Palace Capital Plc · LSE:PCA
Palace Capital — H1 2022 Earnings Presentation
37 slides from Palace Capital's earnings presentation, November 2021
Slide 1: Palace Capital Plc Interim Results
EXPERTS IN REGIONAL PROPERTY PALACE CAPITAL PLC INTERIM RESULTS HALF YEAR ENDED 30 SEPTEMBER 2021
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 in office and industrial sectors. Page 1 | Palace Capital plc | Investor Presentation November 2021 | palacecapitalplc.com
Slide 3: Corporate Focus: Overview
CORPORATE FOCUS Neil Sinclair Chief Executive OVERVIEW
Slide 4: Highlights
OVERVIEW Highlights Positive Hudson Quarter sales and strong rent collection ⚫ 64 apartments completed or exchanged at Hudson Quarter for a total of £21.0m with an additional 8 under offer to the value of £3.0m ⚫ £30m disposal programme on track with £12.0m worth of assets either exchanged or comple
Slide 5: Hudson Quarter
OVERVIEW Hudson Quarter Flagship development completed ⚫ 64 apartments completed or exchanged at Hudson Quarter for a total of £21.0m with an additional 8 under offer to the value of £3.0m, and 55 units remaining to be sold ⚫ Forecast geared IRR of 15% ⚫ £18.8m of the development loan repaid post ye
Slide 6: Disposals Strategy
OVERVIEW Disposals Strategy £30m strategic disposals programme on track ⚫ Sales already completed or exchanged to ⚫ 33 commercial buildings sold since 2013 the value of £12.0m to 30 September, 5% to H1 22: ahead of book value ⚫ £6.4m of equity ready for reinvestment ⚫ Total purchase prices: £43.2m ⚫
Slide 7: ESG Focus
OVERVIEW ESG FOCUS Playing our part in being a responsible business All G EPCs removed with only 2% of the portfolio now rated below E (March 2021: 7.45%) Future- proofing the Total of 25 EPC ratings improved since 31 March 2021 portfolio Improving oversight of Scope 3 emissions ESG committee in pla
Slide 8: Recovering share value for investors
OVERVIEW Recovering share value for investors Total accounting return of 5.2% with increased interim dividend to 3.25p 350p Share Price Performance since January 2020 Palace Capital discount to NAV vs REIT sector 20% 300p 250p 0% 200p -20% 150p -40% 100p 50p -60% Oct-15 Oct-16 Oct-17 Oct-18 Oct-19 O
Slide 9: H1 22: Financial Review
H1 22: FINANCIAL REVIEW Matthew Simpson Chief Financial Officer FINANCIAL REVIEW
Slide 10: Key Financial Highlights
H1 22: FINANCIAL REVIEW Strong first half of the year underpinned by the Key Financial Highlights resilience of our portfolio EPRA NTA NET LTV IFRS PROFIT INTERIM PER SHARE DIVIDEND 362p 36% £8.0m 3.25p +3.4% -6.0% +211.1% +8.3% FY21: 350p FY21: 42% H1 21: (£7.2m) Previous dividend: 3.0p ADJUSTED EP
Slide 11: Rent Collection
H1 22: FINANCIAL REVIEW Rent Collection Strong rent collection continued in new year • 90% rent collected for September 2021 quarter - 95% when the monthly payments for December are received • 100% of rents secured from top 20 tenants • Strong rent collection throughout the period with YTD collectio
Slide 12: Income Statement Review
H1 22: FINANCIAL REVIEW Income Statement Review Half year ended 30 September 2021 £8.5m £8.0m £0.4m (£0.2m) £7.5m IFRS profit increased to £7.0m £1.3m £8.0m, up £15.2m from £6.5m £7.2m prior period loss as a £6.0m result of: £5.5m £5.0m £2.8m £8.0m ⚫ £2.8m trading profit £4.5m ⚫ Like for like increa
Slide 13: EPRA NTA Movement per share
H1 22: FINANCIAL REVIEW EPRA NTA Movement per share EPRA NTA per share up 3.6% in the first half of the year 370p 0.8p 2.2p (5.5p) 2.7p 365p (2.4p) 6.1p 360p 355p 8.7p 362.2p 350p 345p 349.6p 340p EPRA NTA 31 March Adjusted earnings Trading profit Property revaluation Fair value adj. of Sale of non-
Slide 14: Capital Structure
H1 22: FINANCIAL REVIEW Capital Structure £123.1m debt facilities Debt Debt Debt Lender Facility Drawn Hedging Maturity (£m) (£m) Barclays 37.5 37.5 Jun-2024 £34.1m fixed • Net Debt: £93.2m (FY21: £118.9m) NatWest (RCF) 40.0 23.8 Aug-2024 100% floating • LTV: 36% (FY21: 42%) Santander 25.0 25.0 Aug-
Slide 15: Property Review
PROPERTY REVIEW Richard Starr Executive Property Director PROPERTY REVIEW
Slide 16: Property Portfolio - Overview
PROPERTY REVIEW Property Portfolio - Overview Portfolio repositioning underway March September 2021 2021 Portfolio value £282.8m £262.0m 3.5% Net initial yield 5.6% 6.1% Reversionary yield 7.3% 7.2% 8.1% Office Contractual rental income £16.4m £16.9m Industrial Estimated rental value £20.6m £20.0m 1
Slide 17: Valuation bridge
PROPERTY REVIEW Valuation bridge Like for like valuations up 0.5% net of capital expenditure £295m Book value of disposals at 31 March 2021: £23.9m £290m £1.3m £285m £2.3m £280m (14.0m) £275m £270m £282.8m (£9.9m) £265m £260m (£0.1m) £262.0m £255m £250m Property portfolio valuation Capital expenditu
Slide 18: Asset Management
PROPERTY REVIEW Asset Management Letting activity in the year and strong recovery continuing post year end ⚫ 29 lease events to 30 September, providing £1.2m additional income of £0.6m pa made up of: £0.9m +2% ⚫ 9 new leases: 5% ahead of ERV, providing Adding value additional income of £0.4m pa to o
Slide 19: Impact of Letting Vacant Space
PROPERTY REVIEW Impact of Letting Vacant Space +18% potential uplift £21.0m ⚫ Majority of reversion is £0.1m £0.3m (£0.6m) £20.0m through letting vacant £0.9m space £19.0m ⚫ Dedicated resource in the £18.0m £2.3m £20.0m team focused on letting £17.0m vacant units £16.0m £16.9m ⚫ 35,000 sq ft of new
Slide 20: Investment Case
PROPERTY REVIEW Investment Case Future of the office and industrial sectors Future of the regional office market ⚫ Expectation of growing return to the office. “Working from Home” is an option not a replacement ⚫ Collaboration is key in any industry and offices will remain vital to increasing produc
Slide 21: Acquisitions
PROPERTY REVIEW Strong cash position and recycling of capital will provide Acquisitions over £50m firepower for future acquisitions on a geared basis Strategy to recycle capital and create value OBJECTIVES STRATEGY IMPLEMENTATION • Recycle capital into accretive opportunities, in • Non-institutional
Slide 22: Example: Proforma impact of potential acquisitions
PROPERTY REVIEW Example Proforma impact of potential acquisitions CASE STUDY 1 CASE STUDY 2 • Sector: Industrial • Sector: Office • Location: Midlands • Location: South East • Size (sq ft): 200,000 • Size (sq ft): 25,000 • Price: £11,000,000 • Price: £10,000,000 • Yield: 5.5% • Yield: 6.5% • Lease t
Slide 23: Outlook
LOOKING FORWARD Outlook ✓ On-going disposal strategy to recycle capital, £18.9m of £30m target already completed or exchanged to date ✓ £3.2m ERV per annum to be captured through letting of vacant space ✓ Further sales to generate equity for reinvestment from Hudson Quarter residential sales ✓ +£50m
Slide 24: Appendices
EXPERTS IN REGIONAL PROPERTY APPENDICES
Slide 25: Our story so far
Our story so far 31-03-2013 30-09-2021 November 2010 Management taking Board control of the Company valued at Net asset value £0.6m £163.6m £0.1m with a vision to invest in regional property Property portfolio £2.0m £262.0m October 2011 Hockenhull Estates portfolio acquired for £1.8m consisting of C
Slide 26: Regional portfolio
APPENDICES Regional portfolio Focused on office & industrial growth sectors ⚫ Balanced portfolio of 45 properties ⚫ Diversified granular income 186 tenants in the portfolio Top 20 tenants represent 43% of portfolio WAULT to break of 4.9 years ⚫ Low risk & defensive characteristics ⚫ Located close to
Slide 27: 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 (£) 2021 (£) value (yrs) Offices 122,465,000 46.7% 25 98 655,874 8,086,
Slide 28: Valuations
APPENDICES Valuations Improved valuations following Covid recovery EPRA Market value Market value 31 March 2021 30 Sept 2021 Gain/(loss) topped-up ⚫ Like for like valuations up % NIY (£) (£) % 0.5% Offices* 121,939,133 122,465,000 0.4% 5.7% Industrial* 39,890,000 42,330,000 6.1% 5.8% ⚫ Office and In
Slide 29: Top assets by value
APPENDICES Top 10 assets by value 59% of total portfolio Area Gross rental Reversionary WAULT to Property Name Sector (sq ft) income p.a. (£) yield* break (yrs) Hudson Quarter, York Residential Development n/a n/a n/a n/a 2 & 3 St James Gate, Newcastle Offices 99,125 1,398,608 8.71% 3.1 Broad Street
Slide 30: EPRA Occupancy
APPENDICES EPRA Occupancy 90.0% 85.0% 1.1% 0.1% (4.2%) 2.4% (1.5%) 80.0% 75.0% 86.4% 84.3% 70.0% 65.0% EPRA Occupancy at 31 Hudson Quarter Vacancies Disposals New leases ERV change EPRA Occupancy at 30 March 2021 Commericial September 2021 Page 29 | Palace Capital plc | Investor Presentation Novembe
Slide 31: Financial Performance
APPENDICES Financial Performance Half year ended 30 September 2021 H1 22 H1 21 Change INCOME STATEMENT Resilient performance despite Underlying rental income £8.5m £8.6m -1.2% Covid-19 disruption Trading property revenue £19.2m - H1 22 FY21 H1 21 Other income £0.1m - BALANCE SHEET Total income £27.8
Slide 32: Profit reconciliation & sustainable dividend
APPENDICES Profit reconciliation & sustainable dividend Half year ended 30 September 2021 H1 22 H1 21 (£’m) (£’m) H1 18 H1 19 H1 20 H1 21 H1 22 INCOME STATEMENT Adjusted profit after tax 4.0 3.4 Adjusted EPS 12.8p 8.0p 8.5p 7.3p 8.7p Fair value of options & DPS 9.5p 9.5p 9.5p 5.0p 6.25p (0.3) (0.2)
Slide 33: Top Tenant Rent Collection
APPENDICES Top 20 Tenant Rent Collection 100% of rent secured Sustainable income: 43% of passing rents from top 20 tenants from Top 20 Tenants Contracted Contracted Q1 rent Q2 rent Q1 rent Q2 rent Tenant Industry Rent pa Tenant Industry Rent pa collection collection* collection collection* (£’000) (
Slide 34: Analysis of bad debt provisions
APPENDICES Analysis of bad debt provisions Period ending 30 September 2021 BY ACTIVITY CVA/administration £0.5m ⚫ Conservative approach taken Other leisure and retail £0.5m against recoverability of debtors Other provisions £0.3m Bad debt provisions held on Balance Sheet £1.3m Bad debt provision by
Slide 35: Biographies
Biographies NEIL SINCLAIR MATTHEW SIMPSON RICHARD STARR STANLEY DAVIS Chief Executive Chief Financial Officer Executive Property Director Chairman Chartered Surveyor FRICS Chartered Certified Accountant Chartered Surveyor MRICS Stanley is a successful Neil co-founded Palace FCCA Richard joined Palac
Slide 36: 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 37: Palace Capital plc
mi noon oon jelole! aaa PALACE CAPITAL plc