Palace Capital: Interim results on track – upside clear in FY’22

Palace Capital plc (LON:PCA) 1H’21 results cover the depths of the initial market impact of COVID-19. We note the 4.7% fall in EPRA NTA and the effect of the dividend rebasing announced some months prior. There are no negative surprises. The focus on regional offices is a positive. There are other positives that we consider to be important, namely the ongoing contractual performance of the leisure asset tenants and lengthening of leases there, and the continuing encouraging residential sales (and small letting) at the mixed-use development of PCA’s newly created Hudson Quarter, York. Here, we see just one of PCA’s initiatives to unlock value and deliver attractive returns.

  • 1H’21 results: Rental income fell 7% (vs. 1H’20) ‒ a level we see as the low point. There was a £7.2m IFRS loss, taking EPRA NTA/share to 347p. Adjusted EPS fell to 7.3%, down 14% vs. 1H’20. This excludes both the one-off £2.85m early lease surrender cash income in 1H’20 and modest share scheme impact.
  • Robust strategy: Regional offices’ (43% of assets) returns have exceeded London’s in every year since 2016, and are clearly set to continue to do so. The development assets are set to show a 50% cash-on-cash return in calendar 2021. PCA’s asset management and capital recycling strategy work.
  • Valuation reflects short-term problems: We do not expect the balance sheet to have difficulties weathering storms, particularly as a result of proven strong tenant performance in 1H’21 and the £60m Hudson Quarter WIP unwind. These illustrate the strong underpinning and the near-term valuation upside.
  • Risks and upside: COVID-19 has fully demonstrated the market difficulties and, indeed, many assets have short WAULTs. The regional office sector has good prospects, notwithstanding the short-term turbulence. The leisure assets have long WAULTs, and good tenants in close touch and up to date on rent.
  • Investment case: Major NAV and profit advances are highly visible for FY’22. With the completion of the Hudson Quarter, York development, significant profits are generated in apartment sales. These are cash-backed, but – standard accounting practice – not included in EPRA profits. For this reason, NAV per share jumps nearly 20p. Regional offices and industrial are good sectors.

DOWNLOAD THE FULL REPORT

Palace Capital is a property investment company with a premium listing on the Main Market of the London Stock Exchange.

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 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 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

    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

    Hardman & Co

    Palace Capital Portfolio and trading update

    Palace Capital (LON:PCA) portfolio and trading update of 2 May showed underlying values up year- on-year. A lease event, resulting in a profit and cash upgrade, was announced on 7 May. This showed a cash premium being agreed