Palace chief pushes back over shareholder criticism
The chief executive of FTSE REIT Palace Capital has hit back at shareholder complaints over its returns, telling EG that criticisms were “a bit rich” given that the company had consistently communicated its strategy to its top shareholders.
A report in the Sunday Times quoted an unnamed investor in the company saying that “something needs to change” at Palace to avoid “a very average performance”. Over the past five years the company’s shares have lost about a quarter of their value and are trading at a 24% discount to its most recent net tangible assets.
Chief executive Neil Sinclair said he was unaware which shareholders had voiced concerns but acknowledged that activist investors had joined the share register in recent years to “shake the tree”.
The chief executive of FTSE REIT Palace Capital has hit back at shareholder complaints over its returns, telling EG that criticisms were “a bit rich” given that the company had consistently communicated its strategy to its top shareholders.
A report in the Sunday Times quoted an unnamed investor in the company saying that “something needs to change” at Palace to avoid “a very average performance”. Over the past five years the company’s shares have lost about a quarter of their value and are trading at a 24% discount to its most recent net tangible assets.
Chief executive Neil Sinclair said he was unaware which shareholders had voiced concerns but acknowledged that activist investors had joined the share register in recent years to “shake the tree”.
The largest shareholder in the company is Premier Miton Group with a 9.4% holding, followed by Peter Gyllenhammar with 9.24% and Winton Capital Management with just shy of 8%. Other shareholders include AXA Investment Managers and Allianz.
Much of the focus for Palace is on its Hudson Quarter scheme in York, the redevelopment of a site acquired as part of a £39m portfolio purchase from Quintain in 2013.
In 2013, the 100,000 sq ft office building was valued at £3.8m. By 2017, when planning permission was granted to redevelop it into new office space and 127 for-sale flats, it was valued at £17m. “We had made, on paper, just over £13m profit, less any costs we had incurred, if we sold it,” Sinclair said. The company’s top shareholders – then JO Hambro, AXA and Premier Miton – agreed to support the development rather than a sale, he added.
In the company’s latest trading update, published ahead of next week’s results, it said it had sold 80 of the Hudson Quarter flats – a figure that has since increased to 84. A £26m bank loan has been paid off, Sinclair said, and the cash balance at the end of March was £28m. The office space is now close to 75% let. Sinclair said the lower returns on the development project were always to be expected.
“If you do a development and you have £30m tied up, you are not getting a return on your £30m, which is why very often development companies show a loss for a year or two and then make a profit,” he said.
“There’s nothing unusual. By going ahead and doing it, I can tell you we are known right across the North. Everybody knows this scheme, particularly in Leeds and York. Yes, the margins were not what we would like, but we had £30m tied up in York and we did talk to our top three shareholders – and if they had said to us at the time ‘we don’t want to do this, we’d rather you sell the site’, that’s what we would have done.”
He added: “It’s a bit rich to come on now and moan about margins… Either they have a short memory or conveniently lost it.”
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Image from Palace Capital
