Coronavirus Update

Palace Capital Plc - COVID-19 and Dividend Update

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PALACE CAPITAL PLC

("Palace Capital" or the Company)

COVID-19 and dividend update

Palace Capital today provides an update on the impact of the evolving global COVID-19 pandemic on the business.

In this period of unprecedented disruption, our priority is and will remain the health and wellbeing of our colleagues and tenants, whilst protecting the long-term value of the Company.

In these circumstances, we believe we should support our occupiers, particularly smaller and independent brands that are less resilient to the enforced closure of their space. Fortunately, we have limited retail exposure and only two leisure centres, with the latter comprising 14.5% of our portfolio. We have received a variety of requests for rent deferrals, monthly payments, and waivers, which we are reviewing on a case-by-case basis, taking into account the business model and risk profile of the occupier, alongside the aid being made available by the government.

Across our portfolio, we continue to follow and implement the latest government advice and we have taken the appropriate steps to mitigate the spread of the virus.

Update on current trading

Underlying earnings for the year ending 31 March 2020 are currently expected to be broadly in line with previous expectations, however the independent valuation of our assets as at 31 March 2020 will include a statement from the valuers highlighting material uncertainty as a result of COVID-19.

Overall, as at the close of business on 01 April 2020 and as adjusted for rent deferred, switched to monthly payment, and a nominal proportion waived, we have received 70% of rent due. We expect this figure to increase as temporary agreements are implemented and further rent is collected.

The Company's primary focus is to maximise the rent collection, whilst having regard to the short-term difficulties faced by some tenants. This means the Company needs to take a pragmatic view. Until there is clarity on the full impact of the economic fallout from this crisis and global response, the Board is unable to comment further on the outlook for FY2021.

Hudson Quarter

Notwithstanding the effect of COVID-19, the Company is making progress with its flagship development at Hudson Quarter, York with construction continuing within the constraints of government regulations and the practice of social distancing. The scheme will comprise 127 apartments, 39,000 sq ft of offices and car parking. It is currently due for completion at the end of January 2021, but this may need to be extended given current circumstances.

As at 31 March, the Company has sold 28 apartments to the value of £7.55 million, with the latest sale having exchanged only two days ago. A further 17 are under offer to the value of £4.7 million. Therefore, in total, we have 45 apartments sold or under offer to the value of £12.25 million, 10 months ahead of completion and all off-plan. Only two cancellations of sales have been received in recent weeks at Hudson Quarter. The Company has also pre-let 4,500 sq ft of offices on the ground floor of one of the residential blocks at a record rent for York of £25.00 per sq ft, as announced on 10 February 2020.

The Company has closed its marketing suite because the health and well-being of the staff comes first. However, the Company is still receiving enquiries through its website and social media.

Balance sheet, liquidity and covenants

The Board believes that maintaining maximum liquidity at this time is a prudent approach, in order to comply with its lenders' loan covenants. Of particular note at this time are interest cover tests which range from 225% to 250%. The investment portfolio is highly cash generative and therefore rental income would have to fall by over 40% on average for the covenants to require some form of curing. We have been reassured by our lenders that they will stand by us during this unprecedented time should this prove necessary.

As at 31 March, there are no debt facility maturity dates in the next two years. The Company is conservatively geared at 34% with £14.7 million of cash in the bank and a further £5.0 million which can be drawn down imminently from the NatWest revolving credit facility. The development at Hudson Quarter, York is now fully funded by the Barclays development facility and for the time being we have put all other major capital expenditure on hold in order to preserve our cash position at this time.

Dividend

On 10 March, Palace Capital announced that it would pay a quarterly dividend of 4.75p per ordinary share in respect of the three months ended 31 December 2019 on 9 April 2020, to shareholders on the register as at 20 March 2020, at a cost of £2.2 million.

For the reasons set out above, the Company has taken the decision to cancel the payment of this quarterly dividend so as to maintain maximum liquidity at this time. This will enable the Company to act reasonably with those tenants that have short term cash flow issues and to deal with any loan covenant issues that may arise.

 A recommendation on the final dividend will be taken at the time of the announcement of the full year results, which is currently expected to be in early June.

Neil Sinclair, Chief Executive of Palace Capital commented: 

"Given the uncertainty we're navigating during this unprecedented time, it is prudent for us to preserve our cash and maintain maximum liquidity. It is important for us to maintain our excellent relationships with our tenants who need our help throughout this challenging period. I am very encouraged by the level of rent collection we have received, which demonstrates the quality and covenant strength of our occupier base.

"We are also very pleased with the number of forward sales that we have secured at Hudson Quarter, together with the strong continuing interest, notwithstanding current market conditions."