Palace Capital is preparing to hit the acquisition trail after putting purchases on hold during the pandemic, using the proceeds of an ongoing 15-property, £30m-plus pipeline of asset sales.
Chief executive Neil Sinclair said the money from a disposal programme will be combined with the proceeds from apartment sales at Palace Capital’s Hudson Quarter scheme in York.
“That will enable us to reinvest in income-producing assets,” Sinclair said. “One of the issues we have had over the past two or three years is that we have ploughed money into Hudson Quarter on which we have not had a return.”
In recent weeks the REIT has completed the sale of 249 Midsummer Boulevard, an office building in Milton Keynes. At £5.7m, the price tag was ahead of book value but less than the £7.2m Palace Capital paid for the site back in 2016.
Contracts have also been exchanged for the sale of 43-45 High Street in Weybridge for £3.7m. The site has planning consent for a retail scheme and 28 apartments.
Those deals will account for £9.4m of a pipeline of disposals that Palace Capital expects to bring in more than £30m, with another sale under discussion and Sinclair saying he is “pretty confident” of completing all disposals during this year.
The company also expects to exit its two leisure assets – Broad Street Plaza in Halifax and the Sol leisure complex in Northampton – over the longer term.
The REIT’s portfolio will now be zeroed in on offices and industrial sites. Sinclair has long been an advocate of the regional office market and believes that the events of the Covid pandemic, as well as the government’s push to “level up” the regions, will continue to drive activity.
“People are saying that no one is taking office space, but they are,” Sinclair said. “We have let 22,000 sq ft at Bank House in Leeds since January. We are very confident about the regional office market. Not only is the government moving north, but companies are thinking about moving north as well.”
He points to Leeds as an example. “Leeds has picked up two government departments – the infrastructure bank and the Department for Transport. Channel 4 went to Leeds and is attracting other media and creative companies. There’s a knock-on effect. We think that is very important, and it’s very good for us.”
The regional office markets have two important factors in their favour, Sinclair added. “One is cost – it’s much cheaper, not just rent, but rates as well,” he said. “Two, graduate retention is now rising rapidly. The best city for graduate retention is Manchester, and Manchester is doing very well at the moment on all fronts.”
Sinclair spoke with EG as Palace Capital posted a £5.5m loss for the year to 31 March, driven by a £14m fall in the value of its portfolio. NAV per share dropped to 343p from 361p a year ago, meaning the company is trading at a discount of around 27%.
“We’ve got to keep going on it,” Sinclair said of narrowing the stock’s discount to NAV. “We’re not a £500m company at the moment, that’s one of the reasons for discounts. But look at Landsec and British Land – they have discounts as well. That’s a fact of life. But we think by focusing on what we’re doing and telling our story, we’ll slowly but surely close it.”
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See also: Palace Capital ‘cautiously optimistic’ for regions as it raises dividend
