REG - Palace Capital PLC - Unaudited preliminary annual results <Origin Href="QuoteRef">PCA.L</Origin> - Part 3
16/07/2015 08:10
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their fair value.
16 TRADE AND OTHER PAYABLES
2015 2014
£ £
Trade payables 242,327 338,812
Bank loans (note 17) 400,000 1,199,959
Other taxes 573,687 827,280
Income tax 13,324 7,468
Other payables 21,283 46,103
Deferred rental income 1,842,561 1,406,053
Accruals 394,128 345,707
3,487,310 4,171,382
4,171,382
17 BORROWINGS
2015 2014
£ £
Current
Bank loans 400,000 1,199,959
Non-current liabilities
Convertible loan notes (note 22) - 290,619
Bank loans 35,406,501 17,093,560
Total Non-current liabilities 35,406,501 17,384,179
Total borrowings 35,806,501 18,584,138
35,806,501
18,584,138
2015 2014
£ £
Non-current liabilities
Bank loans 35,805,461 17,332,360
Un amortised lending costs (398,960) (238,800)
35,406,501 17,093,560
17,093,560
The maturity profile of the Group's debt was as follows
2015 2014
£ £
Within one year 400,000 1,199,959
From one to two years 20,002,964 300,000
From two to five years 15,802,497 17,332,360
36,205,461 18,832,319
18,832,319
Included within bank loans is an amount of £1,199,997 (2014: £1,199,959) which is secured on the investment properties in
the Hockenhull portfolio. Interest is charged at a rate of 4% above the 1 month Libor rate with a minimum rate of 5% and is
payable monthly. The loan was renewed during the year and the new facility is repayable on 30 September 2017.
Included within bank loans is an amount of £19,602,964 (2014: £17,332,360) which is secured on the investment properties in
the Sequel portfolio. An additional amount of £2,500,000 was drawn down on this facility on 19 March 2015. Interest is
charged at a rate of 3.75% above the 1 month Libor rate and is payable monthly. The loan is repayable on 21 October 2016.
Included within bank loans is an amount of £15,402,500 (2014: £nil) which is secured on the investment properties in the
PIH portfolio. Interest is charged at a rate of 2.75% above the National Westminster Bank plc base rate and is payable
quarterly. The loan is repayable at a rate of £100,000 quarterly with the balance of the loan repayable at the end of the
term of the loan on 26 August 2019.
The convertible loan notes of £300,000 were repaid during the year to a pension scheme of which Stanley Davis is a
beneficiary at an interest rate of 4%. The interest accrued during the period amounted to £2,032 (2014: £13,940).
The Group has no unused loan or overdraft facilities (2014: £nil).
18 LEASES
Operating lease receipts in respect of rents on investment properties are receivable as follows:
2015 2014
£ £
Within one year 8,268,635 5,870,048
From one to two years 6,984,156 5,360,652
From two to five years 12,999,454 10,019,084
From five to 25 years 12,139,090 6,852,408
After 25 years 692,872 700,697
41,084,207 28,806,889
28,806,889
Operating lease payments in respect of rents on leasehold properties occupied by the Group are payable as follows:
2015 2014
£ £
Within one year 44,800 -
From one to two years 44,800 -
From two to five years 12,028 -
101,628 -
-
Finance lease obligations in respect of rents payable on leasehold properties were payable as follows:
2015 2014
Minimum lease payments Interest Present value of minimum lease payments Present value of minimum lease payments
£ £ £ £
Within one year 86,980 (85,346) 1,634 1,521
From one to two years 86,980 (85,226) 1,754 1,634
From two to five years 260,940 (254,864) 6,076 5,660
From five to 25 years 1,707,100 (1,643,436) 63,664 65,375
After 25 years 6,316,120 (5,175,715) 1,140,405 1,140,865
8,458,120 (7,244,587) 1,213,533 1,215,055
The net carrying amount of the leasehold properties is shown in note 12.
The Group has over 150 leases granted to its tenants. These vary dependent on the individual tenant and the respective
property and demise and vary considerably from short term leases of less than 1 year to longer term leases of over 10
years. A number of these leases contain rent free periods. Standard lease provisions include service charge payments and
recovery of other direct costs. All investment properties in the Group's portfolio generated rental income during the both
the current and prior periods.
19 Share capital
2015 2014
Authorised, issued and fully paid share capital is as follows: £ £
20,225,673 ordinary shares of 10p each (2014: 12,440,937) 2,022,567 1,244,094
315,937 deferred shares of 90p each (2014: 315,937) 284,344 284,344
2,306,911 1,528,438
1,528,438
The deferred shares have the following rights and restrictions. As regards income the Deferred Shares shall not entitle
the holders thereof to receive any dividend or other distribution unless and until the holders of the Ordinary Shares shall
have received in aggregate amongst them the sum of £100,000,000 in respect of such dividend or distribution. As regards
voting the Deferred Shares shall not entitle the holders thereof to receive notice of or to attend or vote at any General
Meeting of the Company. As regards capital on a return of capital on a winding up the holders of Deferred Shares shall
only entitled to receive the amount paid up on such shares after the holders of the Ordinary Shares have received the sum
of £1,000,000 for each Ordinary Share held by them and shall have no other right to participate in the assets of the
Company.
2015 2014
Reconciliation of movement in ordinary share capital £ £
At start of period 1,244,094 959,750
Issued in the period 778,473 284,344
At end of period 2,022,567 1,244,094
1,244,094
On 23 June 2014 79,665 warrants were exercised and as a result the company issued 79,665 ordinary 10p shares at a price of
£2.00.
On 26 August 2014 the company issued 6,451,712 ordinary 10p shares at a price of £3.10. Issue costs amounting to £795,684
were incurred and have been deducted from the share premium account.
In addition, on the same day the company issued 1,103,459 ordinary 10p shares in exchange for 100% of the share capital of
Property Investment Holdings Limited. The fair value of these shares was £3.275 per share.
On 18 February 2015 150,000 warrants were exercised and as a result the company issued 150,000 ordinary 10p shares at a
price of £2.00.
Share options:
2015 2014
Reconciliation of movement in outstanding share options No of options No of options
At start of period 811,752 191,594
Issued in the period - 646,825
Exercised in the period (229,665) -
Lapsed in the period (133,333) (26,667)
At end of period 448,754 811,752
811,752
As at 31 March 2015, the Company had the following outstanding unexpired options.
Description of unexpired share options 2015 2014
No of options Weighted average Option price No of options Weighted average Option price
Senior executive plan (note 20) 429,704 17p 429,704 17p
Options on convertible loans - - 133,333 225p
Warrants issued to Nominated advisors and Broker 19,050 200p 248,715 200p
Total 448,754 25p 811,752 107p
Exercisable 19,050 200p 382,048 209p
Not exercisable 429,704 17p 429,704 17p
Warrants issued to the Groups Nominated advisors and Broker
No new share options were issued to the Group's Nominated advisor or Broker during the year. The Group's Nominated advisor
and Broker received £248,715 options in 2014 in exchange for part of the fee charged by the brokers for the share issue
that occurred during that year and the directors considered the fair value of the service to be £50,000. These options
were exercisable at a price of £2.00 per share.
A total of 229,665 share options issued to the Group's Broker were exercised during the year (2014: nil). The average
share price at the date of exercise was £3.48 per share.
Option on convertible loans
As part of the loan agreements (see note 17) 133,333 options were granted to convert £300,000 of loans to shares.
Following the repayment of this loan on 23 June 2014 these options lapsed (2014: 26,667 option on loan notes lapsed).
The weighted average remaining contractual life of the options outstanding at 31 March 2015 was 2 years (2014: 2).
20 Share bASED PAYMENT
Senior executive plan
The following table illustrates the number and weighted average exercise prices of, and movements in, share options during
the year:
Number of options Exercise price Date from which exercisable Expiry date
Outstanding at 1 February 2013 31,594 225p 3 Oct 2014 3 Oct 2021
Issued during the period (LTIP 2014) 398,110 0p 31 Mar 2017 31 Mar 2017
Outstanding at 31 March 2014 and 2015 429,704 17p
LTIP 2014
The options are awarded to management on achievements against target on 2 separate measures over the three financial years
ending 31 March 2017. Half the options will be awarded based on the first target and half based on the achievement of the
second.
Earnings per share (EPS) growth: is based on a pro forma profit after tax excluding property revaluations and disposal
profits/losses for the financial year. This target will measure the compound growth in EPS over the three year period
ending 31 March 2017.
Total shareholder return (TSR) measures the total shareholder return (price rise plus dividends) over the period from 21
October 2013 to 31 March 2017. The base price being £2.00 per share which was the placing price on that day.
Average annual TSR (compounded) over the TSR performance period Vesting % Average annual EPS growth (compounded) over the EPS performance period Vesting %
<20% 0 <15% 0
Equal to 20% 33.33 Equal to 15% 50
Equal to 25% 66.66 Equal to 30% 100
Equal to 30% 100
For the TSR measure, the achievement of between 25 per cent and 30 per cent compound growth will result in the number of
Ordinary shares vesting to be calculated on a straight line basis between 66.66 per cent and 100 per cent. A similar rule
will apply between 20% and 25% and for the EPS condition between 15% and 30%.
The fair value of grants was measured at the grant date using a Black-Scholes pricing model, 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 the Black-Scholes pricing model are as follows:
Grant date 18.10.13
Exercise price 0p
Term years 3.4 years
Expected volatility 25%
Expected dividend yield 4%
Risk free rate 1%
Expected forfeiture p.a. 0%
For the portion of the options subject to market conditions (TSR measure), it has been assessed that there was an 82%
likelihood of the options vesting.
Palace Capital No 1 share option scheme
On 3 October 2011 31,594 share options were issued at an exercise price of £2.25. The fair value of grants is measured at
the grant date using a Black-Scholes pricing model, 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 the Black-Scholes pricing model are as follows:
Grant date 3.10.11
Exercise price 225p
Term years 10 years
Expected volatility 25%
Expected dividend yield 0%
Risk free rate 1%
Expected forfeiture p.a. 0%
The expense recognised for employee services received during the period is shown in the following table:
2015 2014
£ £
Palace Capital No 1 share option scheme 5,000 11,667
LTIP 2014 108,817 -
Total expense arising from share-based payment transactions 113,817 11,667
11,667
21 RELATED PARTY TRANSACTIONS
A convertible loan note amount of £300,000, provided by a pension scheme in which Stanley Davis is a beneficiary, was
repaid on 23 June 2014. Interest charged during the period amounted to £2,032 (2014: £13,940). Accrued unpaid interest on
this loan amounted to £nil (2014: £29,885).
Accounting services amounting to £56,057 (2014: £22,000) have been provided to the Group by Stanley Davis Group Limited, a
company where Stanley Davis is a director.
22 CONVERTIBLE LOAN NOTES
Loan notes amounting to £300,000 were convertible at the option of the loan note holder into ordinary shares of the Company
at any time between the date of issue of the loan notes and their maturity date of 3 October 2015 at 225p per share. These
loan notes were repaid on 23 June 2014 and the options lapsed on this date.
The effective rate of interest used to calculate the interest charged on the loan notes to the income statement was 6%.
Interest of 4% per annum was payable quarterly.
There were no transaction costs incurred on the issue of these loan notes. The proceeds from the issue of the convertible
loan notes have been split between the liability element and an equity component, representing the fair value of the
embedded option to convert the liability into equity of the Group as follows:
2015£ 2014 £
Convertible loan notes issued - 300,000
Equity component - (21,197)
Liability component at date of issue - 278,803
Interest charged - 41,728
Interest payable - (29,912)
- 290,619
-
290,619
23 DIVIDENDS
Payment date Dividend per share 2015£ 2014 £
Current year
2015 final dividend 31 July 2015 7.00 - -
2015 interim dividend 30 December 2014 6.00 1,204,540 -
Distribution of current year profit 13.00 1,204,540 -
Prior year
2014 final dividend 31 July 2014 2.50 313,015 -
2014 interim dividend 7 May 2014 2.00 248,819 -
Distribution of prior year profit 4.50 561,834 -
Dividends reported in the Group statement of changes in equity 1,766,374 -
Proposed Dividends
2015£ 2014 £
2015 final dividend :7p (2014 interim: 2p and final dividend: 2.5p) 1,415,797 561,834
Proposed dividends on ordinary shares are subject to approval at the annual general meeting and are not recognised as a
liability as at 31 March.
24 GEARING and loan to value RATIO
The calculation of gearing is based on the following calculations of net assets and net debt:
Year ended 31 March 2015 14 month period ended 31 March 2014
£ £
Net asset value 80,015,514 44,375,794
44,375,794
Borrowings 35,806,501 18,584,138
Obligations under finance leases 1,213,533 1,215,055
Cash and cash equivalents (12,278,537) (5,123,337)
Net Debt 24,741,497 14,675,856
NAV Gearing 30.9% 33.1%
The calculation of bank loan to property value is calculated as follows:
Year ended 31 March 2015 14 month period ended 31 March 2014
£ £
Fair value of Property portfolio 102,755,000 58,220,000
58,220,000
Borrowings - Bank loans 36,205,461 18,532,319
Loan to value ratio 35.2% 31.8%
25 CAPITAL COMMITMENTS
At 31 March 2015 the Group had exchanged contracts to purchase an additional investment property for £10m (see note 26).
As at 31 March 2015 the company has paid a deposit of £1,000,000 against this contract.
Contracts for the repair or maintenance of investment properties and not provided for in the accounts amounted to £46,957
(2014: £nil). There were no obligations for capital expenditure relating to the construction, development or enhancement of
investment properties entered into by the Group at 31 March 2015 (2014 £nil).
26 POST BALANCE SHEET EVENT
On 1 April 2015 the Group completed the acquisition of Bank House, a freehold property in Leeds. Bank House, which is a
88,000 sq ft building within two minutes of Leeds Railway Station, was acquired for £10 million, satisfied from the
£1,000,000 deposit paid prior to the year end and the remainder payable from the Company's existing cash resources.
On 10 May 2015, a new loan amounting to £4,500,000 was provided by Lloyds Bank PLC. The loan carries an interest rate of
2.1% above Libor. This loan is secured on the Bank House property and is repayable on 9 May 2019.
On 27 May 2015, the Group has entered into a conditional agreement to acquire the entire issued share capital of O&H
Northampton Limited (O&H), the owner of Sol Central, a mixed use leisure scheme in Northampton. Under the terms of the
Acquisition Agreement, the consideration payable by the Group for all of the issued shares of O&H is £1. The Company will
also procure the repayment of £20.7 million of the outstanding indebtedness owed by O&H to its existing bank and other
creditors. There will also be an adjustment to reflect the net assets of O&H at the date of the Acquisition. The total
amount payable by the Group in connection with the acquisition of O&H is expected to be approximately £20.7 million. Sol
Central is a 190,000 sq ft mixed use leisure scheme located close to the centre of Northampton. Constructed in 2002, Sol
Central has two anchor tenants, a 10 screen Vue Cinema and a 151 bed Ibis Hotel. To finance the repayment of O&H's
indebtedness and to provide additional capital to exploit further opportunities, the Board has announced a conditional
placing of 5,555,556 Placing Shares at the Issue Price of 360p to raise approximately £20 million (before expenses).
The Acquisition is conditional on, inter alia, O&H and Santander entering into the Facility Agreement. The Facility will
provide O&H with £11.39 million, which will be used, along with part of the Placing proceeds, to repay O&H's outstanding
indebtedness up to an aggregate amount of £20.7 million (subject to adjustment to reflect the net assets of O&H at the date
of completion of the Acquisition).
27 CATEGORIES OF Financial instruments
The Group's principal financial liabilities are loans and borrowings. The main purpose of the Group's loans and borrowings
is to finance the acquisition and development of the Group's property portfolio. The Group has rent and other receivables,
trade and other payables and cash and short-term deposits that arise directly from its operations.
All financial assets are classified as loans and receivables and all financial liabilities are measured at amortised cost.
The Group is exposed to market risk (including interest rate risk and real estate risk), credit risk and liquidity risk.
The Group's senior management oversee the management of these risks, and the Board of Directors has overall responsibility
for the determination of the Group's risk management objectives and policies and it sets policies that seek to reduce risk
as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these
policies are set out below:
Capital risk management
The Group considers its capital to comprise its share capital, share premium, other reserves and retained earnings which
amounted to £80,015,514 at 31 March 2015 (2014: £44,375,794). 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.
The Group has covenanted to maintain a specified consolidated leverage ratio and a consolidated net interest expense
coverage ratio, the terms of which have been adhered to during the year.
The Group manages its capital structure, and makes adjustments to it, in the light of changes in economic conditions. To
maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to
shareholders or issue new shares.
Significant Accounting Policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset,
financial liability and equity instrument are disclosed on pages 20 to 25 to these financial statements.
Foreign currency risk
The Group has minimal exposure to the differing types of foreign currency risk. It has no foreign currency denominated
monetary assets or liabilities and does not make sales or purchases from overseas countries.
Interest rate risk
The interest rate exposure profile of the Group's financial assets and liabilities as at 31 March 2015 and 2014 were:
Nil rate assets Floating rate assets Fixed rate liability Floating rate liability Total
£ £ £ £ £
As at 31 March 2015
Trade and other receivables 2,874,983 - - - 2,874,983
Cash and cash equivalents 12,278,537 - - 12,278,537
Trade and other payables (657,738) - - - (657,738)
Bank borrowings - - (35,806,501) (35,806,501)
Obligation under finance leases - - (1,213,533) - (1,213,533)
2,217,245 12,278,537 (1,213,533) (35,806,501) (22,524,252)
Nil rate assets Floating rate assets Fixed rate liability Floating rate liability Total
£ £ £ £ £
As at 31 March 2014
Trade and other receivables 1,482,138 - - - 1,482,138
Cash and cash equivalents 5,123,337 - - 5,123,337
Trade and other payables (730,622) - - - (730,622)
Bank borrowings - - - (18,293,519) (18,293,519)
Other borrowings - - (290,619) - (290,619)
Obligation under finance leases - - (1,215,055) - (1,215,055)
751,516 5,123,337 (1,505,674) (18,293,519) (13,924,340)
(1,505,674)
(18,293,519)
(13,924,340)
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 around £12m (2014: £5m). The income statement would be affected by £120,000 (2014: £50,000) by a
reasonably possible one percentage point change in floating interest rates on a full year basis.
The Group has loans amounting to £36,205,461 (2014: £18,532,319) which have interest payable at rates linked to the 1 month
Libor interest rates or bank base rates. A 1% increase in the Libor or base rate will have the effect of increasing
interest payable by £362,055 (2014: £185,323).
The Group is therefore relatively sensitive to changes in interest rates. The directors regularly review its position with
regard to interest rates in order to minimise the Group's risk.
Credit risk management
Credit risk refers to the risk that a counter-party will default on its contractual obligations resulting in financial loss
to the Group.
Palace Capital plc has its cash held on deposit with two large banks in the United Kingdom. At 31 March 2015 the
concentration of credit risk held with Barclays Bank plc, the largest of these banks, was £12,075,426 (2014: £2,994,106).
Credit risk on liquid funds is limited because the counterparty is a UK bank with a high credit rating assigned by
international credit rating agencies.
Credit risk also results from the possibility of a tenant in the Group's property portfolio defaulting on a lease. The
largest lease amounts to 7% (2014: 9%) of the Group's anticipated income. The directors assess a tenants' credit
worthiness 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 2015 was £2,874,983 (2014: £1,482,138). The details
of the provision for impairment are shown in note 14.
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, including organic growth and acquisition activities, and to
meet certain unforeseen obligations and opportunities. The Group holdscash to enable the Group to manage its liquidity
risk.
The Group monitors its risk to a shortage of funds using a monthly cash management process. 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 finance leases.
The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted
payments:
On demand 0 - 1 years 1 to 2 years 2 to 5 years > 5 years Total
£ £ £ £ £
As at 31 March 2015
Interest bearing loans - 1,695,692 20,961,402 16,974,092 - 39,631,186
Finance leases - 86,980 86,980 260,940 8,023,220 8,458,120
Trade and other payables 657,738 - - - - 657,738
657,738 1,782,672 21,048,382 17,235,032 8,023,220 48,747,044
On demand 0 - 1 years 1 to 2 years 2 to 5 years > 5 years Total
£ £ £ £ £
As at 31 March 2014
Interest bearing loans 1,897,921 956,046 17,695,627 - 20,549,594
Finance leases 86,980 86,980 260,940 8,110,200 8,545,100
Trade and other payables 730,622 - - - - 730,622
730,622 1,984,901 1,043,026 17,956,567 8,110,200 29,825,316
1,043,026
17,956,567
8,110,200
29,825,316
Derivative financial instruments
The Group does not currently use derivative financial instruments as hedging is not considered necessary. Should the Group
identify a requirement for the future use of such financial instruments, a comprehensive set of policies and systems, as
approved by the Directors, will be implemented.
In accordance with IAS 39, "Financial instruments: recognition and measurement", the Group has reviewed all contracts for
embedded derivatives that are required to be separately accounted for if they do not meet specific requirements set out in
the standard. No material embedded derivatives have been identified.
Fair value measurements
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial instruments that are
carried in the financial statements:
Carrying amount Fair value
2015 2014 2015 2014
£ £ £ £
Financial assets
Trade and other receivables 2,874,983 1,482,138 2,874,983 1,482,138
Cash and cash equivalents 12,278,537 5,123,337 12,278,537 5,123,337
15,153,520 6,605,475 15,153,520 6,605,475
Current financial liabilities
Trade payables 242,347 338,812 242,347 338,812
Other payables 21,283 46,105 21,283 46,105
Accruals 394,128 345,707 394,128 345,707
Borrowings - bank loan 35,806,501 18,293,519 35,806,501 18,293,519
Borrowings - other loans - 290,619 - 290,619
Obligations under finance leases 1,213,533 1,215,055 1,213,533 1,215,055
37,677,792 20,529,817 37,677,792 20,529,817
20,529,817
37,677,792
20,529,817
It is our view that the fair value of the group's financial instruments are not materially different to their carrying
value. This view was formed on the basis that, as indicated in note 17 of the financial statements, the bank loans and the
loan notes attracted a variable rate of interest and that the cash deposits, and trade payables and receivables, are short
term in nature.
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