Coronavirus Update

Palace Capital Plc - Final Result Announcements

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("Palace Capital" or the "Company")

Final Results for the year ended 31 March 2020


Palace Capital (LSE: PCA), the UK REIT that has a UK regional commercial real estate portfolio with a bias towards the office and industrial sectors in carefully selected locations outside of London, announces its first set of annual results since converting to a REIT in August 2019.

Financial Highlights

Focus on regional office and industrial sectors driving continued total property return outperformance

  • Total property return of 1.1%, outperforming the MSCI UK Quarterly Benchmark of -0.5% and marking three successive years of outperformance
  • Final dividend proposed of 2.5p per share, following prudent cancellation of Q3 interim dividend to preserve the Group's cash resources in response to Covid-19, taking the total dividends for the year to 12.0p per share
  • EPRA earnings increased to £10.8 million (March 2019: £7.6 million), reflecting underlying strength of investment portfolio and including one-off surrender premium of £2.9 million
  • 41% uplift in EPRA EPS to 23.4p (March 2019: 16.6p), reflecting 195% cover of 12.0p dividends for the full year; adjusted EPS of 17.5p (March 2019: 17.3p), reflecting 146% cover of total dividends payable for the year
  • EPRA NAV per share 364p (March 2019: 407p) and IFRS net assets of £166.3 million (March 2019: £180.3 million) with reductions due to asset revaluations following the pandemic and strategic capital expenditure on development and refurbishments
  • Portfolio valuation of £277.8 million (March 2019: 286.3 million), down 5.7% on a like-for-like basis reflecting the impact of Covid-19 on independent valuations, resulting in inclusion of 'material uncertainty' clause
  • Stable balance sheet with cash and debt facilities totalling £153.7million; £120.8 million of debt drawn at year end with a further £32.9 million available and undrawn
  • Revolving credit facility with NatWest increased to £40.0 million in August 2019 and extended for a further five years at a lower margin, providing additional flexibility
  • LTV of 38% (March 2019: 34%) and weighted average interest rate reduced from 3.3% to 3.1%

Operational Highlights

Active asset management delivering long term portfolio enhancement

  • Hudson Quarter on track for completion in March 2021 and the remaining expenditure is fully funded by Barclays, with over 25% of 127 apartments already sold as at 30 June 2020.
  • Planning consent secured for 28 apartments and 4,000 sq ft of retail space at 45 High Street, Weybridge, Surrey in one of the UK's most affluent areas
  • £17.3 million of disposals during the period, including remaining non-core residential units from Warren Portfolio and the lease surrender at Priory House, Birmingham for £2.9 million, being the remaining rent due under the lease, with vacant costs reduced through the sale of the short leasehold interest
  • 18 lease renewals and seven rent reviews completed at an average of 4% above ERV and a 25% uplift on previous passing rents, creating £0.6 million of additional annual rental income
  • 22 new leases providing £1.2 million of additional annual income, including 23,500 sq ft at Sol, the leisure scheme in Northampton, to Gravity Fitness for a minimum term of 10 years at a 20% premium to ERV
  • WAULT increased to 4.8 years to break and 6.5 years to expiry (31 March 2019: 4.5 years to break) as a result of lease renewals and new lettings
  • Overall EPRA occupancy increased to 87.3% (2019: 86.9%), with majority of remaining vacancy having been recently refurbished or identified for strategic refurbishment or redevelopment

Covid-19 Update

  • 93% of March quarter rents collected to date, this includes 91% cash collected, 2% on payment plans and the remaining 7% outstanding at 6 July 2020
  • 84% of June quarter rents collected to date, this includes 64% cash collected, 20% on payment plans and the remaining 16% outstanding at 6 July 2020
  • All debt covenants are expected to be compliant in July
  • Hudson Quarter York construction site remained open throughout lockdown with strict social distancing measures in place for site staff and the marketing suite has reopened
  • All assets in the portfolio have reopened and are fully compliant with Government guidelines

Neil Sinclair, Chief Executive of Palace Capital said:

"During the year we strategically increased our development & refurbishment activity to create an even stronger portfolio that can meet the demand we are seeing outside of London for well located, fit for purpose property, which will also deliver higher quality income and capital growth. We believe our commitment to a total return strategy focused on the regions will deliver outperformance and enhance shareholder value over the long-term. Our strength in the regional office and industrial sectors, taking advantage of the structural dynamics across the economy whilst limiting our exposure to the retail and leisure sectors, has enabled us to beat the MSCI benchmark on both a one and three year basis.

"We have now exchanged contracts on 32 apartments at Hudson Quarter York, with a further 5 under offer. Covid-19 has slightly slowed our progress, pushing out practical completion by approximately two months, however activity is picking up again at the marketing suite and online interest is encouraging. We remain positive about our ability to grow income and ultimately pay a sustainable level of dividends to our shareholders, despite the current political and economic uncertainty."

Stanley Davis, Chairman of Palace Capital said:

"Our total return strategy at Palace Capital is supported by a balanced portfolio, both in terms income-producing assets and opportunities for capital growth through refurbishment and redevelopments. While the significant capital expenditure we have deployed across a number of different properties has not yet fully resulted in a corresponding uplift in property valuations, due to the natural time lag between completing capital works and letting the refurbished & redeveloped space, I firmly believe this investment will support our future growth. In the six and a half years since listing in October 2013 we have produced a total accounting return of 112.6%, outperforming most of the peer group.

"We continue to abide by a disciplined acquisition policy, and we believe there will be opportunities to deploy capital in the latter part of the year. Palace Capital is well positioned for the future, with a defensive core-income portfolio let on low, sustainable rents and with a number of value enhancing refurbishment and redevelopment opportunities."