Against a challenging retail sector environment and ongoing economic uncertainty, Town Centre Securities (TCS) delivered a robust underlying performance in FY19 while continuing to re-position its portfolio for the long term. Earnings and NAV were lower than in FY18 but the fully covered DPS was maintained, now held or improved in each of the last 59 years. Already below 50%, TCS plans to reduce retail and leisure exposure further and continue to recycle capital into more attractive opportunities, including the group’s significant pipeline of development opportunities.
With its increasingly diversified portfolio and lack of exposure to the big high street names in its retail portfolio, TCS delivered a robust underlying property performance including a 2.6% increase in like-for-like passing rents and occupancy at 96% (FY18: 95%). CitiPark increased recurring profits by c 10% to c 30% of the group total. EPRA earnings and EPS were 7.9% lower y-o-y, due to investments, the short-term impact of CVAs and one-off expense movements. EPRA NAV per share was 7.8% lower at 354p and LTV increased to 49.4% despite a reduction in net debt. Retail and leisure assets are now less than 50% of the total (2016: 70%) and management signals it will accelerate divestment despite the potential shortterm impact on income to de-risk the portfolio and free up capital for reinvestment. This is not reflected in our reduced forecasts (page 6) with lower net revenue in FY20e driven by refurbishment of The Cube, rebounding in FY21e on completion.
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 of £26m and proceeds from further retail divestment is likely to be targeted at development investment and/or acquisitions. Management signals it is also open to potential accretive share repurchases.
TCS has a strong dividend commitment while continuing to invest for growth. The fully covered FY19 DPS represents a yield of 6.3%, while the share price discount to NAV per share is c 47%.