EXPERTS IN REGIONAL PROPERTY PALACE CAPITAL PLC ANNUAL RESULTS Y E A R E N D E D 3 1 M A R C H 2 0 2 0
EXPERTS IN REGIONAL PROPERTY Palace Capital are experts in regional property investment. Focused on unlocking value to deliver attractive total returns. INTRODUCTION | FINANCIAL REVIEW | PROPERTY REVIEW | LOOKING FORWARD | CONCLUSION | APPENDICES Page 1 | Palace Capital plc | Investor Presentation July 2020 | palacecapitalplc.com
INVESTMENT CASE Regional returns outperforming London London vs. regional UK office ⚫ Regional office returns have exceeded those generated by (% p.a. total property returns) London every year since 2016 14.0 ⚫ Regional offices (almost 50% of our portfolio) provide one 12.0 of the strongest, risk-adjusted sectors in the UK 10.0 ⚫ Reduction in office supply is driving rental value 8.0 ⚫ Supported by structural drivers and Government ‘levelling 6.0 up’ 4.0 2.0 ⚫ Palace portfolio established over the past 10 years focused - on regional office and industrial sectors 2016 2017 2018 2019 London Regional Source: MSCI Page 2 | Palace Capital plc | Investor Presentation July 2020 | palacecapitalplc.com
INTRODUCTION Highlights Focus on regional office and industrial sectors driving RETURNS FOR SHAREHOLDERS continued total property return outperformance ⚫ Total property return of 1.1%, outperforming the MSCI benchmark of -0.5% and marking three successive years of outperformance 6 .5 Years Total Accounting Return vs peers ⚫ Final dividend proposed of 2.5p per share taking the total (EPRA NAV growth + dividends) now at 113% dividends for the year to 12.0p per share 140% ⚫ Hudson Quarter on track for completion in March 2021, over 120% 25% of 127 apartments already sold as at 30 June 2020 100% ⚫ 18 lease renewals and seven rent reviews completed at an 80% average of 4% above ERV and a 25% uplift on previous 60% passing rents 40% ⚫ 22 new leases providing £1.2 million of additional annual 20% income 0% Peer Group Palace Capital Source: Arden Partners plc Page 3 | Palace Capital plc | Investor Presentation July 2020 | palacecapitalplc.com
ECONOMY COVID-19 Priority focus on health and wellbeing of all stakeholders Rapid response to protect the long-term value of the Group: ⚫ Liquidity – Cash and available facilities of £42.7m as at 30 June 2020 ⚫ Working capital - Q3 interim dividend cancelled, all non-essential capex paused ⚫ Active approach to tenant support – every tenant contacted in April 2020 ⚫ Support for smaller, independent tenants less resilient to the enforced closure of their space ⚫ Requests for rent deferrals, monthly payments and waivers reviewed on a case by case basis ⚫ Leisure sector hardest hit by non-payment albeit only 13.7% of our portfolio and constructive dialogue with the majority of tenants who are well-capitalised ⚫ Rent collection has been robust: 93% either collected or deferred under agreed payment plans for March quarter, 84% for June quarter to 6 July 2020 ⚫ Hudson Quarter York development site remained open throughout lock-down, albeit with reduced activity as supply chain restricted and safe social distances maintained Page 4 | Palace Capital plc | July 2020 | palacecapitalplc.com
RENT COLLECTION Liquidity & Rent Collection March and June 2020 Quarters March 2020 Rent Collection June 2020 Rent Collection 7% 16% LIQUIDITY AT 30 JUNE 2020 Cash & available facilities £42.7m Capital commitments (£15.8m) Net liquidity £26.9m Annualised interest & overheads £7.0m Interest & overhead cash cover 3.8 yrs 84% 93% Collected or being collected monthly Outstanding Collected or being collected monthly Outstanding Page 5 | Palace Capital plc | July 2020 | palacecapitalplc.com
Converted to a REIT on 1 August 2019 FY20: FINANCIAL REVIEW • Part of total return strategy Financial Performance • Eliminate tax on rental profits, saving £0.7m • Maximise dividends Year ended 31 March 2020 • Expected to broaden shareholder base & increase liquidity in shares FY20 FY19 Change FY20 H1 20 FY19 INCOME STATEMENT BALANCE SHEET Rental and other income £21.1m £18.8m +12.8% Portfolio value £277.8m £275.8m £286.3m IFRS (loss)/profit (£5.4m) £5.2m Cash £14.9m £14.0m £22.9m EPRA earnings £10.8m £7.6m Drawn debt £120.8m £108.1m £119.4m Adjusted profit before tax £8.0m £8.9m -10.2% Net debt £106.2m £94.1m £96.7m Basic EPS (11.8p) 11.3p IFRS net assets £166.3m £178.7m £180.3m EPRA EPS 23.4p 16.6p Basic NAV per share 361p 388p 393p Adjusted EPS 17.5p 17.3p +1.2% EPRA NAV per share 364p 391p 407p Dividend per share 12.0p 19.0p EPRA NNNAV per share 361p 388p 393p Dividend cover 1.5x 0.9x Loan to value 38% 34% 34% NAV gearing 63% 53% 52% Page 6 | Palace Capital plc | Investor Presentation July 2020 | palacecapitalplc.com
FY20: FINANCIAL REVIEW Profit reconciliation & Dividend track record Year ended 31 March 2020 FY20 FY19 (£’m) (£’m) FY16 FY17 FY18 FY19 FY20 DIVIDENDS INCOME STATEMENT Adjusted profit after tax 8.0 7.9 Adjusted EPS 18.9p 22.2p 21.2p 17.3p 17.5p Surrender premium & fair DPS 16.0p 18.5p 19.0p 19.0p 12.0p* 2.8 (0.3) value of options Dividend cover 1.2x 1.2x 1.1x 0.9x 1.5x EPRA earnings 10.8 7.6 Dividends paid £3.2m £4.6m £6.7m £8.7m £5.6m Revaluation losses (17.9) (0.7) *FY20 total dividends reduced as Q3 interim dividend cancelled as a result of Covid-19 but Equity investment revaluation includes 2.5p proposed final dividend payable in August 2020 (0.4) (0.2) losses FY16 FY17 FY18 FY19 FY20 Losses on disposals (0.2) (0.4) ADMIN COST RATIO Hedging and derivative losses (0.9) (1.0) Gross revenue £14.6m £14.3m £16.7m £18.8m £21.1m Debt termination costs (0.5) - Admin costs £2.1m £2.9m £3.5m £4.1m £4.3m Deferred tax REIT adjustment 3.7 (0.2) EPRA admin costs ratio 14.4% 20.4% 20.8% 22.0% 20.3% IFRS (loss)/profit for the year (5.4) 5.1 Page 7 | Palace Capital plc | Investor Presentation July 2020 | palacecapitalplc.com
FY20: FINANCIAL REVIEW NAV bridging chart EPRA NAV per share movements in the year 440p 430p 6.2 420p 17.5 (38.9) 410p 400p 390p (19.0) 380p 406.9 (3.5) 370p (1.8) (1.0) (2.0) 360p 364.4 350p EPRA NAV 31 Adjusted Priory House Property Cash dividends Tax on resi Debt termination Equity Other EPRA NAV 31 March 2019 earnings surrender revaluation paid disposals & derivative investments fair movements* March 2020 premium movements costs value movement *Other movements includes sale of non-core assets and movement in treasury shares Page 8 | Palace Capital plc | Investor Presentation July 2020 | palacecapitalplc.com
FY20: FINANCIAL REVIEW LTV: 38% (FY19: 34%) £153.7m debt facilities Average Cost of Debt: 3.1% (FY19: 3.3%) Interest Cover: 3.8x (FY19: 4.5x) Strong relationship with lenders Hedging: 56% (FY19: 59%) Debt Debt Debt Lender Facility Drawn Hedging Debt maturity (£m) Maturity (£m) (£m) 70.0 Barclays 40.9 40.9 Jun-2024 £34.8m fixed 60.0 NatWest (RCF) 40.0 28.6 Aug-2024 100% floating 50.0 Santander 25.8 25.8 Aug-2022 £19.3m fixed 40.0 Lloyds 6.8 6.8 Mar-2023 100% floating 30.0 Scottish Widows 13.7 13.7 Jul-2026 100% fixed 20.0 Barclays (development facility) 26.5 5.0 Oct-2021 100% floating 10.0 153.7 120.8 56% fixed 3.9 years - 0-1 1-2 2-3 3-4 4-5 >5 Years Page 9 | Palace Capital plc | Investor Presentation July 2020 | palacecapitalplc.com
FY20: FINANCIAL REVIEW ICR covenants range 225% -250% Debt Covenants LTV covenants range 57.5% -62.0% £20.5m cash available at 30 June 2020 ⚫ Investment portfolio is highly cash generative - BANK COVENANT TARGET rental income would have to fall by over 40% on 250% Historical interest cover average for all the ICR covenants to require curing Projected interest cover 250% ⚫ Values as at 31 March 2020 fell 5.7% like-for-like due Historical 12 months interest cover 250% to Covid and on average would need to fall a further 18% for all to require curing 250% Projected interest cover Historical interest cover 250% ⚫ Scottish Widows and Santander covenants under most pressure at this time due to leisure exposure 250% Projected interest cover but covenant waivers provided by lenders. Expected Historical debt service cover 130% to comply at July test date 130% Projected debt service cover ⚫ No debt matures within the next two years for Historical interest cover 225% investment facilities 1000% Debt to net rent ⚫ Hudson Quarter, York remaining expenditure is fully funded by Barclays £26.5m development facility Historical interest cover 250% 250% Projected interest cover Historical debt yield 10% 10% Projected debt yield Page 10 | Palace Capital plc | July 2020 | palacecapitalplc.com
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