REG - Palace Capital PLC - Trading update and dividend increase

Palace CapitalAnnouncement

06/04/2022 07:00

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RNS Number : 3866H  Palace Capital PLC  06 April 2022

6 April 2022

Palace Capital plc

("Palace Capital" or the "Company")

Trading update and dividend increase

 

Palace Capital (LSE: PCA), the Main Market property investment company that
has a diversified portfolio of UK commercial real estate in carefully selected
locations outside of London with a focus on the office & industrial
sectors, announces a trading update for the period ended 31 March 2022
together with an increase in dividend.

Strategy Overview

The Directors anticipate that, subject to audit, EPRA earnings* and Adjusted
PBT** for the year to 31 March 2022 will be ahead of market expectations. This
is underpinned by the positive impact of asset management successes, lease
activity and acquisitions.

The Company is well positioned for the future with:

1)    The disposal strategy ahead of target;

2)    The balance sheet considerably strengthened with £28.1 million of
cash at year end;

3)    Improved portfolio income with solid rent collection; and

4)    Progressive dividend growth.

Following the success of Palace Capital's disposal strategy, which to date has
realised gross proceeds of £31.5 million, and the significant pick-up in
sales of residential units at Hudson Quarter, York, the Directors remain
mindful of how and when these proceeds are deployed. As announced with our
interim results on 16 November 2021, the Board is committed to maximising
value for shareholders and closing the current share price discount to NAV.
Accordingly, in consultation with shareholders, the Board is considering a
range of strategic options, including a return of capital, to unlock further
value in the business.

In addition to considering a range of strategic options, the Board will assess
property investment opportunities. The Board is focused on acquiring high
quality, income producing assets with attractive rental growth prospects and
strong ESG credentials, that will enhance the Group's earnings and dividend
payout.

Such investment opportunities will reposition the portfolio for growth in
income and capital value, by pivoting the weighting towards higher quality
assets. The intention is to use our core assets to provide a bedrock of
sustainable income. This allows a balance for higher risk properties which can
provide stronger returns through active management, by identifying
opportunities provided in the regional office and industrial sectors which, in
selected instances in the Company's view, are currently mispriced. The Company
expects to balance the portfolio with c.50% core assets where we see rental
and capital value growth, with the remainder split between value add/asset
management of c.40% and development of c.10%. At 30 September 2021, the
portfolio comprised 30% core, 58% value add and 12% development. This
realignment provides the backbone to a progressive covered dividend policy.

Implementation of our strategy so far

·    Disposal strategy ahead of target with 14 out of the 15 properties
sold generating, in aggregate, £31.5 million gross proceeds which is at 20%
above book value, 12% ahead of purchase prices and capital expenditure,
delivering an ungeared IRR of 11%.

·    Acquisition of 21,852 sq ft refurbished office building in Maidenhead
with an EPC rating of B for £10.25 million, with a 6.83% net initial yield.

·   80 apartments at Hudson Quarter, York sold in the period for a total
of £27.4 million, enabling full repayment of £26.5 million development loan
facility nine months ahead of schedule. A further nine are under offer to the
value of £3.7 million which leaves 38 units remaining.

·    55 lease events completed in the period totalling 319,000 sq ft at an
average of 11% premium to ERV including:

o  44 new leases and lease renewals completed on 224,000 sq ft at a premium
of 14% to ERV.

o  11 rent reviews completed on 95,000 sq ft at a premium of 15% to the
previous passing rents.

o  18,042 sq ft at Hudson Quarter, York at £26 psf, surpassing record rent
of £25 psf previously set by the Company in York.

o  13,550 sq ft at Bank House, King Street, Leeds bringing 89,000 sq ft asset
to full occupancy.

·    Portfolio EPRA occupancy of 88.5% (31 March 2021: 86.4%).

Portfolio Overview

·    An additional £1.9 million of annualised net rental income gained in
the year through asset management lease activity, acquisitions, and reduction
in non-recoverable property costs. This takes into account income lost through
disposals, lease expiries and lease breaks.

·    Portfolio repositioning in the year has led to a higher quality
portfolio consisting of 36 properties, with improved EPC ratings (which
support future rental uplifts), higher occupancy and weighting of core assets.

·    97% rent collection for the 12 months to 31 March 2022.

·   Two high quality income producing assets have been identified for
potential investment in accordance with the strategy.

Financials

·   Balance sheet strengthened with net LTV expected to reduce to between
28% - 30% (depending on property valuations) as a result of strong sales at
Hudson Quarter and disposal strategy being ahead of target.

·    Cash reserves of £28.1 million.

·    Net debt reduced by 38% to £73.6 million as at 31 March 2022.

·    EPRA earnings and Adjusted PBT, subject to audit, are expected to
exceed market expectations for the full year ended 31 March 2022.

·    Quarterly dividend of 3.25 pence per ordinary share to be paid on
Thursday 14 April 2022, in respect of the three months ended 31 December 2021.
In light of the balance sheet strength and anticipated earnings performance,
the final dividend, payable in July 2022, is expected to be a minimum of
3.75p, or 13.25p for the year.

Neil Sinclair, Chief Executive commented: "Following an extremely active
period of portfolio management, the Company is well positioned with a higher
quality portfolio delivering improved income and the opportunity for
reinvestment underpinned by a significantly strengthened balance sheet. It
means that as we recover from the pandemic, we are well placed to address the
future with confidence."

The Company expects to release its annual results for the 12 months to 31
March 2022 on or around 14 June 2022, with confirmation of the date to be
provided in due course.

 

*EPRA earnings: EPRA earnings is the IFRS profit after taxation excluding
investment property revaluations, gains/losses on disposals, changes in the
fair value of financial instruments and associated close-out costs and their
related taxation.

**Adjusted PBT:  Is EPRA earnings excluding share-based payments and one-off
exceptional items. This is the basis on which the Directors consider dividend
cover.

 

ENDS

For further information please contact:

PALACE CAPITAL PLC

Neil Sinclair, Chief Executive

Tel. +44 (0)20 3301 8331

Matthew Simpson, Chief Financial Officer

Tel. +44 (0)20 3931 9175

Broker

Numis Securities

Heraclis Economides / Oliver Hardy

Tel: +44 (0)20 7260 1000

Broker

Arden Partners plc

Corporate Finance: Paul Shackleton / Elliot Mustoe

Corporate Broking: James Reed-Daunter

Tel: +44 (0)207 614 5900

Financial PR

FTI Consulting

Claire Turvey / Katie Hughes

Tel: +44 (0)20 3727 1000

palacecapital@fticonsulting.com

About Palace Capital plc (www.palacecapitalplc.com)

Palace Capital plc (LSE: PCA) is a UK Premium Listed REIT that has a
diversified portfolio of UK regional commercial property. The Company
maintains a disciplined investment strategy focused on towns and cities
outside of London that are characterised by thriving local economies and
strengthening fundamentals. Within those locations the highly experienced
management team select assets that provide opportunities to drive both capital
value and long-term rental income through tailored active asset management
programmes ultimately delivering attractive shareholder returns.

www.palacecapitalplc.com (http://www.palacecapitalplc.com)

This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the company's obligations under Article 17 of
MAR.

 

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