Palace Capital (LSE: PCA), the Main Market listed UK REIT that has a diversified portfolio of UK commercial real estate in carefully selected locations outside of London, is pleased to announce its annual results for the year ended 31 March 2021.
Resilience and continued portfolio activity despite Covid-19 pandemic disruption
· 95% of rents due collected during the year, with significant support provided where required to tenants, totalling £1.1m of rent concessions and deferrals. Strong balance sheet with cash reserves and immediately available facilities of £14.4 million.
· £30m disposal programme well underway with £9.4m worth of assets either exchanged or completed since year end, all at a premium to book value. Proceeds to be recycled in accordance with our strict acquisition criteria.
· Flagship development at Hudson Quarter, York completed on budget on 20 April. Over 39% of 127 apartments sold or under offer to date to the value of £14.9m and 4,781 sq ft of office space let at record rent with strong demand for the remaining space.
· 20% increase to proposed final quarter dividend, rising to 3.0p and bringing total dividends paid for the year to 10.5p. Dividend cash-covered, at a sustainable level, with 3.0p expected to be the minimum level of dividend to be paid each quarter for the year ending 31 March 2022.
Financial highlights
· Total Property Return of 1.0% compared to the MSCI UK Quarterly Benchmark of 1.2%, with 4% outperformance over a three-year period.
· 38.5% Total Shareholder Return, reflecting resilient portfolio performance and strong share price recovery following the initial 'Covid impact' in March 2020.
· Portfolio valuation increased to £282.8m (2020: 277.8m), albeit down 4% on a like-for-like basis, largely due to increased vacancy and the impact of Covid-19 on our independent property valuations in the year.
· EPRA earnings for the year were £7.2m resulting in EPRA earnings per share of 15.7p (2020: 23.4p).
· Adjusted profit before tax of £7.5m (2020: £8.0m), with provision made for £0.9m against potential rent and service charge arrears, some of which we expect to recover as restrictions continue to ease.
· IFRS loss before tax of £5.5m (2020: £5.4m loss), largely as a result of the unrealised decline in portfolio fair value of £14.0m.
· IFRS NAV was reduced by 5.1% to £157.8m (2020: £166.3m), reflecting the decline in portfolio fair value and equating to a decrease in net asset value per share to 343p (2020: 361p).
· EPRA NTA per share of 350p (2020: 364p) but an increase on September 2020 (347p), reflecting recovery in the second half of the year.
· LTV remains conservative at 42% (2020: 38%) and weighted average finance costs reduced from 3.1% to 3.0%.
Operational Highlights
· Completed disposal of five non-core assets during the financial year for £5.4m at a blended 23% premium to book value.
· 31 lease events completed in the year at an average 14% premium to ERV, including 14 new lettings, delivering £0.9m of additional annual income.
· Despite the impact of lockdowns on the leisure sector, the Group has delivered three new lettings across the two leisure assets at Halifax and Northampton, as well as one since 31 March 2021, increasing passing rents and EPRA occupancy levels above 90% at both schemes.
· 22,000 sq ft of office space let at Bank House, King Street, Leeds since December 2020.
· WAULT stable at 4.8 years to break and 6.4 years to expiry (31 March 2020: 4.8 years to break and 6.5 years to expiry) as a result of lease renewals and new lettings.
· Overall EPRA occupancy of 86.4% (2020: 87.3%), with majority of remaining vacancy having been recently refurbished or identified for strategic refurbishment or redevelopment.
· Increased prioritisation of ESG initiatives and incorporated energy efficiency measures into our capital expenditure projects.
· No employees were furloughed or made redundant, and the health and wellbeing of our people remained a priority during the year.
Neil Sinclair, Chief Executive of Palace Capital said: “In what has been one of the most challenging years in my career, we have weathered the storm and the signs are positive for the future of the Group. Despite our financial year coinciding entirely with the pandemic, we have seen good activity across the portfolio with strong rent collection, the completion of Hudson Quarter and positive lettings activity despite government restrictions. As a result, we are in fine shape and, with the positive progress being made in our disposals programme, are well positioned to recycle our capital into attractively priced, accretive investment opportunities, which we believe will emerge in the coming months. This has given us the required confidence to increase the quarterly dividend by 20% to 3.0p.
“The UK's regions are enjoying the benefit of increased investment from government and business, with many organisations choosing to take space outside of London, as we've seen in recent months. Alongside the predicted economic recovery, we therefore feel cautiously optimistic about the future and look forward to deploying our entrepreneurial spirit and refocusing again on growth.”
Stanley Davis, Chairman of Palace Capital said: “Collectively, the Palace Capital team, who deserve great credit for navigating the Company through the challenges of the last year, has a long and established track record in the real estate sector, with deep-seated relationships and an unparalleled understanding of the dynamics of the UK commercial property market throughout multiple cycles. This puts us in a real position of strength as we move into the next phase of the current cycle and investment opportunities, which we are actively tracking, arise. We will continue to adopt our highly disciplined investment approach and will only acquire strategically located properties that have the potential to deliver attractive total returns in line with our objectives.”