Town Centre Securities – a temporary profits blip shows up good buying opportunity

Next Wednesday will see the announcement by this property investment and car parking group of its results for the year to end June.

They are expected to show a swing into a small loss.

However, this current year appears to have started well and already indicates that it will be profitable.

What is more its shares are trading at a third of their net asset value.

The business

Town Centre Securities (LON:TOWN) is a Leeds-based group operating a high quality portfolio of property assets.

It was set up by Arnold Ziff way back in 1959 and has since then built up its assets to include over 360,000 sq. ft. of prime office space, over 1m sq. ft. of commercial and retail space, residential properties, car parks and hotels.

Operating mainly in Leeds, Manchester, Glasgow and London, it has created mixed-use developments close to main transport hubs.

Its strategy is to actively manage its portfolio for income and capital growth.

With a policy of investing in locations able to show sustainable growth, where it can work with its tenants to improve their properties and needs, the group also disposes of its properties that no longer meet its criteria.

The virus impact

The group always considered that the backbone of its activities was its reliable and repetitive income stream, however Covid-19 hit it hard, especially in its car park operations.

In the 2020/2021 trading year revenues are expected to have been sliced from £29.0m to £22.5m, hitting the previous £2.1m pre-tax profit into a loss of £1.8m.

That should have seen the previous fully diluted earnings of 4.9p being replaced by a loss of 2.3p per share.

But there are clear signs of recovery for this current year – already hinted at by the group’s continued payment of a dividend of 1.8p per share (5.0p).

Rent collection suffered a moderate blip, with the car parking side being worst impacted.

There must have been a significant swing back in the takings of the group’s 18 CitiPark car parks as lockdown restrictions ended.

On a sales per business basis out of the 2020 revenue figure of £27.2m property rentals made up 54.4% of the income, while car parks made up 35% and the hotel interest was just 6.6%.

Broker’s Views

Analyst Tom Musson at Liberum Capital, the group’s brokers, sees a healthier picture for this current year to end June 2022.

He estimates revenues recovering to £27.2m and a bounce back to £3.1m of pre-tax profits, worth 6.9p in earnings and covering a healthy 6.3p per share dividend.

His expectation is for the group’s net tangible assets figure having dipped from 285p to 278p per share in the last year, will recover to 284p this year and up to 289p next year.

The year to end June 2023 he expects around £28.0m of revenues and £3.8m of profits, worth 8.2p in earnings and covering an even healthier 7.8p per share in dividend.

Musson has a ‘buy’ rating on the group’s shares with a recently raised price objective of 190p.

The group is a REIT

Way back in October 2007 the group became a Real Estate Investment Trust (REIT) which means that 90% of the profits of the property rental business, after certain deductions, must be distributed to shareholders as a Property Income Distribution.

Hence the high dividend.

Family controlled equity and share buybacks

There are some 52.95m shares in issue.

A year ago, the group announced a £5m share buy-back programme for up to 15% of its equity. A similar programme in the earlier 2000’s significantly enhanced shareholder returns over the years.

Larger shareholders include Ann Manning (12.1%), Edward Ziff (10.4%), JP Morgan (Suisse) (9.13%), New Fortress Finance Holdings BVI (9.07%), Michael Ziff (4.90%), ICBC Standard Bank (2.37%), West Yorkshire Pension Fund (1.96%), Ruth Hanbury (1.88%), Marjorie Ziff (1.68%), and Hargreaves Lansdown Asset Management (1.50%).

My View

I have followed the Ziff family and their property group for the last couple of decades and have always remembered that it has a very useful car park business.

That Covid-19 hit it for six and impacted the share price is to new investors advantage, enabling them to take the lower priced opportunity to buy into ‘progressive value’.

I can remember when this group’s shares hit nearly 700p way back in the summer of 2006.

This time last year they were down to just 85p.

The subsequent reassurances from the group around its various announcements have helped the price to recover to the current 130p.

Chairman and Chief Executive Edward Ziff recently commented that he is looking forward to seeing the recent strong recoveries continuing in the current financial year.

I now set a Target Price of 165p for the group’s shares and await a set of positive current year indications when the group reports its finals next Wednesday (24).