Palace Capital will become a purely regional offices investor, focusing on ESG enhancements to create value. The company announced the move following a strategic review by the board as it wrestles with a wide share price discount to net asset value (NAV).
The group said that it “intends to have a pure focus as an ESG driven, regional office market specialist where its expertise can be used to create value from offices with relatively low EPC ratings, such as D (brown offices) through refurbishment and other asset management initiatives, to deliver high EPC ratings such as B (green offices) whilst improving the carbon footprint of such buildings”. It added that the strategy would seek to generate increased rental and capital values.
In order to finance this strategy, the group will sell its industrial portfolio, comprising seven assets, together with a retail warehouse property, in a single portfolio. The independent valuation of these properties as at 31 March 2022 was £46.5m. The group will also continue to sell non-core assets, with £4.5m sold since 31 March 2022.
The proceeds of these sales will be re-invested into improving the existing regional office portfolio and also into new investment opportunities in the regional office market that offer ESG enhancing prospects. If the group does not find potential acquisitions that meet its criteria, then it will consider returning excess capital to shareholders.
Palace also said that it will be operating with a lower Loan to Value (LTV) ratio than in previous years, with a limit of 35% and a range between 25%-35%. The LTV as at 31 March 2022 was 28%.
The group will maintain the current level of dividend, which will be paid from adjusted profits including trading profits. If, on a short term basis, this cannot be achieved then as a minimum the dividend payment is expected to be set at the Property Income Distribution (PID) level.
The company also said that it was taking measures to address its high cost ratios, with the level of property outgoings and administrative expenses being considered.
Consolidation within the real estate sector remains under constant review, the company added.
The board also announced today a share buyback programme of up to 5% of the group’s issued share capital. The share buyback will be financed by the cash generated from the sales of the residential apartments at its York asset during the current financial year.
Under the buyback programme, it will purchase up to 2.3m ordinary shares at an aggregate price of no more than £7m.
Steven Owen, Interim Executive Chairman, commented:
“This is a transformational strategy that builds on the strong platform we already have in place but will provide us with a clear focus and distinct differentiation. The Board believes this change in our strategy considerably enhances the investment case for the Group and is a key step in the Board’s commitment to maximising value for shareholders and closing the current share price discount to NAV.”
PCA : Palace Capital to become pure-play regional office investor focused on ESG