Clearly, there have been beneficiaries of this renewed confidence, both on a consumer and corporate level. The raft of upbeat trading statements from the UK homebuilders is a case in point. That trend is unlikely to end anytime soon given the government's attempt to make sure we are all house price winners by the time of the May 2015 general election. And with unemployment falling, and total employment at a record high, greater confidence in job security and the state of the property market will undoubtedly have a positive impact on the high street as the 'feel good' factor spreads.
Moreover, as George Osborne puts the final touches to his autumn statement next month, the Office for Budget Responsibility will note that seven months into the fiscal year, net public borrowing of £64.8bn is far better than had been expected and is almost £6bn less than at the same stage last year. Dare I say we could be in line for some modest hand outs from the government? I may appear cynical, but with the next election less than 18 months away it would be a good time to relax the purse strings, albeit slightly, funded by additional modest public sector savings. There is also the not so insignificant sum of £6bn or so raised this year through stamp duty on housing transactions, a fair chunk of which was raised on the sale of super-prime properties in London.
Recycling some of those proceeds back to the Conservative party's Middle England heartland would be seen as a political coup. A reform of the banding for stamp duty could do wonders for housing transaction levels, too, and no more so at the £250,000 and £500,000 thresholds. It would also be in keeping with the chancellor's aim of using the housing market, and driving an uptick in construction activity, as a platform to reignite the economy, no matter how crude or blatantly construed the tactics are.
Hard-pressed consumers who have endured real wage cuts may be in for some better news, too, as recent falls in the inflation rate mean that for the first time in many years the gap between the consumer prices index and end-of-year average pay settlements, though still modest, is likely to be the narrowest in years.
The key point to note here is that given this more favourable economic backdrop, it's only reasonable to assume that consumer spending will benefit in the months ahead. And that should be rather good news for landlords of retail property.
Time to play the regional property game
In London, the good news is largely priced into valuations, but in the regions it's a different story entirely. It may take time for the improvements in the economy to eventually feed through to higher rents, but in the right location it will undoubtedly do so if the economic recovery gathers pace as the OECD predicts. All of which brings me to one of the regional property players I recommended earlier this year, Town Centre Securities (TCSC: 230p), the Leeds-based property investor and car park operator which also has interests in Manchester, Edinburgh and Glasgow.
Admittedly, the shares have only risen 12 per cent since I advised buying them at 198p ('A high yield play in the north', 18 Feb 2013), but we have picked up a decent half-year payout of 3.1p a share and are due a final payout of 7.34p in early January (ex-dividend date of Wednesday, 4 December). Combined, that gives a rolling dividend of 10.44p a share, covered last year by underlying EPS of 13.7p, to produce an attractive yield of 4.64 per cent.
To recap, the company was formed by businessman and philanthropist Israel Arnold Ziff in 1959, and quickly built a reputation for pushing the boundaries with landmark developments. Town Centre is widely acknowledged as a pioneer of the mixed-use property scheme and its investment portfolio currently compromises an estate of over 900,000 sq ft of retail space and 360,000 sq ft of prime office space in the UK. These include major retail developments, Merrion Centre in Leeds and Urban Exchange in Manchester. Occupancy rates are 97 per cent across the book and tenant quality is high with 99 per cent of rents collected within five days of the quarter end.
True, the limited free float means the shares are off the radar of some investors due to the reduced liquidity. Through direct holdings and beneficial interests, chairman and chief executive Edward Ziff controls 47.8 per cent of the issued share capital and his brother, Michael, owns a further 31.1 per cent. However, these family interests offer every incentive for the board to maintain the progressive dividend policy, which has seen the payout more than double in the past decade to 10.44p a share.
The company also offers a geared play on a revival in regional retail property. The portfolio was valued at £301m at the June financial year-end and the company currently has borrowings of £157m, including £106m relating to a debenture that runs until 2031 and which carries a coupon of 5.375 per cent. Town Centre also has a revolving credit facility of £90m, with three banks, which are not due for renewal until 2015 and 2016, so there are no pressing debt issues. In fact, the company has substantial headroom in its facilities to fund further deals. These include a 600,000 sq ft mixed use development at Whitehall Riverside, Leeds, which has now received planning consent.
Admittedly, a large family holding and a business focused on the north of England property market may not appeal to the hot money which has been zoning in on players exposed to the buoyant London and south-east property markets. However, there is undoubted medium-term value on offer here as Town Centre's shares are priced 16 per cent below net asset value of 267p a share. That's despite the fact that the portfolio has minimal voids and generates profits that easily cover annual running costs and which enable the board to declare rising and attractive dividends. Moreover, analysts at brokerage Oriel Securities expect Town Centre to grow net assets per share to 280p by the June year-end. On that basis, the shares are trading on a 20 per cent discount to forward book value.
That looks harsh to me and a share price closer to 250p to 255p is warranted in my view. Trading on a bid-offer spread of 224p to 230p, and with a 7.34p final dividend on offer if you buy before Wednesday 4 December, I continue to rate Town Centre Securities shares a buy.
Finally, I have published three columns today all of which are available on my home page. In response to recent newsflow, I am also currently working my way through a large number of updates on the following recommendations: Eurovestech (EVT), Bezant Resources (BZT), PV Crystalox Solar (PVCS), Crystal Amber (CRS), API (API), Mountview Estates (MTVW), Daejan (DJAN), Bovis Homes (BVS), WH Ireland (WHI) and Netcall (NET).
MORE FROM SIMON THOMPSON ONLINE...
In the past fortnight I have published articles on the following 12 companies:
■ 32Red ('Hitting the jackpot', 11 November 2013)
■ Macau Property opportunities ('Hot property plays', 12 Nov 2013)
■ First Property ('Hot property plays', 12 Nov 2013)
■ Inland ('Bargain shares updates', 12 Nov 2013)
■ Terrace Hill ('Bargain shares updates', 12 Nov 2013)
■ LMS Capital ('LMS worth capitalising on', 15 Nov 2013)
■ Trifast ('A bolt-on purchase', 18 Nov 2013)
■ Global Energy Development (Awaiting pay dirt, 19 Nov 2013)
■ Entertainment One ('Blue sky territory', 20 Nov 2013)
■ Marwyn Value Investors ('Blue sky territory', 20 Nov 2013)
■ Polo Resources ('Unloved and undervalued', 21 Nov 2013)
■ Heritage Oil ('Bargain shares update', 21 Nov 2013)
