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Palace Capital Plc - Half-Year Report November 2019

 

PALACE CAPITAL PLC

("Palace Capital" or the "Company")

Interim Results for the 6 months ended 30 September 2019

CAPITAL EXPENDITURE STRATEGY AND INCREASED LETTING ACTIVITY UNDERPIN CONTINUED POSITIVE PERFORMANCE

Palace Capital (LSE: PCA), the UK REIT that has a diversified portfolio of UK regional commercial real estate in carefully selected locations outside of London, is pleased to announce its unaudited results for the six months ended 30 September 2019.

HIGHLIGHTS

Continued total property return outperformance

  • Total property return of 1.5% over the period, outperforming the MSCI UK  Quarterly Benchmark of 0.8% and marking three successive years of outperformance
  • EPRA earnings increased to £6.7 million (September 2018: £3.5 million) reflecting underlying strength of investment portfolio
  • EPRA EPS of 14.5p, 153% cover of 9.5p dividend for the six-month period
  • Q2 dividend of 4.75p declared and payable in December 2019
  • IFRS net assets of £178.7 million maintained (March 2019: £180.3 million)
  • EPRA NAV per share 391p reduced by 3.9% (March 2019: 407p)
  • Conservative gearing maintained at 34% LTV and weighted average interest rate reduced from 3.3% to 3.2%
  • WAULT increased to 5.2 years to break and 6.6 years to expiry (31 March 2019: 4.5 years to break) as a result of lease renewals and new lettings
  • Converted to REIT status with effect from 1 August 2019
  • Increased revolving credit facility with NatWest to £40 million and extended for a further five years at a lower margin

Active asset management delivering long term portfolio enhancement

  • Hudson Quarter flagship development scheme in York, which includes 127 apartments with over 20% already sold or under offer, on track for completion in January 2021
  • 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
  • £13.2 million of disposals during the period, including remaining non-core residential units from Warren Portfolio
  • Overall EPRA occupancy at 84% reducing temporarily as we continue to focus on strategic refurbishment or redevelopment delivering long term benefits 

Positive leasing momentum driving income

  • 12 lease renewals and five rent reviews completed at an average 3% above ERV and a 25% uplift on previous passing rents, creating £0.4 million additional annual rental income
  • Nine new leases provided an additional £0.5 million of annual income, including:
  • 23,500 sq ft at Sol, Northampton to Gravity Fitness for a minimum term of 10 years at a 17% premium to ERV
  • 14,665 sq ft of space let at Boulton House, Manchester, bringing the asset to 82% occupancy with 13,170 sq ft remaining to be let
  • Lease surrender with Forensic Science Service at Priory House, Birmingham secured £2.85 million, being all the remaining rent due under the lease, and discussions underway to dispose of remaining short leasehold interest
  • Adjoining site to the 28,000 sq ft holding at 24 Blackwater Way, Aldershot acquired for £0.2 million and a new 10-year lease agreed with BHW Automotive Limited for the entire property at a rent of £227,000 per annum exclusive, an increase of £10,000 per annum. The lease benefits from a fixed increase after five years to £250,254 per annum and the latest valuation of the property shows a 51% capital value uplift as a resul 

Balance Sheet

30 Sept 2019

31 March 2019

Property valuation

£275.8m

£286.3m

Net assets

£178.7m

£180.3m

EPRA NAV per share

391p

407p

 

Income Statement

Six months to
30 Sept 2019

Six months to
30 Sept 2018

Profit after tax

£2.6m

£7.3m

EPRA earnings

£6.7m

£3.5m

Earnings per share

5.6p

15.9p

EPRA earnings per share

14.5p

7.7p

Adjusted earnings per share

8.5p

8.0p

Total accounting return

-1.5%

3.7%

Total shareholder return

0.2%

-3.8%

Total dividend per share

9.5p

9.5p

Dividend cover*

90%

84%

*Dividend cover is calculated on the adjusted earnings per share which is a recurring earnings basis and specifically excludes the one-off significant surrender premium of £2.85m received in the current period.

Neil Sinclair, Chief Executive of Palace Capital said:

"During the period we have stepped up our development activity, a strategy we believe is best placed to increase shareholder value in the long term by creating an even stronger portfolio that can meet the demand we are seeing outside of London for well located, fit for purpose property that delivers higher quality income and capital growth. Our commitment to a total return strategy is now starting to pay off, both in terms of income and capital growth, and should enable us to maintain our positive performance.

"At the end of June, we placed 20 apartments at Hudson Quarter, York, on the market and demand has been such that we have now sold 21 with a further 7 under offer. We are well ahead of our business plan at Hudson Quarter and with letting activity brisk on our other refurbishments, we are most encouraged despite the current political uncertainty."

Stanley Davis, Chairman of Palace Capital said:

"Our strategy at Palace Capital is delivering growth, both in terms of income and long-term capital value, and I am very pleased that we have now outperformed the MSCI IPD Quarterly Benchmark for three consecutive years. 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 time lag between completing capital works and letting the refurbished space, and therefore has had a slight impact on our NAV, I firmly believe this investment will support our future growth. In the six years since our re-admission in October 2013 we have produced a total accounting return of 123%, outperforming almost the entire peer group.

"We continue to abide by a disciplined acquisition policy and, having not assessed a suitable opportunity in the period that meets our strict criteria, we believe that the best use of capital to deliver value for our shareholders in the current market is to unlock the growth potential in our existing portfolio. The Board is confident Palace Capital is well positioned for the future, with a strong core income profile and a number of value-enhancing refurbishment and redevelopment opportunities."