Palace Capital has only managed to sell £43m of assets as values tumble.
Last year the investor/developer opted to “maximise cash returns to shareholders” through the sale of assets, after a management pitch to pivot to redeveloping brown offices was dismissed by shareholders.
The move followed the departure of founder Neil Sinclair, who said he had grown tired of shareholder criticisms.
However plans to sell swathes of its £422m portfolio have been held up by a difficult investment market. In November, the REIT announced that it was pausing sales until the market was less volatile, but even having resumed sales, the volume is still low.
Interim executive chair Steven Owen said “a number of assets” had been sold, “despite a difficult market backdrop”.
A total of eight investment properties were sold for £15.6m, 8% ahead of the 31 March 2022 book value, together with £10.1m of residential sales at Hudson Quarter, York. It added further sales had taken place since the year end, with a total of £43.4m contracted or exchanged, 6% ahead of book value.
Sales are still the strategy, though, with Owen saying: “As part of its considerations, certain properties are either being marketed for sale or are being prepared and readied for sale, whilst other properties are undergoing asset management initiatives in order to prepare them for sale at a future date.”
But the sales strategy seems out of kilter with the current environment, as revenues from the remaining estate rose by 11.5% to £73.6m, while revaluations knocked £36m off its portfolio.
So far just £7.9m cash has been returned to shareholders from share buyback programmes.
Owen suggested that selling the company might prove preferable to selling individual assets, given the current climate. “The board’s strategy remains focused on maximising cash returns to shareholders, whilst continuing to remain mindful of consolidation in the real estate sector,” he said.
But, he said, there was no rush and Palace could bide its time to ensure that any sales commanded attractive prices. Palace was “well placed in terms of flexibility and optionality regarding the timing of its disposal programme and other strategic initiatives, including various options for returning capital to shareholders”.
And, given its low leverage, Palace is not in a hurry to sell to pay off debts.
In the 12 months to the end of March, gross debt was reduced by £37.5m to £64.3m and net debt to £58.8m. By the end of July, gross and net debt are expected to be £34m and £20m respectively, or a 13% LTV.
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