REG - Palace Capital PLC - Update on Strategy

Palace CapitalAnnouncement

04/07/2022 07:00

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RNS Number : 1124R  Palace Capital PLC  04 July 2022

4 July 2022

PALACE CAPITAL PLC

("Palace Capital", the "Group" or the "Company")

Update on Strategy

Palace Capital to become an ESG driven regional office specialist

following the proposed sale of its industrial portfolio

 

Palace Capital (LSE: PCA), the Main Market property investment company that
owns a diversified portfolio of UK commercial real estate in carefully
selected locations outside of London, announces an update from the Board on
the strategic options it intends to pursue as part of its commitment to
maximising value for shareholders and closing the current share price discount
to NAV following the statement made in the Preliminary Results on 14 June
2022.

The outcome of the strategic review is as follows:

·    The Group intends to have a pure focus as an ESG driven, regional
office market specialist where its expertise can be used to create value from
offices with relatively low EPC ratings, such as D (brown offices) through
refurbishment and other asset management initiatives, to deliver high EPC
ratings such as B (green offices) whilst improving the carbon footprint of
such buildings. It is considered that the Group can make far greater impact
with its ESG strategy in relation to its current and future office portfolio
than it can with its industrial portfolio. This strategy seeks to generate
increased rental and capital values, reduce the risk of obsolescence from the
existing portfolio, enhance the Group's ESG credentials and further establish
it as a specialist regional office player.

 

·    In order to execute and finance this strategy, it is proposed that
the industrial portfolio, comprising seven assets, together with an additional
property previously classified as a retail warehouse property, will be
marketed for sale as a single portfolio. The independent valuation of these
properties as at 31 March 2022 was c. £46.5 million.

 

·    As noted in the Preliminary Results for the year ended 31 March 2022,
the Group has continued with its strategy of disposing of non-core investment
properties with £4.5 million sold since that date. Further sales of such
properties are expected to be made during the current financial year.

 

·    The proceeds of these sales will be re-invested into improving the
existing regional office portfolio and also into new opportunities in the
regional office market that offer ESG enhancing prospects that will generate
rental and capital value growth. The approach to each opportunity, whether
core or value add, will be based on disciplined capital allocation, which
means that it will be considered against the relevant, targeted total return
and risk profile for that category of opportunity.

 

·    If the Group does not find potential acquisitions that meet the
criteria noted above, then it will consider returning excess capital to
shareholders.

 

·    Going forward, the Group will also be operating with a lower Loan to
Value (LTV) ratio than in previous years. It has determined that it will
operate within a LTV limit of 35% and on a normalised basis within the 25%-35%
range. The LTV as at 31 March 2022 was 28%.

 

·    Given the Company's current LTV position, the Board is today
announcing a share buyback programme of up to 5% of the Group's issued share
capital. The share buyback is due to commence today and will be financed by
the cash generated from the sales of the residential apartments at York during
the current financial year.

 

·    As the Group looks to re-position the portfolio, the dividend policy
is that the current level of dividend is expected to be maintained and paid
from adjusted profits including trading profits. If, on a short term basis,
this cannot be achieved then as a minimum the dividend payment is expected to
be set at the Property Income Distribution (PID) level.

 

·    The Board is also fully aware that, in common with many other smaller
REITs, its cost base as a proportion of its rental income is relatively high
as evidenced by the EPRA and TER cost ratios. Measures to address the level of
property outgoings and administrative expenses are being considered and the
Board will provide an update in due course on anticipated cost savings.

 

·    As previously announced, the Board recognises the trend towards
consolidation in the real estate sector and this is an area that remains under
constant review as part of the Board's consideration of its strategic options.

 

 

Steven Owen, Interim Executive Chairman, commented:

"This is a transformational strategy that builds on the strong platform we
already have in place but will provide us with a clear focus and distinct
differentiation. The Board believes this change in our strategy considerably
enhances the investment case for the Group and is a key step in the Board's
commitment to maximising value for shareholders and closing the current share
price discount to NAV."

PALACE CAPITAL PLC

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

Tel. +44 (0)20 3301 8330

 

Broker

Numis Securities

Heraclis Economides / Oliver Hardy

Tel: +44 (0)20 7260 1000

 

Broker

Arden Partners plc

Corporate Finance: John Llewellyn-Lloyd/ Elliot Mustoe

Corporate Broking: James Reed-Daunter

Tel: +44 (0)207 614 5900

 

Financial PR

FTI Consulting

Dido Laurimore/ Giles Barrie

Tel: +44 (0)20 3727 1000

palacecapital@fticonsulting.com (mailto:palacecapital@fticonsulting.com)

 

 

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