Palace Capital (LSE:PCA) — Palace Capital plc Annual Results Presentation

0:01 Good morning, ladies and gentlemen, and welcome to the PALACE CAPITAL Annual Results Investor Presentation. Just a reminder throughout this presentation, investors will be in listen only mode and the questions can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just please simply type in your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company 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, and we will notify you by e mail when they are ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we'd like to submit the following poll, and we'd be grateful if you could give that to your kind attention. And I'd now like to hand over to Neil Sinclair, CEO and Stephen Silvesta from PALACE CAPITAL. Good morning to you both.

0:52 Good morning, everybody. Welcome to the presentation of our results for this year. Let's go through our presentation and looking at highlights. Just to say straight away that when the pandemic struck last year, we decided to take very strong action on one particular area, which was rent collection. As you know, the government had brought in a moratorium in on the question of statutory demands on tenants who don't pay rent, irrespective of whether they have the ability to pay rent or not. And we were very concerned about that. Our properties are managed externally by leading agents, but we decided to take this matter into hand ourselves, and all our asset managers contacted all the tenants direct to strike up a dialogue and to see what rent we could collect from March to the June quarter because our financial year started April 1, which is a week after the first lockdown. So we've had a year of the pandemic in in in PALACE CAPITAL's twelve months. So the situation is that rent collection has been strong.

2:04 And over the year of rent due, we have collected 95%. But we've had to do deals in order to maintain our tenants, to keep tenants happy. And where we've done deals, we've got things in return. So for example, last year, ACCOR came to us and wanted six months rent free period. They've got a hotel in Northampton, and they're paying $05,000,000 a year. We gave them six months rent free from, March to September 20. They recommenced paying rent last September. But in return, for six months, we extended we got the lease extended by five years. In the same building, we have Gravity. They had a break clause in 2029.

2:50 We gave them nine months at half rent, which is like four and half months rent free. And in consequence, they dropped the break clause in 2029. We got them through to 2034. And the last one I should mention is Pret a Manger. They were the ones that were incredibly difficult through the year, just wouldn't pay anything, wouldn't talk to us, very, very difficult, but we kept up the pressure. They've got a unit of ours in Liverpool, paying 90,000 a year, lease expiring in 2023. And what we did, we've done a deal with them. We've extended the lease to 2028, but they wouldn't pay 90. They'd pay 80, and we took it. And finally, we did one with TGIFriders in Halifax. So our rent collection has been strong.

3:37 That is why, number one, we were able to recommence the dividend in July, and that is why we have upped the dividend to three p. We intend to maintain a minimum of three p, so we're talking at least 12p during the course of this year. What are we intending to do? Several things. We've got a £30,000,000 disposal program underway of properties that we believe have gone as far as they can go. Or for other reasons, there's no point in holding them. We've announced that we have sold 9,400,000 already. We've sold a property in Milton Keynes, which was virtually vacant for 5,700,000, and we've got one under offer in sorry, exchange in Weybridge for 3.7, which completes on July 1.

4:26 So we're almost a third of the way through our disposal program. There's been no loss of income on either property because Weybridge is empty and Milton Keys is predominantly empty. So other thing is that Hudson 0.25 is our flagship development. We started that three years ago when we started demolishing the building. It's now completed. It's completed three months later than we anticipated due to the pandemic, but it's completed on budget. We're very pleased about that. We had a really good contractor. It's looking tremendous. Anybody go to York, it is looking tremendous. We've spent a lot of money on finishes. We spent a lot of money on the courtyard, landscaping, all that sort of thing, and that has endeared us to a number of buyers.

5:15 And the position at the moment is that we have sold 46 apartments, actually sold, got four left, which we expect to exchange and complete this month so the buyers can take advantage of the stamp duty holiday. So if those go through by the end of the month, we will have, in aggregate, from the sale of those apartments, 14,900,000. And from an original facility with Barclays Bank of GBP 26,500,000, we will only have GBP 5,900,000 outstanding on that, which we expect to repay before the end of this calendar year. We've had 31 lease events during the year, providing additional income of just under 1,000,000 a year to add a 14% premium to our estimated record value.

6:04 No doubt you've all been reading about ESG. ESG is on the agenda of most institutional investors. We have embraced it. It's all about energy efficiency. We have a nonexec director that chairs a committee. We have retained an outside consultant. It is something very much to which we direct attention. If you go to the next slide, this is Hudson 0.25. You can see the bill on the building on the right is the office building. The position with the office building is we have about 34,000 square feet of absolutely first class office space. You name it, we have it in there. The current interest in that building is from a from a variety of people. It's a bit slow because, as you know, the full lockdown is not gonna be lifted until next month, and a lot of people are still working from home.

7:02 But we are talking to one particular occupier who wants 15,000 square feet. We they've seen it three times. We've met their parent company, and we are in active discussion with them. We are reasonably confident that this building will let before the end of the year. The government are quite keen on York as a location. They've got two big requirements out for York at the moment. And York is one of those unique cities which has very fast access to London. It's only an hour and forty five minutes of the major northern cities. It's the only one that has a nonstop train service to London. So any company who wants access to Edinburgh and London, York is the place to be. I should mention now that a number of companies are looking at our properties in the North that are from the South.

7:53 That was happening pretty well before the pandemic. No but there's no doubt now it's accelerated with a leveling up agenda. You've got the government having announced several moves north. There was an announcement this morning about the infrastructure bank opening in Leeds, hopes to employ 200 people. As you know, the treasury going to Darlington, it's just one after the other now. And Channel four have already moved to Leeds. Burbridge have moved to Leeds, and we see that trend continuing because offices in the regions are cheaper. There is no question that we are seeing a return to the office is far more prevalent in the North than it is in the South.

8:43 We when during the last lockdown, I would say, in some areas, it was 60%, but in London, it was running at 20 to 25. So at Hudson 0.25, we have a Ground Floor of one of the resi blocks where we've got office use, and we've got that to Knights, the listed law firm at £25 a foot, so highest rent ever achieved in York. They're in the middle of a fitting out, and they're moving in early next month. So as you know, our focus is on regional property investment. Our cause are office and industrial. Regional commercial property has got attractive fundamentals because people are looking to leave the Southeast.

9:28 Announced yesterday, Goldman Sachs have taken space in Birmingham for the engineering division. We hear about one after the other. There is definitely a recovery in the investment market and the occupational market in the regions far more than there is in London. The interesting thing about the major cities where we're invested and we're invested in the Northern powerhouse in the North is graduate graduate retention, is rising. So what is happening, which was not happening ten years ago, is graduates are staying predominantly where where they graduate. So the talent is there if you want it, but it wasn't there ten or fifteen years ago. So in consequence, that's helping because housing and apartments and everything like that for young people is much cheaper in the North, and that is why companies are looking North.

10:22 So we talked about the government leveling up agenda. As you know, as I mentioned before, they've taken a considerable amount of space already. In York, there was a major scheme at the station comprising about 900,000 square feet. It's quite a few years away, but we have no doubt that being right on the station, that's going to be highly successful. So the good thing from our point of view is the regions are predominantly have an underlying shortage of office space. And that's because when Savills reported last year, 45% of grade b and grade c office space has been lost since 2015. And because there's been limited speculative development, there's not much to choose from.

11:09 And that's very good for us. It either maintain or increase our values. So we're very pleased that we are actually based there. So we are looking at the office and industrial sectors. We expect a return to the office post lockdown. You've already seen various companies asking people to come back. And if you look in United States, what's happening there, it's more prevalent there. Asking people to go back to work, they think it's very important. One of the problems from working from home is if people are not are at their office in London, but they don't live in London, then the argument is should we pay the London salary? And that's particularly happening in The United States when New York companies are saying to people that think they can work remotely from Colorado, you cannot expect New York wages.

12:02 So our view is there will be a return to the office. And we believe working from home is an option, but it's not a replacement, because collaboration between colleagues is so important. But the of the quality of the office space and where it's situated is very important. We're in city centers. We're near public transport. The problem for out of town offices is you need a car to get there, and ESG dissuades car travel. So we think we're in a very good place. The regional the industrial market, of course, has been very strong. We've acquired our industrial through buying companies, which had industrial property in them. We haven't sold any of our industrial properties. They've all performed extremely well. And going forward, when we talk later about acquisitions, we would want some industrial property included. Thank

12:54 you, Neil. So let me just take you through some of the key highlights from the financials. Year end, March 31. And I guess front and center, as Neil mentioned, has been rent collection. So across the sectors, strong rent collection. There should clearly be the sector under the most pressure. We've got two schemes, both of which were shut for a large part of the year. So we've had to work with our tenants pretty closely agreeing either rent deferments various amendments to help them through the process, but also to make sure that we're looking after interest cover tests without debt.

13:42 So strong rate collection has enabled us to pay a cash covered dividend throughout the year. So we put this slide together really just to take a moment to say, okay, what's happened to the share price over the last eighteen months? It was tracking up around 350p prior to the pandemic. It obviously then fell

14:07 along with the rest of the stock market and in particular the real estate sector. And then gradually the share price has been recovering. And what we're saying really is we've got a strategy in place, which we think will help address the share price discount and hopefully close that discount. So number one, we have the apartment sales in Hudson 0.25. We've got GBP 38,000,000 of future sales that would obviously bring cash into our working capital. We've also got the space that is now completed, 34,000 square foot and obviously letting that will grow our income.

14:54 We've got a GBP 30,000,000 disposal program, which is well underway. And all of those three key points will help us generate capital, which can then be reinvested to generate additional income. We've calculated it on the basis of maintaining a loan to value of 35%. We believe we could add at least GBP 3,000,000 of net income to the business. And I think it's worth just highlighting the fact that these last couple of years as we've deployed more and more capital into this development in York, clearly our earnings has come down because of that strategy. We have a total return strategy. We believe that longer term you can deliver stronger returns to shareholders by covering both income and capital.

15:49 And as we've been through this process with the development in York, clearly the income side has reduced, but that will return and that will grow as we release cash from that development.

16:07 So in terms of the numbers, as you can see, underlying rental income for the year is GBP 17,200,000, down from last year and that's largely due to some disposals that we made throughout the year. You can see that we've made a bad debt provision of almost GBP 1,000,000 throughout the year. Now that's a very conservative approach to our risk, which our auditors of course were very happy with. We now have about GBP 1,300,000 bad debt provision in the balance sheet and probably £05,000,000 of that relates to CVAs and is unlikely to be recovered. The rest, however, is up for grabs. And as things improve in the economy, as our tenants get back to occupation and our businesses start to recover, we would hope to recover some of those arrears and that will obviously be upside in next year's financials.

17:08 So overall adjusted earnings per share of 16.4p, that's given us a dividend cover of 1.6 times for the year. Table to the right is a summary balance sheet point. So we've got a portfolio now valued at GBP282 million. We've got GBP9.4 million of cash and GBP128 million of debt. So overall, our loan to value was at 42% at March 31. Since completing Hudson 0.25 in April and now starting to complete all the residential disposals, we have put that loans value down to below 40% and that will continue to reduce towards 30% as we continue to sell those apartments.

18:01 This table just gives you a reconciliation from our adjusted profit, which is our recurring earnings and then allowing for the fact that obviously every six months we revalue the properties in accordance with the accounting requirements. So you can see GBP 14,000,000 of revaluation losses that went through the books this year as a result of the impact of COVID. And you can see other adjustments, but that brings us to an overall loss for the year of £5,500,000 The valuation losses are obviously not realized, which is partly why we focus very much on what's the underlying business generating, what income are we generating and that provides the basis for our dividend policy.

18:50 This is a valuation bridge just to give you an idea of how our portfolio changed over the years. So we started off with £276,000,000 of property. We spent £18,500,000 on the development in York. There's been a few disposals, some CapEx across the rest of the portfolio and then that £40,000,000 loss meant that the overall value at year end was GBP278 million. And then that's reflected over the two halves. We split it out so you can see actually the momentum in terms of valuation movement very much in the first half of the year, like for like valuations were down 3.5%, second half of the year just 05%. And in fact MSCI has come out with across The UK over the last couple of months valuations started ticking up again and even in retail. So all sectors have seen a positive valuation movement over the last couple of months since our year end.

19:55 This is the net tangible asset bridging chart. So it gives you an idea of, okay, we started off the start of the year 364p of NAV per share. The various movements you can see at the September 30, we were down to 346.9p and actually now at March 31, it's risen slightly to 349.6p. So again, another reflection that actually valuations have started recovering and NAV per share has started going up again. Quick summary on our debt. So we borrow from the majority of the clearing banks. We generally borrow at conservative levels of gearing.

20:42 You can see our overall average cost of debt 3% down slightly from last year. No facilities due to expire in the next twelve months. And in fact that Barclays development facilities, Neil mentioned earlier, was GBP 20,000,000 drawn at year end, but we would expect that to be fully repaid by the end of this year.

21:08 Just a slide just to explain how we've dealt with our covenants. There has been pressure on interest cover ratios. So we've worked with our bank, particularly the two lenders on our leisure schemes and we repaid some of the Scottish Widows facility to rectify our loan to value ratio on that property. Interestingly, since getting that property revalued, we've let a number of units and in fact the Scottish Widows have restored that property into their institutional grade asset. They're very pleased with how that's performing as are we. Back to you now. Right. So looking at the overview property portfolio, needless to say, industrial has performed extremely well.

22:01 Offices, less well. The retail warehouse during the pandemic year go down, but we've kept our retail warehouse because that market is recovering very strongly. And we did focus particularly in that in the year on our rent collection. We've only got two retail warehouses, but but one's led to Booker, which is part of Tesco, and the other one's led to Pets at Home and Wix. They're all strong tenants with a 100% rent collection from them, so we're very happy to keep those. As far as our retail is concerned, it's mainly small retail, 30,000, 40,000 a year sort of stuff,

22:38 often on on ground floors of buildings to get offices over. As an example, we've got one in Liverpool. We've got Tesco. We've got Pret a Mache. We've got those sort of people. So we're we're not really stuck with high speed retail fashion, that sort of thing. So we then look at the asset management. That's what we do. Active asset management, 31 lease events providing additionally 900,000 a year, 14 new leases, 11 lease renewals and six rent reviews. And since the year end, we've actually done five new lettings. I'm going talk in a second about our leisure schemes. Leisure is not core to our business, but it is doing particularly well as far as income is concerned. So these are our sustainable rents across the portfolio.

23:27 The majority of our reversion can be captured through letting vacant space. We're getting increasing interest in our vacant space now. During the lockdown, it was incredibly difficult, as you can imagine, although we did manage to let quite a bit of space in Leeds, which I'll refer to in a second. But the good thing about rents in the regions, as you can see, we're £16 a foot. London is £100 or West End is £100 City is £80 Canary Wharf, 60. It's much, much cheaper. And there is no question now that companies are looking at economy, and we think we're in a good place being in the regions and being so close to the mainline stations. There's our current rent roll, pounds 16,500,000 at the moment.

24:16 We've got the ability to get 2,300,000 if we let all our vacant space. We've space particularly to let in Manchester and in Newcastle. The £900,000 is Hudson 0.25. Pounds 500,000 as of potential income has gone. We've sold the building in Milton Keynes. You see lease renewals there. Space let at half rents rent free. We eventually end up at probably about 20,200,000 because post year end Milton Keynes has been sold, but we have let 15,000 feet since the start of the financial year. So this is how we unlock value. This is our cash position. Sell all of Hudson 0.25, that will release £30,000,000 of cash net.

25:02 We then have a disposal program of 30,000,000 The loss of income there is neutralized by the fact that we're paying interest on the bank loans. What with our disposal program, as we say, we'll have £50,000,000 of firepower for future acquisitions. And on a geared basis at 6%, this would add over £3,000,000 net to our earnings, assuming a loan to value of 35%. Looking at our development pipeline, we're not developers, we are investors that develop. We've completed Hudson 0.25. The only one we've got High Street Uxbridge, but we've decided to sell that. It's too small. That's on the market at 1,800,000. Beckonsfield, we might do, but it's pretty small, but Beckonsfield is a very wealthy town.

25:52 Leamington Spa, that's why I bring in the ESG agenda. Leamington Spa occupies a site of an acre and a half in the middle of this really lovely town. We've got 40,000 feet of offices, hopefully let until the end of next year, but the buildings are not really suitable having ESG into account because you have to have a certain class of energy performance certificate, and we would struggle to get that on something of this nature. So we are looking to get planning consent on a development which would be very similar to York. The bulk would be residential with a small amount of offices. It's a very wealthy town, high resi values, but in any event, that wouldn't start till 2024 at the earliest.

26:45 If we did it, and just to say as a matter of course, when we get consent, we make a decision then as to whether we sell the site with the benefit of planning, whether we call in a joint venture partner, whether we do it ourselves. And we don't make that decision until much, much closer to the development start. On Bank House Leeds, we've got a building there of 90,000 feet. That is in our pipeline. We we have a potential refurbishment scheme there. We've got the first drawings fun enough yesterday, but that probably wouldn't start till 2025. While I'm on bank house leads, that's actually been a bit of a success story for us.

27:32 Walker Morris, the major lawyers, moved out of 50,000 square feet about eighteen months ago, and suddenly we're faced with a pandemic, empty space. What we're gonna do? And we did some limited refurbishment, and I can tell you we've only got 10,000 square feet left now. My guys have worked really hard to get this space let. One floor left. It's already producing net 620,000 a year for the next three years. And if we let the last floor at the rent we're quoting and everyone else is paying that rent, that would rise to $8.20.

28:12 So that will become a bit of a cash cow while we're still working through the planning on refurbishment. The cash on cash returns, this is what we've sold to date. These are our purchase prices. These, you can see what our net proceeds are, what our cash return is and the return generated.

28:33 So active asset management, how do we deliver these total returns? You see on the right what the returns are. Hudson 0.25, I've spoken about. Bolton House, acquired for £10,500,000 That's been valued at just under £15,000,000 We've got space to let in there. That's but I'm going up there next week, but Manchester is a very, very strong town at the moment. Kilton Farm, Milton Keating is one of our real success stories. We bought that in 2013. We have refurbished all of those buildings, and they've all led 38,000 feet to Rockwell, the biggest employer in Milwaukee, and Monier Redland of to them, taking 14 and a half thousand feet. That's produced a really good return. And finally, on Aldi Gosport, that we bought nearly four years ago.

29:22 It was let to ALDI at 247,000 a year. We're now getting about 295,000 a year from them and a twenty year lease with uplifts every five years. I talked to about our ESG focus. So future proofing the portfolio is important. As an example, in Hudson 0.25, we arranged for charging points three years ago because we saw the electric car becoming more prevalent. That we've done. It's energy efficient being new. As I say, we are devoting a lot of time to that. We've got a workforce advisory panel within the company. It is absolutely essential that we embrace this. If we don't, we know that institutional investors will not like us.

30:10 So going forward, what are we looking to do? Number one is to close the discount to our NAV. As you know, about eight, nine months ago, our shares were around $1.70 p. They're about $2.60 this morning. We've been working really hard to show investors what we're able to do, particularly on rent collection. We think that's very important. Also, to show a progressive dividend policy. We're going to carry on with our disposal program. Residential sales, we are pushing really hard. We want our LTV reduced. That's now under 40%. It was 42% at year end, but it's now under 40%. And as I say, we've got we will have 50,000,000 of firepower once we've achieved the disposal of our commercial properties and Hudson 0.25. So we're very confident.

31:02 As for the regional strategy, we've got the government's leveling up agenda. There's increasing demand in the regions, both in terms of occupation and in terms of investment. Last week, a very large U. S. Company bought a six property portfolio, regional portfolio from Egon for about £60,000,000 So there is very strong demand.

31:27 So there's income reversion within our portfolio, number one, about 25%. We're forecasting a surplus at Hudson 0.25 York, which at the end of the day will increase NAV by 5% over the next one to two years. We will then be looking at acquisitions.

31:49 REIT status and regional expertise provides us a very efficient structure to access the regional growth opportunities. We've got a really good network now having operated in the regions since 2011. It is very important in terms of knowing agents. But knowing agents, knowing accountants, insolvency people, lawyers in the regions, We have spent a lot of time on that, and we don't just get deals from agents. We get them from people that you quite couldn't quite believe what we get them from. So we've got a well established platform. We are very well positioned to capitalize on the government's leveling up agenda, and we think the regional investment market is looking very good, particularly for us.

32:36 Thank you. Neil, Stephen, thank you very, very much indeed for your update. 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 those questions already submitted today, I 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. I'd also like to remind you that your feedback is important to the company and that when this presentation has ended, you'll be redirected to the opportunity to provide feedback in order the company can better understand your views and expectations. Neil, Steven, obviously, investors have the ability to pre submit questions. We received two. The first one reads as follows: The Chief Executive's review refers to a planned accretive refurbishment at Bank House in 2025.

33:27 Could you expand on what you currently have in mind? Yes. So Bank House Lees is a listed building. So it's quite limited as to what we can do, but the listing really is exterior. It's not the interior. So we're looking there to do refurbishment and an extension. So we're talking about refurbishing the existing, remodeling the Ground Floor in terms of the entrance hall, because the entrance hall is quite small at the moment, and that's not very good, and then adding floors to the building. That's what we're looking to do. We're in preliminary discussion with both Leeds City Council and historic One bit second. Yep. So we're in preliminary discussion on that, but planning, particularly on listed building, takes time, which is why I've said in our presentation, we're talking 2025 start.

34:26 It might be a good learning, but I'm being reasonably cautious about it. Planning takes time. But in the meantime, what we're very pleased about is we've managed to let so much space in there that we're now getting an income of 620,000 a year until the end of twenty twenty three. So in the so while we're doing all the planning, we got the money coming in. So that's what we're planning on bank house. That's great. The other presubmitted question that we received reads as follows. Could the Board give an indication of the increase in net asset value that might be expected in the remainder of the apartments at Hudson 0.25 if they were sold at the prices at which they're being marketed? Yes, I can answer that. So we said in the presentation, Hudson 0.25 ultimately we think will deliver GBP 18,500,000 of profit. GBP 10,000,000 has already been achieved up to the planning stage. So there's GBP 18,500,000 left, which we'll achieve through both selling the residential apartments, but also letting the office space and seeing the uplift in value there.

35:38 That's great. Thank you very much indeed. Perhaps I could ask you to open up the Q and A tab. I'm assuming that you've got that open and that you can see that in front of you if you just scroll up to the top. If I could ask you to read out the questions, perhaps who they're from and give a response where it's appropriate to do so, and I'll pick up from you at the end. So, Matt G, have government my governmental guidelines regarding rent collection impacted you? Yes. We've got a moratorium. It's really difficult. We realized at the beginning, we're gonna have tenants who could pay but wouldn't pay. But we decided to sort of strike up a dialogue with as many as we could. We managed to do that. I mentioned the deals that we've done with them.

36:24 It is most important you talk to tenants. Now although there's a moratorium, and as you know, it's been extended to March 2022, They're talking about binding arbitration in terms of arrears, which I don't quite know that's gonna work. But we've managed, and we've got nearly 200 tenants, we've managed to get it down to literally three or four who just wouldn't engage at all, not the slightest bit interested, wouldn't pay a penny. And we what we decided to do there is what a number of our compatriots have done is sue for the rent. And you can do that. We don't like doing that, and we've done it in probably three or four cases. That is all. And they all paid.

37:11 All of them paid. And all of them were big companies. They had the money to pay but just didn't pay. But we've sorted that out now. And in consequence, that's really how we've dealt with this moratorium. It's the only way you can handle it. It's a good time to mention View Cinema. We believe, Steve and I, we should be totally transparent with everybody. View Cinema is our biggest tenant, paying 900,000 a year on two units. They carried on paying rent from last March, came to us in November. They sent a generic email to every landlord. We are not paying rent until next September. Kind regards. I mean, was just as simple as that. We don't operate like that.

37:57 I got in touch with the CEO of you. My property director, Richard Starr, got in touch with their with their property people. And slowly but surely, we managed to agree a deal, which is not the one they proposed at the beginning, whereby they wanted a rent free from November 20 to May, which May 1, they have commenced rent again. It's not a rent free. Pardon me. We've deferred the rent until September. So six months rent is £450,000. From September of this year, they will pay the £450,000 of owing over twelve months. They wanted two years, we refused, and they agreed twelve months.

38:45 So they're back paying rent. They're open. They still owe us £450,000, but they're owned by two big Canadian pension funds. So they're very strong covenants, and we have no doubt we're gonna get that money back. So that's a scenario. Next question. Jonathan D. Can you talk a bit more about stake builders and PCA? Yes. I can. So we've got two, really. They believe they've actually had a good lot to do with the share price rise. If you actually look at the facts, our share price has spiked when we get a write up in the investors' chronicle, so which is quite interesting. Now we have two stakeholders. We have someone called Peter Gillenhammer from Sweden.

39:33 He's got us over 5%. What he wants to maybe very clear to us, is he wants us to do a share buyback. That's his agenda. We've spoken to our brokers, both Numis and Arden, and they say to us, when you've got a surplus of capital and you're not spending the money on buying anything, that's the time to be looking at it. But now we don't think this is the time, so we we haven't embarked on it. On the question of the other stake builder, that's a guy called Mark Harrison. He announced to the press, actually, not to us, that he had a 3.1% stake about two months ago. And when he and he came on to us, he was talking about reversing his portfolio into ours.

40:27 We've had discussions with him as to what he might do. We're not a magnitude on his portfolio, but that's another matter. He's got a stake of 2.8%. He's got friends who've got another two, I think, something like that. We are in discussion with him, and that's ongoing. But he's got quite a small stake. And of course, we've got mainly institutional holders, so we can't always go to what he might want to do. Philip O, our intentions regarding Circle property are trading a 30% discount to NAV. The market cap of 56,000,000, you couldn't materially increase your shareholding using your available cash at hand. Right. The position there is we've got a five and a half percent stake in Circle property.

41:18 We tried to do a deal with them. It was not possible. They're what we call a lifestyle company. It's the shareholders are mainly all friends together. They absolutely admit to me they didn't really need to list, which they did. They're still incredibly small. We are ahead of the game as far as the share price and what we paid for it is concerned. There's no point in increasing our stake unless we believe we can do a deal with them. And I would say at the moment, that's going to be very difficult. So at the moment, we wouldn't increase our stake. John N, would you rent out any of the vacant units at Hudson 0.25 prior to sale? The answer is no.

42:07 We are looking to sell all the apartments in Hudson 0.25. We're not residential owners. We are commercial property owners. And our idea is to sell all the residential and reinvest it in commercial property. How many apartments? Mark b, how many apartments made to be sold at HQ? We've got 50 sold or under offer. 46 are actually sold. Four are due to exchange within the next few days, and that will be 50. So we've got 77 apartments left to go. John Inn, after Hudson 0.25, do you have any exciting new developments on the horizon? I've referred to Leamington Spa.

42:53 As I said, we've got an acre and a half there. I was there two weeks ago. It's a very strong town, and we're looking to get planning consent to redevelop that. It's it's an absolutely cracking location just like York is. But, again, it wouldn't start whether we do it or whether we sell it until 2024. Philip O. Can't see what that's, Steven. Is, has the duration of UK government COVID support meant that you have seen fewer opportunities to pick up cheap assets than you might have expected? 100 correct. I've been in touch particularly in the last six months with restructuring and insolvency people. It's too early because the government have told the banks don't put the boot in, to be quite frank.

43:44 You can't pick these these companies up. They're not available yet. But we believe they will be, either later this year or early next year. Our USP is buying companies. You save on stamp duty, and you can often pick up assets you wouldn't normally do on an individual basis. So yes, we'd like to do that, but that's probably not going to happen until later in the year, early next year. Filippo, over what sort of time frame would you expect to exit the leisure segment, please? And should shareholders expect the retail to follow? Good question. The leisure segment, we have two properties. We have Broadstreet Plaza in Halifax, and we have Sole in Northampton. Now what is happening on Halifax is I was remember in last September, we had three CVAs handed back to us, Frankie and Benny's, Pizza Express, and Prezo.

44:43 So we had those, and we had other big vacant units, which had been vacant since 2012, and we owned it. We bought it four years after that. But since that time, we have let two of those three restaurant units. One is under offer due to exchange within the next two weeks. So all of those would have been let. And we've even let this vacant unit, it's been vacant for eight years, to the government. So that is a very strong cash flow at the moment. And in addition, we've got another one small unit left to let, and that will be fully let. I would say, at the moment, we are looking to sell that when the yields are back to a sensible level that it makes sense for us to sell them and reinvest the money.

45:30 Now because leisure has been out of favor, just to sell them now is totally the wrong time, and we wouldn't want to do that with a building fully let. As regards to South Northampton, we've just spent a bit of money there. It looks terrific. We've just let one unit to a pizza operator. We've agreed to let another unit to a health operator. We agreed that only last week. And we're looking to let the rest of the space hopefully before the end of our financial year. That could sell during the course of 2022, 2023. Over the next one, Steve. Yeah. Question from Mark B. What are your plans for the Santander facility, which expires next year?

46:17 Good question. The facility is across three properties. It's charged on Bolton House, Manchester, St James, Newcastle, two office blocks and Northampton, the leisure scheme. So yes, we will be looking to refinance those assets and we will be speaking to lenders over the next three to six months to gauge appetite. I think to go and get debt on leisure would have been a challenge late last year, but I think that's, as Neil said, things have improved for us and actually across the sector. So we would expect to refinance that facility in time for next year.

47:06 FM, the vacancy rate is quite high and what steps have been taken to reduce it and what level are we aiming at 5% to 6%. We normally get to somewhere over 90%. 95% is pushing it really because sometimes you've got buildings that you're waiting to refurbish. But we got rid of some of the vacant space when we sold Milton Keynes, and we sold the property in Weybridge. Where we've got the particular vacancy is in Newcastle, got 20,000 feet. We just finished refurbishing that. That's on the market now. We've got about 25,000 feet in Manchester. We've got interest in the space. But I have to admit, it's all slow. Nobody is making fast decisions. It's just not happening.

47:55 But that's predominantly where our our vacant space is. We've got a floor in Southampton. We've got vacant space in Northern in Seoul, Northampton. We've got a small amount of vacant space in Winchester. People are going around all of it, and they remain interested. But actually, to agree deals is taking time. We think it'll speed up once all the lockdown restrictions are are finished. Sagar S, what are your biggest challenges? Well, I think our biggest challenge is to narrow the discount. I mean, that's our biggest challenge. We are absolutely determined to get within striking distance of our NAV. We think we can do it.

48:40 We think we will do it by letting our vacant space, by selling the apartments, by doing our disposal program, the people see we do what we say we're going to do. And then slowly but surely, we think we will close the discount. That's our biggest challenge, far as I'm concerned. How do you want to grow in terms, this is from Shagar S. Oh, sorry. Will the next acquisition be funded through debt or equity? No. Equity, as we said, we we think we'll have £50,000,000 of firepower, of which 30,000,000 30 just over 30,000,000 will be our money. So it's equity, but and some debt. How do want to grow in terms of net asset or number of properties?

49:26 We are reducing the number of properties. We've got this 15 property disposal program, a lot of them small, 1 to £2,000,000 we're selling those, because we wanna start reinvesting in larger properties, and that's what we intend to do. How does tokenization of property affect the industry? Well, you know, it's it's are you in leisure? Are you in are you in logistics? Are you in offices? We think we're right in investing in regional offices. We wouldn't wanna invest in London offices, but we think we are right in investing in in regional offices. We think we're right in investing industrial where we can.

50:13 That's how I see it. There's there are specialist sectors. You've got to be a little bit careful with some of these sectors. Someone had this great idea not that long ago of only buying buildings left to the government. It all sounded brilliant at the time, but the problem was he ended up with buildings in towns he just don't wanna be in. And in consequence, his value started to fall even though he had the government as a tenant. So that can be a little bit of a dangerous game. Great work. Thank you. All of us, would you consider acquisition of a larger UK market cap property company and employ your expertise to add value? The answer is yes. We're always looking and always willing to talk.

51:01 Matt G, how many apartments do you expect to have sold to HQ by the 03/05/2022? We hope to have sold 50 by the end of this year. We'll have 77 left. I would say we're hoping, I would say, 80, like 80 sold by the end of this financial year. One of the issues on selling is each cell if it's not a cash buyer, it's taking three months because of the time lenders are taking in in getting funding through. So in consequence, unless it's a cash buyer, these deals are taking three months. In view of the current hot property market, are you disappointed in rate of apartment sales at HQ? Well, we got affected by the fact that when the pandemic struck, people wouldn't go on public transport. You know?

51:52 Don't don't going down a bus, don't go on a train, And we're in the middle of a of a city. So, obviously, people were dissuaded from going there, and that applies to all cities around the country. But I was in Leamington two weeks ago, and they told me that they definitely noticed in the last two to three months a return of people wanting to live in the city again. And with all the shops open, the restaurants open, entertainment open, in consequence, the whole position has definitely moved. But it's only moved in the last eight weeks. Can we flag a potential of 50,000,000 of firepower? What is the focus in terms of where this will be invested? You've previously raised capital significant discount to NAV. Can you give shareholders any view on whether you are likely to consider doing this again?

52:40 The answer is no. We do not intend to raise capital at a significant discount to NAV. We intend to use our own money at the moment to buy these properties or companies that we're looking to buy. Can be. With the 30,000,000 disposals underway, if you achieve the price you anticipate, how will that compare to book value? We have no reason to believe that any properties we sell will not be in any act or in excess of book value. FM, when you expect NFV to stop falling, it has stopped falling. I think I'm right, Steven. It was $3.47 at September, and we're now $3.50. Yeah. So so September 30 seems to have been the low point, and it's increased since then to $3.50 p at March 31.

53:37 Yep. Margin c, what is your current entry rates liability per annum? I well, it's also service charge as well. I think we're talking circa 1,000,000 point pounds Was that the last figure I remember? Yeah. It's it's probably around 1,500,000 at the moment for empty rates and service charge. Yeah. But we take steps to mitigate that. Not easy, but we have taken steps. So that's what it's running at. So the great thing about letting vacant space is it's a double whammy. One, you get the income, two, you stop paying the empty rates out. So it has quite a positive, a very positive effect on the p and l. Neil, I might jump in at this point just on the basis that you've been very generous and addressed every question that's been submitted by attendees on today's call. So thank you for those questions from attendees, and Neil for being so generous with your time, which is perfect as we're just coming up to the hour anyway. So I know feedback is important.

54:35 I will shortly redirect investors to provide you feedback. But perhaps I could just ask you, Neil, for a few closing comments just to wrap up, and then I will send investors for feedback. Yep. I would I think we would all like to thank investors who've been who've invested in us and put their faith in us. I know that the last year has been particularly difficult. You know, the share price fallen the way it did, but we worked our butt off to get it back. We think we've we had the right strategy. We've got the right strategy. We've got the right people. We've got the right board, and that's why our share price is recovering. Our focus now is totally delivering the returns that we want to deliver and to close this discount so that we can start making acquisitions again, acquire companies again, use our shares like we did on our original purchases of two big companies, and in consequence, grow the company that way. We don't want get bigger for getting bigger safe, but we want to do it when we're ready to do it.

55:33 That's brilliant. Thank you very much once again both to Neil and to Stephen. Can I please ask investors not to close this session as you're now automatically redirected for the opportunity to provide feedback in order that the Board can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of PALACE CAPITAL PLC, I'd like to thank you for attending today's presentation. That now concludes today's session. Good morning. Just by a few minutes to you all. Thanks once again.