REG - Palace Capital PLC - Interim Results
16/11/2021 07:05
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RNS Number : 4533S Palace Capital PLC 16 November 2021
16 November 2021
PALACE CAPITAL PLC
("Palace Capital" or the "Company")
Interim Results for the six months ended 30 September 2021
ACTIVE ASSET MANAGEMENT AND PORTFOLIO REPOSITIONING DRIVE PERFORMANCE
Palace Capital (LSE: PCA), the Main Market listed property investment company
that has a diversified portfolio of UK commercial real estate in carefully
selected locations outside of London with a focus on the office and industrial
sectors, announces its unaudited results for the six months ended 30 September
2021.
Highlights
Active asset management and improved rent collection drive performance and
increased dividend payment
· IFRS profit before tax for the period up 211% to £8.0 million
(September 2020: £7.2 million loss) as a result of development profits,
leasing activity, property valuation increases, and profits on disposals.
· Basic EPS up 212% to 17.4p (September 2020: 15.5p loss).
· Adjusted EPS of 8.7p, reflecting a 1.4x cover of the 6.25p
dividend for the period.
· EPRA NTA per share of 362p, up 3.6% (March 2021: 350p) and IFRS
net assets of £163.6 million (March 2021: £157.8 million).
· Increased EPRA earnings of £3.7 million (September 2020: £3.2
million).
· 97% of rents collected for the June quarter and 90% of all rents
due on and since the September quarter day collected to the date of this
announcement, both higher than the equivalent quarter in 2020. This is
expected to increase to 95% when the monthly payments for December are
received.
· 8.3% increase in minimum quarterly dividend to 3.25p per share,
with the Q2 dividend at this level payable on 31 December 2021.
· Group LTV reduced to 36% (March 2021: 42%) reflecting strong
sales at Hudson Quarter, York and ongoing disposal programme, with all
disposals above book value.
· Solid balance sheet with cash reserves and immediately available
facilities of £18.7 million as at 30 September 2021.
· £26.5 million development facility from Barclays Bank now
reduced to £1.6 million, which will be repaid in full by the end of this
month.
· Net Debt of £93.2 million (March 2021: £118.9 million).
· Total accounting return of 5.2% (September 2020: -3.3%).
Strategic disposals and continuing Hudson Quarter sales providing capital for
reinvestment
· 64 apartments completed or exchanged at Hudson Quarter for a
total of £21.0 million with an additional 8 under offer to the value of £3.0
million.
· £18.9 million of property sold or exchanged under the £30
million disposal strategy, of which £12.0 million was exchanged or completed
by 30 September 2021, and a further £6.9 million exchanged or completed since
30 September 2021. All disposals were above book value.
· 29 lease events in the period providing £0.6 million additional
income per annum, 3% ahead of ERV.
· ESG embedded in asset business plans as a priority focus, with an
improving EPC profile. Portfolio 98% 2023 EPC compliant.
Balance Sheet 30 Sept 2021 31 March 2021
Investment property valuation £231.5m £237.7m
Trading property valuation £30.5m £45.1m
Total property portfolio valuation £262.0m £282.8m
Number of assets 45 48
Net assets £163.6m £157.8m
EPRA NTA per share 362p 350p
Income Statement Six months to Six months to
30 Sept 2021
30 Sept 2020
Profit/(loss) before tax £8.0m (£7.2m)
EPRA earnings £3.7m £3.2m
Earnings per share 17.4p (15.5p)
Adjusted earnings per share 8.7p 7.3p
Total accounting return 5.2% (3.3%)
Total shareholder return 5.1% 7.2%
Total dividend per share 6.25p 5.0p
Dividend cover 1.4x 1.5x
Stanley Davis, Chairman of Palace Capital said:
"We are making strong progress across the business and the focus we have been
able to put towards implementing our strategy as we have emerged from the
pandemic is clearly reflected in the numbers we are reporting today. Our rent
collection levels are high, we are achieving strong sales at Hudson Quarter,
including two, three bedroom apartments at £1.20 million and £1.05 million.
Our £30 million disposal programme is on track and our balance sheet is in
good health. This is enabling us to look at potential investments, both direct
property and corporate opportunities, as we seek to recycle capital with one
acquisition in legals.
"Since the end of the half year the letting market has further improved and we
are seeing increased activity at our office holdings as the regions see a
return to normal working activity. Avison Young in their Q3 update of regional
activity in the Big Nine Regional Cities state that "Occupier confidence
across the Big Nine office markets has reached its highest level since the
pandemic started which is reflected in the strongest take up for two years.
Increasing confidence has released pent up demand and requirements that have
been on hold during the past 18 months. As such there has been a depth to the
number and size of deals this quarter, including some exceptional lettings."
We have holdings in the city centres of Leeds, Manchester, Liverpool and
Newcastle, four of the Big Nine.
"Finally, I am due to stand down as Chairman at the end of this calendar year.
It has been the most wonderful journey since Neil Sinclair and I started
working together at Palace in 2010. I never expected to face a pandemic, but
the Board and the Management Team have responded magnificently, and I see
nothing other than an exciting future for Palace Capital."
For further information please contact:
PALACE CAPITAL PLC
Neil Sinclair, Chief Executive / Matthew Simpson, Chief Financial Officer
Tel. +44 (0)20 3301 8331
Broker
Numis Securities
Heraclis Economides / George Fry
Tel: +44 (0)20 7260 1000
Broker
Arden Partners plc
Corporate Finance: Paul Shackleton / Elliot Mustoe
Corporate Broking: James Reed-Daunter
Tel: +44 (0)207 614 5900
Financial PR
FTI Consulting
Claire Turvey / Katie Hughes
Tel: +44 (0)20 3727 1000
palacecapital@fticonsulting.com (mailto:palacecapital@fticonsulting.com)
About Palace Capital plc
Palace Capital plc (LSE: PCA) is a UK REIT that has a £262.0 million
diversified portfolio of UK regional commercial property. The Company
maintains a disciplined investment strategy focused on towns and cities
outside of London that are characterised by thriving local economies and
strengthening fundamentals. Within those locations the highly experienced
management team select assets that provide opportunities to drive both capital
value and long-term rental income through tailored active asset management
programmes ultimately delivering attractive shareholder returns.
www.palacecapitalplc.com (http://www.palacecapitalplc.com/)
CHAIRMAN'S STATEMENT
Profit after tax increased by 211% to £8.0 million in the period (September
2020: £7.2 million loss). This reflects our development profits, new lease
events resulting from our active asset management, increase in property
valuations and profit on disposals. All indications show that we are
recovering strongly from the effects of the pandemic, with our EPRA earnings,
EPRA NTA, profit before tax and dividend all up, supporting a total accounting
return of 5.2%. Moreover, the ongoing portfolio repositioning is delivering
a higher quality portfolio and strengthened balance sheet, positioning the
Company well for any forthcoming investment opportunities. Rental income for
the period reduced to £8.5 million (September 2020: £8.6 million), partly as
a result of the timing of our disposals.
The portfolio has an annual contractual rent roll of £16.9 million per annum
and a net income after property costs of £15.6 million per annum compared to
an ERV of £20.0 million per annum. Adjusted earnings totalled £4.0 million
translating to an adjusted EPS of 8.7p per share, reflecting a 1.4x cover of a
dividend of 6.25p per share for the period. Our second quarterly dividend of
3.25p will be payable on 31 December 2021 to shareholders on the register on
10 December 2021. The entire dividend will be paid as a Property Income
Distribution.
BALANCE SHEET:
Our balance sheet is in good shape and is getting stronger. Our IFRS net asset
value is £163.6 million, a 3.6% increase on 31 March 2021, with £13.7
million in cash as at 30 September 2021. Our cash position is improving
through our sales progress and was further enhanced by the divestment of our
5.58% stake in Circle Property plc for £3.2 million, reflecting an 8.6% total
return. Our portfolio is resilient, comprising higher quality assets as the
portfolio repositioning continues, and as at the half year end our properties
were independently valued by Cushman & Wakefield at £262.0 million.
Our LTV reduced from 42% as at 31 March 2021 to 36% as at 30 September 2021,
as a result of repaying £18.8 million of the Barclays development facility
following strong sales of the apartments at Hudson Quarter. There is currently
only £1.6 million of this facility remaining, which will be repaid in full by
the end of this month.
The high rent collection figures illustrate the quality of our tenants and the
success of our asset managers in proactively engaging with them.
PORTFOLIO OVERVIEW:
At the period end, the portfolio comprised 45 properties let to 186 tenants,
providing a diversified occupier base.
Hudson Quarter, the award-winning mixed-use scheme in York, was completed in
April this year. Investors, flat purchasers and indeed the media have
complimented us on the quality of the scheme, which has been completed to a
very high specification, further enhancing our profile and reputation across
the regional markets.
We have sold or exchanged 64 apartments to the value of £21.0 million and
have a further 8 under offer to the value of £3.0 million, which leaves 55
units remaining. York is one of those cities with little or no rental stock,
whilst the Universities are short of residential accommodation. As part of our
marketing strategy, we are now increasing our focus on long term investors as
well as owner occupiers.
The letting of 11,280 sq ft in our stand-alone office building known as HQ is
progressing, and we are hopeful that the lease will be signed early next
month.
The two leisure assets in Halifax and Northampton, which represent 13.8% of
the portfolio, are already seeing a significant recovery. The former is now
virtually fully let, at 97% occupancy, whilst the latter is at 95% occupancy.
We are seeing market evidence of investment values increasing and as stated
last year, these properties will be sold when we feel the time is right.
At 127 Above Bar Street, Southampton we have acquired the freehold interest in
this mixed-use property for £2.0 million. Until recently we only held a
leasehold interest expiring in 2035. This property produces a gross rental
income of £376,000 per annum, but with the asset reaching maturity we are
earmarking it for sale in the next financial year.
At Sandringham House, Harlow we have a 32,800 sq ft office building, the
majority of which was let to Exela, a NASDAQ quoted company, with the ground
floor vacant. Since the end of the half year, we have negotiated a surrender
of the existing lease and have relet the entire building to Exela until 2027
with an option to break in 2024 at a rental of £400,000 per annum. If the
tenant does not break in 2024, then the rent increases to £424,000 per annum
ESG FOCUS:
The Company continues to progress its Environmental, Social and Governance
("ESG") strategy, which is becoming increasingly embedded into our day-to-day
operations and informing our acquisition and disposal strategies. We are
currently focused on enhancing the environmental performance of our assets,
ensuring the portfolio remains efficient and keeps pace with the changing
needs of our tenants. We are presently reviewing the output from the COP26
summit.
We support the recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD) and having ensured we have the appropriate level of
governance in place, we are currently considering scenarios to understand
better the potential risks and opportunities associated with climate change
for our business. We will report in accordance with the TCFD recommendations
in our next Annual Report. The Board's ESG Committee continues to oversee our
work in this area and more detail on our approach to ESG can be found on our
website.
BOARD CHANGES:
Stephen Silvester stepped down from the Board on 29 October 2021 and Matthew
Simpson was appointed Chief Financial Officer on 11 November 2021.
The process for identifying my successor is well underway and we expect to
announce the details of the new Chair in the near future.
CONCLUSION & OUTLOOK:
We have one of the strongest rent collection statistics in the sector, modest
gearing which is on a downward trajectory and sales of non-core assets all at
above book value. However, at the moment our share price discount to NAV is
precluding us from issuing shares to make meaningful corporate acquisitions,
which we did successfully when acquiring a subsidiary of Quintain plc and
Property Investment Holdings Ltd. Our continued operational focus is on
creating value for shareholders and, ultimately, to work to close the
discount. While it is not our favoured route, we have not disregarded a share
buyback programme and may consider it further, particularly if we continue to
have a surplus of capital without the right accretive investment opportunities
into which we can redeploy the capital. However, we are well aware of the
necessity for consolidation in the sector and this is an avenue we have under
constant review. The increasing confidence in the regional markets, the
Government's levelling up agenda and our much improved balance sheet, means
that we are very well placed for our next period of growth.
The successful vaccination programme and the recovery in the economy is
enabling us to focus more fully on the implementation of our regional
strategy.
Some companies, in our portfolio and across our towns and cities, have had a
full return to the office whilst others have adopted a hybrid working model.
It is becoming increasingly clear that the office will remain a fundamental
part of the economy, as a space in particular for collaboration, creativity
and socializing. We are seeing more inspections of our vacant space,
increasing interest in the office investment market and in future office
development, and are therefore confident in office space continuing to be in
demand.
Our industrial holdings are showing continuing growth in rentals, and this
bodes very well for the future. We completed multiple lease events across our
industrial assets, this is reflected in our 6.1% like for like increase in our
industrial valuations.
Our strategic disposal programme is on track to achieve £30 million of
non-core disposals by the end of the financial year, with seven sales already
completed or exchanged to date, to the value of £18.9 million. This will
further strengthen the quality of our portfolio and its income profile.
As I stated previously, I will serve as Chairman until the end of this
calendar year leaving the company in great shape and well placed for its next
period of growth. I will subsequently continue to promote the interests of
this Company which I have been very proud to lead.
Stanley Davis, Chairman
15 November 2021
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
The recent COP 26 Summit continues to dominate headlines. We have been
monitoring the potential impacts of climate change as an emerging risk and the
Board is firmly of the view that the risks associated with climate change are
increasing significantly as governments and world leaders seek to establish
targets to keep global warming to 1.5 degrees. The Board will continue to
monitor events and is taking appropriate action to prepare for the short,
medium and long-term risks that could arise as a result of climate change.
We consider there to be no further material changes to the Group's principal
risks, as set out on pages 41-43 of the Annual Report and Accounts for the
year ended 31 March 2021.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that the condensed set of consolidated financial
statements have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the European Union
and that the interim management report includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8, namely:
· an indication of important events that have occurred during the
first six months and their impact on the condensed interim financial
statements, and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
· material related-party transactions in the first six months and
any material changes in the related-party transactions described in the last
annual report.
Palace Capital plc
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2021
Unaudited Unaudited Audited
6 months to 6 months to Year to
Notes 30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Revenue 3 27,774 8,601 17,316
Cost of sales 4 (17,506) (1,000) (1,500)
Movement in expected credit loss - (338) (949)
Net property income 10,268 7,263 14,867
Dividend income from listed equity investments 64 - 72
Administrative expenses (2,176) (2,260) (4,347)
Operating profit before gains and losses on property assets and listed equity 8,156 5,003 10,592
investments
Profit on disposal of investment properties 9 380 259 905
Gain/(loss) on revaluation of investment properties 9 1,265 (10,457) (14,750)
Reversal of impairment of trading properties 10 - 414 763
Gain/(loss) on revaluation of listed equity investments - (167) 709
Loss on disposal of listed equity investments (80) - -
Operating profit/(loss) 9,721 (4,948) (1,781)
Finance income - 1 1
Finance expense (1,618) (1,796) (3,347)
Debt termination costs - (140)
(48)
Changes in fair value of interest rate derivatives (10) (409) (265)
Profit/(loss) before taxation 8,045 (7,152) (5,532)
Taxation 5 - - (1)
Profit/(loss) for the period and total comprehensive income 8,045 (7,152) (5,533)
Earnings per ordinary share
Basic 7 17.4p (15.5p) (12.0p)
Diluted 7 17.4p (15.5p) (12.0p)
The accompanying notes form an integral part of these condensed consolidated
interim financial statements.
Palace Capital plc
Condensed consolidated statement of financial position
For the six months ended 30 September 2021
Notes Unaudited Unaudited Audited
30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Non-current assets
Investment properties 9 229,584 241,403 235,854
Listed equity investments at fair value - 2,373 3,249
Right of use asset 90 238 165
Property, plant and equipment 48 93 71
229,722 244,107 239,339
Current assets
Trading property 10 27,246 38,395 42,719
Trade and other receivables 11 11,080 10,014 9,764
Cash and cash equivalents 12 13,680 14,269 9,417
Total current assets 52,006 62,678 61,900
Total assets 281,728 306,785 301,239
Current liabilities
Trade and other payables 13 (9,109) (13,170) (12,908)
Borrowings 14 (30,835) (1,836) (21,853)
Lease liabilities for right of use asset (67) (172) (154)
Total current liabilities (40,011) (15,178) (34,915)
Net current assets 11,995 47,500 26,985
Non-current liabilities
Borrowings 14 (75,407) (129,625) (105,432)
Deferred tax liability (228) (228) (228)
Lease liabilities for investment properties (1,802) (1,805) (1,804)
Lease liabilities for right of use asset - (67) -
Derivative financial instruments 15 (690) (1,517) (1,029)
Total non-current liabilities (78,127) (133,242) (108,493)
Net Assets 163,590 158,365 157,831
Equity
Share capital 16 4,639 4,639 4,639
Merger reserve 3,503 3,503 3,503
Capital redemption reserve 340 340 340
Treasury share reserve (715) (1,287) (1,288)
Capital reduction reserve 125,019 125,019 125,019
Retained earnings 30,804 26,151 25,618
Equity shareholders' funds 163,590 158,365 157,831
Basic NAV per ordinary share 8 353p 344p 343p
Diluted NAV per ordinary share 8 353p 343p 342p
EPRA NTA per ordinary share 8 362p 347p 350p
The accompanying notes form an integral part of these condensed consolidated
interim financial statements.
The condensed consolidated interim financial statements were approved by the
Board of Directors on 15 November 2021.
Palace Capital plc
Condensed consolidated statement of cash flows
For the six months ended 30 September 2021
Restated Restated
Unaudited Unaudited Audited
6 months to 6 months to Year to
Notes 30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Operating activities
Profit/(loss) before tax 8,045 (7,152) (5,532)
Adjustments for non-cash items:
(Gain)/loss on revaluation of properties 9 (1,265) 10,457 14,750
Reversal of (gain)/impairment of trading properties 10 - (414) (763)
Loss/(gain) on revaluation of investments - 167 (709)
Loss on disposal of equity investments 80 - -
Profit on sale of investment properties 9 (380) (259) (905)
Depreciation 24 23 46
Amortisation of right of use asset 74 74 148
Debt termination costs 48 - 140
Share-based payment 158 150 300
Net finance costs 1,628 2,204 3,611
Cash generated by operations 8,412 5,250 11,086
(Increase)/decrease in trade and other receivables (1,428) (692) 491
Decrease in trade and other payables (2,366) (282) (291)
Decrease in trading property 14,753 (10,125) (14,646)
Cash flows from operations 19,371 (5,849) (3,360)
Interest received - 1 1
Interest and other finance costs paid (1,593) (1,855) (3,575)
Corporation tax paid (24) (1,128) (1,174)
Cash flows from operating activities 17,754 (8,831) (8,108)
Investing activities
Capital expenditure on refurbishments of property 9 (2,967) (905) (2,425)
Capital expenditure on developments 9 - (2,856) (4,131)
Proceeds from disposal of investment properties 9 10,230 1,219 5,290
Amounts transferred (into)/out of restricted cash deposits (3,043) 181 1,020
Proceeds from disposal of listed equity investments 3,169 - -
Dividends from listed equity investments 64 - 72
Purchase of property, plant and equipment (1) (14) (16)
Cash flows from investing activities 7,452 (2,375) (190)
Financing activities
Bank loan repaid (21,408) (1,071) (11,363)
Proceeds from new bank loans - 12,960 18,916
Loan issue costs (44) - (282)
Dividends paid 6 (2,534) (1,152) (3,455)
Cash flows from financing activities (23,986) 10,737 3,816
Net increase/(decrease) in cash 1,220 (469) (4,482)
Opening cash and cash equivalents 12 9,417 13,899 13,899
Closing cash and cash equivalents 12 10,637 13,430 9,417
The accompanying notes form an integral part of these condensed consolidated
interim financial statements.
Palace Capital plc
Condensed consolidated statement of changes in equity
For the six months ended 30 September 2021
Treasury Shares Capital reduction reserve
Share Share Reserve Other £000 Retained Earnings Total
Capital Premium £000 Reserves £000 equity
£000 £000 £000 £000
As at 31 March 2020 4,639 125,019 (1,349) 3,843 - 34,196 166,348
Total comprehensive loss for the period - - - - - (7,152) (7,152)
Share based payments - - - - - 150 150
Exercise of share options - - 62 - - (62) -
Issue of deferred bonus share options - - - - - 171 171
Dividends - - - - - (1,152) (1,152)
Transfer to capital reduction reserve account* - (125,019) - - 125,019 - -
As at 30 September 2020 4,639 - (1,287) 3,843 125,019 26,151 158,365
Total comprehensive profit for the period - - - - - 1,619 1,619
Share based payments - - - - - 150 150
Exercise of share options - - (1) - - 1 -
Issue of deferred bonus share options - - - - - - -
Dividends - - - - - (2,303) (2,303)
As at 31 March 2021 4,639 - (1,288) 3,843 125,019 25,618 157,831
- - - - - 8,046 8,046
Share based payments - - - - - 158 158
Exercise of share options - - 573 - - (573) -
EBT share purchased - - - - - (16) (16)
Issue of deferred bonus share options - - - - - 105 105
Dividends - - - - - (2,534) (2,534)
As at 30 September 2021 4,639 - (715) 3,843 125,019 30,804 163,590
The accompanying notes form an integral part of these condensed consolidated
interim financial statements.
*During the year, the Group made an order to reduce the Group's share premium
account and the crediting of the relevant sum to distributable profits. The
Court order approving the Share Premium Reduction and a statement of capital
were registered with the Registrar of Companies on 29 September 2020. The
Share Premium Reduction is now effective, and the amount that had been
standing to the credit of the Company's share premium account (£125,018,886)
has been credited to the Company's distributable profits.
Palace Capital plc
Notes to the condensed consolidated financial
statements
For the six months ended 30 September 2021
1 General information
These financial statements are for Palace Capital plc ("the Company") and its
subsidiary undertakings (together "the Group").
The Company's shares are admitted to trading on the Main Market of the London
Stock Exchange. The Company is domiciled and registered in England and Wales
and incorporated under the Companies Act 2006. The address of its registered
office is 25 Bury Street, London, SW1Y 6AL.
The nature of the Company's operations and its principal activities are that
of property investment in the UK.
Basis of preparation
The condensed consolidated financial information included in this half yearly
report has been prepared in accordance with the IAS 34 "Interim Financial
Reporting", as adopted by the European Union. The current period information
presented in this document is unaudited and does not constitute statutory
accounts within the meaning of section 434 of the Companies Act 2006.
The interim results have been prepared in accordance with applicable
International Accounting Standards (IAS) and International Financial Reporting
Standards (IFRS) issued by the International Accounting Standards Board
(IASB). These standards are collectively referred to as "IFRS".
The accounting policies and methods of computations used are consistent with
those as reported in the Group's Annual Report for the year ended 31 March
2021 and are expected to be used in the Group's Annual Report for the year
ended 31 March 2022.
Further to these accounting policies, as a result of the disposal of trading
properties in the first six months, the Group would like to provide further
clarity on the accounting policies for trading property revenue and trading
property cost of sales.
Revenue from the sale of trading properties is recognised when the performance
obligation associated with the sale is completed. The transaction price
comprises the fair value of the consideration received or receivable, net of
value added tax, rebates and discounts. Revenue is recognised in the income
statement when control is transferred to the customer. This is deemed to be
when title of the property passes to the customer on legal completion.
Trading property cost of sales includes direct expenditure relating to the
construction of the trading properties, capitalised interest, and selling
costs incurred as a result of residential sales. Selling costs includes agent
and legal fees. Cost of sales is expensed to the income statement and is
recognised on completion of each residential unit. The cost for each unit is
calculated using the ratio of the unit selling price, over the total
forecasted sales proceeds of all residential units. This ratio is then applied
to the total forecasted development cost to get the cost of sale per unit.
The financial information for the year ended 31 March 2021 presented in these
unaudited condensed Group interim financial statements does not constitute the
Company's statutory accounts for that period but has been derived from them.
The Report and Accounts for the year ended 31 March 2021 were audited and have
been filed with the Registrar of Companies. The Independent Auditor's Report
on the Report and Accounts for the year ended 31 March 2021 was unqualified
and did not contain statements under s498(2) or (3) of the Companies Act 2006.
The financial information for the periods ended 30 September 2020 and 30
September 2021 are unaudited and have not been subject to a review in
accordance with International Standard on Review Engagements 2410, Review of
Interim Financial Information performed by the Independent Auditor of the
Entity, issued by the Auditing Practices Board.
The interim report was approved by the Board of Directors on 15 November 2021.
Copies of this statement are available to the public for collection at the
Company's Registered Office at 25 Bury Street, London, SW1Y 6AL and on the
Company's website, www.palacecapitalplc.com (http://www.palacecapitalplc.com)
.
Restatement
The cash flow statement for the comparative periods have been corrected to
present cash outflows from an increase in trading properties as operating
activities for the year to 31 March 2021 of £14,646,000 (six months to 30
September 2020: £10,125,000) that were previously presented as investing
activities. This has resulted in an increase in the net movement in investing
activities for the year to 31 March 2021 of £14,646,000 (six months to 30
September 2020: £10,125,000) and a corresponding net decrease in the cash
inflows from operating activities in the Consolidated Cash Flow Statement.
These cashflows represent expenditure on trading properties that were expected
to be sold in the normal course of the Group's business and are therefore
operating in nature. There was no impact on profit or net assets for any
periods presented.
Going Concern
The Directors have made an assessment of the Group's ability to continue as a
going concern which included the current uncertainties created by Covid-19,
coupled with the Group's cash resources, borrowing facilities, rental income,
acquisitions and disposals of investment properties, committed capital and
other expenditure and dividend distributions. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities are
described in these financial statements.
As at 30 September 2021 the Group had £13.7m of cash and cash equivalents, of
which £10.6m was unrestricted cash, a low gearing level of 36% and a fair
value property portfolio of £262.0m. The Directors have reviewed the
forecasts for the Group taking into account the impact of Covid-19 on trading
over the 12 months from the date of signing this annual report. The forecasts
have been assessed against a range of possible downside outcomes incorporating
significantly lower levels of income in line with the possible ongoing effects
of the pandemic.
The Directors have a reasonable expectation that the Group have adequate
resources to continue in operation for at least 12 months from the date of
approval of the financial statements.
Accordingly, they continue to adopt the going concern basis in preparing the
Interim Report.
2 Segmental reporting
During the period, the Group operated in one business segment, being property
investment in the UK and as such no further information is provided.
3 Revenue
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Rents received from investment properties 8,453 8,554 17,150
Dilapidations & other property related income 89 27 56
Trading property revenue 19,187 - -
Insurance commission 45 20 110
Total revenue 27,774 8,601 17,316
4 Cost of sales
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Void investment and development property costs 841 681 1,275
Legal, lettings and consultancy costs 326 319 225
Trading property costs of sales 16,339 - -
Total cost of sales 17,506 1,000 1,500
5 Taxation
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Tax underprovided in prior year - - 1
Tax charge - - 1
As a result of the Company's conversion to a
REIT on 1 August 2019, the Group is no longer required to pay UK corporation
tax in respect of property rental income and capital gains relating to its
property rental business.
6 Dividends
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2021 2020 2021
Payment Date £000 £000 £000
Ordinary dividends paid
2020 Final dividend: 2.50p per share 14 August 2020 - 1,151 1,151
2021 Interim dividend: 2.50p per share 16 October 2020 - - 1,152
2021 Interim dividend: 2.50p per share 31 December 2020 - - 1,152
2021 Interim dividend: 2.50p per share 9 April 2021 1,152 - -
2021 Final dividend: 3.00p per share 5 August 2021 1,382 - -
2,534 1,151 3,455
Proposed dividend
2022 Q1 interim dividend: 3.00p per share paid on 15 October 2021.
2022 Q2 interim dividend: 3.25p per share payable on 31 December 2021.
7 Earnings per share
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 because the
Directors consider them to improve the transparency and relevance of our
published results as well as the comparability with other listed European real
estate companies.
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 closeout costs, one-off finance termination costs, 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. The EPRA diluted earnings per
share also takes into account the dilution of share options and warrants if
exercised.
Palace Capital also reports an adjusted earnings measure which is based on
recurring earnings before tax and the basic number of shares. This is the
basis on which the directors consider dividend cover. 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 non-cash expense, one-off
surrender premiums received, and non-recovery development loan interest. The
corporation tax charge (excluding deferred tax movements, being a non-cash
expense) is deducted in order to calculate the adjusted earnings per share.
The earnings per ordinary share for the period is calculated based upon the
following information:
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Profit/(loss) after tax attributable to ordinary shareholders for the period 8,045 (7,152) (5,533)
Adjustments:
(Gain)/loss on revaluation of property portfolio (1,265) 10,457 14,750
Reversal of impairment of trading properties - (414) (763)
Profit on disposal of investment properties (380) (259) (905)
Trading property revenue and cost of sales (2,848) - -
Loss/(gain) on revaluation of listed equity investments - 167 (709)
Loss on disposal of listed equity investments 80 - -
Debt termination costs 48 - 140
Fair value loss on derivatives 10 409 265
EPRA earnings for the period 3,690 3,208 7,245
Share-based payments 158 150 300
Development loan interest 166 - -
Adjusted profit after tax for the period 4,014 3,358 7,545
Tax excluding deferred tax on EPRA adjustments and capital gain charged - - 1
Adjusted profit before tax for the period 4,014 3,358 7,546
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2021 2020 2021
Weighted average number of shares for basic earnings per share 46,226,727 46,053,190 46,061,417
Dilutive effect of share options 36,766 - -
Weighted average number of shares for diluted earnings per share 46,263,493 46,053,190 46,061,417
Earnings per ordinary share
Basic 17.4p (15.5p) (12.0p)
Diluted 17.4p (15.5p) (12.0p)
EPRA and adjusted earnings per ordinary share
EPRA basic 8.0p 7.0p 15.7p
EPRA diluted 8.0p 7.0p 15.7p
Adjusted EPS 8.7p 7.3p 16.4p
8 Net asset value per share
The Group has adopted the new EPRA NAV measures which came into effect for
accounting periods starting 1 January 2020. EPRA issued new best practice
recommendations (BPR) for financial guidelines on its definitions of NAV
measures. The new NAV measures as outlined in the BPR are EPRA net tangible
assets (NTA), EPRA net reinvestment value (NRV) and EPRA net disposal value
(NDV). The Group has adopted these new guidelines and applies them in the 30
September 2021 Interim Report.
The Group considered EPRA Net Tangible Assets (NTA) to be the most relevant
NAV measure for the Group and we are now reporting this as our primary NAV
measure, replacing our previously reported EPRA NAV and EPRA NNNAV per share
metrics. EPRA NTA excludes the intangible assets and the cumulative fair value
adjustments for debt-related derivatives which are unlikely to be realised.
30 September 2021 (unaudited) 30 September 2020 (unaudited) 30 March 2021 (audited)
EPRA NTA (£000) EPRA NRV (£000) EPRA NDV (£000) EPRA NTA (£000) EPRA NRV (£000) EPRA NDV (£000) EPRA NTA (£000) EPRA NRV (£000) EPRA NDV (£000)
Net assets attributable to shareholders 163,590 163,590 163,590 158,365 158,365 158,365 157,831 157,831 157,831
Include:
Fair value adjustment of trading properties 3,279 3,279 3,279 - - - 2,247 2,247 2,247
Real estate transfer tax - 17,148 - - 14,935 - - 18,365 -
Fair value of fixed interest rate debt - - 60 - - (426) - - (59)
Exclude:
Fair value of derivatives 690 690 - 1,517 1,517 - 1,029 1,029 -
Deferred tax on latent capital gains and capital allowances 228 228 - 228 228 - 228 228 -
EPRA NAV 167,787 184,935 166,929 160,110 175,045 157,939 161,335 179,700 160,019
EPRA NAV per share 362p 399p 360p 347p 379p 342p 350p 389p 347p
Unaudited Audited
30 September 31 March
Unaudited 2020 2021
30 September
2021
Number of ordinary shares issued at the end of the period 46,288,470 46,069,690 46,069,690
Dilutive effect of share options 36,766 84,934 84,934
Number of diluted ordinary shares for diluted and EPRA net assets per share 46,325,236 46,154,624 46,154,624
Net assets per ordinary share
Basic NAV 353p 344p 343p
Diluted NAV 353p 343p 342p
EPRA NTA 362p 347p 350p
EPRA NRV 399p 379p 389p
EPRA NDV 360p 342p 347p
9 Property Portfolio
Freehold Investment properties Leasehold Investment properties Total investment properties
£000 £000 £000
At 1 April 2020 230,396 18,303 248,699
Additions - refurbishments 2,273 (44) 2,229
Capital expenditure on developments 4,061 - 4,061
Loss on revaluation of investment properties (13,614) (1,136) (14,750)
Disposals (3,975) (410) (4,385)
At 31 March 2021 219,141 16,713 235,854
Additions - refurbishments 2,169 21 2,190
Capital expenditure on developments 125 - 125
Gain/(loss) on revaluation of investment properties 1,432 (167) 1,265
Disposals (9,850) - (9,850)
At 30 September 2021 213,017 16,567 229,584
Standing investment properties Investment properties under construction Total investment properties Trading properties Total property portfolio
£000 £000 £000 £000 £000
At 1 April 2020 240,927 7,772 248,699 27,557 276,256
Additions - refurbishments 2,229 - 2,229 - 2,229
Capital expenditure on developments - 4,061 4,061 - 4,061
Additions - trading properties - - - 14,399 14,399
Gain/(loss) on revaluation of investment properties (14,867) 117 (14,750) 763 (13,987)
Disposals (4,385) - (4,385) - (4,385)
At 31 March 2021 223,904 11,950 235,854 42,719 278,573
Additions - refurbishments 2,190 - 2,190 - 2,190
Capital expenditure on developments - 125 125 - 125
Additions - trading properties - - - 866 866
Gain/(loss) on revaluation of properties 1,449 (184) 1,265 - 1,265
Disposals (9,850) - (9,850) (16,339) (26,189)
At 30 September 2021 217,693 11,891 229,584 27,246 256,830
The property portfolio (other than assets held for sale) has been
independently valued at fair value. The valuations have been prepared in
accordance with the RICS Valuation - Global Standards July 2017 ("the Red
Book") and incorporate the recommendations of the International Valuation
Standards and the RICS valuation - Professional Standards UK January 2014
(Revised April 2015) which are consistent with the principles set out in IFRS
13.
The valuer in forming its opinion makes a series of assumptions, which are
typically market related, such as net initial yields and expected rental
values, and are based on the valuer's professional judgement. The valuer has
sufficient current local and national knowledge of the particular property
markets involved and has the skills and understanding to undertake the
valuations competently.
At 30 September 2021, the Group's freehold and leasehold investment properties
were externally valued by Royal Institution of Chartered Surveyors ("RICS")
registered independent valuers. A reconciliation of the valuations carried out
by the external valuers to the carrying values shown in the balance sheet was
as follows:
Unaudited Unaudited Audited
30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Cushman & Wakefield LLP (property portfolio) 262,005 281,595 282,820
Fair value of property portfolio 262,005 281,595 282,820
Adjustment in respect of minimum payment
under head leases included as a liability 1,802 1,805 1,804
Less trading properties at lower of cost and net realisable value (27,246) (38,395) (42,719)
Less lease incentive balance in accrued income (3,698) (3,602) (3,804)
Less fair value uplift on trading properties (3,279) - (2,247)
Carrying value of investment properties 229,584 241,403 235,854
Investment properties with a carrying value of £229,520,000 (31 March 2021:
£234,613,000) and trading properties with a carrying value of £27,246,000
(31 March 2021: £42,719,000) are subject to a first charge to secure the
Group's bank loans amounting to £106,906,000 (31 March 2021: £128,313,000).
Valuation process - investment properties
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 independent 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;
• An appropriate yield; and
• For investment properties under construction: gross development value,
estimated cost to complete and an appropriate developer's margin.
Valuation technique - standing investment properties
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.
Reversal of impairment of trading properties
An impairment loss may only be reversed if there has been a change in the
estimates used to determine the asset's recoverable amount since the last
impairment loss had been recognised. If this is the case, then the carrying
amount of the asset shall be increased to its recoverable amount. The increase
will effectively be the reversal of an impairment loss.
10 Trading property
At 1 April 2020 27,557
Costs capitalised 14,399
Reversal of impairment of trading properties 763
At 31 March 2021 42,719
Costs capitalised 866
Disposal of trading properties (16,339)
At 30 September 2021 27,246
The Group has developed a large mixed-use scheme at Hudson Quarter, York. Part
of the approved scheme consisted of residential units which the Group held for
sale. As a result, the residential element of the scheme was classified as
trading property. During the six month period, residential units to the value
of £19,225,000 were sold.
11 Trade and other receivables
Unaudited Unaudited Audited
30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Current
Trade receivables 2,174 3,285 2,775
Prepayments and accrued income 4,294 4,080 4,385
Other taxes 248 820 143
Other debtors 4,364 1,829 2,461
11,080 10,014 9,764
12 Cash and cash equivalents
Unaudited Unaudited Audited
30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Cash and cash equivalents - unrestricted 10,637 13,430 9,417
Restricted cash 3,043 839 -
13,680 14,269 9,417
Restricted cash is cash where there is a legal restriction to specify its type
of use. This is typically where the Group has agreed to deposit cash with a
lender with regards to top-ups received from vendors on completion funds, to
be realised over time consistent with the loss of income on vacant units, and
where the Group has agreed to deposit cash with a lender to provide additional
security over loan facilities, and proceeds from sale of trading properties
which is used to repay the development facility.
13 Trade and other payables
Unaudited Unaudited Audited
30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Current
Trade payables 554 2,702 1,143
Accruals 2,488 3,759 3,711
Deferred rental income 3,465 3,488 3,347
Taxes 1,225 1,862 2,100
Other payables 1,377 1,359 2,607
9,109 13,170 12,908
14 Borrowings
Unaudited Unaudited Audited
30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Current borrowings 30,835 1,836 21,853
Non-current borrowings 75,407 129,625 105,432
Total borrowings 106,242 131,461 127,285
Non-current borrowings
Secured bank loans drawn 76,071 130,815 106,238
Unamortised facility fees (664) (1,190) (806)
75,407 129,625 105,432
The maturity profile of the Group's debt was as follows
Unaudited Unaudited Audited
30 September 30 September 31 March
2021 2020 2021
£000 £000 £000
Within one year 30,835 1,836 22,075
From one to two years 8,063 44,099 32,813
From two to five years 68,008 75,390 65,750
From five to ten years - 11,326 7,675
Total borrowings 106,906 132,651 128,313
Facility and arrangement fees
As at 30 September 2021
Secured borrowings Loan balance Unamortised facility fees Facility drawn
All in cost Maturity £000 £000 £000
% date
Scottish Widows 2.90% July 2026 9,002 (105) 9,107
National Westminster Bank plc 2.18% August 2024 23,532 (279) 23,811
Barclays 3.18% June 2024 37,368 (158) 37,526
Barclays 3.33% January 2022 4,617 - 4,617
Santander Bank plc 3.56% August 2022 24,931 (69) 25,000
Lloyds Bank plc 2.03% March 2023 6,792 (53) 6,845
106,242 (664) 106,906
Facility and arrangement fees
As at 31 March 2021
Secured borrowings Loan balance Unamortised facility fees Facility drawn
All in cost Maturity £000 £000 £000
% date
Scottish Widows 2.90% July 2026 9,149 (115) 9,264
National Westminster Bank plc 2.19% August 2024 28,291 (329) 28,620
Barclays 3.17% June 2024 37,785 (191) 37,976
Barclays 3.34% January 2022 20,136 (222) 20,358
Santander Bank plc 3.55% August 2022 25,142 (108) 25,250
Lloyds Bank plc 2.04% March 2023 6,782 (63) 6,845
127,285 (1,028) 128,313
Facility and arrangement fees
As at 30 September 2020
Secured borrowings Loan balance Unamortised facility fees Facility drawn
All in cost Maturity £000 £000 £000
% date
Scottish Widows 2.90% July 2026 13,355 (151) 13,506
National Westminster Bank plc 2.16% August 2024 28,242 (378) 28,620
Barclays 3.12% June 2024 40,193 (223) 40,416
Barclays 3.30% January 2022 17,553 (210) 17,763
Santander Bank plc 3.56% August 2022 25,352 (148) 25,500
Lloyds Bank plc 2.01% March 2023 6,766 (80) 6,846
131,461 (1,190) 132,651
The Group has unused loan facilities amounting to £16,189,000 (31 March 2021:
£13,320,000). A facility fee is charged on £16,189,000 with NatWest, at a
rate of 1.05% p.a. and is payable quarterly. This facility is secured on the
investment properties held by Property Investment Holdings Limited, Palace
Capital (Properties) Limited and Palace Capital (Leeds) Limited.
A facility fee is charged on £1,497,182 at a rate of 1.30% p.a. and is
payable quarterly. The £1,497,182 balance of the unused facilities relates to
a Barclays loan secured on the Hudson Quarter, York development held by Palace
Capital (Developments) Limited.
15 Derivatives financial instruments
The Group adopts a policy of entering into derivative financial instruments
with banks to provide an economic hedge to its interest rate risks and ensure
its exposure to interest rate fluctuations is mitigated.
The contract rate is the fixed rate the Group are paying for its interest rate
swaps.
The valuation rate is the variable LIBOR and bank base rate the banks are
paying for the interest rate swaps.
Details of the interest rate swaps the Group has entered can be found in the
table below.
The valuations of all derivatives held by the Group are classified as Level 2
in the IFRS 13 fair value hierarchy as they are based on observable inputs.
There have been no transfers between levels of the fair value hierarchy during
the year.
Bank Notional principal Expiry date Contract rate % Valuation rate % Unaudited Unaudited 30 September 2020 Audited
30 September 31 March
2021 2021
Barclays Bank plc 35,722,900 25 January 2023 1.34% 0.41% (475) (1,048) (717)
Santander plc 20,000,000 3 August 2022 1.37% 0.28% (215) (469) (312)
55,722,900 (690) (1,517) (1,029)
16 Share capital
Authorised, issued and fully paid share capital is as follows:
Unaudited Unaudited Audited
30 September 30 September 31 March
2021 2020 2021
Ordinary 10p shares 46,388,515 46,388,515 46,388,515
Share capital - number of shares in issue 46,388,515 46,388,515 46,388,515
Share capital - £ 4,638,852 4,638,852 4,638,852
The Company has set up an employee benefit trust, 'The Palace Capital Employee
Benefit Trust', for the granting of shares applicable to directors and
employees under the Long-Term Incentive Plan. On 22 June 2021 the Company
transferred 200,000 ordinary shares held in Treasury into The Palace Capital
Employee Benefit Trust.
On 14 July 2021 the Company granted 90,049 shares, being the awards granted on
14 July 2020 under the Palace Capital Deferred Bonus Plan from The Palace
Capital Employee Benefit Trust. On 13 and 19 August 2021, 134,814 share
options were exercised under the 2018 employee LTIP scheme. As at 30 September
2021 there were 99,587 shares held in treasury.
The Company's issued share capital as at 30 September 2021 comprises
46,288,470 ordinary shares which is the denominator for the calculations of
earnings per share and net asset value per share. This excludes the 100,045
ordinary shares held in treasury and the Employee Benefit Trust.
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