Palace Capital reports mixed interim performance

Palace Capital reported a mixed half-year performance on Thursday, as it continued with its strategy to return capital to shareholders.

The London-listed company posted an adjusted profit before tax of £2.1m, down from £2.3m a year ago, primarily due to reduced income following property disposals.

However, that was partially offset by a notable reduction in finance and recurring administrative costs.

The IFRS loss before tax stood at £0.9m, driven by a £3.2m valuation deficit, countered by a £0.6m gain on property disposals.

Adjusted earnings per share rose 10.9% to 6.1p due to a reduction in shares following a recent tender offer.

Palace Capital also maintained its dividend payout at 7.5p per share, and returned £22.1m to shareholders through the tender offer, adding 2p per share to its EPRA net tangible assets (NTA).

However, EPRA NTA per share declined 3.8% to 252p, attributed to a portfolio revaluation deficit.

The total portfolio valuation fell 5.1% on a like-for-like basis, with a significant decrease linked to its office asset at St James’s Gate in Newcastle.

Operationally, the company completed or exchanged five investment property sales, totalling £26.1m, slightly above the 31 March valuation.

Additionally, five apartments at Hudson Quarter in York were sold for £2.7m in the first half, bringing total proceeds from 116 completed or exchanged units to £43.9m.

Palace Capital’s portfolio weighted average unexpired lease term (WAULT) improved to 6.4 years to break and 9.1 years to expiry, supported by asset management activities and the sale of short-WAULT properties.

During the period, leasing and review activity added £0.4m in annualised net rental income, offset by a £0.5m loss from lease expiries and breaks, along with a £1.9m reduction in income following property disposals.

Rent collection remained strong at 98%, with EPRA occupancy increasing to 84% from 82% in March.

Net cash rose to £13.1m from £11.5m as of March, further supporting Palace Capital's capital return strategy.

“During the first half of this financial year, we continued to progress our strategy to return capital to shareholders through the disposal of investment and residential properties,” said executive chairman Steven Owen.

“This was achieved through the sale of £28.8m of assets at 1.9% above the 31 March valuation and returning cash of £21.7m by way of a successful, oversubscribed tender offer in July, which contributed an additional 2p to EPRA NTA.

“Since the strategic wind down of the Company was announced in July 2022, we have returned over £43m of cash to shareholders.”

Owen said assuming that the property at Fareham, on which contracts were exchanged in July as previously announced, completes in the first quarter of 2025 for a net price of £3.1m, the company would have six investment properties remaining, which were valued at £51.7m as at 30 September.

“Following the completion of asset management initiatives, it is expected that three of these assets will be marketed for sale in the first quarter of 2025 and the sale of these assets, together with the completion of Fareham, are expected to generate significant cash proceeds to be returned to shareholders.

“The remaining three assets require the completion of further asset management activities in order to be ready for sale.

“In addition, there are 11 apartments remaining at Hudson Quarter in York, which are valued at £5.5m, and sales of these will continue subject to market conditions.”

Steven Owen noted that the company had been in a net cash position since April and as at 13 November, gross debt was £8.1m.

Proforma cash, assuming all exchanged properties complete, was £24.2 million, resulting in net cash of £16.1m, he added.

“Given its strong cash position, the company has both flexibility and optionality over the timing of its disposal programme and its further return of cash to shareholders, which will be achieved either through a share buyback programme or another tender offer.”

At 1358 GMT, shares in Palace Capital were down 0.83% at 216.68p.

Reporting by Josh White for Sharecast.com.