Town Centre Securities (TCS) says that FY18 ended positively with overall trading in line with the board’s expectations. Like-for-like property rental income increased, with a good level of occupancy maintained, and car parking revenues and profits grew further. In addition to refinancing existing bank debt facilities, TCS has also now completed an innovative refinancing of Merrion House in Leeds, which allows it to maintain its joint ownership, benefit from rental increases and receive a £26.4m cash injection. This will provide additional financial flexibility as TCS continues to invest for growth.
Like-for-like passing rent increased by 4.1% or 1.9% excluding the post-completion step-up in rent at Merrion House and vacancy created by the previously reported exit of Homebase at Milngavie. Occupancy was maintained at a good level of 95% (FY17 99%) with the majority of the increase in voids attributable to Milngavie, with no obvious signs that retailer stress is having a material impact on the portfolio. CitiPark is benefiting from improved performance at newer sites. Progress with key developments – current and planned – continues, while the refinancing of bank debt and the innovative Merrion House refinancing provide added certainty and flexibility to investment funding for future growth. We will review our development assumptions and estimates with the full year results in September.
Capital recycling is a key element of strategy, with more than £85m recycled into new investments over the past five years. Opportunities with a developed value of up to £600m, and significant potential to enhance earnings and NAV over time remain and management is exploring how quickly to proceed and how best to fund these. The Merrion House refinancing provides additional flexibility, while additional capital recycling and joint ventures are likely to contribute. Additional equity is an option, but may require family shareholders to reassess their position.
Despite a strategy of investment to support long-term total return, TCS has increased or maintained DPS every year for 57 years. With a fully covered dividend, the FY18e yield is 4.0%. Benefiting from reinvestment, NAV total return was a compound 8.8% pa in the five years to end-FY17, and our forecasts imply 7.3% in the three years to end-FY21. Meanwhile, the shares trade at a significant 26% discount to FY18e EPRA NAV.