Palace Capital Plc · LSE:PCA
Palace Capital — H1 2020 Earnings Presentation
40 slides from Palace Capital's earnings presentation, November 2019
Slide 1: Palace Capital Plc Interim Results
EXPERTS IN REGIONAL PROPERTY PALACE CAPITAL PLC INTERIM RESULTS PERIOD ENDING 30 SEPTEMBER 2019
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. HIGHLIGHTS | STRATEGY | FINANCIAL REVIEW | PROPERTY REVIEW | CONCLUSION | APPENDICES Page 1 | Palace Capital plc | Investor Presentation November 2
Slide 3: Introduction
Introduction NEIL SINCLAIR STEPHEN SILVESTER RICHARD STARR Chief Executive Finance Director Executive Property Director Page 2 | Palace Capital plc | Investor Presentation November 2019 | palacecapitalplc.com
Slide 4: Regional focus continues to deliver positive performance
HIGHLIGHTS Regional focus continues to deliver positive performance ⚫ Total property return of 1.5% (MSCI Benchmark: 0.8%), 3 years of continued out-performance ⚫ Hudson Quarter flagship development scheme in York, which includes 127 apartments with over 20% already sold or under offer, on track for
Slide 5: Supportive Regional Market Backdrop
REGIONAL STRATEGY Supportive Regional Market Backdrop ⚫ UK regional office market remains buoyant ⚫ Manchester office take up for HY20 up 7% on HY19 ⚫ Leeds saw record take up in HY20, 41% ahead of HY19 ⚫ York office market remains tight, Hudson Quarter includes the first speculative office redevelo
Slide 6: Regional returns outperforming London
REGIONAL STRATEGY Regional returns outperforming London London vs. regional UK office Office conversion to residential Regional office returns (% p.a. total property returns) (England) (million. sq. ft.) have exceeded those 14 20 generated by London 18 every year since 2016. 12 16 10 Regional office
Slide 7: Experts in regional property
REGIONAL STRATEGY Experts in regional property RETURNS FOR SHAREHOLDERS Palace Capital plc (PCA) is a property investment company with a regional focus delivering attractive total returns ⚫ Management has a deep knowledge of the UK regions focusing on office and industrial 6 Year Total Accounting Re
Slide 8: HY20: Financial Review
HY20: FINANCIAL REVIEW Stephen Silvester Finance Director HY20: FINANCIAL REVIEW
Slide 9: Financial highlights
HY20: FINANCIAL REVIEW Financial highlights Robust financial performance HY20 HY19 FY19 Growth INCOME Net property income £10.7m £8.1m £16.4m +32% EPRA earnings £6.7m £3.5m £7.6m Adjusted profit before tax* £3.9m £4.3m £8.9m Adjusted EPS** 8.5p 8.0p 17.3p +6% Dividend per share 9.5p 9.5p 19p CAPITAL
Slide 10: REIT conversion
HY20: FINANCIAL REVIEW REIT conversion 1st August 2019 ⚫ Supports our total return strategy by maximising dividends ⚫ Eliminates tax on rental profits, saving over £1m pa, adding +2 pps to earnings ⚫ Expected to broaden shareholder base and increase liquidity in shares ⚫ £3.7m credit to the income s
Slide 11: Balance sheet
HY20: FINANCIAL REVIEW Balance sheet Well positioned to support growth HY20 FY19 £m £m Property portfolio 275.8 286.3 Cash 14.0 22.9 £14.0m cash available and £20m RCF facility undrawn Other assets 8.8 7.1 Borrowings (106.8) (118.0) Group LTV of 34% and within our target range of 30-40% Deferred tax
Slide 12: EPRA NAV per share
HY20: FINANCIAL REVIEW EPRA NAV per share 440 430 Movements 420 1.6 0.3 in EPRA NAV (9.5) 8.5 per share for the 410 period ending (10.1) 30 September 2019 400 (Pence) (4.3) 406.9 390 (1.1) (1.1) 391.2 380 EPRA NAV Adjusted Net impact of Investment Dividends Capex & Sale of Fair value of Debt EPRA NA
Slide 13: Debt maturity & hedging
HY20: FINANCIAL REVIEW Debt maturity & hedging Sustainable capital structure Debt maturity Fixed/Floating (£m) (£m) Group LTV at 34% within 70.0 45 Floating target range 40 60.0 35 Fixed Average debt maturity 50.0 30 of 4.5 years 40.0 25 Average cost of 30.0 20 debt 3.2% 15 20.0 10 Fixed/hedged: 63%
Slide 14: Recurring earnings supporting dividend
HY20: FINANCIAL REVIEW Recurring earnings supporting dividend HY20 HY19 FY19 £m £m Growth £m Recurring rental income 9.1 9.2 -1% 18.8 Property operating expenses (1.2) (1.1) (2.4) Recurring net rental income 7.9 8.1 -2% 16.4 Administrative expenses* (2.1) (1.9) (3.8) Adjusted EPS increased 6% to Net
Slide 15: Substantial opportunity to grow rental income by +30%
HY20: FINANCIAL REVIEW Substantial opportunity to grow rental income by +30% 23.0 0.1 22.0 0.9 22.2 21.0 0.6 21.2 3.4 20.0 Gross passing 19.0 rental income per annum (£m) 18.0 17.0 0.9 16.0 16.3 15.0 Passing rent at Rent in rent free Vacant space* Reversion Total ERV Under Planning Total potential 3
Slide 16: Property Review
PROPERTY REVIEW Richard Starr Executive Property Director PROPERTY REVIEW
Slide 17: Active Management Strategy
PROPERTY REVIEW Active Management Strategy Unlocking portfolio value ⚫ Hudson Quarter, York: Development commenced February 2019, remains on time and on budget. Over 20% of residential units sold or under offer ⚫ Planning consent secured for 28 apartments & 4,000 sq ft of retail space at High Street
Slide 18: Regional portfolio
New cast le PROPERTY REVIEW Regional portfolio Focused on office & York industrial growth sectors Halifax Leed s M an ch est er Liverp ool Sh ef fi eld Core Sectors 31 10 8 2 2 2 Office Industrial Retail Leisure Retail Development warehouse Birm in gh am Coven t r y Ket t erin g Leam in gt on Sp a Ge
Slide 19: How we deliver value: Hudson Quarter Development
PROPERTY REVIEW How we deliver value: Hudson Quarter Development October 2019 ⚫ Construction of 127 apartments, 35,000 sq ft offices, 5,000 sq ft of commercial and car parking ⚫ On time and on budget - expected to complete January 2021 ⚫ GDV £69m – expected surplus +£10m ⚫ Development facility secur
Slide 20: 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 will either be 1 or 2 bedroom
Slide 21: Refurbishment: Boulton House, Manchester
PROPERTY REVIEW Refurbishment: ⚫ 44% valuation uplift since acquisition in August 2016 for £10.6m, (£4.6m uplift including £0.8m part-refurbishment) ⚫ Average rents of £12 psf at purchase, Headline rentals now £18.50 psf following refurbishment ⚫ Since purchase, increase of WAULT to break from 1.72
Slide 22: Repositioning: Sol, Northampton
PROPERTY REVIEW Repositioning: ⚫ Challenging leisure market for last 3 ⚫ Transformational refurbishment plans years being finalised to complete turnaround of asset ⚫ 90% let following new lettings to Soo ⚫ 21,000 sq ft remains available with Yoga and Gravity Fitness in 2019 improving occupier demand
Slide 23: Value creation
PROPERTY REVIEW Value creation Future upside within the portfolio 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 York apartments, 35,000 sq ft offices, 5,000 sq Uplift in value to da
Slide 24: Planned Non-Core Disposals
PROPERTY REVIEW Planned Non-Core Disposals: ⚫ Non-core assets (predominately vacant) earmarked for disposal in H2. These are all uncharged: • London Court, Southampton comprising 11,684 sq ft • Meadowcourt I & III Sheffield comprising 16,161 sq ft (under offer) • Priory House, Birmingham comprising
Slide 25: Confident outlook for regional strategy
CONCLUSION Confident outlook for regional strategy Income and capital growth ⚫ Significant capex & development of £9.7m in our portfolio HY20 as confident we hold the right assets in the right locations in the right sectors with value- add potential Regional ⚫ £13.2m of disposals including remaining
Slide 26: Appendices
EXPERTS IN REGIONAL PROPERTY APPENDICES
Slide 27: Our story so far
Our story so far 31-03-2013 30-09-2019 July 2010 Management taking Board control of the Company valued Net asset value £0.6m £178.7m at £0.1m with a vision to invest in regional property Property portfolio £2.0m £275.8m October 2011 Hockenhull Estates portfolio acquired for £1.8m consisting Contract
Slide 28: Outlook supports regional strategy
REGIONAL STRATEGY Outlook supports regional strategy Focus on office and industrial sectors ERV Growth 2019 - 2023 % pa Total Return 2019 - 2023 % pa Market outlook 6.6% Standard Industrials 2.7% Standard Industrials supports Palace 6.4% 2.5% Capital regional Distribution Warehouses Distribution War
Slide 29: Positive impact of Urbanisation and increased connectivity
Positive impact of Urbanisation BOULTON HOUSE, MANCHESTER and increased NEWCASTLE connectivity 101 miles 81 minutes ST JAMES’ GATE, NEWCASTLE The Northern Powerhouse is a prime 44 miles example of a growth hub, where investment LEEDS 47 minutes in road and rail connectivity is expected to support ri
Slide 30: Financial track record
Financial track record Balance Sheet FY16 FY17 FY18 FY19 HY20 Property portfolio £173.4m £183.2m £276.7m £286.3m £275.8m Net assets £106.8m £109.6m £183.3m £180.3m £178.7m EPRA NAV per share 414p 443p 415p 407p 391p Group LTV 37% 37% 30% 34% 34% Income Statement Adjusted profit before tax* £5.6m £6.
Slide 31: £154.6m debt facilities
£154.6m debt facilities Strong relationship with existing lenders. Low cost of debt maintained and conservative LTV. 63% debt fixed/hedged to mitigate interest rate risk. Debt Facility Debt Drawn Debt Lender (£m) (£m) Maturity Hedging Mar-19 Sept-19 Barclays 41.3 41.3 Jun-2024 £35.1m fixed Property
Slide 32: Income security supported by diversified portfolio
Income security supported by diversified portfolio 4.04 Lease expiries to first break by Clear income visibility gross rental 2.39 with WAULT of 5.2 years income 2.10 2.12 (£m) to first break. 1.72 1.33 1.12 0.88 0.62 H2 20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28+ Page 31 | Palace Capital plc | Inve
Slide 33: Diversified and sustainable portfolio
Diversified and sustainable portfolio By tenant and industry Contracted Contracted Tenant Industry Rent £’000 Tenant Industry Rent £’000 Leisure 913 Legal 310 Auto 544 Retail 294 Hotel 510 Retail 291 Top 20 tenants Charity 444 Local Authority 283 Good income make up 45% of visibility with broad Auto
Slide 34: Sector splits
Sector splits Regional Office and Industrial focus Market value % of Portfolio 30 September by market No. No. Contractual rental WAULT Total ERV 2019 (£) value properties leases Area (sq ft) income p.a. (£) ERV (£)* (yrs) of void (£) Offices 132,465,000 48.0% 31 121 789,902 7,612,960 12,091,030 3.2
Slide 35: Top 10 assets by value
Top 10 assets by value 54% of total portfolio Area Gross rental Reversionary WAULT to break Property Name (sq ft) income p.a. (£) yield* (yrs) Hudson Quarter, York development n/a n/a n/a n/a Broad Street Plaza, Halifax 117,767 1,765,883 6.90% 11.9 2 & 3 St James Gate, Newcastle 99,125 964,913 8.31%
Slide 36: Asset management: Blackwater Way, Aldershot
PROPERTY REVIEW Asset management: ⚫ Valuation increase of 52% reflecting £980k uplift in value ⚫ Tactical acquisition of adjoining land for £200,000 to consolidate holding, extending occupational lease and fixing future rental income ⚫ A new 10 year lease to BHW Automotive extending the term by 6 ye
Slide 37: Hudson Quarter Timeline
Hudson Quarter Timeline 2 0 2 1 C o m p l e t i o Feb 2016 Aug 2017 n 2019 2021 s Sep 2013 Planning Planning Dec 2018 Feb 2019 Acquired as part of permission permission for Demolition Funding secured Ground-breaking Completion c ceremony with scheduled for Q1 h Quintain portfolio granted for develop
Slide 38: Biographies
Biographies NEIL SINCLAIR STEPHEN SILVESTER RICHARD STARR Chief Executive Finance Director Executive Property Director Chartered Surveyor FRICS Chartered Accountant FCA Chartered Surveyor MRICS Neil co-founded Palace Capital and Stephen joined Palace Capital in 2015 and Richard joined Palace Capital
Slide 39: 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 40: mi noon
mi noon oon jelole! aaa PALACE CAPITAL plc