Town Centre Securities — Positive trading update

Town Centre Securities (TOWN)

Last close As at 22/05/2024

133.50

0.00 (0.00%)

Market capitalisation

71m

More on this equity

Research: Real Estate

Town Centre Securities — Positive trading update

A confident trading update from Town Centre Securities (TCS) points to a stable financial performance, supported by robust operational metrics, across its increasingly diversified regional commercial property portfolio. Against the backdrop of a challenging retail sector, and the economic and political uncertainty of recent months, we view this positively, justifying the recent share price strength. We make no changes to our forecasts and will review these with the interim results due 26 February.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Town Centre Securities

Positive trading update

Trading update

Real estate

27 January 2020

Price

224p

Market cap

£119m

Net financial liabilities (£m) at 30 June 2019

181.9

Net LTV at 30 June 2019

49.4%

Shares in issue

53.2m

Free float

48%

Code

TOWN

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.8

12.0

(1.8)

Rel (local)

3.4

7.2

(12.4)

52-week high/low

232p

171p

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

Half-year results

26 February 2020

Analyst

Martyn King

+44 (0)20 3077 5745

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

A confident trading update from Town Centre Securities (TCS) points to a stable financial performance, supported by robust operational metrics, across its increasingly diversified regional commercial property portfolio. Against the backdrop of a challenging retail sector, and the economic and political uncertainty of recent months, we view this positively, justifying the recent share price strength. We make no changes to our forecasts and will review these with the interim results due 26 February.

Year end

Net revenue (£m)

EPRA
earnings* (£m)

EPRA EPS*
(p)

EPRA NAV/
share (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

06/18

19.3

6.9

13.0

384

11.8

0.58

5.2

06/19

19.6

6.4

12.0

354

11.8

0.63

5.2

06/20e

19.4

6.0

11.4

342

11.8

0.66

5.2

06/21e

20.6

7.0

13.2

352

11.8

0.64

5.2

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

Continuing robust performance…

In H120, a good level of occupancy further increased, while like-for-like passing rent increased 0.4% year-on-year on an underlying basis excluding the impact of significant development projects. With redevelopment of The Cube underway, passing rent is temporarily reduced by £1.2m, partly offset by the £0.6m uplift from fully re-letting Milngavie. Including these development impacts, like-for-like passing rent was 2.8% lower. Reflecting the increasingly diversified regional portfolio and the defensive nature of the remaining retail exposure (less than 50% by value with a lack of big high street names and a focus on discount formats), rent collection remains strong and there was only one additional retail administration (and no new CVAs) in the period. CitiPark continued to grow revenues and earnings. The update appears consistent with our recurring income forecasts and supportive of our capital value assumptions. We expect a robust but lower income performance in FY20 and a rebound in FY21 as developments complete and are re-let.

…supporting repositioning and development

TCS is a family-run business with a strong focus on dividends, increasing or maintaining DPS in each of the last 59 years while recycling capital and actively managing assets for long-term growth. An extensive pipeline of potential development projects with an estimated gross value – once funded and developed – of more than £600m, represents both a significant long-term growth opportunity not captured by stated NAV and a differentiating factor for the group. Borrowing headroom (£26m at end-FY19) and proceeds from further retail divestment is likely to be targeted at development investment and/or acquisitions. Management signals that it is also open to potential accretive share repurchases.

Valuation: Strong dividend commitment

TCS has a strong dividend commitment while continuing to invest for growth and, despite the recent rise in the share price, the yield remains attractively above 5% while the share price discount to NAV per share is more than 30%.

Further details from the trading update

As noted above, we make no changes to our forecasts and will review these when the interim results are published. Those forecasts are set out in detail in our October 2019 update note.

Increased occupancy and underlying rental growth

Portfolio occupancy has improved from an already good level, rising to 96.7% at end-H120 compared with 95.8% at end-FY19. On an underlying basis, excluding the effects of two significant redevelopment projects (Milngavie and The Cube), like-for-like (ie adjusted for acquisitions and disposals) rental growth was 0.4% compared with a year earlier (portfolio passing rent of £20.5m). The re-letting of the retail asset on Main Street at Milngavie, previously occupied by Homebase, subsequently sub-divided and re-let to Aldi and Home Bargains at an 8% higher rent, added c £0.6m pa to passing rent compared with end-H119. Commencement of redevelopment of The Cube, a mixed-use property situated opposite the Merrion Centre in Leeds acquired in October 2018 for £12m, has temporarily reduced annualised passing rent by £1.2m. Including these two properties, like-for-like passing rent was 2.8% lower year-on-year. Our forecasts allow for the additional income from Milngavie, which had already been re-let by year-end FY19, and the temporary loss of income from The Cube. We forecast a rebound in income in FY21 as redevelopment of The Cube completes and the vacant space is re-let.

Little additional impact from retail sector stress

Although not immune to the pressures on the high street and the increase in company voluntary arrangements (CVAs), TCS has continued to demonstrate a resilience that is based on:

A focus on food retailers and discount formats, and a lack of exposure to department stores or the big-name high street retailers and fashion stores.

The location and positioning of the Merrion Centre in Leeds, TCS’s largest asset, accounting for around half of the retail portfolio value. With £70m invested over the past 10 years, the asset has become a truly mixed-use destination, well situated adjacent to the First Direct Arena entertainments facility. Around 50% of Merrion Centre rents are retail and leisure, of which c 50% is derived from the supermarket let to Morrisons. Most of the remaining retail tenants operate in the more resilient discount and convenience segments, well suited to the needs of a large and fast-growing student population within the Arena quarter of Leeds. Footfall at the Merrion Centre was marginally up in the 12 months to end-H120 compared with the prior 12-month period, with a good end to the year; footfall in the last 10 weeks of the year was ahead by 6.7% compared with the prior year period.

This resilience of the retail assets was demonstrated in FY19 when TCS was able to significantly mitigate the impact of eight tenant administrations/CVAs through active asset management. Four of the properties affected in FY19 were re-let during the year to new tenants with rent levels at least being maintained, while in the case of three of the properties the incumbent tenant chose to remain at the same rent. The final property was in the process of being re-let at end-FY19. As noted above, H120 has seen just one new tenant administration and no further CVAs. The administration related to a small leisure unit in Leeds with annual rent of £125,000.

Portfolio repositioning continuing

TCS has an increasingly diverse, mixed-use and regionally focused portfolio, with an emphasis on Leeds and Manchester, which together represented 77% of the portfolio by value at end-FY19.

Retail and leisure remains the single largest sector weight in the portfolio, but has been actively reduced to below 50% from 55% at end-FY18 and 70% at end-FY16. Pure retail exposure is lower still, 36% at end-FY19. As retail has been reduced, offices, hotels and private rented sector (PRS) residential assets have increased share are likely to do so.

Exhibit 1: End-FY19 portfolio summary

Passing rent (£m)

ERV
(£m)

ERV
(%)

Value
(£m)

Value
(%)

Initial
yield (%)

Reversionary yield (%)

Retail & Leisure

3.7

4.2

15

62.7

16

5.6%

6.3%

Merrion Centre (exc office)

7.1

7.8

28

92.5

23

7.3%

7.9%

Offices

5.5

6.0

22

80.4

20

6.5%

7.1%

Hotel

1.2

1.6

6

25.8

7

4.3%

6.0%

Out-of-town retail

1.8

2.5

9

41.8

11

4.0%

5.6%

Distribution

0.4

0.4

1

6.1

2

6.3%

6.6%

Residential

1.2

1.3

5

21.8

6

5.1%

5.7%

Total investment properties

20.9

23.8

87

331.0

84

6.0%

6.8%

Development property (car park income)

2.1

2.1

8

36.5

9

Car parks

1.5

1.5

5

26.7

7

Total portfolio

24.5

27.4

100

394.2

100

Source: Town Centre Securities, 30 June 2019

During H120, TCS exchanged contracts (in December) to sell a retail unit in Shandwick Place in Edinburgh, completing in January 2020. The 6,000 sq ft unit was empty but let for a remaining eight years to Morrisons, and was been sold for £2m. The sale price represents a 5% uplift on the valuation and a yield of 7%. Management continues to explore opportunities to dispose of further retail assets, but is not a forced seller and says that it will only do so on terms that it finds acceptable. The proceeds from further retail divestment are likely to be targeted at further investment in the development pipeline and/or acquisitions. TCS is currently continuing to invest in assets in Leeds and Manchester including existing asset redevelopment projects at The Cube in Leeds and Ducie House in Manchester, and is about to commence stage four design work for the George St JV development with Leeds City Council, expecting construction work to commence in the next six months. In the context of the broader sector, among the factors that should continue to support the shares and represent potential catalysts for a further relative re-rating are the attractive yield, with a strong management commitment to dividends and an alignment of interest between management and shareholders. Additionally, we note TCS’s focus on better performing regional markets (Leeds and Manchester) and its increasingly diversified portfolio. Longer-term growth is supported by the company’s significant pipeline of development opportunities.

Valuation has improved but upside potential remains

In Exhibit 2 we show a summary valuation comparison of TCS with what we consider to be a group of peers from within the broad property sector, including companies focused on regional property and those with retail exposure. Starting from a low valuation, TCS shares have performed strongly in recent months, but still offer an attractive dividend yield of more than 5% with a discount to last published NAV of more than 30%. TCS appears to have successfully decoupled from the purer retail peers and has begun to more closely track the more diversified regional property peers.

Exhibit 2: Peer comparison

Price
(p)

Market cap
(£m)

P/NAV*
(x)

Yield**
(%)

Share price performance

1 month

3 months

12 months

From 12M high

Capital & Regional

237

247

0.55

6.7

-4%

-10%

-14%

-29%

Custodian

115

476

1.11

5.7

1%

0%

1%

-4%

Hammerson

256

1962

0.37

10.1

-18%

-16%

-28%

-35%

Helical

500

599

1.03

2.0

5%

30%

54%

0%

Intu

19

255

0.08

0.0

-43%

-59%

-83%

-85%

McKay Securities

271

255

0.81

3.8

-4%

15%

5%

-5%

NewRiver

190

583

0.78

11.3

-7%

-8%

-11%

-23%

Palace Capital

326

150

0.83

5.8

0%

14%

8%

-6%

Picton

100

550

1.07

3.5

4%

8%

18%

-7%

Real Estate Investors

55

103

0.80

6.8

2%

1%

7%

-5%

Regional REIT

115

496

1.01

7.1

1%

9%

17%

-1%

St Modwen

494

1097

1.00

1.5

-3%

11%

19%

-5%

Schroder REIT

54

281

0.79

4.8

-4%

-5%

-1%

-9%

Average

0.79

5.3

-6%

-1%

-1%

-16%

Town Centre Securities

224

119

0.62

5.2

1%

14%

-3%

-4%

UK property index

1,924

3.5

-1%

6%

17%

-2%

FTSE All-Share Index

4,151

4.5

-2%

3%

11%

-3%

Source: Company data, Edison Investment Research. Note: *Based on last reported EPRA NAV. **Based on trailing 12-month DPS declared. Prices as at 27 January 2020.

Exhibit 3: Financial summary

Year ending 30 June (£000's)

2015

2016

2017

2018

2019

2020e

2021e

2022e

INCOME STATEMENT

Gross revenue

22,714

26,265

27,540

30,178

31,189

30,885

32,382

32,610

Total property expenses

(5,248)

(7,661)

(8,148)

(10,896)

(11,600)

(11,441)

(11,762)

(12,188)

Net revenue

17,466

18,604

19,392

19,282

19,589

19,443

20,620

20,423

Administrative expenses

(5,321)

(5,493)

(6,295)

(6,574)

(6,857)

(6,766)

(6,940)

(7,148)

Other income

1,468

599

707

888

574

400

400

400

Valuation movement on investment properties

14,791

3,018

(2,085)

5,932

(18,308)

(6,402)

0

0

Reversal of impairment of car parking assets

0

500

1,000

1,300

200

0

0

0

Profit on disposal of investment property

236

1,140

303

1,677

(709)

0

0

0

Share of post tax profits from joint venture

2,621

1,400

1,342

3,757

1,067

1,034

6,084

2,403

Operating profit

31,261

19,768

14,364

26,262

(4,444)

7,709

20,164

16,077

Net finance costs

(7,258)

(7,847)

(7,639)

(7,887)

(8,025)

(8,063)

(8,400)

(8,527)

PBT

24,003

11,921

6,725

18,375

(12,469)

(354)

11,764

7,550

Tax

0

0

0

0

0

0

0

0

Net profit

24,003

11,921

6,725

18,375

(12,469)

(354)

11,764

7,550

Adjustments to EPRA:

Valuation movement on investment properties

(14,791)

(3,018)

2,085

(5,932)

18,308

6,402

0

0

Reversal of impairment of car parking assets

(5,013)

(500)

(1,000)

(1,300)

(200)

0

0

0

Valuation movement on properties held in joint ventures

0

(668)

(471)

(2,561)

8

0

(4,750)

0

Profit on disposal of investment/development properties

(236)

(1,140)

(303)

(1,677)

709

0

0

0

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

2,488

0

0

0

0

0

0

0

EPRA earnings

6,451

6,595

7,036

6,905

6,356

6,048

7,014

7,550

Average number of shares (m)

53.2

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

(23.4)

(.7)

22.1

14.2

Basic & fully diluted EPRA EPS (p)

12.1

12.4

13.2

13.0

12.0

11.4

13.2

14.2

DPS declared (p)

10.44

11.00

11.50

11.75

11.75

11.75

11.75

11.75

BALANCE SHEET

Investment properties

336,982

346,388

349,266

359,734

348,694

348,292

350,292

352,292

Investment in joint ventures

19,344

25,093

27,852

39,742

13,387

23,575

37,762

37,762

Goodwill

4,024

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

4,119

4,119

4,119

4,119

Total non-current assets

361,564

377,656

385,064

407,169

370,224

380,009

396,197

398,197

Investments (listed equities)

1,962

2,070

2,394

3,530

5,871

5,871

5,871

5,871

Non-current assets held for sale

3,450

0

0

0

0

0

0

0

Trade & other receivables

6,871

7,388

3,311

6,288

5,354

3,795

3,911

3,925

Cash & equivalents

1,515

0

3,124

23,149

23,692

30,259

24,859

24,197

Total current assets

13,798

9,458

8,829

32,967

34,917

39,924

34,641

33,993

Total assets

375,362

387,114

393,893

440,136

405,141

419,934

430,837

432,189

Trade & other payables

(11,857)

(11,496)

(10,846)

(37,954)

(34,739)

(36,132)

(36,518)

(36,567)

Financial liabilities

(38,668)

(887)

0

0

0

0

0

0

Total current liabilities

(50,525)

(12,383)

(10,846)

(37,954)

(34,739)

(36,132)

(36,518)

(36,567)

Non-current financial liabilities

(141,959)

(184,874)

(191,969)

(198,057)

(182,152)

(202,152)

(207,152)

(207,152)

Total liabilities

(192,484)

(197,257)

(202,815)

(236,011)

(216,891)

(238,284)

(243,670)

(243,719)

Net assets

182,878

189,857

191,078

204,125

188,250

181,649

187,167

188,470

Period end shares in issue (m)

53.2

53.2

53.2

53.2

53.2

53.2

53.2

53.2

NAV per share (p)

344

357

359

384

354

342

352

355

CASH FLOW

Net cash flow from operating activity

2,191

5,656

10,108

6,348

3,412

8,867

6,850

6,081

Investment in investment properties

(37,045)

(17,014)

(23,246)

(2,859)

(29,512)

(6,000)

(2,000)

(2,000)

Proceeds from disposal of investment property

26,821

16,050

21,574

7,534

17,089

0

0

0

Purchase of fixtures, equipment and motor vehicles

(532)

(1,496)

(586)

(340)

(814)

(900)

(900)

(900)

Proceeds from sale of fixed assets

0

54

61

0

23

0

0

0

Investments and loans to JV

0

(4,916)

(4,250)

(8,809)

(723)

(10,188)

(9,438)

0

Distributions received from joint ventures

0

567

1,031

676

28,145

1,034

1,334

2,403

Proceeds from sale of joint ventures

0

0

0

0

0

0

0

0

Payment for the acquisition of non-listed investments

0

0

(1,950)

(175)

(385)

0

0

0

Cash flow from investing activity

(10,756)

(6,755)

(7,366)

(3,973)

13,823

(16,053)

(11,003)

(497)

Proceeds from borrowing

17,475

4,247

7,197

6,088

(16,252)

20,000

5,000

0

Dividends paid

(5,550)

(5,550)

(5,928)

(6,114)

(6,247)

(6,247)

(6,247)

(6,247)

Cash flow from financing activity

11,925

(1,303)

1,269

(26)

(22,499)

13,753

(1,247)

(6,247)

Change in cash

3,360

(2,402)

4,011

2,349

(5,264)

6,567

(5,400)

(662)

Opening cash

(1,845)

1,515

(887)

3,124

5,473

209

6,776

1,376

Closing cash

1,515

(887)

3,124

5,473

209

6,776

1,376

714

Balance cash netting adjustment*

0

887

0

17,676

23,483

23,483

23,483

23,483

Cash as per balance sheet

1,515

0

3,124

23,149

23,692

30,259

24,859

24,197

Financial liabilities (including finance leases)

(180,627)

(185,761)

(191,969)

(198,057)

(182,152)

(202,152)

(207,152)

(207,152)

Net debt

(179,112)

(185,761)

(188,845)

(192,584)

(181,943)

(195,376)

(205,776)

(206,438)

Net LTV

49.7%

49.5%

49.3%

47.5%

49.4%

51.6%

52.1%

52.1%

Source: Town Centre Securities data, Edison Investment Research forecasts


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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Shield Therapeutics — 2019 a landmark year

Today’s 2019 business and trading update highlights a landmark year for Shield Therapeutics. Feraccru/Accrufer (oral ferric maltol) is making inroads in Europe, with sales volumes growing 67% through commercialisation partner, Norgine. Importantly, the AEGIS head-to-head study proved Feraccru/Accrufer to be non-inferior to IV iron therapy, a strong marketing tool for an oral treatment. In July 2019, the FDA approved the product for the treatment of iron deficiency in patients with any underlying cause – the broadest possible label. Momentum has continued into 2020 with an out-licensing deal with China-based Beijing Aosaikang Pharmaceutical (ASK Pharm) that covers China, Hong Kong, Macau and Taiwan. The next key inflection point is a US partnering deal, which we assume will occur in the next 12 months. We value Shield at £345m.

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