Adding resilience and recycling for growth

Town Centre Securities 25 January 2019 Update (1-4pgs)
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Town Centre Securities

Adding resilience and recycling for growth

Trading update

Real estate

25 January 2019

Price

228p

Market cap

£121m

Net debt (£m) at 30 June 2018 (excluding finance leases)

192.6

Net LTV at 30 June 2018

47.5%

Shares in issue

53.2m

Free float

48%

Code

TOWN

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

9.6

(10.9)

(21.9)

Rel (local)

6.5

(9.5)

(12.7)

52-week high/low

296p

206p

Business description

Town Centre Securities is a UK real estate investment trust operating across the UK, but with a regional focus, primarily in Leeds, Manchester, Scotland and (mainly suburban) London. It also has a car parking operation (CitiPark). The investment portfolio is intensively managed for income and capital growth.

Next events

Interim results

26 February 2018

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

Town Centre Securities is a research client of Edison Investment Research Limited

As a family run business, Town Centre Securities (TCS) has a strong focus on dividend returns and has increased or maintained DPS in each of the last 58 years, while investing for growth. H119 saw further progress with ongoing portfolio repositioning, targeting increased income resilience while recycling capital to unlock the sizeable future growth and diversification opportunity in the development pipeline. Retail & leisure assets have reduced to 52% of the total from 70% in 2016. We will review our estimates with the interim results in February, but note that a handful of retail tenant failures are likely to have a modest negative impact on near-term income while retail capital values appear to be softening.

Year
end

Net revenue (£m)

EPRA
earnings* (£m)

EPRA
EPS* (p)

EPRA NAV/
share* (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

06/17

19.4

7.0

13.2

359

11.5

0.63

5.0

06/18

19.3

6.9

13.0

384

11.8

0.59

5.2

06/19e

20.5

6.8

12.9

392

11.8

0.58

5.2

06/20e

20.9

7.2

13.5

399

12.1

0.57

5.3

06/21e

21.2

7.6

14.3

418

12.5

0.55

5.5

Note: *EPRA EPS is adjusted to exclude revaluation movements, disposal gains/(losses) on investment property and exceptional items.

Progress with strategy

H119 saw TCS continue to unlock the value of its development pipeline, particularly focused on offices and residential assets, manage a challenging retail environment, and grow car parking profits. Occupancy increased to 96% (FY18: 95%), with passing rent up 0.9% y-o-y on a l-f-l basis, supported by the updated long let to Leeds City Council of Merrion House, also the subject of an innovative refinancing. The £13.2m sale of a Rochdale retail park further reduced retail & leisure exposure, resulting in a greater focus on more resilient supermarket and convenience retailing. Retail & leisure CVAs and insolvencies have affected 2.5% of the rent roll in the past 12 months, but the majority of affected units have already been re-let at higher rents to quality tenants.

We will review estimates with interim results

H119 progress on capital recycling and with the development pipeline is consistent with our medium-term forecasts, which capture only a small element of the larger opportunity. Compared with our existing current year forecast, the Rochdale disposal will crystallise a small (c £0.8m) loss on disposal, while retail tenant turnover is likely to be a modest drag (c £250k) on income through temporary voids and related costs, despite the re-letting at higher rents. The valuation impact is uncertain and sector-wide retail values have softened, particularly for secondary high street assets and shopping centres, while Brexit remains a more general cause of uncertainty. We estimate that based on market consensus data, softening yields may affect our forecast FY19e NAV per share by c 19p (see page 4).

Valuation: Strong dividend track record

TCS yields a prospective 5.2% and shares trade at a significant discount to FY18 EPRA NAV of c 40%. A combination of income and capital growth is reflected in five-year annual average NAV total return (to end-FY18) of a compound 10.4%.

Further details and analysis

Rebalancing progress

Capital recycling is a key element of the TCS strategy and we estimate that since the beginning of FY17, the company has disposed of c 10% of the portfolio. This has freed capital from mature assets for strategic repurchases and investment in the development pipeline, while broadly maintaining profitability and increasing capital values. During this process, the portfolio (c £400m at end-FY18) has undergone a significant sector repositioning, becoming increasingly diversified and mixed use, and that process is continuing. Retail and leisure remains the single largest sector weight, but with the most recent purchase and sales activity, including the £13.2m disposal of the Rochdale Central Retail Park, it has been actively reduced to 52% (by value) compared with 55% at end-FY17 and 70% two years before that.

Reinvestment has included standing asset acquisitions and development projects from the significant pipeline of opportunities available to the company from its already owned asset base. These include delivery of the Merrion House office development (February 2018), the Premier Inn in Leeds (February 2017), and the ibis Styles hotel with restaurant (April 2017). Included in our medium-term forecasting, the Burlington House residential scheme is on track for practical completion in May 2019, to be followed by a second private residential sector (PRS) development, Eider House, where ground works are expected to commence this year, while the George St JV with Leeds City Council (aparthotel with ground floor units) has received detailed planning consent, with work also expected to commence this year.

In addition to the development projects captured by our forecasts, the further development opportunities that TCS has identified within its existing asset base represent a gross development value of well over £500m, with significant potential to further enhance earnings and NAV beyond that which we have forecast. Management continues to consider how quickly to proceed and how best to fund these, most likely to involve ongoing capital recycling and potential access to new capital resources. For a more detailed description and analysis, see our update note published on 12 October 2018.

Retail & leisure exposure more targeted as well as smaller

The retail and leisure portfolio itself has also become increasingly targeted by format and location. Exhibit 1 shows the end-FY18 position, which will have changed subsequently with the Rochdale sale and some other smaller transactions. The retail & leisure tenant base has retained its diversification, and although at end-FY18 the top 10 retail tenants represent 29% of the retail & leisure property income, almost half of this was accounted for by Waitrose and Morrisons, along with many other good-quality covenants. The proportion of more resilient supermarket and convenience retailing has increased with the Rochdale sale. The Merrion Centre is the largest individual retail & leisure destination, which in addition includes office and car parking space. It is well-placed in the centre of Leeds, and has been transformed over the past 10 years from a classical shopping centre to a truly mixed-use destination. Delivery of the Merrion House office development (February 2018) and the ibis Styles hotel with restaurant (April 2017) has continued the process, with reliance on traditional ‘mall’ retail falling to less than 25%. The ‘mall’ assets have a focus on convenience and discount formats, which has proved a successful positioning for the location, which includes a significant student population.

Exhibit 1: Spread of retail & leisure assets at 30 June 2018

Source: TCS. Note: Retail & leisure assets only, by value.

The Rochdale disposal will have no material impact on our existing income forecasts, which already assumed asset disposals and an annualised £1.1m rent roll impact (Rochdale: £1.15m). Similarly, our forecasts capture the previously announced acquisitions of The Cube in Leeds for £12.8m, a retail unit in Gordon Street, Glasgow, for £2.6m, and a retail/residential unit on Chiswick High Road, London for £1.7m. TCS says that in total these acquisitions will generate ongoing annual income of more than £1.4m, which allows for 2019 and 2020 lease expiries at The Cube.

Modest income impact from retail stress

TCS has seen some disruption from the recent wave of retail and leisure administrations, but says that active asset management will actually result in a rise in ongoing rents due to an enhanced mix of replacement tenants. It has been affected by eight CVAs or insolvencies from tenants in the past 12 months, involving eight units representing c 2.5% of the rent roll. By December 2018, six of these units had already been re-let to tenants including Iceland and The Works, at rents ahead of the previous levels. The two units most recently vacated, accounting for just c 0.5% of rent roll, are currently being actively marketed. The ability of TCS to re-let vacated space at a premium to previous rents is consistent with our medium-term forecasts, although in the near term, temporary void periods and related costs are likely to have a negative impact on income earnings, albeit relatively small. Based on a total rent roll of £23.4m at 30 June, the 2.5% of affected rents represents annualised rents of almost £600k. Allowing for a relatively fast re-letting of four months, the void period would represent rental income foregone of c £200k. Allowing for the loss of rechargeable property expenses, the total negative impact may well be c £250k.

More generally, across the entire portfolio, rent collection remains strong. Rents are mostly collected a quarter in advance and across the portfolio, and for H119 99% of rents were collected within a week of the quarter commencing.

Capital values have become more uncertain

Our forecasts typically make no assumption about yield shifts, but we do include a benefit from the assumed 1% pa rental growth across the portfolio, as well as expected development gains. With pressures on the broad retail sector increasing, and as already reported by a range of companies across the sector, we think it has become increasingly likely that the end-H119 (December 2018) valuations will have softened, at least for the TCS retail and leisure assets. For the wider portfolio, it is less easy to call, although increased Brexit and economic uncertainty presents an unhelpful backdrop. Exhibit 2 shows a summary of the last published Investment Property Forum consensus forecasts for autumn 2018. While continuing to predict positive all-property total returns through 2020, this is driven by income returns, with weaker capital values in all sectors but industrial properties (not an area in which TCS is active). The consensus was particularly negative on both rental value growth and capital value growth for the retail subsectors. For the three months ended December 2018, MSCI IPD reported all-property rental growth of negative 0.1% and capital growth of negative 0.2%. The weakness was driven by retail, negative 1.5% and 3.3% respectively.

Exhibit 2: Summary of Investment Property Forum UK consensus forecasts, autumn 2018

Rental value growth (%)

Capital value growth (%)

Total return (%)

2018

2019

2020

2018/22

2018

2019

2020

2018/22

2018

2019

2020

2018/22

Office

0.8%

-0.3%

0.3%

0.8%

1.8%

-2.3%

-1.8%

-0.5%

6.0%

1.9%

2.5%

3.8%

Industrial

4.1%

2.6%

2.2%

2.6%

10.2%

2.7%

0.6%

2.8%

15.2%

7.4%

5.2%

7.5%

Standard retail

-0.6%

-0.8%

-0.2%

0.0%

-2.0%

-3.3%

-1.9%

-1.5%

2.1%

0.9%

2.4%

2.9%

Shopping centre

-1.3%

-1.5%

-0.9%

-0.8%

-6.6%

-5.4%

-3.2%

-3.6%

-2.2%

-0.6%

1.6%

1.3%

Retail warehouse

-1.1%

-1.1%

-0.4%

-0.4%

-3.7%

-3.9%

-1.9%

-2.0%

1.8%

1.6%

3.4%

3.6%

All property

0.8%

0.2%

0.5%

0.8%

1.5%

-1.7%

-1.2%

-0.3%

6.2%

3.0%

3.5%

4.5%

Source: IPF

Clearly, it is difficult to read across these observations directly to the TCS asset base, and the position will become clearer with the interim results. However, by way of indication of the potential impact of softening values, if we were to apply the 2018 consensus capital value growth forecasts to the core TCS portfolio (excluding development assets and car parks) of £331m at 30 June 2018, the negative impact would be £8.3m, reducing our end-FY19 NAV per share estimate of 392p by c 19p.

Exhibit 3: Illustrative valuation sensitivity

Sector

30 June 2018 valuation (£m)

Valuation movement (%)

Valuation movement (£m)

Retail & Leisure

67.6

-2%

(1.4)

Merrion Centre (exc office)

97.7

-7%

(6.4)

Offices

70.1

2%

1.3

Hotel

27.2

0%

0.0

Out of town retail

52.1

-4%

(2.1)

Distribution

5.8

5%

0.3

Residential

10.9

0%

0.0

Total investment properties

331.4

3%

(8.3)

Source: Edison Investment Research

Valuation update

The performance of the broad UK property sector has continued to track the overall market closely. Narrowing this down a little, Exhibit 4 compares the TCS valuation and share price performance with a group of companies focused on regional property investment and/or the retail sector. Two trends that stand out are:

The continuing signs of investor preference for companies targeting recurring income (eg Picton and Custodian, both REITs), historically a less volatile component of total property return, compared with the sharp swings in property valuations observed across the cycle.

The weakness of investor sentiment in respect of the retail sector, driving retail-focused stocks such as Capital & Regional, Hammerson, Intu and NewRiver to significant P/NAV discounts and very high yields, metrics that indicate a lack of confidence in current asset values and income/dividend sustainability.

The TCS share price performance significantly reflects the weaker trend of the purer retail plays but less acutely, particularly over the past three months. That still leaves the valuation (0.59x P/NAV and historical dividend yield of 5.2%) at a modest level relative to peers facing similar market-level uncertainties, with the share price performance not obviously reflecting some of the specific characteristics of TCS. We would highlight:

The consistent track record of dividend payments, which at least in part we attribute to the family-controlled nature of TCS.

The significant shift in portfolio positioning that should represent a material de-risking of future income.

The significant reduction in LTV over the past year and through July, combined with increased financial flexibility to fund selected development projects.

The scale of the opportunity contained in the group’s already owned development pipeline which, subject to funding, has the potential to substantially lift the earnings and net asset position from that modelled. As the company considers how quickly to proceed with developments and how best to fund them, continued capital recycling and JVs will doubtless have a role to play, while additional equity is also an option. The latter may require family shareholders to reassess their position, but could benefit all shareholders if it brings a welcome increase in liquidity to the shares.

Exhibit 4: Peer comparison table

Price
(p)

Market cap
(£m)

P/NAV*
(x)

Yield**
(%)

Share price performance

One month

Three months

12 months

From 12-month high

Capital & Regional

27

196

0.42

13.8

-10%

-35%

-52%

-53%

Circle Property

193

54

0.69

2.9

0%

-3%

17%

-25%

Custodian REIT

113

446

1.05

5.8

-3%

-6%

-4%

-8%

Hammerson

353

2705

0.45

7.3

5%

-17%

-29%

-39%

Helical

330

394

0.70

2.9

4%

7%

-6%

-17%

Intu

107

1447

0.31

13.1

-8%

-46%

-54%

-54%

McKay Securities

258

242

0.79

3.9

8%

-8%

8%

-11%

Mucklow

501

317

0.90

4.5

1%

-6%

-2%

-13%

NewRiver REIT

207

629

0.73

10.3

-1%

-20%

-35%

-35%

Palace Capital

303

139

0.72

6.3

-2%

-3%

-9%

-17%

Picton

84

455

0.92

4.1

-1%

-2%

-3%

-10%

Real Est Inv

52

96

0.73

6.8

0%

-5%

-6%

-17%

Regional REIT

98

365

0.86

8.1

7%

-3%

-4%

-4%

St Modwen

413

919

0.87

1.8

5%

12%

-1%

-4%

Schroder REIT

54

277

0.78

4.7

-4%

-11%

-17%

-21%

Average

0.73

6.4

0%

-10%

-13%

-22%

Town Centre Securities

228

121

0.59

5.2

10%

-11%

-22%

-23%

UK property index

1,643

5.3

5%

-3%

-9%

-13%

FTSE All-Share Index

3,759

4.7

3%

-1%

-10%

-13%

Source: Company data, Edison Investment Research. Note: *Last reported EPRA NAV per share. **Trailing 12-month DPS declared. Prices as at 24 January 2019.

Exhibit 5: Financial summary

Year ending 30 June (£000's)

2015

2016

2017

2018

2019e

2020e

2021e

INCOME STATEMENT

Gross revenue

22,714

26,265

27,540

30,178

31,687

32,388

33,056

Total property expenses

(5,248)

(7,661)

(8,148)

(10,896)

(11,233)

(11,477)

(11,846)

Net revenue

17,466

18,604

19,392

19,282

20,454

20,911

21,210

Administrative expenses

(5,321)

(5,493)

(6,295)

(6,574)

(6,865)

(7,022)

(7,183)

Other income

1,468

599

707

888

400

400

400

Valuation movement on investment properties

14,791

3,018

(2,085)

5,932

1,875

2,901

2,970

Reversal of impairment of car parking assets

0

500

1,000

1,300

0

0

0

Profit on disposal of investment property

236

1,140

303

1,677

0

0

0

Share of post-tax profits from joint venture

2,621

1,400

1,342

3,757

3,000

1,050

7,475

Operating profit

31,261

19,768

14,364

26,262

18,864

18,240

24,872

Net finance costs

(7,258)

(7,847)

(7,639)

(7,887)

(8,150)

(8,180)

(8,385)

PBT

24,003

11,921

6,725

18,375

10,714

10,060

16,487

Tax

0

0

0

0

0

0

0

Net profit

24,003

11,921

6,725

18,375

10,714

10,060

16,487

Adjustments to EPRA:

Valuation movement on investment properties

(14,791)

(3,018)

2,085

(5,932)

(1,875)

(2,901)

(2,970)

Reversal of impairment of car parking assets

(5,013)

(500)

(1,000)

(1,300)

0

0

0

Valuation movement on properties held in joint ventures

0

(668)

(471)

(2,561)

(2,000)

0

(5,900)

Profit on disposal of investment/development properties

(236)

(1,140)

(303)

(1,677)

0

0

0

(Profit)/Loss on disposal of investment properties held in joint ventures

2,488

0

0

0

0

0

0

Refi costs

0

0

0

EPRA earnings

6,451

6,595

7,036

6,905

6,839

7,159

7,617

Average number of shares (m)

53.2

53.2

53.2

53.2

53.2

53.2

53.2

Basic & fully diluted IFRS EPS (p)

45.2

22.4

12.7

34.6

20.2

18.9

31.0

Basic & fully diluted EPRA EPS

12.1

12.4

13.2

13.0

12.9

13.5

14.3

DPS declared (p)

10.44

11.00

11.50

11.75

11.75

12.10

12.45

BALANCE SHEET

Investment properties

336,982

346,388

349,266

359,734

368,671

377,571

392,541

Investment in joint ventures

19,344

25,093

27,852

39,742

18,842

28,842

37,342

Goodwill

4,024

4,024

4,024

4,024

4,024

4,024

4,024

Other non-current assets

1,214

2,151

3,922

3,669

3,669

3,669

3,669

Total non-current assets

361,564

377,656

385,064

407,169

395,206

414,106

437,576

Investments (listed equities)

1,962

2,070

2,394

3,530

3,530

3,530

3,530

Non-current assets held for sale

3,450

0

0

0

0

0

0

Trade & other receivables

6,871

7,388

3,311

6,288

3,525

3,625

3,640

Cash & equivalents

1,515

0

3,124

5,473

17,206

7,329

3,902

Total current assets

13,798

9,458

8,829

15,291

24,260

14,484

11,073

Total assets

375,362

387,114

393,893

422,460

419,466

428,590

448,649

Trade & other payables

(11,857)

(11,496)

(10,846)

(20,278)

(12,817)

(13,180)

(13,238)

Financial liabilities

(38,668)

(887)

0

0

0

0

0

Total current liabilities

(50,525)

(12,383)

(10,846)

(20,278)

(12,817)

(13,180)

(13,238)

Non-current financial liabilities

(141,959)

(184,874)

(191,969)

(198,057)

(198,057)

(203,057)

(213,057)

Total liabilities

(192,484)

(197,257)

(202,815)

(218,335)

(210,874)

(216,237)

(226,295)

Net assets

182,878

189,857

191,078

204,125

208,592

212,353

222,354

Period end shares in issue (m)

53.2

53.2

53.2

53.2

53.2

53.2

53.2

NAV per share (p)

344

357

359

384

392

399

418

CASH FLOW

Net cash flow from operating activity

2,191

5,656

10,108

6,348

8,318

7,273

6,984

Investment in investment properties

(37,045)

(17,014)

(23,246)

(2,859)

(29,415)

(6,000)

(12,000)

Proceeds for disposal of investment property

26,821

16,050

21,574

7,534

16,076

0

0

Purchase of fixtures, equipment and motor vehicles

(532)

(1,496)

(586)

(340)

(900)

(900)

(900)

Proceeds from sale of fixed assets

0

54

61

0

0

0

0

Investments and loans to JV

0

(4,916)

(4,250)

(8,809)

(3,500)

(10,000)

(2,600)

Distributions received from joint ventures

0

567

1,031

676

27,400

1,050

1,575

Proceeds from sale of joint ventures

0

0

0

0

0

0

0

Payment for the acquisition of non-listed investments

0

0

(1,950)

(175)

0

0

0

Cash flow from investing activity

(10,756)

(6,755)

(7,366)

(3,973)

9,661

(15,850)

(13,925)

Proceeds from borrowing

17,475

4,247

7,197

6,088

0

5,000

10,000

Dividends paid

(5,550)

(5,550)

(5,928)

(6,114)

(6,247)

(6,300)

(6,486)

Cash flow from financing activity

11,925

(1,303)

1,269

(26)

(6,247)

(1,300)

3,514

Change in cash

3,360

(2,402)

4,011

2,349

11,733

(9,877)

(3,427)

Opening cash

(1,845)

1,515

(887)

3,124

5,473

17,206

7,329

Closing cash

1,515

(887)

3,124

5,473

17,206

7,329

3,902

Bank overdraft

0

887

0

0

0

0

0

Cash as per balance sheet

1,515

0

3,124

5,473

17,206

7,329

3,902

Financial liabilities

(176,147)

(181,281)

(191,969)

(198,057)

(198,057)

(203,057)

(213,057)

Net debt

(174,632)

(181,281)

(188,845)

(192,584)

(180,851)

(195,728)

(209,155)

Net LTV

49.7%

49.5%

49.3%

47.5%

45.9%

47.4%

48.0%

Source: Company accounts, Edison Investment Research

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Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Town Centre Securities and prepared and issued by Edison, in consideration of a fee payable by Town Centre Securities. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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