Why a respected property investor is assuming a defensive stance

When Leeds-based property investor Town Centre Securities (TCS) announced its final year results last week, chairman Edward Ziff said he had no plans to invest in new properties until the property market and the wider economy stabilised.

TCS, founded in 1959 and listed since 1960, is one of the oldest players in the Leeds property market. That it felt the market was too risky for new investment piqued our curiosity. In an interview this week, Ziff explained the thinking behind his reluctance.

Edward Ziff, chairman of Town Centre Securities

“I’ve always thought the success of property investment is how well you buy it, not necessarily how well you sell it,” he said. “If you buy it right, by and large, the deal works right.  If you buy it wrong, whatever you do, I always feel the deal is going to go against you.”

TCS sold around £100 million of assets as part of a strategy to strengthen its financial position, leaving it with around £300 million in assets and $100 million in debt. While the past weeks have seen renewed predictions of the UK housing crash due to higher mortgage rates, TCS began assuming a more defensive position several years ago.

“Property had a great time for quite a long period of time,” Ziff explained. “And that was almost too good to be true. And as such, the thing that always follow the boom is the downturn. We sort of set about selling our properties, because I was seriously worried about us being over geared, overtrading, and the impact that that might have in values did collapse.”

Property prices did not collapse, but Ziff said he had no regrets. “I think that this business is in a stronger position as it has been ever since before the global financial crisis in ’08, ’09. It feels quite good to be in that position.”

Ziff acknowledged that profits are lower without the returns from the disposed-of assets, but said that in the current climate it was more sensible to buy back shares for cancellation than to increase risk with further investment.

“Property values might come off 10% or 15% and it would be uncomfortable. But we are in as good a position as we have been in for 50 years. If property values do come off 15% we’ll be getting a bit worried again, but we can survive it relatively easily.  We are a smaller company than we were three years ago, but we are a much better company than we were.”

TCS has been divesting itself of retail properties for several years. Retail now forms just 23% of its portfolio, down from around 90% a decade ago. Ziff said this was unlikely to fall further as the primary retail asset still remaining was its flagship Merrion Centre, which the firm built in 1963.

Instead, TCS has concentrated on the residential sector – a relatively new venture for it, as it had no residential properties 10 years ago. It now has significant residential properties in Leeds, Manchester and Glasgow.

“I don’t see retail values getting any better quickly, in terms of values rising. The thing that I quite like about residential investment is that it’s quite counter-cyclical to the rest of the portfolio. Residential values tend to rise during a downturn because people don’t want to risk capital, so there are more people looking to rent properties.”

While TCS may be avoiding risk for the present, Ziff remains optimistic about the future of the property market.

“It may be a bit unpleasant for a while, but I think that by and large we will look back in five years and think, ‘OK, it was a bit of a blip.’ We’ve had those before. There have been peaks and troughs ever since Joseph was dreaming.”