Palace Capital (LSE:PCA) — FY20 Annual Results

0:03 Good afternoon, ladies and gentlemen, and welcome to the PALACE CAPITAL Full Year Results Investor Presentation. Before we begin, we would like to submit the following poll. For your information throughout this presentation, investors will be on listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet company dashboard. Finally, I'd like to remind you that this presentation is being recorded. I'd now like to hand over to Neil Sinclair, CEO and Stephen Silvesta, CFO of PALACE CAPITAL. Good afternoon. Good afternoon. Good afternoon, everybody.

0:49 Welcome to our presentation. If I can take you through it.

0:54 So we announced our results a few days ago. Just to remind everybody who does not know, we are experts in regional property investment. We do not invest in London. We think there's far more growth available in the regions, which is why we're there, and we focus to unlock value to deliver attractive total returns.

1:16 So regional returns have outperformed London for the past four years, and we've got a regional portfolio mainly of city center offices, nearly 50% of our portfolio. It's one of the strongest risk adjusted sectors in The UK. We've also got a percentage of industrial as well. What has helped our office buildings is the reduction in office supply, firstly, for the loss of offices to conversion to residential under the permitted development legislation, and the fact that in the main regional cities, there's been very limited development. And we're fortunate, that if you recall the general election, Boris Johnston stated that one of the prime aims of the government was leveling up, and we're already seeing signs of that of encouragement to move to the regions.

2:08 We know particular government departments are looking to move to the regions, and I will tell you about that a little bit late later. We've established our portfolio over the past ten years. We're focused over 60% is on regional office and industrial sector. We do have retail but limited, and we have leisure, which is also limited. So just to highlight, we've outperformed the MSCI benchmark, which was minus 0.5%. Stephen will talk to you a little bit about the dividend. But just to take you back to when lockdown came, we as a business had to do several things. The first was to preserve our cash and to maximize liquidity. And we did that, number one, by canceling the third quarter dividend, which we did, because we did not know how rent collection was going to go. That was very important.

3:03 And secondly, we limited what we call nonessential capital expenditure. If we hadn't authorized it, we stopped it, just to see how things were going. That's the first thing we did. The second thing we did is we were conscious with businesses closing that we would have problems or could have problems in collecting rental. And rental income is very important to us because we have covenants with our banks, so and paying dividends, of course. So we had to decide how best to play that. So what we decided to do as a team was our property team contacted every solitary tenant by phone. We thought that was very important. We did that. And the reason we did that, as far as we were concerned, it was very, very important to maximize our rental income. We've done that. It's very important to us.

3:56 We think the dialogue has actually paid off. Now if you go back to say over the past few months, you know the government have brought in legislation which restricts landlords from collecting rent either by statutory demands or winding up. They've made it very, very difficult. There are a few tenants who publicly have stated they're not paying rent at all and have taken it as an opportunity not to pay rent. There is a code which the government recently bought out, but it's voluntary, where whereby landlords and tenants should behave a particular way towards each other. But make no mistake, there are some tenants that are not interested in any code, and they just take this as an opportunity not to pay rent and treat it as a cash flow issue.

4:45 But what we've done, as we decided, is that we had to talk to as many tenants as possible, which we've done. And for the March quarter ending on June 23, we collected 93% of our rents. So we maximized our liquidity. You can see we've got over 42,000,000. We've got a very active approach supporting tenants when they needed it, particularly the smaller ones. We've had demands for rent deferrals, monthly payments, all that sort of thing. But one of the positive things about this code is if you want a rent concession from your landlord, you have to provide the landlord with financial information, And that, to some extent, has been forthcoming. As far as Hudson 0.25 York is concerned, we've had a number of people come on to us about that.

5:33 That was in danger of closing down because the builders' merchants closed, and in consequence, the supply chain was drying up, but Hudson 0.25 site did not close at any time. It is now at full strength. The marketing suite is open, but the situation is that the completion of the development has been put back from mid January until the March 5. Over to you, Steven. Thank you, Neil. So, yeah, as Neil said, rent collection has has been far more robust than we would have thought initially, which is great, and and very much it down to our approach in terms of speaking to every tenant and and really understanding those their businesses.

6:24 So a great result from the March quarter. And part of the reason we delayed announcing our results until July, usually, we'd we'd announce a month earlier, we wanted to wait and see where June rent collection came out before reinstating dividends. So as you can see, June rent collection, 84% at the beginning of this week. And that will obviously but we'll expect that to increase as we get through the quarter through to September.

6:57 In terms of the financial performance for the year, we actually had a very good year across the board, very active on the lettings, which Neil will talk you through. The portfolio itself has performed well. And and, of course, we converted to REIT latest on the August 1. So very much a part of our total return strategy.

7:18 Dividends, of course, make up a a significant part of that and and being able to eliminate, just over £700,000 worth of tax in the year has, has has meant that we're far more efficient structure as a result.

7:37 Just in terms of our our profit reconciliation, you can see on the table, we we made an adjusted profit after tax of £8,000,000. And the various below the line movements, the major movement there you'll see is the revaluation loss is £17,900,000, which led to the IFRS loss for the year. Clearly, that's a fair value. It's not realized, but it is based on independent valuers' view on the property market yields, the estimated rental values of those properties. And clearly, we're in you know, it's it's challenging times for a valuer, but, ultimately, our our actual operations of the business has been has been excellent this year.

8:27 We've got a table there just showing the history of our dividends payout. We were we were paying up at 4.75 p per quarter prior year. Neil, as Neil said, we canceled our q three dividend as we were managing liquidity and seeing what sort of fallout came from COVID, but we've reinstated dividends. We're paying 2.5 p, as a final dividend in August, and we will look to maintain that as a minimum level going forwards. I'll talk through later why we believe we can grow that dividend back up beyond the 19p in the future. This is a NAV bridging chart. Most of you will be aware of what these mean, but you start off with the NAV per share as at March 19, $4.00 6.9 p.

9:21 And then you can see the major movers that bring it down to 364.4 p as at the end of March. And clearly, it's the revaluation movements that has had the the major influence there.

9:36 Just to touch on our debts. So we've got good relationships with our banks, and and certainly, they've been important at this time. All the clearing banks have been in we've been in touch with them. They've all offered covenant waivers if if need be. Clearly, if if if rent collection is challenging, then it's your interest cover ratio test that come under pressure. And we were not immune. We we have two leisure schemes financed with Scottish Widows and Santander. And at the April test date, those covenants were breached. The banks waived them. They also waived the July test dates.

10:22 However, because some of the tenants were paying quarterly and and and and we agreed that they could pay monthly or some tenants were paying just 50 p in the pound for for a period of time and and will pay their arrears off in the future. There was a timing issue on the April test date. But now that we're hit in July, we've already passed the tests across all of our facilities. So, again, it's very important at this this this time that you have good relationships with your banks and and they support you. But it's really been the two leisure schemes that have come under the most pressure. As you can imagine, if if the restaurants and the gyms and the cinemas are not open, it's been a challenge for them to say the least.

11:12 A schedule just to show you what what covenants that we have with our various banks. As I say, now at the July test date, it looks like we'll be we'll pass all of those tests.

11:25 And then here again, just the just a a history of the dividends that we've paid out. And so for the full year, f y twenty, we will now have paid out 12 p against an earnings per share of 17.5 p, so fully covered.

11:43 Neil, back to you. Right. So if you look at our property portfolio, so you can see that we perform really well in the industrial and office sectors. But, of course, retail and retail warehouse has been affected from a value point of view and in terms of performance, in terms of value. But on the other hand, our retail warehouse portfolio, there's only two of them, the rents have been paid a 100%. And the reason for that is we've got Booker in one, and we've got Pets at Home and Wix in another. And they're fully up to date, and they're trading well. On our retail, and we've got only about seven or 8% of retail, we've got an Aldi supermarket with nineteen years left on the lease, they're paying in full, and the rest of the retail we have is mainly shops in the set of 30,000 a year.

12:35 We've got no department stores. We've got no fashion. We've got no JD Sports, nothing like that. And in the main, our rent collection and retail has been pretty high. And notwithstanding some of our leisure tenants who early on were not paying anything and but have now recommenced, leisure performed the worst of all of them at 79%, and that's in excess of some of the figures even announced this morning by some of the big real estate companies who've got office portfolios. So we're quite pleased with that. If I can just move on a bit. So asset management is what we do, and I think we've got our rent collection to over 90% because our asset managers are in touch with all the tenants, talking to all the tenants, and getting the tenants' point of view as to why they got problems, but then they hear the problems we have in terms of us having to satisfy our banks.

13:40 So by talking, it's definitely helped us, and we've done a couple of deals, which I'll talk about further in this presentation. But as you can see, we've had 47 lease events this year. We've created new leases at nine percent ahead of ERV. We've had 18 lease renewals at 6% ahead and seven rent reviews just slightly ahead of ERV. So we're very pleased with that performance. In terms of sustainable rents, we think this market, companies will be looking for value, and we think they'll be looking more into the regions. Do they need to be in London? Do they need to be in expensive offices in London? It's much cheaper going to the Midlands and the North, And we'll we were already seeing that pre COVID where where some companies had moved north, such as Talk Talk to Salford.

14:34 Burberry's took a big building in Leeds. Channel four have gone to Leeds. That was a trend that was already on the way, but we think now, what we know now, that the government are looking to put certain divisions in the North Of England. We think where we're situated, we'll be beneficiaries of that. It's all part of this leveling up agenda, which could only be good for us. There's limited development in the regions and the loss of office space. So we think we are in a very good space. You can see from the rents there that we perform very well on our office rents. At £16 a foot, it is very, very cheap by London standards. And we think this will encourage tenants to look at the regions, which they we know they're now doing because besides the rent, because they get a reduction in rates as well.

15:31 And for their staff, it's cheaper to live. So in consequence, we think we're we're very well placed. So on Hudson 0.25, we're building a 127 apartments. I was there last Thursday. It's all coming on really well. As I told you, we're running seven weeks later than we thought. The picture you see there is the building as as it was last month. We have 39 and a half thousand feet of offices. And to show you how we create value, when we bought this property, which came with a whole portfolio of properties from Quintane, we bought a subsidiary of them, it was valued at 3,800,000 in 2013. But by 2017, with the planning consent that we got, it was worth 16,000,000. So we created value purely on planning without having built anything.

16:22 We then took the decision, the right approach would be to build it. We estimate that the gross development value will be £69,000,000 which will give us a development profit of at least £10,000,000 and a £20,000,000 cash on cash return. We funded the scheme with Barclays. We have put all our equity in now, and all future payments until completion will be provided by Barclays Bank. We have sold 32 apartments. We had five under offer when we prepared this presentation. We have agreed two more this week for £500,000, and we agreed one at the end of last week, one two bedroom flat, which was also over £500,000. The Marketing Suite was closed during the lockdown. Life became very difficult, but the Marketing Suite is now reopened, and it is very brisk in New York. In fact, the housing market generally is very brisk.

17:16 And we have had no need to reduce any prices at all. The three that we've agreed in the past week have all been at the prices we were quoting pre COVID. So as far as the offices are concerned, there's a four and a half thousand feet unit on the Ground Floor of one of the residential blocks. We've let that to Knight, the quoted law firm, at £25 a foot, and they expect to take possession of that when we complete in March 2021. So we look at opportunistic development in terms of making money and growing the value. And High Street Weybridge, we have an absolute prime site opposite waste opposite Waitrose in the High Street. Weybridge is one of the most prosperous towns in Southern England in Surrey. We've got consent for a small amount of retail on the Ground Floor, but 28 residential units, 19 are one bed, nine are two bed.

18:16 They all fall within the Help to Buy. Very, very helpful to us. It's just a market we need to be in. We are reviewing that scheme at this very moment. We have asked Savills to advise us as to what the sell values are, and the initial feedback we're getting is it is as strong as it was pre COVID. We're also looking alternatively as to whether we might rent the flats rather than sell them. And the third option, which we will look at, is whether we just sell the site with planning permission and whether that achieves the level of profit that we think we can make. High speed Uxbridge came with the Warren portfolio. We have seven residential units we've got consent for, but we think that's a bit small for us to do, and we're likely to sell it.

19:04 Millbarm Medical, that's let until at least March 2022, where we we could do a 10,000 foot development, but we've got no need to make any decision at the moment. Midsummer Boulevard, our property there is a is a 45,000 foot office building. It's only three or four minutes walk from the station. Milton Keynes is growing anyway. It's got a resident population now approaching 300,000 from a standing start fifty years ago. We were initially looking at a potential office development there, but what's coming to the fore is that PRS could be the way forward. So we're looking at a residential scheme at Midsummer Boulevard.

19:50 But knowing how long planning takes, how difficult it gets, although we've had very encouraging noises in the council, we are saying that when we get consent, we will decide what we do. But in any event, it will not start for four years. So Lemington Spa, we've got office buildings there of 40,000 feet, fully let until November 2022. We've got an acre and a half in Leamington Spa, one of the prosperous towns in the Midlands. We have spoken to the planning authority, although a bit early, and they pretty well told us that we can do a similar scheme to what we have in York. And Lemington Spa is high value residential. And finally, Bolton House Manchester, that's a property we bought for just over £10,000,000 four years ago. It was recently valued at over £15,000,000 and that's because we were getting rents of 12 to 13 when we bought it. We're now getting 18 to 19.

20:48 That property also includes a very big open car park, and we've got the potential there of doubling the size of the building to 150,000 square feet. And that's situated about three minutes in Piggy Billy. This is our Weybridge property. It's fifty years old. It's passed us its sell by date, and that is why we're looking to possibly develop it or sell it with planning permission. So we also create value through refurbishment. This is in Jamesgate, Newcastle. We are about three minutes' walk from Newcastle Station. Some of you may not know that Newcastle has a metro system as well, one of the few cities that does. We paid £20,000,000 for this three years ago. The average rents when we bought it were just under £18.

21:36 We're getting now over £21. We did quite a recent deal with National Lottery who occupied two floors. We are refurbishing two floors, but they're not ready until November, and they'll be available for letting. They are letting space near us,

21:53 similar building at over £24 a foot, and there's another building which is being erected by the legal in general, and our understanding is they have let a good chunk of that to the government at £26 a foot. So Newcastle, we think, is gonna be one of the big beneficiaries of this levelling up agenda. And this building is 1 Derby Square, Liverpool. We were attracted to Liverpool because there's been very limited development, and they've lost over 1,000,000 square feet of office space. So there's this underlying shortage there. And we bought that for £14,000,000 with a 7% just under a 7% yield. They were getting £12 a foot when we bought it. We've been doing rent reviews in there at nearly £17 So that's already showing good growth just in the course of eighteen months.

22:45 This is what we call repositioning. This is our leisure scheme in Northampton. Obviously, hospitality has gone through a very difficult time, but we've actually turned it a little bit to advantage. You can see at the bottom there, ACCOR has the hotel within this scheme. They had a lease until 2027. They asked us for six months rent free because they were closed. We agreed with them, we signed, whereby we've extended their lease by five years. So we have Accor through to 2032, and they start paying rent again in March. Gravity, we did a letting of 21,000 feet to them last year. They've come to us, same thing, wanted six months rent free. Instead, we've agreed with them that they'll pay half rent for twelve months, but in return, they had a break clause in nine years' time that has been removed.

23:40 So we've now got gravity for fourteen years without break.

23:45 This is our value creation. I've already mentioned all these five properties, all situated in prime locations. We are very fussy about what we buy, but when we see something interesting, we go for it. We have a disposal strategy. We like recycling our money. This is a little shopping center we've got very small in Banbury, which we intend to sell once we finish the asset management. Russell House came with a company we bought six years ago. It's actually performed quite well, but it's not a good building. We think it's far it's gone as far as it can go, and we're going to sell it. We haven't announced it, but last Friday, we sold a property for 1,250,000, which came with a quintane portfolio from seven years ago.

24:33 A lot of it was vacant. We got 1,250,000. It wasn't charged, so we get all the money. And we intend to sell more properties, one in Winchester, we've just put on the market, which is vacant another one in Southampton, which we intend to sell and again, Sol Northampton, which is our leisure asset, once we finish the asset management, that is not a long term hold, and we will be looking to sell that and concentrate on exposing the company to the office and industrial sectors. Over to Steve. Thank you, Neil. So next couple of slides really is about trying to demonstrate the growth potential within the portfolio. So we've got a contracted income, pounds 17,600,000 at the end of March twenty twenty.

25:20 And you can see there's 23% potential uplift in our rents, the majority of which is vacant space. So £1,800,000 worth of income that we can tap into if we can let some of the vacant space. Some of that has been refurbished. Some of it is being refurbished, and and and that's a real opportunity for us. There is also some vacant space that's that's vacant for a reason because of a strategic plan to redevelop the asset. But the maturity, we we should be able to let and and really see that that rental growth. And then there's also almost million pounds of rent that will come in once we've actually let all of the York commercial space.

26:11 So there's there's potential there. And then in addition, we've we've put this slide together, which is effectively it's it's an aspirational growth projection, and it's and it's trying to give you an idea of what happens once York, which is a major development for us, once it completes next year, we we pay back Barclays development facility. And once we've sold all of the residential, it should release about £25,000,000 of cash, which we can then leverage and redeploy. So this is a hypothetical, having redeployed 50 mil in 7% yield in property. You can see earnings per share, which was 17.5 p this year. You can see a real a plan, really, to see that grow upwards to 23 p.

27:07 So that, in addition to the vacant space that we're looking to refurbish and let, there's a real plan there to grow our rents. And fact, there's a question I noticed, which will go to q and a in a minute, but there is a question about our dividends. Now that it's at two and a half p, is there is there a plan to increase that? Well, absolutely. And and this this plan really is is should should give you some comfort that over the next couple of years, we should be able to grow our dividends back up towards the level that that we were at previously. And certainly, you know, completing York, which has had which has taken a a a significant amount of capital over the last few years, will will play a major part in that.

27:55 So I think just to conclude, and then we'll get into some q and a, the rent collection, going back to COVID, rent collection has held up extremely well. We're very pleased with the relationships we've got with our tenants, and and how our team has performed. We've we believe we've got the right assets in the right locations, and we are focused on the right sectors. The office and industrial sectors, the values have really held up well, and we think there's plenty of growth there in the regions. We've got income reversion I just talked through

28:31 and and potential future income growth. And there's also plenty of capital growth there that we're forecasting at York. As Neil said, sales prices are in line with viability. So really excited about how that is progressing. So we've got regional expertise. We've converted to REIT status in the year, which gives a a more efficient structure. And we believe the government leveling up agenda is really gonna support, and and and we're gonna be part of that that growth. So

29:07 we're we're in a great position. Really pleased how we've gone through the lockdown, and our rent collection is strong. Thank you for listening. I hope that was helpful. Neil, why don't we should we take a few questions? Yes. Just before, guys, let me just come in, if that's okay. If I could just remind investors, please continue to submit your questions. You can do so throughout the Q and A session in addition to the live event in addition to the presentation

29:38 using the tab situated on the right hand corner of your screen. I I just wanted the company to take a few moments to review those questions submitted today. I'd like to remind you that a copy of the recording along with the slides and published Q and A will be available via your Investor Meet company dashboard. I guess before I hand back to Neil and Stephen, I'd like to remind you that your feedback is important to the company. Immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order

30:03 that the company can better understand your views and expectations. Stephen, obviously, we had a couple of questions that were submitted pre event regarding the position on pre lets and of sales, which have been answered through this presentation. But perhaps if I can just hand back to you just to perhaps read the questions as you see appropriate with your response, that will be great. Right. So the first question is, can you please walk us through your intended approach to the residential development of Weybridge? Will you develop it yourself or set it on as a shovel ready project with full planning permission? As I said in our presentation, we've asked for the latest figures from SABLES. They've told us the market is strong, number one. Number two, both one and two bidders fall within the help to buy,

30:56 which is very helpful to us. So we decided when we looked at the potential of what we might make if we sold the site at York and what we thought we might do if we developed it, it became very clear the right thing to do was develop it. We're not sure as yet what the right approach is on Weybridge. We can tell you that the site is not charged. We have no money on the site. So as far as developing that is the only money we need to find is to develop it. If we did develop it, if we did, it certainly wouldn't stop for at least a year. That's that's how we look at it, but we're going to review it very carefully within the next eight weeks, and we will see what we can achieve if we sold the site with planning permission, what we might make out of that, and secondly, what we might make if we saw if we developed it. Remember, we're also thinking

31:51 on Weybridge, besides selling the apartments, about renting them, because we think the rental market's gonna strengthen, particularly particularly in the South. So that's how we see that one at the moment. And just to remind you, Weybridge was called by The Times, if you read their residential section, Weybridge was called the Beverly Hills of England. So that's not me talking this then. So we we are gonna review that, and we make a decision probably in about two months' time. Your next question, it seems like your main focus is on office and industrial. Is it reasonable to assume that over time, you'll sell your small retail exposure and recycle the proceeds into your core sectors? I think, effectively, the answer to that is yes.

32:39 But remember, we have one or two retail things like Liverpool, which are retail on the Ground Floor, and we've got 50,000 feet of offices over. So it's not that easy on something like that. But we have got four shops in Salisbury, lettered rents of 30 to 40,000 a year. Is that core? No. And at some time or other, we do see ourselves selling our retail holdings. We see no point in keeping it if we intend to focus on office and industrial. We then talk about shares trading at 50% discount, and the board's focus this year is to narrow that discount and to do whatever we can, to narrow the discount.

33:30 In terms of share buybacks, we've taken advice from our brokers on this, and they're not very popular. We can do it, but it reduces the value of the company, which is not what we're looking to do at the moment. And secondly, it's not a it's not a very good use of our money if we believe, which we do, that opportunities are gonna come available in the next little while. So, really, as far as we're concerned, it's on the it's always on the agenda, but I wouldn't say it's high up the list.

34:04 You then talk about Circle property. We've got a stake of 500 just over 5% in that. We bought that because we were looking, and so is the market, for the market to consolidate. Circle is too small to be a listed company. Market cap is 45,000,000. They do very similar things to us. Just to say we can sell it quite openly, we had discussions with Circle last year. But one of the problems with these small companies, which I found in the nineties, there were a lot of small companies around, not dissimilar to them, is that they're a lifestyle company. And if you look at the money that the executive team take out, it's virtually double what we what we take out and what most others take out.

34:57 And do they wanna give that up? No. So when we met with them, they weren't that happy to talk to us. But the position may change now because they've got individual shareholders who don't see an exit that quickly if they wanna make one. So that certainly might change. On Hudson 0.25, just to let you know, we sold 32. We've a few died away, we had a few under offer, but one of the problems there is some of the people who had flats under offer said, well, we'll exchange if you give us 20% discount. And one, we weren't gonna do that anyway, and secondly, our agents said there is absolutely no evidence of any reduction in values in York.

35:48 And in fact, in the second hand market, prices have actually risen in York in the last few months, which is quite interesting. But we've got 32 sold. We had five sold as of last week. We've now sold two. We've agreed to sell two this week. There is no question it has picked up very significantly. We're getting very strong interest and at the prices that we were quoting pre COVID. I'm gonna let Steven talk about the next question, why we're continuing to list under real estate investment.

36:27 Yeah. To to be honest, it's it's a question that, for some reason, I think sometimes they put put you in the wrong bracket. But, yeah, it it it's we're we're in the real estate sector. I guess we've we converted to rate during the year, so it hasn't been updated. But I'll take it away with me, and and and we'll follow that up. Next question here. In terms of your geographic footprint, are you happy with the markets that you are in, or are there other cities you would like to expand into? Yes, there are. We had a holding in Birmingham, but we sold that. Priory House was mentioned in our statement, which we got well above book value. We're still keen on Birmingham, and we're keen on Bristol.

37:14 But the problem is that it's quite hot there, and we looked at something in Bristol that we were really interested in, but we just couldn't make it work. It was just too expensive, and it got sold to the legal in general. And to be honest, you can't really compete with them. But they probably took the view they could get a better return on that than some of the other things they're doing. So in consequence, it's difficult. So we're looking certainly looking in Bristol. We're certainly looking in Birmingham. We're certainly looking at Edinburgh, and we're looking Glasgow. But and and we would continue to look in the cities where we're already represented, but we'll only do it where we can see a return to us. And a lot of these prices are just too high. And in this market, I don't think that's a clever thing to do.

38:09 The question of the dividend, that's for Steven. Yeah. So as we mentioned in the presentation, we've set it out at 2.5 p, wanting it to be cash covered. And as I said, we we would expect our rent collection to improve over the year. And and actually, once we've got more security on on on the cash, we'd look to increase our dividends over time. Right. So next question. With the share price so low, is there any reason why directors have not bought any shares? Well, they have actually. If you actually look in the past little while, some of the directors have bought shares, and but that's always under review. We're looking at that. Make no mistake, the shares are very good value at the moment. We know that.

38:55 Will we be story worth adding as well. Between effectively, for the last few months, we haven't been able to buy shares because we've been in a closed period because we've we've known about our results. So we're now in a position to and so that may change. Yeah. Will we be increasing our stake in Circle property? I don't think I should comment on that, but there's no moves to do so at the for for the moment. Will you be looking to diversify the portfolio into other areas like student housing or data centers? We did look at student housing about two years ago. We came quite close to buying a portfolio, but the yield was just unacceptable. We just couldn't see ourselves making any money, so we veered away from it. Data centers is something that we are beginning to look at, but it's very, very preliminary.

39:50 Next question, could you give more details about the downside scenario from final result RNS? I'll let Steven answer that one. Yeah. So just to explain, clearly, very difficult time. Well, being in a crisis, auditors have been scrutinizing your every company's going concern and viability. And what they've been asking us, and across the market to do is is to effectively stress test your debt covenants, look at downside scenarios, and and understand what what does it actually do, what what does it take to break the business. And for some companies, you know, who are cash rich with with with limited costs, obviously, it would take a lot. For companies who are over geared and and struggling with their cash collection, well, it's not gonna take too much to see quite a bit of distress. So that's really, where where they were going, with with the year end audit. And the downside is really just a a hypothetical what happens if you lose half your income, Can you survive? And, clearly, there was a slide we provided near the front of the pack which looked at the rent collection and the liquidity.

41:10 You know, we we do have significant cash resources that that we could actually go, you know, over twelve months and not collect a single bit of rent, and we would still be, fined. So it's, that that was the that was really, something that auditors were pushing across, across the market this time around because of the crisis. Next question. Do you see further impairment in the NAV of the portfolio? Well, I can tell you, we had a note through from Knight Frank yesterday that the industrial market, there's no no downside at all. There is still very strong demand for industrial investment and office investment. No question about that. So we've got over 60% of our portfolio there.

41:59 We have got retail and leisure, but we've already taken an impairment on both of those. We've got asset management initiatives all of it. So as far as I'm concerned, if there's going to be any impairment, it'll only be in those sectors. But we think we've taken most of it anyway. So if if it's anything, it's gonna be very limited in our view. The next question is, you seem to have plenty of development potential in the existing portfolio. Does that mean you're no longer looking at acquisitions? Not at all. As far as we're concerned, the only development that is ready to go really at this well, not now, but within twelve months is Weybridge. All the rest are three or four years away, and therefore, yes, we will be looking at acquisitions probably later in the year.

42:51 We've been looking at two or three private property companies, which are in a little bit of difficulty. The problem is at the moment, not like not dissimilar to last time, they don't realize the difficulty they're really in. And when they realize it, that's the time we're gonna do a deal with them. And that, we think, is gonna come towards the end of the year. So we think looking for those type of corporate opportunities, which we really like doing, we think, at the moment, they're going be few and far between, but they will be they will be around later in the year, early next year. The next question is how will the mini budget, for example, stamp duty and home improvement, affect PALACE CAPITAL?

43:37 Well, the good thing is that on York, we were completing in January. We are on time as far as the revised contract date is concerned, which is March 5, and our agents have told us the phones were already ringing soon after the chancellor's statement. I mean, it was not it was an open secret anyway, but he actually confirmed it, and it's up to £500,000. We have quite a few of those in York, and needless to say, it's it's very, very helpful. You then said here, one of your tenants' view, do you have any concern if movies like Trolls are offered direct to consumers? No. We didn't have initially, and we were concerned. There are three main cinema operators in this country. You've got Cineworld, who have got their own problems, particularly with high debt.

44:31 You've got Oleum, which is part of an American group that are going through difficulty at the moment. We are fortunate in that view are 75% owned by two big Canadian pension funds. They're really very well backed. They're very confident, and they have told us they are opening both of their cinemas at the beginning of August. Then you've got the next question. Looking at the June rental payments due, what proportion was actually received on the due date in cash in accordance with the signed lease? How much is subject to monthly and other installment plans, and how much have you agreed to defer? So how much cash has actually been received to date compared to last year? So we can tell you about the March quarter. I'll let Stephen talk to you about that.

45:17 Yes. The March quarter, effectively, I think we're at 93% is well, of the 93 let me just take you back to the slide. Bear with me just for a minute because it'd be helpful just to reference. That doesn't seem to be good. But effectively, from March quarter, we're at 93% collected or on payment plans. Of that 93%, 91% is cash. There's 2% left, which is is down to either being invoiced later in the day. But so for March quarter, effectively, 91% has been cash collected.

46:10 June quarter, clearly, we're still partway through, and we we said that 84% is collected on payment plans. Of the 84%, so 64% is cash collected. The remaining 20% will come in over the next couple of months in accordance with payment plans. So yeah. And and actually, just just to give you a bit of color on that, March quarter, yeah, of all the collections we had, the office collection was at 94%, leisure was at 79%. So that was our that was where we were struggling. Industrial was up at 97%. Retail was 90%. Retail warehouse was a 100%.

46:55 So, you know, as as we've said before, very good rent collection, and the majority was cash collected, but there were some agreements made with tenants to defer rents. But for the majority, it's a case of here's a concession, but you the arrears will need to be paid off by the time you get to 03/31/2021. The final question is, do you intend extending the term of the Barclays development facility for Hudson House just in case October 2021 doesn't provide a lot of leeway? Steven will answer that one. There is a response to that. Yeah. So so so we have actually spoken with the bank and pushed the facility out a further three months in case we need it.

47:43 But, yeah, there's there's there's there's headroom at the at the end of this facility. And, I mean, just to give you a guide, we've got a 127 apartments to sell. We need to sell on average or approximately half of those units to pay the debt back. So we're at 25% now. There's probably another 25% to sell over the next few months, and that will then get us to a point where we can pay the debt back fully. Thank you, Steve. And I think, guys, you've probably addressed most of the questions, if not all of the questions that have been submitted today. And I know you're very keen to have feedback from the investors on the call. So shall I just hand back to you guys just to finally wrap up, and then I'll take it back and show where people can provide you feedback.

48:34 Yeah. So so as far as we're concerned, what we're focusing on in the future is to maintain the dialogue with the tenants, maintain strong rent collection, maintain strong liquidity. We think we're fortunate. If you look at one of our slides with our top 20 tenants, one is not paying at the moment with ACCOR because they got a rent free, and only one other has not paid the March rent. All the rest are paid. I've learned in life that covenant is very important, and we're very fortunate we have very strong covenants. And I think it's because we've got strong covenants and because we are working with our tenants that we've got these strong rent collection figures. I mean, what we're looking to do going forward, we know we're not big enough.

49:22 That is an issue. We're looking at consolidation. We've been looking at others within our sector. There's a few that we have looked at, but we've decided not for us. So we will continue in that vogue. But notwithstanding this crisis, we think we've managed it reasonably well, and we think we've got the team in order to fight this virus and what it's done to us. But we think we're in a strong position. And we think we'll come out stronger and fitter than ever. And with the government boosting the regions, it can only be good for us. So we look to the the future with considerable confidence. Thank you very much, Neil. Neil, Stephen, thank you for updating investors today as part of your results road show. Could I ask investors not to close this session as you'll be automatically redirected for the opportunity to provide feedback?

50:16 Just to say, if you access this meeting from our website, then the feedback will appear automatically. If not, you will be asked just to simply log in and provide your feedback. On behalf of PALACE CAPITAL, Neil and Stephen, thank you for attending today. That now concludes today's presentation. Thank you very much for attending.