Earnings deferred to unlock potential

Palace Capital 15 May 2019 Update
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Palace Capital

Earnings deferred to unlock potential

Trading update

Real estate

15 May 2019

Price

283p

Market cap

£130m

Net debt (£m) as at 30 September 2018

86.1

Net LTV as at 30 September 2018

30.3%

Shares in issue

45.9m

Free float

95%

Code

PCA

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.6

(7.9)

(17.8)

Rel (local)

4.1

(8.8)

(12.3)

52-week high/low

364p

278p

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 event

FY19 results

4 June 2019

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

Palace Capital (PCA) has confirmed that FY19 independent property valuations are marginally up on the prior year, although adjusted earnings will be lower than previously expected. This is due to the deferral of some near-term lettings, as part of its asset management-driven total return strategy. Management has reiterated its commitment to the current level of dividends, expecting these and other asset management initiatives, including the flagship Hudson Quarter development in York, to deliver future income and capital growth.

Year end

Net rental income (£m)

Adj. PBT*
(£m)

Adj. EPS*
(p)

EPRA NAV/
share (p)**

P/NAV
(x)

DPS
(p)

Yield
(%)

03/17

12.2

6.7

22.2

443

0.64

18.5

6.5

03/18

14.9

8.5

21.2

414

0.68

19.0

6.7

03/19e

15.9

8.6

15.9

411

0.69

19.0

6.7

03/20e

18.6

11.2

20.8

415

0.68

19.0

6.7

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.

Asset management limiting near-term earnings…

Palace has held off letting some of its vacant space in order to enhance medium-term returns through refurbishment and redevelopment. As a result, the company says that FY19 adjusted earnings will be “slightly below expectations”. We have reduced FY19e adjusted EPS by c 9% to 15.9p and while FY20e adjusted earnings increase due to a favourable lease surrender settlement, FY21e is also reduced. We believe our estimates are conservative, capturing little or none of the upside that management expects from asset management initiatives (due to the difficulty in forecasting this and no contribution from the Hudson Quarter development, which is expected to complete by the end of FY21. In view of this upside potential, the strong cash position and comfortable c 33% LTV, management has reiterated its commitment to the current level of DPS.

…but should enhance total return

Palace is not a REIT and while it seeks to generate returns by growing recurring income, it also has a parallel focus on increasing capital values. It has built a strong track record of value creation over several years, primarily driven by corporate acquisitions, which additionally benefit from lower stamp duty and provide the potential to benefit from acquired tax losses and capital allowances. NAV total return in the five years from September 2013 (H114) to the end of H119 is 126.1% – a compound 17.7% pa. Strong reversionary potential and a range of opportunities to further reposition and grow the portfolio are positive indicators for future returns.

Valuation: Significant potential

The yield is approaching 7% and management has committed to the current level of DPS despite a near-term earnings cover shortfall. The discount to EPRA NAV is c 30%. Asset management initiatives to capture reversionary potential and progress with Hudson Quarter are potential triggers for a re-rating.

Significant operational developments

There have been several significant developments since the interim results, most notably including non-core disposals and accretive reinvestment, leasing events and progress with the Hudson Quarter development in York. We review these in brief below and discuss our forecast revisions in the financial section that follows.

Residential disposal completed

The £18.2m disposal of 50 of non-core residential assets acquired as part of the October 2017 Warren portfolio that was agreed in November 2018 has now fully completed and since year-end two additional properties have been sold for £0.8m. Including sales earlier in FY19, 55 of the 65 residential properties acquired have now been sold, with just 10 remaining, of which the company has previously indicated an interest in retaining two. Proceeds of more than £20m have been generated by the disposals at a blended average 98% of book value. The gross rental yield on the residential assets was less than 4%, and disposal frees capital for recycling into the commercial portfolio where yields are significantly higher (H119 net initial yield of 5.7%).

Acquisition of Derby House, Liverpool

In December 2018 Palace acquired the freehold of the recently refurbished One Derby Square in Liverpool for £13.98m (before costs), reflecting a 6.75% net initial yield. The property was 96% let at acquisition to a range of tenants including Prêt a Manger, Tesco, Medicash, Reed Specialist Recruitment and Brook Street. The acquisition is in line with PCA’s strategy to focus on city centre locations in university towns and regional cities with a positive supply-demand position and the company sees a significant further opportunity for active management to capture reversionary potential and enhance the future capital value.

Hudson Quarter development progress

At the Hudson Quarter development in York, demolition has been completed, a £35m construction contract has been signed, and the contractor is on site. As an indication of the profile of the development and the sensitivity of the site, within the city walls and just a minute’s walk from the York railway station, the Archbishop of York recently officiated at the commencement of building works. The scheme, which comprises three residential buildings and an office building, will provide 127 flats, 5,000 sq ft of retail/restaurant space, 34,500 sq ft of offices, and car parking. Construction is expected to take around two years. Marketing of the scheme will be formally launched on 20 June 2019, when the first batch of apartments will be offered for sale. York was recently voted by The Sunday Times as the best place in the UK to live (2018), and the company reports strong early interest. Palace also expects Hudson Quarter to indirectly benefit from a complementary proposed development, in which Palace has no financial interest or ownership, at York railway station, known as York Central. Outline planning consent was granted in March 2019 for 2,500 homes and 932,00 sq ft of offices. In February 2019, a £26.5m loan facility was signed with Barclays Bank to part-finance the development, alongside existing cash resources. The terms have not been disclosed but management describes the facility as being “on very competitive terms”.

Palace also reports a strong pipeline of development opportunities, within the existing portfolio, in core city centre locations. In High Street, Weybridge, Surrey, the company has secured a resolution to grant planning consent for the development of three retail units and 28 apartments, subject to a Section 106 agreement, and hopes to be able to secure formal planning approval later this year.

Active leasing and positive lease surrender

During FY19, 37 leases and rent reviews were completed at an average of 14% ahead of estimated rental value (ERV), or an uplift of £0.8m on the previous passing rent of £3.4m.

Since the year end, a lease surrender has been agreed with the tenant of Priory House in Birmingham, which is expected to complete on 31 May 2019, under which the company will receive a significant cash sum upfront in respect of the remaining lease term, which runs to December 2027. Palace acquired the leasehold to the property in October 2013 as part of the Sequel portfolio acquisition from Quintain. The tenant vacated the building in 2012 but has continued to pay the £322k annual rent. Under the surrender agreement, Palace will receive £2.85m, effectively all the rent due until the lease expiry, allowing it to move forward with a business plan for the property, and boosting its cash resources. All options to maximise the value of the asset, £2.2m as at 30 September 2018, are currently being assessed, including a potential refurbishment or development in conjunction with the freeholder, or alternatively a sale of Palace’s freehold interest.

Financials

Palace operates a total return model

Palace is not a REIT and operates a total return model, carefully targeting properties at attractive prices that provide an opportunity for active asset management strategies, including refurbishment and development, to unlock potential and grow sustainable cash returns. This means that unlike most REITs it is not always focused on maximising near-term portfolio income. By operating this total return strategy, Palace has built a strong track record of value creation over several years, primarily driven by corporate acquisitions that additionally benefit from lower stamp duty and provide the potential to benefit from acquired tax losses and capital allowances. NAV total return in the five years from September 2013 (H114) to end-H119 is 126.1% or a compound 17.7% 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 resulted 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 1: EPRA NAV total return history

(p unless stated otherwise)

H214

FY15

FY16

FY17

FY18

H119

Cumulative H214–H119

Opening EPRA NAV per share

218

341

388

414

443

414

218

Closing NAV per share

341

388

414

443

414

421

421

Dividend per share paid

2.5

8.50

14.00

18.00

19.00

9.50

72

NAV total return (%)

57.8%

16.0%

10.5%

11.2%

-2.1%

4.0%

126.1%

Compound annual average return (%)

17.7%

Source: Palace Capital data, Edison Investment Research

For FY19, management indicates that having taken a strategic decision to hold back on near-term letting of some vacant space in order to enhance medium-term returns through refurbishment and development, adjusted earnings for the year that ended 31 March 2019 (FY19) will be slightly below expectations. However, it expects to be able to enhance total returns over time while improving the overall quality of the portfolio. Given this expectation, and backed by a solid cash position, the board has reaffirmed its commitment to maintaining the current level of dividend payments despite the near-term dip in income, although our forecasts suggest that the dividend may not be fully covered by adjusted earnings, on a recurring basis, until completion of the Hudson Quarter development, expected in early calendar 2021/late FY21.

Material earnings adjustments

Refurbishment development activity, and the potential for value creation, is a core element of the Palace strategy, but can be difficult to forecast with accuracy, both in terms of timing and impact. This is particularly the case in respect of a significant development project such as Hudson Quarter (see below) but is also true for smaller projects. The nearer-term income effects of the letting deferral and lease surrender are easier to model and have a noticeable impact on our forecasts, both positive and negative (Exhibit 2), but we would not consider this to provide an accurate reflection of potential value creation over time.

Palace has indicated that end-FY19 gross passing rent, excluding the non-core residential assets held for sale and now mostly disposed of, was £17.7m. After the deduction of non-recoverable direct property costs of £1.9m the net effective rent was £15.8m, c £0.5m lower than we had assumed. This is the main driver of our FY19 forecast revision.

The additional one-off £2.85m of lease surrender income lifts our FY20 forecast, although this is partly offset by the lower starting base of net contracted income, and our no longer assuming any acquisitions in FY20. We had previously assumed a notional c £5.2m acquisition, adding just over £400k in annual gross income, but we now anticipate that given more uncertain market conditions Palace will be even more selective and perhaps more inclined to focus on its internal asset management opportunities.

FY21 sees no benefit from the lease surrender income and carries the full impact of the forgone recurring rental income.

Exhibit 2: Forecast revisions

Net rental income (£m)

Adjusted PBT (£m)

Adjusted EPS (p)

EPRA NAV (p)

DPS (p)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

03/19e

16.5

15.9

(3.9)

9.5

8.6

(9.3)

17.6

15.9

(9.3)

414

411

(0.9)

19.0

19.0

0.0

03/20e

17.0

18.6

9.6

9.5

11.2

17.8

17.7

20.8

17.8

419

415

(0.9)

19.0

19.0

0.0

03/21e

17.5

16.0

(8.5)

9.8

8.5

(13.2)

18.1

15.7

(13.2)

425

419

(1.4)

19.0

19.0

0.0

Source: Edison Investment Research

More specifically, our revised forecasts include the following key assumptions:

We have included the completed disposal of non-core residential assets and the acquisition of Derby House, Liverpool, but assumed no further portfolio acquisitions or disposals. The sales of the residential assets crystallise a c £3m deferred tax liability assumed on acquisition. There is no impact on IFRS net assets, but the EPRA deferred tax add-back will reduce.

We have allowed for 1.0% pa like-for-like rental growth through to the end of FY21, with a c 0.5% pa reduction in voids. We note that this captures only a small part of the reversionary potential in the existing portfolio, with an ERV at 31 March 2019 of £21.5m compared with the £17.7m contracted rent roll.

The trading statement indicates a marginal increase in the underlying property valuation in FY19 compared with FY18, which implies some negative revaluation in H219, reflected in our forecasts. For FY20 and FY21, we assume modest positive revaluation in line with the assumed rental growth, implying no change in yields.

During the forecast period, the Hudson Quarter development (see below), due for completion in early calendar 2021/late FY21, has no impact on forecast income, and we assume no impact on capital values, although positive revaluation is possible as pre-sales of residential units progress and as the project approaches practical completion. With the development loan interest capitalised, there is only a modest impact on net interest expense in relation to the non-development loan funding. The primary impact is on LTV as a result of the development funding taken on during the construction phase, partly offset by deposits on re-sales of residential units. We forecast group LTV to increase to a little under 40% during the forecast period, but to then reduce to less than 30% after FY21 as a result of full and completed divestment of the residential assets and recognition of development gains. The LTV may peak at a lower level than we forecast if the Hudson Quarter valuation benefits from revaluation ahead of completion. We have assumed that 10%, 40% and 80% of the residential units are pre-sold by end-FY19, end-H120 and end-FY20, respectively, and that Palace receives up to £3.9m by way of deposits paid on pre-sold units at the point of contract exchange. We do not expect any residential sales to complete until after practical completion. Post-completion (and beyond our forecast period), we expect the retention of the Hudson Quarter office building to contribute to recurring rental income.

During the timeframe of our forecast period, we think it likely that PCA may bring forward other development projects from within the existing portfolio, although none is assumed. We would expect any commercial asset development to be balanced with the desire to maintain and grow core income.

Hudson Quarter progressing

The Hudson Quarter development has the potential to add materially to our forecast NAV and adjusted earnings when complete. Our expectations can be found in detail in our update note in December and the only change that we have made to these is to slightly reduce the capital development loan interest, having previously assumed a larger facility to fully fund the construction. Palace is yet to provide any firm guidance on the financial impact of the Hudson Quarter development but our assumptions are based on discussion with management and industry observations We forecast the full development cost to be c £54m, including the £16.8m site value at 30 September 2018, construction costs of £35m in line with the construction contract, and capitalised development loan costs. The impact on NAV will reflect the development gain on completion or the gross development value of the completed assets compared with the £54m development cost. Construction cost risk should be minimised under the construction contract such that the main uncertainty is market conditions at or nearer to the point of completion/sale. As we have commented on elsewhere, market fundamentals for York are currently positive. We show a range of potential outcomes in Exhibit 3, and note that a 20% development profit margin, the level that we think would be a target for management, would lift our forecast FY21 EPRA NAV by 5% or 20p.

Exhibit 3: FY21e NAV sensitivity to assumed Hudson Quarter GDV

Development profit margin (%)

5%

10%

15%

20%

25%

30%

Gross development value, GDV (£000s)

56,467

59,155

61,844

64,533

67,222

69,911

Source: Edison Investment Research

Our expectation is that Palace will sell the residential assets and retain the office development to provide recurring rental income, which our analysis suggest could be c £1.0m pa. The potential impact on FY21e NAV, adjusted earnings and LTV, assuming a 20% development profit margin, is summarised in Exhibit 4. In addition to lifting forecast EPRA NAV by 5%, this scenario would reduce LTV by more than 11 percentage points to less than 30% and enhance adjusted earnings per share by 19% to 18.6p.

Exhibit 4: Illustrative impact of combined Hudson Quarter at 20% development margin

£000s unless stated otherwise

Pro forma

Existing

Uplift

Income account

FY21e adjusted PBT

8,473

Add commercial income

963

Interest saving

626

PBT

10,062

8,473

Tax rate

15.0%

15.0%

Tax

(1,509)

(1,271)

Net adjusted earnings

8,552

7,202

Fully diluted adjusted EPS

18.6

15.7

19%

Balance sheet

Development profit

10,756

Deferred tax payment on part sale

(1,275)

EPRA NAV

201,903

192,422

Diluted EPRA NAV per share

439

419

5%

LTV

29.3%

39.8%

-10.6pp

Source: Edison Investment Research

Clearly, there are risks attached to our analysis and to development activity in general. We have been explicit about the assumptions that we have made, but the actual outcome could differ materially from what we have assumed, especially at planned completion in 2021, when market conditions may have shifted. Development activity runs risks of cost overrun or delay and the development activity is being undertaken on a ‘speculative’ basis. However, we expect PCA to target pre-sales of residential space and pre-letting of commercial space well ahead of completion.

Valuation

Palace’s strong track record of total returns is shown in Exhibit 1 above. The shares are trading at a c 30% discount to EPRA NAV and provide an almost 7% dividend yield, albeit less than fully covered on a recurring basis during the forecast period to end-FY21, excluding the lease surrender payment in the current year. Exhibit 5 compares the valuation and share price performance of Palace with a peer group of UK commercial real estate investment companies with a strong regional focus. Many of these are REITs and correspondingly give more focus to recurring income returns compared with Palace’s total return strategy. Due to the continuing search for sustainable income, and perhaps due to concerns about the maturity of the economic and commercial property cycle, those companies with an income focus have seen stronger share price performance. As a result, Palace is now trading at a considerable P/NAV discount to the peer group and a yield premium.

Given the strong track record of total return generation and the potential to drive further returns from the existing portfolio, the Palace valuation continues to appear undemanding. As more detail about the potential returns from the Hudson Quarter and the company’s other asset management plains aimed at capturing the significant reversionary potential in the portfolio emerge this may serve as a catalyst for a re-rating of the shares.

Exhibit 5: Peer comparison

Price (p)

Market cap. (£m)

P/NAV* (x)

Yield* (%)

Share price performance

1 month

3 months

12 months

From 12M high

Circle Property

197

56

0.72

3.0

0%

6%

25%

-23%

Custodian REIT

117

466

1.08

5.6

1%

2%

-1%

-5%

Mucklow

553

350

0.97

4.2

6%

9%

-3%

-4%

Picton

96

517

1.04

3.6

4%

8%

8%

-1%

Real Est Inv

55

103

0.80

6.4

2%

7%

-1%

-11%

Regional REIT

109

408

0.95

7.4

3%

8%

8%

0%

Schroder REIT

59

305

0.85

4.3

0%

1%

-4%

-13%

UK Commercial Property Trust

92

1194

0.98

4.0

4%

6%

3%

0%

F&C Com Prop

119

953

0.86

5.0

1%

-4%

-17%

-23%

BMO Real Estate Investments

94

226

0.89

5.3

0%

2%

-11%

-13%

Average

0.91

4.9

2%

4%

1%

-9%

Palace Capital

285

131

0.68

6.7

0%

-8%

-17%

-22%

UK property index

1,715

4.0

-1%

2%

-7%

-8%

FTSE All-Share Index

3,968

4.7

-3%

0%

-6%

-9%

Source: Company data, Refinitiv. Note: Prices at 15 May 2019. *Last reported EPRA NAV per share and trailing 12-month DPS declared.

Exhibit 6: Financial summary

Year end 31 March (£000s)

2014

2015

2016

2017

2018

2019e

2020e

2021e

PROFIT & LOSS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

Rental & other income

 

 

3,252

8,637

14,593

14,266

16,733

18,060

20,424

17,742

Non-recoverable property costs

(648)

(1,200)

(1,624)

(2,055)

(1,824)

(2,201)

(1,800)

(1,750)

Net rental income

 

 

2,604

7,437

12,969

12,211

14,909

15,859

18,624

15,992

Administrative expenses before share-based payments

(649)

(1,439)

(2,048)

(2,915)

(4,185)

(3,585)

(3,500)

(3,570)

Operating Profit (before capital items)

 

 

1,955

5,998

10,921

9,296

10,724

12,274

15,124

12,422

Revaluation of investment properties

19,501

9,769

3,620

3,101

5,738

2,040

2,834

3,087

Costs of acquisitions/profits on disposals

270

(461)

(525)

3,191

274

(689)

0

0

Operating Profit

21,725

15,306

14,016

15,588

16,736

13,625

17,958

15,508

Net Interest expense

(573)

(1,398)

(2,264)

(3,011)

(3,432)

(3,917)

(4,105)

(4,148)

Profit Before Tax

 

 

21,153

13,909

11,752

12,577

13,304

9,708

13,853

11,360

Taxation

81

107

(953)

(3,191)

(773)

(1,708)

(1,683)

(1,271)

Profit After Tax (FRS 3)

21,234

14,015

10,799

9,386

12,531

8,000

12,170

10,089

EPRA adjustments:

Revaluation of investment properties

(19,501)

(9,769)

(3,620)

(3,101)

(5,738)

(2,040)

(2,834)

(3,087)

Costs of acquisitions/profits on disposals

(270)

461

525

(3,191)

(274)

689

0

0

Deferred tax charge

0

0

0

2,200

(299)

441

0

0

Other adjustments

0

0

0

155

308

0

0

0

EPRA earnings

1,463

4,707

7,704

5,449

6,528

7,090

9,336

7,002

Adjusted for:

Non-recurring items

0

0

(3,172)

0

698

0

0

0

Share-based payments

12

114

110

237

174

213

200

200

Adjusted earnings

1,475

4,821

4,642

5,686

7,400

7,303

9,536

7,202

Company adjusted PBT

1,394

4,714

5,595

6,677

8,472

8,570

11,219

8,473

Average fully diluted number of shares outstanding (000s)

5,264

17,489

24,618

25,738

34,980

45,932

45,951

45,951

Basic EPS - FRS 3 (p)

 

 

403.4

80.1

43.9

36.5

35.8

17.4

26.5

22.0

Fully diluted EPRA EPS (p)

 

 

29.1

26.9

31.3

21.2

18.7

15.4

20.3

15.2

Fully diluted adjusted EPS (p)

 

 

31.4

28.3

18.9

22.2

21.2

15.9

20.8

15.7

Dividend per share declared (p)

4.5

13.0

16.0

18.5

19.0

19.0

19.0

19.0

EPRA dividend cover (x)

6.47

2.07

1.96

1.14

0.98

0.81

1.07

0.80

BALANCE SHEET

Fixed Assets

 

 

60,086

104,470

175,738

183,959

253,984

277,280

302,376

326,655

Investment properties

59,440

102,988

174,542

183,916

253,863

277,177

302,273

326,552

Goodwill

6

6

0

0

0

0

0

0

Other non-current assets

640

1,475

1,196

43

121

103

103

103

Current Assets

 

 

7,060

15,653

11,903

13,692

46,292

35,600

20,741

15,798

Debtors

1,937

3,375

3,327

2,511

5,551

4,650

6,423

4,826

Assets held for sale

0

21,708

11,708

2,908

2,908

Cash

5,123

12,279

8,576

11,181

19,033

16,390

8,558

5,212

Other current assets

0

0

0

0

0

2,852

2,852

2,852

Current Liabilities

 

 

(4,171)

(3,487)

(9,048)

(8,197)

(11,520)

(14,649)

(18,389)

(18,884)

Creditors

(2,971)

(3,087)

(6,815)

(6,161)

(8,834)

(8,525)

(12,265)

(12,760)

Short term borrowings

(1,200)

(400)

(2,233)

(2,036)

(2,686)

(6,124)

(6,124)

(6,124)

Long Term Liabilities

 

 

(18,599)

(36,620)

(71,778)

(79,895)

(105,457)

(115,175)

(117,987)

(135,222)

Long term borrowings

(17,384)

(35,407)

(69,711)

(75,758)

(97,157)

(108,012)

(112,324)

(129,559)

Deferred tax

0

0

0

(2,187)

(6,531)

(5,472)

(3,972)

(3,972)

Other long term liabilities

(1,215)

(1,214)

(2,067)

(1,950)

(1,769)

(1,691)

(1,691)

(1,691)

Net Assets

 

 

44,376

80,016

106,815

109,559

183,299

183,056

186,742

188,346

EPRA net assets

 

 

44,370

80,010

106,924

111,759

190,011

188,632

190,818

192,422

Basic NAV/share (p)

357

396

414

436

400

399

407

411

Diluted EPRA NAV/share (p)

341

388

414

443

414

411

415

419

CASH FLOW

Operating Cash Flow

 

 

1,297

4,388

12,287

10,294

9,899

12,563

17,316

14,740

Net Interest

(390)

(1,593)

(3,421)

(2,516)

(2,704)

(3,511)

(3,805)

(3,848)

Tax

(13)

(15)

(158)

(1,047)

(395)

(2,121)

(3,183)

(1,271)

Net cash from investing activities

2,532

(2,922)

(50,012)

(3,352)

(67,725)

(14,406)

(12,700)

(20,042)

Ordinary dividends paid

0

(1,766)

(3,221)

(4,617)

(6,744)

(8,710)

(8,710)

(8,710)

Debt drawn/(repaid)

(21,266)

(10,600)

21,272

6,467

7,066

13,907

3,250

15,785

Proceeds from shares issued

23,009

19,664

19,114

29

67,651

0

0

0

Other cash flow from financing activities

(84)

(2)

(2)

(2,897)

0

(30)

0

0

Net Cash Flow

5,085

7,155

(4,141)

2,361

7,048

(2,308)

(7,832)

(3,346)

Opening balance sheet cash

 

 

39

5,123

12,278

8,576

10,937

17,985

15,677

7,845

Restricted cash

0

0

0

244

1,048

713

713

713

Other items (including cash assumed on acquisition)

0

0

439

0

0

0

0

0

Closing balance sheet cash

 

 

5,123

12,278

8,576

11,181

19,033

16,390

8,558

5,212

Closing balance sheet debt

18,294

35,807

71,944

77,794

99,843

114,136

118,448

135,683

Unamortised debt costs

239

399

734

936

1,107

1,239

939

639

Closing net debt/(cash)

 

 

12,931

23,130

62,634

65,677

79,703

96,507

108,951

129,832

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

23.0%

23.3%

37.0%

36.9%

30.0%

34.3%

36.4%

39.8%

Source: Palace Capital data, Edison Investment Research

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This report has been commissioned by Palace Capital and prepared and issued by Edison, in consideration of a fee payable by Palace Capital. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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New Zealand

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. 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 (i.e. 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.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Palace Capital and prepared and issued by Edison, in consideration of a fee payable by Palace Capital. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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