Positive trading update and innovative refinancing

Town Centre Securities 23 July 2018 Long Update (4+ pages)
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Town Centre Securities

Positive trading update and innovative refinancing

Trading updates

Real estate

23 July 2018

Price

288p

Market cap

£153m

Net debt (£m) at 31 December 2017 (excluding finance leases)

181.0

Net LTV

Shares in issue

53.2m

Free float (excludes Ziff family concert party interest)

48%

Code

TOWN

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.1

1.1

0.6

Rel (local)

1.6

(2.8)

(2.5)

52-week high/low

319p

270p

Business description

Town Centre Securities (TCS) is a UK Real Estate Investment Trust (REIT) operating across the UK, but with a regional focus, primarily in Leeds, Manchester, Scotland and (mainly suburban) London. It also has a car parking operation (CitiPark). The investment portfolio is intensively managed for income and capital growth.

Next events

FY18 results

26 September 2018

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

Town Centre Securities is a research client of Edison Investment Research Limited

Town Centre Securities (TCS) says that FY18 ended positively with overall trading in line with the board’s expectations. Like-for-like property rental income increased, with a good level of occupancy maintained, and car parking revenues and profits grew further. In addition to refinancing existing bank debt facilities, TCS has also now completed an innovative refinancing of Merrion House in Leeds, which allows it to maintain its joint ownership, benefit from rental increases and receive a £26.4m cash injection. This will provide additional financial flexibility as TCS continues to invest for growth.

Year end

Net revenue (£m)

EPRA
earnings* (£m)

EPRA
EPS* (p)

EPRA NAV/
share* (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

06/16

18.6

6.6

12.4

357

11.0

0.81

3.8

06/17

19.4

7.0

13.2

359

11.5

0.80

4.0

06/18e

19.7

6.9

13.1

387

11.5

0.74

4.0

06/19e

20.0

7.3

13.7

399

12.2

0.72

4.2

06/20e

20.6

7.9

14.9

412

12.7

0.70

4.4

Note: *EPRA EPS is adjusted to exclude revaluation movements, disposal gains/(losses) on investment property and exceptional items.

No changes in forecasts

Like-for-like passing rent increased by 4.1% or 1.9% excluding the post-completion step-up in rent at Merrion House and vacancy created by the previously reported exit of Homebase at Milngavie. Occupancy was maintained at a good level of 95% (FY17 99%) with the majority of the increase in voids attributable to Milngavie, with no obvious signs that retailer stress is having a material impact on the portfolio. CitiPark is benefiting from improved performance at newer sites. Progress with key developments – current and planned – continues, while the refinancing of bank debt and the innovative Merrion House refinancing provide added certainty and flexibility to investment funding for future growth. We will review our development assumptions and estimates with the full year results in September.

Unlocking value from a strong development pipeline

Capital recycling is a key element of strategy, with more than £85m recycled into new investments over the past five years. Opportunities with a developed value of up to £600m, and significant potential to enhance earnings and NAV over time remain and management is exploring how quickly to proceed and how best to fund these. The Merrion House refinancing provides additional flexibility, while additional capital recycling and joint ventures are likely to contribute. Additional equity is an option, but may require family shareholders to reassess their position.

Attractive returns and discount to NAV

Despite a strategy of investment to support long-term total return, TCS has increased or maintained DPS every year for 57 years. With a fully covered dividend, the FY18e yield is 4.0%. Benefiting from reinvestment, NAV total return was a compound 8.8% pa in the five years to end-FY17, and our forecasts imply 7.3% in the three years to end-FY21. Meanwhile, the shares trade at a significant 26% discount to FY18e EPRA NAV.

Brief company description

Town Centre Securities (TCS) is a UK Real Estate Investment Trust (REIT) operating across the UK, but with a regional focus, primarily in Leeds and Manchester, where management is able to exploit its strong and detailed knowledge of the local markets, Scotland and (mainly suburban) London. The company is a family-run business with strong income focus and a 57-year record of increased or maintained DPS. It owns a mixed-use portfolio, valued at c £384m as at 31 December 2017, including more than 900,000 sq ft of retail space, more than 360,000 sq ft of mostly prime office space, and key development sites in Leeds and Manchester. It also has a car parking operation (CitiPark), which provides a growing and complementary revenue and earnings stream, while monetising what would in some cases be empty, non-income producing development assets. Intensive asset management and active capital recycling are used to drive income growth and capital returns, and the company has a substantial pipeline of continuing development opportunities. For an in-depth overview of TCS, please see our April 2018 initiation note.

Exhibit 1: Portfolio by location

Exhibit 2: Portfolio by sector

Source: Town Centre Securities. Note: Split by value as at 31 December 2017

Source: Town Centre Securities. Note: Split by value as at 31 December 2017

Exhibit 1: Portfolio by location

Source: Town Centre Securities. Note: Split by value as at 31 December 2017

Exhibit 2: Portfolio by sector

Source: Town Centre Securities. Note: Split by value as at 31 December 2017

FY18 trading in line with expectations

TCS has recently updated on company developments, including trading for the 12 months to 30 June 2018 (FY18), and will publish full year results on 26 September 2018. The year ended positively and overall trading was in line with the board’s expectations, with good levels of occupancy, an increase in like-for-like property rental income, and continued growth in car parking revenues and profits. In addition to refinancing its existing bank debt facilities, TCS has also now completed a formal agreement with Leeds City Council (LCC) for the refinancing of Merrion House in Leeds, a jointly owned office redevelopment that completed in February 2018. The refinancing will provide additional financial flexibility as the company enters a new phase in its strategy of intensive asset management and capital recycling to drive income growth and capital returns. The key features of the trading update are:

Like-for-like passing rent increased by 4.1% during the year, including the step-up in post-completion rental income from Merrion House (TCS share increasing from c £700k pa to c £1.66m pa) offset by the previously announced vacancy at the Milngavie property previously occupied by Homebase (c £600k pa) and now being subdivided for re-letting. Excluding Merrion House and Milngavie, the increase in like-for-like passing rent was 1.9%.

Occupancy remained at a good level of 95%, but lower than the 99% reported at end-FY17 and mid-year. The main element in the increase is Milngavie, which we estimate represents c 3% or c 75% of the increase, and there is also an impact from newly developed retail space in Merrion House that remains to be let. There is no obvious sign that the current weakness in the retail sector is having any significant impact on TCS. This will in part reflect investments, over several years, to diversify the Merrion Centre in Leeds into a truly mixed-use asset. Traditional retail “mall” income at the centre now accounts for less than 25% of the total. TCS has exposure, at the Merrion Centre, to struggling retailer Poundworld, although we do not believe that it is material and management has indicated that any vacancy would provide it with welcome flexibility.

In Manchester, the Burlington House joint venture residential development is proceeding to budget and is on schedule for completion targeted for May 2019. TCS has clarified that the asset will be held for private rental sector (PRS) use at completion.

The £9m acquisition of Ducie House, a multi-let office building with car park, first announced in early May, completed after end-FY18. The acquisition generates annual gross income of £675k and increases the size of the Piccadilly Basin site in Manchester, with the car park adding additional development potential.

Not previously announced, since end-FY18 TCS has also added to its suburban London portfolio with the £1.6m acquisition of a mixed residential/commercial asset on Chiswick High Road. The yield on the asset is approaching 5%, lower than other areas of the portfolio but reflecting the expected low volatility. On Princes Street in Edinburgh, a mature retail investment has been sold for £3.3m, significantly ahead of valuation and representing a yield 4.8%.

CitiPark, the car parking operation, has continued to grow revenues and profits with some of the newer sites continuing to deliver improving performance. We understand that the relationship with YourParkingSpace.co.uk (YPS) is generating increasing revenue for CitiPark, including in these newer sites, increasing the possibility that TCS may increase its investment in YPS from the current 15%.

The three bank debt facilities, c £103m in aggregate, have all been extended or renewed with no material impact on the cost of borrowing but with improved and more flexible terms. The two £35m facilities with Lloyds and Handelsbanken that were due to expire later in 2018 have both been renewed for three years and five years respectively. The exercise of an option on the £33m RBS facility has extended the facility by an additional year. Alongside the £106m long-term (2031), fixed rate (5.375%) debenture, the bank debt refinancing provides certainty for the next three to five years.

Merrion House refinancing adds financial flexibility

Merrion House is a 175k sq ft office building within the Merrion Centre, let on a 25-year lease with capped RPI increases to Leeds City Council (LCC) from its completion in February 2018. It was developed by a 50:50 joint venture (MH LLP) with LCC, with TCS contributing the existing building that it previously owned 100%, with a pre-development value of £20m, and then investing an addition £5m. TCS continued to receive £700k of rental income during the development phase and this increased to c £1.66m at completion. MH LLP, of which TCS owns 50%, is left with an asset that management expects to be valued at c £68m (TCS share £34m). Forming part of the Merrion Centre, this remains a core asset for TCS, but the joint venture ownership limited the options available to TCS to refinance its share of the asset and release capital for reinvestment. In an innovative financing solution, MH LLP has reached agreement for LCC to advance all of the base rent that would be due to it from 1 October 2018 until the end of the lease on 11 February 2043, discounted at an equivalent rate of 3.5% plus costs. As a result, TCS will receive £26.4m in cash. From an accounting perspective, the transaction will be treated as a financing agreement undertaken in MH LLP, which in turn is equity accounted within TCS. MH LLP will continue to recognise the contracted rent with LLC on a quarterly basis, but this will be partly offset by an interest charge calculated on an effective interest rate basis. TCS will continue to recognise its 50% share of MH LLP net income on an equity accounted basis.

The net asset value of TCS will be unaffected. Its cash resources will increase, while the value of its investment in MH LLP will reduce. The MH LLP balance sheet will reflect the full value of the property, less the deferred income balance, which will gradually reduce to zero by the maturity of the lease.

In addition to the base rent, the lease allows for capped RPI increases every five years. These will continue to apply but will flow as normal rental payments through MH LLP.

The agreement is made possible by the close working relationship between TCS and LCC. From the TCS perspective there is no risk attached other than to ensure that the building remains fully insured and capable of meeting the lease commitments until lease expiry.

In the short term the proceeds will be used to reduce debt but, more strategically, the transaction creates additional flexibility for TCS to invest in its acquisition and development programme for future growth.

We are not changing forecasts at this stage

Our multi-year forecasts for the period ending June 2020 were set out in detail in our initiation note, and we are not changing these on the back of the trading statement and recent developments. The trading update appears consistent with our FY18 forecast and we will review the future year forecasts with the full year results, when we expect management to provide and update on development, capital recycling and funding plans.

With the interim results, management provided details of a substantial pipeline of continuing development opportunities with an estimated developed value of up to £600m. In addition to the Burlington House development, to capture some of the potential that is available to TCS from this wide range of opportunities, we have assumed three further development projects in our current forecasts (from a pipeline that numbers 16). However, there is inevitably some uncertainty as to which projects will proceed, the timing of these projects, and the choices over funding between new debt/equity capital and/or recycling of capital from mature assets. The projects that we have assumed thus far are:

The development of an apart-hotel with retail units at George Street in Leeds in a joint venture with LCC.

The development of 126 residential units above ground floor commercial space at Eider House in Manchester, for which we have assumed a joint venture structure, similar to Burlington House.

The redevelopment of a wholly owned temporary car park in Leeds, providing permanent parking space in the context of larger, planned office development (not in forecasts).

For modelling purposes, our forecasts currently assume an increase in debt funding, although asset disposals remain likely and we have made no specific adjustment for the acquisitions and disposal noted above. The Merrion House refinancing has a similar economic impact to the debt that is currently assumed in our forecasts.

Valuation

Although TCS has a strong focus on growing portfolio income to support its long-term progressive dividend policy, its active asset management strategy, aimed at enhancing long-term total return, means it is not focused on yield maximisation over the shorter term. For this reason we think it useful to look at NAV total return performance (the change in NAV per share plus dividends paid), and in the five years ending June 2017 we calculate an aggregate return of 52.7%, or a compound annual return of 8.8% pa. Dividends contributed an aggregate 20% over the period and the growth in NAV per share the balance. The H118 NAV total return was 6.6% over the six-month period.

Exhibit 3: Five-year NAV total return

FY13

FY14

FY15

FY16

FY17

2013-17

Opening NAV per share (p)

270

267

308

344

357

270

Closing NAV per share (p)

267

308

344

357

359

359

Dividends paid per share (p)

10.44

10.44

10.44

10.44

11.15

52.91

NAV total return

2.8%

19.4%

15.0%

6.9%

3.8%

52.7%

Compound annual return

8.8%

Source: Company data, Edison Investment Research

Although the continuing investment in and redevelopment of the portfolio is a limiting factor on immediate dividend distributions, TCS has a long and consistent track record of dividend payments, increasing or at least maintaining DPS in each of the past 57 years. Our forecast for the final dividend in respect of the year that ended 30 June 2018 puts the shares on a yield of 4.0%, slightly below the median level for the broad group of property companies and REITs shown in Exhibit 4, but in line with yields on the FTSE All-Share Index and the UK property index.

Exhibit 4: Prospective yield comparison

Source: Company data, Edison Investment Research, Bloomberg data as at 23 July 2018

In terms of historic P/NAV, TCS shares sit well below the median which, when viewed in combination with the yield, would suggest that investors are factoring in little capital return potential relative to the broader group, despite TCS having a strong pipeline of development opportunities.

Exhibit 5: Historic P/NAV comparison

Source: Company data, Edison Investment Research, Bloomberg data as at 23 July 2018

The broad group of companies shown in Exhibits 4 and 5 includes a wide variety of property companies, REITs and non-REITs, and specialist vehicles (healthcare property, student accommodation), and covers a wide range of strategies, from a pure focus on income and collecting rents to varying degrees of asset management and capital growth, extending to property development. In Exhibit 6 we show a summary valuation comparison of TCS with what we consider to be a closer group of peers, including companies focused on regional property and those with retail exposure.

Exhibit 6: Peer comparison table

Price (p)

Market cap. (£m)

P/NAV
(x)

Yield
(%)

Share price performance

One
month

Three
months

12
months

From 12-month high

Capital & Regional

49

353

0.73

7.7

-6%

-5%

-14%

-17%

Circle Property

230

65

1.00

2.7

18%

47%

50%

-10%

Custodian REIT

122

470

1.13

5.4

0%

3%

3%

-1%

Hammerson

533

4236

0.69

4.9

1%

0%

-10%

-10%

Helical

341

404

0.73

2.8

-3%

-5%

5%

-15%

McKay Securities

274

258

0.85

3.7

4%

3%

19%

-6%

Mucklow

556

352

1.10

4.1

-2%

1%

10%

-3%

NewRiver REIT

279

846

0.96

7.8

3%

-5%

-20%

-24%

Palace Capital

352

161

0.85

5.5

1%

7%

-5%

-10%

Picton

91

492

1.01

3.9

-2%

2%

7%

-3%

Real Est Inv

54

100

0.78

6.7

-1%

-4%

-11%

-12%

Regional REIT

94

351

0.89

8.5

0%

-5%

-8%

-11%

St Modwen

408

907

0.87

1.7

-4%

1%

14%

-6%

Schroder REIT

63

325

0.92

4.0

0%

5%

-2%

-4%

Median

0.88

4.5

0%

1%

1%

-10%

Town Centre Sec.

288

153

0.77

4.0

3%

2%

-1%

-9%

UK property index

1,824

3.9

-2%

0%

2%

-3%

FTSE All-Share Index

4,225

4.0

0%

3%

3%

-3%

Source: Company data, Edison Investment Research, Bloomberg data as at 23 July 2018. Note: P/NAV is based on last reported NAV (H118 for Town Centre Securities).

The TCS share price performance has been similar to that of this narrower group of peers over the past year. However, in terms of valuation, TCS similarly shows a noticeably lower P/NAV than the median and slightly lower yield. Despite a more diversified portfolio, the TCS P/NAV valuation more closely resemble the retail property focused companies (Capital & Regional, Hammerson), where investor sentiment has been weakened by signs of stress among some retailers, and this again suggests that the TCS valuation is not challenging in a sector context.

Exhibit 7: Financial summary

Year ending 30 June (£000's)

2015

2016

2017

2018e

2019e

2020e

2021e

INCOME STATEMENT

Gross revenue

22,714

26,265

27,540

30,689

31,662

32,480

33,461

Total property expenses

(5,248)

(7,661)

(8,148)

(11,006)

(11,631)

(11,904)

(12,213)

Net revenue

17,466

18,604

19,392

19,683

20,031

20,576

21,248

Administrative expenses

(5,321)

(5,493)

(6,295)

(6,618)

(6,769)

(6,924)

(7,083)

Other income

1,468

599

707

647

400

400

400

Valuation movement on investment properties

14,791

3,018

(2,085)

5,269

2,728

4,775

2,823

Reversal of impairment of car parking assets

0

500

1,000

800

0

0

0

Profit on disposal of investment property

236

1,140

303

1,698

500

0

0

Share of post-tax profits from joint venture

2,621

1,400

1,342

7,041

3,675

3,175

6,775

Operating profit

31,261

19,768

14,364

28,520

20,564

22,002

24,163

Net finance costs

(7,258)

(7,847)

(7,639)

(7,804)

(8,067)

(8,413)

(8,628)

PBT

24,003

11,921

6,725

20,716

12,498

13,589

15,534

Tax

0

0

0

0

0

0

0

Net profit

24,003

11,921

6,725

20,716

12,498

13,589

15,534

Adjustments to EPRA:

Valuation movement on investment properties

(14,791)

(3,018)

2,085

(5,269)

(2,728)

(4,775)

(2,823)

Reversal of impairment of car parking assets

(5,013)

(500)

(1,000)

(800)

0

0

0

Valuation movement on properties held in joint ventures

0

(668)

(471)

(6,000)

(2,000)

(900)

(4,000)

Profit on disposal of investment/development properties

(236)

(1,140)

(303)

(1,698)

(500)

0

0

(Profit)/Loss on disposal of investment properties held in joint ventures

2,488

0

0

0

0

0

0

EPRA earnings

6,451

6,595

7,036

6,949

7,270

7,914

8,711

Average number of shares (m)

53.2

53.2

53.2

53.2

53.2

53.2

53.2

Basic & fully diluted IFRS EPS (p)

45.2

22.4

12.7

39.0

23.5

25.6

29.2

Basic & fully diluted EPRA EPS

12.1

12.4

13.2

13.1

13.7

14.9

16.4

DPS declared (p)

10.44

11.00

11.50

11.50

12.20

12.70

13.70

BALANCE SHEET

Investment properties

336,982

346,388

349,266

353,068

362,796

374,571

379,394

Investment in joint ventures

19,344

25,093

27,852

42,306

48,406

64,306

68,306

Goodwill

4,024

4,024

4,024

4,024

4,024

4,024

4,024

Other non-current assets

1,214

2,151

3,922

3,815

3,815

3,815

3,815

Total non-current assets

361,564

377,656

385,064

403,213

419,041

446,716

455,539

Investments (listed equities)

1,962

2,070

2,394

2,542

2,542

2,542

2,542

Non-current assets held for sale

3,450

0

0

0

0

0

0

Trade & other receivables

6,871

7,388

3,311

3,688

3,793

3,953

4,038

Cash & equivalents

1,515

0

3,124

3,714

4,427

3,055

3,063

Total current assets

13,798

9,458

8,829

9,944

10,763

9,550

9,643

Total assets

375,362

387,114

393,893

413,157

429,803

456,266

465,182

Trade & other payables

(11,857)

(11,496)

(10,846)

(12,294)

(12,644)

(13,178)

(13,460)

Financial liabilities

(38,668)

(887)

0

0

0

0

0

Total current liabilities

(50,525)

(12,383)

(10,846)

(12,294)

(12,644)

(13,178)

(13,460)

Non-current financial liabilities

(141,959)

(184,874)

(191,969)

(195,034)

(205,034)

(223,934)

(223,934)

Total liabilities

(192,484)

(197,257)

(202,815)

(207,328)

(217,678)

(237,112)

(237,394)

Net assets

182,878

189,857

191,078

205,830

212,125

219,154

227,788

Period end shares in issue (m)

53.2

53.2

53.2

53.2

53.2

53.2

53.2

NAV per share (p)

344

357

359

387

399

412

428

CASH FLOW

Net cash flow from operating activity

2,191

5,656

10,108

6,367

6,740

6,913

7,034

Investment in investment properties

(37,045)

(17,014)

(23,246)

(2,172)

(7,000)

(7,000)

(2,000)

Proceeds from disposal of investment property

26,821

16,050

21,574

7,587

500

0

0

Purchase of fixtures, equipment and motor vehicles

(532)

(1,496)

(586)

(580)

(900)

(900)

(900)

Proceeds from sale of fixed assets

0

54

61

0

0

0

0

Investments and loans to JV

0

(4,916)

(4,250)

(8,294)

(4,100)

(15,000)

0

Distributions received from joint ventures

0

567

1,031

881

1,675

2,275

2,775

Proceeds from sale of joint ventures

0

0

0

0

0

0

0

Payment for the acquisition of non-listed investments

0

0

(1,950)

(150)

0

0

0

Cash flow from investing activity

(10,756)

(6,755)

(7,366)

(2,728)

(9,825)

(20,625)

(125)

Proceeds from borrowing

17,475

4,247

7,197

3,065

10,000

18,900

0

Dividends paid

(5,550)

(5,550)

(5,928)

(6,114)

(6,202)

(6,560)

(6,900)

Cash flow from financing activity

11,925

(1,303)

1,269

(3,049)

3,798

12,340

(6,900)

Change in cash

3,360

(2,402)

4,011

590

713

(1,373)

8

Opening cash

(1,845)

1,515

(887)

3,124

3,714

4,427

3,055

Closing cash

1,515

(887)

3,124

3,714

4,427

3,055

3,063

Bank overdraft

0

887

0

0

0

0

0

Cash as per balance sheet

1,515

0

3,124

3,714

4,427

3,055

3,063

Debt

(176,147)

(181,281)

(187,507)

(190,572)

(200,572)

(219,472)

(219,472)

Net debt

(174,632)

(181,281)

(184,383)

(186,858)

(196,145)

(216,417)

(216,409)

Net LTV

49.7%

49.5%

49.3%

47.7%

48.1%

49.6%

48.7%

Source: Company data, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Town Centre Securities and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Town Centre Securities and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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