REG - Palace Capital PLC - Industrial properties disposal and Trading Update

Palace CapitalAnnouncement

05/05/2023 07:00

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RNS Number : 4925Y  Palace Capital PLC  05 May 2023

5 May 2023

Palace Capital plc

("Palace Capital" or the "Company")

Significant industrial properties disposal and Trading Update

Palace Capital today announces the successful disposal of all but one of its
industrial properties, together with a trading update for the year ended 31
March 2023 ahead of its preliminary results which will be released on 15 June
2023.

Significant industrial properties disposal

·   The Company has exchanged contracts for the sale of six industrial
properties to Clearbell Property Partners IV LLP (Clearbell), a fund managed
by Clearbell Capital LLP for a cash consideration of £34.0 million, which
reflects a NIY of 6.2%. The disposal is 3.0% ahead of 31 March 2023 book value
of £33.0 million and a discount of 1.7% to 30 September 2022 book value of
£34.6 million. Completion of five of the properties is expected later this
month with the sixth property expected to complete in early July.

·   The six properties, which generate annual rental income of £2.2
million, are Bone Lane, Newbury; Courtauld House, Coventry; Saxon House,
Kettering; Point Four Industrial Estate, Avonmouth; Black Moor Road, Verwood;
and Clayton Industrial Estate, Burgess Hill.

·     The Company intends to deploy the proceeds from the sale to reduce
the Company's debt. On completion of the disposal of all six assets, proforma
net debt is expected to be c.£25 million and proforma LTV based on the
valuation as at 31 March 2023 is expected to be c.16%. Including other asset
sales disposed of in FY24 to date and noted below, proforma net debt and
proforma LTV is expected to be c.£18 million and c.12% respectively.

Strategy overview

As previously announced, the Board's strategy is to focus on maximising cash
returns to shareholders, whilst continuing to remain mindful of consolidation
in the Real Estate sector. As part of its considerations, certain properties
are either being marketed for sale or are being prepared and readied for sale
whilst other properties are undergoing asset management initiatives in order
to prepare them for sale at a future date. Given its low leverage, the Company
remains well placed in terms of flexibility and optionality regarding the
timing of its disposal programme and other strategic initiatives.

FY23 Disposals

·    During the year ended 31 March 2023, the Company disposed of eight
investment properties for £15.6 million, 8% ahead of the 31 March 2022 book
value.

·      At Hudson Quarter, York, the Company completed on 23 apartments
for a total of £10.1 million. At 31 March 2023, one unit was exchanged to the
value of £0.4 million and three units were under offer to the value of £1.3
million.

FY24 Disposals

·      In addition to the sale of the six industrial properties noted
above, the Company has also exchanged contracts for the sale of an Aldi
supermarket, in Gosport, for £5.6 million at a NIY of 5.5%, which is 7.3%
ahead of the 31 March 2023 valuation.

·      Apartment sales at Hudson Quarter, York, have continued since 1
April 2023, with a further four apartment sales completed to the value of
£1.7 million. There are 19 units remaining.

Portfolio update

·      The Company achieved 99% rent collection for the 12 months to 31
March 2023 (31 March 2022: 98%).

·      Occupancy remained stable at 87.7% (31 March 2022: 88.5%).

·      14 new lettings, 15 lease renewals and 16 rent reviews were
completed across 228,000 sq ft of space generating £1.1 million of additional
contracted rent, 11% ahead of 31 March 2022 ERV, which demonstrates the strong
reversionary potential within the portfolio.

·      Portfolio asset management activity continues to improve the EPC
(Energy Performance Certificate) profile across the portfolio - 96.2% of the
portfolio is now rated A-D and 72.2% is rated A-C (31 March 2022: 88.8% and
55.2% respectively).

Valuation

·    The portfolio has been independently valued as at 31 March 2023 at
£192.4 million, representing a decline of 12.6% on a like for like basis
since 30 September 2022.

·    The greatest valuation decline related to the Company's two leisure
assets, which were affected by a significantly weakened leisure market
negatively impacting both yields and ERVs, and the Company's office portfolio
which was impacted by the general softening of yields in the regional office
market.

Debt position

·    As at 31 March 2023, debt drawn was £64.3 million (31 March 2022:
£101.8 million) and cash reserves totalled £5.5 million, resulting in net
debt of £58.8 million (31 March 2022: £73.6 million). Total debt facilities
are £84.3 million of which £20.0 million are undrawn.

·     The weighted average maturity of debt facilities is 2.0 years with
the earliest facility not due to expire until March 2024.

·      LTV as at 31 March 2023 was 30.6%.

Shareholder distributions

The Company acquired 2.6 million shares for £6.7 million under its share
buyback programme in the year ended 31 March 2023 contributing 8.0p to EPRA
NTA. Since the year end it has purchased a further 0.15 million shares for
£0.3 million.

Commenting on today's update, Steven Owen, Interim Executive Chairman said:

"The disposal of the majority of the Company's industrial portfolio is a
significant step forward in reducing its debt and LTV and means we can remain
focussed on maximising cash returns to shareholders. The Company is in a
strong financial position and its low leverage provides it with the
flexibility and optionality regarding the timing of further disposals and
other strategic initiatives. The Company has capitalised on the recent
stabilisation and, in some cases, the recovery of pricing in the investment
property market to sell and market for sale selected properties.

"At an operational level the Company has continued to make steady progress
with its asset management activities and looks forward to reporting in detail
on these in its Preliminary Results in June."

Palace Capital plc
Steven Owen, Interim Executive Chairman / Matthew Simpson, Chief Financial
Officer

info@palacecapitalplc.com

Financial PR
FTI Consulting

Dido Laurimore / Giles Barrie

Tel: +44 (0)20 3727 1000

palacecapital@fticonsulting.com

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