben Ziff. Actual pay-outs over the previous five years have averaged 18% of salary.
74
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Corporate Governance
Directors Remuneraton Report
NON FINANCIAL TARGETS
The below identifies the key non financial targets that the
Executive Board had as KPI metrics:
Chairman and Chief Executive
• Continued strong dividends
• Successful succession planning for Richard Lewis
•
Improved Investor Relations profile
Group Finance Director
• Bank re-financings and Merrion House financing delivered
• Successful first year in the business with seamless continuity
•
Improved Investor Relations Profile
Property Director
• Continued asset recycling and reduction in Retail Exposure
• Merrion House development and financing completed
• Next phase of Development Pipeline unlocked
Managing Director, CitiPark
•
Improved revenue and operating profit year on year
• YPS supported and challenged to prepare for next
investment phase
Identify future growth opportunities for CitiPark business
•
• Continue to participate more broadly in the core aspects
of the TCS business
Scheme interests awarded during the financial year
Town Centre Securities Plc does not currently operate a long-
term incentive plan. It does operate an All Employee Share
Incentive Plan, approved by shareholders in December 2003.
The investment limit is £1,800 per annum with a share matching
element equal to 100% of the investment made subject to
forfeiture should the individual cease to be employed during
the first three years of the plan.
In May 2018 Edward Ziff, Ben Ziff and Mark Dilley accepted an
invitation to participate in the SIP by each agreeing to purchase
shares to the value of £1,800, paid between June 2018 and
November 2018. They will be eligible to receive “matching”
shares on a one for one basis. The number of shares will be
determined at the end of November 2018. For illustration, based
on the share price as at 30 June 2018, this would equate to each
Director receiving 625 partnership shares and 625 matching
shares. In November 2017 Edward Ziff and Ben Ziff received 666
partnership shares and 666 matching shares in respect of the
2017 Share Incentive Plan. The total number of partnership and
matching SIP shares beneficially held at 30 June 2017 is shown
below.
EXECUTIVE
EDWARD ZIFF
MARK DILLEY
RICHARD LEWIS
BEN ZIFF
HOLDING OF PARTNERSHIP AND MATCHING
SIP SHARES ( 30 JUNE 2018)
6,514
0
5,182
6,514
Payments to past Directors/payments for loss of office
There were no payments to past Directors or payments for loss
of office during the financial year.
Director’s Shareholdings
The table below sets out the shares held by the Directors as at
30 June 2018:
EXECUTIVE
EDWARD ZIFF
RICHARD LEWIS
BEN ZIFF
MICHAEL ZIFF
BENEFICIAL
NON-BENEFICIAL
5,481,984
17,174,747
325,937
172,399
0
0
2,609,513
10,605,892
The non-beneficial interest disclosures include the 1,069,278
ordinary shares over which a power of attorney has been
granted by Mrs ME Ziff jointly to Edward and Michael Ziff for
personal estate management reasons and 6,133,932 ordinary
shares over which a power of attorney has been granted by
AL Manning to Edward Ziff for personal estate management
reasons. Non-beneficial holdings include shares held in trust
and under powers of attorney.
The above non-beneficial shareholding for Michael Ziff reduced
on 10 August 2018 to 9,324,033 as a result of him no longer
being trustee for a holding of 1,281,859 ordinary shares, as
announced on that date.
Edward Ziff, Richard Lewis and Mark Dilley are Directors of TCS
Trustees Limited, Trustee for the shares that are required for
the All Employee Share Incentive Plan. At 30 June 2018, TCS
Trustees Limited held 9,782 ordinary shares (2017: 24,490)
on behalf of all participants including those share awards of
Executive Directors shown above.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
75
Corporate Governance
Directors Remuneraton Report
Performance graph and table
The following graph shows the Company’s Total Shareholder Return (‘TSR’) performance compared to the FTSE All Share REIT Index,
over the nine years ended 30 June 2018. This index has been chosen because the Directors consider it the most appropriate comparison
and TCS is a constituent of this list. This chart illustrates the movement in value of a hypothetical investment of £100 in TCS and the FTSE
All Share REIT index.
Town Centre Securities
FTSE All Share REIT Index
£400
£350
£300
£250
£200
£150
£100
£50
£0
Jun 09
Jun 10
Jun 10
Jun 12
Jun 13
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
Source: DataStream (Thomson Reuters)
Over the long-term TCS has outperformed FTSE All Share REIT companies. On a 5-year basis TCS TSR was 14.1% versus the FTSE All
Share REIT at 10.2%. On a 10-year basis TCS TSR was 9.1% versus the FTSE All Share REIT at 4.9%.
The table below sets out the total remuneration and incentive plan pay-outs for the Executive Chairman and CEO over a nine-year
period.
YEAR
2017-18
2016-17
2015-16
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
SINGLE TOTAL FIGURE
OF REMUNERATION
(000’S)
ANNUAL BONUS
PAY-OUT
(% OF MAXIMUM)
914
809
718
782
784
604
672
669
1,498
40%
20%
10%
30%
33%
0%
13%
23%
0%
76
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Corporate Governance
Directors Remuneraton Report
Percentage change in remuneration of Executive Chairman
and Chief Executive Officer
The table below sets out a comparison of the percentage
change in base salary, benefits and bonus of the Executive
Chairman and Chief Executive Officer versus the total employee
population from 2017 to 2018.
YEAR
EXECUTIVE CHAIRMAN
AND CHIEF EXECUTIVE
OFFICER (%)
AVERAGE PAY FOR
EMPLOYEES1
SALARY % CHANGE
TAXABLE BENEFITS % CHANGE
ANNUAL BONUS % CHANGE
2.5%
(24.0%)
104.3%
5.4%
23.0%
216%
1Average pay for employees is calculated on a like for like basis
for comparison purposes.
Relative importance of spend on pay
The table below shows how expenditure on total pay compares
to other financial outgoings.
2017
(£000)
4,622
5,928
2018
(£000)
%
CHANGE
4,711
6,114
1.9%
3.1%
STAFF REMUNERATION COSTS
DIVIDENDS TO SHAREHOLDERS
External appointments
None of the Executive Directors have other external
appointments for which they are paid. Edward Ziff is the unpaid
Chair and Trustee of Leeds Cares.
Implementation of the remuneration policy for 2019
The following table outlines how TCS intends to implement the remuneration policy in the year ending 30 June 2019.
Component
Implementation for 2019
Base Salary
The Committee has approved the following increases effective from 1 October 2018:
• 5% increase for EM Ziff and M Dilley
• 20% increase for CBA Ziff based on the strong performance of CitiPark, contribution to the business as a
whole, and bench marking
• RA Lewis is retiring therefore will receive no increase
Benefits
Benefits provisions will be as per 2018, to include cash and non-cash benefits principally company cars or a cash
alternative, permanent health and medical insurance premiums. The Chairman and Chief Executive receive
re-imbursement of the costs of maintaining a flat in London which is regularly used for company meetings.
Pension
EM Ziff does not receive a contribution. The Group makes payments to a Defined Contribution scheme
for M Dilley (13% base salary) and CBA Ziff (13% base salary).
Annual Bonus
Maximum opportunity 60% base salary (unchanged)
The measures and weightings applying to the 2019 bonus will be similar to those used in 2018 and will be
disclosed in next year’s report owing to commercial sensitivity.
SIP
Executive Directors will continue to participate in the SIP.
NED Fees
A 5% increase in fees for Non-Executive Directors has been agreed. This is the first inflationary increases to
NED fees since 2011.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
77
Corporate Governance
Directors Remuneraton Report
Consideration by the Directors of matters relating to
Directors’ remuneration
The Remuneration Committee formally met twice during the
year and following Directors were members of the Committee
during 2018:
•
Ian Marcus
• Paul Huberman
• Jeremy Collins
The key activities of the Committee during the year were:
• Approving the bonus outcome for 2017
• Approving the salary increases for 2018
• Setting the bonus targets for 2018
• Following the end of the financial year appointing Willis
Towers Watson to advise on pay benchmarking, corporate
governance and remuneration reporting, and LTIP schemes
• Updating the Terms of Reference
Statement of voting in relation to the 2017 AGM
REMUNERATION
POLICY
ANNUAL REPORT ON
REMUNERATION
VOTES FOR
VOTES AGAINST
94%
6%
91%
9%
This report was approved by the Board on 26 September 2018.
Ian Marcus
Chairman Remuneration Committee
78
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Corporate Governance
Report of the Directors
The Directors present their report for the year ended 30 June 2018.
Principal Activities
The principal activities of the Group during the financial year
remained those of property investment, development and
trading and the provision of car parking.
Company Status
Town Centre Securities Plc is a public limited liability company
incorporated under the laws of England and Wales. It has
premium listing on the London Stock Exchange main market
for listed securities (LON: TOWN).
Results for the year and dividends
The results for the year are set out in the Consolidated Income
Statement on page 86.
An interim dividend of 3.25p per share was paid on 22 June
2018 as a PID. The Directors now propose a payment of a
final dividend of 8.50p per share as a PID for approval of the
shareholders at the forthcoming Annual General Meeting
(‘AGM’). The proposed final dividend will be paid on 4 January
2019 to ordinary shareholders on the register at the close of
business on 7 December 2018.
Political Donations
The Group made no political contributions in the financial year
(2017: nil).
Taxation
The Company is not a close company.
Directors and Directors’ Interests
The Directors of the Company and their biographical details
are shown on page 52. None of the Directors have any
contracts of significance with the Company. Details of the
Executive Directors’ service contracts are given in the Directors’
Remuneration Report on page 73.
Beneficial and non-beneficial interests of the Directors in the
shares of the Company as at 30 June 2018 are disclosed in
the Directors’ Remuneration Report on page 75. Details of the
interests of the Directors in share options and awards of shares
can be found within the same report.
In accordance with the Company’s Articles of Association
CBA Ziff and P Huberman will retire by rotation at the Company’s
AGM on 20 November 2018. CBA Ziff and P Huberman will offer
themselves for re-election.
A summary of the Corporate and financial risk management
assessment and policies is reviewed in the Risk Management
section of this report beginning on Page 64.
Service agreements of Executive Directors and terms of
conditions of Non-Executive Directors are available for
inspection at Company’s registered office.
Non-current assets
Details of movements in non-current assets are set out in Note
12 to the Consolidated Financial Statements.
Investment properties are held at fair value and were revalued
by Jones Lang LaSalle and CBRE as at 30 June 2018, on the
basis of open market value, or were revalued by the Directors.
The key assumptions are set out in Note 12 to the Consolidated
Financial Statements. In arriving at the valuation, each property
has been valued individually.
Share Capital
There were no changes in the Company’s issued share capital
during the year as set out in Note 23 to the Consolidated
Accounts. At 30 June 2018, there were 53,161,950 Ordinary
shares of 25p per share in issue and fully paid. The Company
does not hold any Ordinary shares in treasury. Further details
relating to share capital are set out in Note 23 to the financial
statements.
Purchase of own shares
The Company did not purchase any of its own shares during
the year.
At the forthcoming AGM the Company will be seeking to
renew its authority to purchase up to 15% of the ordinary shares
in issue, assuming the remaining authority is fully utilised.
Shares will only be purchased if the Board believes it can take
advantage of stock market conditions to enhance returns for
the remaining shareholders.
Shareholder Voting Rights
The Company has only one type of Ordinary share class in issue
and all shares have equal entitlement to voting rights
and dividend distributions.
The Company has no share option schemes in current
operation and there are no unexercised options outstanding
at 30 June 2018.
Power of Directors
The Directors manage the business of the Company under the
powers set out in the Company’s Articles of Association (the
‘Articles’) and those contained within relevant UK legislation.
Directors’ indemnity insurance
In accordance with the Company’s Articles of Association, the
Company has provided to all the Directors an indemnity (to the
extent permitted by the Companies Act 2006) in respect of
liabilities incurred as a result of their office and the Company
has taken out an insurance policy in respect of those liabilities.
Neither the indemnity nor insurance provide cover in the
event that the Director is proven to have acted dishonestly or
fraudulently. The Company has appropriate Directors’ & Officers’
Liability insurance cover in respect of potential legal actions
against the Directors.
2018 Annual General Meeting
A Notice of Meeting can be found on pages 119 to 120
explaining the business to be considered at the AGM on 20
November 2018 at 10.00am. This will include renewal of the
Company’s authority to purchase, in the market, its own shares
and allot shares for cash other than on a pre-emptive basis to
existing shareholders.
Going Concern
After consideration of future trading activities and making
appropriate enquiries, including a review of forecasts, budgets
and banking facilities, the Directors can confirm that they are
satisfied that the Company and the Group have adequate
resources to continue in operational existence for the
foreseeable future. The Directors also considered principal
risks and uncertainties in the business and the market. For this
reason, they continue to adopt the going concern basis in
preparing the Financial Statements.
Independent Auditors
The auditors, BDO LLP, have indicated their willingness to
continue in office, and a resolution that they be re-appointed
will be proposed at the AGM.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
79
Corporate Governance
Report of the Directors and Statement of the Directors’ Responsibilities
Relationship Agreements
In accordance with the UK Listing Rules, the Company has
entered into an agreement with the Ziff family Concert Party
which, as it controls more than 30% of the Group’s total issued
share capital, is deemed a controlling Shareholder. The relationship
agreement is intended to ensure the controlling Shareholder
complies with the independence provisions in Listing Rule
9.2.2A.
Under the terms of the relationship agreement, the Principal
Concert Party Shareholders (Mr E Ziff and Mr M Ziff) have
agreed to procure the compliance of other individual members
of the Ziff family Concert Party who are treated as controlling
shareholders with independence obligations in the relationship
agreement. The Ziff family concert party, as controlling
shareholders of the Company, have a combined aggregate
holding of approximately 52% of the Company’s voting rights.
The Board confirms that, since the entry into the relationship
agreement until 26 September 2018, being the latest practicable
date prior to the publication of this annual report and accounts:
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual
Report, the Directors’ Remuneration Report and the Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law the Directors
have prepared the Group Financial Statements in accordance
with International Financial Reporting Standards (IFRS) as
adopted by the European Union, and the Parent Company
Financial Statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law). Under company
law the Directors must not approve the Financial Statements
unless they are satisfied that they give a true and fair view of the
state of affairs of the Group and the Company and of the profit
or loss of the Group for that period. In preparing these Financial
Statements, the Directors are required to:
• Select suitable accounting policies and then apply them
consistently
• The Company has complied with the independence
provisions included in the relationship agreement
• Make judgements and accounting estimates that are
reasonable and prudent
• So far as the Company is aware, the independence provisions
included in the relationship agreement have been complied
with by the Ziff family concert party and their associates; and
• So far as the company is aware, the procurement obligation
included in the relationship agreement has been complied
with by the Principal Concert Party Shareholders
Substantial Shareholdings
As at 26 September 2018, being the last practicable date, the
Company had been notified, in accordance with the UK Listing
Authority’s Disclosure Guidance and Transparency Rules, that
the shareholders in the table below held, or were beneficially
interested in, 3% or more of the voting rights in the Company’s
issued share capital:
NUMBER OF
SHARES
% OF ISSUED
CAPITAL
ZIFF CONCERT PARTY
27,520,474
51.77%
NEW FORTRESS FINANCE HOLDINGS LTD
3,736,000
7.03%
Post-Balance Sheet Events
Details of events which have occurred since 30 June 2018 and
up to the date of this report are disclosed in note 24 to the
consolidated financial statements on page 107.
The Directors’ Report was approved by the Board on
26 September 2018.
By order of the Board.
Link Company Matters Limited
Company Secretary
26 September 2018
80
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
• State whether IFRS as adopted by the European Union and
applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained
in the Group and Parent Company Financial Statements
respectively; and
• Prepare the financial statements on a going concern basis
unless it is inappropriate to assume that the Company will
continue in business
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any
time the financial position of the Company and the Group and
enable them to ensure that the Financial Statements and the
Directors’ Remuneration Report comply with the Companies
Act 2006 and, as regards the Group Financial Statements,
Article 4 of the IAS Regulation. The Directors are also responsible
for safeguarding the assets of the Company and the Group
and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Under applicable laws and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and
integrity of the Company’s website https://tcs-plc.co.uk/.
Legislation in the United Kingdom governing the preparation
and dissemination of Financial Statements may differ from
legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed
on page 52, confirms that, to the best of their knowledge:
• The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company taken as a whole; and
• The Strategic Report include a fair review of the development
and performance of the business and position of the
Company, together with a description of the principal
risks and uncertainties that it faces
Corporate Governance
Statement of the Directors’ Responsibilities
Vicar Lane, Leeds
The Directors consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and the information
provided to the shareholders is sufficient to allow them to assess the Company’s performance, business model and strategy.
This responsibility statement for the year ended 30 June 2018 was approved by the Board on 26 September 2018.
Disclosure of information to the Auditors
The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no
relevant audit information of which the Company’s auditors are unaware. Each Director has taken all the reasonable steps that they
ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s
auditors are made aware of that information.
This Strategic Report was approved by order of the Board on 26 September 2018.
Edward Ziff OBE DL
Chairman and Chief Executive
26 September 2018
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
81
• The Directors’ statement set out on page 79 in the financial
statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting
in preparing the financial statements and the Directors’
identification of any material uncertainties to the Group and
the parent company’s ability to continue to do so over
a period of at least twelve months from the date of approval
of the financial statements;
• Whether the Directors’ statement relating to going concern
required under the Listing Rules in accordance with Listing
Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit; or
• The Directors’ explanation set out on page 70 in the annual
report as to how they have assessed the prospects of the
Group, over what period they have done so and why they
consider that period to be appropriate, and their statement as
to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any
necessary qualifications or assumptions
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period and include the most
significant assessed risks of material misstatement (whether
or not due to fraud) that we identified. These matters included
those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit, and directing
the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Independent Auditor’s Report
Opinion
We have audited the financial statements of Town Centre
Securities Plc (the ‘parent company’) and its subsidiaries (the
‘Group’) for the year ended 30 June 2018 which comprise the
consolidated income statement, the consolidated statement
of comprehensive income, the consolidated and company
balance sheets, the consolidated and company statements
of changes in equity, the consolidated cash flow statement
and the notes to the financial statements including a summary
of significant accounting policies. The financial reporting
framework that has been applied in the preparation of the
Group financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the
European Union. The financial reporting framework that has
been applied in the preparation of the parent company financial
statements is applicable law and United Kingdom Accounting
Standards including Financial Reporting Standard 102 The
Financial Reporting Standard applicable in the UK and Republic
of Ireland (United Kingdom Generally Accepted Accounting
Practice).
In our opinion:
• The financial statements give a true and fair view of the state
of the Group’s and of the parent company’s affairs as at 30
June 2018 and of the Group’s profit for the year then ended
• The Group financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union
• The parent company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
• The financial statements have been prepared in accordance
with the requirements of the Companies Act 2006; and, as
regards the Group financial statements, Article 4 of the IAS
Regulation
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described
in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We are independent of the
Group and the parent company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as
applied to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and
viability statement
We have nothing to report in respect of the following
information in the annual report, in relation to which the ISAs
(UK) require us to report to you whether we have anything
material to add or draw attention to:
• The disclosures in the annual report set out on page 64 that
describe the principal risks and explain how they are being
managed or mitigated
• The Directors’ confirmation set out on page 79 in the annual
report that they have carried out a robust assessment of
the principal risks facing the Group, including those
that would threaten its business model, future performance,
solvency or liquidity;
82
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Independent Auditor’s Report
Valuation of the Group’s property interests
Risk
Response
The valuation of the Group’s property interests (pages 54 to 55)
is the key driver of the Group’s net asset value and underpins
the results for the year.
These interests, totalling £399.5m (2017: £377.1m) consist of
investment and development properties, car park fixed assets,
and interests in joint ventures; being the Group’s share of the
fair value of investment and development properties within
these entities.
All interests in property as listed above are subject to
independent revaluation to open market value at each
reporting date by third party valuation experts.
Due to the diverse nature of the Group’s property portfolio,
incorporating a range of geographical areas and industry
sectors, there are a number of different assumptions made by
the Group’s external valuers in determining fair value.
The valuation of the Group’s interests, including those held
in joint ventures, depends on the individual nature of each
property, including its location, and the rental income it
generates. The assumptions on which the valuations are based
are further influenced by quality of tenant, prevailing market
yields and comparable market transactions.
Development properties are valued using the residual appraisal
method, which estimates the fair value of the completed
project, including a suitable developers profit and deductions
for expected costs to complete.
Both of these valuation methods require significant judgement
and estimations to be applied by management and the
external valuers increasing the inherent risk in this area.
We consider this to be a significant risk area as small
percentage changes in each key assumption could materially
affect the carrying value of the assets concerned.
Our audit approach to this area included an
assessment of the external valuation experts and
their objectivity, independence and qualifications to
undertake this work.
We confirmed that valuations had been performed
on bases consistent with practices approved by
the Royal Institute of Chartered Surveyors (“RICS”)
and the requirements of IFRS and United Kingdom
Generally Accepted Accounting Practice.
We tested a sample of the key inputs used in the
valuation calculations by agreeing underlying
data used to internal tenancy schedules, capital
expenditure details and lease terms, which
were agreed back to appropriate supporting
documentation. This indicated no difference in
internal data used to that used within the valuation
calculations.
We attended meetings with the experts to further
understand the methodology applied and challenge
them on any key assumptions made. In doing
this we considered movements in yield that were
outside of a tolerable range based on our own and
wider market expectations. From these discussions
and comparison to other market data available
there were no indications of any bias on the part of
the valuation experts and all key movements were
appropriately justified.
For development properties we agreed that the
costs to complete incorporated into the residual
value calculations were consistent with the actual
development plans in place. We considered the
accuracy of the development project forecasts by
considering historic estimates of costs to complete.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For
planning, we consider materiality to be the magnitude by which misstatements, individually or in aggregate and including omissions,
could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce
to an appropriately low level the probability that any misstatements exceed materiality we use a lower materiality level, performance
materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated
as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence,
when evaluating their effect on the financial statements as a whole.
The materiality for the Group financial statements as a whole was set at £4,000,000 (2017: £3,900,000) and for the parent company
£3,500,000 (2017: £3,300,000). This was determined with reference to a benchmark of total non-current assets (of which it represents
1 per cent (2017: 1 per cent)), which we consider to be one of the principal considerations for members of the company in assessing
the financial performance of a property investment Group.
International Standards on Auditing (UK) also allow the auditor to set a lower materiality for particular classes of transactions, balances
or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be
expected to influence the economic decisions of users taken on the basis of the financial statements. In this context, we set a lower
level of materiality for the Group of £350,000 (2017: £440,000) to apply to all classes of transactions and balances excluding non-
current assets, any property revaluation movements, gains or losses on disposal of properties and changes in the fair value of financial
instruments. For the parent company financial statements this was set at £300,000. This lower level of materiality was set with reference
to a benchmark of profit after taxation excluding investment and development property revaluations, gains/losses on investing and
trading property disposals and changes in the fair value of financial instruments (of which it represents 5%) which we consider to be
a key consideration in assessing the financial performance of the business.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
83
In this context, we also have nothing to report in regard to
our responsibility to specifically address the following items in
the other information and to report as uncorrected material
misstatements of the other information where we conclude that
those items meet the following conditions:
• Fair, balanced and understandable set out on page 59 –
the statement by the Directors that they consider the
annual report and financial statements taken as a whole is
fair, balanced and understandable and provides the
information necessary for shareholders to assess the
Group’s performance, business model and strategy,
is materially inconsistent with our knowledge obtained in the
audit; or
• Audit committee reporting set out on page 62 – the
section describing the work of the audit committee does not
appropriately address matters communicated by us to the
audit committee; or
• Directors’ statement of compliance with the UK Corporate
Governance Code set out on page 59 – the parts of the
Directors’ statement required under the Listing Rules
relating to the company’s compliance with the UK Corporate
Governance Code containing provisions specified for review
by the auditor in accordance with Listing Rule 9.8.10R(2) do
not properly disclose a departure from a relevant provision
of the UK Corporate Governance Code
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, the part of the Directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
• The information given in the strategic report and the Directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements
and those reports have been prepared in accordance with
applicable legal requirements
• The information about internal control and risk management
systems in relation to financial reporting processes and about
share capital structures, given in compliance with rules 7.2.5
and 7.2.6 in the Disclosure Guidance and Transparency Rules
sourcebook made by the Financial Conduct Authority
(the FCA Rules), is consistent with the financial statements
and has been prepared in accordance with applicable legal
requirements; and
Information about the company’s corporate governance
•
code and practices and about its administrative,
management and supervisory bodies and their committees
complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules
Independent Auditor’s Report
Performance materiality was set at 65% of the above materiality
levels which we have determined by reference to the number
of components, the errors identified in prior years and our
accumulated knowledge of the business.
The Group operates through a number of legal entities, which
form reporting components. Audits have been performed
over all components of the Group by the group audit team.
Significant components were defined as those reporting
components contributing more than 15% towards group
assets, turnover or profits. Component materiality on those
significant components was set at levels between £170,000
and £1,770,000 (2017: £140,000 and £1,804,000) with specific
materiality being set between £100,000 and £270,000
(2017: £139,000 and £394,000).
We agreed with the Audit Committee that we would report
to the committee all individual audit differences in excess of
£20,000 (2017: £50,000). We also agreed to report differences
below this threshold that, in our view, warranted reporting on
qualitative grounds.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding
of the Group and its environment, including the Group’s
system of internal control, and assessing the risks of material
misstatement in the financial statements. We also addressed
the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors
that may have represented a risk of material misstatement due
to fraud.
The Group operates solely in the United Kingdom and the
financial information relating to the parent company and all
other material components of the Group were subject to full
scope audit by the Group audit team.
Other information
The other information comprises the information included
in the annual report set out on pages 6 to 81, including the
Strategic Report, the Directors’ Report, the Chairman and Chief
Executive’s Statement, the Corporate Social Responsibility
Statement, the Sustainability Report, the Valuers’ Reports, the
Corporate Governance Report and the Directors’ Remuneration
Report, other than the financial statements and our auditor’s
report thereon. The Directors are responsible for the other
information. Our opinion on the financial statements does
not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon. In connection with our
audit of the financial statements, our responsibility is to read
the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement
in the financial statements or a material misstatement of the
other information. If, based on the work we have performed,
we conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
84
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Independent Auditor’s Report
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group
and the parent company and its environment obtained
in the course of the audit, we have not identified material
misstatements in:
• The strategic report or the Directors’ report; or
• The information about internal control and risk management
systems in relation to financial reporting processes and about
share capital structures, given in compliance with rules 7.2.5
and 7.2.6 of the FCA Rules
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
• Adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
• The parent company financial statements and the part of
the Directors’ remuneration report to be audited are not in
agreement with the accounting records and returns; or
• Certain disclosures of Directors’ remuneration specified by
law are not made; or
• We have not received all the information and explanations
we require for our audit; or
• A corporate governance statement has not been prepared
by the parent company
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities
statement set out on page 80, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such internal
control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group’s and the parent company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going
concern basis of accounting unless the Directors either intend
to liquidate the Group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Other matters which we are required to address
Following a recommendation of the Audit Committee we were
reappointed by the shareholders on 28 November 2017 to audit
the financial statements for the year ending 30 June 2018.
The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the parent company and we
remain independent of the Group and the parent company in
conducting our audit.
Our audit opinion is consistent with the additional report to the
audit committee.
Use of our report
This report is made solely to the parent company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the parent company’s members those
matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than
the parent company and the parent company’s members as a
body, for our audit work, for this report, or for the opinions we
have formed.
Russell Field (Senior Statutory Auditor)
For and on behalf of BDO LLP
Statutory Auditor
London
United Kingdom
26 September 2018
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
85
Financial Statements
Consolidated income statement
For the year ended 30 June 2018
Gross revenue
Property expenses
NET REVENUE
Administrative expenses
Other income
Valuation movement on investment properties
Reversal of impairment of car parking assets
Profit on disposal of investment properties
Share of post tax profits from joint ventures
OPERATING PROFIT
Finance costs
PROFIT BEFORE TAXATION
Taxation
PROFIT FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT
EARNINGS PER SHARE
Basic and diluted
EPRA (non-GAAP measure)
DIVIDENDS PER SHARE
Paid during the year
Proposed
Consolidated statement of comprehensive income
For the year ended 30 June 2018
Profit for the year
ITEMS THAT MAY BE SUBSEQUENTLY RECLASSIFIED TO PROFIT OR LOSS
Revaluation (losses)/gains on car parking assets
Revaluation gains on other investments
Total other comprehensive income
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Notes
2018
£000
2017
£000
3
3
4
7
14
8
9
11
11
10
10
30,178
27,540
(10,896)
(8,148)
19,282
19,392
(6,574)
(6,295)
888
707
5,932
(2,085)
1,300
1,000
1,677
3,757
303
1,342
26,262
14,364
(7,887)
(7,639)
18,375
6,725
-
-
18,375
6,725
34.6p
13.0p
11.50p
8.5p
12.7p
13.2p
11.15p
8.25p
2018
£000
2017
£000
18,375
6,725
(350)
1,136
786
100
324
424
19,161
7,149
All profit and total comprehensive income for the year is attributable to owners of the Parent. The Notes on pages 90 to 108 are an integral part
of these Consolidated Financial Statements.
86
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Consolidated balance sheet
For the year ended 30 June 2018
NON-CURRENT ASSETS
PROPERTY RENTAL
Investment properties
Investments in joint ventures
CAR PARK ACTIVITIES
Freehold and leasehold properties
Goodwill
Investments
Fixtures, equipment and motor vehicles
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Investments
Trade and other receivables
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Financial liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY ATTRIBUTABLE TO THE OWNERS OF THE PARENT
Called up share capital
Share premium account
Capital redemption reserve
Revaluation reserve
Retained earnings
Total equity
Notes
2018
£000
2017
£000
12
14
12
13
15
12
15
16
336,311
326,771
39,742
27,852
376,053
354,623
23,423
22,495
4,024
2,125
4,024
1,950
29,572
28,469
1,544
1,972
407,169
385,064
3,530
2,394
6,288
5,473
3,311
3,124
15,291
8,829
422,460
393,893
17
(20,278)
(10,846)
(20,278)
(10,846)
18
(198,057)
(191,969)
(218,335)
(202,815)
204,125
191,078
23
13,290
13,290
200
559
250
200
559
600
189,826
176,429
204,125
191,078
NET ASSET VALUE PER SHARE
21
384p
359p
The financial statements on pages 86 to 108 were approved by the Board of Directors on 26 September 2018 and signed on its behalf by:
E M ZIFF OBE
Chairman and Chief Executive
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
87
Financial Statements
Consolidated statement of changes in equity
For the year ended 30 June 2018
BALANCE AT 1 JULY 2016
13,290
200
559
500
175,308
189,857
Called up
share
capital
£000
Share
premium
account
£000
Capital
redemption
reserve
£000
Revaluation
reserve
£000
Retained
earnings
£000
Total
equity
£000
Comprehensive income for the year
Profit
Other comprehensive income
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Contributions by and distributions to owners
Final dividend relating to the year ended 30 June 2016
Interim dividend relating to the year ended 30 June 2017
BALANCE AT 30 JUNE 2017
Comprehensive income for the year
Profit
Other comprehensive income
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Contributions by and distributions to owners
Final dividend relating to the year ended 30 June 2017
Interim dividend relating to the year ended 30 June 2018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
100
-
-
6,725
324
7,049
6,725
424
7,149
(4,200)
(4,200)
(1,728)
(1,728)
13,290
200
559
600
176,429
191,078
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18,375
18,375
(350)
1,136
786
(350)
19,511
19,161
-
-
(4,386)
(4,386)
(1,728)
(1,728)
BALANCE AT 30 JUNE 2018
13,290
200
559
250
189,826
204,125
88
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Consolidated cash flow statement
For the year ended 30 June 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations
Interest paid
Net cash generated from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase and construction of investment properties
Refurbishment of investment properties
Payments for leasehold property improvements
Purchases of fixtures, equipment and motor vehicles
Proceeds from sale of investment properties
Proceeds from sale of fixed assets
Payments for acquisition of non-listed investments
Investments in joint ventures
Distributions received from joint ventures
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from non-current borrowings
Dividends paid to shareholders
Net cash generated (used in)/generated from financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of the year
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
Cash and cash equivalents at the year end are comprised of the following:
Cash
The Consolidated Cash Flow Statement should be read in conjunction with Note 25.
2018
2017
Notes
£000
£000
£000
£000
25
14,235
(7,595)
18,159
(8,051)
6,640
10,108
(900)
(1,806)
(153)
(340)
7,534
-
(175)
(8,809)
676
5,796
(6,114)
(12,136)
(10,612)
(498)
(586)
21,574
61
(1,950)
(4,250)
1,031
(3,973)
(7,366)
7,197
(5,928)
(318)
2,349
3,124
5,473
5,473
5,473
1,269
4,011
(887)
3,124
3,124
3,124
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
89
Financial Statements
Notes to the consolidated Financial Statements
Continued
1. ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these Consolidated Financial Statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
Town Centre Securities Plc (the Company) is a public limited company domiciled in the United Kingdom. Its shares are listed on the London
Stock Exchange. The Consolidated Financial Statements of the Company for the year ended 30 June 2018 comprise the Company and its
subsidiaries (together referred to as the Group). The address of its registered office is Town Centre House, The Merrion Centre, Leeds, LS2 8LY.
Basis of Preparation
Statement of compliance
The Consolidated Financial Statements of Town Centre Securities Plc have been prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union, IFRIC Interpretations and the Companies Act 2006.
Income and cash flow statements
The Group presents its Income Statement by nature of expense. The Group reports cash flows from operating activities using the indirect
method. The acquisitions of investment properties are disclosed as cash flows from investing activities because this most appropriately
reflects the Group’s business activities. Cash flows from investing and financing activities are determined using the direct method.
Preparation of the Consolidated Financial Statements
The Consolidated Financial Statements have been prepared under the historical cost convention as modified by the revaluation of the Group’s
property interests and other investments.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. Changes in assumptions may have
a significant impact on the financial statements in the period the assumptions are changed. Management believes that the underlying
assumptions are appropriate. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates
are significant to the Consolidated Financial Statements, are disclosed in Note 2.
Changes in accounting policy and disclosure
a) Standards, amendments to published standards and interpretations effective for the period ended 30 June 2018
There are no IFRSs or IFRIC interpretations that are effective for the first time for the period ended 30 June 2018 that have had a material
effect on the Group.
b) New standards, amendments to published standards and interpretations issued but not effective for the period ended 30 June 2018
and not early adopted
The effect of IFRS 15 is still being assessed by the Directors but is not expected to have a material impact on the Group.
The effect of IFRS 9 is still being assessed by the Directors and may impact the classification of assets currently held as available for sale.
The effect of IFRS 16 is still being assessed by the Directors and is not expected to have a material impact on net asset value but is expected
to result in a significant increase in the value of both assets and liabilities.
Going concern
The Directors have reviewed the cash flow forecasts of the Group and the underlying assumptions on which they are based. The Consolidated
Financial Statements include details of bank and debenture facilities and of investment properties at open market value. The Group uses
external valuers to determine the value of properties and these values are used in the assessment of loan to value covenants, compliance
with which is reviewed on a regular basis.
The Group’s business activities, together with the factors likely to affect its future development, are set out in the Chairman and Chief
Executive’s Statement. In addition, the Directors considered the accounting polices note which includes the Group’s objectives, policies
and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities
and its exposure to credit and liquidity risk.
The Board considers that it has adequate financial resources (as set out in Note 18), tenants with appropriate leases and covenants, and
properties of sufficient quality to enable it to conclude that it is well placed to manage its business risks in the current economic climate.
The Directors have therefore concluded that the Group has adequate resources to continue in operational existence for the foreseeable
future and continue to adopt the going concern basis of accounting in preparing the Consolidated Financial Statements.
Consolidation
a) Subsidiaries
Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power
to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these
elements of control.
De-facto control exists in situations where the company has the practical ability to direct the relevant activities of the investee without holding
the majority of the voting rights. In determining whether de-facto control exists the company considers all relevant facts and circumstances,
including:
- The size of the company’s voting rights relative to both the size and dispersion of other parties who hold voting rights
- Substantive potential voting rights held by the company and by other parties
- Other contractual arrangements
- Historic patterns in voting attendance.
The consolidated financial statements present the results of the company and its subsidiaries (“the Group”) as if they formed a single entity.
Intercompany transactions and balances between Group companies are therefore eliminated in full.
The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement
of financial position, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the
acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date
on which control is obtained. They are deconsolidated from the date on which control ceases.
90
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Notes to the consolidated Financial Statements
Continued
1. ACCOUNTING POLICIES continued
(b) Joint Arrangements
A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to
joint control.
Investments in joint ventures are accounted for using the equity method of accounting and are initially recognised at cost.
The Group’s share of its joint ventures post-acquisition profits or losses is recognised in the Income Statement. Investments in joint ventures
are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of net assets of the joint ventures less
any impairment in the value of the investment.
Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint
venture. Accounting policies of joint ventures have been changed where necessary to ensure consistency with the policies adopted by
the Group.
Segmental Reporting
An operating segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns
that are different from those of other business segments.
The Group operates in three business segments comprising property rental, car park operations and hotel operations. The Group’s
operations are performed wholly in the United Kingdom.
The chief operating decision-maker has been identified as the Board. The Board reviews the Group’s internal reporting in order to assess
performance and allocate resources. Management has determined the operating segments based on these reports.
Non-Current Assets
a) Investment properties
Investment property comprises freehold land and buildings and long-leasehold buildings. This comprises mainly retail units, offices and
operational car parks, and is measured initially at cost, including related transaction costs. These are held as investments to earn rental
income and for capital appreciation and are stated at fair value at the balance sheet date.
The acquisition or disposal of investment property is recognised at the point of unconditional exchange.
Investment properties held under finance leases are initially valued at the present value of minimum lease payments payable over the term
of the lease.
After initial recognition investment property is carried at fair value, based on market values. It is then determined twice annually by
independent external valuers or held at Directors’ valuation if appropriate. The gains or losses arising from these valuations are included
in the Consolidated Income Statement. When an existing investment property is redeveloped for continued future use as an investment
property, it remains an investment property whilst in development.
The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income
from future leases in light of current market conditions.
Subsequent expenditure is added to the asset’s carrying amount only when it is probable that future economic benefits associated with the
item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the
Consolidated Income Statement during the financial period in which they are incurred.
Borrowing costs associated with direct expenditure on properties undergoing major refurbishment are capitalised. The amount is calculated
using the Group’s weighted average cost of borrowing.
Property that is being constructed or developed for future use as an investment property is also classified as investment property under the
sub-heading development property and is stated at fair value.
The gain or loss arising on the disposal of investment properties is determined as the difference between the net sale proceeds and the
carrying value of the asset at the beginning of the period and is recognised in the Consolidated Income Statement of the period during
which the sale becomes unconditional. In circumstances where the conditional exchange of contracts and the completion of the disposal
fall on either side of the balance sheet date, the asset is re-classified as a current asset in the Consolidated Balance Sheet.
Freehold land held for development is not depreciated.
(b) Freehold and leasehold properties
Freehold and leasehold properties are initially recognised at cost and are subsequently carried at fair value, based on periodic valuations
by a professionally qualified valuer. These revaluations are made with sufficient regularity to ensure that the carrying amount does not differ
materially from that which would be determined using fair value at the end of the reporting period. Changes in fair value are recognised in
other comprehensive income and accumulated in the revaluation reserve except to the extent that any decrease in value in excess of the
credit balance on the revaluation reserve, or reversal of such a transaction, is recognised in profit or loss. Freehold land is not depreciated.
Properties held under finance leases are initially valued at the present value of minimum lease payments payable over the term of the lease.
Depreciation on assets under construction does not commence until they are complete and available for use. Depreciation is provided on
all other items within this category so as to write off their carrying value over their expected useful economic lives.
At the date of revaluation, the accumulated depreciation on the revalued freehold property is eliminated against the gross carrying amount
of the asset and the net amount is restated to the revalued amount of the asset. On disposal of the asset the balance of the revaluation
reserve is transferred to retained earnings.
(c) Fixtures, equipment and motor vehicles
Fixtures, equipment and motor vehicles are shown at historical cost less depreciation and provision for impairment. Historic cost includes
expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight line basis at rates appropriate
to write off individual assets over their estimated useful lives of between three and ten years.
The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. An asset’s carrying amount
is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in the
Consolidated Income Statement.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
91
Financial Statements
Notes to the consolidated Financial Statements
Continued
1. ACCOUNTING POLICIES continued
Fair Value
Fair value estimation under IFRS 13 requires the Group to classify for disclosure purposes fair value measurements using a fair value hierarchy
that reflects the significance of the inputs used in making the measurements on its financial assets. The fair value hierarchy has the following
levels:-
- Level (1) quoted prices (unadjusted) in active markets for identical assets or liabilities;
- Level (2) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices); and
- Level (3) inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The fair value of assets held for sale, other financial assets and investment property are determined by using valuation techniques. See note 2
for further details of the judgements and assumptions made in relation to investment properties.
Goodwill Goodwill represents the excess of the cost of a business combination over the Group’s interest in the fair value of identifiable assets,
liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued.
Direct costs of acquisition are recognised immediately as an expense. Goodwill is capitalised as an intangible asset with any impairment
in carrying value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets,
liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the Consolidated Statement of
Comprehensive Income on the acquisition date.
Impairment of assets
Assets other than investment properties are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of any asset’s fair value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Investments
The Group classifies its listed and unlisted investments as available for sale financial assets.
Available for sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories
of financial assets.
Purchases and sales of investments are recognised on the trade date, which is the date the Group commits to purchase or sell the asset.
Investments are initially recognised at fair value plus transaction costs. Investments are derecognised when the rights to receive cash flows
from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.
Available for sale financial assets are subsequently carried at fair value. The fair values of listed investments are based on current bid prices.
Unrealised gains and losses arising from changes in the fair value of securities classified as available for sale are recognised in equity. When
securities classified as available for sale are sold, the accumulated fair value adjustments are included in the Income Statement as gains and
losses from investment securities.
Dividends on available for sale equity instruments are recognised in the Consolidated Income Statement when the Group’s right to receive
payment is established.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is
impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below
its cost is considered in determining whether the securities are impaired. If any such evidence exists for available for sale financial assets, the
cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial
asset previously recognised in profit or loss – is removed from equity and recognised in the Consolidated Income Statement.
Investments in equity instruments that do not have a quoted price in an active market and whose fair value cannot be reliably measured due
to the range of reasonable fair value measurements obtained being significant are measured at cost.
Operating leases
(a) A Group company is the lessee
Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made
under operating leases (net of any incentives received from the lessor) are charged to the Consolidated Income Statement on a straight line
basis over the period of the lease.
(b) A Group company is the lessor
Properties leased to third parties under operating leases are included in investment property in the Consolidated Balance Sheet. The leases
in our portfolio have a wide variety of term and tenures and there is no standard.
Unamortised tenant lease incentives
Leasehold incentives given to tenants on entering property leases are recognised as unamortised lease incentives. The operating lease
incentives are spread over the non-cancellable life of the lease. Where this ends with a clean break clause the incentives are spread to this
date unless management is reasonably certain that the break will not be exercised.
Trade receivables
Trade receivables are recognised initially at fair value and are subsequently measured at cost less provision for impairment. A provision
for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts
due according to the original terms of the receivables concerned. The amount of the provision is recognised in the Consolidated Income
Statement.
Held for sale assets
Held for sale assets are investment properties which are designated as available for sale and not recognised in any of the categories above.
Held for sale assets are held at fair value and are derecognised when the Group has transferred substantially all the risks and rewards of
ownership.
92
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Notes to the consolidated Financial Statements
Continued
1. ACCOUNTING POLICIES continued
Cash and cash equivalents
Cash and cash equivalents are carried in the Consolidated Balance Sheet at cost. Cash and cash equivalents comprise cash in hand, deposits
held at call with banks, other short-term, highly liquid investments with original maturities of three months or less and bank overdrafts. Bank
overdrafts are included within borrowings in current liabilities on the Consolidated Balance Sheet. Where there is a formal legal arrangement
with a right to offset the net position of the individual accounts will be presented in cash or current liabilities as appropriate.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
Borrowings
Borrowings are recognised net of transaction costs incurred. Debt finance costs are amortised based on the effective interest rate.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date.
Leased assets
Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a “finance lease”),
the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased
property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment
is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated
statement of comprehensive income over the period of the lease and is calculated so that it represents a constant proportion of the lease
liability. The capital element reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership
are not transferred to the Group (an “operating lease”), the total rentals payable under the lease are charged to the consolidated statement of
comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of
the rental expense over the lease term on a straight-line basis.
Cash flow hedges
Where a derivative is designated as a hedge of the variability of a highly probable forecast transaction, e.g. an interest payment, the element
of the gain or loss on the derivative that is an effective hedge is recognised directly in equity. When the forecast transaction subsequently
results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognised directly in equity are
reclassified into the Consolidated Income Statement in the same period or periods during which the asset acquired or liability assumed affects
the Consolidated Income Statement, i.e. when interest income or expense is recognised.
Taxation
The tax charge in the Consolidated Income Statement comprises tax currently payable.
Town Centre Securities Plc elected for Group Real Estate Investment Trust (REIT) status with effect from 2 October 2007. As a result the Group
no longer pays United Kingdom corporation tax on the profits and gains from its qualifying rental business in the United Kingdom provided it
meets certain conditions. Non-qualifying profits and gains of the Group continue to be subject to corporation tax as normal. On entering the
REIT regime an entry charge equal to 2% of the aggregate market value of the properties associated with the qualifying rental business was
payable. Deferred tax accrued at the date of conversion in respect of the assets and liabilities of the qualifying rental business was released
to the Income Statement as the relevant temporary differences are no longer taxable on reversal.
In respect of non-qualifying activities and related profits, gains and losses:
(a) Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the Consolidated Financial Statements. However, no provision for deferred tax is made for temporary
differences arising on the initial recognition of assets or liabilities that affect neither accounting nor taxable profit or loss. Deferred tax is
determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply
when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation
authority and the Group is entitled to settle its current tax assets and liabilities on a net basis.
(b) Current tax
The charge for current tax is based on the results for the period as adjusted for items which are non-assessable or disallowed. It is calculated
using rates of tax that have been enacted by the balance sheet date.
Employee benefits
The Group operates defined contribution arrangements for all eligible Directors and employees. A defined contribution plan is a pension plan
under which the Group pays contributions into a private or publicly administered pension insurance plan. Pension costs are charged to the
Consolidated Income Statement in the period when they fall due. Pre-paid contributions are recognised as an asset to the extent that a cash
refund or a reduction in future payments is available.
Revenue recognition
(a) Rental income
Revenue includes the fair value of rental income and management charges from properties (net of Value Added Tax).
This income is recognised as it falls due, in accordance with the lease to which it relates. Any lease incentives are spread evenly across the
period of the lease.
This income is recognised as follows:
i) rental income is recognised on an accrual basis on a straight line basis over the term of the lease;
ii) turnover rents are based on underlying turnover and are recognised in the period to which the turnover relates; and
iii) rent reviews are recognised with effect from the review date.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
93
Financial Statements
Notes to the consolidated Financial Statements
Continued
1. ACCOUNTING POLICIES continued
(b) Car park income
Contract car park income is recognised as revenue as it falls due, in accordance with the contract to which it relates. Daily car park income is
recognised when received.
(c) Hotel income
Room revenue is recognised on a daily basis in accordance with the date of the overnight stay. Food and beverage revenue is recognised at
the point of sale.
(d) Interest income
Interest income on any short-term deposits is recognised in the Consolidated Income Statement as it accrues.
(e) Other income
Other income includes dividend income, which is recognised when the right to payment is established and surrender premiums or lease
assignments received from outgoing tenants prior to the termination of their lease.
(f) Service charge income
Service charge income receivable from tenants relating to management fees is credited to gross income in the Consolidated Income
Statement and recognised in line with the underlying contractual arrangement, i.e. when the service is provided.
Dividend distribution
Dividend distributions to the Company’s shareholders are recognised in the Consolidated Financial Statements in the period in which the
dividends are approved by the Company’s shareholders.
Reserves
Reserves are analysed in the following categories:
- Share capital represents the nominal value of issued share capital.
- Share premium represents any consideration received in excess of nominal value of the shares issued.
- Capital redemption reserve represents the nominal value of the Company’s own shares that have been repurchased and cancelled.
- Revaluation reserve represents the surplus valuation movement upon revaluation of freehold and leasehold property relating to car park activities.
- Retained earnings represents the cumulative profit or loss position less dividend distributions.
Financial risk management
The Group’s activities expose it to a variety of financial risks: credit risk, liquidity risk, cash flow and fair value interest rate risk, capital risk and
price risk.
(a) Credit risk
The Group has no significant concentrations of credit risk. It has policies in place to ensure that rental contracts are made with customers
with an appropriate credit history. The Group has policies that limit the amount of credit exposure to any financial institution. The Group has no
significant concentration of credit risk as exposure is spread over a large number of counterparties and tenants.
(b) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an
adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying
businesses, Group treasury policy aims to maintain flexibility in funding by keeping committed credit lines available.
(c) Cash flow and fair value interest rate risk
The Group has no significant interest bearing assets. Borrowings issued at variable rates expose the Group to cash flow interest rate risk.
The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash
flows. Interest costs may increase as a result of such changes. They may reduce profits or create losses in the event that unexpected
movements arise.
The Group continually reviews interest rates and interest rate risk and has a policy of monitoring the costs and benefits of interest rate fixing
instruments with a view to hedging exposure to interest rate risk on a regular basis.
At 30 June 2018, 54.5% (2017: 56.4%) of the Group’s borrowings were under long term fixed rate agreements and therefore were protected
against future interest rate volatility.
(d) Capital risk
The Group’s objective in managing capital is to maintain a strong capital base to support current operations and planned growth and to
provide for an appropriate level of dividend payments to shareholders.
The Group is not subject to external regulatory capital requirements.
(e) Price risk
Current asset investments are subject to price risk as a result of fluctuations in the market. The Group limits the amount of exposure by
continually assessing the performance of these investments.
(f) Compliance with covenants
The Group’s bank facilities and the mortgage debenture stock include a number of covenants principally relating to income and capital cover.
The Directors monitor performance against these covenants on a regular basis.
94
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Notes to the consolidated Financial Statements
Continued
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the
related actual results. The only estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value
amounts of assets and liabilities within the next financial year are the Group’s property investments. The basis of valuation is set out in Note 12.
3. 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.
(A) SEGMENT ASSETS
Property rental
Car park activities
Hotel operations
2018
£000
2017
£000
379,901
364,120
30,659
29,773
11,900
-
422,460
393,893
(B) SEGMENTAL RESULTS
2018
2017
Gross revenue
Service charge income
Service charge expenses
Property expenses
NET REVENUE
Administrative expenses
Other income
Share of post-tax profits from joint ventures
Property
rental
£000
Car park
activities
£000
Hotel
operations
£000
Total
£000
Property
rental
£000
Car park
activities
£000
Total
£000
15,891
11,516
2,771
30,178
16,571
10,969
27,540
2,556
(3,387)
-
-
-
-
2,556
2,346
(3,387)
(3,284)
-
-
2,346
(3,284)
(1,210)
(6,537)
(2,318)
(10,065)
(958)
(6,252)
(7,210)
13,850
(5,627)
888
1,196
4,979
(947)
-
-
453
19,282
14,675
4,717
19,392
-
-
-
(6,574)
(5,465)
(830)
(6,295)
888
1,196
707
871
-
-
707
871
OPERATING PROFIT BEFORE VALUATION MOVEMENTS
10,307
4,032
453
14,792
10,788
3,887
14,675
Valuation movement on investment properties
5,932
-
Reversal of impairment of car parking assets
-
1,300
Profit on disposal of investment properties
Valuation movement on joint venture properties
1,677
2,561
-
-
-
-
-
-
5,932
(2,085)
-
(2,085)
1,300
1,677
2,561
-
1,000
1,000
303
471
-
-
303
471
OPERATING PROFIT
Finance costs
PROFIT BEFORE TAXATION
Taxation
PROFIT FOR THE YEAR
20,477
5,332
453
26,262
9,477
4,887
14,364
(7,887)
18,375
-
18,375
(7,639)
6,725
-
6,725
All results are derived from activities conducted in the United Kingdom.
Hotel operations commenced in April 2017, however for the year ended 30 June 2017 the results were not material and have therefore been
included in the result of the property rental business.
The results for the car park activities 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 net revenue at the Merrion Centre and development sites for the year ended 30 June 2018, arising from car park operations, was
£3,658,000. After allowing for an allocation of administrative expenses, the operating profit at these sites was £2,962,000.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
95
Financial Statements
Notes to the consolidated Financial Statements
Continued
4. ADMINISTRATIVE EXPENSES
Employee benefits
Depreciation
Charitable donations
Other
5. SERVICES PROVIDED BY THE GROUP’S EXTERNAL AUDITORS
During the year the Group obtained the following services from the Group’s auditors at costs as detailed below:
Audit services:
– Fees payable to the Group auditors’ for the audit of the Consolidated Financial Statements
– Audit of the Company’s subsidiaries pursuant to legislation
– Other audit related services
Total audit services
Non-audit services:
– IT consultancy
– Financial due diligence
– Other non-audit services
Total other services
TOTAL AUDITORS’ REMUNERATION
6. EMPLOYEE BENEFITS
Wages and salaries (including Directors’ emoluments)
Social security costs
Other pension costs
2018
£000
2017
£000
3,919
3,844
339
116
2,200
6,574
318
78
2,055
6,295
2018
£000
2017
£000
82
10
18
110
35
-
4
39
149
60
10
20
90
-
25
4
29
119
2018
£000
2017
£000
4,700
4,002
575
90
527
93
5,365
4,622
Employee benefits detailed above are charged to the Consolidated Income Statement through administrative expenses and property
expenses.
Disclosures required by the Companies Act 2006 on Directors’ remuneration, including salaries, share options, pension contributions and
pension entitlement are included on pages 71 to 78 in the Directors’ Remuneration Report and form part of these Consolidated Financial
Statements.
The average monthly number of staff employed during the year was 140 (2017: 116).
The Group operates pension arrangements for the benefit of all eligible Directors and employees, which are defined contribution
arrangements. The assets of the arrangements are held separately from those of the Group in independently administered funds.
All of the pension costs in the table above relate to define contribution schemes.
96
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Notes to the consolidated Financial Statements
Continued
7. OTHER INCOME
Commission received
Dividends received
Management fees receivable
Dilapidations receipts and income relating to lease premiums
Other
8. FINANCE COSTS
Interest payable on debenture loan stock
Interest payable on bank borrowings
Amortisation of arrangement fees
Interest capitalised
TOTAL FINANCE COSTS
9. TAXATION
2018
£000
142
29
198
438
81
888
2018
£000
5,698
1,879
310
-
2017
£000
169
27
241
195
75
707
2017
£000
5,698
1,896
456
(411)
7,887
7,639
Taxation for the year is lower (2017: lower) than the standard rate of corporation tax in the United Kingdom of 19% (2017: 20%).
The differences are explained below:
Profit before taxation
Profit on ordinary activities multiplied by rate of corporation tax in the United Kingdom of 19% (2017: 20%)
Effects of:
– United Kingdom REIT tax exemption on net income before revaluations
– United Kingdom REIT tax exemption on revaluations
– Profit on joint ventures already taxed
TOTAL TAXATION
2018
£000
18,375
3,491
2017
£000
6,725
1,345
(1,630)
(1,556)
(1,861)
-
-
217
(6)
-
FACTORS AFFECTING CURRENT AND FUTURE TAX CHARGES
Town Centre Securities Plc elected for Group REIT status with effect from 2 October 2007. As a result the Group no longer pays United
Kingdom corporation tax on the profits and gains from its qualifying rental business in the United Kingdom provided it meets certain
conditions. Non-qualifying profits and gains of the Group continue to be subject to corporation tax as normal.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
97
Financial Statements
Notes to the consolidated Financial Statements
Continued
10. DIVIDENDS
2016 final paid: 7.90p per share
2017 interim paid: 3.25p per share
2017 final paid: 8.25p per share
2018 interim paid: 3.25p per share
2018
£000
-
-
4,386
1,728
2017
£000
4,200
1,728
-
-
6,114
5,928
An interim dividend in respect of the year ended 30 June 2018 of 3.25p per share was paid to shareholders on 22 June 2018. This dividend was
paid entirely as a Property Income Distribution (PID).
A final dividend in respect of the year ended 30 June 2018 of 8.5p per share is proposed. This dividend, based on the shares in issue at 26
September 2018, amounts to £4.5m which has not been reflected in these accounts and will be paid on 4 January 2019 to shareholders on
the register on 7 December 2018. This entire dividend will be paid as a PID.
11. EARNINGS PER SHARE
The calculation of basic earnings per share has been based on the profit for the year, divided by the weighted average number of shares in
issue. The weighted average number of shares in issue during the year was 53,161,950 (2017: 53,161,950).
Profit for the year and earnings per share
Valuation movement on investment properties
Reversal of impairment of car parking assets
Valuation movement on properties held in joint ventures
Profit on disposal of investment and development properties
EPRA EARNINGS AND EARNINGS PER SHARE
2018
2017
Earnings
£000
18,375
(5,932)
(1,300)
(2,561)
(1,677)
6,905
Earnings
per share
p
Earnings
£000
Earnings
per share
p
34.6
(11.2)
(2.4)
(4.8)
(3.2)
13.0
6,725
2,085
(1,000)
(471)
(303)
7,036
12.7
3.9
(1.9)
(0.9)
(0.6)
13.2
There is no difference between basic and diluted earnings per share and EPRA earnings per share.
12. NON-CURRENT ASSETS
(A) INVESTMENT PROPERTIES
Valuation at 30 June 2016
Additions at cost
Other capital expenditure
Interest capitalised
Disposals
(Deficit)/surplus on revaluation
Transfers
Movement in tenant lease incentives
Valuation at 30 June 2017
Additions at cost
Other capital expenditure
Disposals
(Deficit)/surplus on revaluation
Transfers
Movement in tenant lease incentives
VALUATION AT 30 JUNE 2018
98
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Freehold
£000
Long
leasehold
£000
Development
£000
Total
£000
273,010
22,701
29,602
325,313
4,074
12,174
176
(18,596)
(6,444)
12,612
(145)
-
40
-
-
(132)
-
-
8,260
235
(2,675)
4,491
(12,612)
-
4,074
20,474
411
(21,271)
(2,085)
-
(145)
276,861
22,609
27,301
326,771
9,483
1,656
(9,507)
(3,326)
900
1,851
-
-
(15)
(2)
(900)
-
-
140
-
9,260
-
-
9,483
1,796
(9,522)
5,932
-
1,851
277,918
21,692
36,701
336,311
Financial Statements
Notes to the consolidated Financial Statements
Continued
(B) FREEHOLD AND LEASEHOLD PROPERTIES - CAR PARK ACTIVITIES
Valuation at 1 July 2016
Additions
Depreciation
Surplus on revaluation
Reversal of impairment
Valuation at 30 June 2017
Additions
Depreciation
Deficit on revaluation
Reversal of impairment
Freehold
£000
Long
leasehold
£000
2,000
19,075
-
-
-
-
2,000
-
-
-
1,000
498
(178)
100
1,000
20,495
153
(175)
(350)
300
Total
£000
21,075
498
(178)
100
1,000
22,495
153
(175)
(350)
1,300
VALUATION AT 30 JUNE 2018
3,000
20,423
23,423
The historical cost of freehold and leasehold properties relating to car park activities is £22,425,000 (2017: £22,245,000).
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.
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 have also 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.
Retail and Leisure
Merrion Centre (excluding offices)
Offices
Hotels
Out of town retail
Distribution
Residential
Development Property
Car Parks
Finance lease adjustments
Passing Rent
£000
3,646
7,366
2,235
1,180
2,919
392
596
ERV
£000
4,127
7,867
2,648
1,630
Value
£000
67,610
97,700
35,442
27,150
3,611
52,050
386
621
5,750
10,865
Initial
Yield
%
5.1%
7.1%
6.0%
4.1%
5.3%
6.4%
5.2%
18,334
20,890
296,567
5.8%
Reversionary
Yield
%
5.8%
7.6%
7.1%
5.7%
6.6%
6.3%
5.4%
6.7%
36,701
22,022
4,444
359,734
The effect on the valuation of applying a different yield and a different ERV would be as follows:
Valuation in the Consolidated Financial Statements at an initial yield of 6.8% - £316.4m, Valuation at 4.8% - £420.9m.
Valuation in the Consolidated Financial Statements at a reversionary yield of 7.7% - £321.0m, Valuation at 5.7% - £412.1m.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
99
Financial Statements
Notes to the consolidated Financial Statements
Continued
Property valuations can be reconciled to the carrying value of the properties in the balance sheet as follows:
Externally valued by CBRE
Externally valued by Jones Lang LaSalle
Acquisitions recognised at cost
Investment properties valued by the Property Director
Finance lease obligations capitalised
Leasehold improvements
Investment
Properties
£000
Freehold
and Leasehold
Properties
£000
Total
£000
199,375
126,060
9,483
251
1,142
-
-
199,375
16,300
142,360
-
-
3,302
3,821
9,483
251
4,444
3,821
336,311
23,423
359,734
Leasehold improvements primarily relate to expenditure incurred on the refurbishment of three car parks in Watford that are held under
operating leases.
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 years) both the independent valuers and the Property Director 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.
(C) FIXTURES, EQUIPMENT AND MOTOR VEHICLES
At 1 July 2016
Additions
Disposals
Depreciation
At 30 June 2017
Net book value at 30 June 2017
At 1 July 2017
Additions
Disposals
Depreciation
AT 30 JUNE 2018
NET BOOK VALUE AT 30 JUNE 2018
13. GOODWILL
AT THE START AND END OF THE YEAR
Cost
£000
4,373
586
(140)
-
4,819
4,819
339
(1,526)
-
3,632
Accumulated
depreciation
£000
2,222
-
(103)
728
2,847
1,972
2,847
-
(1,517)
758
2,088
1,544
2018
£000
2017
£000
4,024
4,024
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. These transactions relate to businesses that held car parks
under operating leases with a net asset value of £nil. Goodwill therefore represents the full consideration of these acquisitions.
A review of the year end carrying value has been performed to identify any potential impairment. This has been based on the discounted
future cash flows that are expected to be generated by the assets acquired. The cash generating units are the individual car parks acquired.
The key assumptions used in preparing these cash flow forecasts are an underlying revenue growth rate of 1% (2017: 1%) and a discount rate
of 8% (2017: 8%). The assumptions used in the cash flow are based on historical experience of the sector.
As the discounted future cash flows are in excess of the year end carrying value, no impairment of the carrying value is required.
100
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Notes to the consolidated Financial Statements
Continued
14. INVESTMENTS IN JOINT VENTURES
At the start of the year
Investments in joint ventures
Disposal of joint venture interest
Dividends and other distributions received in the year
Share of profits after tax
AT THE END OF THE YEAR
2018
£000
2017
£000
27,852
8,809
-
(676)
3,757
39,742
25,093
4,250
(1,800)
(1,033)
1,342
27,852
Investments in joint ventures primarily relate to the Group’s interest in Merrion House LLP and Belgravia Living Group Limited.
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:
Non-current assets
Current assets
Current liabilities
NET ASSETS
The profits of Merrion House LLP for the current and previous year are as stated below:
Revenue
Expenses
Valuation movement on investment properties
NET PROFIT
Belgravia Living Group Limited owns a leasehold interest in some development land at Piccadilly Basin, Manchester and is currently
constructing a block of residential apartments. The Group’s financial interest in this joint venture is primarily in the form of a loan with
a value as at 30 June 2018 of £5.1m (2017: £1.0m).
The net assets of Belgravia Living Group for the current and previous year are as stated below:
2018
£000
Non-current assets
Current assets
Current liabilities
Non-current liabilities
NET LIABILITIES
The profits of Belgravia Living Group Limited for the current and previous year are as stated below:
Expenses
NET PROFIT
10,466
363
(9,745)
(1,129)
(45)
2018
£000
(31)
(31)
2018
£000
2017
£000
69,400
53,860
1,754
(1,374)
69,780
2018
£000
2,134
(92)
2,042
5,691
7,733
431
(1,839)
52,452
2017
£000
1,400
(109)
1,291
941
2,232
2017
£000
3,876
-
(3,890)
-
(14)
2017
£000
(14)
(14)
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
101
Financial Statements
Notes to the consolidated Financial Statements
Continued
The Group’s interest in other joint ventures are not considered to be material.
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:
Merrion House LLP
Belgravia Living Group Limited
Bay Sentry Limited
15. INVESTMENTS
Current asset investments
At the start of the year
Increase in value of investments
AT THE END OF THE YEAR
Beneficial
Interest %
Activity
50
50
50
Property investment
Property investment
Software Development
2018
£000
2,394
1,136
3,530
2017
£000
2,070
324
2,394
Current asset investments relate to an equity shareholding in a company listed on the London Stock Exchange. This is stated at market value in
the table above and has a historic cost of £889,130 (2017: £889,130).
Current asset investments are measured at fair value in the consolidated balance sheet and are categorised as level 1 in the fair value hierarchy
as defined in IFRS13 as the inputs to the valuation are based on quoted market prices.
The maximum risk exposure at the reporting date is the fair value of the current asset investments.
Non-current asset investments
Equity investments
Loans
2018
£000
590
1,535
2,125
2017
£000
415
1,535
1,950
Non-current asset investments primarily relate to an equity shareholding and loans advanced to YourParkingSpace Limited, a privately owned
company incorporated in the United Kingdom.
The investment is valued at cost on the basis the fair value cannot be reliably measured.
16. TRADE AND OTHER RECEIVABLES
Trade receivables
Less: provision for impairment of receivables
Other receivables and prepayments
2018
£000
1,539
(458)
1,081
5,207
6,288
2017
£000
1,810
(435)
1,375
1,936
3,311
The Directors consider that the carrying amount of net trade receivables approximates their fair value. The credit risk in respect of trade
receivables is not concentrated as the Group has many tenants spread across a number of industry sectors. In addition, the tenants’ rents
are payable in advance.
102
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Annual Report and Accounts 2018
Financial Statements
Notes to the consolidated Financial Statements
As at 30 June 2018, trade receivables which had not been impaired can be analysed as follows:
2018
2017
Total
£000
1,081
1,375
Movements in the Group provision for impairment of trade receivables are as follows:
At the start of the year
Provision for receivables impairment
Receivables written off as uncollectible
Provision held within acquired subsidiaries
Unused amounts reversed
AT THE END OF THE YEAR
The ageing of the provision is as follows:
2018
2017
Outside credit terms
Within credit
terms
£000
Less than
one month
£000
One to two
months
£000
Older than
two months
£000
1,006
1,050
11
226
7
63
2018
£000
435
211
(160)
-
(28)
458
57
36
2017
£000
380
48
(16)
30
(7)
435
Total
£000
458
435
Less than
one month
£000
One to two
months
£000
Older than
two months
£000
141
8
33
27
284
400
Other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of trade
receivables as mentioned above.
The Group does not hold any material collateral as security.
In assessing whether trade receivables are impaired, each debt is considered on an individual basis and provision is made based on specific
knowledge of each tenant, together with the consideration of appropriate economic market indicators.
17. TRADE AND OTHER PAYABLES
Trade payables
Social security and other taxes
Other payables and accruals
2018
£000
140
816
19,322
20,278
2017
£000
35
449
10,362
10,846
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
103
Financial Statements
Notes to the consolidated Financial Statements
Continued
18. FINANCIAL LIABILITIES - BORROWINGS
All the Group’s borrowings are either at floating or fixed rates of interest. The Group takes on exposure to fluctuations in interest rates on its
financial position and its cash flows. Interest costs may increase or decrease as a result of such changes.
Non-current
Bank borrowings
Finance leases
5.375% First mortgage debenture stock
TOTAL BORROWINGS
The movement in financial liabilities during the year can be summarised as follows:
Balance at 30 June 2017
Cash Items
Borrowings drawn down
Arrangement fees paid
Total Cash Items
Non-Cash Items
Amortisation of arrangement fees
Movement in finance leases
Total Non-Cash Items
BALANCE AT 30 JUNE 2018
2018
£000
2017
£000
87,759
4,444
81,663
4,462
105,854
105,844
198,057
191,969
£000
191,969
6,500
(704)
5,796
310
(18)
292
198,057
The debenture, bank loans and overdrafts are secured by fixed charges on properties, valued at £339,485,000 (2017: £340,065,000) owned
by the Company and its subsidiary undertakings.
The Group has an overdraft pooling facility in place with Lloyds Bank. This facility includes the right to offset, therefore the net position of all
accounts that fall under this facility have been presented as the Group’s cash balance at year end.
The gross cash and overdraft balances on the individual accounts are summarised as follows:
Cash balances
Overdrawn balances
CASH AND CASH EQUIVALENTS
2018
£000
2017
£000
23,149
17,984
(17,676)
(14,860)
5,473
3,124
104
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Notes to the consolidated Financial Statements
Continued
The Group’s remaining contractual non-discounted cashflows for financial liabilities is set out below:
2018
2017
Trade and
other creditors
£000
Bank
borrowings
£000
Debenture
stock
£000
Finance
leases
£000
Total
£000
Trade and
other creditors
£000
Bank
borrowings
£000
Debenture
stock
£000
Finance
leases
£000
Total
£000
In one year or less or on demand
20,278
2,130
5,698
211
28,317
6,553
1,654
5,698
212
14,117
In more than one year but not
more than five years
In more than five years
-
-
93,919
22,790
830
117,539
-
153,860
17,785
171,645
-
-
83,419
22,790
836
107,045
-
159,159
18,008
177,167
20,278
96,049
182,348
18,826
317,501
6,553
85,073
187,647
19,056
298,329
The debenture issue premium is net of issue costs and is amortised over the life of the debt agreement.
The numbers disclosed in the maturity profile above have been calculated to include notional interest payments, using the interest rates
prevailing at the balance sheet date. The calculation is based on the assumption that the level of borrowings remains unchanged until maturity.
The Group had undrawn committed floating rate bank facilities as follows:
Expiring in one year or less
Expiring in more than one year
19. FINANCIAL INSTRUMENTS
2018
£000
-
2017
£000
-
14,500
26,000
14,500
26,000
The Group finances its operations through a combination of retained cash flows, debentures, finance leases and bank borrowings. Procedures
are in place to monitor interest rate risk as considered appropriate by management. Numerical financial instruments disclosures are set out
below. Additional disclosures are set out in the accounting policies relating to financial risk management. The carrying value of short-term
receivables and payables approximate to their fair values. All financial liabilities are denominated in Sterling.
Interest rate risk
The interest rate risk of the Group’s financial liabilities is as follows:
Debenture stock
Bank floating rate liabilities
Finance leases
As at 30 June 2018
As at 30 June 2017
Nominal
value
£000
Weighted
average
rate
%
Weighted
average
period
Years
106,001
5.375
88,500
4,444
198,945
2.41
5.0
13
3
119
Nominal
value
£000
106,001
82,000
4,462
192,463
Weighted
average
rate
%
Weighted
average
period
Years
5.375
2.03
5.0
14
2
120
Floating rate financial liabilities bear interest at rates for term loans based on LIBOR plus an average margin of 1.72% and for the overdraft of
2.00% above base rate.
Facilities provided by banks and other investors are a mixture of fixed rates and floating charge funding. Floating rate borrowings are exposed
to the risk of rising interest rates which the Group manages where necessary by the use of appropriate financial hedging instruments, primarily
interest rate swaps.
An increase in LIBOR by one percentage point would have reduced profit for the year by approximately £803,000 (2017: £839,000).
Financial instruments held for trading purposes
It is, and has been throughout the year under review, the Group’s policy not to trade in financial instruments.
Foreign currency exposure
The Group has no exposure to foreign currency as it has no overseas operations and all sales and purchases are made in Sterling.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
105
Financial Statements
Notes to the consolidated Financial Statements
Continued
Effective interest rates
The effective interest rates at the balance sheet date are set out below:
Bank overdraft facility
Bank borrowings
Debenture loan
Finance leases
Fair value of current borrowings
The fair value of bank borrowings and overdrafts approximate to their carrying value.
Fair value of non-current borrowings
Debenture stock
Non-current borrowings
2018
2.50%
2.41%
2017
2.25%
2.03%
5.375%
5.375%
5.0%
5.0%
2018
2017
Book value
£000
Fair value
£000
Book value
£000
Fair value
£000
105,854
111,347
87,759
87,759
105,844
81,663
110,176
81,663
The above debenture stock has been valued as at 30 June 2018 by J C Rathbone Associates on the basis of open market value. The fair
valuation of debenture stock is catagorised 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.
All financing liabilities are held at amortised cost.
Capital management
The Group manages its capital to ensure that entities in the Group will each be able to continue to operate as a going concern while maximising
the return to stakeholders through the optimisation of debt and equity. The capital structure of the Group consists of financial liabilities per note
18 and equity per the consolidated statement of changes in equity. The Group’s capital structure is reviewed regularly by the Directors.
The Group is not subject to externally imposed capital requirements.
20. FINANCE LEASES
The Group has a long leasehold interest in two properties that are classified as finance leases.
Future lease payments are as follows:
In one year or less on demand
In more than one year but not more than five years
In more than five years
Minimum
lease
payments
£000
211
836
2018
Interest
£000
211
836
17,785
13,341
18,832
14,388
Present
value
£000
-
-
4,444
4,444
Minimum
lease
payments
£000
212
836
18,008
19,056
2017
Interest
£000
212
836
13,546
14,594
Present
value
£000
-
-
4,462
4,462
21. EPRA NET ASSET VALUE PER SHARE
The Basic and EPRA net asset values are the same, as set out in the table below.
Net assets at 30 June
Shares in issue (000)
Basic and EPRA net asset value per share
106
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
2018
£000
2017
£000
204,125
191,078
53,162
384p
53,162
359p
Financial Statements
Notes to the consolidated Financial Statements
Continued
22. COMMITMENTS
The Group has no capital commitments (2017: £nil) in respect of capital expenditure contracted for at the balance sheet date but not yet
incurred, for investment and development property.
MINIMUM TOTAL FUTURE LEASE PAYMENTS RECEIVABLE:
Within one year
One to five years
In more than five years
2018
£000
2017
£000
14,224
15,838
45,444
69,086
88,591
91,496
The Group has a wide range of leases in place with tenants across a broad range of properties, sectors, tenures and rental values.
MINIMUM TOTAL FUTURE LEASE PAYMENTS PAYABLE:
Within one year
One to five years
In more than five years
2018
£000
1,411
5,643
26,922
2017
£000
1,370
5,482
27,619
Future lease commitments relate to five car parks operated under lease agreements. The annual rent for these car parks ranges from £175,000
to £400,000 and the remaining term on the leases are all less than 35 years.
The expense recognised in relation to operating lease agreements for the year ended 30 June 2018 was £1,400,000 (2017: £1,379,000).
23. CALLED UP SHARE CAPITAL
Authorised
The authorised share capital of the company is 164,879,000 (2017: 164,879,000) ordinary shares of 25p each.
The nominal value of authorised share capital is £41,219,750 (2017: £41,219,750).
Issued and fully paid up
AT 30 JUNE 2017 AND 30 JUNE 2018
Number of
shares
000
Nominal
value
£000
53,162
13,290
The Company has only one type of ordinary share class in issue. All shares have equal entitlement to voting rights and dividend distributions.
24. POST BALANCE SHEET EVENTS
On 23 July 2018, one of the Group’s joint ventures, Merrion House LLP, received an advance rent payment of £54.6m from a tenant. This cash
was distributed evenly between the joint venture partners and the Group therefore received £27.3m in cash (excluding costs) on the same day.
This cash has been used to pay down debt on the Revolving Credit Facilities.
On 13 July 2018 the Group purchased a property on Chiswick High Road in London for £1.6m plus costs.
On 28 August 2018, the Group announced the acquisition of The Cube, 123 Albion Street, Leeds for £12m plus costs. Contracts have been
exchanged and the completion of the purchase is set for 1 October 2018.
On 31 August the Group purchased a property on Gordon Street in Glasgow for £2.4m plus costs.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
107
Financial Statements
Notes to the consolidated Financial Statements
For the year ended 30 June 2018
25. CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the financial year
Adjustments for:
Depreciation
Profit on disposal of fixed assets
Profit on disposal of investment properties
Finance costs
Share of post tax profits from joint ventures
Movement in valuation of investment and development properties
Movement in lease incentives
Reversal of impairment of car parking assets
Decrease in receivables
Increase/(decrease) in payables
CASH GENERATED FROM OPERATIONS
2018
£000
2017
£000
18,375
6,725
933
-
(1,677)
7,887
(3,757)
(5,932)
(1,851)
(1,300)
144
1,413
14,235
905
(23)
(303)
7,639
(1,342)
2,085
145
(1,000)
4,192
(864)
18,159
26. REMUNERATION OF KEY MANAGEMENT PERSONNEL
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the
applicable categories specified in IAS 24 ‘Related Party Disclosures’. Further information about the remuneration of individual Directors is
provided in the audited part of the Directors’ Remuneration Report on page 74.
Short-term employee benefits
Post-employment benefits
2018
£000
12,332
66
2,398
2017
£000
1,826
38
1,864
108 TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Company Balance Sheet
As of 30 June 2018
FIXED ASSETS
Investment properties
Property, plant and equipment
Investments
CURRENT ASSETS
Investments
Debtors
Cash
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Financial liabilities – borrowings
Other creditors
NET CURRENT LIABILITIES
TOTAL ASSETS LESS CURRENT LIABILITIES
Financial liabilities – borrowings
NET ASSETS
EQUITY ATTRIBUTABLE TO THE OWNERS OF THE PARENT
Called up share capital
Share premium account
Capital redemption reserve
Other reserves
Profit and loss account
TOTAL SHAREHOLDERS’ FUNDS
COMPANY NUMBER: 623364
Notes
2018
£000
2017
£000
4
4
5
6
7
9
8
92,984
79,061
457
698
255,909
250,643
349,350
330,402
3,530
2,394
121,520
114,855
20
-
125,070
117,249
(16,270)
(13,057)
(131,709)
(119,251)
(147,979)
(132,308)
(22,909)
(15,059)
326,441
315,343
9
(193,613)
(187,507)
132,828
127,836
10
13,290
13,290
200
559
200
559
80,057
80,057
38,722
33,730
132,828
127,836
As permitted by Section 408 of the Companies Act 2006, the Parent Company’s Profit and Loss Account has not been included in these
financial statements. The profit shown in the financial statements of the Parent Company was £11,106,000 (2017: £6,500,000).
The financial statements on pages 111 to 118 were approved by the Board of Directors on 26 September 2018 and signed on its behalf by:
E M ZIFF OBE DL
Chairman and Chief Executive
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
109
Financial Statements
Statement of changes in equity
For the year ended 30 June 2018
BALANCE AT 1 JULY 2016
13,290
200
559
80,057
33,158
127,264
Called up
share
capital
£000
Share
premium
account
£000
Capital
redemption
reserve
£000
Other
reserve
£000
Retained
earnings
£000
Total
equity
£000
Comprehensive income for the year
Profit
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Contributions by and distributions to owners
Final dividend relating to the year ended 30 June 2016
Interim dividend relating to the year ended 30 June 2017
BALANCE AT 30 JUNE 2017
Comprehensive income for the year
Profit
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Contributions by and distributions to owners
Final dividend relating to the year ended 30 June 2017
Interim dividend relating to the year ended 30 June 2018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,500
6,500
6,500
6,500
(4,200)
(4,200)
(1,728)
(1,728)
13,290
200
559
80,057
33,730
127,836
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,106
11,106
11,106
11,106
(4,386)
(4,386)
(1,728)
(1,728)
BALANCE AT 30 JUNE 2018
13,290
200
559
80,057
38,722
132,828
110 TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Notes to the Company Financial Statements
1. ACCOUNTING POLICIES
Basis of Preparation
The Company Financial Statements have been prepared in accordance with FRS 102, (The Financial Reporting Standard applicable in
the United Kingdom and Republic of Ireland), the going concern basis, the historical cost convention as modified by the revaluation of
investment properties and certain investments and in accordance with the Companies Act 2006 and applicable law.
The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires
management to exercise judgement in applying the Company’s accounting policies (see note 2). The principal accounting policies, which
have been applied consistently, are as set out below:
Financial reporting standard 102 - reduced disclosure exemptions
The company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by the FRS
102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”:
• the requirements of Section 4 Statement of Financial Position paragraph 4.12(a)(iv);
• the requirements of Section 7 Statement of Cash Flows;
• the requirements of Section 3 Financial Statement Presentation paragraph 3.17(d);
• the requirements of Section 11 Financial Instruments paragraphs 11.41(b), 11.41(c), 11.41(e), 11.41(f), 11.42, 11.44 to 11.45, 11.47, 11.48(a)(iii), 11.48(a)
(iv), 11.48(b) and 11.48(c);
• the requirements of Section 12 Other Financial Instruments paragraphs 12.26 to 12.27, 12.29(a), 12.29(b) and 12.29A;
• the requirements of Section 33 Related Party Disclosures paragraph 33.7.
This information is included in the consolidated financial statements of Town Centre Securities Plc as at 30 June 2018 and these financial
statements may be obtained from Companies House, Cardiff CF4 3UZ.
Deferred Taxation
Town Centre Securities Plc elected for Group REIT status with effect from 2 October 2007. As a result the Company no longer pays United
Kingdom corporation tax on the profits and gains from qualifying rental business in the United Kingdom provided it meets certain conditions.
Non-qualifying profits and gains of the Company continue to be subject to corporation tax as normal. On entering the REIT regime an entry
charge equal to 2% of the aggregate market value of the properties associated with the qualifying rental business was payable. Deferred
tax accrued at the date of conversion in respect of the assets and liabilities of the qualifying rental business was released to the income
statement as the relevant temporary differences are no longer taxable on reversal. From 17 July 2012 there is no REIT entry charge payable
where the Company makes acquisitions of companies owning qualifying properties.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where
transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the
balance sheet date.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to
reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured
on an undiscounted basis.
Investment Properties
Investment properties are included in the accounts at open market values based on an independent external valuation, as at 30 June each
year, or held at Directors’ valuation. Movements in fair value are taken through the income statement.
Investments
The Company classifies its listed and unlisted investments as available for sale financial assets.
Available for sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories
of financial assets.
Purchases and sales of investments are recognised on the trade date, which is the date the Company commits to purchase or sell the
asset. Investments are initially recognised at fair value plus transaction costs. Investments are derecognised when the rights to receive cash
flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of
ownership. Available for sale financial assets are subsequently carried at fair value. The fair values of listed investments are based on current
bid prices. Unrealised gains and losses arising from changes in the fair value of securities classified as available for sale are recognised
in equity. When securities classified as available for sale are sold, the accumulated fair value adjustments are as gains and losses from
investment securities.
The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets
is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security
below its cost is considered in determining whether the securities are impaired.
Investments in equity instruments that do not have a quoted price in an active market and whose fair value cannot be reliably measured
due to the range of reasonable fair value measurements obtained being significant are measured at cost.
Investment Income
Income from investments is accounted for on the payment date of the dividends.
Investments in Subsidiary Undertakings
Investments in subsidiary undertakings are stated in the balance sheet of the Company at cost less impairment.
Trade Receivables
Trade receivables are recognised initially at fair value and are subsequently measured at cost less provision for impairment. A provision
for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts
due according to the original terms of the receivables concerned. The amount of the provision is recognised in the Consolidated Income
Statement.
Cash and cash receivables
Cash and cash equivalents are carried in the Balance Sheet at cost. Cash and cash equivalents comprise cash in hand, deposits held at call
with banks, other short-term, highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts
are included within borrowings in current liabilities on the Balance Sheet. Where there is a formal legal arrangement with a right to offset
the net position of the individual accounts will be presented in cash or current liabilities as appropriate.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
111
Financial Statements
Notes to the Company Financial Statements
Continued
Joint Ventures
A joint venture is a contractual arrangement whereby the Company and other parties undertake an economic activity that is subject to joint
control.
Investments in jointly controlled entities are valued at cost less impairment.
Turnover
Turnover, which excludes value added tax, represents the invoiced value of rent and services supplied to customers. Rental income is
accounted for as it falls due in accordance with the lease to which it relates.
Unamortised tenant lease incentives
Leasehold incentives given to tenants on entering property leases are recognised as unamortised lease incentives. The operating lease
incentives are spread over the non-cancellable life of the lease. Where this ends with a clean break clause the incentives are spread to this
date unless management is reasonably certain that the break will not be exercised.
Derivative financial instruments (derivatives) and hedge accounting
The Company occasionally uses interest rate swaps to help manage its interest rate risk. In accordance with its treasury policy, the Company
does not hold or issue derivatives for trading purposes.
The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its
risk management objectives and strategy for undertaking various hedging transactions. The Company also documents its assessment, both
at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in fair value or cash flows of hedged items.
All derivatives are initially recognised at fair value at the date the derivative is entered into and are subsequently re-measured at fair value.
The fair value of interest rate swaps is based on broker quotes.
The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument.
Cash flow hedges
Where a derivative is designated as a hedge of the variability of a highly probable forecast transaction, e.g. an interest payment, the element
of the gain or loss on the derivative that is an effective hedge is recognised directly in equity. When the forecast transaction subsequently
results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognised directly in equity are
reclassified into the Income Statement in the same period or periods during which the asset acquired or liability assumed affects the Income
Statement, i.e. when interest income or expense is recognised.
Reserves
Reserves are analysed in the following categories:
- Share capital represents the nominal value of issued share capital
- Share premium represents any consideration received in excess of nominal value of the shares issued
- Capital redemption reserve represents the nominal value of the Company’s own shares that have been repurchased and cancelled
- Other reserves relates to the revaluation of the company’s investments
- Retained earnings represents the cumulative profit or loss position less dividend distributions
2. JUDGEMENTS IN APPLYING ACCOUNTING POLICIES AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal
the related actual results. The only estimates and assumptions that have a significant risk of causing a material adjustment to the carrying
value amounts of assets and liabilities within the next financial year are investment properties (Note 4).
3. EMPLOYEE BENEFITS
Wages and salaries (including Directors’ emoluments)
Social security costs
Other pension costs
2018
£000
2,693
452
58
3,203
2017
£000
2,663
450
69
3,182
Employee benefits are charged to the Profit and Loss account through administrative expenses.
All of the pension costs in the table above relate to define contribution schemes.
The aggregate remuneration of the Directors of the Company was £2,398,000 (2017: £1,864,000).
The average monthly number of staff employed during the year was 56 (2017: 70). Disclosures required by the Companies Act 2006 on
Directors’ remuneration, including salaries, share options, pension contributions and pension entitlement, are included on page 74 in the
Remuneration Report and form part of the Consolidated Financial Statements. The remuneration paid to the Parent Company auditors in
respect of the audit of the Parent Company Financial Statements for the year ended 30 June 2018 is included in note 5 to the Consolidated
Financial Statements.
112 TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Notes to the Company Financial Statements
Continued
4. TANGIBLE ASSETS
INVESTMENT PROPERTIES
Valuation at 1 July 2017
Additions
Disposals
Valuation movement
Movement in tenant lease incentives
VALUATION AT 30 JUNE 2018
Freehold
£000
46,971
9,598
(7,190)
254
(139)
Long
leasehold
£000
Development
£000
Total
£000
7,340
24,750
79,061
-
-
-
-
140
9,738
-
(7,190)
11,260
-
11,514
(139)
49,494
7,340
36,150
92,984
The above freehold and long leasehold properties have been valued as at 30 June 2018 on the basis of open market value by Jones Lang
LaSalle and CBRE in accordance with the Royal Institution of Chartered Surveyors Appraisal and Investment Manual.
FIXTURES, EQUIPMENT AND MOTOR VEHICLES
Balance at 1 July 2017
Additions
Disposals
Depreciation
BALANCE AT 30 JUNE 2018
NET BOOK VALUE AT 30 JUNE 2018
Net book value at 30 June 2017
TOTAL TANGIBLE ASSETS
AT 30 JUNE 2018
At 30 June 2017
Cost
£000
2,987
23
(1,526)
-
1,484
Accumulated
depreciation
£000
2,289
-
(1,517)
255
1,027
457
698
93,441
79,759
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
113
Financial Statements
Notes to the Company Financial Statements
Continued
5. FIXED ASSET INVESTMENTS
SHARES IN GROUP UNDERTAKINGS
At 1 July
Additions
AT 30 JUNE
OTHER INVESTMENTS
At 1 July
Additions
AT 30 JUNE
INTEREST IN JOINT VENTURES
At 1 July
Loans advanced
Share of profits after tax
Dividends received
Transferred to shares in group undertakings
AT 30 JUNE
TOTAL FIXED ASSET INVESTMENTS
2018
£000
2017
£000
248,693
245,092
-
3,601
248,693
248,693
1,950
175
2,125
-
1,950
1,950
-
1,800
4,985
106
-
-
5,091
-
129
(129)
(1,800)
-
255,909
250,643
As permitted by Section 615 of the Companies Act 2006, where the relief afforded under Section 612 of the Companies Act 2006 applies, cost
is the aggregate of the nominal value of shares issued plus the fair value of any other consideration given to acquire the share capital of the
subsidiary undertakings.
6. LISTED INVESTMENTS
At 1 July
Increase in value of investments
AT 30 JUNE
2018
£000
2,394
1,136
3,530
2017
£000
2,070
324
2,394
Listed investments, all of which are listed on a recognised stock exchange, are stated at market value in the table above and have a historic cost
of £889,130 (2017: £889,130).
7. DEBTORS
Trade debtors
Less: provision for impairment of debtors
Amounts owed by subsidiary undertakings
Other debtors and prepayments
2018
£000
169
(68)
101
2017
£000
229
(30)
199
120,988
109,161
431
5,495
121,520
114,855
The expense recognised in relation to the impairment of debtors for the year ended 30 June 2018 was £1,000 (2017: £22,000).
Amounts owed by subsidiary undertakings are unsecured, interest free and repayable on demand.
114
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Notes to the Company Financial Statements
Continued
8. OTHER CREDITORS
Trade payables
Taxation and social security
Amounts owed to subsidiary undertakings
Other payables and accruals
2018
£000
35
22
120,242
11,410
131,709
2017
£000
23
358
115,791
3,079
119,251
Amounts owed to subsidiary undertakings are unsecured, interest free and repayable on demand.
9. FINANCIAL INSTRUMENTS
The Company’s borrowings are at both floating and fixed rates of interest. The Company takes on exposure to fluctuations in interest rates on
its financial position and cash flows. Interest costs may increase or decrease as a result of such changes.
Non-current
Bank borrowings
5.375% First mortgage debenture stock
Current
Bank borrowings
TOTAL BORROWINGS
2018
£000
2017
£000
87,759
81,663
105,854
105,844
193,613
187,507
16,270
13,057
209,883
200,564
The debenture, bank loans and overdrafts are secured by fixed charges on properties, valued at 339,485,000 (2017: £340,065,000) owned by
the Company and its subsidiary undertakings.
The debenture issue premium is net of issue costs and is amortised over the life of the debt agreement.
The Company had undrawn committed floating rate bank facilities as set out below:
Expiring in one year or less
Expiring in more than one year
2018
£000
-
2017
£000
-
14,500
26,000
14,500
26,000
Included within facilities expiring in one year or less are overdraft facilities subject to annual review. There are net cash balances of £21,743,000
held by other Group companies which offset the Company’s overdraft on consolidation. The total overdraft facility is based on the Group’s
right of set off. Other facilities are available to provide funding for future investments.
The Company finances its operations through a combination of retained cash flows, debentures and bank borrowings. Procedures are in place
to monitor interest rate risk as considered appropriate by management. Numerical financial instruments disclosures are set out overleaf.
All financial liabilities are denominated in Sterling.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
115
Financial Statements
Notes to the Company Financial Statements
Continued
INTEREST RATE RISK
The interest rate risk of the Company’s financial liabilities is as follows:
Debenture stock
Bank floating rate liabilities
As at 30 June 2018
As at 30 June 2017
Weighted
average
rate
%
Weighted
average
period
Years
5.375
2.41
13
3
Nominal
value
£000
106,001
104,750
210,751
Nominal
value
£000
106,001
95,057
201,058
Weighted
average
rate
%
5.375
2.03
Weighted
average
period
Years
14
2
Floating rate financial liabilities bear interest at rates for term loans based on LIBOR plus an average margin of 1.72% and for the overdraft of
2.00% above base rate.
FINANCIAL INSTRUMENTS HELD FOR TRADING PURPOSES
It is, and has been throughout the year under review, the Company’s policy not to trade in financial instruments.
FOREIGN CURRENCY EXPOSURE
The Group has no exposure to foreign currency as it has no overseas operations and all sales and purchases are made in Sterling.
EFFECTIVE INTEREST RATES
The effective interest rates at the balance sheet date were as follows:
Bank overdraft facility
Bank borrowings
Debenture loan
2018
2017
2.50%
2.41%
2.25%
2.03%
5.375%
5.375%
FAIR VALUES OF CURRENT BORROWINGS
Where market values are not available, fair values of financial assets and liabilities have been calculated by discounting expected future cash
flows at prevailing interest rates and by applying year end exchange rates. The carrying amounts of short-term borrowings approximate to
book value.
FAIR VALUE OF NON-CURRENT BORROWINGS
Debenture stock
Long-term bank borrowings
10. CALLED UP SHARE CAPITAL
AUTHORISED
164,879,000 (2017: 164,879,000) ordinary shares of 25p each.
ISSUED AND FULLY PAID
AT 30 JUNE 2017 AND 30 JUNE 2018
2018
2017
Book
value
£000
Fair
value
£000
Book
value
£000
105,854
111,347
105,844
87,759
87,759
81,663
Fair
value
£000
110.176
81,663
Number of
shares
000
Nominal
value
£000
53,162
13,290
The company has only one type of ordinary share class in issue. All shares have equal entitlement to voting rights and dividend distributions.
116
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Financial Statements
Notes to the Company Financial Statements
Continued
11. SUBSIDIARY COMPANIES
The Company’s wholly owned active subsidiary undertakings at 30 June 2018, registered in England or Scotland and operating in the United
Kingdom, are as follows:
Company No.
Activity
Held directly
TCS Holdings Limited
Dundonald Property Investments Limited
Buckley Properties (Leeds) Limited
CitiPark Plc
TCS Development Management (Merrion) Limited
TCS (Residential Conversions) Limited
TCS (Property Management) Limited*
TCS Trustees Limited*
TCS Properties Limited*
TCS (Whitehall Plaza) Limited
TCS (9 Cheapside) Limited
TCS (Tariff Street) Limited
TCS (Brownsfield Mill) Limited
TCS (Merrion Hotel) Limited
Apperley Bridge Limited
TCS Park Row Limited
CitiPark UK Limited
TCS (Merrion House JVC02) Limited
Tassgander Limited
Blackpool Markets Limited
Emett Exhibitions Limited
Milngavie East Limited
No 29 Management Co (Eastgate) Limited
T Herbert Kaye’s Estates Limited
TCS (Bolton) Limited
TCS Piccadilly Limited
TCS Whitehall Riverside Limited
TCS (Rochdale JV) Limited
TCS (Rochdale Management) Limited
TCS Car Parks Limited
TCS Eastgate Limited
TCS Finance Limited
TCS Trading Limited
The Merrion Centre Limited
Town Centre Enterprises Limited
Town Centre Securities (Developments) Limited
Town Centre Securities (Manchester) Limited
Town Centre Securities (Scotland) Limited
Town Centre Services Limited
TCS Plc
TCS (EX TCCP) Plc
2271353
3672365
647309
8837214
8696141
3946495
5281225
3112923
2831154
9922032
10139127
09929851
10291290
10380988
6879596
8077103
8837203
8561356
4077297
2740190
1544918
SC464805
3873683
0226678
4104688
4317396
4329860
7712764
7712123
4847697
6554827
3108777
3060862
0814845
0221003
3946549
0129485
0748937
2285764
4329979
3385312
Property investment
Property investment
Property investment
Car park operations
Property investment
Property investment
Management company
Trustee for employee benefit plans
Property investment
Property investment
Property investment
Property investment
Property investment
Hotel operator
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
117
Financial Statements
Notes to the Company Financial Statements
Continued
Held indirectly
TCS Freehold Investments Limited
TCS Leasehold Investments Limited
Town Centre Car Parks Limited
TCCP (Clarence Dock) Limited
TCS (Milngavie) Limited
TCS (Merrion House JVC01) Limited
Dundonald (Cumbernauld) Limited
TCS (Bothwell Street) Limited
Dundonald Property Developments Limited
Riverside (Leeds) Limited
TCS (Greenhithe) Limited
TCS (Isleworth) Limited
TCS (Parliament Street 1) Limited
TCS (Parliament Street 2) Limited
TCS Energy Limited
TCS (Mill Hill) Limited
TCS (Residential) Limited
TCS Solar Limited
Company No.
Activity
3684812
3684827
5494592
6219875
6391627
8561354
5983938
4240551
6430444
4569350
4413344
4413343
4768830
4768845
4414144
4413341
4249007
5113915
Property investment
Property investment
Car park operations
Car park operations
Property investment
Property investment
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
*The subsidiaries marked with an asterix above are exempt from preparing audited statutory accounts under section 479a of the Companies
Act 2006.
The registered office of all subsidiaries is at the following address:
Town Centre House
The Merrion Centre
Leeds
LS2 8LY
The Company’s directly owned joint ventures, which are all registered in England and operate in the United Kingdom, are as follows:
Proportion of ordinary shares held %
Activity
50
50
Property investment
Software Development
Belgravia Living Group Limited
Bay Sentry Limited
The registered offices of joint ventures are as follows:
Belgravia Living Group Limited
Middleton House
Westland Road
Leeds
LS11 5UH
Bay Sentry Limited
Town Centre House
The Merrion Centre
Leeds
LS2 8LY
The company also has an indirect 50% interest in Merrion House LLP, which has the same registered office as the company.
118 TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Notice of Annual General Meeting
Notice is hereby given that the 2018 annual general meeting (the “Meeting”) of Town Centre Securities Plc (the “Company”) will be held at Rudding
Park Hotel, Rudding Lane, Follifoot, Harrogate, HG3 1JH on Tuesday, 20 November 2018 at 10.00am.
You will be asked to consider and, if thought fit, to pass the resolutions below. Resolutions 1 to 11 will be proposed as ordinary resolutions. For an
ordinary resolution to be passed, a simple majority of the votes cast must vote in favour of the resolution. Resolutions 12 to 15 will be proposed as
special resolutions. For a special resolution to be passed, at least 75% of the votes cast must vote in favour of the resolution.
ORDINARY RESOLUTIONS:
Resolution 1: Annual Financial Statements and Directors’ Report
1. To receive the Company’s annual financial statements (together with the Directors’ Report and the auditors’ report) for the financial year ended
30 June 2018.
Resolution 2: Directors’ Remuneration Report
2. To approve the Directors’ Remuneration Report set out on pages 71 to 79 of the Company’s 2018 Annual Report for the year ended 30 June 2018
(excluding the Directors’ Remuneration Policy included in the report).
Resolution 3: Final Dividend
3. To declare a final cash dividend recommended by the Board for the year ended 30 June 2018 of 8.50 pence per ordinary share, to be paid on
4 January 2019, to shareholders whose names appear on the register at close of business on 7 December 2018
Resolution 4 to 7: Election and Re-election of Directors
4. To re-elect Paul Huberman, serving as a Non-Executive Director of the Company who retires by rotation.
5. To elect Jeremy Collins as a Non-Executive Director of the Company.
6. To re-elect Benjamin Ziff serving as an executive Director of the Company who retires by rotation.
7. To elect Lynda Shillaw as a Director of the Company.
Resolution 8: Re-appointment of Auditors
8. To re-appoint BDO LLP as the auditors of the Company, to hold office from the conclusion of this Meeting until the conclusion of the next general
meeting at which annual financial statements are laid before the Company’s shareholders.
Resolution 9: Remuneration of Auditors
9. To authorise the Directors to determine the remuneration of the Company’s auditors.
Resolution 10: Authority to Make Political Donations
10. To authorise, in accordance with Part 14 of the UK Companies Act 2006 (the “Act”), the Company and all companies that are subsidiaries of
the Company at the date on which this resolution is passed, or at any time when this resolution has effect to:
(a) make political donations to political parties and/or independent election candidates;
(b) make political donations to political organisations other than political parties; and
(c) incur political expenditure,
(as such terms are defined in the Act), up to an aggregate amount of £50 000, and the amount authorised under each of paragraphs (a) to (c) above
shall also be limited to such amount, during the period beginning on the date of the passing of this resolution and ending at the conclusion of the
next annual general meeting of the Company to be held in 2019. Upon the passing of this resolution, all existing authorisations and approvals relating
to political donations or expenditure under Part 14 of the Act shall be revoked without prejudice to any donation made, or expenditure incurred, prior
to the passing of this resolution pursuant to such authorisation or approval. For the purpose of this resolution, the terms “political donation”, “political
parties”, “independent election candidates”, “political organisation” and “political expenditure” shall have the meanings given by sections 363 to 365
of the Act.
Resolution 11: Authority to Allot Ordinary Shares
11. To generally and unconditionally authorise the Board, in substitution for any existing authority, but without prejudice to the exercise of any such
authority prior to the date of the passing of this resolution, pursuant to and in accordance with section 551 of the Act to exercise all the powers of the
Company to allot shares in the Company or grant rights to subscribe for or to convert any security into shares in the Company:
(a) up to an aggregate nominal amount of £4,430,162.50 (representing 17,720,650 ordinary shares) (such amount to be reduced by any allotments
or grants made under paragraph (b) below in excess of such sum); and
(b) comprising equity securities (as defined in the Act) up to a nominal amount of £8,860,325 (representing 35,441,300 ordinary shares) (such amount
to be reduced by any allotments or grants made under paragraph (a) above) in connection with an offer by way of a rights issue:
(i) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and
(ii) to holders of other equity securities as required by the rights of those securities or as the Board otherwise considers necessary,
and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary, expedient or appropriate
to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or
any other matter,
provided that this authority shall expire at the conclusion of the next annual general meeting of the Company, to be held in 2019, or 20 February
2020, whichever is earlier, save that the Company may, before such expiry, make an offer or enter into an agreement which would or might require
shares to be allotted, or rights to subscribe for or to convert securities into shares to be granted, after such expiry; and the Board may allot shares or
grant such rights in pursuance of such an offer or agreement as if the authority conferred hereby had not expired.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
119
Notice of Annual General Meeting
Continued
Continued
Special Resolutions
Resolution 12: Authority to Disapply Pre-emption Rights
12. That, if resolution 11 above is passed, the Board be given power to allot equity securities (as defined in the Act) for cash under the authority given
by that resolution and/or to sell ordinary shares held by the Company as treasury shares for cash as if section 561 of the Act did not apply to any such
allotment or sale, such power to be limited:
(a) to the allotment of equity securities and sale of treasury shares in connection with an offer of, or invitation to apply for, equity securities (but in the
case of the authority granted under paragraph (b) of resolution 11, by way of a rights issue only):
(i) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and
(ii) to holders of other equity securities, as required by the rights of those securities, or as the Board otherwise considers necessary,
and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with
treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter;
and
(b) in the case of the authority granted under paragraph (a) of resolution 12 and/or in the case of any sale of treasury shares, to the allotment of equity
securities or sale of treasury shares (otherwise than under paragraph (a) above) up to a nominal amount of £664,524.25,
such power to apply until the end of the next annual general meeting to be held in 2019, or 20 February 2020, whichever is earlier, but, in each
case, during this period the Company may make offers and enter into agreements, which would, or might, require equity securities to be allotted
(and treasury shares to be sold) after the power ends and the Board may allot equity securities (and sell treasury shares) under any such offer or
agreement as if the power had not ended.
Resolution 13: Additional Authority to Disapply Pre-emption Rights for Purposes of Acquisitions or Capital Investments
13. That, if resolution 11 above is passed, the Board be given the power, in addition to any power granted under resolution 12 above, to allot equity
securities (as defined in the Act) for cash under the authority granted under paragraph (a) of resolution 11 and/or to sell ordinary shares held by the
Company as treasury shares for cash as if section 561 of the Act did not apply to any such allotment or sale, such power to be:
(a) limited to the allotment of equity securities or sale of treasury shares up to a nominal amount of £664,524.25; and
(b) used only for the purposes of financing a transaction which the Board determines to be an acquisition or other capital investment of a kind
contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date
of this notice, or for the purposes of refinancing such a transaction within six months of it taking place,
such power to apply until the end of the next annual general meeting to be held in 2019, or 20 February 2020, whichever is earlier, but, in each
case, during this period the Company may make offers and enter into agreements, which would, or might, require equity securities to be allotted
(and treasury shares to be sold) after the power ends and the Board may allot equity securities (and sell treasury shares) under any such offer or
agreement as if the power had not ended.
Resolution 14: Authority to purchase Company’s own shares
14. That the Company be generally and unconditionally authorised for the purpose of Section 701 of the Act to make market purchases (within the
meaning of Section 693(4) of the Act) of Ordinary Shares of £0.25 each in the capital of the Company, provided that:
(a) the maximum number of Ordinary Shares which may be purchased is 7,974,292;
(b) the minimum price, exclusive of any expenses, which may be paid for each Ordinary Share is £0.25;
(c) the maximum price, exclusive of any expenses, which may be paid for each Ordinary Share is an amount equal to the higher of:
(i) 105% of the average mid-market value of an Ordinary Share, as derived from the London Stock Exchange Daily Official List for the five business
days prior to the day on which the purchase is made; and
(ii) an amount equal to the higher of the price of the last independent trade of an Ordinary Share and the highest current independent bid for an
Ordinary Share.
(d) this authority shall expire on the date of the next annual general meeting of the Company or on 20February 2020 whichever is the earlier, but, in
each case, provided that the Company may, before such expiry, enter into a contract or contracts to purchase shares which will or may be executed
wholly or partly after the expiry of such authority and the Company may make a purchase of shares under such contract or contracts as if the
authority had not expired.
Resolution 15: Notice of General Meetings, other than Annual General Meetings
15. That a general meeting (other than an annual general meeting) of the Company may be called on not less than 14 clear days’ notice.
By order of the Board.
Link Company Matters Limited
Company Secretary
26 September 2018
Registered Office:
Town Centre House, The Merrion Centre, Leeds LS2 8LY
Registered in England and Wales No. 00623364
120 TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Notice of Annual General Meeting
Explanatory Notes
Continued
EXPLANATORY NOTES:
Ordinary Resolutions
Resolution 1: To receive the Annual Financial Statements and Directors’ Report
Under the Company’s Act 2006, the Directors are required to present the strategic report, Directors’ report, auditor’s report and annual financial
statements of the Company to the Meeting. These are contained in the Company’s 2018 Annual Report and Financial Statements for the year
ended 30 June 2018 (the “Annual Report”), which was circulated at the time of this Notice and is also available on the Company’s website at
www.tcs-plc.co.uk
Resolution 2: Directors’ Remuneration Report (excluding the Directors’ Remuneration Policy) for the year ended 30 June 2018
Under the Companies Act 2006 (the “Act”), the Directors must prepare an Annual Report detailing the remuneration of the Directors and a statement
by the chairman of the Remuneration Committee (together, the “Directors’ Remuneration Report”). The Act also requires that a resolution be put to
shareholders each year for their approval of that report. The Directors’ Remuneration Report can be found on pages 71 to 78 of the Annual Report.
Resolution 2 is an advisory vote only and the Directors’ entitlement to remuneration is not conditional on it. No changes are proposed to
the remuneration policy approved by shareholders at the Annual General Meeting held in 2017.
Resolution 3: Final Dividend
The Board proposes a final dividend of 8.50 pence per share in respect of the year ended 30 June 2018. If approved, the recommended final
dividend will be paid on 4 January 2019 to all ordinary shareholders who are on the register of members on 7 December 2018.
Resolution 4-7: Election and Re-election of Directors
The Company’s Articles of Association require that at the annual general meeting of the Company, one-third of the Directors for the time being
or, if their number is not three or a multiple of three, the nearest number to but not exceeding one-third shall retire from office. Accordingly, Paul
Huberman and Ben Ziff will retire by rotation, whilst Jeremy Collins and Lynda Shillaw will be seeking election following their appointments to the
Board since the last Annual General Meeting.
The Board believes that each Director seeking election and re-election continues to have the requisite skills and experience, and demonstrates
the necessary commitment, to contribute effectively to the Board. The biographical details of the Directors seeking election and re-election at the
Meeting are set out on page 52 of the Annual Report with the exception of Lynda Shillaw who was appointed with effect from 5 November 2018.
Lynda’s biography is therefore set out below.
Lynda served on the Board of Manchester Airports Group (‘MAG’) as the Divisional Chief Executive Officer, Property from June 2014 and was a
member of the MAG Executive Committee, responsible for MAG’s £525m Investment portfolio, its1,000 acre development land bank across its
UK airports and its interest in the £1bn Airport City Joint Venture. Prior to MAG, Lynda was Director of Real Estate at Scottish Widows Investment
Partnership, Managing Director and Global Head of Corporate Real Estate for Lloyds Banking Group, Managing Director of Co-Operative Estates,
and Director of Property at BT Plc. Lynda also holds Non-Executive Director positions on the boards of the Crown Estate and VIVID housing association.
None of the Non-Executive Directors seeking election or re-election at the Meeting has any existing or previous relationship, transaction or
arrangement with the Company, nor with any controlling shareholder of the Company or any associate of a controlling shareholder of the Company,
within the meaning of Listing Rule 13.8.17R(1). In considering the independence of the Non-Executive Directors, the Board has taken into account
guidance from the UK Corporate Governance Code.
Resolution 8: Re-appointment of Auditor
At each general meeting at which the Company’s annual financial statements are presented to its members, the Company is required to appoint an
auditor to serve until the next such meeting. The Board, on the recommendation of the Audit Committee, recommends the re-appointment of BDO
LLP as auditors of the Company.
Resolution 9: Remuneration of Auditor
The remuneration of the Company’s auditor must be fixed by the Company in a general meeting or in such manner as the Company may determine
in a general meeting. This resolution gives authority to the Directors to approve the terms of engagement and determine the remuneration of the
Company’s auditors.
Resolution 10: Authority to make political donations
Under the Act, political donations to any political parties, independent election candidates or political organisations other than political parties,
or the incurring of political expenditure, are prohibited unless authorised by shareholders in advance.
As the legislation is capable of wide interpretation, the terms “political donation”, a “political party”, a “political organisation” or “political expenditure”
are not easy to define. For example, sponsorship, subscriptions, payment of expenses, paid leave for employees fulfilling public duties, and support
for bodies representing the business community in policy review or reform, may fall within the scope of these matters.
Therefore, notwithstanding that the Company has not made a political donation in the past, and has no intention, either now or in the future, of
making any political donation or incurring any political expenditure, the Board has decided to propose Resolution 10 to avoid running the risk of
the Company or its subsidiaries inadvertently breaching the Act through the undertaking of routine activities.
As permitted under the Act, this resolution also covers any political donations made or political expenditure incurred by any subsidiaries of the
Company. This resolution caps the amount of all forms of political donations and expenditure that the company and its subsidiaries would be
permitted to make at an aggregate of £50,000.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
121
Notice of Annual General Meeting
Explanatory Notes
Continued
Resolution 11: Authority to Allot Ordinary Shares
The purpose of this resolution is to give the Directors authority to allot shares in place of the existing authority approved at the annual general
meeting of the Company held on 28 November 2017, which expires at the end of the 2018 annual general meeting.
The authority in paragraph (a) of the resolution will allow the Directors to allot new shares and grant rights to subscribe for, or convert other securities
into, shares up to a nominal value of £4,430,162.50 (representing 17,720,650 ordinary shares), which is equivalent to approximately one third of the
total issued ordinary share capital of the Company as at 26 September 2018, which is the latest practicable date prior to publication of this Notice.
In accordance with institutional guidelines issued by the Investment Association, paragraph (b) of Resolution 11 will allow Directors to allot, including
the Ordinary shares referred to in paragraph (a) of Resolution 11, further of the Company’s Ordinary shares in connection with a pre-emptive offer by
way of a rights issue to ordinary shareholders up to a maximum nominal amount of £8,860,325, representing approximately two thirds (66.67%) of the
Company’s existing issued ordinary share capital and calculated as at 26 September 2018 (being the latest practicable date prior to publication of this
document).
The Company does not currently hold any shares in treasury.
The Board believes it is in the best interests of the Company to have these authorities so that the Board can allot securities at short notice and without
the need to hold a general meeting if the need arises.
The authorities sought in paragraphs (a) and (b) of resolution 11 are without prejudice to previous allotments made under such existing authorities.
The authorities will only be valid until the conclusion of the next annual general meeting of the Company to be held in 2019 or 20 February 2020,
whichever is earlier.
Resolution 12: Authority to Dis-apply Pre-emption Rights
At the annual general meeting held on 28 November 2017, the Directors were given the authority to issue equity securities of the Company and sell
treasury shares in exchange for cash until the 2018 annual general meeting. Resolution 12 renews this authority allowing Directors to issue equity
securities and to sell treasury shares for cash on a non pre-emptive basis: (i) to ordinary shareholders in proportion to their existing shareholdings
and to holders of other equity securities as required by the rights of those securities, or as the Directors consider necessary, and to deal with, among
other things, treasury shares, fractional entitlements and legal and practical problems in any territory, for example, in the case of a rights issue or
other similar share issue; and (ii) otherwise, up to an aggregate nominal amount of £664,524.25 (representing 2,658,097 ordinary shares). This number
represents approximately 5% of the issued share capital as at 26 September 2018, the latest practicable date prior to publication of this Notice.
The Directors believe that this resolution will assist them in taking advantage of business opportunities as they arise.
The Company does not currently hold any shares in treasury.
These authorities are without prejudice to allotments made under previous authorities and will only be valid until the conclusion of the next annual
general meeting to be held in 2019 or 20 February 2020, whichever is earlier.
Resolution 13: Additional Authority to Disapply Pre-emption Rights for Purposes of Acquisitions or Capital Investments
On 5 May 2016, the Pre-Emption Group published a monitoring report on the implementation of its 2015 Statement of Principles for Disapplying
Pre-emption Rights and a recommended template resolution for disapplying pre-emption rights. The template recommends companies request
authority to disapply pre-emption rights in respect of the additional 5% to be used when the Board considers the use to be for an acquisition or
specified capital investment in accordance with the 2015 Statement of Principles as a separate resolution to the disapplication to issue shares
on an unrestricted basis.
Resolution 13 seeks this separate authority. Where the authority granted under resolution 13 is used, the Company will disclose this in the
announcement regarding the issue, the circumstances that have led to its use and the consultation process undertaken.
In accordance with the section of the Statement of Principles regarding cumulative usage of authorities within a rolling three-year period, the
Directors also confirm their intention that (except in relation to an issue pursuant to resolution 13 in respect of the additional 5% referred to above)
no more than 7.5% of the issued ordinary share capital will be issued for cash on a non pre-emptive basis during any rolling three-year period,
without prior consultation with shareholders.
The Directors believe that this resolution will assist them in taking advantage of business opportunities as they arise.
These authorities are without prejudice to allotments made under previous authorities and will only be valid until the conclusion of the next annual
general meeting to be held in 2019, or 20 February 2020, whichever is earlier.
Resolution 14: Authority to Purchase Company’s Own shares
Resolution 14 is a special resolution that will grant the Company authority to make market purchases of up to 7,974,292 ordinary shares, representing
15% of the ordinary shares in issue as at the date of the Notice.
The Directors have no present intention to exercise the authority granted by this resolution, but the authority provides the flexibility to allow them
to do so in future. The Directors would not exercise the authority unless they believed that the expected effect would promote the success of the
Company for the benefit of its shareholders as a whole. Any shares bought back will either be cancelled or placed into treasury at the determination
of the Directors.
122
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Notice of Annual General Meeting
Explanatory Notes
Continued
The maximum price which may be paid for each ordinary share must not be more than the higher of (i) 105% above the average of the mid-market
values of the ordinary shares for the five business days before the purchase is made or (ii) the higher of the price of the last independent trade and
the highest current independent bid for the ordinary shares. The minimum price which may be paid for each ordinary share is £0.25.
This authority shall expire at the annual general meeting to be held in 2019 or on 20 February 2020, whichever is the earlier, when a resolution to
renew the authority will be proposed.
Resolution 15: Notice of general meetings other than Annual General Meetings
Under the Act, the notice period required for all general meetings of the Company is 21 clear days. Annual General Meetings will always be held on
at least 21 clear days’ notice but shareholders can approve a shorter notice period for other general meetings. At last year’s Annual General Meeting
shareholders authorised the calling of general meetings (other than an Annual General Meeting) on not less than 14 clear days’ notice, and it is
proposed that this authority be renewed.
Resolutions and Important Notes
The formal notice convening the Meeting (“the Notice”) is set out on pages 119 to 125 of this document and includes explanatory notes to each of the
resolutions to be proposed at the Meeting. There will be an opportunity for you to raise questions at the Meeting about the resolutions set out in the
Notice and about the business of the Company.
Attendance and Voting in Person or by Proxy
All resolutions for consideration at the Meeting will be voted on by way of a show of hands. The proxy votes will be taken into account where
necessary or appropriate.
If you are entitled to, but unable to attend and vote at the Meeting, you may appoint a proxy to vote on your behalf. Please take careful note of the
provisions included in the Notice set out on pages 124 to 125 regarding the actions required by shareholders. If you are in any doubt as to the action
you should take, please consult your stockbroker, solicitor/attorney, accountant, CSDP, banker or other independent professional adviser immediately.
Further Information
Further information relating to the Company and its financial information can be found in the Company’s Annual Report and Financial Statements
for the year ended 30 June 2018, which was circulated at the same time as this Notice and is also available on the Company’s website at
www.tcs-plc.co.uk
Recommendation
The Board considers that Resolutions 1 to 15 are in the best interests of the Company and its shareholders as a whole and recommends that you
vote in favour of such resolutions, as the Directors intend to do in respect of their own beneficial holdings.
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
123
Notice of Annual General Meeting
Important Notes
Continued
IMPORTANT NOTES
The following notes explain your general rights as a shareholder and your right to attend and vote at this Annual General Meeting or to appoint
someone else to vote on your behalf.
1. The right to vote at the meeting is determined by reference to the register of members. Only those shareholders registered in the register of
members of the Company as at close of business on Friday, 16 November 2018 (or, in the event that the meeting is adjourned, in the register of
members at close of business on the date which is two days before the date of any adjourned meeting) shall be entitled to attend or vote at the
meeting in respect of the number of shares registered in their name at that time. Changes to entries in the register of members after that time shall
be disregarded in determining the rights of any person to attend or vote (and the number of votes they may cast) at the meeting.
2. In order to gain admittance to the meeting, members may be required to produce their attendance card which is attached to the Form of Proxy
enclosed with this document, or otherwise prove their identity.
3. A shareholder is entitled to appoint one or more persons as proxies to exercise all or any of his or her rights to attend, speak and vote at the
meeting. A proxy need not be a shareholder of the Company. A shareholder may appoint more than one proxy in relation to the meeting provided
that each proxy is appointed to exercise the rights attached to a different share or shares held by him/her. To appoint more than one proxy, you will
need to complete a separate Form of Proxy in relation to each appointment. Additional proxy forms may be obtained by contacting the Company’s
registrar at Link Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU or you may photocopy the proxy form. You will need to state
clearly on each proxy form the number of shares in relation to which the proxy is appointed. A failure to specify the number of shares each proxy
appointment relates to or specifying a number which when taken together with the number of shares set out in the other proxy appointments is in
excess of the number of shares held by the shareholder may result in the proxy appointment being invalid. You can only appoint a proxy using the
procedures set out in these notes and the notes to the proxy form.
The appointment of a proxy will not preclude a member from attending and voting in person at the meeting if he or she so wishes.
4. A Form of Proxy is enclosed. To be valid, it must be completed, signed and sent to the offices of the Company’s registrars, Link Asset Services, PXS,
34 Beckenham Road, Beckenham, Kent BR3 4TU, so as to arrive no later than 10.00am on Friday 16 November 2018 (or, in the event that the meeting
is adjourned, no later than 48 hours (excluding any part of a day that is not a working day) before the time of any adjourned meeting).
5. As an alternative to completing the hard copy Form of Proxy, a shareholder can appoint proxies electronically by logging onto www.signalshares.com
where full instructions are given. For an electronic proxy appointment to be valid, the appointment must be received by the Company’s registrar by
no later than 10.00am on Friday 16h November 2018 (or in the event that the meeting is adjourned, no later than 48 hours (excluding any part of a day
that is not a working day) before the time of any adjourned meeting).
Any electronic communication sent by a member to the Company or the Company’s registrar which is found to contain a virus will not be accepted
by the Company but every effort will be made by the Company to inform said member of the rejected communication.
6. A shareholder or shareholders having a right to vote at the meeting and holding at least 5 per cent of the total voting rights of the Company (see
Note 8 below), or at least 100 shareholders having a right to vote at the meeting and holding, on average, at least £100 of paid share capital, may
require the Company to publish on its website a statement setting out any matter that such shareholder(s) propose to raise at the meeting relating
to either the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the meeting
or any circumstances connected with an auditor of the Company ceasing to hold office since the last Annual General Meeting of the Company in
accordance with Section 527 of the Act.
Any such request must:
6.1 identify the statement to which it relates, by either setting out the statement in full or, if supporting a statement requested by another shareholder,
clearly identifying the statement which is being supported;
6.2 comply with the requirements set out in Note 7 below; and
6.3 be received by the Company at least one week before the meeting.
Where the Company is required to publish such a statement on its website:
6.4 it may not require the shareholder(s) making the request to pay any expenses incurred by the Company in complying with the request;
6.5 it must forward the statement to the Company’s auditors no later than the time when it makes the statement available on the website; and
6.6 the statement may be dealt with as part of the business of the meeting.
7. Any request by a shareholder or shareholders to require the Company to publish audit concerns as set out in Note 6 above:
7.1 may be made either:
7.1.1 in hard copy, by sending it to the Company Secretary, Town Centre House, The Merrion Centre, Leeds LS2 8LY; or
7.1.2 in electronic form, by sending it to 0113 234 0442, marked for the attention of the Company Secretary, or to info@tcs-plc.co.uk (please state
“TCS: AGM” in the subject line of the email);
7.2 must state the full name(s) and address(es) of the shareholder(s); and
7.3 (where the request is made in hard copy from or by fax) must be signed by the shareholder(s).
124
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Notice of Annual General Meeting
Important Notes
Continued
8. As at 26 September 2018 (being the last practicable date prior to the publication of this notice) the Company’s issued share capital consists of
53,161,950 ordinary shares of 25p each, carrying one vote each. The Company does not hold any ordinary shares in treasury. Therefore, the total
voting rights in the Company as at 26 September 2018 are 53,161,950.
9. Shareholders have the right to ask questions at the meeting relating to the business being dealt with at the meeting in accordance with Section
319A of the Act. The Company must answer any such questions unless:
9.1 to do so would interfere unduly with the preparation for the meeting or would involve the disclosure of confidential information;
9.2 the answer has already been given on a website in the form of an answer to a question; or
9.3 it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
10. Where a copy of this notice is being received by a person who has been nominated to enjoy information rights under Section 146 of the Act
(“Nominee”):
10.1 the Nominee may have a right under an agreement between the Nominee and the shareholder by whom he/she was appointed, to be
appointed, or to have someone else appointed, as a proxy for the meeting; or
10.2 if the Nominee does not have any such right or does not wish to exercise such right, the Nominee may have a right under any such agreement
to give instructions to the shareholder as to the exercise of voting rights.
The statement of the rights of shareholders in relation to the appointment of proxies in Notes 3 to 5 above does not apply to a Nominee. The rights
described in such notes can only be exercised by shareholders of the Company.
11. Biographical details of all those Directors who are offering themselves for appointment or re appointment at the meeting are set out on page 52 to
53 and page 121 of the Annual Report and Accounts.
12. A shareholder which is a corporation may authorise one or more persons to act as its representative(s) at the meeting. Each such representative
may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual shareholder, provided that
(where there is more than one representative and the vote is otherwise than on a show of hands) they do not do so in relation to the same shares.
13. The following documents will be available for inspection during normal business hours at the registered office of the Company from the date
of this notice until the time of the meeting. They will also be available for inspection at the place of the meeting from at least 15 minutes before the
meeting until it ends:
13.1 copies of the service contracts of the Executive Directors; and
13.2 copies of the letters of appointment of the Non executive Directors.
14. The information required by Section 311A of the Act to be published in advance of the meeting, which includes the matters set out in this
notice and information relating to the voting rights of shareholders is available at www.tcs-plc.co.uk
TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
125
Investor Information
Registrar
All general enquiries concerning shareholdings in Town Centre Securities Plc should be addressed to:
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone:
Telephone outside
United Kingdom:
Email:
Website:
Dividends
Interim dividend:
Final dividend:
0871 664 0300
(Calls cost 12p per minute plus network extras.
Lines are open from 9.00am - 5.30pm,
Monday to Friday.)
+44 (0) 371 664 0300
shareholderenquiries@linkgroup.co.uk
www.linkassetservices.com
3.25p per share paid on 22 June 2018 to
shareholders on the register on 25 May 2018
8.50p per share to be paid on 4 January 2019
to shareholders on the register on 7 December 2018
Payment of dividends
Shareholders whose dividends are not currently paid to mandated accounts may wish to consider having their dividends paid
directly into their bank or building society account. This has a number of advantages, including the crediting of cleared funds into the
nominated account on the dividend payment date. If shareholders would like their future dividends to be paid in this way, they should
complete a mandate instruction available from the registrars. Under this arrangement tax vouchers are sent to the shareholder’s
registered address.
ADVISORS
CONTACT INFORMATION
Independent auditor
BDO LLP
Brokers
Liberum
Bankers
Lloyds Banking Group Plc
The Royal Bank of Scotland Plc
Svenska Handelsbanken AB (Publ)
Solicitors
DLA Piper UK LLP
Bond Dickinson LLP
Leslie Wolfson
Principal Valuers
Jones Lang LaSalle
CBRE
Registered office
Town Centre House
The Merrion Centre
Leeds LS2 8LY
Registered number
623364 England
Email
info@tcs-plc.co.uk
Website
www.tcs-plc.co.uk
Company Secretary
Link Company Matters
6th Floor
65 Gresham Street
London EC2V 7NQ
Corporate public relations
MHP Communications
Registrar and transfer office
Link Asset Services
Trustees to mortgage debenture holders
Link Market Services Trustees
6th Floor
65 Gresham Street
London EC2V 7NQ
126 TOWN CENTRE SECURITIES PLC
Annual Report and Accounts 2018
Proud to be making a difference
Annual Report &
Accounts 2018
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Town Centre House
The Merrion Centre
Leeds LS2 8LY
+44 (0)113 222 1234
6 Duke Street
Marylebone
London W1U 3EN
+44 (0)20 3370 0080
info@tcs-plc.co.uk | tcs-plc.co.uk |
Proud to
be making
a difference