Palace continues to demonstrate its ability to grow NAV per share through its strategic recycling of assets. The disposal of a property in Maldon has realised value created through recent asset management initiatives. As with two other recent sales, this is in line with the company’s strategy to increase shareholder value through active management of the investment portfolio. We have adjusted our forecasts for the £1.56m gain in value and, although we have not assumed any additional acquisitions, would expect Palace to reinvest the proceeds in other regional property assets at attractive yields and with further scope for capital gains.
The ICS building in Maldon is let to Rockwell Automation (which remains a tenant of Palace in Milton Keynes) and following the recent extension of the lease, has little further scope for active asset management to add value in the near term. The gain on the carried value of the property equates to c 6p per share and crystallises the value of the property management team’s work to date. It follows the disposal of two adjacent properties in September 2016 and two further disposals in February, all at significant premiums to book value and thus all NAV-accretive.
Palace has now sold properties for a total of £7.6m in the last month, giving the company enough funds to make an acquisition of the scale of Boulton House in Manchester (its most recent purchase). While we have not allowed for further investment in our modelling assumptions, we believe that the company has a healthy pipeline of opportunities for new investment beyond improvement of its existing portfolio and we would exp
Palace’s shares trade at c 16% below last reported EPRA NAV per share of 419p, and the company has made disposals in the last month at c 9p per share above the book value of the assets in total. With some earnings being retained and allowing for the share buyback announced on 13 March, we forecast EPRA NAV of 430p per share at 31 March 2017, the financial year-end, implying that the shares trade at a discount of 19%. This is well above the average of regional property investment peers, which trade at close to or above EPRA NAV. As illustrated on page 2, there appears to be scope for this gap to close, supported by the earnings yield. Possible catalysts include the full-year results and reinvestment of capital.