Palace Capital Plc · LSE:PCA
Palace Capital — H1 FY2019 Earnings Presentation
35 slides from Palace Capital's earnings presentation, September 2018
Slide 1: Driving value, delivering returns
Driving value Delivering returns Neil Sinclair Half Year Results Presentation Chief Executive 6 months to 30 September 2018 Stephen Silvester Finance Director Richard Starr Executive Director www.palacecapitalplc.com
Slide 2: Contents
CONTENTS Palace Capital is a Introduction property investment Finance Review company that focuses Property Review on commercial real estate outside London Looking to the Future Appendices 1 Investor Presentation November 2018
Slide 3: Introduction
INTRODUCTION NEIL SINCLAIR STEPHEN SILVESTER RICHARD STARR Chief Executive Finance Director Executive Director 2 2 Investor Presentation November 2018
Slide 4: Investment case
INVESTMENT CASE Palace Capital plc (LSE: PCA) is a Main Market, premium listed property investment company that has a £283.3 million diversified portfolio of UK regional commercial real estate. The Company maintains a disciplined investment strategy focused on towns and cities outside of London that
Slide 5: Operating in regions outside London
OPERATING IN REGIONS OUTSIDE LONDON The regional UK commercial property market remains an excellent opportunity, supported by economic fundamentals • Regional economy continues to grow • Regional unemployment remains consistently low • Less exposed to financial services than Central London • Reducti
Slide 6: Track record of outperforming UK real estate sector
TRACK RECORD OF OUTPERFORMING UK REAL ESTATE SECTOR What makes Palace Capital different? • Investment in select towns & cities with supply- 140% 5 Yr Total Accounting Return demand dynamics exhibiting fundamental growth (NAV growth + dividends) 120% characteristics 100% • Active asset management str
Slide 7: HY19 30 Sep 2018 - Highlights
HY19 30 SEP 2018 - HIGHLIGHTS Income and capital growth, following a transformational FY18 Operational highlights: • Total property return of 5.3%, outperforming the MSCI IPD Quarterly Benchmark of 3.3% • Like-for-like valuation increase of 1.7%, driven by industrial and office sectors • Annualised
Slide 8: HY19 30 Sep 2018 - Highlights: Financial highlights
HY19 30 SEP 2018 - HIGHLIGHTS Financial highlights: • Joined FTSE SmallCap and FTSE All-Share Index in May 2018 following the March 18 premium listing on the Main Market • EPRA NAV per share up 1.4% to 421p (Mar-18: 415p) • Total accounting return for the period of 4.0% (NAV growth plus dividends pa
Slide 9: Balance sheet positioned for growth
BALANCE SHEET POSITIONED FOR GROWTH Sep-18 Mar-18 • Property portfolio increased to £283.3m at 30 September £m £m 2018 Property Portfolio 283.3 276.7 • £13.8m cash in the bank and a further £15.0m undrawn Cash 13.8 19.0 facilities available for further investment Other assets 4.4 4.5 • IFRS net asse
Slide 10: EPRA NAV per share
EPRA NAV PER SHARE Movements in EPRA NAV per ordinary share (pence) 450.0 8.2% EPRA NAV growth in 12 months 440.0 430.0 8.0 ( 9.5 ) 7.5 420.0 21.3 ( 19.0 ) 0.8 ( 1.5 ) 16.4 421.0 410.0 415.7 415.0 415.0 415.0 413.5 413.5 400.0 8.0 399.3 399.3 397.0 390.0 389.0 389.0 380.0 370.0 360.0 350.0 EPRA NAV
Slide 11: Continued growth in recurring earnings
CONTINUED GROWTH IN RECURRING EARNINGS HY19 HY18 FY18 Growth £m £m £m • Gross property income increased 29% to £9.2m p.a. Gross property income 9.2 7.1 +29% 16.7 • Adjusted profit before tax increased 16% to £4.3m (HY18: £3.7m) Property operating expenses (1.1) (0.6) (1.8) Net property income 8.1 6.
Slide 12: Track record of delivering progressive dividend
TRACK RECORD OF DELIVERING PROGRESSIVE DIVIDEND Dividend per share (pence) • Quarterly dividends commenced April 2018 20.0 FY19 Q2 proposed interim dividend of 4.75p, 18.0 4.75 • Ex div 6/12, Payable 28/12 16.0 14.0 9.5 12.0 9.0 4.75 • Dividend Yield on NAV > 4.5% 10.0 7.0 8.0 4.75 • Dividend yield
Slide 13: UK property market – outlook supports Palace strategy
UK PROPERTY MARKET – outlook supports Palace strategy • Market outlook to 2022 supportive of the Palace strategy of focusing outside London, majoring on regional office and industrial assets in growth locations and minimising exposure to the retail sector. • The benefit of a diversified portfolio sh
Slide 14: Permitted development impact on regional office stock
PERMITTED DEVELOPMENT IMPACT ON REGIONAL OFFICE STOCK • Permitted development (P.D.) legislation was brought into recycle empty office space into alternative residential use to meet the needs of housing across the country. • Due to the level of capital values required to make conversion projects via
Slide 15: Office to residential conversions
OFFICE TO RESIDENTIAL CONVERSIONS Sharp increase in conversions after the introduction of Permitted Development Rights (2013) resulting in significantly reduced regional office supply Source: Centre for Cities, ONS Additional Dwellings 14 Investor Presentation November 2018
Slide 16: Urbanisation and connectivity – improvements underpin investments
URBANISATION AND CONNECTIVITY – improvements underpin investments The Palace Capital acquisition strategy to date has been to focus on city centre offices in university towns and cities where a supply- NEWCASTLE demand imbalance exists. This provides significant income and capital growth 101 miles o
Slide 17: Portfolio overview
PORTFOLIO OVERVIEW OFFICE Portfolio value £283.3m 34 Contractual Rental Income £17.4m p.a. INDUSTRIAL Estimated Rental Value £21.1m p.a. 14 WAULT (to break) 5.5 years (7.3yrs to expiry) Occupancy 88% RETAIL 11 LEISURE 2 RETAIL WAREHOUSE 1 DEVELOPMENT 1 RESIDENTIAL 62 TOTAL PROPERTIES 125 16 16 Inves
Slide 18: Diversified tenant base with strong covenants
DIVERSIFIED TENANT BASE WITH STRONG COVENANTS The portfolio is diversified by both sector and geography, with no exposure to Central London The top 20 tenants contribute 44% of all contractual income. The majority are household names, providing secure income streams with strong credit ratings and lo
Slide 19: Residential sector
RESIDENTIAL SECTOR • 65 properties acquired as part of the RT Warren in October 2017 • 3 properties sold in April 2018 • 2 properties retained for strategic reasons • Contracts exchanged for the sale of 50 properties for £18.2m (reflecting 97% of book value) with completion by 31 March 2019 • 10 rem
Slide 20: Regional development
REGIONAL DEVELOPMENT York – Hudson Quarter • Planning consent granted for 127 apartments, 34,500 sq ft offices, 5,000 sq ft of commercial and car parking within the city walls • Demolition to complete in December 2018 • Plans to commence construction in February 2019 • Contractor to be appointed and
Slide 21: Regional office sector
REGIONAL OFFICE SECTOR Manchester – Boulton House Milton Keynes – Kiln Farm Newcastle – St James’ Gate • Purchased August 2016 for £10.45m • Purchased in Sequel portfolio in 2013 • Purchased August 2017 for £20m • 75,000 sq. ft. of multi-let offices in City • 14,500 sq ft refurbished office building
Slide 22: Regional industrial sector
REGIONAL INDUSTRIAL SECTOR Bristol – Point Four Ind. Estate Verwood – Black Moor Road Coventry – Courtauld House • Purchased in Sequel portfolio in 2013 • Purchased in RT Warren portfolio in • Purchased in Sequel portfolio in 2013 2017 • 83,100 sq ft, multi-let estate in • 77,500 sq ft single let di
Slide 23: Regional leisure sector
REGIONAL LEISURE SECTOR Halifax – Broad Street Plaza Northampton – Sol Northampton • Purchased March 2016 for £24.12m • Purchased in May 2015 for £20.7m & producing £1.4m per annum net income • City centre multi-let scheme generating £1.7m annual income with anchor tenants trading well • The casual
Slide 24: Regional retail sector
REGIONAL RETAIL SECTOR York – Lendal / Museum Street Gosport - Aldi • Purchased in RT Warren portfolio in 2017 • Prime location in town centre • Prime location within the City Centre • New lease completed for 20 years at 17% increase in passing • 5,500 sq ft of lettable office space being comprehens
Slide 25: Looking to the future
LOOKING TO THE FUTURE • Significant opportunity remains in UK regional commercial real estate market • Palace Capital is uniquely positioned to deliver sector-leading income & capital returns as a result of its disciplined investment strategy and careful stock selection • Continue to source and exec
Slide 26: Appendices
APPENDICES 25 25 Investor Presentation November 2018
Slide 27: Biographies
BIOGRAPHIES Neil Sinclair Stephen Silvester Richard Starr Chief Executive Finance Director Executive Director Chartered Surveyor FRICS Chartered Accountant ACA Chartered Surveyor MRICS Neil co-founded Palace Capital and Stephen joined Palace Capital in 2015 Richard joined Palace Capital in 2013 on t
Slide 28: Our story so far
OUR STORY SO FAR • July 2010 – Management taking Board control of the Company valued at £0.1m with a vision to invest in regional property. 31-03-2013 30-09-2018 • October 2011 – Hockenhull Estates portfolio acquired for £1.8m consisting of MARKET CAP £0.6m £140.0m nine properties. • October 2013 –
Slide 29: Financial track record
FINANCIAL TRACK RECORD BALANCE SHEET FY15 FY16 FY17 FY18 HY19 Property Portfolio £102.8m £173.4m £183.2m £276.7m £283.3m Net Assets £80.0m £106.8m £109.6m £183.3m £186.6m EPRA* NAV per Share*** 393p 414p 443p 415p 421p Loan to Value 23% 37% 37% 30% 30% INCOME STATEMENT IFRS Profit Before Tax £13.9m
Slide 30: Debt summary
DEBT SUMMARY Debt Facility Debt Drawn Debt Lender Hedging (£m) (£m) Maturity Barclays 39.8 39.8 Jan-2023 £35.6m fixed NatWest 29.9 14.9 Mar-2021 Includes £20m RCF Santander 26.5 26.5 Aug-2022 £19.9m fixed Lloyds 3.7 3.7 Apr-2019 100% floating Scottish Widows 14.4 14.4 Jul-2026 100% fixed 114.2 99.2
Slide 31: Debt charts
DEBT CHARTS Debt maturity Fixed/Floating 45.0 40.0 45 35.0 40 30.0 35 Fixed Floating 30 25.0 25 20.0 20 15.0 15 10.0 10 5.0 5 - 0 0-1 1-2 2-3 3-4 4-5 >5 Barclays NatWest Santander Lloyds Scottish Widows The average debt maturity is 4.3 years, providing 70% of the debt drawn at year end was fixed, su
Slide 32: A selection from the portfolio
A SELECTION FROM THE PORTFOLIO THE FORUM, HARNHAM BUSINESS PARK, SANDRINGHAM HOUSE, EXETER SALISBURY HARLOW OVEST HOUSE, MIDSUMMER BLVD, FRASER HOUSE, BRIDGE PARK, BRIGHTON MILTON KEYNES STAINES EAST GRINSTEAD 31 31 Investor Presentation November 2018
Slide 33: Top 10 assets by value
TOP 10 ASSETS BY VALUE % of Portfolio by Market Value Net Initial Reversionary WAULT to Property Name Area (sq ft) Gross rental income (£) Market Value 30 September 2018 (£) Yield Yield* Break (yrs) Broad Street Plaza, Halifax 8.2% 23,190,000 117,767 1,710,070 6.17% 7.11% 12.7 2 & 3 St James Gate, N
Slide 34: Sector splits
SECTOR SPLITS Market Value % of Portfolio No. Current passing WAULT Total ERV of No. Leases Area (sq ft) ERV (£) 30 September 2018 (£) by market value Properties rental income (£) (yrs) Void (£) Offices 123,595,000 43.6% 34 137 733,805 8,244,942 10,884,440 2.50 1,499,220 Industrial 40,595,000 14.3%
Slide 35: 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