PALACE CAPITAL - Asset growth & a 5% Yield...

[SKYSHIP]

PALACE CAPITAL (PCA) is an AIM-quoted property investment company focused on commercial real estate in the UK outside London.

# The £184m (Feb’17) property portfolio is diverse, with the sector split being: Offices @ 42%; Leisure @ 23%; Industrial @ 20%; Retail @ 10% & Retail Warehouse @ 5%.

# Geographical split shows: Midlands @ 26%; North @ 36%; South & East @ 38%

# Gross Rental Income = £13.7m; occupancy is at 89% with an everage WAULT of 5.8yrs

# Debt is £73m net of cash, giving an LTV of 39%; with an average debt cost of just 2.9%

The company has an excellent growth record; funded by institutional support in share placings – the last raising £20m @ 360p in Jun’15. The investment case of active asset management and asset growth is supported by a generous dividend policy. Last year’s 16p/share is forecast to increase to no less than 18p/share; placing the shares at 355p on a very acceptable yield of 5%.

The excellent website simplifies research as does the latest investor presentation – see below

The Finals to end Mar’17 are due in June. Those will likely show an NAV increase to c430p; that would provide a 17.4% NAV discount.
The combination of asset growth and yield makes PCA an attractive proposition at the current offer price of 355p.

(DISCLOSURE: I own PCA and increased my holding after today’s RNS, announcing a property sale at a 66% premium to the last valuation)

INVESTOR PRESENTATION – Feb’17:
http://palacecapitalplc.com/assets/file ... 202017.pdf

EDISON RESEARCH report – Nov’16:
http://www.edisoninvestmentresearch.com ... ital/full/

[jackdaww]

ss

thanks for that info.

i'm watching palace , it is tipped by simon thompson and jonas crossland in IC , also jim slater .

i wonder why the SP is so flat.

jd

[SKYSHIP]

Jackdaw - I suppose one could say that the 10% rise since the Brexit slump is a reasonable rally; but the shares sure represent value versus many peers, especially the new "Income REITs" such as CREI & AEWU. The former yields 5.3% and now stands at an absurd 10% PREMIUM - crassly over-valued IMO. We've been having a bit of a discussion on that on ADVFN's CREI thread:

http://uk.advfn.com/cmn/fbb/thread.php3?id=34021536

Incidentally, I notice from the website that PCA's Jt. broker Allenby Capital also issues regular Notes & Updates:

http://allenbycapital.com/research/rese ... 239978.pdf

Another thing to note is that PCA will deliver an Update & Dividend f/c a month before the Finals - 10th May last year - so just 2months before we know a whole lot more, especially on that dividend. Having looked further I believe the widely f/c 18p may be a "Managing Expectations" figure. We could well see 19p, even 20p!

I suspect they would love to increase their firepower, take a leaf out of CREI's book and issue equity at a premium to NAV. You've got to have powerful institutional support to regularly perform that trick; also scale perhaps and PCA has a MCap of just £91m.

[SKYSHIP]

Jackdaw - more news. Simon Thompson has revisited PCA in his Online piece today. He uprates his f/c from 380p to 400p.

Likely to appear in the print edition on Friday, so today's offer price of 352p looks particularly attractive. Quite a few trades going through at that level.

[SKYSHIP]

PCA's Trading Update didn't disappoint as the NAV is stated to be ahead of Market expectations - currently thought to be c430p. IMO The Finals on 6th June may also reveal a dividend ahead of Market expectations. Sp still unchanged however, remaining on offer @ 360p, at which level the Yield = 5%.

https://uk.advfn.com/stock-market/londo ... e/74470894

[SKYSHIP]

PCA - - an interesting 1.2m trade @ 355p. That's a 4.77% block.

Is that the end of the tap perhaps. May well be as the sp has risen 4% today...

The Finals on 6th June will reveal the VALUE here - so still a buy at 375p.

[UncleEbenezer]

Is that the end of the tap perhaps.

Erm, the end of the what?

A 4.77% stake is surely RNS-notifiable, yesno? Yet I see no RNS since May 4th.

[SKYSHIP]

UncleE....that 1.2m trade only took place on Friday...so an RNS likely next week.

As for the tap; there has been a tap seller holding the price down for c2months. A sudden large trade often signifies the end of a tap; especially if associated by a sudden price rise. We saw that on Friday and though the high of the day wasn't held, nevertheless the price suggests we may have a significant chart breakout - see below:

https://uk.advfn.com/cmn/fbb/thread.php ... 5&from=287

[SKYSHIP]

RNS re that trade last week: A "Holdings" RNS from PCA confirmed Schroders down to 6.7% and it was Miton Group who took that 1.2m - doubling their stake up to 9.7%.

Well pleased with that; as was the Market as the predicted chart breakout confirmed and the sp advanced to 390p.

[SKYSHIP]

NAV & Dividend ahead of forecasts:
==================================

HIGHLIGHTS

Financial Highlights:

# IFRS Profit before tax: increased by 7% to GBP12.6m (31 March 2016: GBP11.8m) reflecting a combination of trading profit, revaluation gains and profit on disposals

# Portfolio valuation at 31 March 2017: increased by 6% to GBP183.2m (31 March 2016: GBP173.4m)

# EPRA NAV per share(*) : increased by 7% to 443p at 31 March 2017 (31 March 2016: 414p)

# Adjusted profit before tax(*) : increased by 20% to GBP6.7m (2016: GBP5.6m)

# Adjusted EPS(*) : increased by 17% to 22.2p (31 March 2016: 18.9p)

# Final dividend: 9.5p proposed, making a total for the year of 18.5p, a 16% increase (31 March 2016: 16.0p)

[SKYSHIP]

Simon Thompson liked the PCA Finals, so revisited in his IC Online property feature today.

This is an Extract from his piece:
==================================

........................

Prospects for the year ahead look rosy given the potential to add further value to developments as recently refurbished and shrewdly acquired office space in Manchester, Leeds and Milton Keynes is let out. Chief executive Neil Sinclair points out that these lettings "will have a material effect on values, too". He has a valid point. Take, for example, last summer's opportunistic purchase of Boulton House, a 75,300 sq ft multi-let office building close to Manchester Piccadilly Station. The net initial yield on the £10.6m purchase price was 5.5 per cent and equated to a capital value of £145 per sq ft, which was predicted to rise to 6.9 per cent based on conservative rental values of £12 per sq ft. Palace Capital has since refurbished 13,500 of vacant space as well as the ground floor reception and entrance hall at a cost of £700,000. I understand that terms are being negotiated with potential tenants at rentals "ahead of expectations at the time of purchase". I would also flag up that the company is looking to pull off a £20m property acquisition to use the £11.2m low-yielding free cash on its balance sheet and boost net income.

Trading on a 14 per cent discount to book value, offering a 4.9 per cent dividend yield, and with the benefit of a modestly geared balance sheet that includes unencumbered property worth £15m, I think the shares have further upside potential.....I would run profits as the valuation discrepancy with peers is unwarranted. Run profits.

[UncleEbenezer]

So, they're now empire-building with a £70m acquisition - not far off doubling the overall portfolio value.

New properties in southeast England but excluding Prime London. Including some residential property they aim to sell off. Surely a general area where the old owners will be well-pleased to get out at around peak price?

To be financed by a placing and open offer, but they're not telling us the price!

https://www.investegate.co.uk/article.a ... 700070961R

[SKYSHIP]

A week ago PCA were at 385p having recently paid a 9.5p dividend - so frankly all looked pretty good with a yield of 4.9% and still trading at a 13% NAV discount.

Then came Tuesday's acquisition and funding statement!

I think Sinclair is guilty of self-aggrandisement in pursuit of his wish for a full listing rather than the current AIM listing. In pursuing his wish he has done a bad deal and destroyed shareholder value.

1. He overpaid for a portfolio which in normal circumstances should have come for at the very least a 5% discount
2. He allowed The City to talk him into issuing stock down at 340p versus the 360p which just might have been acceptable
3. The 1:20 shareholder participation is a disingenuous joke
4. The 9.5p Interim dividend covers the period to 30th September, so there is NO WAY the new shareholders should receive the benefit of that 9.5p - in effect the placing is actually being conducted at 330.5p
5. He has slashed the NAV from 443p to c388p; and in doing so hammered my investment by c10%

It will take a long time for Sinclair to recover his reputation from this blatant hubris; and I sincerely hope Simon Thompson (Investors Chronicle) and others make it abundantly clear that he has perpetrated an enormous dis-service to his private shareholders. 

[UncleEbenezer]

https://www.investegate.co.uk/article.a ... 052459455S

Looks like the open offer fell a little short, despite its small size. Demand very muted? All applications to be met in full.

Two interpretations I can see:
(1) Little shareholder appetite shows little confidence in empire-building management
(2) Management were right to keep the open offer part of the fundraising small

Both seem very plausible. Different sides of the same coin!