Town Centre Securities — A wealth of opportunities

Town Centre Securities (TCS) provides exposure to mixed use regional commercial property, primarily in the fast growing cities of Leeds and Manchester, where management is able to exploit its strong and detailed knowledge of the local markets. Compared with central London, regional commercial property is late cycle, with growth in occupier demand outstripping new supply in many areas and leading to tighter markets and growing rents. Business relocation from London provides structural support. TCS is a family run business with strong income focus and a 57-year record of increased or maintained DPS, with intensive assets management and capital recycling to drive income growth and capital returns. Management has provided details of a substantial pipeline of continuing development opportunities, with the potential to add materially to our forecast earnings and NAV over time.

TCS offers a fully covered prospective dividend yield of 4.0%. The yield is slightly below the sector average but could be higher if it were not for continuing investment in and redevelopment of the portfolio to enhance longer-term total returns. NAV total return was a compound 8.8% pa in the five years to end-FY17, and we forecast 7.3% in the three years to end-FY21. Given its strong record of dividend distributions, the P/NAV ratio of 0.74x attached to TCS shares does not appear to be factoring in a significant recognition of its capital return potential, which we expect will lift NAV and total return over the forecast period and beyond.

TCS has a strong record of occupancy and we expect this to continue, with modest rental growth. The car park operation is also expected to show steady underlying growth. We assume completion of the existing (Burlington House) development and three additional developments by end-FY21, adding c £9m (or 16.7p) to NAV and £2.2m (TCS share) or c 4.1p to income, dropping through to the bottom line. We have assumed additional debt funding of c £32m in our forecasts, although additional capital recycling is more likely given the current 47% LTV. Further assets have been earmarked for disposal (we believe at least £20m in value), with the potential to reduce our forecast end-FY21 LTV to 46.3% from the forecast 48.7%, with a modest impact on FY21 earnings (c 5%) such that forecast DPS remains fully covered. Allowing for our development assumptions, a pipeline of value-creating potential projects with an estimated value of c £500m gross (ie before potential JV interests) will remain. Management is exploring how it may fund this investment in growth. Additional equity is an option but may require family shareholders to re-assess their position.

The main sensitivities, and the company specific factors that may help to mitigate these, are listed below and discussed on page 17:

Before discussing the TCS investment case at length, for investors who are already familiar with the company we first provide a brief overview of the recent interim results for the six months ended 31 December 2017 (H118). This was a period of significant change within the portfolio, including strategic disposals and continuing business development, but the underlying trends continued to be positive. With occupancy remaining high (99%) and like-for-like rents advancing, TCS was able to limit the negative effect of disposals on near-term property income and earnings, while the car park operation, CitiPark, grew further. Valuation gains on completed and development assets lifted NAV per share and the DPS was maintained.

Town Centre Securities (TCS) is a UK Real Estate Investment Trust (REIT) operating across the UK, but with a regional focus, primarily in Leeds, Manchester, Scotland and (mainly suburban) London. It owns a mixed-use portfolio, valued at c £384m, that includes more than 900,000 sq ft of retail space, more than 360,000 sq ft of mostly prime office space, and includes key development sites in Leeds and Manchester. It also has a car parking operation (CitiPark) that provides a growing and complementary revenue and earnings stream while monetising what would in some cases be empty, non-income producing development assets. The investment portfolio is intensively managed, exploiting a strong and detailed knowledge of the communities in which the company operates to generate increasing levels of income, long-term dividend growth and good levels of NAV total return. Over its 57-year history, TCS has established an unbroken record of increased or maintained dividend payments.

The current developed portfolio primarily consists of commercial assets, particularly retail and leisure assets and, to a lesser extent, offices, but also includes some associated residential assets. TCS has been investing to diversify the sector exposure of the portfolio and current and planned development projects will see the share of low volatility residential assets in particular increase further. The retail and leisure share of the portfolio has reduced from c 78% five years ago to 58% at end-H118. Management recognises the challenges that many bricks and mortar retailers have experienced in the face of internet competition, but firmly believes that physical retail offers will continue to play an important market role. The main retail assets are within the Merrion Centre in Leeds where TCS has invested extensively in response to the changing retail environment, creating a mixed-use destination where visitors can indulge in a broader range of activities than simply shopping.

Recognising that property values and income can reach levels where the potential for future returns becomes muted, especially in a lower growth environment, TCS has been very active in recent years in recycling capital into new opportunities, particularly creating and improving investment properties within the existing estate. It has self-funded over £85m of investment in the past five years and in the 12 months ended 31 December 2017, disposed of five properties, all at or above valuation, generating proceeds of more than £25m for investment in its development pipeline. The timing of sales and investment will negatively impact FY18 rental income but on an annualised basis at completion management expects a net £0.7m increase. Exhibits 4 and 5 illustrate the impact of the key sales over this period and the effect of reinvestment.

During FY17, TCS successfully completed the development of two hotels in Leeds; the Premier Inn, let on a 25-year lease to Whitbread, and the ibis Styles hotel that it is running under an external management contract. The Merrion House office development was completed in January 2018.

With the interim results, TCS has provided details of its medium-term development pipeline, comprising 16 potential projects across residential, commercial, car park and retail, with a gross development value (GDV) estimated at up to £600m (Exhibit 10), although a number of the projects are likely to include joint venture partners. At an assumed yield of c 5%, the development pipeline would represent rental income of almost £30m and would further diversify the sources of rental income. The pace of investment in these growth opportunities will in part depend on available funding and we expect capital recycling out of mature assets will to continue to play a part. Including a residential project currently on-site, our forecasts include four development projects for which we expect TCS’s share of the GDV to be c £55m. Management is also exploring alternative sources of capital that would enable it to more quickly address the broader pipeline.

The net LTV was 47% at 31 December 2017, with fixed rate debt accounting for £106.0m of the total net debt of £185.5m, mitigating interest rate risk. With a weighted average cost of debt of 3.9%, interest cover in H118 increased to 2.0x.

TCS was founded in 1959 by Arnold Ziff, father of the current chief executive and chairman, Edward Ziff, OBE. The company listed on the London Stock Exchange soon afterwards, in 1960, and became a UK REIT in 2007. Members of the Ziff family continue to have a substantial interest in the company, strongly aligning the interests of management and owners and contributing to the company’s long-term strategic horizon, focus on dividend payments and intensive asset management of existing assets. A relationship agreement exists between the Ziff family concert party with a combined shareholding of c 52%, and whose principal shareholders are Edward, his brother, Michael Ziff and sister, Ann.

The executive team consists of the chairman and chief executive (Edward Ziff), the group finance director (Mark Dilley), the property director (Richard Lewis) and the managing director for CitiPark (Ben Ziff, Edward’s son). Biographies can be found on page 19. The board of directors consists of eight members, five of whom have been appointed within the past three years. In addition to the executive members, the four non-executive members are Michael Ziff (appointed 2004), Ian Marcus (2014), Paul Huberman (2014), and Jeremy Collins (2018).

The diversity of the portfolio by sector and geography is shown in Exhibits 2 and 3 above. Exhibit 6 shows a summary of the total TCS property portfolio as presented by the company, including the car parking assets, as at end-H118. Compared with the balance sheet presentation of the assets, the table excludes non-income generating joint ventures and some other accounting adjustments, including for finance leases. Completed investment properties represent 84% of the total by value (£322.7m) and 87% by expected rental value, or ERV (£22.1m), while development sites generating car parking income, and car park assets represent 16% by value (£61.6m) and 13% by ERV (£2.2m). The Merion car park is reported within the car parking division although its value (26.4m) and ERV (£1.8m) are included within the investment portfolio in Exhibit 6. ERV was £3m (13%) ahead of the passing rent at end-H118, with a substantial part of the difference (c £1m) represented by the uplift to the contracted rent upon completion of an office development at the Merrion Centre that completed just after the period end (see below). The passing rent and ERV of the car parking assets represents the current net revenue. At 30 June 2017, 46% of leases had a remaining term of up to five years, 28% were between five and 10 years, and 26% were above 10 years. The completion of Merrion House and the inception of a new 25-year lease to Leeds County Council will have had the impact of increasing average unexpired lease term.

The basis for the divisional reporting is:

The single largest asset, representing 47% of the portfolio by ERV and 42% by value, and therefore highly significant to the group, is the investment in the Merrion Centre in Leeds. This has been owned and managed by TCS since it opened in 1964 and despite being well known as a shopping centre, the first major development of its kind in the UK, it has continued to evolve over the years to become a mixed-use destination, comprising c 1m sq ft of retail, leisure, hotel, car parking and office space in the city’s retail centre. TCS has invested more than £70m in the Merrion Centre over the past 10 years, £40m of this within the past five years, supporting growth in ERV, consistently high levels of occupancy (99% at end-H118) and increasing valuation (Exhibit 7). The Merrion Centre total property return has compounded at a rate of more than 10% over the past five years.

The diversified, mixed-use nature of the Merrion Centre can be clearly seen in Exhibits 8 (by ERV) and 9 (by valuation). Following completion of the Merrion House office development in January 2018 (see below) and included in the analysis at its new, higher, post-completion rent level, offices now represent a larger share (28%) of ERV than typical mall retail units (24%).

The centre is well placed amongst established offices, universities and colleges and it adjoins retail and leisure areas, including the Leeds (First Direct) Arena, which opened in 2013. The student influence in the area is strong and growing with more than 3,400 accommodation units already in place in the immediate vicinity and a further 2,700 planned or in development. The retail and leisure offering at the centre has been positioned to address the needs of the growing local population, including food provision from Morrisons and Sainsbury’s, value and convenience offers from the likes of Poundstretcher and Home Bargains, leisure offers from KFC, My Thai, Bengal Brasserie, and Costa Coffee, and nightlife at Pryzm nightclub and the Key Club.

The Arena Quarter development at the northern edge of the Merrion Centre was a significant £17m project to expand the entertainment and leisure offer at the site. It began in 2012, becoming fully let during FY17, and was aimed at capitalising on the opening of the nearby Leeds Arena, a c 14,000 capacity entertainment and concert venue. The ibis Styles Hotel opened in April 2017 and the car park facilities have been fully refurbished and should benefit from completion of Merrion House, a 175k sq ft office building. Merrion House is let to Leeds County Council on a 25-year lease with capped RPI increases and was completed in February 2018.The building was developed by a 50:50 joint venture between TCS and Leeds County Council (LCC); TCS is contributing the existing building that it previously owned 100%, with a pre-development value of £20m, and is investing a further £5m. TCS continued to receive £0.7m in rental income during the development phase and this will now increase to £1.66m (its 50% share). The fair value of the building, within the JV, showed some increase in H118 as it neared completion, but management expects the value to show a more substantial increase, to c £68m, now that it is complete and occupied.

In the following section we discuss the further asset management opportunities that TCS has at the Merrion Centre, optimising existing space primarily for the development of additional office and residential space.

Exhibit 10 shows the extent of the pipeline development opportunities available to TCS from within its current portfolio. These mainly represent projects at two strategic development sites at Piccadilly Basin in Manchester and Whitehall Road in Leeds, but also include other projects, including further developments at the Merrion Centre. The projects are listed in Exhibit 10 and are shown in line with management’s current best view of the likely order in which they may proceed, although this is subject to material variation.

The Burlington House residential development is already well underway while other projects are varying stages of scoping and planning, and our forecasts also include George St, Eider House, and the Leeds car park. For the George Street development, TCS was selected by Leeds County Council as its partner in the development of 126 aparthotel units above ground floor commercial space for retailing, cafes, bars and restaurants, and incorporating a new market hall entrance. At Eider House in Manchester, TCS has detailed planning permission for a 126-unit residential development and expects to select a joint venture partner (for modelling purposes we assume 50:50) in time to begin construction in mid-2019 once Burlington House completes. We also expect TCS to press ahead with the development of the 500-space Leeds multi-story car park, where the local authority approval of the level ground car park is of a temporary nature and where similar nearby development has increased demand and reduced available car parking space. These projects have an expected GDV of £98m (100% value) and we assume a TCS share of £55m.

As a guide to the further development potential, management has provided estimates of the potential GDV of each of the projects that it is considering, although this is subject to material variation, not least in terms of changes to the scope of development. The total estimated GDV of the projects identified is £596m (100%), or an additional c £500m (100%) to those in our forecasts. The income potential shown in Exhibit 10 should also be viewed as indicative, based on the simple application of a 5% yield to each project, but shows a significant potential uplift on the current ERV. In reality, many of the projects will be undertaken as joint ventures and we would expect many of the developments (eg the Whitehall Road office developments) to be sold at completion. This will both share the burden of funding the development pipeline, and the capital and/or income upside for TCS however, notwithstanding this, the opportunity for continued value creation from intensive asset management is clear.

The Manchester economy has been developing strongly, with growth exceeding that of London over the past three years. Growth is fuelling increasing employment and housing demand, with residential projects being the focus of the TCS Piccadilly Basin development site. The 12.5 acre site is close to the Piccadilly train station and includes a variety of buildings, car parking and future development sites. TCS has already developed a number of buildings over the past 15 years, including Urban Exchange, a c 116k sq ft multi-let retail park, Carvers Warehouse, a c 22k sq ft office conversion of a listed building, and several other office/residential buildings that have been sold. The council-approved Strategic Planning Framework (SPF) for the further development of the site includes more than 700 residential units as well as a multi-story car park, and 177,000 sq ft of canal-side commercial property.

As noted above, the residential programme is underway and is on-site at Burlington House with Eider House set to follow. Not shown in Exhibit 10 is a development of 31 loft style apartments, by Urban Splash, of Brownsfield Mill, as it was structured effectively as a sale. TCS provided the site and will receive a 12.5% share of the apartment sale proceeds as the development progresses.

We would expect further development of the site over a number of years with the pipeline of projects (including Burlington House and Eider House) amounting to an estimated GDV of more than £300m.

The Whitehall Road development site covers three acres in a predominantly office area in central Leeds, and in close proximity to Leeds train station. Office take-up in Leeds city centre reached a record (c 1m sq ft), with availability at the lowest level for some years and rents increasing. The current scheme for the Whitehall Road site has detailed planning consent for a c 165k sq ft office building at No. 2 Whitehall Road and for a 500-space multi-story car park. Additionally, there is outline planning permission for a further c 160,000 sq ft of office space. As noted above, we expect that TCS will proceed with the car park construction and then No 2 Whitehall Road, which is being marketed for pre-letting. We have not assumed the construction of that office building within our forecasting period however.

Following a property and land swap with Evans of Leeds, TCS recently acquired full ownership of a key island site in central Leeds, immediately outside the £165m Victoria Gate retail development that opened in October 2016. With John Lewis as anchor tenant, retail demand in the area is expected to show significant growth over the next few years and TCS is at the early stages of scoping long-term improvement plans for the site, which it anticipates will significantly improve ERV.

Further development opportunities at the Merrion Centre include developing a vacant cinema for office use, redevelopment of an older office building for upgraded office/residential use, and increasing building density by developing additional levels above the cinema.

TCS had operated a successful car parking business throughout the 1990s, which was sold to Q-Park, one of Europe’s leading parking service providers. In 2014 TCS took the decision to rebuild the activity, the key strategic benefits of which include:

When deciding to again grow the activity, TCS already owned a number of permanent car parks, including the Merrion Centre car park in Leeds, but was also utilising sites earmarked for future development in Leeds and Manchester. Gross revenue in 2011 was £5.1m. Several additional car parks, both freehold and leasehold, have subsequently been acquired and TCS has invested in a cloud-based management system to allow efficient management of the locations from a central control room. To create a clear identity and emphasise the commitment to technology enabled customer service and quality, the operation was branded CitiPark. 2017 gross revenue had reached £11.0m with operating profit (before valuation movements) of £3.9m (26% of the group total), and grew further in H118, with gross revenue up by 5.2% to £5.8m and operating profit (before valuation movements) ahead (by 1.4%) despite some headwinds from higher business rates. The completion and subsequent occupation of Merrion House should have a positive impact on the refurbished car park facilities at the Merrion Centre, while some of the more recently acquired branches such as those in London have scope to improve their contribution as CitiPark’s technology and marketing strategies become fully embedded, increasing revenues and efficiency. Over the medium term, some of the development sites may come off-line to allow for development work and our forecasts allow for such an impact at Whitehall Road car park in Leeds where we assume the development of a new multi-story car park, part of the master plan for the site, will proceed during FY19.

In FY17, TOWN made a strategic investment in fast growing, non-listed YourParkingSpace.co.uk (YPS), making an initial £1.95m investment, a £1.535m loan and an £415k equity investment, taking a 10% stake. In H118 it invested an additional c £150k, increasing its stake to 15%. YPS is an on-demand parking service which connects drivers with more than 250,000 parking spaces across the UK via its website and mobile application. TCS is excited about the growth potential for YPS and the possibilities for the two businesses to work together. It says that CitiPark branches are already benefitting from the partnership, while in broader terms it notes that the substantial parking industry is one of the few remaining sectors where no dominant online brand has emerged, in a similar way to Airbnb and Booking.com in the hotel sector.

In this section we provide details of our forecasts for earnings, balance sheet and cash flow. In line with management’s segmental results we discuss our estimates separately for each of property investment, hotel operation and car parking.

A summary of our earnings forecasts for the property investment division is shown in Exhibit 11. Fully consolidated rental income allows for vacancy in Milngavie, formerly occupied by Homebase, which reduces near-term rental income by c £600k pa. Management will use the opportunity provided by the vacancy to divide the property into three units and expects the ERV to be enhanced by c 5%. We have assumed a re-letting from 1 July of 2018 (start FY19). We also assume 1% pa like-for-like rental growth. The change in fully consolidated net revenue is modest over the period, with development activity within the joint ventures (existing and planned) driving the growth in operating both profit (both before and including valuation movements) over the forecast period. The valuation gains on wholly owned properties are driven by the rental growth assumption, with no allowance for possible yield shifts (either up or down), and an assumed £2m gain on redevelopment of the Leeds car park site in 2020 (GDV of £12m less development cost of £10m). Profits on disposal relate to the gain reported in H118 plus the assumption of an additional £1.0m share in the sales receipts from Brownfield Mill in H218 and H119.

We next turn to an examination of potential development activity, the majority of which we expect to take place within the property investment joint ventures.

Our forecasts include three of the development projects shown in Exhibit 10 above during the forecast period, in addition to the completion of Burlington House. The projects that we include correspond to management’s current best view of the likely order of development activity and that we believe are possible without recourse to additional capital resources. Of course, it remains possible that with divestments or other capital measures, TCS may be able to accelerate its development pipeline.

In Exhibit 12 we show a summary of the capital, income and valuation movements assumed for the three JVs above as well as the Merrion House JV. These correspond to the JV contribution (both before and after valuation movements) to property investment earnings shown in Exhibit 12. The Leeds car park income movements are captured within the consolidated results for CitiPark (below), with the £2m assumed development gain included in our property investment forecasts in Exhibit 11. Now that Merrion House is completed, we expect a further revaluation impact (TCS share £4.9m) at year end, with the TCS share of the JV earnings before valuation movement settling at c £1.7m pa.

Commencing with the interim results, TCS has helpfully split out the ibis Styles hotel, which opened in April 2017 and is operated under management contract, from the rest of the property investment division. A significant share of the gross revenues are paid out as management fees, both for the hotel and for the restaurant within, and would otherwise materially distort the property investment presentation. With the interim results, TCS reported occupancy levels are now above 70%, exceeding early expectations. In addition, despite a slower start for the restaurant, income should exceed the FY18 target of more than £600k. As the hotel becomes fully established, management anticipates the annualised net revenue increasing to more than £900k. This is reflected in our forecasts.

We expect further steady underlying organic growth in gross revenue and operating profit before valuation movements from Citipark, with an underlying improvement in efficiency ratios. However, as noted above, from 1 January 2019 (start H219) we assume £500k pa of revenue foregone for 12 months while the Leeds car park site is partly decommissioned to construct the new multi-story car park, for which we assume revenue of £600k pa at completion. This leads to a small dip in our forecast FY19 operating profit and recovery thereafter.

Our forecasts allow for c £45m of property asset investment between the beginning of the current year and the end of FY21. This comprises direct investment in the wholly owned investment portfolio assets of £18.2m, including the £1.2m invested during H118 and the Leeds car park investment (£10.0m). In addition, over the same period, we expect £27.4m (the TCS share) to be invested in the joint venture assets (including £7.0m in H118), corresponding to Exhibit 12 above.

Proceeds from disposal in H118 were £7.1m and although likely, our forecasts assume no other disposal proceeds in the forecast, other than the Brownsfield Mill receipts. The forecast growth in other cash flow from investing activity reflects our expectation of growing cash receipts from the JV’s, following the growth in their cash earnings before valuation movements.

After dividend payments, and without additional asset disposals, our forecasts point to a net cumulative funding requirement between the start of the current year and the end of FY21 of £32.0m. For modelling purposes we assume this gap is met with additional borrowing, taking gross interest-bearing debt (which excludes the finance lease liabilities) to £219.5m, or net debt of £216.4m after allowing for cash held to fund working capital needs of £3.1m. This is in excess of the existing £214m of debt facilities, albeit not materially so, suggesting that TCS would require an increased borrowing facility or, just as likely, would target additional mature asset disposals, or other capital raising initiatives. Management indicates that further assets have been earmarked for disposal, including the Rochdale retail park which is currently being marketed with a value of c £14m. Potential asset disposals of at least £20m seem entirely possible, and if undertaken at carried value would reduce the gross borrowing requirement by a similar amount. Although asset disposals would reduce our estimated income, there would also be an interest saving from lower bank debt than we have assumed (at a cost of 2.35%). Our forecast FY21 gross debt would reduce to £199.5m and the net LTV for end-FY21 of 48.7% (H118: 47.0%) would fall to 46.3%. Assuming a 5.6% net yield on disposed assets (the existing portfolio average as well as the average for out-of-town retail assets such as the Rochdale asset), the annualised impact on our FY21e EPRA EPS is a c 5% reduction, leaving the forecast dividend fully covered at 1.11x (Exhibit 16).

The existing debt facilities comprise £106m in First Mortgage Debenture Stock at a fixed rate of 5.375% and maturing in 2031, plus £108m in secured bank facilities at an average variable cost of c 2.5%. The weighted average maturity of the debt was 8.7 years at end-H118, although the bank debt is of relatively short duration. Two bank facilities expire in late 2018; with Handelsbanken renewal negotiations are well underway, and with Lloyds it is likely that the loan will be extended for a year under an option clause. A third facility, with RBS, expires in 2020, with an option to extend for a further year.

Management has indicated that it is exploring how it can fund, and potentially accelerate, the substantial development pipeline. We would be surprised if the option of raising additional equity were not to be considered, although this may require family owners to re-asses their position. The current discount to NAV would also be a consideration.

Over the five years ending June 2017, we estimate an NAV total return (the change in NAV per share plus dividends paid) of 52.7%, which represents a compound annual increase of 8.8% over the period. Dividends contributed an aggregate 20% over the period and the growth in NAV per share the balance. Our forecasts do not include any assumption of property yield tightening, a feature of the past five years, but still indicate a compound annual growth in NAV total return per share of 7.3% over the four years ending June 2021. Of the aggregate c 33% return over the period, c 13% is from dividends and the balance from NAV gains driven by continuing intensive asset management.

Continuing investment in and redevelopment of the portfolio is a limiting factor on immediate dividend distributions. However, TCS has a long and consistent track record of dividend payments, increasing or at least maintaining DPS in each of the past 57 years. With a forecast prospective dividend yield of 4.0% in respect of the year ending June 2018, TCS sits below the median range for the broad group of property companies and REITs shown in Exhibit 18, and slightly below the 4.1% yield on The FTSE All-Share Index.

Across the broad sector, the relationship between yield and P/NAV has become somewhat complicated to read. Among those companies with the highest P/NAVs are several that focus on long duration leases, providing investors varying degrees of income predictability. Investors currently appear less willing to attach a similar rating to expected future capital returns driven off asset management and development initiatives, in part because these can be less easy to predict, although this differential could change as interest rate expectations increase. Given its strong record of dividend distributions, the P/NAV ratio of 0.74x attached to TCS shares (Exhibit 19), does not appear to be factor in a significant recognition of its substantial capital return potential. The developments we assume within the forecast period add c £9m (or 16.7p) to net assets and £2.2m (TCS share) or 4.1p to income, dropping through to the bottom line. Including the JV partner shares, these developments amount to £98m of GDV, while the remaining pipeline (not captured by our forecasts) has a GDV potential of c £500m gross (ie before potential JV interests).

Relative to a number of peers, gearing is higher at TCS, although it is substantially long term and fixed rate, mitigating interest rate risk. Any unexpected decline in property values would, however, have a more significant effect on NAV. Market sentiment towards retail property is also currently weak and may be a contributory factor to the TCS valuation. However, for TCS this mainly represents parts of the Merrion Centre, less exposed to discretionary consumer spending, and where TCS has invested significantly in improving its attractiveness as a destination.

The commercial property market is cyclical, historically exhibiting substantial swings in valuation through cycles. Income returns are significantly more stable, but fluctuating with tenant demand and rent terms. For TCS we would also highlight the increased risks and uncertainties that attach to development activity, including planning consents, timing, construction risks and the long lead times to completion and eventual occupation. We consider the main sensitivities include: