RNS announcement

Palace Capital PLC

("Palace Capital" or the "Company")

PROPERTY PORTFOLIO UPDATE

The Board of Palace Capital plc, the property investment company that focuses on real estate outside London, today announces an update on its recent activity.

The Company has followed a strategy of growth driven predominantly by corporate acquisitions and enhanced by its active asset management approach.  The Directors are pleased to report exciting progress on a number of the Company's projects, as detailed below.

Hudson House, Toft Green, York

This 103,000 sq. ft. office building is located within the ancient City Wall, but only one minute's walk from York Railway Station, and is regarded as a prime location.

Since the last update, City of York Council and Network Rail have announced plans for the surplus railway land around York Station to be redeveloped comprehensively over the next 20 years.  This will include a significant residential and office element. This area is now known as York Central and is an exciting opportunity that can only benefit Palace Capital's property.

We already have consent for a change of use to 139 apartments.  In a further planning move, we now also have a resolution to grant permission to convert Hudson House to 82 apartments and 37,000 sq. ft. of offices.

Notwithstanding these alternative schemes, the Board believes that the optimum value can be secured by redeveloping the entire site.  As a result, the Company's architects and planning advisers are in detailed discussion with City of York Council and expect to be in a position to submit a formal planning application before the end of this year.

The Company is currently bearing the cost of part of the building remaining empty, pending the outcome of the planning application. Vacant rates, although partly mitigated, as well as service charge shortfall will affect profits in the short-term. The Directors believe that this is the correct approach, as since its purchase in October 2013, the value of Hudson House has increased from £3.8 million to £14.9 million as at 31 March 2016 and they consider there to be further potential value achievable with a wholesale redevelopment. Once achieved, the Board will seek to maximise the value having regard to minimising the risks to shareholders.

Sol Central, Marefair, Northampton

We are making encouraging progress to improve our large mixed use leisure scheme in central Northampton. We submitted a planning application to change the use of the former Gala Casino premises to Class A3 (Restaurant and Cafes) and this was granted on 31 October 2016.

There is considerable ongoing development activity in Northampton, much of it within 15 minutes' walk of Sol Central. A new County Council headquarters office building, known as 1 Angel Square, is due to be completed later this year and will accommodate 2,000 people, whilst the town's new £330 million University campus is under construction. These can only have a positive effect on Sol Central and its ability to enhance income in the medium term.

Broad Street Plaza, Halifax

We only have a small unit unlet in this 113,000 sq. ft., 4-year-old leisure complex and even though we have a rental guarantee on it until March 2018, we have placed a contract to install a new shopfront in order to make it more appealing to potential tenants.

We are not passive owners, so we are consulting with two marketing companies with a view to increasing footfall at Broad Street Plaza.

Boulton House, Chorlton Street, Manchester

We completed the purchase of this 75,000 sq. ft. office building in central Manchester in August 2016. There is c.18,500 sq. ft. of office space currently vacant and we are shortly to place a contract to refurbish this space. In addition, we intend to remodel the entrance hall and part of the exterior.

The building is currently let at very modest rents.  Demand for well-located offices in central Manchester is robust and we are confident of the potential for future rental growth. It also has significant medium term development potential, as it stands on a site of c. 26,000 sq. ft., within three minutes' walk of Manchester Piccadilly Railway Station.

Bank House, King Street, Leeds

We are refurbishing the space formerly occupied by AXA that comprises c. 13,300 sq. ft. Coupled with the space adjoining of c. 3,300 sq. ft., we will be able to offer 16,600 sq. ft. on one floor in January 2017 at a very competitive office rental level for central Leeds.

The Copperfield Centre, Dartford

We are near to completion of our £2.25 million conversion scheme to refurbish the vacant upper floor offices into 13 self-contained residential apartments, which we intend to offer for letting.

Solaris House (formerly known as Unit 2, Kiln Farm), Pitfields, Milton Keynes,

This 14,500 sq. ft. office building was vacated earlier this year. We have settled the schedule of dilapidations and have just placed a contract to refurbish the building to a similar standard to that carried out at our two adjoining office buildings currently let to Rockwell Automation until December 2026. We are very positive about Milton Keynes, which is one of the fastest growing cities in the UK and we already have prospective tenant interest.

Imperial House and Imperial Court, Leamington Spa

We recently renewed the lease with Altair UK that occupies 6,000 sq. ft. on the first floor of Imperial House. We have increased the rental to £99,858 per annum, which represents £16.50 per sq. ft. The lease is for a term expiring in November 2022 but there is a mutual break in November 2019 to coincide with other leases in the building. Imperial House occupies part of a site of c.70,000 sq. ft. so we are keeping our options open in terms of a possible large redevelopment scheme, subject to a satisfactory and viable planning permission.

Other portfolio activity

As part of the Company's active asset management strategy we have concluded, or are in the course of negotiating, a number of sales, lettings and renewals across our portfolio.  These include:

Completed sales

-      Meadowcourt, Arnos Street, Sheffield

-      Victoria Road, Stoke-on-Trent

-      No's 4 and 5 Hall Road, Maldon

Properties for sale or under offer

-      61 Albert Road North, Reigate,

-      Allen House, Ashton Road, Bredbury, Stockport

-      Whittle House, Courtaulds Way, Coventry

New lettings completed or in hand

-      The Forum, Barnfield Road, Exeter

-      Ovest House, West Street, Brighton

-      11, Winchester Street, Salisbury

-      Bridge House, High Street, Weybridge

-      Russell House, Molesey Road, Walton-on-Thames

-      Marsh Barton Trading Estate, Exeter

-      7 Earle Street, Crewe

-      Point 4 Trading Estate, Avonmouth

-      Saxon House, Kettering

-      138, Molesey Avenue, West Molesey

-      249,Midsummer Boulevard, Milton Keynes

Rent reviews completed or in hand

-      2-5, Devonshire Row Mews, London W1

-      Princeton House, Victoria Road, Farnborough

Notwithstanding the result of the recent EU Referendum, all the Company's recent property sales have all been at or above book value. We see no sign of any pressure on the values of our properties albeit certain sales of vacant properties have been delayed beyond our original expectations, giving rise to additional costs.

Portfolio summary

The Company's portfolio now has a contractual rent roll of £13.7 million per annum and a net rental income of £11.7 million per annum (after the deduction for head rent, service charge shortfall and empty rates). We continue to try and mitigate our rates liabilities at some of our properties (including Hudson House, York) to keep our income leakage to a minimum.

Independent valuation

The Board has commissioned independent valuations of the portfolio and the updated values of the properties will be disclosed within the interim results announcement later this month. The Board anticipates that this will show a slight uplift, partly as a result of the team's active management strategy.

Borrowings

The Company has built and continues to build close relationships with major lenders who understand the Company's strategy, approach and outlook. Over £81.8 million of debt facilities have been drawn, giving a loan to value ratio of 41%. The average debt maturity is 5.1 years at an average cost of 2.9%, which the Board believes is extremely low.

Management Team

Palace Capital continues to build the scale of its management team and Richard Starr became a full time Executive Director in July 2016.

Notice of Results

The Company intends to announce its interim results for the half year ended 30 September 2016 on 21 November 2016.

Neil Sinclair, the Chief Executive of Palace Capital commented:

"Notwithstanding the uncertainty caused by the recent EU Referendum, we view the current environment as an opportunity. We have interest from potential tenants and buyers on nearly all of our vacant properties and we will continue to look for opportunities to add value.

"Looking ahead, we expect income returns to drive total shareholder returns, and we are delighted with the progress we are making to improve the rental income from our portfolio.  The Board is very excited with the range of opportunities in our portfolio to add further significant value to a number of our strategic assets.  This will inevitably lead to both a major increase in income and thereby capital growth.

"We have properties in prosperous towns and cities throughout the UK.  In addition the locations we choose are in the right places in these towns and cities.  As we expand the Company and utilise our expertise and knowledge together with our style of active management strategy, we remain confident about delivering increasing returns for all our shareholders."

-ends-

Date: 2 November 2016

For further information:

Palace Capital plc

Neil Sinclair, Chief Executive

Stephen Silvester, Finance Director

Tel. 44 (0)20 3301 8331

Allenby Capital Limited (Nominated Adviser and Joint Broker)

Nick Naylor / James Reeve

Tel. 44 (0)20 3328 5656

Arden Partners plc (Joint Broker)

Chris Hardie / Ciaran Walsh

Tel. 44 (0)207 614 5917

Capital Access Group (Financial PR)

Simon Courtenay / Jessica Bradford Tel. 44 (0)20 3763 3400