A year of significant development and growth

Palace Capital 12 June 2018 Update
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Palace Capital

A year of significant development and growth

Full year results

Real estate

12 June 2018

Price

358p

Market cap

£164m

Net balance sheet debt (£m) as at 31 March 2018

82.4

Net LTV as at 31 March 2018

30%

Shares in issue

45.8m

Free float

95.5%

Code

PCA

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.1

10.8

(2.2)

Rel (local)

3.5

3.7

(5.7)

52-week high/low

387.8p

315.0p

Business description

Palace Capital is a UK property investment company listed on the Main Market of the LSE. It is not sector-specific and looks for opportunities where it can enhance the long-term income and capital value through asset management and strategic capital development in locations outside London.

Next events

AGM

July 2018

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

Palace Capital is a research client of Edison Investment Research Limited

The year ended 31 March 2018 was one of significant development and growth for Palace, including the £68m acquisition of RT Warren, its largest acquisition to date, a £70m capital raise, and a move to trading on the Main Market of the LSE. The shares will join the FTSE Small Cap Index and FTSE All Share Index on 18 June. The portfolio, enlarged by the RT Warren acquisition, offers significant asset management opportunities, while management seeks further accretive acquisitions, neither of which is reflected in our estimates. The shares offer an attractive yield and trade at a significant discount to NAV.

Year end

Net rental income (£m)

Adj. earnings* (£m)

Adj. EPS* (p)

F.d. EPRA NAV per
share (p)**

Price/EPRA NAV/share

(x)

DPS
(p)

Yield
(%)

03/17

12.2

5.7

22.2

443

0.81

18.5

5.2

03/18

14.9

7.4

21.2

414

0.86

19.0

5.3

03/19e

16.9

7.9

17.2

418

0.86

19.5

5.4

03/20e

17.5

8.3

18.1

422

0.85

19.5

5.4

Note: *Adjusted earnings: in addition to EPRA adjustments for revaluation gains, profits or losses on disposals of investment properties and surrender gains on early lease terminations, this adjusts for share based payments and Main Market listing costs. **EPRA NAV is fully diluted.

FY18 earnings and NAV ahead of our forecasts

Net rental income increased by 22% to £14.9m, with RT Warren consolidated for a little under six months. Contracted net rents of £16.8m at end FY18 point to further rent growth before the impact of leasing. Adjusted earnings, which exclude c £700k of one-off Main Market listing costs, increased 30% to £7.4m, ahead of our £7.0m forecast, and significantly offset the 36% increase in average share count. Adjusted EPS was 21.2p (FY17: 22.2p), providing 1.1x cover of the increased DPS of 19.0p (FY17: 18.5p). Diluted EPRA NAV per share of 414p benefitted from valuation gains, and while it was lower y-o-y as a result of the dilution related to the capital raise, it was ahead of our forecast of 395p, LTV reduced to 30% (FY17: 37%), with cash and unutilised debt facilities providing headroom for accretive acquisitions.

Acquisition upside to forecasts

We have trimmed our FY19 adjusted PBT estimate by c 4% but management has reiterated its aim to further grow DPS, and we continue to forecast 19.5p, 93% covered. Our estimates may prove conservative as they allow nothing for the accretive acquisitions that management seeks or asset management gains from RT Warren and other projects due to the difficulty in credibly forecasting these. We estimate that a £25m cash acquisition at a 7% yield would increase our forecast adjusted earnings by c 12% on an annualised basis.

Valuation: Attractively priced with upside potential

Without building in any potential upside from accretive acquisitions or asset management of the recently acquired RT Warren assets, the shares offer an attractive prospective yield of 5.4%. In addition, increased EPRA NAV forecasts maintain a 14% P/NAV (FY19e) discount despite the recent upward move in the share price.

A year of significant development and growth

The year ended 31 March 2018 was one of significant development and growth for Palace, including the £68m acquisition of RT Warren, its largest acquisition to date, a £70m capital raise and a move to trading on the Main Market of the LSE. We reviewed these developments in detail in our recent Outlook note and this update focuses on the publication of the FY18 results. These need to be viewed in the context of the RT Warren acquisition, which added 35% to the investment portfolio and 26% to contracted rent roll at completion on 9 October 2017.

Exhibit 1: Summary of FY18 results

Year end March (£000s)

2018

2017

% change

Adjusted earnings:

Rental & other income

16,733

14,266

17.3%

Non-recoverable property costs

(1,824)

(2,055)

(11.2%)

Net rental income

14,909

12,211

22.1%

Administrative expenses

(3,313)

(2,678)

23.7%

Operating profit before gains/(losses) on property assets

11,596

9,533

21.6%

Finance costs

(3,124)

(2,856)

9.4%

Adjusted PBT

8,472

6,677

26.9%

Taxation

(1,072)

(991)

Adjusted net profit

7,400

5,686

30.1%

Share based payments

(174)

(237)

Costs in respect of move to main market

(698)

0

EPRA earnings

6,528

5,449

19.8%

Gains on revaluation of investment properties

5,738

3,101

Profit/(loss) on disposal on non-current assets

274

3,191

Debt termination costs

(127)

(155)

Fair value loss on derivatives

(181)

0

Deferred tax relating to EPRA adjustments

299

(2,200)

IFRS net profit

12,531

9,386

33.5%

Diluted adjusted EPS (p)

21.2

22.2

(4.5%)

Diluted EPRA EPS (p)

18.7

21.2

IFRS EPS (p)

35.8

36.5

DPS declared (p)

19.0

18.5

2.7%

Dividend cover (adjusted earnings) (x)

1.11

1.20

Diluted EPRA NAV per share (p)

414

443

(6.5%)

IFRS NAV per share (p)

400

436

NAV total return (%)

(2.1%)

11.2%

Net LTV (%)

30.0%

36.9%

Source: Palace Capital, Edison Investment Research

Net rental income increased by 22.1% to £14.9m (FY17: £12.2m). The gross contracted rent roll at 31 March was an annualised £17.9m and the annualised net contracted rent roll was £16.8m, pointing to further growth in net rental income. Occupancy was 90%.

Adjusted administrative expenses (excluding the £698k one-off costs associated with the move to the Main Market of the LSE and share-based payment charges) were 23.7% higher, mainly as a result of higher staff costs that include additions to the property management team.

Adjusted net finance costs (excluding £127k of debt termination costs and £181k of unrealised negative fair value movements on interest rate derivatives) were 9.4% higher as a result of an increase in average debt. Net loan to value reduced however, from c 37% to c 30%.

Adjusted PBT was 26.9% ahead at £8.5m, while adjusted net profit grew at a faster rate, 30.1%, due to a reduction in tax. The September capital raise increased the share count by 81% and the average share count for the year increased by 36%. As a result, diluted adjusted EPS reduced slightly to 21.2p (FY17: 22.2p).

The investment portfolio value at 31 March 2018 was £275.6m, 50% higher than a year earlier (£183.9m). Net additions/disposals were £83.1m, including the £72.0m from RT Warren, while net revaluation added £5.7m with a 3.5% like-for-like increase. Refurbishment capex added a little under £3m. 60 of the 65 residential properties acquired with RT Warren (three have already been sold and two will be retained), with a value of £21.7m, have now been classified as held for sale, reflecting management’s intentions. The three sales already completed were at an average 14% premium to the carried value.

Adding back the various adjustments, and including revaluation gains and gains on disposal, IFRS net earnings increased by 33.5% to £12.5m.

Diluted EPRA NAV was 6.5% lower, primarily as a result of the capital raise which saw shares issued at 340p, but was ahead of our 395p forecast.

As expected, a final quarterly DPS of 4.75p has been proposed, which brings the total for the year to 19.0p (FY17: 18.5p), 1.11x covered by adjusted EPS.

Regional markets continue to offer value

Despite some slowing of UK economic growth, continuing Brexit uncertainty and a significant retracement of the boost to export competiveness that resulted from post EU-referendum sterling weakness, regional property markets have remained in good health over recent months. In general, across the regional markets, a positive occupational demand–supply balance continues, although some participants have indicated that in some instances letting decisions are taking longer to execute. Investor demand has also remained robust, with regional markets taking a larger share. Overall investment volumes in the broad UK commercial market rose 26% in 2017.

Regional markets continue to benefit from structural factors such as business relocation away from London, office conversion to residential use and a relative lack of new development in the years following the financial crisis.

Office supply in regional markets remains low, with occupier take-up continuing to reduce availability, particularly of Grade A space, which should be a positive for occupier demand and rental growth in good quality secondary space. In industrial, continued occupier demand and constrained supply resulted in a 4.9% increase in industrial rents in 2017, according to IPD.

Data for the office market suggest that regional offices continue to represent attractive yields compared with London and that regional secondary office yields have room to tighten further versus prime. As a result of the continuing investor demand, the average yield spreads between regional and London offices has continued to narrow, but remain noticeably wider than it was before recovery took hold in the London market in 2009. As London recovered, and yields tightened, the gap between regional and London yields widened significantly, peaking around 2015. As the market recovery broadened to the regions, this spread has narrowed but not fully unwound.

The recovery in the London market also saw the yield spread between secondary over prime properties narrow. A similar pattern followed later in regional assets as recovery reached those markets and here the spread of secondary over prime yields remains wide despite more recent tightening.

Financials and valuation

In the trading update on 24 April 2018, management guided that adjusted profit before tax (before profits on disposal and any revaluation gains) for the year ended 31 March 2018 was expected to be ahead of market expectations. In our Outlook note published in May we adjusted our FY18 estimates for the recent acquisition and for the impact of interest rate hedging on finance costs, but left our FY19 estimates unchanged, pending the details that have now been published.

FY18 adjusted earnings of £7.4m are c 5% ahead of our estimate of £7.0m, driven by rental income and slightly offset by higher costs. The average share count was also a little lower than we had allowed for, giving an additional boost to adjusted EPS, c 7% ahead of our estimate.

Diluted EPRA NAV per share was also c 5%, or 19p per share, ahead of our forecast at 414p, in part resulting from higher revaluation movements than we had allowed for, as well as the higher earnings, but also reflecting the impact of the RT Warren corporate acquisition. Palace acquired RT Warren for £67.9m, including investment properties valued at £71.8m. The c £4m difference reflects deferred tax liabilities on the assets acquired, added back to EPRA NAV, providing an additional uplift versus our EPRA NAV forecast. We would expect at least some of the deferred tax to relate to the RT Warren residential assets that are likely to be sold. This will crystallise any deferred tax although the exact impact on NAV will depend on the prices achieved.

Exhibit 2: FY18 versus estimates, and estimate revisions

Net rental income (£m)

Fully diluted adjusted EPS

EPRA NAV per share

Dividend per share

FY18 reported versus estimate

Est

Actual

Diff (%)

ESt

Actual

Diff (%)

Est

Actual

Diff (%)

Est

Actual

Diff (%)

03/18e

14.3

14.9

4.0

19.8

21.2

7.2

395

414

5.0

19.0

19.0

0.0

FY19-20 estimates

Old

New

% change

Old

New

% change

Old

New

% change

Old

New

% change

03/19e

17.2

16.9

(1.8)

18.7

17.2

(8.1)

394

418

6.0

19.5

19.5

0.0

03/20e

N/A

17.5

N/A

N/A

18.1

N/A

N/A

422

N/A

N/A

19.5

N/A

Source: Palace Capital, Edison Investment Research

Reflecting on recent UK macroeconomic newsflow, we have slightly reduced our net rental income expectations for FY19, although we continue to anticipate further letting progress over the course of the year, including refurbished assets. Our adjusted EPS estimate is also affected by a slightly higher tax burden (assumed effective tax rate 15% versus 6% in FY18). Our newly introduced FY20 forecast benefits from a full year contribution from FY19 void reduction and the 1% pa rental growth that we have assumed across the forecast period, partly offset by inflationary cost growth. We have assumed valuation growth in line with rental growth, although the letting progress that we assume has the potential to further support valuations.

Management has re-asserted its commitment to a progressive dividend policy and we continue to forecast an increase to 19.5p per share in respect of FY19 (FY18: 19.0p). However, the pace of adjusted earnings growth reflected in our forecasts for FY19 will not keep pace with the increase in average share count (following the September 2017 equity raise), with our forecast for adjusted EPS now at 18.1p, representing dividend cover of 93%. Although we forecast growth in FY20 adjusted EPS, we have for now assumed an unchanged FY20 DPS of 19.5p. However, our forecasts do not reflect the potential for earnings to benefit from accretive acquisition, which we discuss in more detail below.

Potential for accretive acquisitions

Management continues to target earnings-accretive acquisitions. The end-FY18 loan to value (LTV) ratio was 30.0% and the cash balance, excluding restricted cash relating to tenant deposits, was £18.0m, with unutilised borrowing facilities at £14.2m. £40m of property assets were uncharged, remaining available to provide security for additional bank borrowing. For example, £25m invested at a net initial yield of 7% would add an annualised c £1.75m to net rental income (c 10% of the FY19 forecast) or c £1.0m to adjusted earnings (c 12%) after financing costs and tax (at an assumed 15%). The FY19e LTV would increase from c 31% to c 37%. None of this potential income upside is currently reflected in our forecasts.

Nor do our forecasts make any assumptions about the development of Hudson House in York, where Palace has planning consent for new buildings comprising 127 apartments, 34,000 sq ft of office space and 5,000 sq ft of other commercial space/restaurant space and parking. Demolition of the 1960s office building, within the city walls and close to the railway station, is well underway and will save c £750,000 pa in property expenses, primarily by eliminating empty rates and service charges, or c £500,000 net of residual income. Palace is no longer seeking to develop the site with a joint venture partner, with the board taking the decision that it is in the company’s best interest to proceed alone with the development, which it believes is backed by strong fundamentals, including a lack of Grade A office accommodation in York and strong residential demand. Agents have been appointed for both the commercial and residential space and discussions have commenced with potential lenders to finance the construction. The property is not charged and is valued at £16.0m.

Valuation

With a prospective yield of 5.4%, Palace is positioned above the median for the broader UK real estate sector, while its P/EPRA NAV is below the median. Our forecasts show the FY19e dividends covered 93% by adjusted earnings with cover increasing to 97% in FY20, although as noted above, this may prove conservative as we included nothing in the forecast for potentially accretive acquisitions.

Palace has built a strong track record of value creation over a number of years. NAV total return in the four years and six months, from September 2013 (H114) to end-FY18 is 118.6% or a compound 19.0% pa. We have begun the analysis at H114 because this corresponds to the acquisition of the Sequel portfolio, Palace’s first transformational acquisition. The negative total return in FY18 was less than we had forecast and results from the share issuance to fund the RT Warren portfolio and captures none of the future asset management-driven value creation that management hopes to achieve from this, its largest portfolio acquisition to date.

Exhibit 3: NAV total returns (since the acquisition of the Sequel portfolio)

(p)

H214

FY15

FY16

FY17

FY18

H214-FY18

Opening EPRA NAV per share

218

341

388

414

443

218

Closing NAV per share

341

388

414

443

414

414

Dividend per share paid

2.5

8.50

14.00

18.00

19.00

62

NAV total return

126

55

41

46

(9)

258

NAV total return (%)

57.8%

16.0%

10.5%

11.2%

-2.1%

118.6%

Compound annual return (%)

19.0%

Source: Palace Capital, Edison Investment Research

Exhibit 4: Financial summary

Year end 31 March

£'000s

2014

2015

2016

2017

2018

2019e

2020e

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Rental & other income

 

 

3,252

8,637

14,593

14,266

16,733

18,239

18,480

Non-recoverable property costs

(648)

(1,200)

(1,624)

(2,055)

(1,824)

(1,376)

(1,016)

Net rental income

 

 

2,604

7,437

12,969

12,211

14,909

16,863

17,463

Administrative expenses

(649)

(1,439)

(2,048)

(2,915)

(4,185)

(3,400)

(3,502)

Operating Profit (before capital items)

 

 

1,955

5,998

10,921

9,296

10,724

13,463

13,961

Revaluation of investment properties

19,501

9,769

3,620

3,101

5,738

2,559

2,628

Costs of acquisitions/profits on disposals

270

(461)

(525)

3,191

274

0

0

Operating Profit

21,725

15,306

14,016

15,588

16,736

16,022

16,590

Net Interest expense

(573)

(1,398)

(2,264)

(3,011)

(3,432)

(3,907)

(3,907)

Profit Before Tax

 

 

21,153

13,909

11,752

12,577

13,304

12,115

12,682

Taxation

81

107

(953)

(3,191)

(773)

(1,817)

(1,902)

Profit After Tax (FRS 3)

21,234

14,015

10,799

9,386

12,531

10,297

10,780

EPRA adjustments:

Revaluation of investment properties

(19,501)

(9,769)

(3,620)

(3,101)

(5,738)

(2,559)

(2,628)

Costs of acquisitions/profits on disposals

(270)

461

525

(3,191)

(274)

0

0

Deferred tax charge

0

0

0

2,200

(299)

0

0

Other adjustments

0

0

0

155

308

0

0

EPRA earnings

1,463

4,707

7,704

5,449

6,528

7,739

8,152

Adjusted for:

Non-recurring items

0

0

(3,172)

0

698

0

0

Share-based payments

12

114

110

237

174

148

148

Adjusted earnings

1,475

4,821

4,642

5,686

7,400

7,887

8,300

Company adjusted PBT

1,394

4,714

5,595

6,677

8,472

9,704

10,202

Average fully diluted number of shares outstanding (000s)

5,264

17,489

24,618

25,738

34,980

45,842

45,842

Basic EPS - FRS 3 (p)

 

 

403.4

80.1

43.9

36.5

35.8

22.5

23.5

Fully diluted EPRA EPS (p)

 

 

29.1

26.9

31.3

21.2

18.7

16.9

17.8

Fully diluted adjusted EPRA EPS (p)

 

 

31.4

28.3

18.9

22.2

21.2

17.2

18.1

Dividend per share declared (p)

4.5

13.0

16.0

18.5

19.0

19.5

19.5

EPRA dividend cover (x)

6.47

2.07

1.96

1.14

0.98

0.87

0.91

BALANCE SHEET

Fixed Assets

 

 

60,086

104,470

175,738

183,959

253,984

261,293

267,921

Investment properties

59,440

102,988

174,542

183,916

253,863

261,172

267,800

Goodwill

6

6

0

0

0

0

0

Other non-current assets

640

1,475

1,196

43

121

121

121

Current Assets

 

 

7,060

15,653

11,903

13,692

24,584

19,729

15,641

Debtors

1,937

3,375

3,327

2,511

5,551

5,105

5,239

Cash

5,123

12,279

8,576

11,181

19,033

14,624

10,402

Current Liabilities

 

 

(4,171)

(3,487)

(9,048)

(8,197)

(11,520)

(12,046)

(12,291)

Creditors

(2,971)

(3,087)

(6,815)

(6,161)

(8,834)

(9,360)

(9,605)

Short term borrowings

(1,200)

(400)

(2,233)

(2,036)

(2,686)

(2,686)

(2,686)

Long Term Liabilities

 

 

(18,599)

(36,620)

(71,778)

(79,895)

(105,276)

(105,576)

(105,876)

Long term borrowings

(17,384)

(35,407)

(69,711)

(75,758)

(97,157)

(97,457)

(97,757)

Deferred tax

0

0

0

(2,187)

(6,531)

(6,531)

(6,531)

Other long term liabilities

(1,215)

(1,214)

(2,067)

(1,950)

(1,588)

(1,588)

(1,588)

Net Assets

 

 

44,376

80,016

106,815

109,559

161,772

163,400

165,396

EPRA net assets

 

 

44,370

80,010

106,924

111,759

190,011

191,639

193,635

Basic NAV/share (p)

357

396

414

436

400

404

408

Diluted EPRA NAV/share (p)

341

388

414

443

414

418

422

CASH FLOW

Operating Cash Flow

 

 

1,297

4,388

12,287

10,294

9,899

14,583

14,221

Net Interest

(390)

(1,593)

(3,421)

(2,516)

(2,704)

(3,607)

(3,607)

Tax

(13)

(15)

(158)

(1,047)

(395)

(1,817)

(1,902)

Preference share dividends paid

(18)

0

0

0

0

0

0

Net cash from investing activities

2,532

(2,922)

(50,012)

(3,352)

(67,725)

(4,750)

(4,000)

Ordinary dividends paid

0

(1,766)

(3,221)

(4,617)

(6,744)

(8,818)

(8,932)

Debt drawn/(repaid)

(21,266)

(10,600)

21,272

6,467

8,151

0

0

Proceeds from shares issued

23,009

19,664

19,114

29

67,651

0

0

Other cash flow from financing activities

(66)

(2)

(2)

(2,897)

(1,085)

0

0

Net Cash Flow

5,085

7,155

(4,141)

2,361

7,048

(4,409)

(4,221)

Opening balance sheet cash

 

 

39

5,123

12,278

8,576

10,937

17,985

13,576

Restricted cash

0

0

0

244

1,048

1,048

1,048

Other items (including cash assumed on acquisition)

0

0

439

0

0

0

0

Closing balance sheet cash

 

 

5,123

12,278

8,576

11,181

19,033

14,624

10,403

Closing balance sheet debt

19,509

37,021

74,011

79,744

101,431

101,731

102,031

Closing net debt/(cash) as per balance sheet

 

 

14,385

24,742

65,435

68,563

82,398

87,107

91,628

Net LTV (exc restricted cash & adjusted for unamortised debt costs)

23.0%

23.3%

37.0%

36.9%

30.0%

31.0%

31.8%

Source: Palace Capital, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Palace Capital and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Palace Capital and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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