REG - Palace Capital PLC - Interim Results
24/11/2022 07:00
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RNS Number : 4182H Palace Capital PLC 24 November 2022
24 November 2022
Palace Capital plc
("Palace Capital" or the "Company")
Interim Results for the six months ended 30 September 2022
CONTINUED DELIVERY OF STRATEGIC OBJECTIVES
Palace Capital (LSE: PCA), the Main Market listed property company, announces
its unaudited results for the six months ended 30 September 2022.
Steven Owen, Interim Executive Chairman commented:
"At an operational level, the Company continues to make steady progress with
its asset management activities, as well as reducing its level of gross debt
and its cost base.
"In our October trading update we announced that we have decided to pause the
timing of material property disposals for the time being due to significant
volatility and uncertainty and this remains the case. However, we are
continuing to successfully sell small, individual assets which lend themselves
better to private buyers and special purchasers, the proceeds of which have
been used to further reduce gross debt from that reported at the half year
end.
"Although we are hopeful of stability returning, the commercial property
market continues to be adversely affected both in terms of investment activity
and in the downward re-pricing of assets as evidenced by recently reported
results and indices. During this challenging period our priority remains to
actively manage the portfolio and further reduce gross debt through selective
sales of smaller properties. Our relatively low gearing gives the Company
flexibility to determine when the appropriate time is to resume significant
disposals. This is a matter that is kept under constant review as the Board
strives to maximise cash returns to shareholders whilst remaining mindful of
consolidation in the Real Estate sector."
Income Statement metrics Six months to Six months to
30 Sept 2022
30 Sept 2021
Adjusted profit before tax £3.5m £4.0m
Adjusted earnings per share 7.9p 8.7p
IFRS (loss)/profit before tax (£12.4m) £8.0m
Basic earnings per share (27.4p) 17.4p
Dividends
Total dividend paid per share 7.0p 5.5p
Balance Sheet and operational metrics 30 Sept 2022 31 March 2022
EPRA NTA per share 356p 390p
Net asset value £155.7m £177.2m
Like-for-like portfolio valuation (decrease)/increase (6.5%) 3.9%
EPRA occupancy rate 88.9% 88.5%
Debt
Loan to value 32% 28%
Total drawn debt £88.7m £101.8m
Average cost of debt 3.9% 3.2%
Average debt maturity 2.8 years 1.9 years
Financial highlights
· Adjusted profit before tax of £3.5 million (September 2021:
£4.0 million) reflecting higher borrowing costs
· IFRS loss before tax for the period of £12.4 million (September
2021 £8.0 million profit) primarily due to the valuation deficit of £15.6
million
· Adjusted EPS of 7.9 pence (September 2021: 8.7 pence)
· Dividends paid up 27.3% to 7.0 pence per share (September 2021:
5.5p)
· Completed a £6.0 million share buyback programme in July 2022, a 7.0
pence per share accretion to EPRA NTA
· EPRA NTA per share of 356 pence reduced by 8.7% (March 2022: 390
pence) and IFRS net assets of £155.7 million (March 2022: £177.2 million)
reflecting an outward yield shift. Excluding Bank House, Leeds, EPRA NTA per
share reduced by 6.1%
· Investment property portfolio valuation reduced by 6.5% on a
like-for-like basis under the inaugural valuation undertaken by CBRE or 4.6%
excluding the deficit of £5.0 million on Bank House, Leeds
· Portfolio ERV growth over the half year was 3.6% on a
like-for-like basis, 7.1% for the industrial portfolio
· LTV of 32% (March 2022: 28%)
· Gross debt reduced by 12.9% in the period to £88.7 million (March
2022: £101.8 million). Gross debt reduced by a further £5.4 million post
period-end to £83.3 million.
· The weighted average maturity of debt facilities is 2.8 years
with the earliest facility not due to expire until March 2024
· Annualised administration cost savings of over £1.2 million
following the Board changes and the relocation of the Company's head office,
together with other, continuing cost reduction measures. The annualised cost
savings of £1.2 million represent 26% of FY22 administration expenses and
16% of FY22 EPRA earnings
Operational highlights
· During the first half, the Company disposed of four investment
properties for £4.8 million, 25% ahead of the 31 March 2022 book value
· Since the half year end a further two investment properties have
been sold for £4.1 million bringing the total sold year to date to £8.9
million, 22% ahead of the 31 March 2022 book value
· Apartment sales at Hudson Quarter, York have continued to
progress, despite the uncertain economic backdrop. A further 13 apartments
have been sold since 31 March 2022 for a total of £5.7 million, with
aggregate proceeds of the 93 units sold totalling £33.1 million.
Additionally, 10 units are under offer to the value of £4.4 million, leaving
24 units remaining. During the first half 9 apartments were sold for £3.9
million.
· WAULT for the portfolio has remained resilient at 4.8 years
(March 2022 4.7 years)
· An additional £0.9 million of annualised net rental income was
created during the half year through leasing and review activity and the
associated reduction in non-recoverable property costs which was, on average
12%, ahead of the 31 March 2022 ERVs. Annualised net rental income lost from
lease expiries and breaks totalled £0.4 million resulting in a net additional
annualised increase of £0.5 million from active asset management activity.
Net rental income lost from disposals totalled £0.3 million per annum
resulting in a net gain in annualised net rental income of £0.2 million
· Rent collection for the first half of the financial year was 99%
(31 March 2022: 98%)
· EPRA occupancy remains stable at 88.9% (31 March 2022: 88.5%)
Audio Webcast
The Company will hold an audio webcast for analysts and investors at 9.00 am
today which will be available via the link below. An on demand recording will
also be available from this link following the meeting and via the Company's
website www.palacecapitalplc.com (http://www.palacecapitalplc.com) .
https://pcawebcast
(https://stream.brrmedia.co.uk/broadcast/63761355550d0e0a0413aaff)
Palace Capital plc
Steven Owen, Interim Executive Chairman / Matthew Simpson, Chief Financial
Officer
Tel. +44 (0)20 3301 8330
Financial PR
FTI Consulting
Dido Laurimore / Giles Barrie
Tel: +44 (0)20 3727 1000
palacecapital@fticonsulting.com (mailto:palacecapital@fticonsulting.com)
Cautionary Statement
This announcement does not constitute an offer of securities by the Company.
Nothing in this announcement is intended to be, or intended to be construed
as, a profit forecast or a guide as to the performance, financial or
otherwise, of the Company or the Group whether in the current or any future
financial year. This announcement may include statements that are, or may be
deemed to be, ''forward-looking statements''. These forward-looking statements
can be identified by the use of forward-looking terminology, including the
terms ''believes'', ''estimates'', ''anticipates'', ''expects'', ''intends'',
''plans'', ''target'', ''aim'', ''may'', ''will'', ''would'', ''could'' or
''should'' or, in each case, their negative or other variations or comparable
terminology. They may appear in a number of places throughout this
announcement and include statements regarding the intentions, beliefs or
current expectations of the directors, the Company or the Group concerning,
amongst other things, the operating results, financial condition, prospects,
growth, strategies and dividend policy of the Group or the industry in which
it operates. By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on circumstances that
may or may not occur in the future and may be beyond the Company's ability to
control or predict. Forward-looking statements are not guarantees of future
performance. The Group's actual operating results, financial condition,
dividend policy or the development of the industry in which it operates may
differ materially from the impression created by the forward-looking
statements contained in this announcement. In addition, even if the operating
results, financial condition and dividend policy of the Group, or the
development of the industry in which it operates, are consistent with the
forward-looking statements contained in this announcement, those results or
developments may not be indicative of results or developments in subsequent
periods. Important factors that could cause these differences include, but are
not limited to, general economic and business conditions, industry trends,
competition, changes in government and other regulation, changes in political
and economic stability and changes in business strategy or development plans
and other risks.
Other than in accordance with its legal or regulatory obligations, the Company
does not accept any obligation to update or revise publicly any
forward-looking statement, whether as a result of new information, future
events or otherwise.
INTERIM EXECUTIVE CHAIRMAN'S STATEMENT
Update on delivery of strategic objectives
At our Full Year results, announced in June, it was noted that the year ahead
was likely to be further affected by continuing macroeconomic and
geo-political uncertainty, particularly arising from the continuing conflict
in Ukraine. These were expected to contribute to growing inflationary
headwinds which would impact on consumer and investor confidence, with
interest rates likely to constrain UK economic growth in the short term. This
has been borne out by recent monetary and fiscal tightening, with the UK
economy likely to suffer a recession in the short term.
On 19 July 2022, it was announced by the Company that the Board's strategy was
to focus on maximising cash returns to shareholders, whilst continuing to
remain mindful of consolidation in the Real Estate sector. As part of its
considerations, several properties, including the industrial portfolio, were
prepared and readied for sale. Other properties are undergoing asset
management initiatives in order to prepare them for sale at a future date when
market conditions are more favourable.
However, since the 'mini-budget' in September, the negative trends outlined
above accelerated significantly, translating into higher borrowing costs, the
impact of which has adversely impacted property valuations, with the
industrial sector being particularly affected.
The Board therefore took the decision to pause the timing of significant
property disposals for the time being because of this volatility but said that
it would continue to sell small, individual assets which lend themselves
better to private buyers and special purchasers. The Company has relatively
low leverage and therefore has the flexibility to do this and to react
promptly when the market stabilises.
To this end, since the half year end, the Company has sold £4.1 million of
investment properties, bringing the total sold year to date to £8.9 million
at 22% above the 31 March 2022 valuation. Since the half year end, the Company
also sold £1.8 million of residential apartments at Hudson Quarter, York,
bringing the total sold year to date to £5.7 million.
Operationally, the business remains robust. The Asset Management team has been
proactive in implementing asset management plans to increase income and reduce
void costs with lettings, renewals and rent reviews on average 12% ahead of
the 31 March 2022 estimated rental values. During the first half year 23 lease
events comprising seven new lettings, six lease renewals and ten rent reviews
were completed across 113,600 sq ft of space providing £0.7 million of
additional income. Including the associated reduction in non-recoverable
property costs of £0.2 million an additional £0.9 million of net rental
income was created during the first half.
The team has focused on minimising costs to our tenants. Rents and service
charges for properties in the portfolio remain competitive and are considered
by management to represent an affordable solution to existing and prospective
tenants facing the current and predicted economic headwinds. Our passing
rents per square foot for the portfolio sectors show levels of c. £17.10 psf,
£7.10 psf and £17.90 psf for offices, industrial and leisure respectively.
We have a good mix of assets ranging from Grade A offices to more affordable
industrial, leisure and retail units in good locations for people to access
for their business requirements.
In terms of managing our own costs, as previously announced, measures to
reduce the level of administrative expenses have been implemented and are
continuing. It is estimated that annualised cost savings are over £1.2
million which include the Company relocating its head office on 1 December
2022 from St James's, London to Victoria, London. The half year results
include an exceptional charge of £1.1 million (excluding taxes and costs)
relating to contractual payments to the former Chief Executive and Executive
Property Director.
The new, smaller Board consisting of Mark Davies, Matthew Simpson and myself,
which is more appropriate for the size of the Company, has operated
effectively and closely in dealing with the challenges the Company has faced
since August 2022. The Board is supported by an Executive Committee of six key
personnel including the Heads of Asset Management and Investment.
During the period, the Company announced a share buyback programme of up to 5%
of its issued share capital which was completed within a week of announcement
through the purchase of 2.3 million shares at a price of 260 pence per share.
The accretion to EPRA NTA was 7.0 pence per share.
As part of our financial management, we have also been active in allocating
surplus capital to reduce our gross debt by repaying higher interest loans and
thereby reducing debt servicing costs and improving covenant headroom.
Overview of results
The Group's adjusted profit before tax reduced to £3.5 million (September
2021: £4.0 million) principally due to higher borrowing costs compared with
the previous half year period. Investment property sales during the half year
period totalled £4.8 million which realised a profit of £0.9 million
(September 2021: £0.4 million). Trading profits from the sale of residential
units realised a profit of £0.1 million (September 2021: £2.8 million).
The whole portfolio was independently valued by CBRE, the Company's new
valuers, as at 30 September 2022, at £235.6 million, a reduction of 6.5% on a
like-for-like basis. The valuation deficit of £15.6 million equates to 35.4
pence per share. Of this, £5.0 million related to Bank House, Leeds.
Excluding this one asset, the portfolio valuation reduction on a like-for-like
basis was 4.6%.
Bank House, Leeds, is an 89,000 sq ft Grade II listed building in Leeds city
centre. It is currently fully let. In the Trading Update on 12 October 2022,
we advised that:
· on 5 October 2022, planning permission was granted for a three
storey extension and extensive external alterations and remediation
· a design review process would be undertaken including a value
engineering exercise with advisers in order to assess its viability
· if in the event the value engineering exercise concluded that the
scheme is not viable then the carrying value of the property would be reduced
to take account of remediation costs
· the Company would also be assessing all of its options in
relation to the property.
The Company has now conducted detailed viability analyses of the proposed
scheme for which planning permission was sought and has determined that such a
scheme is not currently financially viable. Accordingly, the Company is now
analysing options for the refurbishment and remediation of the existing
building, alongside environmental improvements. The listing of the building is
also being reviewed to establish whether, in the circumstances, there is a
case to de-list the building, as part of the process to maximise its value for
sale in due course. CBRE valued Bank House, Leeds as at 30 September 2022 at
£5.3 million which reflects the cost of remediation to the exterior cladding.
The investment portfolio (excluding residential properties held as trading
properties) was valued at £216.9 million and a net initial yield (NIY) of
6.8%. Within the investment portfolio the office, industrial and leisure
assets, which comprise 89% of the portfolio, were valued at NIYs of 6.6%, 5.7%
and 8.7% respectively.
The ERVs used by the valuers were, on the whole portfolio, 3.6% higher on a
like-for-like basis than as at 31 March 2022. Within the portfolio the ERV
growth for offices, industrial and leisure assets was 1.8%, 7.1% and 6.9%
respectively.
Principally, as a result of the revaluation loss on investment properties,
EPRA NTA per share fell by 34 pence to 356 pence per share as at 30 September
2022 (March 2022: 390 pence per share).
The Group's balance sheet remains resilient with cash reserves of £12.9
million as at 30 September 2022. Gross debt reduced by 12.9% in the period to
£88.7million (March 2022: £101.8 million), but, mainly as a result of the
property portfolio valuation reduction, the loan to value ratio increased
slightly to 32% (March 2022: 28%). Since the half year end, gross debt has
reduced by a further £5.4 million.
Dividend
The Group increased its paid dividends by 27.3% to 7.0 pence per share
(September 2021: 5.5 pence per share) in relation to the period ended 30
September 2022. The Company declares that an interim dividend will be paid
in the amount of 3.75 pence per share on 13 January 2023 as a Property Income
Distribution (PID). The record date will be 23 December 2022.
Outlook
The recent increase in interest rates with the prospect of further increases
as implied by financial markets has adversely impacted the commercial property
market in relation to investment activity resulting in a re-pricing of assets
compared with the position earlier in the year. Notwithstanding this, the
occupational market has remained resilient as evidenced by the increases over
estimated rental values obtained on lettings, lease renewals and rent reviews
together with a stable occupancy rate and high rent collection which
demonstrates the resilience of the portfolio.
The Company continues to sell selected properties at attractive prices which
further strengthens the balance sheet through the reduction in gearing
associated with debt repayment. During this challenging period the priority is
to actively manage the portfolio and further reduce gross debt through
selective sales of smaller properties. The relatively low gearing gives the
Company flexibility to determine when the appropriate time is to resume
significant disposals in an orderly manner.
The Board looks forward to announcing further progress in due course.
Steven Owen
Interim Executive Chairman
CHIEF FINANCIAL OFFICER'S REPORT
Financial Overview
The Group's adjusted profit before tax reduced by 12.5% to £3.5 million
(September 2021: £4.0 million), and EPRA NTA per share by 8.7% to 356 pence
(March 2022: 390 pence). Against a backdrop of economic uncertainty, the Group
continued to deliver at an operational level, by reducing gross debt in a
rising interest environment and making substantial progress in reducing
administration costs since June 2022, with over £1.2 million of annualised
cost savings made to date, with further reduction measures identified. In line
with the strategy of returning capital to shareholders, the Group has
increased the dividend paid by 27.3% in the period compared with the previous
half year and completed a £6.0 million share buyback programme in July 2022,
increasing EPRA NTA by 7.0 pence per share.
The summary of the Group financial results are as follows:
Income Statement Summary
Income Statement 30 Sept 2022 30 Sept 2021
£m £m
Gross property income (excluding ECL provision) 8.7 8.6
Property operating expenses (1.3) (1.2)
Expected Credit Loss provision (0.1) -
Net property income (excluding trading profit) 7.3 7.4
Dividend income from listed equity investments - 0.1
Recurring administration expenditure (2.0) (2.0)
Finance costs (1.8) (1.5)
Adjusted profit before tax 3.5 4.0
Tax 0.1 -
Adjusted profit after tax 3.6 4.0
Hudson Quarter development loan interest - (0.2)
Payments to former Directors (including associated costs) (1.4) -
Share based payments (0.1) (0.1)
EPRA earnings 2.1 3.7
(Loss)/gain on revaluations (15.6) 1.3
Loss on disposal of equity investments - (0.1)
Trading profit 0.1 2.8
Profit on disposal of investment properties 0.9 0.4
Change in fair value of interest rate derivatives 0.2 -
Debt termination costs - (0.1)
IFRS earnings (12.3) 8.0
Net property income in the period fell marginally to £7.3 million (September
2021: £7.4 million). An increase in annualised income from lease events has
been mostly offset by income lost to disposals since September 2021. Property
operating expenses have risen by £0.1 million as a result of rates refunds
being received in the period to September 2021, which were not replicated in
the current period. A bad debt provision of £0.1 million has been recognised
in the current half year period in the event of an increase in tenant arrears
as the economic outlook deteriorates. Notwithstanding our caution in making
this provision, rent collection has remained consistent at 99% throughout the
period.
The Group has made significant progress in reducing its annualised
administration costs by over £1.2 million to since June 2022. These cost
savings reflect changes in the board composition and a combination of other
cost reduction measures, including the relocation of the head office with
effect from 1 December 2022. The cost savings of £1.2 million represent 26%
of FY22 administration expenses and 16% of FY22 EPRA earnings. Due to the
timing of the savings and various contract notices, the subsequent impact of
these costs will not be reflected fully in the financial statements until the
latter months of the financial year but principally into FY24. Recurring
administration costs remained flat at £2.0 million (September 2021: £2.0
million) in the period.
Non-recurring administration expenses in the period include £1.4 million of
payments including associated costs, paid to the former CEO and Executive
Property Director, who stepped down in the period, under the terms of their
service contracts and the Company's remuneration policy.
Finance costs increased by £0.3 million to £1.8 million (September 2021:
£1.5 million) in the period, as the Bank of England increased interest rates
in response to rising inflation.
EPRA NTA Movement
EPRA NTA decreased by 34 pence or 8.7% to 356 pence (March 2022: 390p) during
the period. This was largely due to the revaluation deficit of £15.6 million
or 35.4 pence per share, or a 6.5% reduction in the portfolio on a
like-for-like basis. However, the revaluation deficit on one asset, Bank
House, Leeds, contributed £5.0 million of this deficit, which equates to 11.4
pence per share of the total EPRA NTA reduction.
Other movements to note include the buyback of shares of £6.0 million,
increasing EPRA NTA by 7.0 pence per share, the profit on disposal of assets
and HQ trading profit of £1.0 million, contributing 2.2 pence per share.
These were offset by the fair value, downward adjustment of trading properties
(HQ York residential) of £1.8 million, or 4.1 pence per share and the
payments including associated costs to former Directors of £1.4 million
reducing EPRA NTA by 3.1 pence per share. Conversely, net adjusted earnings,
after dividends paid, increased EPRA NTA by a further 0.9 pence per share.
Other movements contributed to a further reduction of 1.5 pence per share.
£m No. of shares (diluted) Pence per share
EPRA NTA at 31 March 2022 180.6 46,325,236 390.0p
Share buyback (6.0) (2,300,000) 7.0p
EPRA NTA after share buyback 174.6 44,025,236 397.0p
Adjusted earnings 3.5 7.9p
Sale of assets 0.9 2.0p
HQ trading profit 0.1 0.2p
Property portfolio revaluation loss excl. Bank House (10.6) (24.0p)
Bank House revaluation loss (5.0) (11.4p)
Cash dividends paid (3.2) (7.0p)
Fair value adj. of trading properties (1.8) (4.1p)
Payments to former Directors including associated costs (1.4) (3.1p)
Other movements (0.1) 11,287 (1.5p)
EPRA NTA at 30 September 2022 157.0 44,036,845 356.0p
FINANCING
Given the economic uncertainty, leading to rising inflation and subsequent
increases in interest rates, the Group has prioritised the efficient use of
its capital and maintaining an appropriate capital structure. The Group has
made significant progress in reducing its drawn debt by 12.9% to £88.7
million (March 2022: £101.8 million). Given the rising interest rate
environment, management continue to sensitise bank loan covenants ensuring
they remain compliant. Post 30 September 2022, £5.4 million of gross bank
debt has been repaid, which included £5.0m repayment of the Santander
facility on 1 November 2022. As a result, gross debt was £83.3 million at 23
November 2022. Using current SONIA rates plus the margin, this saves the Group
annualised interest costs of over £0.25 million. The Group has remained
compliant with all covenants on its bank facilities in the period.
As at 23 November 2022, the cash balance was £8.0 million (March 2022: £28.1
million - including £5.0 million drawn from the NatWest RCF which has been
repaid). The disposal proceeds from Hudson Quarter residential sales continue
to enhance cash reserves, as this cash is unfettered and free from bank debt.
The cash received from both HQ sales and the disposal of investment
properties, gives the Group flexibility and optionality on how to deploy its
capital.
The Group refinanced the facility with Santander, reducing the margin from
2.5% to 2.2% on a new five-year facility in May 2022, whilst also extending
the current debt facility with Lloyds for a further year until March 2024. The
average debt maturity increased to 2.8 years (March 2022: 1.9 years). The
Company continues to maintain close relationships with its lenders, as we
navigate these uncertain times.
Net debt at 30 September 2022 increased slightly to £75.8 million (March
2022: £73.6 million). The combination of the £6.0 million share buyback
programme which was completed in July 2022 and the revaluation deficit on
investment properties of £15.6 million has resulted in an increase in the
loan to value (LTV) ratio to 32% at 30 September 2022 (March 2022: 28%). The
average cost of debt increased to 3.9% (March 2022: 3.2%) as a result of
interest rates increasing and the Santander swap maturing in August 2022.
Set out below is a table showing the movement in drawn debt during the year:
2022
£m
Drawn debt at 31 March 2022 101.8
Repayment of debt from disposals (12.2)
Amortisation of loans (0.9)
Drawn debt at 30 September 2022 88.7
Repayment of debt from disposals (5.0)
Amortisation of loans (0.4)
Drawn debt at 23 November 2022 83.3
Given the economic climate of increasing inflation, with interest rates
expected to rise further, we continue to monitor swap rates on an ongoing
basis. At 30 September 2022 we held £36.6 million of fixed or hedged debt
(March 2022: £61.4 million), which was 41% of overall drawn debt (March 2022:
60%), as shown in the table below:
DEBT
Fixed Floating Total drawn Years to
£m
£m
£m
maturity
Barclays 27.8 - 27.8 1.7
NatWest - 20.8 20.8 1.9
Santander - 24.5 24.5 4.7
Lloyds - 6.8 6.8 1.4
Scottish Widows 8.8 - 8.8 3.8
36.6 52.1 88.7 2.8
The Group's key debt metrics are summarised in the table below:
DEBT METRICS
30 September 31 March
2022 2022
Net loan to value ratio 32% 28%
Debt drawn £88.7m £101.8m
Total fixed debt £36.6m £61.4m
Average cost of debt 3.9% 3.2%
Average debt maturity 2.8yrs 1.9yrs
NAV gearing 49% 41%
Matthew Simpson
CHIEF FINANCIAL OFFICER
23 November 2022
Statement of Principal Risks
We consider there has been no material changes to the Group's principal risks,
as set out on pages 39 to 43 of the Annual Report and Accounts for the year
ended 31 March 2022 and summarised below. However, several risks continue to
be elevated as a result of the ongoing economic outlook for the UK.
This includes increased risks relating to Market Cycle, Economic and
Political, Liquidity and Valuation through increased economic uncertainty,
higher interest rates, inflation and energy costs which may negatively impact
revenues and costs for our tenants, for the commercial property market and the
Company. We are working with our tenants, banks and other stakeholders to
mitigate these risks.
01 02 03
MARKET CYCLE ECONOMIC AND POLITICAL CAPITAL STRUCTURE
Risk description Risk description Risk description
Failure to react appropriately to changing market conditions and adapt our Uncertainty from global events (including Brexit, rising inflation, rising An inappropriate level of gearing or failure to comply with debt covenants or
corporate strategy could negatively impact shareholder returns. interest rates, cost of living crisis) could impact economic growth, weakening manage re-financing events could put pressure on cash resources and lead to a
demand for our tenants and the profitability of their businesses. funding shortfall for operational activities.
Decisions made by Government and local councils can have a significant impact
on our ability to extract value from our properties.
04 05 06
LIQUIDITY PORTFOLIO STRATEGY - ASSET MANAGEMENT
Risk description Risk Description Risk description
Increasing costs of borrowing due to increasing interest rates could affect An inappropriate investment and development strategy that is not aligned to Failure to implement asset business plans and elevated risks associated with
the Group's ability to borrow or reduce its ability to repay its debts overall corporate purpose objectives, economic conditions or tenant demand may refurbishment could lead to longer void periods, higher arrears and overall
result in lower investment returns investment performance, adversely impacting returns and cashflows.
07 08 09
VALUATION TENANT DEMAND BUSINESS CONTINUITY AND CYBER SECURITY
AND DEFAULT
Risk description Risk description Risk description
Decreasing capital and rental values could impact the Group's portfolio Failure to adapt to changing occupier demands and/or poor tenant covenants may Business disruption as a result of physical damage to buildings, Government
valuation leading to lower returns. result in us losing significant tenants, which could materially impact income, policy and social distancing measures implemented in response to pandemics,
capital values and profit. cyber attacks or other operational or IT failures or unforeseen events may
impact income and profits.
10 11 12
PEOPLE CLIMATE CHANGE REGULATORY AND TAX
Risk description Risk description Risk description
An inability to attract or retain staff and Directors with the right skills Failure to anticipate and prepare for transition and physical risks associated Non-compliance with the legal and regulatory requirements of a public real
and experience or failure to implement appropriate succession plans may result with climate change including increasing policy and compliance risks estate company, including the REIT regime could result in convictions or fines
in significant underperformance or impact the overall effectiveness of our associated with existing and emerging environmental legislation could lead to and negatively impact reputation.
operations. increased costs and the Group's assets becoming obsolete or unable to
attract occupiers.
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.
The Directors of Palace Capital plc are listed on the Company website
www.palacecapitalplc.com
By order of the Board
Matthew Simpson
Chief Financial Officer
23 November 2022
Palace Capital plc
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2022
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2022 2021 2022
Notes £000 £000 £000
Revenue 3 14,340 29,798 49,064
Cost of sales 4 (6,934) (19,530) (30,408)
Movement in expected credit loss - - 360
Net property income 7,406 10,268 19,016
Dividend income from listed equity investments - 64 64
Administrative expenses (3,529) (2,176) (4,623)
Operating profit before gains and losses on property assets and listed equity 3,877 8,156 14,457
investments
Profit on disposal of investment properties 882 380 4,946
(Loss)/gain on revaluation of investment properties 9 (15,587) 1,265 8,222
Loss on disposal of listed equity investments - (80) (80)
Operating (loss)/profit (10,828) 9,721 27,545
Finance income 2 - -
Finance expense (1,725) (1,618) (3,196)
Debt termination costs (48) (63)
(6)
Changes in fair value of interest rate derivatives 184 (10) 329
(Loss)/profit before taxation (12,373) 8,045 24,615
Taxation 5 31 - (67)
(Loss)/profit after taxation for the period and total comprehensive income (12,342) 8,045 24,548
attributable to owners of the Parent
Earnings per ordinary share
Basic 6 (27.4p) 17.4p 53.1p
Diluted 6 (27.4p) 17.4p 53.0p
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 2022
Notes Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Non-current assets
Investment properties 9 213,928 229,584 232,717
Right of use asset - 90 17
Property, plant and equipment 34 48 45
213,962 229,722 232,779
Current assets
Trading property 10 17,005 27,246 20,287
Trade and other receivables 11 8,191 11,080 7,412
Cash and cash equivalents 12 12,888 13,680 28,143
Derivative financial instruments 15 252 - -
38,336 52,006 55,842
Total assets 252,298 281,728 288,621
Current liabilities
Trade and other payables 13 (7,408) (9,109) (8,912)
Borrowings 14 (1,718) (30,835) (32,749)
Lease liabilities for right of use asset - (67) -
Derivative financial instruments 15 - - (47)
Creditors: amounts falling due within one year (9,126) (40,011) (41,708)
Net current assets 29,210 11,995 14,134
Non-current liabilities
Borrowings 14 (86,247) (75,407) (68,488)
Deferred tax liability (113) (228) (143)
Lease liabilities for investment properties (1,077) (1,802) (1,078)
Derivative financial instruments 15 - (690) -
Net Assets 155,735 163,590 177,204
Equity
Called up 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 (6,669) (715) (717)
Capital reduction reserve 121,779 125,019 125,019
Retained earnings 32,143 30,804 44,420
Equity shareholders' funds 155,735 163,590 177,204
Basic NAV per ordinary share 7 354p 353p 383p
Diluted NAV per ordinary share 7 354p 353p 383p
EPRA NTA per ordinary share 7 356p 362p 390p
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 23 November 2022.
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 2022
Treasury Shares Capital reduction reserve
Share Reserve Other £000 Retained Earnings Total
Capital £000 Reserves £000 equity
£000 £000 £000
As at 31 March 2021 4,639 (1,288) 3,843 125,019 25,618 157,831
Total comprehensive profit for the period - - - - 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
Total comprehensive profit for the period - - - - 16,502 16,502
Share based payments - - - - 4 4
Exercise of share options - (2) - - 2 -
Issue of deferred bonus share options - - - - - -
Dividends - - - - (2,893) (2,893)
As at 31 March 2022 4,639 (717) 3,843 125,019 44,420 177,204
Total comprehensive loss for the period - - - - (12,342) (12,342)
Share based payments - - - - 100 100
Exercise of share options - 73 - - (73) -
Issue of deferred bonus share options - - - - 38 38
Dividends - - - (3,240) - (3,240)
Share buyback - (6,025) - - - (6,025)
As at 30 September 2022 4,639 (6,669) 3,843 121,779 32,143 155,735
The accompanying notes form an integral part of these condensed consolidated
interim financial statements.
Palace Capital plc
Condensed consolidated statement of cash flows
For the six months ended 30 September 2022
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2022 2021 2022
Notes £000 £000 £000
Operating activities
(Loss)/profit before taxation (12,373) 8,045 24,615
Finance income (2) 330 -
Finance expense 1,725 1,618 3,196
Changes in fair value of interest rate derivatives (184) 10 (329)
Loss/(gain) on revaluation of investment property portfolio 9 15,587 (1,265) (8,222)
Profit on disposal of investment properties 9 (882) (380) (4,946)
Loss on disposal of equity investments - 80 80
Debt termination costs 6 48 63
Depreciation 17 24 48
Amortisation of right of use asset 17 74 148
Share-based payment 100 158 162
(Increase)/decrease in trade and other receivables (779) (1,428) 2,289
Decrease in trade and other payables (1,411) (2,366) (2,929)
Decrease in trading property 3,282 14,753 21,972
Net cash generated from operations 5,103 19,701 36,147
Interest received 2 (330) -
Interest and other finances charges paid (1,619) (1,593) (3,417)
Corporation tax paid in respect of operating activities (106) (24) (48)
Net cash flows from operating activities 3,380 17,754 32,682
Investing activities
Purchase of investment properties - - (9,870)
Capital expenditure on refurbishment of investment property 9 (608) (2,967) (6,519)
Proceeds from disposal of investment properties 9 4,692 10,230 31,221
Amounts transferred into restricted cash deposits - (3,043) -
Proceeds from disposal of listed equity investments - 3,169 3,169
Dividends from listed equity investments - 64 64
Purchase of property, plant and equipment (6) (1) (22)
Cash flows from investing activities 4,078 7,452 18,043
Financing activities
Bank loan repaid (13,037) (21,408) (38,033)
Proceeds from new bank loans - - 11,472
Loan issue costs (411) (44) (11)
Dividends paid 8 (3,240) (2,534) (5,427)
Share buyback (6,025) - -
Cash flows from financing activities (22,713) (23,986) (31,999)
Net (decrease)/increase in cash (15,255) 1,220 18,726
Opening cash and cash equivalents 12 28,143 9,417 9,417
Closing cash and cash equivalents 12 12,888 10,637 28,143
Palace Capital plc
Notes to the condensed consolidated financial
statements
For the six months ended 30 September 2022
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
2022 and are expected to be used in the Group's Annual Report for the year
ended 31 March 2023.
The financial information for the year ended 31 March 2022 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 2022 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 2022 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 2021 and 30
September 2022 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 23 November 2022.
Copies of this statement are available to the public on the Company's website,
www.palacecapitalplc.com (http://www.palacecapitalplc.com) . Printed copies
are available to shareholders on request via email to
info@palacecapitalplc.com.
Restatement
The Consolidated Statement of Comprehensive Income for the comparative period
has been corrected to present service charge income in revenue and recoverable
service charge costs in cost of sales. The Group has control over the services
being provided, and ultimately the risk of paying and recovering these costs
sit with the Group. Therefore, these receipts and recoverable expenses are
presented gross in the Statement of Comprehensive Income. This has resulted in
the Group recognising £2,024,000 as service charge income within revenue and
a corresponding £2,024,000 in recoverable service charge costs in the cost of
sales line. There was no impact on profit or net assets for any periods
presented. The revenue and cost of sales for the period ending 30 September
2021 were therefore restated to £29,798,000 and £19,530,000 respectively,
from £27,774,000 and £17,506,000.
Going Concern
The Directors have made an assessment of the Group's ability to continue as a
going concern which included the current uncertainties around the economic
climate brought on by rising inflation and rising interest rates. In this
assessment, the Directors considered the impact on the Group's cash resources,
borrowing facilities (including impact on bank covenants), rental income,
disposals of investment and trading properties, committed capital 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 2022 the Group had £12.9m of unrestricted cash and cash
equivalents, a low gearing level of 32% and a fair value property portfolio of
£235.6m. The Directors have reviewed the forecasts for the Group taking into
account the impact of rising inflation and rising interest rates on trading
over the 12 months from the date of signing this report. The forecasts have
been assessed against a range of possible downside outcomes incorporating
significantly higher interest rates as a result of the economic uncertainty.
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
2022 2021 2022
£000 £000 £000
Gross rental income 8,616 8,453 16,670
Dilapidations and other property related income 4 89 732
Insurance commission - 45 92
Gross property income 8,620 8,587 17,494
Trading property income 3,523 19,187 27,415
Service charge income 2,197 2,024 4,155
Total revenue 14,340 29,798 49,064
4 Cost of sales
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Void investment and development property costs 847 841 2,310
Legal, lettings and consultancy costs 458 326 328
Property operating expenses 1,305 1,167 2,638
Trading property costs of sales 3,432 16,339 23,615
Service charge expense 2,197 2,024 4,155
Total cost of sales 6,934 19,530 30,408
5 Taxation
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Current income tax charge - - 152
Deferred tax (31) - (85)
Tax (credit)/charge (31) - 67
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 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 year (as
shown on the Consolidated Statement of Comprehensive Income) and for the
earnings per share, the weighted average number of ordinary shares in issue
(excluding treasury shares) during the period and for diluted weighted average
number of ordinary shares (excluding treasury shares) in issue during the
year. Refer to the table below.
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
(Loss)/profit after tax attributable to ordinary Shareholders for the year (12,342) 8,045 24,548
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2022 2021 2022
Weighted average number of shares for basic earnings per share 45,033,081 46,226,727 46,257,514
Dilutive effect of share options 9,831 36,766 36,766
Weighted average number of shares for diluted earnings per share 45,042,912 46,263,493 46,294,280
Earnings per ordinary share
Basic (27.4p) 17.4p 53.1p
Diluted (27.4p) 17.4p 53.0p
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, gains and losses
on disposals, changes in fair value of financial instruments, 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.
The Group also reports an adjusted earnings measure which is based on
recurring earnings before tax and the basic number of shares. Currently, this
is one of the bases 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. This
includes share-based payments being a non-cash expense, non-recovery
development loan interest and payments to former Directors. The earnings per
ordinary share for the period is calculated based upon the following
information:
Unaudited Unaudited Audited
31 months to 31 months to Year to
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
(Loss)/profit after tax attributable to ordinary shareholders for the period (12,342) 8,045 24,548
Adjustments:
Loss/(gain) on revaluation of investment property portfolio 15,587 (1,265) (8,222)
Profit on disposal of investment properties (882) (380) (4,946)
Trading property revenue and cost of sales (91) (2,848) (3,800)
Loss on disposal of listed equity investments - 80 80
Debt termination costs 6 48 63
Fair value (gain)/loss on derivatives (184) 10 (329)
EPRA earnings for the period 2,094 3,690 7,394
Share-based payments 100 158 162
Hudson Quarter development loan interest - 166 189
Payments to former Directors (including associated costs) 1,380 - -
Adjusted profit after tax for the period 3,574 4,014 7,745
Tax excluding deferred tax on EPRA adjustments and capital gain charged (31) - 67
Adjusted profit before tax for the period 3,543 4,014 7,812
EPRA and adjusted earnings per ordinary share
EPRA basic 4.6p 8.0p 16.0p
EPRA diluted 4.6p 8.0p 16.0p
Adjusted EPS 7.9p 8.7p 16.9p
7 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 2022 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 2022 (unaudited) 30 September 2021 (unaudited) 31 March 2022 (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 155,735 155,735 155,735 163,590 163,590 163,590 177,204 177,204 177,204
Include:
Fair value adjustment of trading properties 1,390 1,390 1,390 3,279 3,279 3,279 3,188 3,188 3,188
Real estate transfer tax - 14,347 - - 17,148 - - 17,409 -
Fair value of fixed interest rate debt - - 1,233 - - 60 - - 413
Exclude:
Fair value of derivatives (252) (252) - 690 690 - 47 47 -
Deferred tax on latent capital gains and capital allowances 113 113 - 228 228 - 143 143 -
EPRA NAV 156,986 171,333 158,358 167,787 184,935 166,929 180,582 197,631 180,805
EPRA NAV per share 356p 389p 360p 362p 399p 360p 390p 427p 390p
8 Dividends
Unaudited Audited
30 September 31 March
Unaudited 2021 2022
30 September
2022
Number of ordinary shares issued at the end of the period 44,027,014 46,288,470 46,288,470
Dilutive effect of share options 9,831 36,766 36,766
Number of diluted ordinary shares for diluted and EPRA net assets per share 44,036,845 46,325,236 46,325,236
Net assets per ordinary share
Basic NAV 354p 353p 383p
Diluted NAV 354p 353p 383p
EPRA NTA 356p 362p 390p
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2022 2021 2022
Payment Date £000 £000 £000
Ordinary dividends paid
2021 Interim dividend: 2.50p per share 9 April 2021 - 1,152 1,152
2021 Final dividend: 3.00p per share 5 August 2021 - 1,382 1,382
2022 Interim dividend: 3.00p per share 15 October 2021 - - 1,389
2022 Interim dividend: 3.25p per share 31 December 2021 - - 1,504
2022 Interim dividend: 3.25p per share 14 April 2022 1,504 - -
2022 Final dividend: 3.75p per share 5 August 2022 1,736 - -
3,240 2,534 5,427
Proposed dividend
2023 Q1 interim dividend: 3.75p per share paid on 14 October 2022.
2023 Q2 interim dividend: 3.75p per share payable on 13 January 2023.
9 Property Portfolio
Freehold Investment properties Leasehold Investment properties Total investment properties
£000 £000 £000
At 1 April 2021 219,141 16,713 235,854
Additions - refurbishments 2,351 2,543 4,894
Additions - new properties 10,022 - 10,022
Gain on revaluation of investment properties 6,886 1,336 8,222
Disposals (22,290) (3,985) (26,275)
At 31 March 2022 216,110 16,607 232,717
Additions - refurbishments 480 128 608
Loss on revaluation of investment properties (14,604) (983) (15,587)
Disposals (3,810) - (3,810)
At 30 September 2022 198,176 15,752 213,928
Standing investment properties Investment properties under construction Total investment properties Trading properties Total property portfolio
£000 £000 £000 £000 £000
At 1 April 2021 223,904 11,950 235,854 42,719 278,573
Additions - refurbishments 4,894 - 4,894 - 4,894
Additions - new properties 10,022 - 10,022 - 10,022
Additions - trading properties - - - 1,182 1,182
Transfer from investment property under construction 11,950 (11,950) - - -
Gain on revaluation of investment properties 8,222 - 8,222 - 8,222
Disposals (26,275) - (26,275) (23,614) (49,889)
At 31 March 2022 232,717 - 232,717 20,287 253,004
Additions - refurbishments 608 - 608 - 608
Additions - trading properties - - - 150 150
Loss on revaluation of properties (15,587) - (15,587) - (15,587)
Disposals (3,810) - (3,810) (3,432) (7,242)
At 30 September 2022 213,928 - 213,928 17,005 230,933
The property portfolio 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 2022, the Group's freehold and leasehold investment properties
were externally valued by CBRE for the first time, a Royal Institution of
Chartered Surveyors ("RICS") registered independent valuer. A reconciliation
of the valuations carried out by the external valuer to the carrying values
shown in the balance sheet was as follows:
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
CBRE (property portfolio) 235,620 262,005 259,040
Adjustment in respect of minimum payment
under head leases included as a liability 1,077 1,802 1,078
Less trading properties at lower of cost and net realisable value (17,005) (27,246) (20,287)
Less lease incentive balance in accrued income (4,374) (3,698) (3,926)
Less fair value uplift on trading properties (1,390) (3,279) (3,188)
Carrying value of investment properties 213,928 229,584 232,717
Investment properties with a carrying value of £198,850,000 (31 March 2022:
£218,780,000) are subject to a first charge to secure the Group's bank loans
amounting to £88,716,000 (31 March 2022: £101,753,000). Trading properties
with a carrying value of £17,005,000 (31 March 2022: £20,287,000) are no
longer subject to a first charge to secure the Group's bank loans following
the repayment of the Barclays development loan in November 2021.
The fair value of the property portfolio was independently valued by CBRE as
at 30 September 2022. For the periods ending 30 September 2021 and 31 March
2022, the portfolio was independently valued by Cushman & Wakefield LLP.
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 Directors 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.
10 Trading property
Total
£000
At 1 April 2021 42,719
Costs capitalised 1,182
Disposal of trading properties (23,614)
At 31 March 2022 20,287
Costs capitalised 150
Disposal of trading properties (3,432)
At 30 September 2022 17,005
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.
11 Trade and other receivables
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Current
Trade receivables 1,557 2,174 1,644
Prepayments and accrued income 4,879 4,294 4,590
Other taxes 116 248 156
Other debtors 1,639 4,364 1,022
8,191 11,080 7,412
12 Cash and cash equivalents
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Cash and cash equivalents - unrestricted 12,888 10,637 28,143
Restricted cash - 3,043 -
12,888 13,680 28,143
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
2022 2021 2022
£000 £000 £000
Current
Trade payables 468 554 604
Accruals 1,473 2,488 2,637
Deferred rental income 3,485 3,465 3,368
Taxes 740 1,225 1,167
Other payables 1,242 1,377 1,136
7,408 9,109 8,912
14 Borrowings
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Current borrowings
Bank loans 1,718 30,835 32,813
Unamortised lending costs - - (64)
1,718 30,835 32,749
Non-current borrowings
Bank loans 86,998 76,071 68,940
Unamortised lending costs (751) (664) (452)
86,247 75,407 68,488
Total borrowings
Bank loans 88,716 106,906 101,753
Unamortised lending costs (751) (664) (516)
87,965 106,242 101,237
The maturity profile of the Group's debt was as follows
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Within one year 1,718 30,835 32,813
From one to two years 55,346 8,063 1,218
From two to five years 31,652 68,008 67,722
Total borrowings 88,716 106,906 101,753
Facility and arrangement fees
As at 30 September 2022 (unaudited)
Secured borrowings Facility drawn Unamortised facility fees Loan balance
£000 £000 £000
All in cost Maturity
% date
Scottish Widows 2.90% July 2026 8,788 (82) 8,706
National Westminster Bank plc 4.29% August 2024 20,804 (180) 20,624
Barclays 3.29% June 2024 27,779 (95) 27,684
Santander Bank plc 4.39% May 2027 24,500 (377) 24,123
Lloyds Bank plc 4.14% March 2024 6,845 (17) 6,828
88,716 (751) 87,965
During the period, the Group took the option to extend the Lloyds loan
facility by one year, therefore maturing on 7 March 2024. The Group also
refinanced the Santander plc loan facility for a further five years, with the
loan repayable on 26 May 2027.
As at 31 March 2022 (audited)
Secured borrowings Facility drawn Unamortised facility fees Loan balance
All in cost Maturity £000 £000 £000
% date
Scottish Widows 2.90% July 2026 8,947 (94) 8,853
National Westminster Bank plc 2.79% August 2024 32,043 (230) 31,813
Barclays 3.41% June 2024 29,168 (128) 29,040
Santander Bank plc 3.71% August 2022 24,750 (29) 24,721
Lloyds Bank plc 2.64% March 2023 6,845 (35) 6,810
101,753 (516) 101,237
As at 30 September 2021 (unaudited)
Secured borrowings Facility drawn Unamortised facility fees Loan balance
All in cost Maturity £000 £000 £000
% date
Scottish Widows 2.90% July 2026 9,107 (105) 9,002
National Westminster Bank plc 2.18% August 2024 23,811 (279) 23,532
Barclays 3.18% June 2024 37,526 (158) 37,368
Barclays 3.33% January 2022 4,617 - 4,617
Santander Bank plc 3.56% August 2022 25,000 (69) 24,931
Lloyds Bank plc 2.03% March 2023 6,845 (53) 6,792
106,906 (664) 106,242
The Group has unused loan facilities amounting to £19,196,000 (31 March 2022:
£7,957,000). A facility fee is charged on this balance 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 as part of the NatWest
loan.
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 is paying for its interest rate
swaps.
The valuation rate is the variable SONIA 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.
The Santander interest rate swap matured in the period, on 3 August 2022.
Bank Unaudited Unaudited 30 September 2021 Audited
30 September £000 31 March
Notional principal Contract rate % Valuation rate % 2022 2022
Expiry date £000 £000
Barclays Bank plc 33,972,900 25 January 2023 1.34% 2.80% 252 (475) 3
Santander plc - 3 August 2022 1.37% - - (215) (50)
33,972,900 252 (690) (47)
16 Share capital
Authorised, issued and fully paid share capital is as follows:
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
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 - £000 4,639 4,639 4,639
As at 30 September 2022, there were 2,361,501 shares
held in Treasury.
17 Post balance sheet events
On 1 November 2022, the Group repaid £5.0 million of the Santander plc loan
facility.
On 11 November 2022, the Group exchanged contracts on the disposal of 127
Above Bar Street, Southampton for a total consideration of £3.75 million.
Post half year, the Group have completed on a further four residential unit
sales at Hudson Quarter for a total consideration of £1.8 million.
Glossary
Adjusted EPS: Is adjusted profit before tax less corporation tax charge on
recurring earnings (excluding deferred tax movements) divided by the average
basic number of shares in the period.
Adjusted profit before tax: Is the IFRS profit before taxation excluding
investment property revaluations, gains/losses on disposals, acquisition
costs, fair value movement in derivatives, share-based payments and
exceptional items.
Assets Under Management (AUM): Is a measure of the total market value of all
properties owned and managed by the Group.
Balance sheet gearing: Is the balance sheet net debt divided by IFRS net
assets.
Building Research Establishment Environmental Assessment Methodology (BREEAM)
rating: A set of assessment methods and tools designed to help construction
professionals understand and mitigate the environmental impacts of the
developments they design and build. Performance is measured across a series of
ratings: Good, Very Good, Excellent and Outstanding.
Dividend cover: Is the sum of Adjusted profit before tax and profit on
investment and trading property disposals, divided by dividends paid in the
period, expressed as a percentage.
EPRA: Is the European Public Real Estate Association.
EPRA cost ratio (including direct vacancy costs): Is a proportionally
consolidated measure of the ratio of net overheads and operating expenses
against gross rental income (with both amounts excluding ground rents
payable). Net overheads and operating expenses relate to all administrative
and operating expenses, net of any service fees, recharges or other income
specifically intended to cover overhead and property expenses.
EPRA cost ratio (excluding direct vacancy costs): Is the ratio calculated
above, but with direct vacancy costs removed from the net overheads and
operating expenses balance.
EPRA diluted EPS: Is EPRA earnings divided by the average diluted number of
shares in the period.
EPRA earnings: Is the IFRS profit after taxation excluding investment
property revaluations, gains/losses on disposals and changes in fair value of
financial derivatives.
EPRA EPS: Is EPRA earnings divided by the average basic number of shares in
the period.
EPRA net assets (EPRA NAV): Are the balance sheet net assets according to the
definitions of the various NAV measures defined in the EPRA Best Practice
Recommendations that came into effect for accounting periods starting 1
January 2020.
EPRA NAV per share: Is EPRA NAV divided by the diluted number of shares at
the period end.
EPRA net tangible assets (EPRA NTA): Is the NAV adjusted to reflect the fair
value of trading properties and derivatives and to exclude deferred taxation
on revaluations.
EPRA occupancy rate: Is the ERV of occupied space divided by ERV of the whole
portfolio, excluding developments and residential property.
EPRA topped-up net initial yield: Is the current annualised rent, net of
costs, topped up for contracted uplifts, where these are not in lieu of rental
growth, expressed as a percentage of capital value.
EPRA vacancy rate: Is the ERV of vacant space divided by ERV of the whole
portfolio, excluding developments and residential property.
Equivalent yield: Is the net weighted average income return a property will
produce based upon the timing of the income received. In accordance with usual
practice, the equivalent yields (as determined by the external valuers) assume
rent received annually in arrears and on values before deducting prospective
purchaser's costs.
Estimated rental value (ERV): Is the external valuers' opinion as to the open
market rent which, on the date of valuation, could reasonably be expected to
be obtained on a new letting or rent review of a property.
IAS/IFRS: Is the International Financial Reporting Standards issued by the
International Accounting Standards Board and adopted by the UK.
Interest cover ratio (ICR): Is the number of times net interest payable is
covered by underlying profit before net interest payable and taxation.
Investment Property Databank (IPD): A wholly-owned subsidiary of MSCI
producing an independent benchmark of property returns and the Group's
portfolio returns.
Key Performance Indicators (KPIs): Are the most critical metrics that measure
the success of specific activities used to meet business goals - measured
against a specific target or benchmark, adding context to each activity being
measured.
Like-for-like net rental income: Is the change in net rental income on
properties owned throughout the current and previous periods under review.
This growth rate includes revenue recognition and lease accounting adjustments
but excludes properties held for development in either period, properties with
guaranteed rent reviews, asset management determinations and surrender
premiums.
Like-for-like valuation: Is the change in the carrying value of properties
owned throughout the entire year.
This excludes properties acquired during the year, disposed of during the year
and capital expenditure
Loan to value (LTV): Is the ratio of principal value of gross debt less cash,
short-term deposits and liquid investments to the aggregate fair value of
properties and investments.
MSCI Inc. (MSCI IPD): Is a company that produces independent benchmarks of
property returns. The Group measures its performance against both the Central
London Offices Index and the UK All Property Index.
Net asset value (NAV) per share: Is the equity attributable to owners of the
Group divided by the number of ordinary shares in issue at the period end.
Net equivalent yield (NEY): Is the weighted average income return (after
adding notional purchaser's costs) a property will produce based upon the
timing of the income received. In accordance with usual practice, the
equivalent yields (as determined by the external valuers) assume rent is
received annually in arrears.
Net initial yield (NIY): Is the current annualised rent, net of costs,
expressed as a percentage of capital value, after adding notional purchaser's
costs.
Net rental income: Is the rental income receivable in the period after
payment of net property outgoings. Net rental income will differ from
annualised net rents and passing rent due to the effects of income from rent
reviews, net property outgoings and accounting adjustments for fixed and
minimum contracted rent reviews and lease incentives.
Net reversionary yield (NRY): Is the anticipated yield, which the initial
yield will rise to once the rent reaches the estimated rental value.
Passing rent: Is the gross rent, less any ground rent payable under head
leases.
Peer Group: A selection of small/medium sized property companies within the
listed real estate sector with a diversified portfolio.
Portfolio Valuation: The value of the Company's property portfolio, including
all investment and trading properties as valued by our independent valuers,
CBRE.
Portfolio Value (PV): The value of the investment properties within the
Palace Capital property portfolio as measured by Cushman & Wakefield. It
is referenced in relation the 2018 LTIP's awarded to employees in 2018.
Property Income Distribution (PID): A dividend received by a Shareholder of
the principal company in respect of profits and gains of the Property Rental
Business of the UK resident members of the REIT Group or in respect of the
profits or gains of a non-UK resident member of the REIT Group.
Real Estate Investment Trust (REIT): A UK Real Estate Investment Trust must
be a company listed on a recognised stock exchange with at least
three-quarters of its profits and assets derived from a qualifying property
rental business. Income and capital gains from the property rental business
are exempt from tax but the REIT is required to distribute at least 90% of
those profits to Shareholders. Tax is payable on profits from non-qualifying
activities of the residual business.
SONIA: Is the Sterling Overnight Index Average, the interest rate charged by
one bank to another for lending money.
Special Purpose Vehicle (SPV): Is a separate legal entity created by an
organisation. The SPV is a distinct company with its own assets and
liabilities, as well as its own legal status. Usually, they are created for a
specific objective, often which is to isolate financial risk. As it is a
separate legal entity, if the Parent Company goes bankrupt, the special
purpose vehicle can carry its obligations.
Tenant (or lease) incentives: Are any incentives offered to occupiers to
enter into a lease. Typically the incentive will be an initial rent free
period, or a cash contribution to fit-out or similar costs. Under accounting
rules the value of lease incentives given to tenants is amortised through the
Income Statement on a straight-line basis to the lease expiry.
Total Accounting Return (TAR): Is the increase or decrease in EPRA NAV per
share plus dividends paid, and this can be expressed as a percentage of EPRA
NAV per share at the beginning of the period.
Total Expense Ratio: Is calculated as total administrative costs for the year
divided by total asset value in the year.
Total Property Return (TPR): Total property return is a performance measure
calculated by the MSCI IPD and defined in the MSCI Global Methodology
Standards for Real Estate Investment as "the percentage value change plus net
income accrual, relative to the capital employed".
Total Shareholder Return (TSR): Is calculated as the movement in the share
price for the period plus dividends paid in the year, divided by opening share
price
Weighted average debt maturity: Is measured in years when each tranche of
Group debt is multiplied by the remaining period to its maturity and the
result is divided by total Group debt in issue at the period end.
Weighted average interest rate: Is the loan interest per annum at the period
end, divided by total debt in issue at the period end.
Weighted average unexpired lease term (WAULT): Is the average lease term
remaining to first break, or expiry, across the portfolio weighted by rental
income. This is also disclosed assuming all break clauses are exercised at the
earliest date,
as stated.
WiredScore: Wired Certification is a commercial real estate
rating system that empowers landlords to understand, improve, and promote
their buildings' digital infrastructure. Connectivity
is measured across a series of ratings: Platinum, Gold, Silver
and Certified.
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