With much of its property portfolio located in and around Leeds, Town Centre Securities (TOWN) is ideally placed to benefit from the strong revival in activity that is taking place in nearly all of the UK’s key regional districts. In a classic case of playing catch up, Leeds is enjoying the sort of growth seen in London a couple of years ago. And demand for space is brisk, with overall occupancy within Town Centre's portfolio at 99 per cent and a smaller car park business is also trading well.
- Very high occupancy rate
- Good returns on asset recycling
- Attractive dividend
- Strong, hands-on management
- Relatively high debt level
- Reliance on retail sector
Much of the Reit's recent development work has been focused on the mixed-use Merrion shopping centre in central Leeds, which has been owned and operated by Town Centre since its opening in 1964. In 2016 Merrion attracted record footfall, with 11.5m visitors going through the doors.
The Ibis Styles Merrion Hotel was opened in April and is trading better than expected, generating annual profits of over £600,000. And the redevelopment of Merrion House, a 10-story office building, is on track for completion early in 2018, and is expected to generate annual rental income of around £900,000. Rental income is also set to grow following the completion earlier this year of a Premier Inn hotel carrying a 25-year lease, with an annual rent of £680,000 and yearly inflation-linked uplifts.
| TOWN CENTRE SECURITIES (TOWN) | ||||
| ORD PRICE: | 292p | MARKET VALUE: | £155m | |
| TOUCH: | 292-303.75p | 12-MONTH HIGH: | 325p | LOW: 260p |
| FORWARD DIVIDEND YIELD: | 4.1% | TRADING STOCK: | nil | |
| DISCOUNT TO FWD NAV: | 21% | NET DEBT: | 98% | |
| INVESTMENT PROPERTIES: | £350m | |||
| Year to 30 Jun | Net asset value (p)* | Pre-tax profit (£m)* | Earnings per share (p)* | Dividend per share (p) |
| 2014 | 308 | 7.6 | 14.4 | 10.4 |
| 2015 | 344 | 6.5 | 12.1 | 10.4 |
| 2016 | 357 | 6.6 | 12.4 | 11.0 |
| 2017* | 351 | 7.6 | 14.0 | 11.5 |
| 2018* | 370 | 8.8 | 15.6 | 12.1 |
| % change | +5 | +16 | +11 | +5 |
| Normal market size: | 1,000 | |||
| Matched bargain trading | ||||
| Beta: | 0.28 | |||
| *Liberum forecasts, adjusted NAV, PTP and EPS figures | ||||
To fund development work Town Centre has been selling assets and reinvesting the capital into areas where it sees strong growth prospects with a particular focus on Manchester, Leeds and London Suburbs. In particular, the Scottish portfolio is slowly being run down. The latest sale of Empire House in Glasgow raised £17.5m with an exit yield of 6.8 per cent, which is above the last valuation.
In June, the company also undertook an innovative deal with joint-venture partner Evans of Leeds in which it sold it a Manchester site on which Evans has obtained planning consent for a 137 bedroom five-star deluxe hotel. As part payment for the deal, it has taken control of Evan’s joint-venture share in Buckley House, which means it now has full control of a prime island site at the front of the John Lewis anchored Victoria Gate shopping centre.
Town Centre has a strong, stable and conservative family management team. Current chairman and chief executive Edward Ziff is the son of Arnold Ziff who floated Town Centre in 1960. Arnold, in turn, also ran his father's business, the shoe retailer Barratts which was listed separately from Town Centre as Stylo.
The alignment of the family interest (the Ziffs own just over half the shares) with that of other shareholders means there is an attractive dividend that is fully covered by after-tax earnings. Net debt is relatively high when measured against total equity, although this comes down to a more manageable 50 per cent using a loan-to-value ratio. There are risks because the portfolio has a significant bias towards the retail sector, where pressure has been growing from a switch by consumers to more online shopping.
