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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