Palace Capital (LSE:PCA) — Palace Capital plc 2021 Interim Results Presentation

0:05 Good morning, ladies and gentlemen, and welcome to the PALACE CAPITAL PLC Interim Results Investor Presentation. Throughout this presentation, investors will be in 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. Just simply type in your question in the box beneath and press send. 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. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll. We'd be very grateful if you could respond to that. And I'd now like to hand over to Neil Sinclair and Stephen Silvesta, CFO of PALACE CAPITAL. Good morning.

0:56 Good morning, everybody. Welcome to our interim results presentation. Thank you for attending this morning. So just get my slides right. I clicked a bit too quickly there. Sorry about that. So we are experts. We feel we are in regional property investment. We focus on the regions, and we focus on unlock on unlocking value to deliver attractive total returns. We are a total return PLC. So we got established just over ten years ago. We bought control of a very small listed company, and we use that company to buy corporately several properties and portfolios in the regions. We think the regions is what it's all about at the moment, particularly with regard to the government's leveling up agenda.

1:48 Regional office returns have exceeded those generated by London. We think that may accelerate as the regions get get more interesting to people in the South. We will talk a little bit about working from home. Yes. It has accelerated structural changes in the office market, but that was happening pre COVID. People were starting to work a little bit more from home even pre COVID. It's just accelerated it. But in our view, the office has a very important role to play. It will continue to do so. We said in our statement that on two previous occasions, people thought the office market was going to go out of business. It didn't. It won't, and it will carry on, but it will be different. So we're quite proud of our stock selection and tenant profile, and you'll see in a minute why we are very fussiest about what we buy, and this has been borne out.

2:44 And, of course, the growing importance of the regions is supported by the government's leveling up agenda, with companies considering decentralizing to reduce their exposure to very expensive Central London rents. The other important thing about the leveling up agenda, as you've probably noticed, that there's a northern group of MPs that have got together, who are quite powerful and very vocal, and they've got plenty to say at the moment, and we're definitely finding that's very helpful. So this is a slide showing our rent collection. So what we did at the beginning of April, soon after lockdown, we assembled in the office and we thought how we're going to go get through this pandemic because people were closing, they were not operating, and a number of them had told us they were not gonna pay any rent.

3:38 That had problems, of course. We've got bank covenants. We've got a dividend to pay, all that sort of thing. How are we gonna work all this? And I've been through a few downturns, and the critical part is getting out the is getting out the other side. That's all that we focused on. So we decided that rent collection was gonna be absolutely crucial. So all our properties are externally managed by leading firms, but our property team, about four, five guys, what we did is we contacted every tenant. We've got over 200 tenants. We contacted them by telephone. If we couldn't, we did it by email, but we got in contact with all of them. And we wanted to open a dialogue mainly because we wanted them to know that the problems that we would have if they didn't pay rent, and we wanted to know what their problems were.

4:32 So that's that was very important. Secondly, we've got quality covenants here who can pay the rent anyway, but some of them may have had problems. So what happened, we entered into this dialogue, and you'll see the third company down, is that core hotels. So they've got an Ibis hotel in Northampton paying 510,000 a year. We've also got a share of turnover as well. They closed, and they said to us, look. We're closed. It's ridiculous us paying rent while we're closed. But we said to them, right. We are prepared to consider a rent concession, but only if you agree to extend your lease. And their lease expired in 2027. We signed a deal with that core whereby it got extended by five years.

5:20 So effectively, we've got another 2,500,000 in rent because we extended the lease by five years, and we gave them six months rent free, which is 250,000. Yes. That 2,500,000 is deferred, of course, but it also helped our value. So that's the one deal we did. Not mentioned on here. We've a company called Gravity also in that in that building where we, again, got a break clause removed in 2029, and they've now got a lease right the way through twenty thirty thirty four. And we said in our statement that last Friday night, we did a deal with TGI Fridays. They hadn't paid us rent since March. We're having a real struggle with them. But in the end, we've given them a rent free period, but in return, they've extended their lease by three years. We've got a company on the right called Bravoisimo, who you can see there. They were the ones that didn't pay the rent.

6:17 And when we got their management accounts, it was pretty clear that they couldn't. So they said to us, the minute we reopen, we will recommence paying rent. They didn't pay March. They didn't pay June, but they paid the September quarter rent in full, and we're in discussion with them about the arrears. So at the moment, we are getting very, 100% rent collection from our top 20 tenants, which is 44% of our passing rents. And you could see the quality of our tenants there, Booker, Circle, Redland, and right at the bottom there, we've the Bank of England. So I think you're okay. So we talk about a very strong rent collection. You can see the accounting return against our peers over a seven year period.

7:06 We canceled the dividend in April because we did not know how things were gonna pan out. Our rent collection was 96% for the March quarter, but we didn't know that at the beginning of March. In June, was 94%. But we canceled it, but we recommenced it in August, and we're paying another dividend in we pay one in October, and there's no we're paying in December. Our minimum dividend is 2.5 p a quarter, So it's a minimum of 10 p, but we are hopeful that we'll be able to increase it later in the year. But we don't wanna do that until we're absolutely sure how things pan out. Hudson 0.25 was due to complete in January. This is our flagship scheme in York of a 127 apartments and 39 and a half thousand square feet of offices.

7:57 It's now gonna complete in March. It's late because during the lockdown, there was a problem with the supply chain. We sold 36 apartments. I'll talk about that a little later when I'm talking on the presentation. These are the lease renewals and rent reviews we've done, all of our best to make it record value. We would have done more, but we have found during this pandemic, things go very slowly. Rent reviews are slow. Lease renewals are slow. No one seems to be in a hurry. We just have to live with the system. So that's what we've done so far. Stephen will explain that our debt covenants, whilst we had an issue last April, we've been compliant in July and October with all our banks. So the priority focus for focus was on rent collection.

8:49 We decided maximum liquidity was what was the absolute essential thing to consider back in March. So we focused on rent collection, and we started looking at selling some properties, notwithstanding the pandemic. We've announced we've sold two. We've got four on the market at the moment, and we've got one very close to agreeing a sale. We want to build up our cash position, one for working capital purposes, but secondly, going forward, we see opportunities probably in the spring, no earlier than the spring, where we think the first signs of distress will start to appear. So the leisure sector, which I mentioned here, has been hard hit. You all know about hospitality and how difficult it's been, but we've only actually lost an income, about 200,000 a year to CVAs.

9:45 Now the interesting thing about leisure is that we have, two leisure schemes, and we always say that property people actually know what's happening out there in the market. The media do not know, and the man in the street doesn't know, but we know. And the reason we know is that in August, in a leisure sector we've got two leisure schemes in Halifax and Northampton. I was in both of those in August. We've got vacant space in both. In August, we had no interest in the vacant space in either scheme. Today, we have agreed lettings in both to a restaurant group. We've agreed to let the unit in Northampton, and we've agreed to let the restaurant group a unit in Halifax.

10:33 We've also got talks on to let most of the remaining space in both schemes. And bearing in mind that three months ago, there was nothing happening. It is pretty clear to me that the leisure sector probably bottomed out about two or three months ago. You as investors will know a company floated about a month ago. Hugh Osman floated floated a company called various eateries. His whole purpose is to take units that have been abandoned by companies through CVAs. And in fact, one of the units we're letting in Halifax was Frankie and Benes, part of the restaurant group. They did a CVA on that. The reason the people are taking that unit is it's fully fitted.

11:19 So they've got very little capital expenditure, and that's what these groups are taking advantage of. So Hudson 0.25 remains open throughout lockdown. It never closed, but the supply chain was restricted, which is why we're now gonna pitch it in March and not in January. I'll just take you through some of the financials. Neil's obviously touched on the rent collection, which was a priority for us over the last six months. But as you can see there, good collection stats across the three quarters. September quarter runs through till Christmas, so that 13% still due to be collected in November and December.

12:04 But as you can see, we would expect to have collected over 90% across all three quarters. So in terms of the financial highlights, hopefully, we've had a chance to look through our half year statement. I'll pick out a couple of the key metrics and talk you through those. The income statement, I will talk through in just a minute. The balance sheet, you can see the portfolio valuation now up to $281,000,000 and that is up largely because the construction phase at Hudson 0.25 has been progressing. So we've spent money there over the last six months.

12:50 You can see the loan to value, which is 42%. Now that's up from 38%. And the reason for that is because the construction phase at York has has all been debt funded. And you would know that we forecast that. We expect to loan to value to tip just over 40% mark. And again, I'll talk you through a bit more about where we expect that to go in 2021. So in terms of the income statement, as you know, for property investment companies, it's the adjusted profit figure, which is our recurring earnings. That's a key metric for us. And GBP 3,400,000, which translates into sufficient earnings per share with which to pay out the dividend. So you can see over to the table on the right, we've made 7.3p earnings per share. We've declared a 2.5p Q2 dividend, which takes us up to 5p for the six months. So dividend cover, 1.5x at this stage. And just a point on dividends, you remember from the year end statement, we said that we would be setting out a minimum level of 2.5 per quarter going forwards. And as we get greater clarity post pandemic, we'll look to increase that in line with the REIT requirements.

14:25 So this is the revaluation movement. Sorry, I should just go back just to explain. So we've had adjusted earnings of 3,400,000 Overall, for the six months, we have a loss for the period of 7,200,000. And you can see the large figure there is the revaluation losses, £10,000,000. So that's Cushman's, the independent valuers who value our entire portfolio every six months. And they've marked down across the board our valuations, £10,000,000, not not not realized, but but obviously book values, which results in a loss for the period of 7,200,000. And then just to explain that, so like for like valuations are down 3.5% for the six months. That compares favorably against the benchmark albeit fairly fairly close.

15:17 And you can see the different sectors where where we've been where we've incurred those losses. So office sector, £6,100,000. Bearing in mind that the majority of our portfolio is offices, you would expect. But in the office sector, it's really come down to two main assets. One of them being an asset we have in Milton Keynes where excuse me. We've lost two tenant leases expired. And as a result, the the valuer has marched down the valuation of that property. But Neil will give you a bit more detail on that property because there is plans for redeveloping it.

16:03 Another asset was down in Southampton where we have some solicitors. A break notice due. The valuer has to assume that that break notice will be exercised, marks the valuation down. That break notice is now expired. And so the lease will get extended. So by the time we come around to March year end, that valuation will come back up again. So they were the two main impacts on office. And as you can see, the leisure sector, pounds 3,200,000 of markdowns across our two assets. And Neil's explained why that's the case. This is the usual bridging chart just to explain how net tangible assets have gone from 364 p back in March down to 347 p.

16:53 And you can see that's the revaluation movements on the properties that have that's brought that down. Bear in mind that the share price is currently trading at around 210 p. You can see we're still discounted in the market around 40%. And if I can just talk you through our debt, clearly debt covenants have become scrutinized, have come under the microscope in the last six months in April because tenants suddenly withheld rent and then we had to provide our covenant tests. We had interest covered test breaches with two leisure schemes and the banks provided covenant waivers.

17:43 But as Neil said, the October sorry, the July and the October covenant test dates we have passed, which is great. And and largely, that's because a lot of tenants would have gone from quarterly to monthly in this period. So, you know, there was a time lag in those initial couple of months. But our debt book is in good condition. We have no facilities due to expire in the next twelve months. The next one to mature is the Barclays development facility on Hudson 0.25, York, and that will clearly get repaid as we sell residential units. Worth just touching on covenants.

18:29 So as I said, the loan to value is now up to 42% as a result of those valuation markdowns. And we really expect that to stay fairly level over the next six months. And just to sort of think big picture, at Hudson 0.25 in York, we have we we've got a 127 apartments to sell. 36 have already sold. Once we've sold all of them, it will generate just over £50,000,000 in cash. And the development facility is about half that. So, you know, looking long term, we would expect those residential units to be sold and it and it will release about £25,000,000 of cash back into working capital.

19:23 As a result of that, loan to value will fall and we're projecting it to fall towards 30%. Neil, back to you. Yeah. So this is the overview of our of our portfolio. So you can see for h one twenty one, it's increased to $281,600,000. That's because we built more of Hudson 0.25 as we approach completion. You can see our net net initial yield is just under 6% with a reversionary yield of 7.3. Our contractual income is 16.9. We've lost some income, as Steven said at Milton Keynes. Our estimated rental value, which we'll share in a minute, on all our properties is just over £20,000,000, and our is four point nine years.

20:13 Our void rate is 15%. We always have some void space anyway, partially because you're assembling a property for redevelopment or refurbishment. So it has to slowly be surely become empty. You can see our weighting there. We've got 43.4 in offices, Development 18.7, which is Hudson, and our industrial weighting is just over 14. So our core sector is 76.2%, which are these. Leisure and retail is not core for us, and we'll we will be looking to exit those in due course, not now because it is the wrong time to sell them. And you can see on the right there that we've outperformed in most cases, nearly all of them actually. We've we've exceeded the MSCI benchmark except for office in the rest of the Southeast.

21:04 All the rest, we've exceeded it. So asset management is what we do, and what I think I said earlier in in this presentation, we talk to our tenants. We've done 13 lease events, three new leases, which are lettings, of course, seven lease renewals, and three rent reviews. We would have done more, but it's all been incredibly slow. And to give you some idea what's happening, we have a building in Southampton of 20,000 square feet, led to a quite a big firm of lawyers, and the rent review is last May. And we still haven't got the results from the independent expert. So we're now six months later, and we still haven't got it. Yes. It could all be backdated once it's done, but we have to cope.

21:56 What we definitely noticed, people are not acting as quickly as they used to, and we don't know whether this working from home may have something to do with it. We've got sustainable rents across all the sectors, so we think the regions is where it's at. And looking at our portfolio, our average rent is just about £16 per square foot, which is low for offices when you think in London, it's like 80 to 120. So there's great benefits to companies by moving divisions to the regions. That was beginning to happen pre COVID. Channel four have gone to Leeds. Burberry's have gone to Leeds. Talk Talk have gone to Salford, and Hiscox went to York about three years ago. So that has been happening, but we think it will accelerate.

22:46 You can see our rent our rentals as compared against rental value. You can see our rental reversion at the bottom there. We've got a rental value of about £20,000,000, but that excludes the property in York, which is the office building, which is not yet completed. So here's our current rent roll. So 16,900,000 is our contracted rent. We've got 1,900,000 of rent that we'd like to get in vacant space. Letting vacant offices has not been easy in the last six months for obvious reasons. We are agreeing a few lettings now, which, to be honest, we weren't doing even a month ago. So we think there are definite signs of a comeback there. 1,200,000 is properties we're holding for refurbishment and redevelopments, and Milton Keynes is one of them.

23:42 No 400,000 is in respect of rent free. Lease renewals with another £300,000 of income and 500,000 we deduct because the rent we're getting is in excess of rental value. So rental value at the moment is 20,200,000. We expect with York to get another 900,000 a year, and that could be a potential estimated rental value of 21,100,000. So this is Hudson 0.25. Of course, it's a CGI. That little inset there tells you where we were earlier this month. I was there two weeks ago. Most of the scaffolding is now down. We've got a 127 apartments and 39 and a half thousand square feet of offices, of which we've let four and a half thousand. We are projecting a gross development value of 69,000,000 with a 20,000,000 cash on cash return.

24:32 We have no more money to pay as far as finishing the construction is concerned. We've only got a few million left anyway, that's funded by Barclays. We've sold eight apartments since the beginning of April. Slow. We would like to have sold more, but we're in lockdown for four months. Our Marketing Suite was shut, and in consequence, life got really difficult. It picked up again, and then it went down again because we've got the second lockdown. And what has happened on on-site is that our Marketing Suite is now gone because when that area in the front is where the Marketing Suite was, that's now being landscaped as part of the construction, which is really in about four months time.

25:19 So the situation is we have a show flat in the Victoria block at the moment, but one of the problems is you have it's a construction site. And you have when you get there, could only go by appointment and you gotta wear PPE. So we've got basically, we've had one hand tied behind our back. But I will tell you that it has picked up literally in the last week. So we did a reservation last night, which I agreed to. And the second thing is is we've had a a very, very big social media campaign on this development focusing on Hong Kong because 200,000 Hong Kongers are expected to come to The UK in the next two to three years.

26:04 So we've had huge interest in Hong Kong, but the problem is we've got no air corridor with Hong Kong, and they can't come and have a look at the at the site. And that's caused a bit of a problem. However, two nights ago, the air corridor we now is now lifted between The United Arab Emirates and The UK. That was lifted two days ago. So in we've had in huge interest from there. And what we're now doing is we're stepping up our marketing campaign in The Emirates literally starting today because the air corridor is now open. And in Hong Kong, what we've done is we've instructed Knight Frank Hong Kong office also to to market these units.

26:50 There's particular interest in The UK from Hong Kong. There's a statement this morning, Li Xiaoching, who's one of the richest men in Hong Kong, is rumored to be buying this huge thing in Wembley Of Quintang. So we expect to complete this in March 2021. Besides the apartments, we've got 30 a 35,000 foot office block. It's looking really good. It's only a minute from York Station. We have interest in it. We are talking to a potential tenant for half, top three floors. They are they're now down to three properties that they're shortlisted. Two are in Leeds, and one is in York. It's no longer money. It's whether they want to be whether in Leeds or whether they wanna be in York.

27:39 We think they wanna be in York, but we won't know that for a couple of weeks. But we are talking seriously to them, and we've been talking rents, and we've been talking lease term. So that's that one. So we have opportunistic development. Hudson 0.25 would have been that little while ago. We've got a property in High Street, Uxbridge, where we just got consent for seven units. We're going for consent for further three, but it's a bit small, and we're probably gonna sell that one. Mill Barn Medical, we've a tenant break in March 2022. We've got a potential there for 10,000 feet of offices and 10 flats, but it's eighteen months away before we could even do anything if we wanted to. So Midsummer Boulevard, Milton Keynes, this is a building of about 50,000 square feet, office building, mainly empty now.

28:31 It's about three or four minutes walk from Milton Keynes Central Station. It is also only a 100 yards from the new Santander Digital HQ for The UK. Santander are building 900,000 square feet. It's absolutely huge, and we are literally a 100 yards away. We are in absolutely prime location. We have a three story building. Those of you who don't know, when Milton Keynes was founded fifty years ago, you were not allowed to build higher than the tallest tree. The good thing is that fifty years have gone by, of course, the trees have got taller. So in consequence, we can go much higher. And we've already been told that we can probably get a 140,000 square feet on this site, which will be residential and likely to be built to rent rather than for sale.

29:24 Now Leamington Spa is a very upmarket Midlands town. It's about an hour from London by train into Mariburn. We've got two office buildings there fully let till November 2022. We have a we've got an acre and a half in the middle of the town. We've got we've spoken to the planning authority, and we can get a similar scheme to York, not as big, but we can get a similar scheme to York, mainly residential, some offices, should we wish to do so. And we're looking at that now. And Bolton House Manchester, we bought that for 10,500,000, back in 2016. It's been valued at over 15,000,000 now. Manchester has done really well as far as the regions are concerned. We have a property there of 75,000 square feet.

30:11 We've also got a very big open car park, which is hardly used, and our planning people have told us that we can get a building on this site of double what we have now. So very considerable potential on that one. This shows you our cash on cash returns. You look at Hudson 0.25 when we bought that seven years ago as part of the portfolio from Quintane. We only paid 3,800,000 for it. And that that was a pardon me. This is a final alarm. Please excuse me. So you can see there we've got an ungeared IRR of 17%. High Street Wage came with acquisition of property investment holdings six years ago. We bought it for 3,500,000. We had good income from that. It's now vacant. We've got planning consent for a small amount of retail and 28 apartments, and we've put that on the market because we do not want to increase our gearing at the moment. We might have done this development pre COVID, and we were looking to do it, but we think the right thing to do now is to sell the property.

31:14 Bolton House, I've talked to you about that. I'm geared IRR of 11%. Now Kiln Farm Milton Keynes is a classic PALACE CAPITAL deal. When we bought this off Quintane in 2013, there was three office buildings, 38,000 feet that was left to Rockwell for eight months. They were threatening to leave. We did a deal with them. We refurbished both their buildings and they stayed, took a leases of twelve years and they're still there. And then another building came vacant two years later, we had to decide whether we sold it or whether we did the refurbishment. We took the decision to refurbish it, and we've let that to money a ready. So you can see our end geared return IRR is 19%.

31:59 And finally, Aldi and Gosport, this was part of the Warren portfolio bought three years ago. That was only left for twelve years or thirteen years when we bought it at $247,000 a year. We have some land joining. They wanted the land. We said you can't have that unless you take a new lease on the lot. So they did for twenty years, and we've got Aldi at 291,000 a year subject to uplifts. So that's showing an ungeared IRR of 15%. This is not sold Northampton. And if you like trampolining or crazy golf or rock climbing, this is where you go. Gravity Fitness, I've got units right across the country. They're backed by the Guinness family. They're a very, very well run operation. When they were open, they were crowded, and they certainly helped us at this particular scheme in bringing footfall.

32:56 As you can see here, we've taken out their break clause and given them some sort of rent concession. Last week, our board authorized spending a million pounds on this property to refurbish it. And in order to get all the rest of the space left, they're all expecting us to do some work, which we intend to do. As I said recently, we've got interest in all the remaining space, and we are very confident on that particular one. So this is about recycling our capital. We think besides maximizing rent collection, you have to sell properties as well. We sold two, which we announced. We're selling 8,300,000, which are four properties, which are on the market.

33:42 You never know in this business, we've had a proposal for another building, which looks quite attractive, and so we may sell a fifth. Now in terms of HQ, we we're gonna use the sell the sale proceeds to pay down the debt and then, hopefully, in the spring and the summer of next year, use those proceeds to buy distressed opportunities, which all leads insolvency advisers and restructuring people tell me is coming. Finally, equity partners, which you mentioned at the bottom, we are looking at some significant deals at the moment, but because of our share price, we cannot raise equity while our share price is where it is. So we're talking to people with capital in order to do joint ventures so we can do more significant transactions.

34:37 Steven? Yeah. So just to bring it to a conclusion. For those of those of you who know us, you know, we've been investing in the regions for a number of years now, we we think there's still exceptional value to be found. Within our existing portfolio, we've got income reversion, as Neil talked you through. We've got capital growth opportunities. Clearly, over the next twelve months, we're focused on selling the residential units at Hudson 0.25 and leasing the office space. But beyond that, there is a pipeline of opportunities that we will start working on with regards to planning and ultimately development. So a real opportunity within our existing portfolio, but but also looking to what what could happen out in the wider market.

35:30 We think there will be some distress next year, and and and we want to be ready for that. We know that we've got a good team. We we've got good experience in the regions. We've also got REIT status, which means we've got an efficient structure to support that. And, really, with the government leveling up agenda, I think we're in a good position to take advantage and make the most of the opportunities into 2020 you very much indeed, Neil and Steven. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the company take a few moments to review investor questions submitted already, I'd to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your Investor Meet company dashboard.

36:22 I'd also 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 your feedback in order that the company can better understand your views and expectations, and they'd be most grateful if you could do that. Neil, Stephen, just to of course, investors had the ability to pre submit questions. We received a number. I know you've touched on a number of these throughout the presentations, but perhaps if you feel that there's any other clarity that you can add. The first question was please provide an update on rental collection for the September quarter, both as absolute amounts and as a percentage of the sums due. Please also split between retail, leisure and offices. And I think you will be providing a chart for that, I guess. Yeah. We can do that, provide the the sector splits. I think, you know, the the concern if I was if I was an investor would be, you know, what's going on with the retail and leisure.

37:21 But so so just to give you some numbers around that. Actual cash received for for the latest quarter, office sectors at 89%, retail is at 76%, leisure at 58%, industrial 82%, and the retail warehouse at a 100%. So as at as at a few days ago, we were 82% overall cash collected. We then had a further 13% that was forecast to come through in over the next couple of months through to Christmas. So and, you know, a large part of that, your the leisure sector interest rate at 58 cash received to date, there's a further 32% that's expected in the next couple of months.

38:09 That's clearly because the leisure sector, that's where we've spent most of our time with in terms of concessions, allowing tenants to go from quarterly to monthly. Thank you. The next question is what proportion of developable assets do you believe are aligned to your view of the 2021 economy in their various parts of the country? Of the rest, what proportions are regarded as a, trading assets held for resale or b, as providers of income streams? So I think we've got a slide. I'm just going to track back to there is a slide on slide 18 where we talk about our opportunistic development. So there's a number of assets there where there is an opportunity to to develop.

39:05 I think none of those will be developed next year. You know, these are longer term. We've gotta go for planning first and and take it through the planning process. So really next year for us, it's all about Hudson 0.25 completing that development, selling the flats and letting the office space. Perfect. Thank you. I think just touching on Hudson 0.25, we had a number of questions in. In the last update, 10/13/2020, out of the 127 apartments, we've sold 36 of them. How confident are you, you can sell the rest of them by end of March next year? Also, you going to reduce your debt with the proceeds? Right. So the situation there is we are confident.

39:52 Yes. We've sold 36, and, it's been difficult. But we've got now I've got two under offer now. We we won last night. It looks as though we're gonna agree another one today. It started to pick up again. We have not moved on our price at all. This is about holding your nerve. I've see I went to the scheme on my regular visit just two weeks ago. It's looking really good. And the great thing about York, as against other cities, is York is not that big. It's a relatively small city, and it's always had an underlying shortage of residential so that in the during the global financial crisis, values in York did not fall. They plateaued.

40:39 We see no reason to reduce, our prices. And the one we agreed last night was at our viability figure, and we're getting we're we're not negotiating on anything. We don't think we need to. We think as the scheme goes towards completion, people will realize how good it is. There's a huge courtyard there, which you don't realize how big it is until the scaffolding came down, and it looks really great. I'm a great believer cream goes to the top. So we're very confident about it. I have to be honest. Pre COVID, we were very hopeful of selling most of the apartments by the time this development was completed. We won't, but we will sell them. It's just a quick it's just a fact they'll be deferred.

41:29 But I think you will see sales start to accelerate as we start to come out of the pandemic. Thank you very much indeed, Neil. Neil and Steven, perhaps I could just ask you to just look at the Q and A tab that's on the right hand corner of your screen. If you would be so kind as to perhaps start at the top and you can use the scroll bar to to take your way down. Yep. You can see you've got a number of questions. It's a good time to be selling commercial property. If I could ask you to read out the questions and who's it from, that would be fantastic. So thank you, Neil. Right. David l, is this a good time to be selling commercial property? Depends what you're selling. If it's our leisure schemes, the answer is no because we think it's bottomed out. We don't need to sell it now and therefore we shouldn't. But the ones we've got on the market, there is demand because there's no shortage of money around.

42:17 So we're taking the view on the right properties. Yes. We will sell them because we are getting interest. Steven, you're next, Derek. So Gavin L has asked what's the interest hedging policy. So we've we we do have some hedging in place across our facilities. We we have about 50% of that debt currently fixed or hedged. Clearly, interest rates are as low as they've ever been. And so, actually, whether you're whether you're fixing or floating at the moment, the rates are actually fairly comparable. And most lenders will put us will they'll put a floor on any on any interest cost anyway so that if it does go negative, zero will be the floor. So, yeah, so we've got half of that debt is hedged, and we're fairly comfortable with how that stands at the moment.

43:20 So, I agree there'll be there will be in distress opportunities next year. How will you evaluate the quality of these distress opportunities as some will be value traps? Well, the position there is in our early stages of PALACE CAPITAL, we mentioned in our statement, we bought a subsidiary of Quintane, and we bought a company called Property Investment Holdings. They were both distressed. Quintain and we buy corporately. We try and buy the companies, not the assets. So if we show as an example, the Quintain subsidiary, we paid the value was 39,250,000, but the fact was that Quintain owed 38,000,000. So in consequence, we paid just over £1,000,000 for this company, and the advantage there for us was, as you know, on share on share purchases, you pay half a percent, whereas on property, you pay 5%.

44:16 So we literally saved on the quintane deal £2,000,000 in stamp duty land tax. On property investment holdings, that was a distressed situation because they had got themselves into difficulty with long dated swaps. What had happened was the facilities had expired, but the swaps went on for another seventeen years, which was quite incredible. The properties were valued at 30 at 32,000,000. They owed 22,000,000, but the negative value of the swap was 10. So effectively, they had no equity. But we negotiated with the banks directly and managed to do a deal with them whereby they took a 4,000,000 hit on their 10,000,000 swap. So in consequence, in the end, we bought those companies that company for 3,400,000.

45:07 And in consequence, again, significant saving in stamp duty land tax. And we we we are known in the market as buying corporately. Most of our acquisitions have been corporate. So we are known for it, and we think there are private property companies around who are already in distress. But as you know, the banks have been told to hold off this year by the Bank of England, and insolvency people are telling me, you're not gonna see these until the spring. But they are coming, and we wanna be there when they do. I think next one's for you, Steve. Yeah. So question is, what does the reduction in share premium do and how does it add value? It's it's so if if anyone looks at the accounts in the in the balance sheet, there's been a transfer from the share premium account into the capital reduction reserve.

46:05 It's a bit of housekeeping. Strictly speaking, no added value. What it means is it's possible to distribute from that reserve, whereas from your share premium account, cannot distribute. Alright. Billy, where do you anticipate the sale prices will be in relation to the current valuations? We anticipate no change. We have not moved at all on any of our prices. We don't see any need to. The average price of these apartments is on a capital value basis, £550 per square foot, and we're achieving that. So we see absolutely no reason to change that. Shagar s Sorry, Neil. Just just on that question, if that was if if that was about other disposals that we've got in our portfolio, do wanna just comment on that? Okay. Yeah.

47:00 So, well, as far as we're concerned, on the properties we have got on the market, we have book values. Our view our view is they will be at or above book. We see no reason why they'll be less. So Shagar s, is there room to cut expenses further? To be quite honest, we got a first class team in our office, finance team, only 12 people altogether. So we're quite small, but we got quality people. And you can see by the quality people, they've been dealing with all this rent collection. And this is a very difficult thing to deal with and deal with tenants. And we've got over 200 tenants, and you need people to deal with it. So, yes, we could cut expenses, but I don't see the point. I'd rather use our good people and get our rent over 90% each quarter.

47:52 I think, Neil, as well, if I can add to that, you know, we took a decision a few years ago to to develop Hudson 0.25 ourselves, and and we didn't have to do that. We could have, you know, we could have sold it with planning, reinvested the capital. Right now, we have £30,000,000 of equity tied up in that project. So not earning income. And and if that was if that was reversed, you know, if we have that invested in income producing assets, then our our sort of our admin cost ratio would come right down. Our earnings would go right up, and and we'd be able to pay a higher dividend. And and you ask, well, why don't we do it? Well, it's because we're a total return strategy. And and and as you would have seen on one of those slides that Neil talked through, the the total return or the the IRR generated from Hudson 0.25 over the period of effectively nine years is substantial and actually will will will create more value for shareholders in the long term.

49:02 But, Shagar, as many CEOs have decided to retire this year, is this on your mind as well? No. The best years are yet to come. So, Gavin L, how does a JV with an equity partner work? In essence, if we looked at something very significant, say a £100,000,000, we would look to the JV partner to put in the bulk of the money. We're talking over 90%. That's how it would work. We take a small equity stake participation, and we would manage the project. That's effectively how it would work. I think next one is you, Steve. Okay. Paul f says, to what extent was the 7.3p of earnings per share reflected reflected in cash? I would say the majority because any any any income recognized for cash not yet received is straight line, but you you'll see when we put the response to the earlier question in terms of rent collection, you'll see in terms of pounds and pence how much has actually been collected for for the latest quarter. So, yeah, the majority would would have been cash collected.

50:14 Right. So I got as in the previous presentation, you suggested no to share buyback. What are your options in closing the gap of the NAV and share price right to sue at a premium? We keep the question of a share buyback under review, but we're not very keen on it and nor our brokers. And one of the main reasons is you increase your gearing by doing it and you get smaller. It's not really a clever thing to do. We'd rather use our cash to repay some of our debt and to to take advantage of the distressed opportunities that we think are gonna come in the spring of next year. Steve, you wanna do the next one? Is this YouTube. The on the on YouTube. Yeah.

51:00 So so we noticed our YouTube is inactive. Do we have plans to use it to showcase our properties to attract investors? What's our digital strategy? Good question. I don't have time to answer all of it, but you can I mean, clearly, the biggest project for us at the moment is is Hudson 0.25? You can go on the website, hudson0.25york.com. You you will see social media, Facebook, LinkedIn, etcetera. You know, there is there is we're very active on that particular project, and that's where really where we we spend most of our time. But good question. We sort of goes back to the question earlier about, you know, if we were to reduce staff, I think, you know, this is one of those areas where you need you need more hands on deck, really. But we're, you know, we're a property investor, and and we don't need to spend too much time on YouTube.

51:58 Right. Tim, will you be keeping the freehold ground rent investment to Hudson 0.25? The answer to that is no. We intend to sell once they're all done. We will tell you that we're getting £250 a year fixed ground rent. We haven't done any of these rising ground rents, which have been subject to very poor publicity. We get well away from that because that's not where the money is, but we don't intend to keep the freehold ground rents. We do intend to keep the office building, which is freehold once once it's we definitely tend to do that. Shagar has recently a number of takeovers and equity stakes in companies. PALACE CAPITAL has attracted some large buyer. Any concern of a takeover at low range? And how will you defend yourself if a takeover happened? Yes. We did get a large buyer. He's well known, Peter Gillenhammer, who we've met. He's taken a 4% stake.

52:49 He did his he did his homework. When we met him, we didn't realize he actually went to York and walked around our scheme. So he he looked at all the potential weeks to buy, and he decided on us. Is there concern of a takeover at low range? We're a listed company. So, you know, we we we're out there. In terms of a takeover, we've had one or two people give hints, but I'm absolutely honest about it. At the levels they've been talking about, absolutely not, nor my shareholders would be very happy either. Shagar s, how do you will you adapt from the working from home trend? We think it's going to change and whereby people may work one or two days a week at home.

53:38 But we're in the regions, not in London. And if you look after the last lockdown, the return to work in the offices was far greater in the regions than London. London was quite low, and the reason is the commute. You've got the this commute to London. Do you wanna get on the 05:30 train from Surrey into London and in a crowded train? The regions are quite different, and that's why you saw a much bigger return to the office, and we see that happening anyway. You then say, will the forthcoming distress mentioned impact on your own portfolio value? No. The simple reason is when I see companies in distress, it's because they're very highly leveraged. Just as an example, we were looking at a company pre COVID at a value of 50,000,000, but they owed the bank about 37,000,000.

54:34 Now that 50,000,000 could well be 45 or 43,000,000 now, and the bank will not be happy. So that's the type of distressed opportunity we're looking at. We haven't got that to worry about. I think you're next, Steve. Voids. So, Nicholas, what is the annualized cost of voids? We're running about £2,000,000 per annum. It is it's painful, to be perfectly honest. So any you know, if you if you lose a tenant or or someone if a tenant vacates, you've lost the income, but then there's the double whammy of having to pay empty rates and service charge. And it is one of the one of the most frustrating things with sort of current gov government legislation where empty rates are levied on properties that aren't tenanted. But that's the cost of doing business.

55:28 But as Neil mentioned earlier, we've got plans for a number of the properties which are vacant or partly vacant for development. And clearly, the viability has to stack up if we head down that route. Paul f, when you present to us again at this time next year, what do you expect to be saying? I expect to be saying that we've sold much more of Hudson 0.25. We are the close to repaying the debt to Barclays. We wanna get the debt out the way so that we're totally free and clear on that property. We're focusing particularly on that. We wanna say this similar things now, maximize our rent collection. We would have sold enough, the properties we wanted to sell.

56:16 We would have sold more at Hudson 0.25. Hopefully, we would have let let a good amount of the space at Hudson 0.25, and that will allow us to start looking at the distressed opportunities, which we think will be available at that particular time. You then say, how will the upcoming dividend level be decided? Well, that's decided at at, obviously, at board level. At the moment, we're keeping it at 2 and a half p. We'll see how rent collection goes. We'll see how our sales goes, but particularly rent collection. And if that's on target and we let more office space, then as far as I'm concerned, I think the whole board will back me there. We would be looking to increasing the dividend.

57:04 Neil, I think that just scrolling down the q and a tab, I think between you and Stephen, you've addressed every question and done so within the hour as well. So absolutely perfect timing. But perhaps, Nil, if I may, could I just perhaps ask you to wrap up? I know investor feedback is very important. And obviously, we will redirect investors to give you feedback if that's okay. So if we could ask ask you a few words to to wrap up, that'd be great. So thank you very much for listening to us. As you know, we're a total return company. Can I say if you've got any queries, Steven and I are very open to talk to you? Whatever we can tell you, we will tell you. We decided this year to be totally transparent. We didn't wanna kid anybody. We wanna tell people, yes, it's difficult out there, but we'll get through this and we'll come out the other side and we're very confident about the future.

57:56 And thank you for attending our webinar. Brilliant. Thank you very much indeed. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback. If you access this meeting from our website, the feedback page will appear. And if you access this via the link sent to you by email, you'll simply be asked to log in to provide your feedback. But we'd be most grateful if you could provide the company with your feedback. On behalf of the management team at PALACE CAPITAL, we'd like to thank you very much indeed for attending today's presentation. That now concludes today's session, and good morning to you all. Thank you.