Town Centre Securities is a UK REIT focused primarily on 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.
A trading update ahead of interim results on 26 February shows further progress with ongoing portfolio repositioning (retail and leisure assets have reduce to 52% from 70% in 2016), to increase income resilience and recycle capital to unlock the sizeable future growth and diversification opportunity in the development pipeline. H119 occupancy increased to 96% (FY18: 95%), with passing rent up 0.9% y-o-y on a l-f-l basis. We will review our estimates with the interims but expect that CVAs and insolvencies will have a modest negative near-term impact on income despite the majority of affected units already having been re-let 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.
The supply demand balance for regional office and industrial property remains generally firm, and a positive yield spread between the regions and London offers potential for further narrowing. Parts of the retail sector are displaying clear signs of stress.