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Plenty of unlocked value at Palace Capital

But competition for acquisitions remains high
November 26, 2018

After a busy 12 months to March 2018, Palace Capital (PCA) spent the six months to September consolidating recent acquisitions. And given the level of uncertainty in the market, the regional office landlord adopted a more cautious stance, not least because it was difficult to find acquisition opportunities that offered the sort of value that met its strict acquisition criteria.

IC TIP: Buy at 294p

There was just one acquisition, and that was a small office in Fareham for £750,000. However, refurbishing existing assets and securing 22 leases at 9 per cent ahead of estimated rental value helped to lift rental and other income by 29 per cent to £9.2m.

Work continued on the two-acre Hudson Quarter site close to York railway station and demolition is nearly complete. The site will eventually comprise 127 flats, 5,000 sq ft of retail space and 34,500 sq ft of office space. Refurbishment work will soon start on a  multi-let office in Newcastle, and there is significant reversionary income to be crystallised, with comparable properties in the area being let for as much as 20 per cent more than Palace is currently charging. In Manchester, its Boulton House property was commanding rents of up to £13 per sq ft in 2016, but a recent letting was made at £18.95 per sq ft, underlying the buoyant demand for office space in the city.

PALACE CAPITAL (PCA)  
ORD PRICE:294pMARKET VALUE:£135m
TOUCH:292-302p12-MONTH HIGH:366pLOW: 290p
DIVIDEND YIELD:6.5%TRADING PROPERTIES:£21.7m
DISCOUNT TO NAV:28%NET DEBT:45% 
INVESTMENT PROPERTIES:£260m  
Half-year to 30 SepNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)*
20174424.917.39.5
20184078.415.99.5
% change-8+72-8-
Ex-div:06 Dec   
Payment:28 Dec   
*Dividends paid quarterly. XD and Payment dates refer to second half-year dividend of 4.75p.