Palace Capital Plc · LSE:PCA
Palace Capital — H1 2021 Earnings Presentation
38 slides from Palace Capital's earnings presentation, November 2020
Slide 1: Palace Capital Plc Interim Results
EXPERTS IN REGIONAL PROPERTY PALACE CAPITAL PLC INTERIM RESULTS HALF YEAR ENDED 30 SEPTEMBER 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 N
Slide 3: Regional returns outperforming London
INVESTMENT CASE Regional returns outperforming London ⚫ Palace portfolio established over the past 10 years focused in London vs. regional UK office (% p.a. total property returns) growth regional towns and cities ⚫ Regional office returns have exceeded those generated by London 14.0 every year sinc
Slide 4: Top 20 Tenant Rent Collection
TENANT PROFILE 96% rent collection Top 20 Tenant Rent Collection from Top 20 Tenants in Reliability of income: Top 20 Tenants - 44% of passing rents Q1 & Q2 and 100% in Q3* Contracted Contracted Q1 rent Q2 rent Q3 rent Q1 rent Q2 rent Q3 rent Tenant Industry Rent pa Tenant Industry Rent pa collectio
Slide 5: Highlights
INTRODUCTION Highlights Strong rent collection despite Covid-19 RETURNS FOR SHAREHOLDERS ⚫ Rent collection has been strong - over 90% since lock-down ⚫ Dividends recommenced in August and Q2 dividend of 2.5p per share payable in December 2020 7 Year Total Accounting Return vs peers (EPRA NTA growth
Slide 6: Covid-19 Response
ECONOMY Covid-19 Response Priority focus on rent collection ⚫ Closer relationships with our tenants as we work with them to support their businesses through this crisis ⚫ Prudent liquidity management – sufficient cash and debt available during this time to manage through the pandemic ⚫ Working capit
Slide 7: Liquidity & Rent Collection
RENT COLLECTION Liquidity & Rent Collection Positive performance March Quarter* June Quarter* September Quarter* 4% 6% 5% LIQUIDITY AT 30 SEPTEMBER 13% 2020 Cash & immediately available £26.3m facilities Capital commitments (£9.9m) Net liquidity £16.4m Annualised interest & overheads £7.0m Interest
Slide 8: Financial Performance
H1 21: FINANCIAL REVIEW Financial Performance Half year ended 30 September 2020 H1 21 H1 20 Change H1 21 FY20 H1 20 INCOME STATEMENT BALANCE SHEET Rental income £8.2m £8.8m -6.8% Portfolio value £281.6m £277.8m £275.8m IFRS (loss)/profit (£7.2m) £2.6m Cash £14.3m £14.9m £14.0m EPRA earnings £3.2m £6
Slide 9: Profit reconciliation & Dividend track record
H1 21: FINANCIAL REVIEW Profit reconciliation & Dividend track record Half year ended 30 September 2020 H1 21 H1 20 (£’m) (£’m) H1 16 H1 17 H1 18 H1 19 H1 20 H1 21 INCOME STATEMENT DIVIDENDS Adjusted profit after tax 3.4 3.9 Adjusted EPS 10.8p 10.8p 12.8p 8.0p 8.5p 7.3p Surrender premium & fair DPS
Slide 10: Property revaluation movement
H1 21: FINANCIAL REVIEW Property revaluation movement Covid-19 negative impact on half year valuations Like-for-like valuations: - 3.5% (vs. MSCI benchmark of -3.7%) (£12.0m) £1.5m (£2.7m) (£10.0m) £0.8m (£0.3m) (£8.0m) (£3.2m) (£6.0m) (£10.0m) (£4.0m) (£6.1m) (£2.0m) (£0.0m) Office Leisure Retail/r
Slide 11: Net Tangible Asset bridging chart
H1 21: FINANCIAL REVIEW Net Tangible Asset bridging chart EPRA NTA per share movements in the year 380p 375p 0.6 370p 7.3 365p (21.8) 360p 355p 364.4 350p (2.5) 0.2 345p (0.9) (0.4) 346.9 340p EPRA NTA 31 Adjusted earnings Sale of non-core Property Cash dividends Derivative costs Equity investments
Slide 12: £151.9m debt facilities
H1 21: FINANCIAL REVIEW LTV: 42% (FY20: 38%) £151.9m debt facilities Average Cost of Debt: Interest Cover: 2.9% (FY20: 3.1%) 2.8x (FY20: 3.8x) Strong relationship with lenders Hedging: 51% (FY20: 56%) Debt Debt Debt Lender Facility Drawn Hedging Debt maturity (£m) Maturity (£m) (£m) 80.0 Barclays 40
Slide 13: Management of Financial Covenants
H1 21: FINANCIAL REVIEW Management of Financial Covenants Dealing with the Covid impact ⚫ Letting activity across the portfolio has slowed due to Covid coupled with some tenant breaks/expiries resulting in occupancy falling from 87.3% to 84.9% in the period. ⚫ Leisure values have been under pressure
Slide 14: Property Portfolio - Overview
PROPERTY REVIEW Property Portfolio - Overview As at 30 September 2020 H1 21 FY20 Total Property Return performance against MSCI benchmark by Sector for H1 21 Portfolio value (£m) £281.6m £277.8m 10.0% Net initial yield (%) 5.9% 6.0% Palace Capital MSCI Benchmark Reversionary yield (%) 7.3% 6.6% 5.0%
Slide 15: Asset Management
PROPERTY REVIEW Asset Management Letting activity in the year +12% £800,000 ⚫ 13 lease events in the year providing Adding value £700,000 additional income of £0.3m pa £600,000 to our ⚫ 3 new leases: 5% ahead of ERV providing £500,000 additional income of £0.2m pa portfolio +8% £400,000 £300,000 thr
Slide 16: Sustainable rents across sectors
PROPERTY REVIEW Sustainable rents across sectors Rent vs ERV (psf) £20.00 ⚫ Rental levels are at low, £15.64 £16.22 £14.11 £16.26 £16.46 sustainable levels across the £15.00 £11.06 £10.14 portfolio £10.00 £8.73 £6.20 £6.85 ⚫ Majority of reversion can be £5.00 captured through letting vacant £- offic
Slide 17: Current Rent Roll to ERV Bridge
PROPERTY REVIEW Current Rent Roll to ERV Bridge +25% potential uplift £21.0m £0.9m £0.3m (£0.5m) £0.4m £20.0m £1.2m £19.0m £18.0m £21.1m £1.9m £20.2m £17.0m £16.0m £16.9m £15.0m Contracted Rent Vacant - can be let Vacant with Space let in Lease renewals Over rented ERV at 30 Under Total potential 30
Slide 18: How we deliver value: Hudson Quarter Development
PROPERTY REVIEW How we deliver value: Hudson Quarter Development November 2020 ⚫ 127 apartments, 39,500 sq ft of offices and car parking ⚫ £69m GDV delivering a projected £20m cash on cash return ⚫ Remaining construction fully funded by Barclays ⚫ 8 further apartments sold since 1st April so total o
Slide 19: Opportunistic Development
PROPERTY REVIEW Opportunistic Development Pipeline to generate capital growth Estimated Description and Status build cost Timing High Street, 7 Residential Units. Planning permission granted subject to S106 £2m Possible 2021 start or sell with planning Uxbridge Milbarn Medical, Mixed use development
Slide 20: Cash on cash returns
PROPERTY REVIEW Cash on cash returns How our regional portfolio is delivering total returns Status Performance Total Return Hudson ▪ Acquired in 2013 for £3.8m ▪ New development of 127 apartments ▪ Forecast cash on cash return: 47%* Quarter, ▪ 103,000 sq ft office building adjoining York station ▪ 3
Slide 21: Refurbishment & Repositioning: Sol Northampton
PROPERTY REVIEW Refurbishment & Repositioning: Sol Northampton ⚫ 90% let following letting to Gravity Fitness who opened this year ⚫ Leisure sector hardest hit by Government lock-down so critical to support our tenants. ⚫ Accor lease extended to 2032 post Covid-19 in return for 6 month rent free fro
Slide 22: Looking to 2021
LOOKING FORWARD Looking to 2021 Recycling capital to take advantage of market opportunities ⚫ Disposal strategy currently in progress – book value of £8.3m currently marketed with further properties earmarked in the next 6 months Residential Unit – living room CGI, HQ York ⚫ Residential sales at HQ
Slide 23: Confident outlook for regional strategy
CONCLUSION Confident outlook for regional strategy Income and capital growth ⚫ Rent collection has been strong - over 90% since Covid lock-down ⚫ We hold the right properties in the right locations focused in the right sectors with reliable tenants Regional ⚫ +25% income reversion within portfolio:
Slide 24: Appendices
EXPERTS IN REGIONAL PROPERTY APPENDICES
Slide 25: Our story so far
Our story so far 31-03-2013 30-09-2020 November 2010 Management taking Board control of the Company valued Net asset value £0.6m £158.4m at £0.1m with a vision to invest in regional property Property portfolio £2.0m £281.6m October 2011 Hockenhull Estates portfolio acquired for £1.8m consisting of n
Slide 26: Regional portfolio
APPENDICES Regional portfolio Focused on office & industrial growth sectors ⚫ Balanced portfolio of 52 properties ⚫ Diversified granular income 191 tenants in the portfolio Top 20 tenants represent 44% of portfolio WAULT to break of 4.9 years ⚫ Low risk & defensive characteristics ⚫ Located close to
Slide 27: 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 28: Financial track record
APPENDICES Financial track record BALANCE SHEET FY16 FY17 FY18 FY19 FY20 H1 21 Property portfolio £173.4m £183.2m £276.7m £286.3m £277.8m £281.6m IFRS net assets £106.8m £109.6m £183.3m £180.3m £166.3m £158.4m EPRA NTA per share 414p 443p 415p 407p 364p 347p Group LTV 37% 37% 30% 34% 38% 42% INCOME
Slide 29: Strong track record of Value Creation
APPENDICES Strong track record of Value Creation Income and Capital Return Total Property Return Vs MSCI Benchmark Dividend Pay-Out £40m 12.0% Continuing to £35m 10.0% outperform the £30m 8.0% MSCI benchmark 6.0% £25m for the last 3.5 4.0% £20m years 2.0% £15m 0.0% £10m -2.0% £5m £36m of dividends -
Slide 30: Covid-19 impact on TSR and share price
APPENDICES Covid-19 impact on TSR and share price Total Shareholder Return Palace Capital discount to NAV vs REIT sector Covid-19 average discount to NAV since 2015 impact 500p 10% 450p 0% 400p 350p -10% 300p -20% 250p -30% 200p 150p -40% 100p -50% 50p 0p -60% Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 Nov-
Slide 31: Debt Covenants
APPENDIX ICR covenants range 225% -250% Debt Covenants LTV covenants range 57.5% -62.0% All covenants compliant ⚫ Investment portfolio is highly cash generative BANK COVENANT TARGET and even assuming worst case on lease expiries Historical interest cover 250% and breaks still show sufficient net ren
Slide 32: Sector splits
APPENDICES Sector splits Regional Office and Industrial focus Market value % of Portfolio WAULT No. No. Contractual rental Total ERV 30 September by market Area (sq ft) ERV (£)* to break properties leases income p.a. (£) of void (£) 2020 (£) value (yrs) Offices 122,250,000 43.4% 27 117 698,946 8,459
Slide 33: Top assets by value
APPENDICES Top 10 assets by value 60% 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 2 & 3 St James Gate, Newcastle Offices 99,125 1,244,007 8.80% 3.8 Broad Street
Slide 34: 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 30 September 31 March (£) % NIY ⚫ Industrial valuations held up 2020 (£) 2020 (£) % well
Slide 35: EPRA Occupancy
APPENDICES EPRA Occupancy Significant asset management in progress 95.0% 90.0% 85.0% (12.0%) 6.2% 80.0% 0.6% 0.3% (6.2%) 1.7% 87.3% 2.0% 75.0% 84.9% (0.8%) (0.4%) 70.0% 65.0% EPRA At risk through Additional Changes in ERV Lease renewals Breaks not New leases Disposals Current on-going EPRA Occupancy
Slide 36: 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 37: 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 38: mi noon
mi noon oon jelole! aaa PALACE CAPITAL plc