Town Centre Securities (LSE:TOWN) was founded by 32 year-old Arnold Ziff in 1959, and it floated on the London market in 1960. A Leeds man, born and bred he had inherited the Stylo shoe business from his father.  He knew the city intimately which must have been a great help when it came to ideas for development schemes and negotiating with the powers that be. He and his wife Marjorie became great benefactors, and both of them received recognition from the Queen for their philanthropic work.
They had two sons, Michael (born 1953) and Edward (born 1960), and a daughter, Ann Louise. Michael worked at Stylo and Edward at TOWN.
The Merrion Centre in Leeds has been the bedrock of the company for a long time. The £3m “revolutionary scheme” was opened in 1964, the first of its kind, introducing Leeds to the combination of destination for shopping by day with entertainment and attractions at night.
Edward Ziff, OBE, joined the company when 21 and was appointed to the board in 1985. He became MD in 1983, CEO in 2001 and succeeded his father as Chairman in 2004.  He too is dedicated to Leeds, being a prominent philanthropist.
So, this is a family business proud of its inheritance and the contribution it can make to all stakeholders, from the citizens of the cities in which it operates to shareholders. The senior team have decades of experience, a network of influential friends and contacts and a reputation for reliability and commitment to Leeds and Manchester.
The family still own 51.5% of the shares so other shareholders have little they can do should the family turn against their interests.
Are they likely to turn against private investors? To answer we need to judge their character. I have not met them yet, but I have picked up a few clues through my reading (and there is an excellent Youtube video with Edward being interviewed last December).
Firstly, the family are very generous with time and money to worthy causes, indicating they are not obsessed with piling up money to please their egos, but try to act decently in community.
They pride themselves on good relationships. For example, in the last annual report and the last interim report they attribute the high level of rent collection in these trying times to “Our flexible approach means that we are hands on with our tenants and have built strong relationships with many entrepreneurial businesses, working with them through the cycle….Such long-term relationships have been key during this period, allowing us to understand the changing needs of tenants and share their pain where we can. We worked closely with many tenants to agree payment plans during the peak of the crisis and are now helping to ensure the safe and successful reopening of their businesses. Most tenants have acted responsibly and in good faith in difficult circumstances…The office space is fully let serving a range of smaller and larger tenants including Leeds City Council’s headquarters and we work hard to keep tenants on site and build strong relationships.” (2020 Annual Report)
According to bulletin board writers they make the effort to speak with small shareholders: “The directors were very welcoming and communicative” and “Edward Ziff could not have been more welcoming. He even brought my cup of tea over…I think these sorts of family companies are under the radar of most other investors, but people like us are happy to be part of the family”.
Other directors
There has been quite a lot of change in non-family executives in the boardroom of late. This may be of concern - I don't know - but continuity is provided by family members (and there does not seem to be animosity from the departing directors)
Stewart MacNeil, FD.
Appointed to a permanent position in June this year, he had been acting Interim Chief Financial Officer since February 2021 following the sudden departure of the previous FD.
He spent the bulk of his professional career at LXB Properties, the real estate investment company which focused on edge of town and out of town retail assets, and most recently worked at a small development consultancy business. A Cambridge graduate and a Fellow of the ICAEW.
Ben Ziff
Son of Edward, he joined the company in 2008, becoming MD of Citipark in 2009 and appointed to the board in 2015.   While he has a wider knowledge and perspective across the business he concentrates on Citipark and constantly examines the potential of new technology and new ways of doing business.  He led the acquisitions programme which has doubled the size of the car park division. He also heads TCS Energy, founded in 2012, which pursues renewable energy production and storage. Ben led the investment in the app company YourParkingSpace.co.uk.
Michael Ziff, NED
Michael Ziff headed the Stylo/Barratt/Priceless
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​Many companies showing low share prices relative to net current assets and/or earnings are financially distressed and will continue to perform badly. Thus, it is important to avoid including those displaying the biggest problems. Joseph Piotroski established some variables useful for considering the likelihood of financial distress.


I’ll conduct a Piotroski analysis on both Town Centre Securities' (LSE:TOWN) annual figures to June 2020 and the half-year numbers to December 2020. (Market capitalisation of £75.5m at a share price of 142.6p)
Profitability factors
If the firm is profitable and produces positive cash flow it has a capacity to generate funds internally.  Furthermore, a positive earnings trend suggests an improvement in the firm’s ability to generate positive future cash flows.

1. Is TOWN producing a positive net income before extraordinary/exceptional items?

In the year to end of June 2020 TOWN produced £2.1m in “basic” earnings, i.e., before allowing for valuation changes or realised gains/losses.
In the half-year to end of December 2020 TOWN reported an underlying profit of £0.2m.
So it gains one Piotroski point for both the annual analysis and the half-year analysis.
2. Was cash flow from operations positive?
In the year to June 2020 TOWN generated £6.8m from operating activities so it gains a second Piotroski point on the annual analysis
In the half year to December 2020 it had a net outflow of £1.2m when a number of tenants failed to pay, or delayed, rent. No Piotroski point.
3. Is there a positive change in return on assets employed in the business from the previous year.
Annual: 2019: £6.4m/£440m = 1.45%;     2020: £2.1m/£405m = 0.5%
A decrease, therefore no Piotroski point for the annual analysis
Half year analysis: 2019: £4.1m/£405m = 1%;     2020: £0.2m/£395m = not much of a return
No Piotroski point.
4. Is cash flow greater than profit (so profits are not driven primarily by positive accruals, which may be ‘managed’).
Annual analysis: Yes, so a third Piotroski point
Half-year analysis: No
The Leverage, liquidity, funding factors
Measuring changes in capital structure (debt:equity ratio) and the firm’s ability to meet future debt service obligations.
5. Change in leverage over one year. Has the firm’s long-term debt reduced relative to its total assets?
Annual: 2019: £182m/£400m = 45.5%;            2020: £155m/£422m = 36.7%
An improvement therefore it gains the fourth
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The principle reason for buying shares (at 142.6p, MCap £75.5m) in Town Centre Securities (LSE:TOWN) is that they are selling at half net current asset value, even after adjusting downwards values of retail and leisure property assets – see earlier newsletters.  But TOWN also looks very good from the perspective of a deep value investor focused on its earnings and large pay outs to shareholders.   
Statutory earnings per share move around a lot from one year to another depending on revaluations of property and profit/losses on disposals.  The measure of EPS that strips out these volatile variables, “adjusted” or “underlying” earnings, and just concentrates on income flowing from the assets is much more stable at around 12p – 13p.
What is significant over the last decade is that the property valuation declines in 2019 (mainly caused by retail property falls) and in 2020 (caused by Covid-19 and further retail declines) wipe out all the gains made through valuation uplifts and realised capital gains of the previous eight years.
Thus, underlying EPS comes out as almost identical to statutory EPS at 12.4p per share – the upward and downward revaluations & gains/losses over the decade pretty well cancel out.
Net asset value per share has generally been in the region of £3 to £3.50. If 12.4p per share is earned on that asset base we have an effective yield after operational costs of 12.4p/350p = 3.5% to 12.4p/300p = 4.1%. 
This is disappointing and, in large part, explains Mr Market’s rejection of the share and why it is trading at half NAV.
Equally clearly, the director’s intention has been and will be to not rely on rental flows alone, but to develop sites to add realised capital gains and unrealised valuation gains to the profit pot each year.
Until the high street crisis of 2019 and 2020 they were doing a pretty good job of this.
If we take statutory earnings – including capital ​………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
 

Town Centre Securities (LSE:TOWN) is selling at half price relative to net current asset value – see earlier newsletter. Its shares have been driven down by perceived  vulnerability to devaluations because of its high exposure to the high street. So, before I bought its shares at £1.426 (market capitalisation £75.5m) I checked out the quality of its portfolio of properties.
 
TOWN has over 360,000 sq ft of prime office space and over 1m sq ft of retail space, residential properties car parks and hotels. About 61% is in Leeds, 18% in Manchester, 13% in Scotland and 8% in London. ​Clearly, today most of the portfolio is outside of retail or leisure. In the half-year to December, at the worst of the Covid-19 crisis, the value of TOWN’s offices, residential and development properties rose in value, now accounting for 42% of the portfolio. A further 15% of the portfolio, in hotels and other car parks, held steady at a combined value of £49.9m.
The firm is continuing to deemphasise retail and leisure by developing its landbank, repurposing assets and disposing of assets in those areas.
Top ten tenants
 
 
Proportion of portfolio value

Leeds City Council
 
9%

Waitrose
 
7%

Wm Morrison
 
6%

Pure Gym
 
4%

Premier Inn
 
4%

Aldi
 
3%

Step Change Debt Charity
 
3%

Home Bargains
 
3%

Dune Group
 
2%

The Deltic Group
 
2%

(Source: 2020 Annual Report)
 
Tenant Deltic did go bust last year so TOWN lost some rent, but it won’t be long before the unit is let again: “Deltic, occupying a nightclub in the Merrion Centre and accounting for £0.2m of rent…As a prime spot, close to the student heart of the city, we have already received good interest in the premises from a number of operators and are confident of our ability to quickly secure a new long‐term lease.” (Interim Report to December 2020)
 
Some of TCS’s properties
 
Merrion Estate, Leeds
This has been a key asset in the portfolio for over 55 years. It is a mixed-use complex worth £148m: retail, offices, hotel, a 960 space car park. It now accounts for about one-half of the Group’s total currently let portfolio.
The Merrion Centre is a 1m sq. ft. island site in a prime location in Leeds city centre with footfall of over 200,000 internal visitors per week.
Major tenants include Morrisons, Sainsbury’s, Iceland, Boots, O2, PureGym. Leeds City Council as well as ………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
 

One of the most shunned sectors of the stock market right now is property companies renting out to retailers. This made the sector the place to look for long-term bargains as Mr Market indiscriminately rejected anything to do with the high street. Mr Market is right to reject many property firms on the grounds of a poor risk-return ratio. But, having gone through the accounts of quite a few, I discovered the misunderstood Town Centre Securities (LSE:TOWN) selling at half price relative to net current asset value.


Maybe it’s the name that is so off-putting? It stands to reason, right, that a company with such a name must be vulnerable to the “collapse” of high street spending as we all shift online?
Well, looking at the detail on the property portfolio, I discovered that these days only 26% of the portfolio is in retail, and, of that, most is rented out to the likes of Waitrose, Wm Morrison, Home Bargains and Aldi – all without a CVA in sight.
True enough, another 21% is in town centre leisure such as gyms, restaurants, nightclubs, etc., but the rest is in solid offices (the largest rented to Leeds City Council accounting for 9% of the total portfolio), multi-story car parks, hotels and residential.
And they own much of Piccadilly Basin (near the railway station) in Manchester which is being developed in stages (mixed: residential, offices, retail).
All in all, development projects have the potential to be worth £600m; £300m of which is in Piccadilly Basin and £270m in Leeds city centre.
And this is for a company with a market capitalisation of £75.5m at my buying price of £1.426.
Net current asset value was £145.8m (£2.75 per share) calculated at
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