Palace Capital 1H’20 results announced

Palace Capital (LON:PCA) 1H’20 results were announced on 19 November. Seventeen lease events have been completed. Impressively, these were 25% above passing rent and 3% above ERV (i.e. previous estimated valuers’ levels). FY19 was struck 14% above passing rent. The total property return was 1.5%, outperforming the MSCI quarterly index. Early progress at the Hudson Quarter mixed-use development inside York city walls is slightly ahead of viability, with sales of 21 units in under 20 weeks (with seven additional under offer). This leads us to upgrade FY21E profits, NAV and cash significantly, but, with a view to the further delays to political certainty, we trim anticipated rental rises slightly.

  • 1H’20 results: These were in line with strong expectations. Macro-politics lead us to trim FY20E PBT by 3%. Regional offices, Palace Capital’s largest sector, is resilient. Apartment sales in the mixed-use development, Hudson Quarter, York, saw strong performance. We have brought forward profit estimates into FY21.
  • Results and prospects: The Chairman stated, “We are well ahead of our business plan at Hudson Quarter. With letting activity brisk on our other refurbishments, we are most encouraged despite the current political uncertainty.” We therefore upgrade FY21E reported PBT to £20.25m, including Hudson Quarter profits.
  • Cash paid by a tenant for an early lease surrender is a further positive: A lease event saw FY20 profit and cash upgraded. The tenant paid a £2.85m cash premium. The most recent valuation of these assets, notably, was only £2.2m. Economic value has been created. A sale of the remaining interest has now been agreed.
  • A track record of outperformance: In the past three years, Palace Capital has beaten the benchmark each year. This is notwithstanding the cost of holding a development site generating no accounting returns yet. Development returns are not guaranteed but, over two years’ timing, add more than 5% to NAV.
  • Risks: The normal risks of real estate apply. The weighted average length of unexpired lease to break is 5.2 (4.5 in 1H’19) years. Covenants are resilient. Retail exposure (bar Wickes and Booker) is minimal. Gearing, at 34% (34% 1H’19) LTV, is conservative and, although it is rising, as the York development progresses, management has previously stated an intention to keep it below 40%.

DOWNLOAD THE FULL REPORT

Click to view all articles for the EPIC:
Or click to view the full company profile:
    Share on facebook
    Facebook
    Share on twitter
    Twitter
    Share on linkedin
    LinkedIn
    Hardman & Co

    More articles like this

    Hardman & Co

    Palace Capital: Strong trading update

    Palace Capital plc (LON:PCA) December 2020 quarter rents showed 92% received; as of the 14 April trading update, 82% of the rents due end-March under the monthly payment plans had been received – a good initial profile. Hudson

    Hardman & Co

    Palace Capital plc upside clear in FY22 (Analyst Interview)

    Palace Capital plc (LON:PCA) is the topic of conversation when Mike Foster, Analyst at Hardman & Co joins DirectorsTalk. Mike explains what the company invests in as a REIT, how it has performed, provides a bigger view on strategy,

    Hardman & Co

    Palace Capital Encouraging full-year results

    The healthy liquidity position of Palace Capital plc (LON:PCA) takes risks down to a modest level, as does the overweight to regional offices and minimal shops. The Hudson Quarter mixed-development site is selling well, and profitability remains at

    Hardman & Co

    Palace Capital 1H’20 results announced

    Palace Capital (LON: PCA) is the topic of conversation when Mike Foster, Analyst at Hardman & Co joins DirectorsTalk. Mike provides a little background on the company, talks us through the results, the company as a developer, why the

    Hardman & Co

    Palace Capital Conversion to REIT status; FY19 results announced

    Palace Capital’s (LON: PCA) results (4 June) show 37 new leases were completed. Most importantly, these were 14% above ERV (i.e. the level which previous valuers had estimated). This is one of several factors underpinning significant medium-term expansion