Palace Capital is a UK REIT with a diversified portfolio of UK commercial real estate in locations outside of London.  It has announced results for the year ended 31 March 2021 and the figures reinforced our view that the shares are cheap.  Despite considerable uncertainty during the period five non-core assets were disposed of at a combined premium to book value of 23%.  A £30m disposal programme is progressing well with £9.4m of assets either exchanged or completed since the year end, all at a premium to book value.  Rent collection in the last financial year was 95%, which is very comforting given the disruptions throughout the period and this leaves the balance sheet in good shape.

In terms of financial highlights from the results announcement, ‘Total Shareholder Return’ was 38.5%, reflecting resilient portfolio performance and strong share price recovery following the initial impact of Covid-19 in March 2020. The portfolio valuation increased slightly to £282.8m (2020: £277.8m), although it was down 4% on a like-for-like basis.  EPRA earnings for the year were £7.2m, translating into EPRA earnings per share of 15.7p (2020: 23.4p).  In terms of the net asset value, IFRS NAV slipped by 5.1% to £157.8m (2020: £166.3m), reflecting the decline in portfolio fair value.  This saw a decrease in net asset value per share on the same basis to 343p (2020: 361p).  EPRA NTA per share was 350p (2020: 364p), representing an increase on the 30 September 2020 figure of 347p, with modest recovery in the second half of the year.  The proposed final quarter dividend of 3.0p takes total dividends paid for the year to 10.5p per share.  Furthermore, 3.0p per share is set to be the minimum level of dividend to be paid each quarter for the year ending 31 March 2022.

We are particularly impressed by the flagship development at Hudson Quarter, York.  This completed on budget on 20 April and as at the time of the results announcement over 39% of 127 apartments were sold or under offer, with a value of £14.9m.  There was also 4,781 sq ft of office space let at record rent with strong demand for the remaining space.

It is clear that Palace Capital is in good shape and the share price will surely move closer to the net asset value in the medium term.  The dividend yield is also attractive and should help attract income seekers as well as those who can see the potential for significant capital growth.  The company has pointed out the UK’s regions are seeing the benefits of increased investment from Government and business, with many organisations choosing to take space outside of London.  This provides cause for optimism and the flexible manner in which the company is managed should ensure that shareholder returns remain strong in the coming years.  We rate the shares as a BUY.