The UK Government’s Leveling-Up Fund is having a positive impact on economic activity in the regions. Around £ 4.8 billion has been allocated to the renewal of the city center and main roads, local transport, and cultural and heritage projects. As part of the reopening agenda, the government will also take up significant office space in Manchester, Leeds, Liverpool, Wolverhampton, Birmingham and Darlington as the departments move out of London.
The problem is that the availability of Grade B and C office space in regional markets in England has fallen 45 percent since 2015. With the exception of London, 31 million sq ft of office space in England has been converted into residential buildings under Permitted Development Rights. At the same time, there has been limited speculative regional office development, a key reason why total available office supply has declined 17 percent since late 2019.
This is clearly good news for real estate companies with a strong regional focus at a time when more London and Southeast-based companies are also considering moving some of their operations to save costs, or “hub-and-spoke” Model with a stronger regional presence to meet employee needs. Such a company, Palace capital, is a major beneficiary.
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- Sold £ 14.9 million in homes in the Hudson Quarter, up from £ 12.5 million in April.
- £ 9.4m in assets exchanged since year end for a value greater than net asset value (NAV).
- 14 new rentals with a 16 percent surcharge on the imputed rental value (ERV).
- The quarterly payout increased 20 percent.
Shares in Palace capital (PCA: 250p), a regional commercial property in Reit, has grown by 15 percent since reporting began (Alpha Research: ‘A Royal Game of Riding’, March 11, 2021). The re-evaluation is fully guaranteed.
Importantly, Palace has minimal exposure to retail real estate, with the sector accounting for just 7.6 percent of the portfolio’s £ 282m valuation. Palace’s rental income from retail tenants represents 11.5 percent of its contractual rental income of £ 16.4 million. The company has no involvement in retail, but owns specialty store properties with strong editions. For example, grocery retailer Aldi, construction supplier Wickes and cash-and-carry retailer Booker collectively generate £ 950,000 in annual rental income. Obviously, they cut a fine figure. A portfolio focus on regional offices (41 percent portfolio weighting and no London exposure), industrial warehouses (14.4 percent) and retail warehouses (3.3 percent) also support robust rental collection rates. In fact, Palace has taken 95 percent of rents since the beginning of the pandemic and completed 14 new rentals with an average markup of 16 percent over ERV.
In addition, the company sold assets above book value. In the financial year ended March 31, 2021, Palace sold £ 5.4m in non-core assets at a 23 percent premium to NAV and has since contracted £ 9.4m of the target 30m above book value. In addition, Palace has now sold 50 of the 127 apartments in its newly completed Hudson Quarter in York for £ 14.9 million and expects to realize an additional £ 17.5 million from 37 additional sales by next March.
With a net debt of 42 percent of its investment portfolio of £ 282 million, the inflow of funds should enable Place to make targeted opportunistic property purchases while rewarding loyal shareholders. The Executive Board has increased the quarterly dividend by 20 percent to 3 pence per share, which is covered 1.3 times by EPRA EPS of 15.7 pence, which corresponds to a dividend yield of 4.8 percent.
With the divestments being above book value and the company leasing its high quality regional commercial offices at low rents as the UK economy recovers (average rent below £ 20 per square foot), it is only reasonable to expect valuation increases and further narrowing of the 27th floor – Percentage discount on the EPRA NAV of 343 pence. For comparison, Liberum Capital’s peer group, consisting of 19 UK commercial real estate companies, trades at an average discount of just 6.1 percent and offers an identical dividend yield. Obtain.
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