RNS announcement

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