REG - Palace Capital PLC - Results for the year ended 31 March 2023
15/06/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230615:nRSO7740Ca&default-theme=true
RNS Number : 7740C Palace Capital PLC 15 June 2023
15 June 2023
PALACE CAPITAL PLC
("Palace Capital", the "Group" or the "Company")
Preliminary Results for the year ended 31 March 2023
FOCUSED ON MAXIMISING CASH RETURNS TO SHAREHOLDERS
Palace Capital (LSE: PCA) announces its audited preliminary results for the
year ended 31 March 2023.
Steven Owen, Interim Executive Chairman, commented:
"Despite a difficult market backdrop, the Group sold a number of assets during
the year, reducing its debt and progressing its strategy to maximise cash
returns to shareholders. A total of eight investment properties were sold for
£15.6 million, which was 8% ahead of the 31 March 2022 book value, together
with £10.1 million of sales of unencumbered residential units at Hudson
Quarter, York. Progress has continued since the year end, and we have either
exchanged contracts on or completed the sales of properties totalling £43.4
million, 6% ahead of the 31 March 2023 book value and an accretion of 6 pence
per share in EPRA NTA. In the twelve months to 31 March 2023, gross debt
reduced by £37.5 million to £64.3 million (net debt £58.8 million) and by
31 July 2023 gross and net debt is expected to be c.£34 million and c.£20
million respectively, equating to a proforma LTV of c.13%.
"The Board's strategy remains focused on maximising cash returns to
shareholders, whilst continuing to remain mindful of consolidation in the Real
Estate sector. As part of its considerations, certain properties are either
being marketed for sale or are being prepared and readied for sale, whilst
other properties are undergoing asset management initiatives in order to
prepare them for sale at a future date. Given its low leverage, the Company is
well placed in terms of flexibility and optionality regarding the timing of
its disposal programme and other strategic initiatives, including various
options for returning capital to shareholders. Since July 2022, cash returned
to shareholders from share buyback programmes totals £7.9 million.
"It is expected that further progress will be announced in a Trading Update to
be released on 26 July 2023 prior to the AGM."
Income statement metrics Year ended Year ended Change
31 March 2023 31 March 2022
Net rental income £15.6m £15.2m +2.6%
Adjusted profit before tax £7.6m £7.8m -2.6%
Adjusted earnings per share 17.1p 16.9p +1.2%
IFRS (loss)/profit before tax (£35.8m) £24.6m
Basic earnings per share (80.2p) 53.1p
Dividends
Dividend per share 15.0p 13.25p +13.2%
Balance Sheet and operational metrics
EPRA NTA per share 296p 390p -24.1%
Net asset value £128.5m £177.2m -27.5%
Like-for-like portfolio valuation (decrease)/increase (18.6%) 3.9%
Total property return (11.6%) 12.5%
Total accounting return (20.4%) 14.8%
EPRA occupancy rate 87.7% 88.5%
Debt
Loan to value 31% 28%
Total gross debt £64.3m £101.8m -36.8%
Average cost of debt 5.8% 3.2% +260bps
Average debt maturity 2.0 years 1.9 years
Financial highlights
· Adjusted profit before tax decreased by 2.6% to £7.6 million
(2022: £7.8 million), principally due to higher finance costs offset by an
increase in net rental income and a reduction in recurring administration
expenses.
· IFRS loss before tax of £35.8 million (2022: £24.6 million
profit), due primarily to the portfolio revaluation deficit of £42.9 million.
· Adjusted EPS increased by 1.2% to 17.1 pence (2022: 16.9 pence)
due to the accretive share buyback programmes.
· Total dividends paid or declared for the year increased by 13.2%
to 15.0 pence per share (2022: 13.25 pence per share).
· EPRA NTA per share decreased by 24.1% to 296 pence (2022: 390
pence), due to the portfolio revaluation deficit, offset by the 8 pence per
share buyback accretion.
· Total property portfolio valuation reduced by 18.6% on a
like-for-like basis (2022: 3.9% increase).
· Total Property Return of -11.6% for the year (2022: +12.5%)
outperforming the MSCI UK Quarterly Property Index benchmark of -12.6%.
· LTV 31% (2022: 28%). In the twelve months to 31 March 2023 gross
debt reduced by £37.5 million to £64.3 million (net debt £58.8 million) and
by 31 July 2023 gross and net debt is expected to be c£34 million and c.£20
million respectively equating to proforma LTV of c.13%.
· Annualised administration cost savings of £1.4 million following
the Board changes and the relocation of the Company's head office, together
with other ongoing cost reduction measures.
· During FY23 two share buyback programmes announced with 2.6
million shares purchased for £6.7 million. Since 1 April 2023, a further 0.5
million shares have been purchased for £1.2 million. Total cash returned to
shareholders from the buyback programmes to date is £7.9 million. The Company
today announces an extension of the share buyback programme announced on 6
February 2023 to repurchase up to a further 1 million shares in the capital of
the Company for an amount not exceeding £2.5m (excluding stamp duty and
expenses) under the resolution passed at the 2022 AGM. A resolution proposing
the renewal of this authority will be proposed at the 2023 AGM.
Operational highlights
· Successful disposal of eight investment properties for £15.6
million, 8% ahead of the 31 March 2022 book value.
· Sale of 23 apartments at Hudson Quarter, York for £10.1 million.
· Post 31 March 2023, exchanged contracts or completed the sales of
nine investment properties totalling £43.4 million, 6% ahead of the 31 March
2023 book value and an accretion of 6 pence per share in EPRA NTA.
· Apartment sales at Hudson Quarter, York have continued post 31
March 2023, with a further five apartment sales having completed to the value
of £2.2 million. There are 18 units remaining.
· 14 new lettings, 15 lease renewals and 16 rent reviews were
completed across 228,000 sq ft of space generating £1.1 million of additional
annualised contracted rent, 11% ahead of 31 March 2022 ERV, which demonstrates
the strong reversionary potential within the portfolio.
· Robust rent collection for the 12 months to 31 March 2023 of 99%
(2022: 98%).
· Overall EPRA occupancy remained stable at 87.7% (2022: 88.5%).
· WAULT of 4.8 years to break and 6.5 years to expiry reflecting
asset management activities and resilience of portfolio (2022: 4.7 years to
break and 6.5 years to expiry).
· Portfolio asset management activity continues to improve the EPC
(Energy Performance Certificate) profile across the portfolio: 96.2% are now
rated A-D and 72.2% are rated A-C (2022: 88.8% and 55.2% respectively).
Total returns
Year ended Year ended
31 March 2023 31 March 2022
Total accounting return -20.4% +14.8%
Income return +7.3% +6.5%
Capital return -17.7 +6.0%
Total property return -11.6% +12.5%
Audio Webcast
A live webcast of the presentation including Q&A will be held today at
09:30am UK Time for investors and analysts and will be available on
https://brrmedia.news/PCA_FYR (https://brrmedia.news/PCA_FYR) . This will be
available for playback after the event and on our website
https://palacecapitalplc.com (https://palacecapitalplc.com) .
PALACE CAPITAL PLC
Steven Owen, Interim Executive Chairman / Matthew Simpson, Chief Financial
Officer
info@palacecapitalplc.com
Financial PR
FTI Consulting
Dido Laurimore/ Giles Barrie
Tel: +44 (0)20 3727 1000
palacecapital@fticonsulting.com
Palace Capital plc
For further information on Palace Capital plc (LSE: PCA) please visit
www.palacecapitalplc.com (http://www.palacecapitalplc.com/) .
The Annual Reports and Accounts together with the Notice convening the 2023
Annual General Meeting will be posted to Shareholders in June 2023.
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
Introduction and update on delivery of strategic objectives
This is my second annual results statement as Chairman of Palace Capital in
what can only be described as a volatile and difficult year for the Company
and for the property and financial markets.
The past year has been transformational both for the Company and for the wider
macroeconomic and geo-political environment. The headwinds of the last twelve
months are well documented, including the continued conflict in Ukraine, the
UK's cost of living crisis, rising interest rates and inflationary pressures.
Such uncertainty and volatility in the economic environment has negatively
impacted the property market, particularly with regard to the reduction in
property valuations due to the significant increases in both short and long
term interest rates.
In 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.
However, the 'mini-budget' in September 2022 significantly accelerated the
negative trends outlined above with the result that, in October 2022, the
Company announced that it had decided to pause the timing of significant
disposals for the time being, although the sale of small, individual assets
which lent themselves to private buyers and special purchasers, would
continue. Earlier this year it became evident that property market sentiment
and pricing was significantly improving from the position in the last quarter
of 2022 and the Company capitalised on this trend by marketing for sale
certain properties that would enable it to continue to reduce its debt and
therefore remain focused on maximising cash returns to shareholders.
On 5 May 2023, in its strategy and trading update, the Company announced the
significant disposal of six industrial assets for £34.0 million at a NIY of
6.2%, 3.0% ahead of 31 March 2023 book value of £33.0 million as well as
exchange of contracts for the sale of an Aldi supermarket, in Gosport, for
£5.6 million at a NIY of 5.5%, 7.3% ahead of the 31 March 2023 valuation.
Disposal activity has continued and we have recently exchanged contracts for
the sale of Millbarn Medical Centre at Beaconsfield for £1.5 million, 87.5%
ahead of the March 2023 book value of £0.8 million. The Company has also
exchanged contracts for the sale of Princeton House, Farnborough for £2.3
million, which is 31.7% ahead of the 31 March 2023 valuation. Both properties
are expected to complete in July.
The Company expects to announce further investment property disposals in a
Trading Update to be released ahead of the Company's AGM on 26 July assuming
that those sales currently under offer are successfully executed.
Further progress was also achieved with residential sales at Hudson Quarter,
York where a further 23 apartment sales were completed for a total of £10.1
million. A further five apartment sales have completed for £2.2 million since
the year end leaving 18 units remaining.
Since the change of strategy announced on 19 July 2022, investment property
disposals (either completed or exchanged) have generated proceeds of £54.5
million, a 9% reduction over the March 2022 valuation which was the peak of
the current property cycle. If disposals are compared with the relevant March
valuation prior to sale, the result is an increase of 5% ahead of such
valuation.
Operationally, the business remains robust. The team has been proactive in
implementing asset management plans to increase income, reduce void costs and
improve our ESG performance, including EPCs, as set out in the Operating
Review. Rent collection remains high and occupancy levels remain resilient.
In terms of managing our own costs, as previously announced, measures to
reduce the level of administration expenses have been implemented and are
continuing. Annualised cost savings are now at £1.4 million. These cost
savings represent 30% of FY22 administrative expenses and 19% of FY22 EPRA
earnings.
During the financial year, the Company announced two share buyback programmes,
purchasing 2.6 million shares. The accretion to 2023 EPRA NTA was 8.0 pence
per share. Since 1 April 2023 a further 0.5 million shares have been
purchased. The total cash returned to shareholders from the buyback programmes
to date is £7.9 million.
Overview of results
The Group's adjusted profit before tax decreased slightly to £7.6 million
(2022: £7.8 million) principally due to higher finance costs offset by an
increase in net rental income and a reduction in recurring administration
expenses. Trading profits from the sale of residential units realised £0.5
million (2022: £3.8 million) whilst profits from investment property sales
contributed £0.8 million (2022: £5.0 million).
The deficit on the revaluation of the portfolio for the year of £42.9 million
was due to softening yields across the whole portfolio although disposals
since 31 March 2023 have demonstrated that some value has been recovered and
realised.
Contractual payments to the former Chief Executive and Executive Property
Director of £1.8 million, including associated costs, have been treated as an
exceptional item.
The aggregation of the profits and losses described in the preceding
paragraphs account for the loss before tax reported under IFRS of £35.8
million (2022: £24.6 million profit).
Principally as a result of the revaluation deficit on the portfolio, offset by
the 8 pence per share share-buyback accretion, EPRA NTA per share decreased by
24.1% to 296 pence per share (2022: 390 pence per share).
The Group's balance sheet has been significantly strengthened following the
£37.5 million reduction in gross debt during the year to £64.3 million. Cash
reserves were £5.5 million resulting in net debt of £58.8 million. Post
period end and on completion of the disposal of currently contracted sales
proforma gross and net debt is expected to be c.£34 million and c.£20
million respectively, equating to proforma LTV of c.13%.
Dividend
The Group paid or declared dividends of 15.0 pence per share (2022: 13.25
pence per share) in relation to the year ended 31 March 2023, including a
proposed final fourth quarter dividend of 3.75 pence per share. The total
dividend of 15.0 pence per share is covered 114% by adjusted earnings per
share.
The final dividend of 3.75 pence per share will be paid, subject to
shareholder approval at the AGM being held on 26 July 2023, on 4 August 2023
to shareholders on the register on 7 July 2023. The entire dividend will be
paid as a Property Income Distribution.
Environmental, Social and Governance ("ESG")
The Company remains committed to responsible business and ESG matters, which
are at the forefront of stakeholders' considerations. Further details on the
approach to responsible business can be found in the Annual Report and on the
website.
Board changes
On 14 June 2022, Neil Sinclair stepped down as Chief Executive and Steven Owen
was appointed Interim Executive Chairman. As announced on 19 July 2022, in
light of the amended strategy, Paula Dillon, Kim Taylor-Smith and Mickola
Wilson stepped down as Independent Non-Executive Directors. Mark Davies was
appointed as an Independent Non-Executive Director and in addition was
appointed Chair of the Audit & Risk Committee, Remuneration Committee and
Senior Independent Director on 1 August 2022. Richard Starr stepped down as
Executive Property Director on 12 August 2022.
Outlook
The year ahead is likely to be further affected by continuing macroeconomic
and geo-political uncertainty although the inflation outlook in the UK is
expected to improve. The increases in interest rates have adversely impacted
the commercial property market in relation to investment activity resulting in
a re-pricing of assets as evidenced by recent transactions and published
valuations. 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.
As previously announced, the Board's strategy remains focused on maximising
cash returns to shareholders, whilst continuing to remain mindful of
consolidation in the Real Estate sector. As part of its considerations,
certain properties are either being marketed for sale or are being prepared
and readied for sale whilst other properties are undergoing asset management
initiatives in order to prepare them for sale at a future date. Given its low
leverage, the Company is well placed in terms of flexibility and optionality
regarding the timing of its disposal programme and other strategic
initiatives, including various options for returning capital to shareholders.
It is expected that further progress will be announced in a Trading Update to
be released on 26 July prior to the AGM.
Steven Owen
Interim Executive Chairman
OPERATIONAL REVIEW
SUMMARY OF THE YEAR
Operationally, the business remains robust. The team has been proactive in
implementing asset management plans to increase income, reduce void costs and
improve our ESG performance, including EPCs. Rent collection remains strong
and occupancy levels remain resilient.
Total rent collection for the 12 months to 31 March 2023 was 99% (2022:
98%). During the year ended 31 March 2023, the Company disposed of eight
investment properties for £15.6 million, 8% ahead of the 31 March 2022 book
value.
Apartment sales at Hudson Quarter, York have continued since 1 April 2023,
with a further five apartment sales having completed to the value of £2.2
million. There are 18 units remaining.
ASSET MANAGEMENT
There have been 45 lease events completed totalling 228,000 sq ft of space,
11% above the 31 March 2022 ERV, generating £1.1 million of additional
annualised contracted rent, which demonstrates the strong reversionary
potential within the portfolio. The 45 lease events can be analysed as:
· 14 new lettings, 14% above ERV generating £0.8 million of
additional annualised income.
· 15 lease renewals, 8% above of ERV generating £0.1 million of
additional annualised income.
· 16 rent reviews, 12% above of ERV generating £0.2m of additional
annualised income.
In addition, void savings from new lettings was £0.3 million resulting in a
total of £1.4 million of annualised net rental income created. This asset
management activity has contributed to the Company outperforming the MSCI UK
Quarterly Property Index over FY23.
Portfolio asset management activity continues to improve the EPC (Energy
Performance Certificate) profile across the portfolio with 96.2% of the
portfolio is now rated A-D and 72.2% is rated A-C (2022: 88.8% and 55.2%
respectively).
New lettings in the year included:
· 15 year lease without break at Sol, Northampton let to Chi, an
aspirational F&B operator at £85,000pa (with turnover top up) 107% above
the March 2022 ERV. The unit had been vacant for over 5 years.
· 5 year lease on ground and lower ground at Regency House, Winchester
to Ward Williams Associates at £47,081pa, 15% above the March 2022 ERV.
· 10 year lease at Verwood of two units at a rent of £68,600pa
equivalent to £8.75psf which sets a new rental tone for the estate.
· three lettings at Museum Street, York for a combined rent of £97,900
pa at an average WAULT to break of 4 years at an average premium to March 2022
ERV of 17%.
Notable lease renewals during the year were at:
· Maidenhead, where the WAULT was extended from 3.5 years to 11.5
years.
· Exeter, 10 years at £124,572pa, 8% above ERV.
· Sutton, 5 years at £282,500pa, in line with ERV.
· Verwood, to the key anchor tenant Global Filters for a 10-year term
at £130,290pa, 53% above the previous passing rent.
· Leamington Spa, Imperial House where both tenants Ubisoft and
Altair Engineering renewed their leases for a further 5 years at £333,850pa,
an average of 6% above ERV.
These successful asset management initiatives are part of the process of
creating value and preparing assets for sale, the timing of which is within
the control of the Company.
PORTFOLIO OVERVIEW
Following the recent disposal programme of carefully selected assets, as at 31
March 2023 the portfolio comprised 31 buildings (2022: 37) with 141 occupiers
(2022: 164), of higher quality with improved EPC ratings and occupancy levels.
Our diversified portfolio has had a focus on the office and industrial
sectors, which made up 68% of the total holdings. The remainder comprised
leisure at 15%, retail and retail warehousing at 11% and residential at 6% (HQ
York).
CBRE independently valued the portfolio as at 31 March 2023 at £192.4
million, resulting in a deficit of 18.6% on a like-for-like basis compared
with the valuation as at 31 March 2022. The best performing sector was retail
warehouse, increasing 5.8%. The largest declines were leisure at 20.9% and
offices at 20.4%. The industrial assets were down 17.5% and retail declined
16.4%. This compares to declines in the market as provided by the MSCI UK
Quarterly index of -15.4% for offices, with industrial asset declines of
-23.2% and retail of -12.7%
FY23 FY22
Portfolio value £192.4m £259.0m
Net initial yield 7.4% 5.6%
Reversionary yield 9.6% 7.5%
Contractual rental income £15.7m £16.7m
Estimated rental value £18.8m £19.4m
WAULT to break 4.8 years 4.7 years
EPRA vacancy rate 12.3% 11.5%
DISPOSAL STRATEGY
As part of the ongoing strategy to maximise cash returns to shareholders,
certain properties are either being marketed for sale or are being prepared
and readied for sale whilst other properties are undergoing asset management
initiatives in order to prepare them for sale at a future date.
During the year, eight investment properties were sold for £15.6 million at
an average 8% ahead of March 2022 book value.
On 5 May 2023, the Company announced in a strategy and trading update the
significant disposal of six industrial assets for £34.0 million at a NIY of
6.2%, 3.0% ahead of 31 March 2023 book value of £33.0 million. Five of the
properties have now completed and the sixth is expected to complete in early
July. The Company has also completed the sale of an Aldi supermarket, in
Gosport, for £5.6 million at a NIY of 5.5%, 7.3% ahead of the 31 March 2023
valuation.
The Company has, since 5 May, exchanged contracts for the sale of Millbarn
Medical Centre at Beaconsfield for £1.5 million, 87.5% ahead of the March
2023 book value of £0.8 million. The Company has also exchanged contracts for
the sale of Princeton House, Farnborough for £2.3 million, which is 31.7%
ahead of the 31 March 2023 valuation. Both properties are expected to complete
in July.
Apartment sales at Hudson Quarter, York continued to progress, despite the
uncertain economic backdrop. During the year ended 31 March 2023 the Company
completed on 23 apartments for a total of £10.1 million, bringing the total
residential and investment property sales for the year to £25.7 million.
Post 31 March 2023, total residential and investment sales exchanged or
completed currently stand at £45.6 million and as a result, since the change
of strategy announcement on 19 July 2022, investment property disposals
(either completed or exchanged) have generated proceeds of £54.5 million at a
9% reduction to the March 2022 valuation (which was the peak of the current
property cycle) or 5% ahead when compared with the relevant March valuation
prior to sale.
ESG
In line with stakeholder requirements, buildings and occupiers increasingly
need to improve their ESG impact. This includes fulfilling sustainable
criteria in line with the Paris Accord net zero targets.
Central to this is the continuous improvement of our EPC ratings. The minimum
rating within our portfolio as at 31 March 2023 is F at Bank House, Leeds. It
is encouraging that 96.2% of our EPC's are rated A - D (2022: 88.8%).
ESG is embedded in our business and decision making. Our asset management
initiatives and capital expenditure take into consideration the ESG benefits
of improving buildings and we work with tenants to help them where possible
reduce their utility costs, while improving the overall environmental impacts
of our buildings and their use. Renewable electricity is used in 99% of
landlord controlled properties.
Daniel Davies, Head of Asset Management
Thomas Hood, Head of Investment
14 June 2023
FINANCIAL REVIEW
CHIEF FINANCIAL OFFICER'S REPORT
Financial Overview
The Group's adjusted profit before tax decreased by 2.6% to £7.6 million
(2022: £7.8 million) and EPRA NTA per share by 24.1% to 296 pence (2022: 390
pence). Against a backdrop of economic uncertainty, the Group continued to
deliver at an operational level, by significantly reducing gross debt in a
rising interest rate environment and making substantial progress in reducing
administration costs, with £1.4 million of annualised cost savings made in
the year.
The decrease in adjusted profit before tax to £7.6 million is principally due
to the increase in interest rate costs and the loss of income through
disposals in the year. However, this was largely offset by asset management
letting activity increasing net rental income and a reduction in
administration costs. In line with the strategy of returning capital to
shareholders, the Group has increased the dividend paid or declared by 13.2%
in the period to 15.0 pence per share (2022: 13.25 pence per share) and bought
£6.7 million shares back in the year as part of the share buyback programme.
The share buyback programme contributed 0.6 pence per share to adjusted
earnings per share, which increased to 17.1p (2022: 16.9p) whilst also
increasing EPRA NTA by 8.0 pence per share.
The £0.8 million (2022: £5.0 million) profit on disposal of eight investment
properties, the £0.5 million realised profit on the sale of 23 residential
units at Hudson Quarter and the fair value commercial property valuation
deficit of £42.9 million (2022: £8.2 million surplus), contributed to the
IFRS loss before tax of £35.8 million (2022: £24.6 million profit).
The fair value property revaluation deficit was largely as a result of the
upward yield pressure driven by macroeconomic factors rather than underlying
property performance as evidenced by a robust letting performance in the year,
where asset management initiatives continue to drive rental growth above
estimated rental values (ERV), contributing, amongst other factors, to an
increase in adjusted earnings per share to 17.1p. The asset management
performance in the year contributed to the Group outperforming the MSCI
benchmark on a total property return basis, with the income outperformance
being 3.1%. The Company's MSCI total return for the year was -11.6% compared
with -12.6% for the MSCI benchmark.
FINANCIAL HIGHLIGHTS
2023 2022
Income growth
IFRS (loss)/profit before tax (£35.8m) £24.6m
Adjusted profit before tax £7.6m £7.8m
EPRA earnings £5.7m £7.4m
Basic EPS (80.2p) 53.1p
EPRA EPS 12.7p 16.0p
Adjusted EPS 17.1p 16.9p
Dividend for the year 15.00p 13.25p
Capital growth
Portfolio like-for-like value (18.6%) 3.9%
Net Asset Value £128.5m £177.2m
Basic NAV per share 294p 383p
EPRA NTA per share 296p 390p
Total accounting return (20.4%) 14.8%
Total property return (11.6%) 12.5%
Total shareholder return (15.9%) 21.1%
The summary of the Group financial results are as follows:
Income Statement Summary
Income Statement 31 March 2023 31 March 2022
£m £m
Gross property income (excluding Expected Credit Loss provision) 17.9 17.4
Property operating expenses (2.6) (2.6)
Expected Credit Loss provision 0.3 0.4
Net rental income 15.6 15.2
Recurring administration expenditure (4.1) (4.4)
Finance costs (3.9) (3.0)
Adjusted profit before tax 7.6 7.8
Tax 0.1 (0.1)
Adjusted profit after tax 7.7 7.7
Hudson Quarter development loan interest - (0.2)
Payments to former Directors (including associated costs) (1.8) -
Share based payments (0.2) (0.1)
EPRA earnings 5.7 7.4
(Loss)/gain on revaluations (42.9) 8.2
Trading profit 0.5 3.8
Profit on disposal of investment properties 0.8 5.0
Other income statement movements 0.2 0.1
IFRS earnings (35.7) 24.5
Net rental income in the year increased marginally to £15.6 million (2022
£15.2 million). Despite the loss of income from disposals since 31 March 2022
of £1.4 million, net rental income increased as a result of successful asset
management initiatives. Property operating expenses remained stable at £2.6
million (2022: £2.6 million).
The Group has implemented measures to reduce its cost base, with annualised
cost savings of £1.4 million being made in the year. These cost savings
reflect changes in the board composition and a combination of other cost
reduction measures, including the relocation of the head office in December
2022. The cost savings of £1.4 million represent 30% of FY22 administration
expenses and 19% of FY22 EPRA earnings. Due to the timing of the savings and
various contract notices, the subsequent impact of these costs was only
reflected in the latter months of FY23. This is reflected in the recurring
administration costs reducing by £0.3 million to £4.1 million (2022: £4.4
million) in the period.
Non-recurring administration expenses in the period include £1.8 million of
payments, including associated costs, to the former Chief Executive and
Executive Property Director, who both stepped down in the period, under the
terms of their service contracts and the Company's remuneration policy.
Finance costs increased by £0.9 million to £3.9 million (2022: £3.0
million) in the year, as a result of swaps maturing and the Bank of England
increasing interest rates in response to rising inflation.
In accordance with IFRS 9, in relation to the expected credit loss, we have
assessed the risk of recoverability of our rental arrears. We reversed £0.3
million of rental arrears from trade receivables to the income statement in
the financial period. This included a reversal of the £0.1 million bad debt
provision made at 30 September 2022, as rent collection remained strong at 99%
throughout the year as tenant financial covenant health remained robust
through the economic uncertainty.
Quarter Quarter Quarter Quarter Year ended
starting starting starting starting 31 Mar 23
Mar 22
Jun 22
Sep 22
Dec 22
£m
£m
£m
£m
£m
Total demanded 4.0 4.1 4.1 4.0 16.2
Total collected 4.0 4.0 4.1 4.0 16.1
Outstanding - 0.1 - - 0.1
Current collection rates 99% 99% 99% 99% 99%
The March 2023 quarter rent collection rates remain robust at 99%, displaying
a continuation of the strong rent collection seen throughout the year.
Shareholder value
EPRA Net Tangible Assets ("NTA") decreased by 94 pence per share or 24.1% to
296 pence (2022: 390 pence) during the year. This was largely due to the
revaluation deficit of £42.9 million or 96.4 pence per share, equivalent to
an 18.6% reduction in the portfolio on a like-for-like basis.
Other movements to note include the buyback of shares of £6.7 million,
increasing EPRA NTA by 8.0 pence per share, the profit on disposal of assets
and Hudson Quarter trading profit of £1.3 million, contributing 2.9 pence per
share. These were offset by the fair value, downward adjustment of trading
properties (HQ York residential) of £2.5 million, or 5.5 pence per share and
the payments including associated costs to former Directors of £1.8 million
reducing EPRA NTA by 4.1 pence per share. Conversely, net adjusted earnings,
after dividends paid, increased EPRA NTA by a further 2.6 pence per share.
Other movements contributed to a further reduction of 1.5 pence per share.
EPRA Net Tangible Assets Movement
£m No. of shares (diluted) Pence per share
EPRA NTA AT 31 MARCH 2022 180.6 46,325,236 390.0p
Deferred Bonus Plan award 0 11,609 0
Share buyback programme (6.7) (2,608,633) 8.0p
EPRA NTA AFTER BUYBACK 173.9 43,728,212 398.0p
Adjusted earnings 7.6 17.1p
Disposal of assets 0.8 1.8p
Hudson Quarter trading profit 0.5 1.1p
Property portfolio revaluation deficit (42.9) (96.4p)
Cash dividends paid (6.5) (14.5p)
Fair value adj. of trading properties (2.5) (5.5p)
Payments to former Directors including associated costs (1.8) (4.1p)
Other movements 0.2 (1.5p)
EPRA NTA AT 31 MARCH 2023 129.3 43,728,212 296.0p
FINANCING
Given the economic uncertainty during the year, which has seen rising
inflation and multiple increases in interest rates by the Bank of England, the
Group has prioritised the efficient use of its capital and maintained an
appropriate capital structure. The Group has significantly reduced its drawn
debt in the year by 36.8% to £64.3 million (2022: £101.8 million). The debt
repayments in the year have given the Group increased headroom on its bank
covenants. The Group remained compliant on all covenants on its bank
facilities in the year, despite the increase in interest rates. Interest rate
cover ("ICR") ratios were renegotiated on two facilities in the year,
providing further headroom on bank covenants in light of rising interest
rates.
At 31 March 2023 the Group's cash and cash equivalents were £5.5 million
(2022: £28.1 million). As at 12 June 2023, the cash balance was £9.6
million. The disposal proceeds from investment properties and Hudson Quarter
residential sales continue to enhance cash reserves and gives the Company
flexibility and optionality on how to deploy its capital.
Net debt at 31 March 2023 reduced by 20.1% to £58.8 million (2022: £73.6
million). The loan to value (LTV) ratio remained conservative at 31% (2022:
28%), despite the £42.9 million revaluation deficit on investment properties
and the £6.7 million share buyback programme in the year.
Since 31 March 2023, the Company has exchanged or completed on nine investment
property disposals and five Hudson Quarter residential sales, with a further
£24.9 million of gross bank debt being repaid. This includes the full
repayment of the Lloyd's facility which was due to mature within 12 months in
March 2024. This has reduced our gross debt to £39.4 million as at 12 June
2023 and our net debt to £29.8 million. The combination of the disposals and
£1.2 million share buyback programme since 31 March 2023 has resulted in
proforma LTV based on the valuation as at 31 March 2023 reducing to 18.7% at
12 June 2023. On completion of the disposal of currently contracted sales
proforma gross and net debt is expected to reduce further to c.£34 million
and c.£20 million equating to proforma LTV of c.13%.
Set out below is a table showing the movement in gross debt during the year:
£m
Drawn debt at 31 March 2022 101.8
Repayment of debt from disposals (35.8)
Amortisation of loans (1.7)
Drawn debt at 31 March 2023 64.3
Repayment of debt from disposals (24.5)
Amortisation of loans (0.4)
Drawn debt at 12 June 2023 39.4
The average cost of debt in the year increased to 5.8% (2022: 3.2%), as a
result of interest rate increases in the year. Despite the Group's two
interest rate swaps maturing in the year, the Group has prioritised debt
repayment to minimise the exposure and impact of interest rate increases to
the Group. At 31 March 2023, we held £8.6 million of fixed debt (2022: £61.4
million), which was 13% of overall debt (2022: 60%), as shown in the table
below:
DEBT
Fixed Floating Total drawn Years to
£m
£m
£m
maturity
Barclays - 19.4 19.4 1.2
NatWest - 17.7 17.7 1.4
Santander - 11.8 11.8 4.2
Lloyds - 6.8 6.8 0.9
Scottish Widows 8.6 - 8.6 3.3
8.6 55.7 64.3 2.0
The Group's key debt metrics are summarised in the table below:
DEBT METRICS
31 March 31 March
2023 2022
Net loan to value ratio 31% 28%
Debt drawn £64.3m £101.8m
Total fixed debt £8.6m £61.4m
Average cost of debt 5.8% 3.2%
Average debt maturity (yrs) 2.0yrs 1.9yrs
NAV gearing 46% 41%
Matthew Simpson
CHIEF FINANCIAL OFFICER
14 June 2023
RISK MANAGEMENT
RISK FRAMEWORK
The Board has overall responsibility for ensuring that an effective system of
risk management and internal control exists within the business and confirms
that it has undertaken a robust assessment of the Group's emerging and
principal risks and uncertainties.
Risk management is an inherent part of the Board's decision making process.
This is then embedded into the business and its systems and processes. The
Board reviews its overall risk appetite and regularly considers, via the Audit
and Risk Committee, the principal risks facing the company, management's plans
for mitigating these and emerging risks. The Committee also considers, at
least annually, the effectiveness of the Company's system of risk management
and internal control. Further information on the work of the Committee in this
area is available in the Audit and Risk Committee report in the Report and
Accounts.
Our approach to risk identification and our open and supportive culture means
that asset managers and key individuals in the finance team are able to report
directly and at an early stage on issues, allowing management to take
appropriate mitigating action.
EMERGING RISKS
If economic and geo-political stability remains uncertain or worsens, this
could have an impact on the commercial property market with reduced valuations
and rental income. Further cost of living issues may negatively impact
consumer sentiment and inflation could reduce spending further while direct
and indirect costs to the Group may increase further which may not be fully
recoverable. A prolonged bout, new variants of COVID-19 or further pandemics
may lead to further interruption of large parts of the economy for a
significant period.
GOING CONCERN ASSESSMENT
In accordance with the 2018 UK Corporate Governance Code (the Code), the
Directors have assessed the Group's position over the:
· Short-term (over the next 12 months to June 2024 as required by
the 'Going concern' provision) and;
· Medium-term (a 3-year period to June 2026 as required by the
'Viability statement' provision).
GOING CONCERN
The Directors regularly assess the Group's ability to continue as a going
concern. The Strategic report sets out in detail the Group's financial
position, cash flows, liquidity position, borrowing facilities and the factors
which will affect future performance. In assessing the going concern, the
Directors considered:
· The Group's current financial position including cash, drawn
debt, and LTV
· The Groups 12 month 'base case scenario' forecast to June 2024,
which is managements best estimate of market and business changes, taking into
account:
o Disposal of investment properties
o Residential sales
o Higher levels of inflation and rising interest rates
o Ability to satisfy bank covenants
o Committed capital expenditure
o Rent collection
· Downside scenario and stress testing on the 12-month base case
scenario forecast to June 2024.
The Group is in a robust financial position. At 31 March 2023, the Group had
£5.5 million of cash and cash equivalents. The fair value of our property
portfolio at 31 March 2023 was £192.4 million with net assets of £128.5
million. During the year, the Group repaid £37.5 million of debt, funded by
investment property and Hudson Quarter sales, with drawn debt at 31 March 2023
of £64.3 million (31 March 2022: £101.8 million). The Group has conservative
gearing with LTV remaining stable at 31% (31 March 2022: 28%). During the
year, the Group collected 99% of all rents and complied with all ICR and LTV
bank covenants, despite SONIA interest rates rising from 0.75% at 31 March
2022 to 4.25% at 31 March 2023. The Group increased its quarterly dividends in
the year by 13.2% to 15.0p, fully covered from rental income. The one bank
facility which was due to expire within a year of 31 March 2023 was repaid on
31 May 2023. There is one bank facility which is due to expire at the end of
June 2024, the Group currently has sufficient cash reserves to repay the
majority of this facility, if required. In addition to the strong financial
position of the Group at 31 March 2023, the Group continued to strengthen its
balance sheet post year end, with nine investment properties sold for £43.4
million and five Hudson Quarter residential units sold for £2.2 million. As
at 12 June 2023, the Group had cash of £9.6 million and gross debt and LTV of
£39.4 million and 18.7% respectively.
The Directors conducted a detailed 12-month base case scenario forecast to
June 2024, making various assumptions over asset sales, rising inflation and
interest rates, letting assumptions, rent collection and committed capital
expenditure. The forecasts indicated that the Group:
· Has strong sustainable cash flows and would be able to meet its
liabilities as they fall due over the next 12 months and;
· Will comply with all ICR and LTV bank covenants.
In addition to the detailed 12-month base case scenario forecast to June 2024,
the Directors have considered a downside scenario in assessing the Groups'
ability to continue as a going concern. Sensitivity analysis and reverse
stress testing were undertaken to assess the impact on the business and in
particular the bank covenants.
The downside scenario assumptions used in the assessment included:
• 15% reduction in all property bank valuations.
• 15% reduction in rent collection from the two leisure assets.
• Significant rise in SONIA interest rates of 1.5% to 6.0%.
Even on the downside scenario described above, the Group will still be able to
meet its liabilities as they fall due over the next 12 months and will still
be compliant on all ICR and LTV bank covenants. The stress testing on ICR and
LTV bank covenants indicated that even if SONIA interest rates would reach
6.0% and bank valuations fell by 15%, the Group would still be compliant on
all ICR and LTV bank covenants.
GOING CONCERN STATEMENT
Based on the analysis undertaken on the base case and downside scenarios, and
the subsequent sensitivity analysis and stress testing, the Group has
sufficient liquidity to meet its ongoing liabilities that fall due over the
assessment period. Given the market information available, the Directors are
not aware of any material uncertainty that exists that may cast doubt upon the
Group's ability to continue as a going concern. As a result, the Directors
consider it appropriate to continue to prepare the financial statements on a
going concern basis.
VIABILITY
In accordance with provision 31 of the UK Corporate Governance Code and taking
into consideration the current economic uncertainty, the Directors have
assessed the prospects of the Group and future viability over a three-year
period to June 2026, being longer than the 12 months required by the "Going
Concern" provision.
The Board's assessment of the Group's viability for the next three years has
been made with reference to:
• The impact of the current economic uncertainties and resulting
impact on the Group and our tenants' ability to operate and meet their rental
obligations.
• The key principal risks of the business and its risk appetite.
• The Group's long-term strategy.
• The impact on business operations, mainly rent collection,
rising interest rates and progress on residential sales at Hudson Quarter, in
the event of a downturn in the economy.
• The Group's current position and its ability to meet future
financial obligations to remain covenant compliant.
REVIEW PERIOD
The Board considers a period of three years to be appropriate over which to
assess the long-term viability of the Company for the following reasons:
• The Group's working capital model, detailed budgets and cash
flows consist of a rolling three-year forecast.
• It reflects the Group's asset management business plans.
• The Group's weighted average debt maturity at 31 March 2023 was
2.0 years.
• The Group's WAULT to break at 31 March 2023 was 4.8 years.
ASSESSMENT
The Directors conducted a detailed 3-Year viability assessment which included
a base case scenario forecast to June 2026, making various assumptions over
asset sales, rising inflation and interest rates, letting assumptions, rent
collection and committed capital expenditure.
In addition to the base case scenario, the Directors have undertaken a robust
scenario assessment of the risks which could threaten the 3-year viability or
the operational existence of the Group. As part of the reasonable downside
modelling, the Directors have stress-tested working capital model and cash
flows using the same assumptions as stated above in the Going Concern
assessment.
Based on the analysis undertaken on the base case and downside scenarios, and
having assessed the current position of the Group, its prospects and principal
risks, the Board has a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due over the next
three years.
STRATEGIC RISKS FINANCIAL 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 in the UK economic landscape, global supply chain issues, An inappropriate level of gearing or failure to comply with debt covenants or
corporate strategy could negatively impact shareholder returns. A downturn inflation and interest rates, cost of energy crisis brings risks to the manage re-financing events could put pressure on cash resources and lead to a
in the market could reduce the appetite in the investment market, leading to property market, supply chains and to occupiers' businesses. This can funding shortfall for operational activities.
lower valuations and affecting our disposal strategy and ability to return significantly impact market sentiment and our ability to extract value from
capital to shareholders. our properties resulting in lower shareholder returns, reduced liquidity and
increased occupier failure
Mitigation Mitigation Mitigation
The Board monitors market indicators and reviews the Group's strategy and The Board monitors the political and economic conditions and emerging policy The Board regularly reviews its capital risk management policy, gearing
business objectives on a regular basis. It will tailor the delivery of the and any uncertainty when setting strategy. Sensitivity modelling is undertaken strategy and debt maturity profile. The Group's LTV limit is 35%, and capital
Company's strategy in light of current and forecast market conditions. against a downturn in economic outlook to test the robustness of our financial has been used to repay debt to reduce exposure to interest rate volatility and
Disposal of other assets will continue if the market conditions allow for position and have regard to economic and property industry research when ensure debt compliance. Management maintains a close relationship with key
value to be achieved, whilst active asset management of the assets will making significant decisions. lenders.
continue to support in delivering returns to shareholders. Third party agent's
advice is taken on all disposals. Exco regularly reviews market conditions.
Current position Current position Current position
The Board is monitoring and considering the longer term impacts of the cycle Our plans reflect current trading conditions and future economic headwinds The Group's weighted average debt maturity is currently c2.0 years. The
including the potential future of the office and the effects of the enhanced facing the country which can impact on bank debt covenants and costs. We use Groups LTV limit is 35%. We continue to monitor whether the use of derivatives
ESG requirements. consultants and experts so we can anticipate key planning and development to mitigate against interest rate rises are appropriate.
policies and consider how these may impact our activities.
Likelihood after mitigation Likelihood after mitigation Likelihood after mitigation
Score 1 (low) - 10 (high)
Score 1 (low) - 10 (high)
Score 1 (low) - 10 (high)
7 8 5
Impact after mitigation Impact after mitigation Impact after mitigation
Score 1 (low) - 10 (high)
Score 1 (low) - 10 (high)
Score 1 (low) - 10 (high)
8 7 5
Overall Risk Rating Overall Risk Rating Overall Risk Rating
Score 1 (low) - 20 (high)
Score 1 (low) - 20 (high)
Score 1 (low) - 20 (high)
15 15 10
04 05 06
LIQUIDITY PORTFOLIO STRATEGY ASSET MANAGEMENT
Risk description Risk description Risk description
Increasing costs of borrowing and increasing interest rates could affect the An inappropriate investment strategy that is not aligned to overall corporate Failure to implement asset business plans and elevated risks associated with
Group's ability to borrow or reduce its ability to repay its debts. Increasing purpose objectives, economic conditions, or tenant demand may result in lower major development or refurbishment could lead to longer void periods, higher
inflation is causing interest rates to increase, which can reduce the cash investment returns arrears and overall investment performance, adversely impacting returns and
position of the Company and its ability to fund working capital. It can have a cashflows.
material impact on profitability and dividend cover.
Mitigation Mitigation Mitigation
Undrawn bank facilities are in place to ensure sufficient funds are available The Board regularly reviews the Group's investment strategy and asset The process for reviewing asset business plans is embedded in the annual
to cover potential liabilities arising against projected cashflows. The allocation to ensure this is aligned to the overall corporate strategy. budget process. The Group's Capital Risk Management Policy limits development
Board reviews financial forecasts on a regular basis, including sensitivity expenditure to <25% of Gross Asset Value and the core portfolio generates
against financial covenants. The Audit and Risk Committee considers the going sustainable cash flows. Our experienced management team and use of advisors
concern status of the Group biannually. The Board considers the allocation of and property managers supports the execution of asset management strategies.
its capital in granular detail to ensure the most efficient use. Sales of Our active management approach and new investment system improves security of
assets can be used to repay debt, fund working capital requirements or return income and limits exposure to voids.
to shareholders.
Current position Current position Current position
The Company has repaid £37.5 million of bank debt in the year to 31 March No single asset comprises more than 15% compared to the overall portfolio's Our refurbishment pipeline is continuously assessed to ensure the right
2023. value. The Company is selectively marketing certain assets, as the market projects are being brought forward at appropriate times ensuring exposure at
stabilisation and recovery continues. Asset management initiatives utilised to any one time is limited. The Executive Committee is reviewing the Group's
maximise value. Appraisals for improving properties e.g. via refurbishment are Health and Safety systems and processes to ensure appropriate oversight of
ongoing for certain assets. assets.
Likelihood after mitigation Likelihood after mitigation Likelihood after mitigation
Score 1 (low) - 10 (high)
Score 1 (low) - 10 (high)
Score 1 (low) - 10 (high)
5 4 4
Impact after mitigation Impact after mitigation Impact after mitigation
Score 1 (low) - 10 (high)
Score 1 (low) - 10 (high)
Score 1 (low) - 10 (high)
7 6 4
Overall Risk Rating Overall Risk Rating Overall Risk Rating
Score 1 (low) - 20 (high)
Score 1 (low) - 20 (high)
Score 1 (low) - 20 (high)
12 10 8
PORTFOLIO
RISKS
OPERATIONAL RISKS
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. Higher cost of debt can lead to property result in us losing significant tenants, which could materially impact income, policy and measures implemented in response to pandemics, cyber attacks or
yields to be pushed out and valuations to fall as a result. Increasing gilt capital values and profit. Rising inflation, interest rates and living costs other operational or IT failures or unforeseen events may impact income and
yields, can leave property investment less attractive unless the desired could impact tenant businesses, such as the leisure industry, as demand falls profits.
return can be achieved. for discretionary spending.
Mitigation Mitigation Mitigation
Independent valuations are undertaken for all assets at the half year and year The Board regularly reviews the portfolio's overall tenant profile and sector Our governance structure and internal control systems ensure sufficient Board
end. These are reviewed by management and the Board. Members of the Audit and diversification. Tenant diversification is high with no tenant making up more oversight, with delegated responsibilities, segregation of duties and clear
Risk Committee meet with the valuers at least once a year to discuss than 10% of total rental income. Management maintain close relationships with authorisation processes. A comprehensive programme of insurance is in place
valuations and the valuation process. Management actively review leases, tenants understanding their needs and supporting them throughout their which covers buildings, loss of rent, cyber risks, Directors' and Officers
tenant covenants and asset management initiatives to grow capital and rental business cycle. Managing agents support rent collection and collection of liability and public liability. Antivirus software and firewalls protect IT
values. arrears on a regular basis. Tenant due diligence and credit checks are systems and data is regularly backed up.
undertaken on an ongoing basis to review covenant strength of existing and
prospective tenants. The finance and property teams monitor all current
tenant covenants and all future new tenants. All arrears are monitored on an
ongoing basis.
Current position Current position Current position
Valuations of the portfolio reflect the commercial property market in general. Rent collection rates remain robust at 99%. The team are closely monitoring The Board continues to review the internal control environment and ensure good
The team continue to work to mitigate against falls in value through active tenant covenants in high risk sectors, ensuring we are aware of any tenant governance practices are adopted throughout the business. Cyber security
asset management including ESG improvements. distress which can impact the rental collection. arrangements have been kept under regular review to ensure we are deploying
the most up to date technologies.
Likelihood after mitigation Score Likelihood after mitigation Score Likelihood after mitigation Score
1 (low) - 10 (high)
1 (low) - 10 (high)
1 (low) - 10 (high)
7 4 2
Impact after mitigation Impact after mitigation Impact after mitigation
Score 1 (low) - 10 (high)
Score 1 (low) - 10 (high)
Score 1 (low) - 10 (high)
8 7 2
Overall Risk Rating Overall Risk Rating Overall Risk Rating
Score 1 (low) - 20 (high)
Score 1 (low) - 20 (high)
Score 1 (low) - 20 (high)
15 11 4
ENVIRONMENTAL, SOCIAL AND GOVERNANCE RISKS
10 11 12
PEOPLE CLIMATE CHANGE REGULATORY AND TAX
Risk description Risk description Risk description
An inability to attract or retain staff with the right skills and experience Failure to anticipate and prepare for transition and physical risks associated Non-compliance with the legal and regulatory requirements of a public real
or failure to implement appropriate succession plans may result in significant with climate change including increasing policy and compliance risks estate company, including the REIT regime could result in convictions or fines
underperformance or impact the overall effectiveness of our operations. Health associated with existing and emerging environmental legislation could lead to and negatively impact reputation.
and Safety of staff and others including tenants both physically and mentally increased costs and the Group's assets becoming obsolete or unable to attract
and providing a safe and healthy environment in our properties is of utmost occupiers.
importance. Failure to do so could lead to staff and tenant ill health,
litigation and regulatory issues, negative media and market sentiment against
the Company.
Mitigation Mitigation Mitigation
We engage with staff regularly and encourage a positive working environment. The Group's ESG Committee oversees the execution of ESG related matters and The Company employs experienced staff and external advisers to provide
We maintain an attractive reward and benefits package and undertake regular ensures these are integrated into our business model and corporate strategy. guidance on key regulatory, accounting and tax issues. Compliance with the
performance reviews for each employee. The Workforce Advisory Panel provides a Climate related risks are considered as part of our overall corporate risk REIT regime is regularly monitored by the Board and the Executive team
forum that allows direct feedback to the Board on employee related matters. assessment and ongoing environmental management of our buildings. consider the impact on the regime as part of their decision making.
Insurance cover is in place for Directors. Health and Safety is undertaken
both internally and via the tenants and a key issue for our property managers.
Current position Current position Current position
A competitive employment market and inflationary pressures are driving There has been an increased focus on environmental management and management Emerging corporate governance and audit reforms, require additional processes
increased pay and benefits to ensure attraction and retention of individuals have focused on asset management initiatives to increase the EPC ratings of and procedures to be put in place and additional reporting on the company's
with the skills, knowledge and experience required to implement the strategy. our assets, increasing the marketability of the assets in a cost effective resilience. The Board is overseeing these changes.
The Group's headcount is stable with sufficient cover if any key personnel are way.
unavailable. Employee engagement is high with regular meetings between
employees and the Directors ensuring that the Board understands the views of
the whole workforce.
Likelihood after mitigation Score Likelihood after mitigation Score Likelihood after mitigation Score
1 (low) - 10 (high)
1 (low) - 10 (high)
1 (low) - 10 (high)
5 5 4
Impact after mitigation Impact after mitigation Impact after mitigation
Score 1 (low) - 10 (high)
Score 1 (low) - 10 (high)
Score 1 (low) - 10 (high)
7 5 2
Overall Risk Rating Overall Risk Rating Overall Risk Rating
Score 1 (low) - 20 (high)
Score 1 (low) - 20 (high)
Score 1 (low) - 20 (high)
12 10 6
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the Group
and Company financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare Group and Company financial
statements for each financial year. Under that law, the Directors have
prepared the Group financial statements in accordance with International
Financial Reporting Standards (IFRSs) as issued by UK adopted IFRS and
applicable law and have elected to prepare the Company financial statements in
accordance with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law).
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and the Company and of the profit or loss of the Group
and the Company for the period. In preparing each of the Group and Company
financial statements the Directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and estimates that are reasonable and prudent;
• for the Group financial statements, state whether they have been
prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and international financial
reporting standards as issued by UK adopted IFRS and applicable law subject to
any material departures disclosed and explained in the financial statements;
• for the Company financial statements, state whether they have been
prepared in accordance with UK GAAP, subject to any material departure
disclosed and explained in the parent company financial statements;
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and the parent Company will
continue in business; and
• under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report, Directors'
Remuneration Report and Corporate Governance Statement that complies with that
law and those regulations.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the
requirements of the Companies Act 2006 and, as regards the Group Financial
Statements, Article 4 of the IAS Regulations.
They are also responsible for safeguarding the assets of the Group and hence
for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for ensuring the Annual Report and the financial
statements are made available on a website. Financial statements are published
on the Company's website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and integrity of
the Company's website is the responsibility of the Directors. The Directors'
responsibility also extends to the ongoing integrity of the financial
statements contained therein.
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors confirm to the best of their knowledge:
• the financial statements have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006, international financial reporting standards as issued by
UK adopted IFRS and applicable law, and give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company and
the undertakings included in the consolidation as a whole;
• the Strategic Report includes a fair review of the development and
performance of the business and the financial position of the Company and the
undertakings included in the consolidation as a whole, together with a
description of the principal risks and uncertainties that they face; and
• the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
Shareholders to assess the Group's and Company's performance, business model
and strategy.
On behalf of the Board
Phil Higgins
Company Secretary
FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2023
2023 2022
Note £'000 £'000
Revenue 1 32,973 49,064
Cost of sales 3b (17,147) (30,408)
Movement in expected credit loss 13 327 360
Net property income 16,153 19,016
Dividend income from listed equity investments - 64
Administrative expenses 3c (6,094) (4,623)
Operating profit before gains and losses on property assets and listed equity 14,457
investments
10,059
Profit on disposal of investment properties 819 4,946
(Loss)/gain on revaluation of investment property portfolio 9 (42,900) 8,222
Loss on disposal of listed equity investments - (80)
Operating (loss)/profit (32,022) 27,545
Finance income 26 -
Finance expense 2 (3,970) (3,196)
Debt termination costs (15) (63)
Changes in fair value of interest rate derivatives 210 329
(Loss)/profit before taxation (35,771) 24,615
Taxation 5 67 (67)
(Loss)/profit after taxation for the year and total comprehensive (35,704) 24,548
(loss)/income attributable to owners of the Parent
Earnings per ordinary share
Basic 6 (80.2p) 53.1p
Diluted 6 (80.2p) 53.0p
All activities derive from continuing operations of the Group. The notes form
an integral part of these financial statements.
Consolidated Statement of Financial Position
as at 31 March 2023
2023 2022
Note £'000 £'000
Non-current assets
Investment properties 9 176,504 232,717
Right of use asset 12 132 17
Property, plant and equipment 12 23 45
176,659 232,779
Current assets
Trading property 10 11,055 20,287
Trade and other receivables 13 8,550 7,412
Cash and cash equivalents 14 5,509 28,143
25,114 55,842
Total assets 201,773 288,621
Current liabilities
Trade and other payables 15 (8,339) (8,912)
Borrowings 17 (8,545) (32,749)
Lease liabilities for right of use asset 20 (132) -
Derivative financial instruments 16 - (47)
Creditors: amounts falling due within one year (17,016) (41,708)
Net current assets 8,098 14,134
Non-current liabilities
Borrowings 17 (55,129) (68,488)
Deferred tax liability 5 (76) (143)
Lease liabilities for investment properties 20 (1,077) (1,078)
Net assets 128,475 177,204
Equity
Called up share capital 21 4,639 4,639
Treasury shares (7,343) (717)
Merger reserve 3,503 3,503
Capital redemption reserve 340 340
Capital reduction reserve 118,477 125,019
Retained earnings 8,859 44,420
Equity - attributable to the owners of the Parent 128,475 177,204
Basic NAV per ordinary share 7 294p 383p
Diluted NAV per ordinary share 7 294p 383p
These financial statements were approved by the Board of Directors and
authorised for issue on 14 June 2023 and are signed on its
behalf by:
MATTHEW SIMPSON
Chief Financial Officer
Consolidated Statement of Changes in Equity
for the year ended 31 March 2023
Share Treasury Share Other Capital Reduction Reserve Retained Earnings Total
Capital
Reserves
Equity
Reserve
£'000 £'000
£'000
£'000 £'000
Note £'000
At 31 March 2021 4,639 (1,288) 3,843 125,019 25,618 157,831
Total comprehensive income for the year - - - - 24,548 24,548
Share-based payments 22 - - - - 162 162
Exercise of share options - 571 - - (571) -
Issue of deferred bonus share options - - - - 90 90
Dividends paid 8 - - - - (5,427) (5,427)
At 31 March 2022 4,639 (717) 3,843 125,019 44,420 177,204
Total comprehensive loss for the year - - - - (35,704) (35,704)
Share-based payments 22 - - - - 177 177
Exercise of share options - 71 - - (71) -
Issue of deferred bonus share options - - - - 37 37
Dividends paid 8 - - - (6,542) - (6,542)
Share buyback - (6,697) - - - (6,697)
At 31 March 2023 4,639 (7,343) 3,843 118,477 8,859 128,475
The share capital represents the nominal value of the issued share capital of
Palace Capital plc.
Treasury shares represents the consideration paid for shares bought back from
the market.
Other reserves comprise the merger reserve and the capital redemption reserve.
The merger reserve represents the excess over nominal value of the fair value
consideration for the acquisition of subsidiaries satisfied by the issue of
shares in accordance with S612 of the Companies Act 2006.
The capital redemption reserve represents the nominal value of cancelled
preference share capital redeemed.
The capital reduction reserve represents distributable profits generated as a
result of the share premium reduction.
Consolidated Statement of Cash Flows
for the year ended 31 March 2023
Note 2023 2022
£'000 £'000
Operating activities
(Loss)/profit before taxation (35,771) 24,615
Finance income (26) -
Finance expense 2 3,970 3,196
Changes in fair value of interest rate derivatives (210) (329)
Loss/(gain) on revaluation of investment property portfolio 9 42,900 (8,222)
Profit on disposal of investment properties (819) (4,946)
Loss on disposal of listed equity investments - 80
Debt termination costs 15 63
Depreciation of tangible fixed assets 12 30 48
Amortisation of right of use asset 12 82 148
Share-based payments 22 177 162
(Increase)/decrease in receivables (1,140) 2,289
Decrease in payables (415) (2,929)
Decrease in trading property 9,233 21,972
Net cash generated from operations 18,026 36,147
Interest received 26 -
Interest and other finance charges paid (3,427) (3,417)
Corporation tax paid in respect of operating activities (171) (48)
Net cash flows from operating activities 14,454 32,682
Investing activities
Purchase of investment properties - (9,870)
Capital expenditure on refurbishment of investment property (1,371) (6,519)
Proceeds from disposal of investment property 15,410 31,221
Disposal of non-current asset - equity investment - 3,169
Dividends from listed equity investments - 64
Purchase of property, plant and equipment 12 (8) (22)
Net cash flow generated from investing activities 14,031 18,043
Financing activities
Bank loans repaid 19 (37,419) (38,033)
Proceeds from new bank loans 19 - 11,472
Loan issue costs paid 19 (461) (11)
Dividends paid 8 (6,542) (5,427)
Share buyback (6,697) -
Net cash flow used in financing activities (51,119) (31,999)
Net (decrease)/increase in cash and cash equivalents (22,634) 18,726
Cash and cash equivalents at beginning of the year 28,143 9,417
Cash and cash equivalents at the end of the year 14 5,509 28,143
Notes to the Consolidated Financial Statements
BASIS OF ACCOUNTING
Basis of preparation
These preliminary results have been prepared in accordance with the Disclosure
Guidance and Transparency Rules of the UK Financial Conduct Authority and in
accordance with International Accounting Standards, in conformity with the
requirements of the Companies Act 2006, and International Financial Reporting
Standards, as issued by the IASB (IFRS-UK) and applicable law.
The financial information does not constitute the Group's financial statements
for the periods ended 31 March 2023 or 31 March 2022, but is derived from
those financial statements. Financial statements for the year ended 31 March
2022 have been delivered to the Registrar of Companies and those for the year
ended 31 March 2023 will be delivered following the Company's Annual General
Meeting. The auditor's reports on both the 31 March 2022 or 31 March 2023
financial statements were unqualified; did not draw attention to any matters
by way of emphasis; and did not contain statements under section 498 (2) or
(3) of the Companies Act 2006.
The Directors continue to adopt the going concern basis in preparing the
Group's financial statements. The consolidated financial statements of the
Group comprise the results of Palace Capital plc ("the Company") and its
subsidiary undertakings.
The Company is quoted on the Main Market of the London Stock Exchange and is
domiciled and registered in England and Wales and incorporated under the
Companies Act. The address of its registered office is Fora, 6-8 Greencoat
Place, London SW1P 1PL.
BASIS OF PREPARATION
The Group financial statements have been prepared in accordance with
UK-adopted International Accounting Standards, (the 'applicable framework'),
and have been prepared in accordance with the provisions of the Companies Act
2006 (the 'applicable legal requirements'). The Group financial statements
have been prepared under the historical cost convention as modified by the
revaluation of investment properties, the revaluation of property, plant and
equipment, pension scheme and financial assets held at fair value.
GOING CONCERN
The Directors have made an assessment of the Group's ability to continue as a
going concern which included the current economic headwinds created by rising
inflation and rising interest rates, coupled with the Group's cash resources,
borrowing facilities, rental income, disposals of investment properties,
committed capital and other expenditure and dividend distributions.
The Group's business activities, together with the factors likely to affect
its future performance and position, are set out in the Strategic Report. The
financial position of the Group, its cash flows, liquidity position and
borrowing facilities are described in these financial statements. In addition,
note 26 to the financial statements includes the Group's objectives, policies
and processes for managing its capital, its financial risk management
objectives, details of its financial instruments and its exposures to credit
risk and liquidity risk.
As at 31 March 2023 the Group had £5.5m of unrestricted cash and cash
equivalents, a conservative LTV of 31% and a property portfolio with a fair
value of £192.4m. 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 annual report. The
forecasts have been assessed against a downside scenario incorporating lower
levels of income and increased interest rates. See Going Concern and Viability
Statement of the Annual Report for further details.
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 financial statements.
NEW STANDARDS ADOPTED DURING THE YEAR
New standards effective for the year ended 31 March 2023 did not have a
material impact on the financial statements and were
not adopted.
New standards issued but not yet effective
There are no other standards that are not yet effective that would be expected
to have a material impact on the Group in the current or future reporting
periods and on the foreseeable future transactions.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
Palace Capital plc and its subsidiaries as at the year-end date.
Subsidiaries are all entities over which the Company has control being: power
to direct the activities of the entity; exposure to variable returns from the
entity; and the ability of the Company to use its power to affect those
variable returns. Where necessary, adjustments have been made to the financial
statements of subsidiaries and associates to bring the accounting policies
used and accounting periods into line with those of the Group. Intra-group
balances and any unrealised gains and losses arising from intra-group
transactions are eliminated in preparing the Consolidated Financial
Statements.
The results of subsidiaries acquired during a year are included from the
effective date of acquisition, being the date on which the Group obtains
control until the date that control ceases.
The consideration transferred for the acquisition of a subsidiary is the fair
value of the assets transferred, the liabilities incurred and the equity
interests issued by the Group. This fair value includes any contingent
consideration. Acquisition-related costs are expensed as incurred.
If the consideration is less than the fair value of the assets and liabilities
acquired, the difference is recognised directly in the Statement of
Comprehensive Income.
Where an acquired subsidiary does not meet the definition of a business, it is
accounted for as an asset acquisition rather than a business combination. A
business is an integrated set of activities and assets that is capable of
being conducted and managed for the purpose of providing goods or services to
customers, generating investment income (such as dividends or interest) or
generating other income from ordinary activities.
Revenue
Revenue is primarily derived from property income and represents the value of
accrued charges under operating leases for rental of
the Group's investment properties. Revenue is measured at the fair value of
the consideration received. All income is derived in the United Kingdom.
Rental income from investment properties leased out under operating leases is
recognised in the Statement of Comprehensive Income on a straight-line basis
over the term of the lease. Contingent rent reviews are recognised when such
reviews have been agreed with tenants. Lease incentives, rent concessions and
guaranteed rent review amounts are recognised as an integral part of the net
consideration for use of the property and amortised on a straight-line basis
over the term of lease. Judgement is exercised when determining the term over
which the lease incentives should be recognised.
Amounts received from tenants to terminate leases or to compensate for
dilapidations are recognised in the Group Statement of Comprehensive Income
when the right to receive them arises. Surrender premium income are payments
received from tenants to surrender their lease obligations and are recognised
immediately in the Group's Consolidated Statement of Comprehensive Income.
Insurance commissions are recognised as performance obligations are fulfilled
in terms of the individual performance obligations within the contract with
the insurance provider. Revenue is determined by the transaction price in the
contract and is measured at the fair value of the consideration received.
Revenue is recognised once the underlying contract between insured and insurer
has been signed.
Revenue from the sale of trading properties is recognised when control of the
trading property, along with the significant risks and rewards, have
transferred from the Group, which is usually on completion of contracts and
transfer of property title.
Service charge income relates to expenditure that is directly recoverable from
tenants. Service charge income is recognised as revenue in the period to which
it relates as required by IFRS 15 Revenue from Contracts with Customers.
Dividend income comprises dividends from the Group's listed equity investments
and is recognised when the Shareholder's right to receive payment is
established. Revenue is measured at the fair value of the consideration
received. All income is derived in the United Kingdom.
The disposal of investment properties is recognised when significant risks and
rewards attached to the property have transferred from the Group. This will
ordinarily occur on completion of contract, with such transactions being
recognised when this condition is satisfied. The profit or loss on disposal of
investment property is recognised separately in the Consolidated Statement of
Comprehensive Income and is the difference between the net sales proceeds and
the opening fair value asset plus any capital expenditure during the period to
disposal.
Deferred income
Where invoices to customers have been raised which relate to a period after
the Group year end, being 31 March 2023, the Group will recognise deferred
income for the difference between revenue recognised and amounts billed for
that contract.
Cost of sales
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.
Service charges and other such receipts arising from expenses recharged to
tenants are as stated in note 3b. Notwithstanding that the funds are held on
behalf of the occupiers, the ultimate risk for paying and recovering these
costs rests with the Group.
Borrowing costs
Bank borrowings are initially recognised at fair value net of any transaction
costs directly attributable to the issue of the instrument. After initial
recognition, loans and borrowings are subsequently measured at amortised cost
using the effective interest method. Amortised cost is calculated by taking
into account any issue costs, and any discount or premium on settlement. Gains
and losses are recognised in profit or loss in the Consolidated Statement of
Comprehensive Income when the liabilities are derecognised, as well as through
the amortisation process.
Borrowing costs directly attributable to development properties are
capitalised and not recognised in profit or loss in the Consolidated Statement
of Comprehensive Income. The capitalisation of borrowing costs is suspended if
there are prolonged periods when development activity is interrupted and cease
at the completion of the development. Interest is also capitalised on the
purchase cost of a site of property acquired specifically for redevelopment,
but only where activities necessary to prepare the asset for redevelopment are
in progress.
Interest associated with trading properties is capitalised from the start of
the development work until the date of practical completion. The rate used is
the rate on specific associated borrowings. Interest is then expensed through
the income statement post completion of the development.
When the Group refinances a loan facility, the Group considers whether the new
terms are substantially different from a quantitative and a qualitative
perspective. From a quantitative perspective, the terms are substantially
different if the discounted present value of the cash flows under the new
terms, including any fees paid net of any fees received and discounted using
the original effective interest rate, is at least 10 per cent different from
the discounted present value of the remaining cash flows of the original
financial liability. Modifications that would be considered substantial from a
qualitative perspective are those that result in a significant value transfer
and/or a new underwriting/pricing assessment of the financial instrument.
If it is deemed to be a substantial modification of terms, this is accounted
for as an extinguishment, and any costs or fees incurred are recognised as
part of the gain or loss on the extinguishment. If the modification is not
accounted for as an extinguishment, any costs or fees incurred adjust the
carrying amount of the liability and are amortised over the remaining term of
the modified liability.
Where the modification is not considered to be substantial, the loan continues
to be measured at amortised cost using the original effective interest rate.
Where the modification is substantial, the new effective interest rate is
used.
Financial assets
The Group classifies its financial assets into one of the categories discussed
below, depending on the purpose for which the asset was acquired. The Group's
accounting policy for each category is as follows:
Fair value through profit or loss
This category comprises in-the-money derivatives (see "Financial liabilities"
section for out-of-the-money derivatives classified as liabilities). They are
carried in the Consolidated Statement of Financial Position at fair value with
changes in fair value recognised in the Consolidated Statement of
Comprehensive Income in the finance income or expense line.
Amortised cost
Impairment provisions for current and non-current trade receivables are
recognised based on the simplified approach within IFRS 9 using a provision
matrix in the determination of the lifetime expected credit losses. During
this process the probability of the non-payment of the trade receivables is
assessed. This probability is then multiplied by the amount of the expected
loss arising from default to determine the lifetime expected credit loss for
the trade receivables. For trade receivables, which are reported net, such
provisions are recorded in a separate provision account with the loss being
recognised within cost of sales in the Consolidated Statement of Comprehensive
Income. On confirmation that the trade receivable will not be collectable, the
gross carrying value of the asset is written off against the associated
provision.
The Group's financial assets measured at amortised cost comprise trade and
other receivables and cash and cash equivalents in the Consolidated Statement
of Financial Position.
Listed equity investments
Listed equity investments are classified at fair value through profit and
loss. Listed equity investments are subsequently measured using Level 1
inputs, the quoted market price, and all fair value gains or losses in respect
of those assets are recognised in profit or loss in the Consolidated Statement
of Comprehensive Income.
Fair value hierarchy
• Level 1: Quoted (unadjusted) market prices in active markets for
identical assets or liabilities.
• Level 2: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or indirectly
observable.
• Level 3: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is unobservable. For assets
and liabilities that are recognised in the financial statements on a recurring
basis, the Group determines whether transfers have occurred between levels in
the hierarchy by reassessing categorisation at the end of each reporting
period.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, and other short-term highly liquid investments with original maturities
of three months or less.
Financial liabilities
The Group classifies its financial liabilities into one of two categories,
depending on the purpose for which the liability was acquired. The Group's
accounting policy for each category is as follows:
Fair value through profit or loss
This category comprises out-of-the-money derivatives (see "Financial assets"
for in-the-money derivatives where the time value offsets the negative
intrinsic value). They are carried in the Consolidated Statement of Financial
Position at fair value with changes in fair value recognised in the
Consolidated Statement of Comprehensive Income.
Amortised cost
Trade payables and accruals are initially measured at fair value and are
subsequently measured at amortised cost, using the effective interest rate
method.
Other financial liabilities
Bank borrowings are initially recognised at fair value net of any transaction
costs directly attributable to the issue of the instrument. Such
interest-bearing liabilities are subsequently measured at amortised cost using
the effective interest rate method, which ensures that any interest expense
over the period to repayment is at a constant rate on the balance of the
liability carried in the Consolidated Statement of Financial Position. For the
purposes of each financial liability, interest expense includes initial
transaction costs and any premium payable on redemption, as well as any
interest or coupon payment while the liability is outstanding.
Contributions to pension schemes
The Company operates a defined contribution pension scheme. The pension costs
charged against profits are the contributions payable to the scheme in respect
of the accounting period.
Investment properties
Investment properties are those properties that are held either to earn rental
income or for capital appreciation or both.
Investment properties are measured initially at cost including transaction
costs and thereafter are stated at fair value, which reflects market
conditions at the balance sheet date. Surpluses and deficits arising from
changes in the fair value of investment properties are recognised in the
Consolidated Statement of Comprehensive Income in the year in which they
arise.
Investment properties are stated at fair value as determined by the
independent external valuers. The fair value of the Group's property portfolio
is based upon independent valuations and is inherently subjective. The fair
value represents the amount at which the assets could be exchanged between a
knowledgeable, willing buyer and a knowledgeable, willing seller in an arm's
length transaction at the date of valuation, in accordance with Global
Valuation Standards. In determining the fair value of investment properties,
the independent valuers make use of historical and current market data as well
as existing lease agreements.
The Group recognises investment property as an asset when it is probable that
the economic benefits that are associated with the investment property will
flow to the Group and it can measure the cost of the investment reliably. This
is usually the date of completion of acquisition or completion of construction
if the development is a mixed-use scheme.
Investment properties cease to be recognised on completion of the disposal or
when the property is withdrawn permanently from use and no future economic
benefit is expected from disposal.
The Group evaluates all its investment property costs at the time they are
incurred. These costs include costs incurred initially to acquire an
investment property and costs incurred subsequently to add to, replace part
of, or service a property. Any costs deemed as repairs and maintenance or any
costs associated with the day-to-day running of the property are recognised in
the Consolidated Statement of Comprehensive Income as they are incurred.
Investment properties under construction are initially recognised at cost
(including any associated costs), which reflects the Group's investment in the
assets. The Group undertakes certain works including demolition, remediation
and other site preparatory works to bring a site to the condition ready for
construction of an asset. Subsequently, the assets are remeasured to fair
value at each reporting date. The fair value of investment properties under
construction is estimated as the fair value of the completed asset less any
costs still payable in order to complete, and an appropriate developer's
margin. Consideration is also given to recent market transactions and offers
received on properties.
Trading properties
Trading property is developed for sale or held for sale after development is
complete, and is carried at the lower of cost and net realisable value.
Trading properties are derecognised on completion of sales contracts. Costs
includes direct expenditure and capitalised interest. Cost of sales, including
costs associated with off-plan residential sales, are expensed to the
Consolidated Statement of Comprehensive Income as incurred.
Right of use asset
Right of use assets are initially measured at the amount of the lease
liability, reduced for any lease incentives received, and increased for:
• lease payments made at or before commencement of the lease;
• initial direct costs incurred; and
• the amount of any provision recognised where the Group is
contractually required to dismantle, remove or restore the leased asset.
Subsequent to initial measurement, lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments made. Right of use assets are amortised on a straight-line
basis over the remaining term of the lease or over the remaining economic life
of the asset if, rarely, this is judged to be shorter than the lease term.
Lease liabilities are remeasured when there is a change in future lease
payments arising from a change in an index or rate or when there is a change
in the assessment of the term of any lease.
The rate of amortisation for right of use assets is over the period of the
lease.
Lease liabilities
Lease obligations include lease obligations relating to investment properties
and lease obligations relating to right of use assets.
Lease obligations relating to investment properties are capitalised at the
lease's commencement and are measured at the present value of the remaining
lease payments. Each lease payment is allocated between the liability and
finance charges so as to achieve a constant rate on the finance balance
outstanding. The corresponding rental obligations, net of finance charges, are
included in liabilities. The finance charges are charged to the Consolidated
Statement of Comprehensive Income over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability
for each period. Investment properties classified as held under lease
liabilities are subsequently carried at their fair value.
Lease obligations relating to right of use assets are measured at the present
value of the contractual payments due to the lessor over the lease term,
discounted at the Group's incremental borrowing rate. Variable lease payments
are only included in the measurement of the lease liability if they depend on
an index or rate. In such cases, the initial measurement of the lease
liability assumes the variable element will remain unchanged throughout the
lease term. Other variable lease payments are expensed in the period to which
they relate.
On initial recognition, the carrying value of the lease liability also
includes:
• amounts expected to be payable under any residual value guarantee;
• the exercise price of any purchase option granted in favour of the
Group if it is reasonable certain to assess that option; and
• any penalties payable for terminating the lease, if the term of
the lease has been estimated on the basis of termination option,
being exercised.
Property, plant and equipment and depreciation
Property, plant and equipment is stated at cost, net of depreciation and any
provision for impairment. Depreciation is calculated to write down the cost
less estimated residual value of all tangible fixed assets by equal annual
instalments over their expected useful economic lives. The rates generally
applicable are:
Fixtures, fittings and equipment 25% - 33% straight-line
Current taxation
Current tax assets and liabilities for the period not under UK REIT
regulations are measured at the amount expected to be recovered from or paid
to the tax authorities. The tax rates and the tax laws used to compute the
amount are those that are enacted or substantively enacted, by the balance
sheet date.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill or from the
initial recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the tax profit nor the
accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in profit or loss, except when it relates to items charged
or credited directly to other comprehensive income, in which case the deferred
tax is also dealt with in other comprehensive income.
The Government announced a proposal in March 2021 for an increase in the
corporation tax rate from 19% main rate in the tax year 2021 to 25% with
effect from 1 April 2023. This was enacted by the Finance Bill 2021 on 10 June
2021.
Dividends to equity holders of the parent
Interim ordinary dividends are recognised when paid and final ordinary
dividends are recognised as a liability in the period in which they are
approved by the Shareholders.
Share-based payments
The fair value of the share options are determined at the grant date and are
expensed on a straight-line basis over the vesting period. Non-market vesting
conditions are taken into account by adjusting the number of equity
instruments expected to vest at each reporting date so that ultimately the
cumulative amount recognised over the vesting period is based on the number of
options that eventually vest. Non-vesting conditions and market vesting
conditions are factored into the fair values of the options granted. As long
as all other vesting conditions are satisfied, a charge is made irrespective
of whether the market vesting conditions are satisfied. The cumulative expense
is not adjusted for failure to achieve a market vesting condition or where a
non-vesting condition is not satisfied.
Commitments and contingencies
Commitments and contingent liabilities are disclosed in the financial
statements. They are disclosed unless the possibility of an outflow of
resources embodying economic benefits is remote. A contingent asset is not
recognised in the financial statements but disclosed when an inflow of
economic benefits is probable. A contingent asset is recognised when the
realisation of the income is virtually certain.
Equity
The share capital represents the nominal value of the issued share capital of
Palace Capital plc. Share premium represents the excess over nominal value of
the fair value consideration received for equity shares net of expenses of the
share issue. Treasury share reserve represents the consideration paid for
shares bought back on the open market. The merger reserve represents the
excess over nominal value of the fair value consideration for the acquisition
of subsidiaries satisfied by the issue of shares in accordance with S612 of
the Companies Act 2006. The capital redemption reserve represents the nominal
value of cancelled preference share capital redeemed. The capital reduction
reserve represents distributable profits generated as a result of the share
premium reduction.
Critical accounting judgements and key sources of estimation and uncertainty
The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. Information about such judgements and
estimation is contained in the accounting policies or the notes to the
accounts, and the key areas are summarised below.
Estimates
Property Valuation
The key source of estimation uncertainty rests in the values of property
assets, which significantly affects the value of investment properties in the
Consolidated Statement of Financial Position. The investment property
portfolio is carried at fair value, which requires a number of estimates in
assessing the Group's assets relative to market transactions. The approach to
this valuation and the amounts affected are set out in the accounting policies
and note 9.
Trading properties are held at the lower of cost and net realisable value. Net
realisable value is the value of an asset that can be realised upon the sale
of the asset, less a reasonable estimate of the costs associated with the
eventual sale or disposal of the asset.
The Group has valued the investment properties at fair value. To the extent
that any future valuation affects the fair value of the investment properties
and assets held for sale, this will impact on the Group's results in the
period in which this determination is made.
Expected credit loss model
The Group applies the IFRS 9 simplified approach to the expected credit loss
model, using 12 months of historic rental payment information for tenants, and
adjusting risk profile rates based on forward-looking information. We remain
cautious as rising inflation and interest rates continue to create economic
uncertainty.
During the year, the Group collected 99% of all rents, and collected a large
amount of historic arrears where payment plans were agreed with tenants. This
has resulted in the ECL provisions calculated at 31 March 2023 being lower
than in previous periods (refer to note 13).
In arriving at our estimates, we have considered the tenants at higher risk,
particularly in the leisure and retail sectors, those in administration or
CVA, and those tenants who have been impacted financially who are not
necessarily in high-risk sectors.
Estimates and Judgements
Share-based payments
Equity-settled share awards are recognised as an expense based on their fair
value at date of grant. The fair value of equity-settled share options is
estimated through the use of option valuation models, which require inputs
such as the risk-free interest rate, expected dividends, expected volatility
and the expected option life, and is expensed over the vesting period. Some of
the inputs used are not market observable and are based on estimates derived
from available data. The models utilised are intended to value options traded
in active markets. The share options issued by the Group, however, have a
number of features that make them incomparable to such traded options (see
note 22 on page •• for further details). The variables used to measure the
fair value of share-based payments could have a significant impact on that
valuation, and the determination of these variables requires a significant
amount of professional judgement. A minor change in a variable which requires
professional judgement, such as volatility or expected life of an instrument,
could have a quantitatively material impact on the fair value of the
share-based payments granted, and therefore will also result in the
recognition of a higher or lower expense in the Consolidated Statement of
Comprehensive Income.
Judgement is also exercised in assessing the number of options subject to
non-market vesting conditions that will vest.
1. RENTAL AND OTHER INCOME
The chief operating decision maker ("CODM") takes the form of the Group's
Executive Committee which is of the opinion that the principal activity of the
Group is to invest in commercial real estate in the UK.
Operating segments are identified on the basis of internal financial reports
about components of the Group that are regularly reviewed by the CODM.
The internal financial reports received by the Group's Executive Committee
contain financial information at a Group level as a whole and there are no
reconciling items between the results contained in these reports and the
amounts reported in the financial statements. Additionally, information is
provided to the Group's Executive Committee showing gross property income and
property valuation by individual property. Therefore, each individual property
is considered to be a separate operating segment in that its performance is
monitored individually.
The Directors have considered the requirements of IFRS 8 as to aggregation of
operating segments into reporting segments. All of the Group's revenue is
generated from investment and trading properties located outside of London.
The properties are managed as a single portfolio by an asset management team
whose responsibilities are not segregated by location or type but are managed
on an asset-by-asset basis.
The route to market is determined by reference to the current economic
circumstances that fluctuate through the life cycle of the portfolio. The
Group holds a diversified portfolio across different sectors including office,
industrial, retail, leisure, retail warehouse and residential. The Group has
from time to time engaged in development projects such as Hudson Quarter,
York. This is not regarded as a separate business or division.
The Directors therefore consider that the individual properties have similar
economic characteristics and therefore have been aggregated into a single
reportable segment under the provision of IFRS 8.
All of the Group's properties are based in the UK. No geographical grouping is
contained in any of the internal financial reports provided to the Group's
Executive Committee and, therefore, no geographical segmental analysis is
required.
Revenue - type 2023 2022
£'000 £'000
Gross rental income 17,425 16,670
Dilapidations and other property related income 401 732
Insurance commission 68 92
Gross property income 17,894 17,494
Service charge income 4,974 4,155
Trading property income 10,105 27,415
Total revenue 32,973 49,064
No single tenant accounts for more than 10% of the Group's total rents
received from investment properties. Similarly, there was no individual or
corporate that accounts for more than 10% of the trading property income.
2. INTEREST PAYABLE AND SIMILAR CHARGES
2023 2022
£'000 £'000
Interest on bank loans 3,643 2,748
Amortisation of loan arrangement fees 317 305
Other finance charges 10 143
3,970 3,196
3. PROFIT FOR THE YEAR
a) The Group's profit for the year is stated after charging the following:
2023 2022
£'000 £'000
Depreciation of tangible fixed assets and amortisation of right of use assets: 112 196
Auditor's remuneration:
Fees payable to the Auditor for the audit of the Group's annual accounts 195 165
Fees payable to the Auditor for the audit of the subsidiaries' annual accounts 36 29
Additional fees payable to the Auditor in respect of the 2022 audit 15 -
Fees payable to the Auditor and its related entities for other services:
Audit related assurance services in respect of the interim results 11 11
257 205
b) The Group's cost of sales comprise the following:
2023 2022
£'000 £'000
Void, investment and development property costs 2,076 2,310
Legal, lettings and consultancy costs 502 328
Property operating expenses 2,578 2,638
Service charge expenses 4,974 4,155
Trading property cost of sales 9,595 23,615
17,147 30,408
c) The Group's administrative expenses comprise the following:
2023 2022
£'000 £'000
Recurring staff costs 2,560 2,895
Payments to former Directors (including associated costs) 1,835 -
Other overheads* 624 595
Accounting and audit fees 318 269
Stock Exchange costs 207 235
Share-based payments 177 162
PR and marketing costs 108 150
Legal and professional fees (excluding costs associated with payments to 82 62
former Directors)
Amortisation of right of use asset 82 148
ESG costs 71 59
Depreciation of tangible fixed assets 30 48
6,094 4,623
*Other overheads comprise of rents, rates, sales, service charge, consulting,
recruitment and other office costs
d) EPRA cost ratios are calculated as follows:
2023 2022
£'000 £'000
Gross property income 17,894 17,494
Administrative expenses 6,094 4,623
Property operating expenses 2,578 2,638
Movement in expected credit loss (327) (360)
EPRA costs (including property operating expenses) 8,345 6,901
EPRA cost ratio (including property operating expenses) 46.6% 39.4%
Less property operating expenses (2,578) (2,638)
EPRA costs (excluding property operating expenses) 5,767 4,263
EPRA cost ratio (excluding property operating expenses) 32.2% 24.4%
Total expense ratio 3.0% 1.6%
4. EMPLOYEES AND DIRECTORS' REMUNERATION
Staff costs during the period were as follows:
2023 2022
£'000 £'000
Non-Executive Directors' fees 300 195
Wages and salaries 1,828 2,357
Pensions 147 116
Social security costs 262 227
Payments to former Directors (incl. NI and pension contributions) 1,677 -
Share-based payments 177 162
4,391 3,057
The average number of employees of the Group and the Company during the period
was:
2023 2022
Number Number
Directors 3 7
Senior management and other employees 8 9
11 16
Key management are the Group's Directors. Remuneration in respect of key
management was as follows:
2023 2022
£'000 £'000
Emoluments for qualifying services 711 1,423
Social security costs 117 185
Pension 35 25
Payments to former Directors (incl. NI and pension contributions) 1,677 -
2,540 1,633
Share-based payments 32 116
2,572 1,749
The Executive Director accrues benefits under the Group's defined benefit
pension scheme.
5. TAXATION
2023 2022
£'000 £'000
Current income tax charge - 152
Deferred tax (67) (85)
Tax (credit)/charge (67) 67
2023 2022
£'000 £'000
(Loss)/profit on ordinary activities before tax (35,771) 24,615
Based on (loss)/profit for the period: Theoretical Tax at 19% (2022: 19%) (6,797) 4,677
Effect of:
Net expenses not deductible for tax purposes 41 51
Deferred tax released to profit and loss on Hudson Quarter residential sales (67) (85)
Residual losses not recognised for deferred tax - (345)
Gain on appropriation for Hudson Quarter - 119
REIT exempt income (1,775) (1,985)
Non-taxable items 8,531 (2,365)
Tax (credit)/charge for the period (67) 67
As a UK REIT, the income profits of the Group's UK property rental business
are exempt from corporation tax, as are any gains it makes from the disposal
of its properties, provided they are not held for trading. The Group is
otherwise subject to UK corporation tax at the prevailing rate.
Deferred taxes relate to the following:
2023 2022
£'000 £'000
Deferred tax liability - brought forward (143) (228)
Tax rate increase from 19% to 25% - (34)
Overprovided in prior year (21) -
Deferred tax release on sale of trading property 88 119
Deferred tax liability - carried forward (76) (143)
2023 2022
£'000 £'000
Investment property unrealised valuation gains (76) (143)
Deferred tax liability - carried forward (76) (143)
The deferred tax liability of £76,000 relates to investment properties
transferred into trading stock, prior to the Group becoming a REIT. As at 31
March 2023 the Group had approximately £5,915,000 (2022: £5,915,000) of
realised capital losses to carry forward. There has been no deferred tax asset
recognised as the Directors do not consider it probable that future taxable
profits will be available to utilise these losses.
Finance Act 2021 sets the main rate of UK corporation tax at 19%, with an
increase in the main rate to 25% with effect from 1 April 2023. The deferred
tax liability relates to trading properties and has been calculated on the
basis of 25%.
6. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share and diluted earnings per share have been calculated
on (loss)/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
during the period (see table below) and for diluted weighted average number of
ordinary shares in issue during the year (see table below).
2023 2022
£'000 £'000
(Loss)/profit after tax attributable to ordinary Shareholders for the year (35,704) 24,548
2023 2022
No. of shares No. of shares
Weighted average number of shares for basic earnings per share 44,525,518 46,257,514
Dilutive effect of share options - 36,766
Weighted average number of shares for diluted earnings per share 44,525,518 46,294,280
Earnings per ordinary share
Basic (80.2p) 53.1p
Diluted (80.2p) 53.0p
Key Performance Measures
The Group financial statements are prepared under IFRS which incorporates
non-realised fair value measures and non-recurring items. Alternative
Performance Measures ("APMs"), being financial measures which are not
specified under IFRS, are also used by management to assess the Group's
performance. These include a number of European Public Real Estate Association
("EPRA") measures, prepared in accordance with the EPRA Best Practice
Recommendations reporting framework the latest update of which was issued in
November 2019. The Group reports a number of these measures (detailed in the
glossary of terms) 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 EPS and EPRA Diluted EPS
EPRA Earnings is a measure of operational performance and represents the net
income generated from the operational activities. It is intended to provide an
indicator of the underlying income performance generated from the leasing and
management of the property portfolio. EPRA earnings are calculated taking the
profit after tax excluding investment property revaluations and gains and
losses on disposals, changes in fair value of financial instruments and
one-off finance termination costs. 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.
Adjusted profit before tax and Adjusted EPS
The Group 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. This includes
share-based payments being a non-cash expense, as well as payments to former
Directors, which is a one-off exceptional item. The corporation tax charge
(excluding deferred tax movements, being a non-cash expense) is deducted in
order to calculate the adjusted earnings per share, if the charge is in
relation to recurring earnings.
The EPRA and adjusted earnings per share for the period are calculated based
upon the following information:
2023 2022
£'000 £'000
(Loss)/profit after tax for the year (35,704) 24,548
Adjustments:
Loss/(gain) on revaluation of investment property portfolio 42,900 (8,222)
Profit on disposal of investment properties (819) (4,946)
Trading profit (510) (3,800)
Loss on disposal of listed equity investments - 80
Debt termination costs 15 63
Fair value gain on derivatives (210) (329)
EPRA earnings for the year 5,672 7,394
Payments to former Directors (including associated costs) 1,835 -
Share-based payments 177 162
Hudson Quarter development loan interest - 189
Adjusted profit after tax for the year 7,684 7,745
Tax excluding deferred tax on EPRA adjustments and capital gain charged (67) 67
Adjusted profit before tax for the year 7,617 7,812
EPRA and adjusted earnings per ordinary share
EPRA Basic 12.7p 16.0p
EPRA Diluted 12.7p 16.0p
Adjusted EPS 17.1p 16.9p
7. NET ASSET VALUE PER SHARE
The Group has adopted the EPRA NAV measures which came into effect for
accounting periods starting 1 January 2020. EPRA issued best practice
recommendations (BPR) for financial guidelines on its definitions of NAV
measures. The 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 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.
As at 31 March 2023
EPRA NTA EPRA NRV ERPA NDV
£'000 £'000 £'000
Net assets attributable to Shareholders 128,475 128,475 128,475
Include:
Fair value adjustment of trading properties 730 730 730
Real estate transfer tax - 11,922 -
Fair value of fixed interest rate debt - - 863
Exclude:
Deferred tax on latent capital gains and capital allowances 76 76 -
EPRA NAV 129,281 141,203 130,068
Number of ordinary shares issued for diluted and EPRA net assets per share 43,728,212 43,728,212 43,728,212
EPRA NAV per share 296p 323p 297p
The adjustments made to get to the EPRA NAV measures above are as follows:
• Fair value adjustment of trading properties: Difference between
development property held on the balance sheet at cost and fair value of that
development property.
• Real estate transfer tax: Gross value of property portfolio as
provided in the Valuation Certificate (i.e. the value prior to any deduction
of purchasers' costs).
• Fair value of fixed interest rate debt: Difference between any
financial liability and asset held on the balance sheet of the Group and the
fair value of that financial liability or asset.
• Fair value of derivatives: Exclude fair value financial
instruments that are used for hedging purposes where the company has the
intention of keeping the hedge position until the end of the contractual
duration.
• Deferred tax on latent capital gains and capital allowances:
Exclude the deferred tax as per IFRS balance sheet in respect of the
difference between the fair value and the tax book value of investment
property, development property held for investment, intangible assets, or
other non-current investments as this would only become payable if the assets
were sold.
As at 31 March 2022
EPRA NTA EPRA NRV EPRA NDV
£'000 £'000 £'000
Net assets attributable to Shareholders 177,204 177,204 177,204
Include:
Fair value adjustment of trading properties 3,188 3,188 3,188
Real estate transfer tax - 17,049 -
Fair value of fixed interest rate debt - - 413
Exclude:
Fair value of derivatives value 47 47 -
Deferred tax on latent capital gains and capital allowances 143 143 -
EPRA NAV 180,582 197,631 180,805
Number of ordinary shares issued for diluted and EPRA net assets per share 46,325,236 46,325,236 46,325,236
EPRA NAV per share 390p 427p 390p
2023 2022
No of shares No of shares
Number of ordinary shares issued at the end of the year (excluding treasury 43,718,381 46,288,470
shares)
Dilutive effect of share options 9,831 36,766
Number of ordinary shares issued for diluted and EPRA net assets per share 43,728,212 46,325,236
Net assets per ordinary share
Basic 294p 383p
Diluted 294p 383p
EPRA NTA 296p 390p
8. DIVIDENDS
Payment date Dividend 2023 2022
per share £'000 £'000
2023
Interim dividend 13 January 2023 3.75 1,651 -
Interim dividend 14 October 2022 3.75 1,651 -
7.50 3,302 -
2022
Final dividend 05 August 2022 3.75 1,736 -
Interim dividend 14 April 2022 3.25 1,504 -
Interim dividend 31 December 2021 3.25 - 1,504
Interim dividend 15 October 2021 2.50 - 1,389
13.25 3,240 2,893
2021
Interim dividend 05 August 2021 3.00 - 1,382
Interim dividend 09 April 2021 2.50 - 1,152
- 2,534
Dividends reported in the Group Statement of Changes in Equity 6,542 5,427
Dividends (continued)
2023 2022
£'000 £'000
August 2023 final dividend in respect of year end 31 March 2023: 3.75p (2022 1,621 1,736
final dividend: 3.75p)
April 2023 interim dividend in respect of year end 31 March 2023: 3.75p (2021 1,645 1,504
interim dividend: 3.25p)
3,266 3,240
Final dividends on ordinary shares are subject to approval at the Annual
General Meeting. Such dividends are not recognised as a liability as at 31
March 2023.
9. PROPERTY PORTFOLIO
Freehold Leasehold Total
investment properties investment properties investment properties
£'000 £'000 £'000
At 31 March 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 1,026 156 1,182
Gain on revaluation of investment properties (38,663) (4,237) (42,900)
Disposals (14,495) - (14,495)
At 31 March 2023 163,978 12,526 176,504
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 property - - - 1,182 1,182
Transfer from investment property under construction 11,950 (11,950) - - -
Gain on revaluation of properties 8,222 - 8,222 - 8,222
Disposals (26,275) - (26,275) (23,614) (49,889)
At 1 April 2022 232,717 - 232,717 20,287 253,004
Additions - refurbishments 1,182 - 1,182 - 1,182
Additions - trading property - - - 363 363
Loss on revaluation of properties (42,900) - (42,900) - (42,900)
Disposals (14,495) - (14,495) (9,595) (24,090)
At 31 March 2023 176,504 - 176,504 11,055 187,559
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. At 31 March 2023, 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.
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.
In addition to the loss on revaluation of investment properties included in
the table above, realised gains of £819,000 (2022 £4,946,000) relating to
investment properties disposed of during the year were recognised in profit or
loss.
The Group developed a mixed-use scheme at Hudson Quarter, York. Part of the
scheme consists of commercial
units which the Group holds for leasing or has let. As a result of achieving
practical completion in April 2021, the commercial element of the scheme is
classified as investment properties. For investment properties under
construction and trading properties, no borrowing costs have been capitalised
in the year (2022: £51,674).
A reconciliation of the valuations carried out by the independent valuers to
the carrying values shown in the Statement of Financial Position was as
follows:
2023 2022
£'000 £'000
Property portfolio valuation: CBRE (2023) Cushman & Wakefield LLP (2022) 192,355 259,040
Adjustment in respect of minimum payment under head leases 1,077 1,078
Less trading properties at lower of cost and net realisable value (11,055) (20,287)
Less lease incentive balance included in accrued income (5,143) (3,926)
Less fair value uplift on trading properties (730) (3,188)
Carrying value of investment properties 176,504 232,717
The valuations of all investment property held by the Group is classified as
Level 3 in the IFRS 13 fair value hierarchy as they are based on unobservable
inputs. There have been no transfers between levels of the fair value
hierarchy during the year.
Valuation process - investment properties
The valuation reports produced by CBRE, 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 judgement and market observations. Each property is considered a
separate asset, based on its unique nature, characteristics and the risks of
the property.
The Head of Investment, 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 & Risk Committee, which considers it as part of its
overall responsibilities.
The 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
investment portfolio has been derived from capitalising the future estimated
net income receipts at capitalisation rates reflected by recent arm's length
sales transactions.
31 March 2023 Office Industrial Significant unobservable inputs
Leisure Other Total
Fair value of property portfolio 95,615,000 35,855,000 29,290,000 31,595,000 192,355,000
Area (sq ft) 622,905 339,470 304,319 84,851 1,351,545
Gross Estimated Rental Value 11,050,952 2,820,749 3,324,009 1,556,403 18,752,113
Net Initial Yield
Minimum 0.3% 3.7% 10.5% 5.3% 0.3%
Maximum 24.4% 8.1% 12.3% 9.9% 24.4%
Weighted average 6.6% 6.3% 11.5% 7.2% 7.4%
Reversionary Yield
Minimum 6.9% 6.6% 8.7% 5.3% 5.3%
Maximum 26.2% 8.4% 12.0% 10.0% 26.2%
Weighted average 10.8% 7.4% 10.5% 7.2% 9.6%
Equivalent Yield
Minimum 6.8% 6.3% 10.0% 6.0% 6.0%
Maximum 9.9% 7.1% 10.6% 9.8% 10.6%
Weighted average 9.4% 6.6% 10.3% 7.4% 9.0%
The "other" sector includes Residential, Retail and Retail Warehousing
sectors.
31 March 2022 Office Industrial Significant unobservable inputs
Leisure Other Total
Fair value of property portfolio £122,125,000 £43,345,000 £36,990,000 £56,580,000 £259,040,000
Area (sq ft) 633,591 345,586 303,993 169,762 1,452,932
Gross Estimated Rental Value £10,952,762 £2,608,500 £3,270,645 £2,586,276 £19,418,183
Net Initial Yield
Minimum (5.1%) 3.5% 7.8% 3.5% (5.1%)
Maximum 9.6% 5.6% 9.2% 11.1% 11.1%
Weighted average 4.7% 4.5% 8.4% 7.2% 5.6%
Reversionary Yield
Minimum 4.5% 4.6% 7.3% 3.4% 3.4%
Maximum 11.3% 6.3% 9.1% 10.4% 11.3%
Weighted average 8.0% 5.5% 8.2% 7.2% 7.5%
Equivalent Yield
Minimum 4.5% 4.5% 8.4% 3.4% 3.4%
Maximum 8.8% 5.9% 9.8% 9.9% 9.9%
Weighted average 7.6% 5.4% 9.6% 7.2% 7.4%
Negative net initial yields arise where properties are vacant or partially
vacant and void costs exceed rental income.
The following descriptions and definitions relate to valuation techniques and
key unobservable inputs made in determining fair values:
Market comparable method
Under the market comparable method (or market comparable approach), a
property's fair value is estimated based on comparable transactions in the
market.
Unobservable input: estimated rental value
The rent at which space could be let in the market conditions prevailing at
the date of valuation (range: £81,443 to £1,971,755 per annum).
Rental values are dependent on a number of variables in relation to the
Group's property. These include: size, location, tenant, covenant strength and
terms of the lease.
Unobservable input: net initial yield
The net initial yield is defined as the initial gross income as a percentage
of the market value (or purchase price as appropriate) plus standard costs of
purchase.
Sensitivities of measurement of significant unobservable inputs
As set out within significant accounting estimates and judgements above, the
Group's property Portfolio Valuation is open to judgements inherently
subjective by nature.
Unobservable input Impact on fair value measurement of significant increase in input Impact on fair value measurement of significant decrease in input
Gross Estimated Rental Value Increase Decrease
Net Initial Yield Decrease Increase
Reversionary Yield Decrease Increase
Equivalent Yield Decrease Increase
-5% in passing +5% in passing +0.25% in net -0.25% in net
rent (£m) rent (£m) initial yield (£m) initial yield (£m)
(Decrease)/increase in the fair value of investment properties as at 31 March (9.63) 9.63 (6.14) 6.92
2023
(Decrease)/increase in the fair value of investment properties as at 31 March (10.76) 10.76 (9.74) 12.36
2022
Valuation technique: properties under construction
Development assets are valued using the gross development value of the asset
less any costs still payable in order to complete, and an appropriate
developer's margin.
10. TRADING PROPERTY
Total
£'000
At 1 April 2021 42,719
Costs capitalised 1,182
Reversal of impairment of trading properties (23,614)
At 1 April 2022 20,287
Costs capitalised 363
Disposal of trading properties (9,595)
At 31 March 2023 11,055
The Group developed a large mixed-use scheme at Hudson Quarter, York. Part of
the approved scheme consists of residential units which the Group is in the
process of selling. As a result, the residential element of the scheme is
classified as trading property.
11. LISTED EQUITY INVESTMENTS
Total
£'000
At 1 April 2021 3,249
Disposal of equity investment (3,249)
At 31 March 2022 and 31 March 2023 -
12. PROPERTY, PLANT AND EQUIPMENT
IT, fixtures and fittings Right of use asset
£'000 £'000
At 1 April 2021 274 461
Additions 22 -
At 1 April 2022 296 461
Additions 8 197
At 31 March 2023 304 658
Depreciation
At 1 April 2021 203 296
Provided during the year 48 148
At 1 April 2022 251 444
Provided during the year 30 82
At 31 March 2023 281 526
Net book value at 31 March 2023 23 132
Net book value at 31 March 2022 45 17
13. TRADE AND OTHER RECEIVABLES
2023 2022
£'000 £'000
Current
Gross amounts receivable from tenants 2,550 2,624
Less: expected credit loss provision (653) (980)
Net amount receivable from tenants 1,897 1,644
Other taxes 97 156
Other debtors 993 1,022
Accrued income 5,143 3,926
Prepayments 420 664
8,550 7,412
Accrued income amounting to £5,143,000 (2022: £3,926,000) relates to rents
recognised in advance of receipt as a result of spreading the effect of rent
free and reduced rent periods, capital contributions in lieu of rent free
periods and contracted rent uplifts over the expected terms of their
respective leases.
The carrying value of trade and other receivables classified at amortised cost
approximates fair value.
As at 31 March 2023 the lifetime expected credit loss provision for trade
receivables and contract assets is as follows:
More than More than More than Total
30 days
60 days
90 days
Current
£'000
past due past due past due
£'000
£'000 £'000 £'000
Expected loss rate 2% 3% 4% 92%
Gross carrying amount 1,808 39 32 669 2,550
Loss provision 33 1 1 618 653
Changes to credit risk management
Impairment calculations have been carried out on trade receivables using the
IFRS 9 simplified approach, using 12 months of historic rental payment
information, and adjusting risk profiles based on forward-looking information.
In addition, the Group has reviewed its register of tenants at higher risk,
particularly in the leisure and retail sectors, those in administration or CVA
and the top 50 tenants by size with the remaining tenants considered on a
sector by sector basis.
Concentration of credit risk
The credit risk in respect of trade receivables is not concentrated as the
Group operates in many different sectors and locations around the UK, and has
a wide range of tenants from a broad spectrum of business sectors. The Group
predominantly operates in the office and industrial sectors. 69% of the ECL
provision relates to tenants in the leisure sector.
How forward looking information was incorporated
In calculating the ECL provision, the Group used forward looking information
when assessing the risk profiles of each tenant, most notably around the
assessment over the likelihood of tenants having the ability to pay rent as
demanded, as well as the likelihood of rent deferrals and rent frees being
offered to tenants.
Key sources of estimation uncertainty
The Group's risk profile rates form a key part when calculating the ECL
provision. Default rates were applied to each tenant based on the ageing of
the outstanding receivable. Tenants were classified as either low (default
range of 0.5% - 8%), medium (default range of 20% - 50%), high (default range
of 65% - 80%), or extremely high risk (set default range of 100%), with
default rates applied to each risk profile. These rates have been calculated
by using historic and forward-looking information and is inherently
subjective.
A sensitivity analysis performed to determine the impact on the Group
Statement of Comprehensive Income from a 10% increase in each of the risk
profile rates would result in a decrease in profit by £207,769.
The Group does not hold any material collateral as security.
As at 31 March 2022 the lifetime expected credit loss provision for trade
receivables and contract assets was as follows:
More than 30 days More than 60 days More than 90 days
Current past due past due past due Total
£'000 £'000 £'000 £'000 £'000
Expected loss rate 7% 82% 0% 90%
Gross carrying amount 1,668 12 - 944 2,624
Loss provision 124 10 - 846 980
Movement in the expected credit loss provision was as follows:
2023 2022
£'000 £'000
Brought forward 980 1,340
Receivables written off during the year as uncollectable (50) (158)
Provisions released (305) (276)
Provisions increased 28 74
653 980
14. CASH AND CASH EQUIVALENTS
All of the Group's cash and cash equivalents at 31 March 2023 and 31 March
2022 are in sterling and held at floating interest rates.
2023 2022
£'000 £'000
Cash and cash equivalents 5,509 28,143
The Directors consider that the carrying amount of cash and cash equivalents
approximates to their fair value.
15. TRADE AND OTHER PAYABLES
2023 2022
£'000 £'000
Trade payables 508 604
Other taxes 646 1,167
Other payables 1,484 1,136
Deferred rental income 3,359 3,368
Accruals 2,342 2,637
8,339 8,912
The deferred rental income in the year ended 31 March 2022 of £3,368,00 was
recognised as income in the year to 31 March 2023.
The Directors consider that the carrying amount of trade and other payables
measured at amortised cost approximates to their
fair value.
16. DERIVATIVES
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 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.
At 31 March 2023, the Group has no derivative financial instruments as they
matured within the financial year.
Further details on interest rate risks are included in note 26.
Bank Notional principal Expiry Contract rate % Valuation rate % 2023 2022
date Fair value Fair value
£'000 £'000
Barclays Bank plc - - 1.3420 - - 3
Santander plc - - 1.3730 - - (50)
- - (47)
17. BORROWINGS
2023 2022
£'000 £'000
Current liabilities
Bank loans 8,563 32,813
Unamortised lending costs (18) (64)
8,545 32,749
Non-current liabilities
Bank loans 55,770 68,940
Unamortised lending costs (641) (452)
55,129 68,488
Total borrowings
Bank loans 64,333 101,753
Unamortised lending costs (659) (516)
63,674 101,237
The maturity profile of the Group's debt was as follows:
2023 2022
£'000 £'000
Within one year 8,563 32,813
From one to two years 37,027 1,218
From two to five years 18,743 67,722
64,333 101,753
Facility and arrangement fees
As at 31 March 2023
Secured Borrowings All in cost Maturity date Total Facility Unused loan facilities Facility drawn Unamortised facility fees Loan Balance
£'000 £'000 £'000 £'000 £'000
Santander Bank plc 6.38% May 2027 11,750 - 11,750 (337) 11,413
Lloyds Bank plc 6.13% March 2024 6,845 - 6,845 (18) 6,827
National Westminster Bank plc 6.28% August 2024 37,724 (20,000) 17,724 (171) 17,553
Barclays 6.13% June 2024 19,385 - 19,385 (62) 19,323
Scottish Widows 2.90% July 2026 8,629 - 8,629 (71) 8,558
84,333 (20,000) 64,333 (659) 63,674
As at 31 March 2022
Secured Borrowings All in cost Maturity date Total Facility Unused loan facilities Facility drawn Unamortised facility fees Loan Balance
£'000 £'000 £'000 £'000 £'000
Santander Bank plc 3.71% August 2022 24,750 - 24,750 (29) 24,721
Lloyds Bank plc 2.64% March 2023 6,845 - 6,845 (35) 6,810
National Westminster Bank plc 2.79% August 2024 40,000 (7,957) 32,043 (230) 31,813
Barclays 3.41% June 2024 29,168 - 29,168 (128) 29,040
Scottish Widows 2.90% July 2026 8,947 - 8,947 (94) 8,853
109,710 (7,957) 101,753 (516) 101,237
Investment properties with a carrying value of £162,420,000 (2022:
£218,780,000) are subject to a first charge to secure the Group's bank loans
amounting to £64,333,000 (2022: £101,753,000). Trading properties with a
carrying value of £11,055,000 (2022: £20,286,000) are no longer subject to a
first charge to secure the Group's bank loans following the repayment of the
Barclays loan in November 2021.
The Group has unused loan facilities amounting to £20,000,000 (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.
The Group constantly monitors its approach to managing interest rate risk. The
Group has fixed £8,629,000 (2022: £61,386,000) of its debt in order to
provide surety of its interest cost and to mitigate interest rate risk.
The Group has a loan with Scottish Widows for £8,629,000 (2022: £8,947,000)
which is fully fixed at a rate of 2.9%.
The Group has a loan with Barclays Bank plc for £19,385,000 (2022:
£29,168,000), of which £Nil (2022: £33,848,000) is fixed using an interest
rate swap (see note 16). The floating rate portion of the loan is charged at a
margin of 1.95% plus SONIA.
The Group has a loan with Santander plc for £11,750,000 (2022: £24,750,000),
of which £Nil (2022:£18,592,000) is fixed using an interest rate swap (see
note 16). The floating rate portion of the loan is charged at a margin of 2.2%
plus SONIA.
The Group has a loan with Lloyds Bank plc for £6,845,000 (2022: £6,845,000)
which is fully charged at a floating rate margin of 1.95% plus SONIA.
The Group has a loan with National Westminster Bank plc for £17,724,000
(2022: £32,043,000) which is fully charged at a floating rate margin of 2.1%
plus SONIA.
The fair value of borrowings held at amortised cost at 31 March 2023 was
£64,537,000 (2022: £101,650,000). The difference in the fair value and
carrying value of borrowings reflects the valuation of the fixed rate debt
being higher than its carrying value. This is a level 2 fair value valuation
of the fixed rate debt and was determined by an independent third party. The
valuation is based on a net present value of the difference between the
contracted rate and the valuation rate when applied to the projected balances
for the period from the reporting date to the contracted expiry date.
The Group's bank loans are subject to various covenants including Loan to
Value, Interest Cover, Debt Service Cover and Debt Yield requirements. During
the year, the Group met all of its covenants.
18. GEARING AND LOAN TO VALUE RATIO
The calculation of gearing is based on the following calculations of net
assets and net debt:
2023 2022
£000 £'000
EPRA net asset value (note 7) 129,281 180,582
Borrowings (net of unamortised issue costs) 63,674 101,237
Lease liabilities for investment properties 1,077 1,078
Cash and cash equivalents (5,509) (28,143)
Net debt 59,242 74,172
NAV gearing 46% 41%
The calculation of bank loan to property value is calculated as follows:
2023 2022
£000 £'000
Fair value of investment properties 180,570 235,565
Fair value of trading properties 11,785 23,475
Fair value of property portfolio 192,355 259,040
Borrowings 64,333 101,753
Cash at bank (5,509) (28,143)
Net debt 58,824 73,610
Loan to value ratio 31% 28%
19. RECONCILIATION OF LIABILITIES TO CASH FLOWS FROM
FINANCING ACTIVITIES
Bank borrowings
£'000
Balance at 1 April 2021 127,285
Cash flows from financing activities:
Bank borrowings drawn 11,472
Bank borrowings repaid (38,033)
Loan arrangement fees paid (11)
Non-cash movements:
Amortisation of loan arrangement fees 305
Capitalised loan arrangement fees 219
Balance at 1 April 2022 101,237
Cash flows from financing activities:
Bank borrowings repaid (37,419)
Loan arrangement fees paid (461)
Non-cash movements:
Amortisation of loan arrangement fees 317
Balance at 31 March 2023 63,674
20. LEASES
Operating lease receipts in respect of rents on investment properties are
receivable as follows:
2023 2022
£'000 £'000
Within one year 15,524 15,765
From one to two years 13,277 15,109
From two to three years 13,046 13,000
From three to four years 12,030 12,357
From four to five years 8,742 10,787
From five to 25 years 42,755 49,821
105,374 116,839
Lease liabilities are classified as follows:
2023 2022
£'000 £'000
Lease liabilities for investment properties 1,077 1,078
Lease liabilities for right of use asset 132 -
1,209 1,078
Lease obligations in respect of rents payable on leasehold properties were
payable as follows:
2023 2022
Present value
of lease
payments
£'000
Lease Present value of lease
payments payments
£'000 Interest £'000
£'000
Within one year 54 (54) - -
From one to two years 54 (54) - -
From two to five years 162 (161) 1 -
From five to 25 years 595 (591) 4 8
After 25 years 5,244 (4,172) 1,072 1,070
6,109 (5,032) 1,077 1,078
Lease obligations in respect of rents payable on right of use assets were
payable as follows:
2023 2022
Present value
of lease
payments
£'000
Lease Present value of lease
payments payments
£'000 Interest £'000
£'000
Within one year 134 (2) 132 -
The net carrying amount of the leasehold properties is shown in note 9.
The Group has over 160 leases granted to its tenants. These vary depending on
the individual tenant and the respective property and demise and vary
considerably from short-term leases of less than one year to longer-term
leases of over 10 years.
A number of these leases contain rent free periods. Standard lease provisions
include service charge payments and recovery of other direct costs.
21. SHARE CAPITAL
2023 2022
Authorised, issued and fully paid share capital is as follows: £'000 £'000
46,388,515 ordinary shares of 10p each (2022: 46,388,515) 4,639 4,639
4,639 4,639
2023 2022
Reconciliation of movement in ordinary share capital £'000 £'000
At start of year 4,639 4,639
Issued in the year - -
At end of year 4,639 4,639
Movement in ordinary authorised share capital Price per share pence Number of ordinary shares issued Total number of shares
As at 31 March 2022 and 31 March 2023 - - 46,388,515
Movement in treasury shares Number of ordinary
shares issued Total number
of shares
As at 31 March 2022 99,587
Shares transferred to EBT 31 May 2022 (40,000)
Shares repurchased and transferred to Treasury 11 July 2022 2,300,000
Shares repurchased and transferred to Treasury 20 March 2023 171,000
Shares repurchased and transferred to Treasury 29 March 2023 137,633
As at 31 March 2023 2,668,220
Total number of shares excluding the number of shares held in treasury at 31 43,720,295
March 2023
Year ended 31 March 2023
On 31 May 2022, 40,000 shares were transferred to the Employee Benefit Trust.
On 11 July 2022, 2,300,000 shares were purchased by the Group on the open
market and transferred into treasury reserves.
On 20 March 2023, 171,000 shares were purchased by the Group on the open
market and transferred into treasury reserves.
On 29 March 2023, 137,633 shares were purchased by the Group on the open
market and transferred into treasury reserves.
Shares held in Employee Benefit Trust
2023 2022
Authorised, issued and fully paid share capital is as follows: No. of No. of
Options options
Brought forward 458 19,238
Transferred under scheme of arrangement 40,000 200,000
Shares exercised under deferred bonus share scheme (38,544) (90,049)
Shares exercised under employee LTIP scheme - (134,814)
Shares purchased by EBT - 6,083
At end of year 1,914 458
Share options:
2023 2022
Reconciliation of movement in outstanding share options No. of options No. of options
At start of year 1,078,826 1,193,984
Issued in the year - 402,717
Exercised in the year - (134,814)
Prior period accrued dividends on vested options 32,491 -
Lapsed in the year (544,727) (329,778)
Deferred bonus share options issued 9,831 36,766
Deferred bonus share options exercised (38,544) (90,049)
At end of year 537,877 1,078,826
As at 31 March 2023, the Company had the following outstanding unexpired
options:
Description of unexpired share options 2023 2022
Weighted average Weighted average
No. of option price No. of option price
options Options
Employee benefit plan 528,046 0p 1,042,060 0p
Deferred bonus share scheme issued 9,831 0p 36,766 0p
Total 537,877 0p 1,078,826 0p
Exercisable - 0p - 0p
Not exercisable 537,877 0p 1,078,826 0p
The weighted average remaining contractual life of share options at 31 March
2023 is 1.0 years (2022: 1.7 years).
22. SHARE-BASED PAYMENTS
Employee benefit plan
The following table illustrates the number and weighted average exercise
prices of, and movements in, share options during the period:
Number of Exercise Average Grant Vesting
options price share price at date date
date of
exercise
Outstanding at 31 March 2021 1,193,984 0p
Exercised during the year (LTIP 2018) (134,814) 0p 254p 13 July 2018 13 July 2021
Issued during the year (LTIP 2021) 402,717 0p 247p 16 November 2021 16 November 2024
Deferred bonus share options issued 36,766 0p 253p 15 June 2021 15 June 2022
Deferred bonus share options exercised (90,049) 0p 254p 14 July 2020 14 July 2021
Lapsed during year (LTIP 2018) (114,405) 0p
Lapsed during year (LTIP 2019) (70,826) 0p
Lapsed during year (LTIP 2020) (144,547) 0p
Outstanding at 31 March 2022 1,078,826 0p
Deferred bonus share options issued 9,831 0p 285p 18 August 2022 18 August 2023
Deferred bonus share options exercised (38,544) 0p 263p 15 June 2021 15 June 2022
Prior period accrued dividends on vested options 32,491 0p
Lapsed in the year (LTIP 2019) (241,147) 0p
Lapsed in the year (LTIP 2020) (124,123) 0p
Lapsed in the year (LTIP 2021) (179,457) 0p
Outstanding at 31 March 2023 537,877 0p
LTIP 2020
The options are awarded to employees on achievements against targets on two
separate measures over the three-year period. The options are subject to a
two-year holding period following vesting. Half the options will be awarded
based on the first target and half based on the achievement of the second.
Total property return growth is based on the increase in the total property
return of the Company compared with an increase in the MSCI IPD UK Quarterly
Index (PV growth) as at 31 March 2020. This target will measure the annualised
growth in total property return over the three-year period ending 31 March
2023 (PV performance period), and comparing this with the annualised total
property return growth of the MSCI IPD UK Quarterly Index.
Total Shareholder return (TSR) measures the total Shareholder return (price
rise plus dividends) over the period from 14 October 2020 to 13 October 2023.
The base price is £1.88 per share which was the market price at the grant
date.
Annualised TSR over the Vesting % PV growth over the PV performance period Vesting %
TSR performance period
<5% 0 <0.5% 0
Equal to 5% 20 Equal to 0.5% 20
Between 5% and 9% 20-100 Between 0.5% and 2.5% 20-100
Equal to 9% 100 Equal to 2.5% 100
LTIP 2021
The options are awarded to employees on achievements against targets on two
separate measures over the three-year period. For directors, the options are
subject to a two-year holding period following vesting. Half the options will
be awarded based on the first target and half based on the achievement of the
second.
Total property return growth is calculated as Total Property Return of the
Company over the Performance Period beginning on 31 March 2021 and ending on
31 March 2024, using the Total Property Return ("TPR") as calculated by MSCI
for the Group as compared with the TPR for the MSCI IPD Index (the
"Comparator") over the same period. The TPR for the Group and the Comparator
will be its percentage increase over the three-year Performance Period.
Total Shareholder return (TSR) measures the total Shareholder return (price
rise plus dividends) over the period from 16 November 2021 to 15 November
2024. The percentage of the TSR metric will be adjusted downwards according to
the Company's share price discount to net asset value at the time of vesting.
Share Price Discount will be calculated with reference to the closing share
price on 15 November 2024 and EPRA Net Tangible Assets as at 30 September
2024. The base price is £2.44 per share which was the market price at the
grant date.
Annualised TSR over the Vesting % TPR equivalent total over performance period Vesting %
TSR performance period
<5% 0 <0.5% 0
Equal to 5% 20 Equal to 0.5% 20
Between 5% and 9% 20-100 Between 0.5% and 2.5% 20-100
Equal to 9% 100 Equal to 2.5% 100
The fair value of grants was measured at the grant date using a
Black−Scholes pricing model for the TPR tranche and using a Monte Carlo
pricing model for the TSR tranche, taking into account the terms and
conditions upon which the instruments were granted. The services received and
a liability to pay for those services are recognised over the expected vesting
period. The main assumptions of both the Black−Scholes and Monte Carlo
pricing models are as follows:
Monte Carlo TSR Black-Scholes PV
Tranche Tranche
Grant date 16 November 2021 16 November 2021
Share price £2.44 £2.44
Exercise price 0p 0p
Term 5 years 5 years
Expected volatility 38.03% 38.03%
Expected dividend yield 0.00% 0.00%
Risk free rate 0.59% 0.59%
Time to vest (years) 3.0 3.0
Expected forfeiture p.a. 0% 0%
Fair value per option £1.28 £2.44
The expense recognised for employee share-based payment received during the
period is shown in the following table:
2023 2022
£'000
LTIP 2018 - 42
LTIP 2019 15 9
LTIP 2020 87 72
LTIP 2021 75 39
Total expense arising from share-based payment transactions 177 162
23. RELATED PARTY TRANSACTIONS
Charitable donations amounting to £6,000 (2022: £Nil) have been made by the
Group to Variety, the Children's Charity, a charity where Neil Sinclair,
previously Chief Executive, was a Trustee.
Dividend payments made to Directors amounted to £27,598 (2022: £262,265)
during the year. See note 4 for further details of key management
remuneration.
24. CAPITAL COMMITMENTS
The obligation for capital expenditure relating to the enhancement of
investment properties entered into by the Group amounted to £456,901 (2022:
£395,952).
25. POST BALANCE SHEET EVENTS
On 4 May 2023, the Group exchanged on the disposal of Courtauld House,
Coventry, for a total consideration of £7.4m. The property is charged against
the loan facility with Barclays Bank plc and as a result, £3.5m of the total
consideration will be used to repay the loan facility. Completion of the sale
is due to take place no earlier than 5 July 2023.
On 9 May 2023 the Group exchanged on the disposal of Millbarn Medical Centre,
Beaconsfield, for a total consideration of £1.5m. The property is charged
against the loan facility with Barclays Bank plc and as a result, £0.5m of
the total consideration will be used to repay the loan facility. Completion of
the sale is due to take place by 7 July 2023.
On 23 May 2023, the Group exchanged on the disposal of Princeton House,
Farnborough, for a total consideration of £2.3m. The property is charged
against the loan facility with NatWest plc and as a result, £0.9m of the
total consideration will be used to repay the loan facility. Completion of the
sale is due to take place by 31 July 2023.
On 26 May 2023, the Group completed the disposal of five industrial assets,
for a total consideration of £26.6m. The properties disposed of were Point
Four Industrial Estate, Avonmouth, Clayton Industrial Estate, Burgess Hill,
Saxon House, Kettering, Bone Lane, Newbury and Black Moor Road, Verwood. The
properties were charged against the loan facilities with NatWest plc and
Barclays Bank plc. £9.8m of the total consideration was used to repay the
loan facility with NatWest plc and £4.1m was used to repay the loan facility
with Barclays Bank plc on 30 May 2023.
On 31 May 2023, the Group repaid the £6.8m loan facility with Lloyds Bank plc
in full.
On 1 June 2023, the Group completed the disposal of Aldi, Gosport, for a total
consideration of £5.6m. The property was charged against the loan facility
with Barclays Bank plc and as a result, £3.7m of the total consideration was
used to repay the loan facility on 2 June 2023.
Post year end, the Group purchased 505,000 ordinary shares from the open
market for a total consideration of £1.2m. These shares have been transferred
to treasury following the purchases.
Post year end, the Group completed on a further five residential unit sales at
Hudson Quarter for a total consideration of £2.2m.
26. FINANCIAL RISK MANAGEMENT
The Group's principal financial liabilities are loans. The Group has rent and
other receivables, trade and other payables and cash and short-term deposits
that arise directly from its operations. The Group is exposed to market risk
(including interest rate risk and real estate risk), credit risk and liquidity
risk.
The Group's senior management oversee the management of these risks, and the
Board of Directors has overall responsibility for the determination of the
Group's risk management objectives and policies and it sets policies that seek
to reduce risk as far as possible without unduly affecting the Group's
competitiveness and flexibility. Further details regarding these policies are
set out below:
The Group manages its capital structure, and makes adjustments to it, in the
light of changes in economic conditions.
To maintain or adjust the capital structure, the Group may adjust the dividend
payment to Shareholders, return capital to Shareholders
or issue new shares.
Capital risk management
The Group considers its capital to comprise its share capital, share premium,
other reserves and retained earnings which amounted to £128,475,000 (2022:
£177,204,000). The Group's capital management objectives are to safeguard the
entity's ability to continue as a going concern, so that it can continue to
provide returns for Shareholders and benefits for other stakeholders and to
provide an adequate return to Shareholders by pricing its services
commensurately with the level of risk. Within the subsidiaries of the Group,
the business has covenanted to maintain a specified leverage ratio and a net
interest expense coverage ratio, all the terms of which have been adhered to
during the year.
Market risk
Market risk arises from the Group's use of interest bearing, and tradable
instruments. It is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in interest rates
(interest rate risk) or other market factors.
Interest rate risk
The interest rate exposure profile of the Group's financial assets and
liabilities as at 31 March 2023 and 31 March 2022 were:
Nil rate Floating rate assets Fixed rate liability Floating rate
assets and liabilities £'000 £'000 liability Total
£'000 £'000 £'000
As at 31 March 2023
Trade and other receivables 2,891 - - - 2,891
Cash and cash equivalents - 5,509 - - 5,509
Trade and other payables (4,333) - - - (4,333)
Bank borrowings - - (8,558) (55,116) (63,674)
Lease liabilities - - (1,209) - (1,209)
(1,442) 5,509 (9,767) (55,116) (60,816)
Nil rate assets Floating rate assets Fixed rate Floating rate
and liabilities £'000 liability liability Total
£'000 £'000 £'000 £'000
As at 31 March 2022
Trade and other receivables 2,666 - - - 2,666
Cash and cash equivalents - 28,143 - - 28,143
Trade and other payables (4,377) - - - (4,377)
Interest rate swaps - - (47) - (47)
Bank borrowings - - (61,386) (39,851) (101,237)
Lease liabilities - - (1,078) - (1,078)
(1,711) 28,143 (62,511) (39,851) (75,930)
The Group's interest rate risk arises from borrowings issued at floating
interest rates. The Group's interest rate risk is reviewed throughout the year
by the Directors. The Board monitor the appropriate use of interest rate swaps
to align with strategy and the level of drawn debt, to mitigate the risk of an
increase in interest rates but also to allow the Group to benefit from a fall
in interest rates. Interest rate swaps are used to mitigate the risk of an
increase in interest rates but also to allow the Group to benefit from a fall
in interest rates. 13% of the Group's interest rate exposure is fixed and the
remainder held on a floating rate. The Group has employed an external adviser
when contracting hedging to advise on the structure of the hedging.
The Group is exposed to changes in interest rates as a result of the cash
balances that it holds. The cash balances of the Group at the year end were
£5,509,000 (2022: £28,143,000). Interest receivable in the income statement
would be affected by £55,000 (2022: £281,000) by a one percentage point
change in floating interest rates on a full year basis.
The Group's borrowings with Lloyds, Barclays, NatWest, Scottish Widows and
Santander UK have all transitioned from the London Interbank Offer Rate
(LIBOR) benchmark to Sterling Overnight Index Average (SONIA) benchmark. There
has been and is expected to be negligible cost involved in the borrowing
facility transition and the respective hedge instrument amendments.
The Group has loans amounting to £55,116,000 (2022: £39,851,000) which have
interest payable at rates linked to the SONIA interest rates or bank base
rates. A 1% increase in the SONIA or base rate will have the effect of
increasing interest payable by £551,000 (2022: £399,000).
The Group has interest rate swaps with a nominal value of £Nil (2022:
£52,939,449). If the SONIA or base rate was to increase above the fixed
contract rate then the Group will benefit from a fair value increase of the
interest rate swap. If, however, the SONIA or base rate was to decrease, then
the Group would incur a decrease in the fair value of the interest rate swap.
-1% +1%
Change
in interest rate £'000 £'000
(Decrease)/increase in fair value of interest rates swaps as at 31 March 2023 - -
(Decrease)/increase in fair value of interest rates swaps as at 31 March 2022 (326) 321
The Directors regularly review the Group's position with regard to interest
rates in order to minimise its risk.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group.
The Group has its cash held on deposit with four large banks in the United
Kingdom. At 31 March 2023 the cash balances of the Group were £5,509,000
(2022: £28,143,000). The concentration of credit risk held with Barclays Bank
plc, the largest of these banks, was £2,997,000 (2022: £20,281,000).
Credit risk also results from the possibility of a tenant in the Group's
property portfolio defaulting on a lease. The largest tenant by contractual
income amounts to 6.0% (2022: 5.7%) of the Group's anticipated income. The
Directors assess a tenant's creditworthiness prior to granting leases and
employ professional firms of property management consultants to manage the
portfolio to ensure that tenants debts are collected promptly and the
Directors in conjunction with the property managers take appropriate actions
when payment is not made on time.
The carrying amount of financial assets (excluding cash balances) recorded in
the financial statements, net of any allowances for losses, represents the
Group's maximum exposure to credit risk without taking account of the value of
any collateral obtained. The carrying amount of these assets at 31 March 2023
was £2,890,000 (2022: £2,666,000). The details of the provision for expected
credit loss are shown in note 13.
Liquidity risk management
The Group's policy is to hold cash and obtain loan facilities at a level
sufficient to ensure that the Group has available funds to meet its
medium-term capital and funding obligations. The Group holds cash to enable
the Group to manage its liquidity risk.
The Group monitors its risk to a shortage of funds using a monthly working
capital model. This process considers the maturity of both the Group's
financial investments and financial assets (e.g. accounts receivable, other
financial assets) and projected cash flows
from operations.
The Group's objective is to maintain a balance between continuity of funding
and flexibility through the use of multiple sources of funding including bank
loans, term loans, loan notes, overdrafts and lease liabilities.
The tables below summarise the maturity profile of the Group's financial
liabilities based on contractual undiscounted payments:
On demand 0-1 years 1-2 years 2-5 years > 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000
As at 31 March 2023
Interest bearing loans - 12,161 38,606 19,598 - 70,365
Lease liabilities - 54 54 162 5,839 6,109
Trade and other payables 4,333 - - - - 4,333
4,333 12,215 38,660 19,760 5,839 80,807
On demand 0-1 years 1-2 years 2-5 years > 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000
On demand 0-1 years 1-2 years 2-5 years > 5 years Total
£'000 £'000 £'000 £,000 £'000 £'000
As at 31 March 2022
Interest bearing loans - 35,044 3,409 70,257 - 108,710
Lease liabilities - 54 54 162 5,894 6,164
Derivative financial instruments - - (3) 50 - 47
Trade and other payables 4,377 - - - - 4,377
4,377 35,098 3,460 70,469 5,894 119,298
Company Statement of Financial Position
as at 31 March 2023
Note 2023 2022
£000 £'000
Fixed assets
Investments in subsidiaries 2 104,730 122,864
Property, plant and equipment 4 22 43
104,752 122,907
Current assets
Trade and other receivables 5 30,155 42,576
Cash at bank and in hand 1,049 479
31,204 43,055
Total assets 135,956 165,962
Current liabilities
Creditors: amounts falling due within one year 6 (33,660) (28,953)
Net current assets (2,456) 14,102
Total assets less current liabilities 102,296 137,009
Equity
Called up share capital 7 4,639 4,639
Treasury shares (7,343) (717)
Merger reserve 3,503 3,503
Capital redemption reserve 340 340
Capital reduction reserve 118,477 125,019
Accumulated losses/retained earnings (17,320) 4,225
Equity - attributable to the owners of the Parent 102,296 137,009
The Company's loss after tax for the year was £21,688,000 (2022:
£1,706,000).
The financial statements were approved by the Board of Directors and
authorised for issue on 14 June 2023 and are signed on its behalf by:
MATTHEW SIMPSON
Chief Financial Officer
Company Statement of Changes in Equity
as at 31 March 2023
Share Treasury Other Capital Reduction Reserve Retained Total
Capital Share Reserves £'000 Earnings Equity
£'000 Reserve £'000 £'000 £'000
£'000
At 31 March 2021 4,639 (1,288) 3,843 125,019 11,677 143,890
Total comprehensive loss for the year - - - - (1,706) (1,706)
Transactions with Equity Holders
Share-based payments - - - - 162 162
Exercise of share options - 571 - - (571) -
Issue of deferred bonus share options - - - - 90 90
Dividends - - - - (5,427) (5,427)
At 31 March 2022 4,639 (717) 3,843 125,019 4,225 137,009
Total comprehensive loss for the year - - - - (21,688) (21,688)
Transactions with Equity Holders
Share-based payments - - - - 177 177
Exercise of share options - 71 - - (71) -
Issue of deferred bonus share options - - - - 37 37
Dividends - - - (6,542) - (6,542)
Share buyback - (6,697) - - - (6,697)
At 31 March 2023 4,639 (7,343) 3,843 118,477 (17,320) 102,296
Treasury shares represents the consideration paid for shares bought back on
the open market.
Other reserves comprise the merger reserve and the capital redemption reserve.
The merger reserve represents the excess over nominal value of the fair value
consideration for the acquisition of subsidiaries satisfied by the issue of
shares in accordance with S612 of the Companies Act 2006.
The capital redemption reserve represents the nominal value of cancelled
preference share capital redeemed.
The capital reduction reserve represents distributable profits generated as a
result of the share premium reduction.
Notes to the Company Financial Statements
Accounting policies
Palace Capital plc is a company incorporated in England and Wales under the
Companies Act. The address of the registered office is given on the contents
page and the nature of the Group's operations and its principal activities are
set out in the Strategic Report. The financial statements of the Company have
been prepared in accordance with FRS 102, the Financial Reporting Standard
applicable in the United Kingdom and the Republic of Ireland.
The preparation of financial statements in compliance with FRS 102 requires
the use of certain critical accounting estimates. It also requires Company's
management to exercise judgement in applying the Company's accounting policies
(as detailed below). The Statement of Financial Position heading relating to
the Company's investments and property, plant and equipment is in accordance
with the balance sheet formats of the Companies Act 2006. Assets are
classified in accordance with the definitions of fixed and current assets in
the Companies Act instead of the presentation requirements of IAS 1
Presentation of Financial Statements
Dividends revenue
Revenue is recognised when the Company's right to receive payment is
established, which is generally when Shareholders of the paying company
approve the payment of the dividend.
Valuation of investments
Investments in subsidiaries are measured at cost less accumulated impairment.
Where merger relief is applicable, the cost of the investment in a subsidiary
undertaking is measured at the nominal value of the shares issued together
with the fair value of any additional consideration paid.
Listed equity investments
Listed equity investments have been classified as being at fair value through
profit and loss. Listed equity investments are subsequently measured using
Level 1 inputs, the quoted market price, and all fair value gains or losses in
respect of those assets are recognised in the profit and loss.
Current taxation
Current tax assets and liabilities for the current and prior periods are
measured at the amount expected to be recovered from or paid to the tax
authorities. The tax rates and the tax laws used to compute the amount are
those that are enacted or substantively enacted, by the balance sheet date.
Deferred taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax balances are recognised in respect of timing differences that
have originated but not reversed on the balance sheet date. Deferred tax
liabilities are generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised.
Deferred tax balances are not recognised in respect of permanent differences
between the fair value of assets acquired and the future
tax deductions available for them and the differences between the fair values
of liabilities acquired and the amount that will be assessed for tax.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in profit or loss, except when it relates to items charged
or credited directly to other comprehensive income, in which case the deferred
tax is also dealt with in other comprehensive income.
The Government announced a proposal in March 2021 for an increase in the
corporation tax rate from 19% main rate in the tax year 2021 to 25% with
effect from 1 April 2023. This was enacted by the Finance Act 2021 on 10 June
2021.
Trade and other receivables
Trade and other receivables and intercompany receivables are recognised and
carried at the original transaction value. A provision for impairment is
established where there is objective evidence that the Company will not be
able to collect all amounts due according to the original terms of the
receivables concerned.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other
short-term highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments issued by the Company are
classified according to the substance of the contractual arrangements entered
into and the definitions of a financial liability and an equity instrument. An
equity instrument is any contract that evidences a residual interest in the
assets of the Company after deducting all of its liabilities. The accounting
policies adopted for specific financial liabilities and equity instruments are
set out below:
Trade payables
Trade payables are initially measured at fair value and are subsequently
measured at amortised cost, using the effective interest rate method.
Equity instruments
Equity instruments issued by the Company are recorded at the fair value of
proceeds received, net of direct issue costs.
Parent company disclosure exemptions
In preparing the separate financial statements of the Parent Company,
advantage has been taken of the following disclosure exemptions available in
FRS 102:
• no cash flow statement has been presented for the Parent Company;
• disclosures in respect of the Parent Company's financial
instruments have not been presented as equivalent disclosures have been
provided in respect of the Group as a whole;
• disclosures in respect of the Parent Company's share-based payment
arrangements have not been presented as equivalent disclosures have been
provided in respect of the Group as a whole; and
• disclosure has been given for the aggregate remuneration of the
key management personnel of the Parent Company as their remuneration is
included in the totals for the Group as a whole.
Judgements in applying accounting policies and key sources of estimation
uncertainty
Investments and loans to subsidiary undertakings (see note 3)
The most critical estimates, assumptions and judgements relate to the
determination of carrying value of unlisted investments in the Company's
subsidiary undertakings and the carrying value of the loans that the Company
has made to them. The nature, facts and circumstance of the investment or loan
are taken into account in assessing whether there are any indications of
impairment.
Provisions provided in the year reflect the reduction in net asset value of
subsidiaries for the year ended 31 March 2023. Write-down of investments
reflect the winding up of subsidiaries within the year.
1. PROFIT FOR THE FINANCIAL PERIOD
The Company has taken advantage of section 408 of the Companies Act 2006 and
consequently a profit and loss account for the Company alone has not been
presented.
2. INVESTMENTS IN SUBSIDIARIES
Cost: Investments Loans
in subsidiaries to subsidiaries Total
£'000 £'000 £'000
At 1 April 2021 183,614 - 183,614
Write-down of investments (2,658) - (2,658)
At 1 April 2022 180,956 - 180,956
Write-down of investments - - -
At 31 March 2023 180,956 - 180,956
Provision for impairment:
At 1 April 2021 58,047 - 58,047
Provided during the year 45 - 45
At 1 April 2022 58,092 - 58,092
Provided during the year 18,134 - 19,750
At 31 March 2023 76,226 - 77,842
Net book value at 31 March 2023 104,730 - 103,114
Net book value at 31 March 2022 122,864 - 122,864
The Group comprises a number of companies; all subsidiaries included within
these financial statements are noted below:
Subsidiary undertaking: Class of share held % shareholding Principal activity
Palace Capital (Leeds) Limited Ordinary 100 Property Investments
Palace Capital (Northampton) Limited Ordinary 100 Property Investments
Palace Capital (Properties) Limited Ordinary 100 Property Investments
Palace Capital (Developments) Limited Ordinary 100 Property Investments
Palace Capital (Halifax) Limited Ordinary 100 Property Investments
Palace Capital (Manchester) Limited Ordinary 100 Property Investments
Palace Capital (Liverpool) Limited Ordinary 100 Property Investments
Palace Capital (Signal) Limited Ordinary 100 Property Investments
Property Investment Holdings Limited Ordinary 100 Property Investments
Palace Capital (Dartford) Limited Ordinary 100 Property Management
Palace Capital (Newcastle) Limited Ordinary 100 Property Investments
Palace Capital (York) Limited Ordinary 100 Property Management
Associated Company:
HBP Services Limited* Ordinary 21.4 Property Management
Clubcourt Limited* Ordinary 40 Property Management
* Held indirectly
The results of the associated companies are immaterial to the Group.
The registered addresses for the subsidiaries across the Group are consistent
based on their country of incorporation and are as follows: Fora Victoria, 6-8
Greencoat Place, London SW1P 1PL
3. LISTED EQUITY INVESTMENTS
Total
£'000
At 31 March 2021 3,249
Disposal of listed equity investment (3,249)
At 31 March 2022 and 31 March 2023 -
4. PROPERTY, PLANT AND EQUIPMENT
IT, fixtures and fittings £'000
At 31 March 2021 269
Additions 22
At 31 March 2022 291
Additions 8
At 31 March 2023 291
Depreciation
At 31 March 2021 201
Provided during the period 47
At 31 March 2022 248
Provided during the period 29
At 31 March 2023 277
Net book value at 31 March 2023 22
Net book value at 31 March 2022 43
5. TRADE AND OTHER RECEIVABLES
2023 2022
£,000 £'000
Amounts owed by subsidiary undertakings 28,034 36,374
Trade debtors 1,703 5,607
Other debtors 47 44
Accrued interest on amounts owed by subsidiary undertakings 309 309
Prepayments 62 242
30,155 42,576
Trade debtors represent amounts owed from subsidiary undertakings in relation
to management charges.
All amounts that fall due for repayment within one year and are presented
within current assets as required by the Companies Act. The amounts owed by
subsidiary undertakings are repayable on demand with no fixed repayment date,
although it is noted that a significant proportion of the amounts may not be
sought for repayment within one year depending on activity in the subsidiary
undertakings.
A loan amounting to £14,023,501 remains outstanding at 31 March 2023 (2022:
£28,888,501) from Palace Capital (Developments) Limited. No interest is
charged on this loan. This loan is repayable on demand.
A loan amounting to £153,534 remains outstanding at 31 March 2023 (2022:
£519,534) from Palace Capital (Leeds) Limited. No interest is charged on this
loan. This loan is repayable on demand.
A loan amounting to £1,079,417 remains outstanding at 31 March 2023 (2022:
£2,781,417) from Palace Capital (Halifax) Limited. No interest is charged on
this loan. This loan is repayable on demand.
A loan amounting to £1,645,430 remains outstanding at 31 March 2023 (2022:
£4,034,646) from Palace Capital (Properties) Limited. No interest is charged
on this loan. This loan is repayable on demand.
A loan amounting to £4,945,582 remains outstanding at 31 March 2023 (2022:
£150,000) from Palace Capital (Northampton) Limited. No interest is charged
on this loan. This loan is repayable on demand.
A loan amounting to £3,084,996 remains outstanding at 31 March 2023 (2022:
£Nil) from Palace Capital (Manchester) Limited. No interest is charged on
this loan. This loan is repayable on demand.
A loan amounting to £3,101,452 remains outstanding at 31 March 2023 (2022:
£Nil) from Palace Capital (Newcastle) Limited. No interest is charged on this
loan. This loan is repayable on demand.
6. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2023 2022
£,000 £'000
Trade creditors 124 168
Amount owed to subsidiary undertaking 32,143 27,528
Other taxes 268 278
Other creditors 15 5
Accruals and deferred income 1,110 974
33,660 28,953
A loan amounting to £19,264,032 remains outstanding at 31 March 2023 (2022
£10,113,143) to Palace Capital (Signal) Limited. No interest is charged on
this loan. This loan is repayable on demand.
A loan amounting to £10,612,686 remains outstanding at 31 March 2023 (2022:
£16,314,718) to Property Investment Holdings Limited. No interest is charged
on this loan. This loan is repayable on demand.
A loan amounting to £2,146,000 remains outstanding at 31 March 2023 (2022:
£1,100,000) to Palace Capital (Liverpool) Limited. No interest is charged on
this loan. This loan is repayable on demand.
A loan amounting to £120,000 remains outstanding at 31 March 2023 (2022:
£Nil) to Palace Capital (York) Limited. No interest is charged on this loan.
This loan is repayable on demand.
7. SHARE CAPITAL
The details of the Company's share capital are provided in note 21 of the
notes to the Consolidated Financial Statements.
8. LEASES
Operating lease payments in respect of rents on leasehold properties occupied
by the Company are payable as follows:
2023 2022
£'000 £'000
Within one year 134 19
134 19
9. POST BALANCE SHEET EVENTS
Post year end, the Company purchased 505,000 ordinary shares from the open
market for a total consideration of £1.2m. These shares have been transferred
to treasury following the purchases.
Officers and Professional Advisors
Directors
Steven Owen Interim Executive
Chairman
Matthew Simpson Chief Financial Officer
Mark Davies Independent Non-Executive
Director
Secretary
Phil Higgins
Registered office
Fora Victoria
6-8 Greencoat Place
London
SW1P 1PL
Registered number
05332938 (England and Wales)
Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
Registrar
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Broker
Numis Securities Limited
45 Gresham Street
London
EC2V 7BF
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 Adjusted profit before tax plus trading profit divided
by dividends paid in the period, expressed as a percentage.
Employee Benefit Trust (EBT): the Employee Benefit Trust, administrator of the
Company's share plans.
Expected credit loss (ECL): In accordance with IFRS 9, the risk of
recoverability of our rental arrears are assessed. This is done using a
probability weighted estimate of credit losses, being the difference between
the cash flows that are due in accordance with the contract and the cash flows
that the Group expects to receive. This replaced the previous bad debt
provision.
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 net tangible assets (EPRA NTA): Is the NAV adjusted to reflect the fair
value of trading properties and to exclude deferred taxation and derivatives.
EPRA NTA per share: Is EPRA NTA divided by the diluted number of shares at the
period end.
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 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.
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 fair value of properties owned
throughout the entire year.
This excludes properties acquired during the year and disposed of during the
year, but includes capital expenditure spent on the properties.
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 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.
Property Portfolio: the total fair value of all investment properties and
trading properties as determined by the independent valuer, CBRE.
Portfolio Valuation: The value of the Company's property portfolio, including
all investment and trading properties as valued by our independent valuer,
CBRE.
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 in the year, 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR GPUCWQUPWPWCRecent news on Palace Capital
See all newsREG - Palace Capital PLC - Boulton House disposal
AnnouncementREG - Palace Capital PLC - DISPOSALS AND DEBT UPDATE
AnnouncementREG - Palace Capital PLC - Total Voting Rights
AnnouncementREG - Palace Capital PLC - Dividend Declaration
AnnouncementREG - Palace Capital PLC - Holding(s) in Company
Announcement