TCS ‘encouraged’ by response from tenants

Town Centre Securities, mixed-use developer of Piccadilly Basin in Manchester, has received or agreed payment plans for 86% of quarter rent due and is in talks over the remainder.

The listed property developer and investors, based in Leeds, gave a trading update to the stockmarket on Thursday and spelled out in detail its bank position as well as the rental picture.

The company said “ongoing liquidity of the business remains a key focus”. At the end of March, TCS had cash at bank plus borrowing headroom of £23.9m.

The company said in its statement: “This headroom is based on our asset valuations [on] 31 December. We have a £106m debenture [long term debt at fixed rate held against assets] in place until 2031, and three bank revolving credit facilities falling due between April 2021 and June 2023.”

The company added: “We have strong and longstanding relationships with our banking partners and continue to be in regular dialogue with them.”

In terms of safety from breaching the terms of its borrowing, the three asset-backed loan facilities, and the debenture, each have covenants for minimum interest cover ratios that are tested quarterly for the banks and annually for the debenture. At the most recent test date, in January 2020 for the banks, headroom on the respective covenants ranged between 443% and 635% compared to a covenant requirement of 175%; a drop in income of between 60% and 72% in any quarter would result in a breach of covenants.

The debenture test is an annual one with a covenant requirement of 100% income cover over the year. At the last test in June 2019 the cover was 210%; a drop in income of over 50% for 12 months would result in a covenant breach.

TCS said “our main priority is the management and preservation of cash.”

For the rent quarters starting 25 March and 1 April, TCS billed £4.9m of rent and service charge. By 8 April it had collected £3.5m or 71%, with a further £0.7m or 15% of payments that it agreed to defer, totalling £4.2m or 86% of the amounts due. This compares to over 90% in more normal circumstances at this stage.

“We continue to work with remaining tenants to agree payment plans,” the company said. “Many of these tenants are awaiting receipt of government support which we hope will, to some degree, unlock further payments.”

The business has taken cost-cutting measures including “furloughing staff across our property, car park and hotel businesses.”

Board directors have agreed a 20% salary reduction for three months. Further cost saving initiatives are being discussed. The business has also deferred VAT payments and other taxes due to HMRC.

On site, the company has “paused all capital projects at this time, with the exception of The Cube in Leeds [77,000 sq ft retail and offices] where work is continuing and we are closely monitoring the situation with the contractor.”

Around half the TCS portfolio is let to retail and leisure tenants of which approximately one third of those properties are currently open and trading to some extent.

TCS said it was following the market in suspending all previous guidance on performance at this time.” However, no decision has yet been made on the £1.7m interim dividend due in June, as “the board will continue to review the affordability and appropriateness of such payments.”

TCS’s car park business has been hardest hit and seven branches have closed.

Edward Ziff, chairman and chief executive, commented: “These are unprecedented times and we are working tirelessly to support all of our stakeholders whilst doing everything possible to manage the business through this challenging period. I am encouraged by the level of rent received for the current quarter and want to thank our tenants for working with us. TCS has proven to be a conservative and resilient business over its 60-year history, and I believe that continues to be the case.

“We welcome the measures the Government is putting in place to support the business community, and hope that the business rates relief given to retail and leisure operators will be extended to car park operators such as TCS, all of whom are being impacted by the lockdown.

“We will continue to update the market as and when appropriate.”

Shares were unchanged at 137p valuing the business at £73m.