Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Palace Capital: Poised To Unlock Value

Published 01/12/2021, 11:37
Updated 17/08/2023, 13:25

Palace Capital's (LON:PCA) H122 results showed strong financial and operational improvement, including leasing progress, Hudson Quarter (HQ) apartment sales and strong rent collection. Q222 DPS was increased by 8.3% to 3.25p, the minimum that PCA expects going forward. We forecast strong returns from apartment sales gains, capital redeployment and reversionary income capture.

Valuations

Strong asset sales and operational progress

IFRS profits of £8.0m in H122 showed a strong rebound from the H121 loss and substantial progress on H221. Development profits, valuation increases and disposal gains drove the headline result, but recurring earnings were also robust. This included strong leasing activity (all above ERV) and an increase in underlying occupancy combined with continuing strong rent collection. Q222 DPS increased by 8.3% to 3.25p, the minimum that management expects for the rest of FY22. EPRA NTA per share increased by 3.4% in the period to 362p and including DPS paid the six-month accounting total return was 5.2%. Of the 127 HQ residential apartments, 72 are now sold, exchanged or under offer to a value of £24m. Non-core asset sales have reached £26.3m including those exchanged or under offer, all above book value. Net LTV has reduced to 36%, allowing PCA to pursue reinvestment opportunities.

Organic upside and capital redeployment

Organic income and capital growth potential within the existing portfolio is strong. The £20.0m end-H122 estimated rental value (ERV) of the portfolio was £3.1m (18%) ahead of contracted rent. Void reduction in office assets is the key opportunity, including £0.9m of recently completed high-quality HQ commercial space. Sales of the Hudson Quarter residential apartments is generating trading gains and freeing capital for redeployment in yielding assets. The £30m non-core asset disposal programme is well on track and redeployment of the proceeds should at least replace the income foregone and improve overall asset quality. Combined, we expect £50m of redeployment, adding c £3m pa to rent roll.

Valuation: Not reflecting company growth targets

A c 4.9% prospective yield, with DPS fully covered by cash earnings and an almost 30% discount to H122 EPRA NTA per share is undemanding relative to peers and does not appear to reflect the potential for income and capital growth embedded in the existing portfolio or the opportunities for accretive new investment.

Share price performance

Share price performance

Click on the PDF below to read the full report:

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.