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On the hunt for small-cap property bargains

A high-yielding regional commercial property Reit with a bias towards regional offices, industrial and retail warehouses has delivered bumper valuation uplifts and hiked the dividend, too
On the hunt for small-cap property bargains
  • European Public Real Estate Association (EPRA) net asset value (NAV) per share of 390p exceeds analyst estimates by 5 per cent
  • Annual adjusted pre-tax profit of £7.8mn and EPRA earnings per share (EPS) of 16p
  • Reported pre-tax profit of £24.6mn buoyed by gains on disposals (£5mn), portfolio valuation uplifts (£8.2mn) and trading profits (£3.8mn)
  • Dividend per share hiked by 26 per cent to 13.25p and forecast to rise to 15p a share in 2022/23 financial year

Palace Capital (PCA:284p), a high-yielding regional commercial property Reit which has a portfolio bias towards regional offices, industrial warehouses and retail warehouses, has delivered 11 per cent higher EPRA net tangible assets of 390p per share and slashed its loan to value ratio by a third to 28 per cent in the 12 months to 31 March 2022. The annual dividend per share was hiked by 26 per cent to 13.25p a share, too.

Key to the balance sheet deleveraging has been a disposal strategy that realised £31.5mn of gross proceeds, well above target, and at a 19 per cent premium to March 2021 carrying values, highlighting hidden balance sheet value. The remaining investment portfolio of 35 properties is valued at £259mn on a net initial yield (NIY) of 5.6 per cent, but has a much higher reversionary yield of 7.5 per cent, highlighting potential for a sharp rise in contracted rental income as properties come up for rent review/lease expiry or are re-marketed after refurbishment.

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