REG - Palace Capital PLC - Final Results & Notice of AGM <Origin Href="QuoteRef">PCA.L</Origin> - Part 2
06/06/2017 07:06
- Part 2: For the preceding part double click ID:nRSF2073Ha
management are the Group's Directors. Remuneration in respect of key
management was as follows:
2017 Number 2016 Number
Short-term employee benefits:
Emoluments for qualifying services 992 610
Social security costs 132 76
Pension 37 13
1,161 699
Share based payments 198 99
Gain on share options exercised 30 -
1,389 798
The amounts set out above include remuneration in respect of the highest paid
Director as follows:
2017 £'000 2016 £'000
Short-term employee benefits:
Emoluments for qualifying services 413 299
413 299
Share based payments 120 64
Gain on share options exercised 20 -
553 363
7. taxation
2017 £'000 2016 £'000
Current income tax charge 683 726
Tax (over)/underprovided in prior year (13) 6
Deferred tax 2,521 221
Tax charge 3,191 953
2017 £'000 2016 £'000
Profit on ordinary activities before tax 12,577 11,752
Based on profit for the period: 2,515 2,350
Tax at 20.0% (2016: 20%)
Effect of:
Expenses not deductible for tax purposes - 163
Capital losses and indexation used in the period (1,260) (1,416)
Capital allowances in excess of depreciation - (89)
Other adjustments 52 59
Tax under/over provided in prior years (13) 6
Deferred tax not previously recognised 1,897 (120)
Tax charge for the period 3,191 953
Deferred taxes at 31 March relates to the following:
2017 £'000 2016 £'000
Deferred tax asset - brought forward 334 500
Losses used in the year (321) (221)
Deferred tax liability on accelerated capital allowances (2,142) -
Deferred tax on fair value of investment property (58) -
Deferred tax recognised on acquisition - 55
Deferred tax (liability)/asset - carried forward (2,187) 334
2017 £'000 2016 £'000
Accelerated capital allowances (2,142) -
Investment property unrealised valuation gains (58) -
Losses carried forward 13 334
Deferred tax (liability)/asset (2,187) 334
Capital allowances have been claimed on improvements to investments properties
amounting to £12,908,312 (2016: £13,846,721). A deferred tax liability
amounting to £2,141,760 has been recognised in the financial statements,
although it is expected that they will not reverse when the properties are
disposed of.
A deferred tax liability on the revaluation of investment properties to fair
value has been provided totalling £58,000 as once the availability of capital
losses, indexation allowances and the 1982 valuations for certain properties
have been taken into account it is anticipated that capital gains tax would be
payable if the properties were disposed of at their fair value. As at 31 March
2017 the Group had approximately £6,500,000 (2016: £1,872,057) of realised
capital losses to carry forward.
Finance Act 2015 sets the main rate of UK corporation tax at 20 per cent with
effect on 1 April 2015. The enactment of Finance (No. 2) Act 2015 and Finance
Act 2016 reduces the main rate of corporation tax to 19 per cent from April
2017 and 17 per cent from April 2020. The deferred tax liability has been
calculated on the basis of 17 percent due to the expectation that all
properties are retained through April 2020.
8. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share and Diluted earnings per share have been calculated
on profit after tax attributable to ordinary shareholders for the period (as
shown on the Consolidated Statement of Comprehensive Income) and for the
Earnings per share, the weighted average number of ordinary shares in issue
during the period (see below table) and for Diluted weighted average number of
ordinary shares in issue during the period (see below table).
2017 £'000 2016 £'000
Profit after tax attributable to ordinary shareholders for the period 9,386 10,799
2017 No of shares 2016 No of shares
Weighted average number of shares for basic earnings per share 25,650,141 24,597,258
Dilutive effect of share options 87,584 20,730
Weighted average number of shares for diluted earnings per share 25,737,725 24,617,988
Earnings per ordinary share;
Basic 36.6p 43.9p
Diluted 36.5p 43.9p
Key Performance Measures
The Group financial statements are prepared under IFRS which incorporates
non-realised fair value measures and non-recurring items. Alternative
Performance Measures ('APMs'), being financial measures which are not
specified under IFRS are also used by Management to assess the Group's
performance. These include a number of European Public Real Estate Association
('EPRA') measures, prepared in accordance with the EPRA Best Practice
Recommendations (BPR) reporting framework the latest update of which was
issued in November 2016. We report a number of these measures (detailed in the
glossary of terms) because Management considers them to improve the
transparency and relevance of our published results as well as the
comparability with other listed European real estate companies.
EPRA EPS and EPRA Diluted EPS
EPRA Earnings is a measure of operational performance and represents the net
income generated from the operational activities. It is intended to provide an
indicator of the underlying income performance generated from the leasing and
management of the property portfolio. EPRA earnings are calculated taking the
profit after tax excluding investment property revaluations and gains and
losses on disposals, changes in fair value of financial instruments,
associated close-out costs, one-off finance termination costs, share
based-payments and other one-off exceptional items. EPRA earnings is
calculated on the basis of the basic number of shares in line with IFRS
earnings as the dividends to which they give rise accrue to current
shareholders and therefore it is more appropriate to use the basic number of
shares. The EPRA diluted earnings per share also takes into account the
dilution of share options and warrants if exercised.
Adjusted profit before tax and Adjusted EPS
Palace Capital also report an adjusted earnings measure which is based on
recurring earnings before tax and on the basis of the basic number of shares.
This takes EPRA earnings as the starting point and then adds back tax and any
other fair value movements or one-off items that were included in EPRA
earnings. For Palace Capital this includes share-based payments being a fair
value measure and also one-off surrender premiums received. This provides the
underlying income performance of the company and therefore the basis for the
dividend policy. The corporation tax charge (excluding deferred tax movements)
is deducted in order to calculate the adjusted earnings per share and dividend
cover is based on this calculation.
The EPRA and adjusted earnings per share for the period are calculated based
upon the following information:
2017 £'000 2016 £'000
Profit before tax 12,577 11,752
Adjustments:
Costs of acquisition - 815
Gains on revaluation of investment property portfolio (3,101) (3,620)
Profit on disposal of investment properties (3,191) (290)
Debt termination cost 155 -
Surrender Premium - (3,172)
Share based payment 237 110
Adjusted profit before tax for the period 6,677 5,595
Tax charge for the year (3,191) (953)
Deferred tax charge on revaluation gains and capital allowances reversed 2,200 -
Adjusted profit after tax for the period 5,686 4,642
Share based payment (237) (110)
Surrender premium - 3,172
EPRA earnings for the period 5,449 7,704
EPRA AND ADJUSTED EARNINGS PER ORDINARY SHARE;
EPRA Basic 21.2p 31.3p
EPRA Diluted 21.2p 31.3p
Adjusted EPS 22.2p 18.9p
9. NET ASSETS VALUE PER SHARE
EPRA NAV calculation makes adjustments to IFRS NAV to provide stakeholders
with the most relevant information on the fair value of the assets and
liabilities within a true real estate investment company with a long-term
investment strategy. EPRA NAV is adjusted to take effect of the exercise
options, convertibles and other equity interests and excludes the fair value
of financial instruments and deferred tax on latent gains. EPRA NNNAV measure
is to report net asset value including fair values of financial instruments
and deferred tax on latent gains.
The diluted net assets and the number of diluted ordinary issued shares at the
end of the period assumes that all the outstanding options that are
exercisable at the period end are exercised at the option price.
Net asset value is calculated using the following information:
2017 £'000 2016 £'000
Net assets at the end of the period 109,559 106,815
Effect of exercise of share options - 109
Diluted net assets at end of the period 109,559 106,924
Exclude fair value of financial instruments & exclude deferred tax on latent capital gains 2,200 -
EPRA NAV 111,759 106,924
Include fair value of financial instruments & include deferred tax on latent capital gains (2,200) -
EPRA NNNAV 109,559 106,924
2017 No of shares 2016 No of shares
Number of ordinary shares issued at the end of the period (excluding treasury shares) 25,150,692 25,781,229
Dilutive effect of share options 87,584 20,730
Number of ordinary shares issued for diluted and EPRA net assets per share 25,238,276 25,801,959
Net assets per ordinary share
Basic 436p 414p
Diluted 434p 414p
EPRA NAV 443p 414p
EPRA NNNAV 434p 414p
10. DIVIDENDS
Payment date Dividend 2017£'000 2016 £'000
per share
2017
Final dividend proposed 28 July 2017 9.50 - -
Interim dividend 30 December 2016 9.00 2,309 -
Distribution of current year profit 18.50 2,309 -
2016
Final dividend 29 July 2016 9.00 2,308 -
Interim dividend 30 December 2015 7.00 - 1,805
Distribution of prior year profit 16.00 2,308 1,805
2015
Final dividend 31 July 2015 7.00 - 1,416
Interim dividend 30 December 2014 6.00 - -
13.00 - 1,416
Dividends reported in the Group statement of changes in equity 4,617 3,221
Proposed Dividends
2017£'000 2016 £'000
2017 final dividend: 9.50p (2016: 9.00p) 2,389 2,320
Proposed dividends on ordinary shares are subject to approval at the Annual
General Meeting and are not recognised as a liability as at 31 March 2017.
11. Investment Properties
Freehold Investment properties£'000 Leasehold Investment properties£'000 Total£'000
At 1 April 2015 84,568 18,420 102,988
Arising on acquisition of subsidiary undertakings 44,880 - 44,880
Additions - refurbishment 1,149 33 1,182
Additions - new properties 18,653 4,886 23,539
Gains on revaluation of investment properties 1,840 1,780 3,620
Disposals (1,667) - (1,667)
At 1 April 2016 149,423 25,119 174,542
Additions - refurbishment 4,505 74 4,579
Additions - new properties 10,950 - 10,950
Gains on revaluation of investment properties 3,090 11 3,101
Disposals (7,740) (1,516) (9,256)
At 31 March 2017 160,228 23,688 183,916
Investment properties are stated at fair value as determined by independent
valuers who make use of historical and current market data as well as existing
lease agreements. The fair value of the Group's property portfolio is based
upon independent valuations and is inherently subjective. The fair value
represents the amount at which the assets could be exchanged between a
knowledgeable, willing buyer and a knowledgeable, willing seller in an
arms-length transaction at the date of valuation, in accordance with
International Financial Reporting Standard The fair value of each of the
properties has been assessed by the independent valuers.
As a result of the level of judgement used in arriving at the market
valuations, the amounts which may ultimately be realised in respect of any
given property may differ from the valuations shown in the Statement of
Financial Position.
In addition to the gain on revaluation of investment properties included in
the table above, realised gains of £3,191,417 (2016: £290,525) relating to
investment properties disposed of during the year were recognised in profit or
loss.
A reconciliation of the valuations carried out by the independent valuers to
the carrying values shown in the Statement of Financial Position was as
follows:
2017£'000 2016£'000
Scanlans Consultant Surveyors LLP - 2,017
Cushman & Wakefield LLP 183,175 147,174
Knight Frank - 24,000
Directors' valuation - 250
Fair value 183,175 173,441
Adjustment in respect of minimum payment under head leases 1,959 2,076
Less lease incentive balance included in prepayments (1,218) (975)
Carrying value 183,916 174,542
The valuations of all investment property held by the Group is classified as
Level 3 in the IFRS 13 fair value hierarchy as they are based on unobservable
inputs. There have been no transfers between levels of the fair value
hierarchy during the year.
Valuation process
The valuation reports produced by the independent valuers are based on
information provided by the Group such as current rents, terms and conditions
of lease agreements, service charges and capital expenditure. This information
is derived from the Group's financial and property management systems and is
subject to the Group's overall control environment.
In addition, the valuation reports are based on assumptions and valuation
models used by the independent valuers. The assumptions are typically market
related, such as yields and discount rates, and are based on their
professional judgment and market observations. Each property is considered a
separate asset, based on its unique nature, characteristics and the risks of
the property.
The Executive Director responsible for the valuation process verifies all
major inputs to the external valuation reports, assesses the individual
property valuation changes from the prior year valuation report and holds
discussions with the external valuers. When this process is complete, the
valuation report is recommended to the Audit Committee, which considers it as
part of its overall responsibilities.
The key assumptions made in the valuation of the Group's investment properties
are:
- The amount and timing of future income streams;
- Anticipated maintenance costs and other landlord's liabilities; and
- An appropriate yield.
Valuation technique
The valuations reflect the tenancy data supplied by the Group along with
associated revenue costs and capital expenditure. The fair value of the
commercial investment portfolio has been derived from capitalising the future
estimated net income receipts at capitalisation rates reflected by recent
arm's length sales transactions.
31 March 2017 Significant unobservable inputs
Cushman & Wakefield
Value of investment properties £183,175,000
Area (sq. ft.) 1,576,206
Gross Estimated Rental Value £15,892,432
Net Initial Yield
Minimum 0.9%
Maximum 9.2%
Weighted average 5.9%
Reversionary Yield
Minimum 5.5%
Maximum 18.7%
Weighted average 6.9%
Equivalent Yield
Minimum 3.2%
Maximum 11.7%
Weighted average 7.6%
Negative Net Initial Yields arise where properties are vacant or partially
vacant and void costs exceed rental income.
31 March 2016 Significant unobservable inputs
Cushman & Wakefield Knight Frank Scanlans
Value of investment properties £147,174,000 £24,000,000 £2,017,000
Area (sq ft) 1,710,355 114,274 22,820
Gross Estimated Rental Value £12,559,734 £1,775,104 £196,910
Net Initial Yield
Minimum -6.9% 6.3% 8.3%
Maximum 13.4% 31.0% 10.5%
Weighted average 6.1% 7.0% 9.8%
Reversionary Yield
Minimum 5.5% 6.9% 8.3%
Maximum 15.8% 6.9% 10.5%
Weighted average 6.7% 6.9% 9.8%
Equivalent Yield
Minimum 3.2% 6.3% 8.3%
Maximum 12.1% 17.5% 10.5%
Weighted average 8.0% 7.5% 9.8%
Sensitivity of measurement to variations in the significant unobservable
inputs.
Unobservable input Impact on fair value measurement of significant increase in input Impact on fair value measurement of significant decrease in input
Gross Estimated Rental Value Increase Decrease
Net Initial Yield Decrease Increase
Reversionary Yield Increase Decrease
Equivalent Yield Decrease Increase
The relationship between the unobservable inputs and their impact on the fair
value measurement is not certain. Changes to the tenancies and/or income
profile of an investment asset may also impact the fair value outside one or
more of the above inter-relationships according to individual circumstances.
12. PROPERTY, PLANT AND EQUIPMENT
IT, fixtures
and fittings
£000
At 1 April 2015 63
Assets acquired -
Additions 3
At 1 April 2016 66
Assets acquired -
Additions 26
At 31 March 2017 92
Depreciation
At 1 April 2015 11
Provided during the year 18
At 1 April 2016 29
Provided during the year 20
At 31 March 2017 49
Net book value at 31 March 2017 43
Net book value at 31 March 2016 37
13. TRADE AND OTHER RECEIVABLES
2017£000 2016£000
Current
Gross amounts receivable from tenants 1,090 2,727
Less: provision for impairment (139) (243)
Net amount receivable from tenants 951 2,484
Other taxes - 68
Other debtors 61 37
Accrued income 1,218 150
Prepayments 281 588
2,511 3,327
2017£000 2016£000
Non-Current
Accrued income - 825
- 825
Accrued income amounting to £1,218,000 (2016: £975,000) relates to rents
recognised in advance as a result of spreading the effect of rent free and
reduced rent periods, capital contributions in lieu of rent free periods and
contracted rent uplifts over the expected terms of their respective leases.
Movements in the provision for impairment of trade receivables were as
follows:
2017£'000 2016£'000
Brought forward 243 90
Utilised in the period (182) (11)
Provisions increased 78 164
139 243
As at 31 March, the analysis of trade receivables that were past due but not
impaired is as follows:
2017£'000 2016£'000
0 - 30 days 630 2,106
31 - 60 days 92 95
61 - 90 days 21 66
91 - 120 days 78 46
More than 120 days 130 171
951 2,484
14. CASH AND CASH EQUIVALENTS
All of the Group's cash and cash equivalents at 31 March 2017 and 31 March
2016 are in sterling and held at floating interest rates.
2017£'000 2016£'000
Cash and cash equivalents 11,181 8,576
The Directors consider that the carrying amount of cash and cash equivalents
approximates to their fair value.
15. TRADE AND OTHER PAYABLES
2017£'000 2016£'000
Trade payables 570 638
Corporation tax 564 662
Other taxes 844 1,036
Other payables 6 67
Deferred rental income 2,860 2,605
Accruals 1,317 1,807
6,161 6,815
16. BORROWINGS
2017£'000 2016£'000
Current
Bank loans 2,036 2,233
Non-current liabilities
Bank loans 75,758 69,711
Total borrowings 77,794 71,944
2017£'000 2016£'000
Non-current liabilities
Secured Bank loans drawn 76,694 70,445
Unamortised lending costs (936) (734)
75,758 69,711
The maturity profile of the Group's debt was as follows:
2017£'000 2016£'000
Within one year 2,036 2,233
From one to two years 2,036 17,068
From two to five years 61,806 53,377
After 5 years 12,852 -
78,730 72,678
Facility and arrangement fees
As at 31 March 2017
Secured Borrowings All in cost Maturity date Loan Balance £'000 Unamortised facility fees £'000 Facility drawn£'000
Santander Bank PLC 2.59% Jun 2020 15,512 (200) 15,712
Lloyds Bank PLC 2.44% May 2019 4,018 (45) 4,063
National Westminster Bank PLC 2.84% Mar 2021 25,360 (308) 25,668
Nationwide Building Society 3.12% Nov 2020 18,096 (159) 18,255
Scottish Widows 2.90% Jul 2026 14,808 (224) 15,032
2.90% 77,794 (936) 78,730
Investment properties with a carrying value of £162,320,000 (2016:
£151,065,990) are subject to a first charge to secure the Group's bank loans
amounting to £78,730,000 (2016: £72,678,233).
The Group has an unused loan facility amounting to £3,582,000 (2016:
£8,000,000). Interest is charged on this facility at a rate of 1.25% and is
payable quarterly. This facility is secured on the investment properties held
by Property Investment Holdings Limited and Palace Capital (Properties)
Limited.
The Group constantly monitors its approach to managing interest rate risk. The
Group has fixed £25,032,000 (2016: £nil) of its debt in order to provide
surety of its interest cost and to mitigate interest rate risk. The remaining
debt in place at year end is subject to floating rate in order to take
advantage of the historically low interest rate environment.
The Group has been in compliance with all financial covenants of the above
facilities applicable throughout the year.
17. GEARING and loan to value RATIO
The calculation of gearing is based on the following calculations of net
assets and net debt:
2017 £'000 2016 £'000
EPRA Net asset value 111,759 106,815
Borrowings net of issue costs 77,794 71,944
Obligations under finance leases 1,950 2,067
Cash and cash equivalents (11,181) (8,576)
Net Debt 68,563 65,435
EPRA NAV Gearing 61% 61%
The calculation of bank loan to property value is calculated as follows:
2017 £'000 2016 £'000
Fair value of Property portfolio 183,175 173,441
Borrowings 78,730 72,678
Cash at bank (11,181) (8,576)
Net bank borrowings 67,549 64,102
Loan to value ratio 43% 42%
Net Loan to value ratio 37% 37%
18. LEASES
Operating lease receipts in respect of rents on investment properties are
receivable as follows:
2017 £'000 2016 £'000
Within one year 13,204 12,165
From one to two years 10,882 10,734
From two to five years 22,810 24,987
From five to 25 years 41,001 44,204
After 25 years - 685
87,897 92,775
Operating lease payments in respect of rents on leasehold properties occupied
by the Group are payable as follows:
2017 £'000 2016 £'000
Within one year 13 45
From one to two years - 12
From two to five years - -
13 57
Finance lease obligations in respect of rents payable on leasehold properties
were payable as follows:
2017 2016
Minimum lease payments£'000 Interest£'000 Present value of minimum lease payments£'000 Present value of minimum lease payments£'000
Within one year 122 (120) 2 2
From one to two years 122 (120) 2 2
From two to five years 366 (358) 8 6
From five to 25 years 2,392 (2,329) 63 68
After 25 years 9,739 (7,864) 1,875 1,989
12,741 (10,791) 1,950 2,067
The net carrying amount of the leasehold properties is shown in note 11.
The Group has over 150 leases granted to its tenants. These vary dependent on
the individual tenant and the respective property and demise and vary
considerably from short-term leases of less than one year to longer term
leases of over 10 years.
A number of these leases contain rent free periods. Standard lease provisions
include service charge payments and recovery of other direct costs. All
investment properties in the Group's portfolio generated rental income during
the both the current and prior periods.
19. Share capital
Authorised, issued and fully paid share capital is as follows: 2017 £'000 2016 £'000
25,800,279 Ordinary Shares of 10p each (2016: 25,781,229) 2,580 2,578
Nil Deferred Shares of 90p each (2016: 315,937) - 284
2,580 2,862
Reconciliation of movement in ordinary share capital 2017 £'000 2016 £'000
At start of year 2,578 2,023
Issued in the year 2 555
At end of year 2,580 2,578
Movement in ordinary authorised share capital Price per Number Total number
share pence of ordinary of shares 000s
shares issued 000s
As at 1 Apr 2015 20,225,673
Equity issue 17 June 2015 360 5,555,556
As at 31 Mar 2016 25,781,229
Exercise of warrants 15 June 2016 200 19,050
Share buy-back by company 17 June 2016 360 (91,587)
Share buy-back by company 20 June 2016 360 (58,000)
Share options issued from Treasury 10 March 2017 340 31,593
Share buy-back by company 10 March 2017 340 (531,593)
Total number of shares excluding the number held in treasury 25,150,692
Year ending 31 March 2017
On 15 June 2016 the Company issued 19,050 ordinary 10p shares. The issue costs
amounting to £36,195 have been deducted from the share premium account.
On 17 June 2016 the Company purchased 91,587 ordinary 10p shares at a price of
£3.60. All these purchased shares are to be held as treasury shares.
On 20 June 2016 the Company purchased 58,000 ordinary 10p shares at a price of
£3.60. All these purchased shares are to be held as treasury shares.
On 10 March 2017 the Company issued 31,593 ordinary 10p shares from treasury
at a price of £3.40.
On 10 March 2017 the Company purchased 531,593 ordinary 10p shares at a price
of £3.40. All these purchased shares are to be held as treasury shares.
A reduction of the Company's share capital by way of cancellation of the
Deferred Shares was carried out and completed on 31 August 2016. The Company's
issued share capital included 315,938 Deferred Shares as at 31 March 2016. The
nominal value of the Deferred Shares was part of the capital of the Company
and therefore not distributable. The Deferred Shares were created as a result
of the reorganisation of the Company's share capital on 18 October 2013 when
each issued ordinary share of £0.01 was consolidated and converted into one
new Ordinary Share of £0.10 and one Deferred Share of £0.90. The Deferred
Shares carried no voting or dividend rights and only very limited rights to
participate in the capital of the Company upon a winding-up. These rights are
such as to make the Deferred Shares virtually worthless in the hands of the
holder.
In the Company's books the capital paid up on the Deferred Shares represented
£284,244, being the aggregate nominal value of all the Deferred Shares.
Cancelling the Deferred Shares with the prior approval of Shareholders by way
of a special resolution and the subsequent approval of the Court has resulted
in the removal of them from the Company's balance sheet and permitted an
amount of £284,244 to be released to the Capital Redemption Reserve, which may
be used to reduce or eliminate losses (if any) arising on the profit and loss
account, and will also be retained for the protection of the Company's
creditors that are in existence as at the date of the Capital Reduction.
Additional fees of £8,786 were incurred as a result of the cancellation of the
Deferred Shares and have been recognised as a debit against the Capital
Redemption Reserve.
Year ending 31 March 2016
On 17 June 2015 the Company issued 5,555,556 ordinary 10p shares at a price of
£3.60. Issue costs amounting to £885,383 were incurred and have been deducted
from the share premium account.
Share options:
Reconciliation of movement in outstanding share options 2017No of options 2016No of options
At start of year 569,022 448,754
Issued in the year 171,281 120,268
Exercised in the year (50,643) -
Lapsed in the year - -
At end of year 689,660 569,022
As at 31 March 2017, the Company had the following outstanding unexpired
options.
Description of unexpired share options 2017 2016
No of options Weighted average option price No of options Weighted average Option price
Employee benefit plan (note 20) 689,660 0p 549,972 13p
Warrants issued to Nominated Adviser and Broker - 0p 19,050 200p
Total 689,660 0p 569,022 20p
Exercisable - 0p 50,643 216p
Not exercisable 689,660 0p 518,379 0p
Warrants issued to the Group's Nominated Adviser and Broker
The Group's Nominated Adviser and Broker received 248,715 options in 2014 in
exchange for part of the fee charged by the brokers for the share issue that
occurred during that year and the Directors considered the fair value of the
service to be £50,000. All options had been exercised by the balance sheet
date and there were none remaining at 31 March 2017.
20. Share BASED PAYMENTS
Employee benefit plan
The following table illustrates the number and weighted average exercise
prices of, and movements in, share options during the year:
Number of options Exercise Grant Vesting date
price date
Outstanding at 31 March 2015 429,704 17p
Issued during the year (LTIP 2015) 120,268 0p 8 Dec 2015 8 Dec 2018
Outstanding at 31 March 2016 549,972 13p
Issued during the year (LTIP 2016) 171,281 0p 4 July 2016 4 July 2019
Exercised during the year (31,593) 225p
Outstanding at 31 March 2017 689,660 0p
LTIP 2014
The options are awarded to employees on achievements against target on two
separate measures over the three financial years ending 31 March 2017. Half
the options will be awarded based on the first target and half based on the
achievement of the second.
Earnings per share (EPS) growth: is based on an adjusted profit after tax
excluding property revaluations and disposal profits/losses for the financial
year. This target will measure the compound growth in EPS over the three year
period ending 31 March 2017.
Total shareholder return (TSR) measures the total shareholder return (share
price rise plus dividends) over the period from 21 October 2013 to 31 March
2017. The base price being £2.00 per share which was the placing price on that
day.
Average annual TSR (compounded) Vesting % Average annual EPS growth (compounded) over the EPS performance period Vesting %
over the TSR performance period
<20% 0 <15% 0
Equal to 20% 33.33 Equal to 15% 50
Equal to 25% 66.66 Equal to 30% 100
Equal to 30% 100
For the TSR measure, the achievement of between 25% and 30% compound growth
will result in the number of Ordinary shares vesting to be calculated on a
straight line basis between 66.66% and 100%. A similar rule will apply between
20% and 25% and for the EPS condition between 15% and 30%.
LTIP 2015
The options are awarded to management on achievements against target on two
separate measures over the three-year period ending 30 September 2018. Half
the options will be awarded based on the first target and half based on the
achievement of the second.
Net asset value per share (NAV) growth: is based on the Company's EPRA NAV per
share as at 30 September 2018 adding back dividends per share paid during the
period. This target will measure the compound growth in NAV over the
three-year period ending 30 September 2018. The base level being £4.04 per
share which was the EPRA NAV per share as at 30 September 2015.
Total shareholder return (TSR) measures the total shareholder return (price
rise plus dividends) over the period from 1 October 2015 to 30 September 2018.
The base price being £3.70 per share which was the market price at the grant
date.
Average annual TSR (compounded) Vesting % Average annual NAV growth (compounded) over the TSR performance period Vesting %
over the TSR performance period
<8% 0 <8% 0
Equal to 8% 33.33 Equal to 8% 33.33
Equal to 13% 100 Equal to 13% 100
For the TSR measure, the achievement of between 8% and 13% compound growth
will result in the number of Ordinary shares vesting to be calculated on a
straight line basis between 33.33% and 100%. A similar rule will apply for the
NAV condition between 8% and 13%.
LTIP 2016
The options are awarded to employees on achievements against targets on two
separate measures over the three financial years ending 31 March 2019. Half
the options will be awarded based on the first target and half based on the
achievement of the second.
Net asset value per share (NAV) growth is based on the Company's EPRA NAV
value per share as at 31 March 2016. This target will measure the compound
growth in NAV over the three-year period ending 31 March 2019, and comparing
this with the Net Asset Value Growth of a group of comparable companies. The
base NAV per share being £4.14.
Total shareholder return (TSR) measures the total shareholder return (price
rise plus dividends) over the period from 1 April 2016 to 31 March 2019. The
base price being £3.16 per share which was the market price at the grant
date.
Average annual TSR (compounded) Vesting % Average annual NAV growth (compounded) over the TSR performance period Vesting %
over the TSR performance period
<8% 0 At median 20
Equal to 8% 33.33 Between median and upper quartile 20-100
Equal to 13% 100 Upper quartile and above 100
For the TSR measure, the achievement of between 8% and 13% compound growth
will result in the number of Ordinary shares vesting to be calculated on a
straight line basis between 33.33% and 100%. A similar rule will apply for the
NAV condition between median and upper quartile.
The fair value of grants was measured at the grant date using a Black-Scholes
pricing model for the NAV tranche and using a Monte Carlo pricing model for
the TSR tranche, taking into account the terms and conditions upon which the
instruments were granted. The services received and a liability to pay for
those services are recognised over the expected vesting period. The main
assumptions of both the Black-Scholes and Monte Carlo pricing models are as
follows:
Monte Carlo TSR Tranche Black Scholes NAV Tranche
Grant date 04.07.16 04.07.16
Share price £3.16 £3.16
Exercise price 0p 0p
Term 3 years 3 years
Expected volatility 20.80% 20.80%
Expected dividend yield 4.41% 4.41%
Risk free rate 0.17% 0.17%
Time to vest (years) 3.0 3.0
Expected forfeiture p.a. 0% 0%
Fair value per option £0.79 £2.77
The expense recognised for employee share based payment received during the
period is shown in the following table:
2017£'000 2016£'000
Palace Capital No 1 share option scheme - -
LTIP 2014 108 77
LTIP 2015 82 33
LTIP 2016 47
Total expense arising from share-based payments 237 110
21. RELATED PARTY TRANSACTIONS
Accounting services amounting to £85,863 (2016: £75,633) have been provided to
the Group by Stanley Davis Group Limited, a company where Stanley Davis is a
Director.
22. CAPITAL COMMITMENTS
The obligation for capital expenditure relating to the construction,
development or enhancement of investment properties entered into by the Group
at 31 March 2017 amounted to £78,363 (2016: £1,435,985).
23. POST BALANCE SHEET EVENT
The Company announced on the 2 May 2017 that it had entered into an agreement
to acquire an office building for £20m subject to contract and is expected to
complete in the Summer 2017.
24. Financial RISK MANAGEMENT
The Group's principal financial liabilities are loans and borrowings. The main
purpose of the Group's loans and borrowings is to finance the acquisition and
development of the Group's property portfolio. The Group has rent and other
receivables, trade and other payables and cash and short-term deposits that
arise directly from its operations. All financial assets are classified as
loans and receivables and all financial liabilities are measured at amortised
cost.
The Group is exposed to market risk (including interest rate risk and real
estate risk), credit risk and liquidity risk.
The Group's senior management oversee the management of these risks, and the
Board of Directors has overall responsibility for the determination of the
Group's risk management objectives and policies and it sets policies that seek
to reduce risk as far as possible without unduly affecting the Group's
competitiveness and flexibility. Further details regarding these policies are
set out below:
Capital risk management
The Group considers its capital to comprise its share capital, share premium,
other reserves and retained earnings which amounted to £109,559,765 at 31
March 2017 (2016: £106,815,113). The Group's capital management objectives are
to safeguard the entity's ability to continue as a going concern, so that it
can continue to provide returns for shareholders and benefits for other
stakeholders and to provide an adequate return to shareholders by pricing its
services commensurately with the level of risk.
Within the subsidiaries of the Group, the business has covenanted to maintain
a specified leverage ratio and a net interest expense coverage ratio, all the
terms of which have been adhered to during the year.
The Group manages its capital structure, and makes adjustments to it, in the
light of changes in economic conditions. To maintain or adjust the capital
structure, the Group may adjust the dividend payment to shareholders, return
capital to shareholders or issue new shares.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including
the criteria for recognition, the basis of measurement and the basis on which
income and expenses are recognised, in respect of each class of financial
asset, financial liability and equity instrument are disclosed in the Group's
statutory accounts.
Market risk
Market risk arises from the Group's use of interest bearing, tradable and
foreign currency financial instruments. It is the risk that the fair value or
future cash flows of a financial instrument will fluctuate because of changes
in interest rates (interest rate risk), foreign exchange rates (foreign
currency risk) or other market factors.
Interest rate risk
The interest rate exposure profile of the Group's financial assets and
liabilities as at 31 March 2017 and 31 March 2016 were:
Nil rate assets and liabilities£'000 Floating rate assets£'000 Fixed rate liability£'000 Floating rate liability£'000 Total£'000
As at 31 March 2017
Trade and other receivables 1,012 - - - 1,012
Cash and cash equivalents - 11,181 - - 11,181
Trade and other payables (1,894) - - - (1,894)
Bank borrowings - - (25,032) (52,762) (77,794)
Obligation under finance leases - - (1,950) - (1,950)
(882) 11,181 (26,982) (52,762) (69,445)
Nil rate assets and liabilities£'000 Floating rate assets£'000 Fixed rate liability£'000 Floating rate liability£'000 Total£'000
As at 31 March 2016
Trade and other receivables 2,521 - - - 2,521
Cash and cash equivalents - 8,576 - - 8,576
Trade and other payables (2,512) - - - (2,512)
Bank borrowings - - - (71,944) (71,944)
Obligation under finance leases - - (2,067) - (2,067)
9 8,576 (2,067) (71,944) (65,426)
The Group is exposed to changes in interest rates as a result of the cash
balances that it holds. The cash balances of the Group at the year end were
£11,181,000
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