Meeting Town Centre’s executive chair: Lee and the IC
An Investors Chronicle podcast featuring Lord John Lee and Dr Edward Ziff, Chairman and CEO of Town Centre Securities (TOWN), discussing the property firm's portfolio, debt structure, NAV discount, and growth pipeline against a backdrop of rising Middle East tensions and market volatility. John Lee argues the share price represents extraordinary value at roughly a 55-60% discount to NAV, while Edward Ziff explains the business's evolution, REIT exit, and family stewardship philosophy.
Summary
The episode opens amid escalating Middle East conflict with oil at $110 a barrel and markets selling off. John Lee explains he had already taken some profits in MNG and Goodwins to create liquidity, but remains broadly invested, drawing on decades of experience to argue that selling after a drop is historically the wrong move and that buying opportunities will emerge.
The main guest is Dr Edward Ziff, third-generation steward of Town Centre Securities, a Leeds-and-Manchester-focused property investment company founded by his father Arnold in 1960. Edward describes the company's asset mix — roughly split between retail/leisure, offices, car parks, and residential — and its geographic concentration in the two northern cities, with a recent foray into London (Marylebone High Street, Hampstead) as the north-south property divide has widened. He explains that Merrion Centre, their flagship Leeds retail asset anchored by a very busy Morrisons, is deliberately positioned for a mass-market, day-to-day shopper demographic, making high-end retail inappropriate regardless of rental appeal.
On debt, Edward details how gearing was reduced from 120% pre-COVID to current levels of roughly 100% (£100m debt against £100m net assets, on £200m gross assets), achieved by selling ~£100m of fringe assets between 2019-2022. The sale of a 23% stake in 'Your Parking Space' for a portion of a £125m total exit also generated cash that funded two tender offers at significant premiums to the then-prevailing share price (£1.85 and £1.45). Despite these efforts, the share price has remained weak, now around 110-112p versus an NAV of approximately 260p — a discount John Lee describes as 'ridiculous' and one of the largest he is aware of in the property sector. About 80% of Town Centre's debt (the debenture, ~£80m) is fixed-rate at 5.375%, expiring in 2031, providing some insulation from interest rate movements.
Edward explains the exit from REIT status was not a strategic choice but a structural necessity: the family concert party's combined stake (approximately 58% for the immediate family, plus ~10% for a separate private family and ~10% for wider family) pushed the free float below the 40% threshold required to maintain REIT status. This contributed to the dividend being reduced from 8.5p to 5p, alongside the fact that selling high-yielding assets to pay down lower-cost debt permanently reduced net earnings.
On growth, Edward outlines a development pipeline with a gross development value he suggests exceeds £400m, including tall residential towers proposed in Manchester's Piccadilly Basin and Leeds' Merrion Centre (100-unit consent secured), and a planned EV-charging car park near Leeds station championed by his son Benjamin. His other son Jacob has joined the property investment side after experience at a London agency, raising the prospect of third-generation succession, though Edward acknowledges they could also follow the route of eventually selling, as Andrew Jacobs did with Lock and Store.
John Lee reiterates his core thesis for Town Centre: family stewardship with aligned interests, knowledge of local markets, a large NAV discount, and a progressive dividend. He also briefly updates on VP PLC (still held despite a disappointing trading update, confident in fundamental value) and a new small position in Jet2, which he views as a package tour operator rather than an airline, trading at under 6x earnings with 15% founder ownership.
Key Insights
- John Lee argues that Town Centre Securities shares, trading at approximately 110p against an NAV of ~260p, represent one of the largest NAV discounts he is aware of in the listed property sector — effectively buying pound notes for 40-50p.
- Edward Ziff argues that Town Centre's exit from REIT status was involuntary and structural: the combined concert party holdings pushed the free float below the mandatory 40% threshold, not a deliberate strategic pivot away from the structure.
- Edward Ziff contends that selling assets yielding 8% to repay debt costing 4% permanently destroyed £4m of annual net earnings — roughly explaining the reduction in dividend from 8.5p to 5p — a trade-off he framed as unavoidable given pre-COVID gearing of 120%.
- Edward Ziff claims that two tender offers at significant premiums (£1.85 and £1.45 versus prevailing prices of ~£1.30-1.40) temporarily boosted the share price each time before it drifted back, suggesting the discount is structural rather than correctable by one-off capital returns.
- Edward Ziff argues that Merrion Centre's mass-market positioning — anchored by one of Morrisons' busiest stores serving day-to-day basket shoppers in a dense inner-city catchment — makes it deliberately unsuitable for aspirational retailers, and that sustainable rent collection matters more than headline rental rates.
- John Lee argues that his long-term investing approach means falling share prices following geopolitical shocks are net beneficial, since dividend income and existing cash liquidity can be reinvested at lower prices, particularly within an ISA wrapper.
- Edward Ziff claims that approximately 80% of Town Centre's £100m debt is fixed-rate via the listed debenture at 5.375%, meaning the company has limited sensitivity to interest rate changes and could absorb a ~20% fall in asset values without breaching loan-to-value covenants.
- John Lee argues that Jet2 is mispriced by the market because it is being valued as an airline rather than a package tour operator, citing a P/E below 6x and 15% founder ownership as indicators of fundamental undervaluation that geopolitical noise has temporarily exaggerated.
Topics
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