Transformative portfolio acquisition signals shareholder returns.
Commercial property investor Palace Capital (PCA:AIM) is primed to declare its maiden dividend next year after completing a transformational deal.
The company has bought a portfolio of 23 secondary properties spread across the UK, along with a further asset in Leeds. Management believes the purchases will help fund a 6% return to its shareholders next year.
Palace, which specialises in secondary properties outside London that yield at least 11%, bought the Sequel regional portfolio, along with Gelderd Point in Leeds, from Quintain Estates & Development (QED) (21 Oct). The 24 properties were valued at £42.4 million in March but Palace bought them for £39 million.
Quintain sold the portfolio as part of its strategy to liquidate non-core assets outside of London so it could reduce debt. The seller also wants to focus on its developments in the capital, which will see residential, retail, office and leisure units open in Wembley and Greenwich.
For Palace the reverse takeover provides an opportunity. Rent from the acquired assets comes to £5.2 million, equivalent to an attractive 13.2% yield. Palace is led by chief executive officer (CEO) Neil Sinclair, an industry veteran of more than 50 years’ experience, who believes improved asset management can take the yield higher still.
DAVID BECOMES GOLIATH
The purchased portfolio covers 1.1 million square feet and is predominately based in city centre locations. Some 74% is freehold and the sites are let to 84 tenants on 95 leases, averaging 6.4 years to expiry, with a break at 3.8 years.
To fund the deal management placed £23.5 million of shares and secured £20 million from Nationwide Building Society. The deal transforms the company from one with a market cap of £0.8 million and nine properties in Cheshire to a business with more than 30 assets worth more than £45 million and a market cap of around £24.5 million.
Palace, whose shares trade at 242p at the time of writing after a share consolidation, is likely to remain acquisitive and intends to increase its value to more than £75 million through snapping up more properties at discounted entry yields.