Palace Capital Regulatory News (PCA)

12 October 2022

Palace Capital plc

("Palace Capital" or the "Company")

Trading Update

Palace Capital today provides a trading update ahead of its results for the half year ended 30 September 2022 which will be released on 24 November 2022.

Portfolio

· Rent collection for the first two quarters of the current financial year was 99% (31 March 2022: 98%).

· Occupancy remains stable at 88.9% (31 March 2022: 88.5%).

· A total of seven new lettings, six lease renewals and ten rent reviews were completed across 113,600 sq ft of space generating £2.2m of contracted rent, 12% ahead of 31 March 2022 ERV and 12% ahead of passing rent for lease renewals and rent reviews.

· Two new lettings at Hudson Quarter, York producing a combined gross rent of £245,000, both 10-year leases and 6.3% ahead of ERV. Occupancy is 81.5% (31 March 2022: 59.2%)

· Two new lettings at Point 4 Avonmouth producing a combined gross rent of £147,000 with a term certain of five years and three years respectively and 6% ahead of ERV.

· Lease renewal at The Forum Exeter, on a new 10-year lease (8,898 sq ft) at £125,000 and 8% ahead of ERV.

· Rent reviews resulting in six nil increases, three index linked reviews and one 46% uplift (against passing and ERV) at Point 4 Avonmouth.

Disposals

· Since 31 March 2022, the Company has disposed of four Investment Properties for £4.8m, 25% ahead of the 31 March 2022 book value.

· Apartment sales at Hudson Quarter, York have continued to progress, despite the uncertain economic backdrop. A further nine apartments have been sold in the period for a total of £3.9m, with aggregate proceeds of the 89 units sold totalling £31.3m. A further seven units are under offer to the value of £3.3m, leaving 31 units remaining. 

· As announced on 19 July 2022, 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, several properties, including the industrial portfolio, have been 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 the recent, significant volatility and uncertainty in financial markets and macro-economic environment with the consequential impact on the commercial property market, the Board has decided to pause the timing of significant disposals for the time being but continue to sell small, individual assets which lend themselves better to private buyers and special purchasers. The Company has relatively low leverage and therefore has the flexibility to do this and be able to react promptly when the market stabilises.

Debt position

· As at 30 September 2022, debt drawn was £88.7m (31 March 2022: £101.8m) and cash reserves totalled £12.9m, resulting in net debt of £75.8m (31 March 2022: £73.6m). Total debt facilities are £107.9m of which £19.2m are undrawn.

· The weighted average maturity of debt facilities is 2.7 years with the earliest facility not due to expire until March 2024.

Cost base

· Measures to reduce the level of administrative expenses have been implemented and are continuing. It is estimated that annualised cost savings are c.£1.2m which include the Company relocating its head office on 1 December 2022 from St James's, London to Victoria, London.

· The cost savings of £1.2m represent 26% of FY22 Admin expenses and 16% of FY22 EPRA earnings.

Valuation

· The Company is in the process of having its properties revalued for the purposes of its half year results by CBRE who have replaced Cushman & Wakefield as independent valuers.

· The property investment market has seen a reduction in values since the March 2022 year end as evidenced by recent market reports and indices. It is expected that the Company's portfolio on a like-for-like basis will be valued at a lower amount than at the March year end and current indications are that the property valuation decline will be less than 7%, including Bank House, Leeds discussed below. There remain a number of key asset management initiatives the team at Palace are now focussed on that can protect and enhance valuation, even in a challenging market.

· With regard to Bank House, Leeds, (valued at £10.1m as at 31 March 2022), planning permission was granted on 5 October 2022 for a three storey extension and extensive external alterations and remediation to this Grade II listed building in the heart of Leeds. A design review process will now be undertaken including a value engineering exercise with advisers in order to assess its viability. If in the event the value engineering exercise concludes that the scheme is not viable then the carrying value of the property will be reduced to take account of remediation costs. The Company will also be assessing all of its options in relation to the property. Further information will be provided with the half year results.

Commenting on today's update, Steven Owen, Interim Executive Chairman said:

"At an operational level the Company has made steady progress with its asset management activities and in reducing its level of gross debt and its cost base.

"However, the significant volatility and uncertainty in financial markets with the prospect of significant increases in interest rates has adversely impacted the commercial property market in relation to investment activity resulting in a re-pricing of assets compared with the position earlier in the year. Therefore, the Board has decided to pause the timing of significant property disposals for the time being."

Palace Capital plc Steven Owen, Interim Executive Chairman / Matthew Simpson, Chief Financial OfficerTel. +44 (0)20 3301 8330

Financial PR FTI ConsultingDido Laurimore / Giles BarrieTel: +44 (0)20 3727 1000palacecapital@fticonsulting.com