H119 saw continued progress with unlocking value from the development pipeline, which is particularly focused on offices and residential assets. A challenging retail environment was well managed, occupancy increased, and car parking profits grew. Excluding some short-term factors, EPRA earnings were robust and the DPS well covered, but NAV was negatively affected by weak investor sentiment, particularly for retail assets.
The underlying H119 operational performance was robust with overall occupancy increasing to 96%, a 0.9% increase in like-for-like rent roll, and a c 14% increase in car parking operating profits. However, EPRA earnings reduced by 8.8% y-o-y to £3.7m (H118: £4.0m, H218: £3.9m), and EPRA EPS to 6.9p, due to the negative effect of a number of specific items. The unchanged 3.25p interim DPS remained well covered. Retail CVAs/insolvencies reduced H119 income by £0.25m and although much of the space has been re-let, will continue to affect H219. Other development-related voids were also a drag and administrative costs were affected by refinancing activity. NAV was negatively affected by weaker asset values, particularly in retail, with NAV per share falling 6% to 361p (end-FY18: 384p).
As a family run business, Town Centre Securities (TCS) has a strong focus on dividend returns and has increased or maintained DPS in each of the last 58 years, while investing for growth. To achieve this, TCS is an active manager of its assets and in the past two to three years has significantly repositioned the portfolio to reduce income risk, particularly in relation to retail exposure, and unlock value from development opportunities. Retail & leisure assets are now 52% of the total versus 70% in 2016, with the remaining rent roll including many good quality tenants, including Waitrose and Morrisons. Refinancing has unlocked capital from JV investments, providing additional resources to proceed with selected development projects from an extensive pipeline of projects, an enormous growth opportunity with a gross value, once funded and developed, estimated by management at more than £590m.
TCS has a fully covered DPS and yields more than 5% while trading at a significant c 40% discount to EPRA NAV. It is strongly committed to dividends while investing for growth and has produced a compound annual average NAV total return of 8.7% since the end of FY13.