Register Log-in Investor Type

News

Palace Capital to boost dividend following strong year

Palace Capital said it was set to up its dividend following good performance, but added that it was considering a range of strategic options, including returning capital to shareholders, as it looks to close its discount to net asset value (NAV).

The group added an additional £1.9m of annualised net rental income during the year to 31 March 2022 through asset management lease activity and acquisitions (this takes into account income lost through disposals, lease expiries and lease breaks). A total of 55 lease events were completed in the period totalling 319,000 sq ft at an average of 11% premium to estimated rental value (ERV).

Due to the improved earnings performance, the group said the final dividend, payable in July 2022, was expected to be a minimum of 3.75p (up from the 3.25p declared for the final quarter of 2021) bringing the total for the year to 13.25p.

Despite the performance, at market close yesterday the company’s discount was 24.3% to its September 2021 NAV. In addition to considering a range of strategic options, the group said it was assessing property investment opportunities, having successfully sold a number of non-core assets ahead of target.

The company will focus on acquiring high quality, income producing assets with attractive rental growth prospects and strong ESG credentials, that will enhance earnings and the dividend payout. It said the intention was to use “core assets to provide a bedrock of sustainable income” allowing a balance for higher risk properties that can provide stronger returns through active management.

It expects the portfolio to have a weighting of 50% core assets, 40% value add/asset management and 10% developments. At 30 September 2021, the portfolio comprised 30% core, 58% value add and 12% development. The realignment, it said, would provide the backbone to a progressive covered dividend policy. Two assets have been identified for potential investment that meet the core criteria. It recently acquired a 21,852 sq ft refurbished office building in Maidenhead, which is set to benefit from its location close to a Crossrail station, with an EPC rating of B for £10.25m, with a 6.83% net initial yield.

The group had £28.1m in cash reserves at the year end, having sold 14 properties for £31.5m (ahead of its £30m target) which were at 20% above book value and 12% ahead of purchase prices and capital expenditure. It has also sold 80 apartments at Hudson Quarter, York for a total of £27.4m, enabling it to fully repay the £26.5m development loan facility nine months ahead of schedule.

Net loan to value (LTV) was expected to reduce to between 28% and 30% at 31 March 2022 (depending on the independent valuation of its portfolio), with net debt having reduced by 38% in the year to £73.6m.

[QD view: The discount that Palace Capital has been trading on for an extended period of time seems unjustified to us. The management team has a proven track record of adding value, as has been witnessed with rent roll growth in the year despite the sale of 14 properties, and is conservatively geared. In our view, it is in a good position to grow with money in the bank and a clear strategy for deployment – if its discount to NAV was to narrow.]

PCA : Palace Capital to boost dividend following strong year

Leave a Reply

Your email address will not be published. Required fields are marked *

Please review our cookie, privacy & data protection and terms and conditions policies and, if you accept, please select your place of residence and whether you are a private or professional investor.

You live in…

You are a…