Slide 1: Palace Capital Plc Annual Results, Year Ended 31 March 2020
EXPERTS IN REGIONAL PROPERTY PALACE CAPITAL PLC ANNUAL RESULTS YEAR ENDED 31 MARCH 2020
Slide 2: Experts in regional property investment
EXPERTS IN REGIONAL PROPERTY Palace Capital are experts in regional property investment. Focused on unlocking value to deliver attractive total returns. INTRODUCTION | FINANCIAL REVIEW | PROPERTY REVIEW | LOOKING FORWARD | CONCLUSION | APPENDICES Page 1 | Palace Capital plc | Investor Presentation J
Slide 3: Regional returns outperforming London
INVESTMENT CASE Regional returns outperforming London London vs. regional UK office ⚫ Regional office returns have exceeded those generated by (% p.a. total property returns) London every year since 2016 14.0 ⚫ Regional offices (almost 50% of our portfolio) provide one 12.0 of the strongest, risk-ad
Slide 4: Highlights
INTRODUCTION Highlights Focus on regional office and industrial sectors driving RETURNS FOR SHAREHOLDERS continued total property return outperformance ⚫ Total property return of 1.1%, outperforming the MSCI benchmark of -0.5% and marking three successive years of outperformance 6 .5 Years Total Acc
Slide 5: COVID-19
ECONOMY COVID-19 Priority focus on health and wellbeing of all stakeholders Rapid response to protect the long-term value of the Group: ⚫ Liquidity – Cash and available facilities of £42.7m as at 30 June 2020 ⚫ Working capital - Q3 interim dividend cancelled, all non-essential capex paused ⚫ Active
Slide 6: Liquidity & Rent Collection
RENT COLLECTION Liquidity & Rent Collection March and June 2020 Quarters March 2020 Rent Collection June 2020 Rent Collection 7% 16% LIQUIDITY AT 30 JUNE 2020 Cash & available facilities £42.7m Capital commitments (£15.8m) Net liquidity £26.9m Annualised interest & overheads £7.0m Interest & overhea
Slide 7: Financial Performance
FY20: FINANCIAL REVIEW Converted to a REIT on 1 August 2019 • Part of total return strategy Financial Performance • Eliminate tax on rental profits, saving £0.7m • Maximise dividends Year ended 31 March 2020 • Expected to broaden shareholder base & increase liquidity in shares FY20 FY19 Change FY20
Slide 8: Profit reconciliation & Dividend track record
FY20: FINANCIAL REVIEW Profit reconciliation & Dividend track record Year ended 31 March 2020 FY20 FY19 (£’m) (£’m) FY16 FY17 FY18 FY19 FY20 INCOME STATEMENT DIVIDENDS Adjusted profit after tax 8.0 7.9 Adjusted EPS 18.9p 22.2p 21.2p 17.3p 17.5p Surrender premium & fair DPS 16.0p 18.5p 19.0p 19.0p 12
Slide 9: NAV bridging chart
FY20: FINANCIAL REVIEW NAV bridging chart EPRA NAV per share movements in the year 440p 430p 6.2 420p 17.5 (38.9) 410p 400p 390p (19.0) 380p 406.9 370p (3.5) (1.8) (1.0) (2.0) 360p 364.4 350p EPRA NAV 31 Adjusted Priory House Property Cash dividends Tax on resi Debt termination Equity Other EPRA NAV
Slide 10: £153.7m debt facilities
FY20: FINANCIAL REVIEW LTV: 38% (FY19: 34%) £153.7m debt facilities Average Cost of Debt: Interest Cover: 3.1% (FY19: 3.3%) 3.8x (FY19: 4.5x) Strong relationship with lenders Hedging: 56% (FY19: 59%) Debt Debt Debt Lender Facility Drawn Hedging Debt maturity (£m) Maturity (£m) (£m) 70.0 Barclays 40.
Slide 11: Debt Covenants
FY20: FINANCIAL REVIEW ICR covenants range 225% -250% Debt Covenants LTV covenants range 57.5% -62.0% £20.5m cash available at 30 June 2020 ⚫ Investment portfolio is highly cash generative - BANK COVENANT TARGET rental income would have to fall by over 40% on Historical interest cover 250% average f
Slide 12: Dividend Policy
FY20: FINANCIAL REVIEW Dividend Policy Providing a sustainable dividend level • A final dividend of 2.5p has been proposed (approx. 50% reduction to pre-Covid level of 4.75p per quarter) 25.0p • Total dividends for the year of 12.0p (Q3 interim dividend was cancelled in light of Covid-19) 20.0p Futu
Slide 13: Property Portfolio - Overview
PROPERTY REVIEW Property Portfolio - Overview As at 31 March 2020 FY20 FY19 Total Property Return performance against MSCI benchmark by Sector Portfolio value (£m) £277.8m £286.3m 25.0% Net initial yield (%) 6.0% 5.7% 20.0% Reversionary yield (%) 6.6% 7.0% 15.0% Contractual rental income (£m) £17.6m
Slide 14: Asset Management
PROPERTY REVIEW Asset Management Strong letting activity in the year £2,500,000 ⚫ 47 lease events in the year providing Adding value +9% additional income of £1.8m pa £2,000,000 to our ⚫ 22 new leases: 9% ahead of ERV providing £1,500,000 +6% +2% additional income of £1.2m pa portfolio £1,000,000 th
Slide 15: Sustainable rents across sectors
PROPERTY REVIEW Sustainable rents across sectors Rent vs ERV (psf) £20.00 ⚫ Rental levels are at low, £14.97 £16.11 £14.81 £15.57 £13.71 sustainable levels across the £15.00 £10.85 £12.26 portfolio £9.36 £10.00 £6.30 £6.92 ⚫ Majority of reversion can be £5.00 captured through letting vacant £- offic
Slide 16: How we deliver value: Hudson Quarter Development
PROPERTY REVIEW How we deliver value: Hudson Quarter Development ⚫ 127 apartments, 39,500 sq ft of offices and car parking June 2020 ⚫ Acquired for £3.8m in 2013, valued at £16m in Sep 17 when planning permission was granted ⚫ £69m GDV, +£10m further surplus forecast, delivering > £20m cash on cash
Slide 17: Opportunistic Development
PROPERTY REVIEW Opportunistic Development Pipeline to generate capital growth Estimated Description and Status build cost Timing High Street, 28 Residential Units. Planning consent achieved £7m Possible 2021 start Weybridge High Street, 7 Residential Units. Planning permission granted subject to S10
Slide 18: Alternative Use: Commercial to Mixed use
PROPERTY REVIEW Alternative Use: Commercial → Mixed use ⚫ Full evaluation undertaken to maximise shareholder value in wealthy Surrey commuter town ⚫ Planning consent granted in July 2019 for a development of 28 apartments and 4,000 sq ft of retail space ⚫ The apartments are a mix of 1 & 2 bedrooms,
Slide 19: Refurbishment
PROPERTY REVIEW Refurbishment: Before ⚫ Purchased in August 2017 for £20.0m ⚫ Average rents of £17.80 psf at purchase, Headline rentals now over £21 psf following refurbishment even after Covid-19 ⚫ Extensive refurbishment on reception, and the vacant 3rd and 7th floor ⚫ Refurbished units expected t
Slide 20: Optimising Occupancy
PROPERTY REVIEW Optimising Occupancy: ⚫ Acquired in December 2019 for £14.0m reflecting a 6.75% NIY ⚫ Average rents of £12 psf at purchase, Headline rentals now at £17.0 psf with further growth expected ⚫ Fully occupied with a WAULT of 3.1 years to break ⚫ Broader trend of occupiers relocating from
Slide 21: Repositioning
PROPERTY REVIEW Repositioning: ⚫ 90% let following new letting to Gravity Fitness (21,000 sq ft being marketed) ⚫ £141,000 per annum added to the annual rent roll, reflecting an 8% uplift on previous net passing rent ⚫ Mall refurbishment plans currently on hold ⚫ Accor lease extended to 2032 post Co
Slide 22: Value creation
LOOKING FORWARD Value creation Future upside within the next 2 years Status Historic Performance Future Potential Timing Hudson Quarter, Construction of new development of 127 Acquired in 2013 for £3.8m. GDV £69m Forecast to complete in York apartments, 39,500 sq ft of offices and car Uplift in valu
Slide 23: Disposal Strategy
LOOKING FORWARD Disposal Strategy Recycling capital to improve returns ⚫ Assets with limited growth prospects ⚫ Assets with lower than average forecast total return ⚫ Assets where we can realise profit to reinvest ⚫ Assets which are likely to be harder to let if they Queensway Shopping Centre, Banbu
Slide 24: Current Rent Roll to ERV Bridge
LOOKING FORWARD Current Rent Roll to ERV Bridge +23% potential uplift £22.0m £21.0m £1.0m £0.1m £0.1m £0.3m £20.0m £0.7m £19.0m £1.8m £21.6m £18.0m £20.6m £17.0m £17.6m £16.0m £15.0m Contracted Rent Vacant - can be let Vacant with Lease renewals Space let in Rent reviews ERV at 31 March Under Total
Slide 25: Beyond HQ York
LOOKING FORWARD Beyond HQ York Disposal of HQ York residential in 2021 will release +£50m for earnings enhancing acquisitions Aspirational growth shown below assuming a 7% yield leveraged at 50% with a 3% cost of debt Portfolio Growth £277.8m* → £300m +8% Rental Income £17.6m* → £22m +25% Earnings p
Slide 26: Confident outlook for regional strategy
CONCLUSION Confident outlook for regional strategy Income and capital growth ⚫ Rent collection holding up in response to Covid-19 lock-down ⚫ We hold the right assets in the right locations focused in the right sectors with value-add potential Regional ⚫ +23% income reversion within portfolio: exper
Slide 27: Appendices
EXPERTS IN REGIONAL PROPERTY APPENDICES
Slide 28: Our story so far
Our story so far 31-03-2013 31-03-2020 July 2010 Management taking Board control of the Company valued Net asset value £0.6m £166.3m at £0.1m with a vision to invest in regional property Property portfolio £2.0m £277.8m October 2011 Hockenhull Estates portfolio acquired for £1.8m consisting Contract
Slide 29: Regional portfolio
APPENDICES Regional portfolio Focused on office & industrial growth sectors ⚫ Balanced portfolio of 53 properties ⚫ Diversified granular income 204 tenants in the portfolio Top 20 tenants represent 42% of portfolio WAULT to break of 4.8 years The reversionary income yield of 6.6% ⚫ Low risk & defens
Slide 30: Positive impact of urbanisation and increased connectivity
Positive impact of urbanisation and increased connectivity ST JAMES’ GATE, NEWCASTLE NEWCASTLE The Northern Powerhouse is a prime example of a growth hub, 101 miles HUDSON QUARTER, YORK where investment in road and rail 81 minutes 24 miles connectivity is expected to BOULTON HOUSE, MANCHESTER 22 min
Slide 31: 'Boris Bounce' and 'levelling up' positive for the Regions
APPENDICES ‘Boris Bounce’ and ‘levelling up’ positive for the Regions Palace Capital well positioned to capitalise on regional growth ⚫ ‘Government confirmed ‘notice to proceed’ on High Speed 2’ (15th April 2020) ⚫ ‘Goldman Sachs appoints JLL for move to regions’ – Estates Gazette (22nd January 2020
Slide 32: Top 20 Tenant Rent Collection
APPENDICES 96% rent collection Top 20 Tenant Rent Collection from Top 20 Tenants Reliability of income: Top 20 Tenants - 42% passing rent in Q1 & 96% in Q2 to 6 July 2020 Contracted Rent Q1 rent Q2 rent Contracted Rent Q1 rent Q2 rent Tenant Industry pa (£’000) collection* collection* Tenant Industr
Slide 33: Hudson Quarter Timeline
Hudson Quarter Timeline 2 0 2 1 C o m p l e t i o Feb 2016 Aug 2017 n 2021 s Sep 2013 Planning Planning Dec 2018 Feb 2019 2020 Acquired as part of permission permission for Demolition Funding secured Construction on- Completion c scheduled for h Quintain portfolio granted for development completed f
Slide 34: Financial track record
APPENDICES Financial track record Solid growth of the portfolio driving earnings BALANCE SHEET FY16 FY17 FY18 FY19 FY20 Property portfolio £173.4m £183.2m £276.7m £286.3m £277.8m IFRS net assets £106.8m £109.6m £183.3m £180.3m £166.3m EPRA NAV per share 414p 443p 415p 407p 364p Group LTV 37% 37% 30%
Slide 35: Cumulative dividends paid
APPENDICES Strong track record of Value Creation Income and Capital Return Total Property Return Vs MSCI Benchmark Rental Growth and Dividend Pay-Out £25m £40m 12.0% £35m Continuing to outperform the Cumulative dividends paid 10.0% Rental and other income £20m £30m 8.0% MSCI benchmark £25m 6.0% £15m
Slide 36: Strong track record of Value Creation: Shareholder Return
APPENDICES Strong track record of Value Creation Shareholder Return Total Shareholder Return Covid-19 Palace Capital discount to NAV vs REIT sector impact average discount to NAV since 2015 500p 10% 450p 0% 400p 350p -10% 300p -20% 250p 200p -30% 150p -40% 100p 50p -50% 0p -60% 2013 2014 2015 2016 2
Slide 37: Sector splits
APPENDICES Sector splits Regional Office and Industrial focus Market value % of Portfolio WAULT No. No. Contractual rental Total ERV 31 March 2020 by market Area (sq ft) ERV (£)* to break properties leases income p.a. (£) of void (£) (£) value (yrs) Offices 128,495,000 46.3% 28 120 778,218 8,753,633
Slide 38: Top 10 assets by value
APPENDICES Top 10 assets by value 57% of total portfolio Area Gross rental Reversionary WAULT to Property Name Sector (sq ft) income p.a. (£) yield* break (yrs) Hudson Quarter, York development Development n/a n/a n/a n/a Broad Street Plaza, Halifax Leisure 117,767 1,765,882 7.19% 11.4 2 & 3 St Jame
Slide 39: Valuations
APPENDICES Valuations Covid impact –downward pressure BUT defensive characteristics of portfolio focused on regional office and industrial sectors EPRA Market value Market value Gain/(loss) Gain/(loss) topped-up 31 March 2020 31 March 2019 (£) % NIY ⚫ Core sectors office & (£) (£) % industrial valua
Slide 40: Property revaluation movement
APPENDICES Property revaluation movement Covid-19 significant impact on year-end valuations (£18.0m) (£1.5m) (£16.0m) (£2.4m) (£14.0m) (£2.5m) (£12.0m) (£10.0m) (£2.6m) (£17.9m) (£8.0m) £6.2m Revaluation Timing – (£3.8m) (£6.0m) expected to reverse as developments completed (£4.0m) & refurbished spa
Slide 41: EPRA Occupancy
APPENDICES EPRA Occupancy Maintaining occupancy through active asset management 95.0% 90.0% 0.5% 0.5% (0.2%) 85.0% 4.5% 80.0% (12.5%) 7.6% 86.9% 87.3% 75.0% 70.0% 65.0% EPRA Occupancy at At risk through Renewals/breaks not New leases Development Disposals Changes in ERV EPRA Occupancy at 31 March 20
Slide 42: Biographies
Biographies NEIL SINCLAIR STEPHEN SILVESTER RICHARD STARR STANLEY DAVIS Chief Executive Finance Director Executive Property Director Chairman Chartered Surveyor FRICS Chartered Accountant FCA Chartered Surveyor MRICS Stanley is a successful Neil co-founded Palace Stephen joined Palace Capital in Ric
Slide 43: Disclaimer
Disclaimer The information in this presentation may include forward-looking statements, which are based on current expectations and projections about future events. These forward looking statements reflect the Directors’ beliefs and expectations and are subject to risks, uncertainties and assumption
Slide 44: mi noon
mi noon oon jelole! aaa PALACE CAPITAL plc