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Palace Capital rental uplifts slow

Rather than compete with international capital, the regional commercial property group is investing in its existing portfolio
November 19, 2019

With international competition for commercial properties in the UK’s regional cities on the rise, Palace Capital (PCA) is focusing investment on refurbishing its existing assets. Yet upgrading buildings meant the occupancy rate declined from 87 to 84 per cent in the six months to September, while some shorter-term leases attracted lower rent, contributing to a near 4 per cent decline in adjusted net asset value in the period.

IC TIP: Buy at 280p

Still, portfolio activity remained busy, with the highlight being the start of works on the two-acre Hudson Quarter development in York, where a fifth of the 127 apartments are now already sold or under offer. Until the development is completed in 2021, it is unlikely that the dividend will be fully covered by adjusted earnings, according to finance director Stephen Silvester. The coverage ratio has at least risen to 90 per cent. 

Rental income also climbed by nearly a third, including £11m in premiums from surrendered leases. Five rent reviews and 12 lease renewals were completed at an average 3 per cent above estimated rental values. Along with another nine new leases, that took the annual contracted rent roll to £16m against an estimated rental value of £21m for the total portfolio.

PALACE CAPITAL (PCA)    
ORD PRICE:285pMARKET VALUE:£131m
TOUCH:280-289p12-MONTH HIGH:330pLOW: 262p
DIVIDEND YIELD:6.7%TRADING PROP:£19m
DISCOUNT TO NAV:26.5%  
INVESTMENT PROP:£256mNET DEBT:52%
Half-year to 30 SepNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20184078.3515.99.5
2019388-1.185.69.5
% change-5--65-
Ex-div: 5 Dec   
Payment: 27 Dec   
*Dividends paid quarterly, XD and payment dates refer to second-quarter dividend of 4.75p