TIDMPCA
RNS Number : 0073B
Palace Capital PLC
04 June 2019
Palace Capital plc
("Palace Capital" or the "Company")
ANNUAL RESULTS FOR THE YEARED 31 MARCH 2019
REGIONAL FOCUS CONTINUES TO GENERATE INCOME AND CAPITAL
GROWTH
Palace Capital (LSE: PCA), the Main Market listed real estate
investment company that has a diversified portfolio of UK
commercial real estate in carefully selected locations outside of
London, is pleased to announce its annual results for the year
ended 31 March 2019 following its first full year on the Main
Market of the London Stock Exchange.
Positive financial results despite economic uncertainty
-- Profit before tax of GBP6.4 million
-- Adjusted profit before tax of GBP8.9 million
-- Adjusted earnings per share of 17.3p
-- Dividend maintained at 19.0p or GBP8.7 million paid
-- Decrease in net assets of 1.6%, to GBP180.3 million
-- EPRA NAV of 407p
Outperforming property portfolio
-- Total property return of 7.1%, well ahead of MSCI UK Quarterly Index figure of 4.6%
-- Like-for-like valuation increase of 0.5%, compared to MSCI
growth in UK capital values of 0.1%
-- Like-for-like rental value up 1.1% to GBP16.4 million
-- 37 new leases completed at an average of 14% above ERV
-- Occupancy of 87%, with some tactical vacancies held for accretive asset management
-- Sale of 50 non-core residential assets for GBP18.2 million
-- Acquisition of One Derby Square, Liverpool for GBP14.0
million with considerable asset management opportunities
-- GBP5.6 million invested in accretive refurbishment and development projects
Significant progress on Hudson Quarter York development
-- Demolition and site preparation completed in the year, scheme launching June 2019
-- Funding secured with Barclays Bank for development facility totalling GBP26.5 million
-- GBP33.6 million construction contract signed and two year project commenced
-- Fundamentals of City of York showing positive momentum, early occupier interest encouraging
Capital structure remains robust
-- Debt facilities total GBP145.9 million, with GBP22.9 million
of cash available for acquisitions
-- Loan to value ratio 34% within target range
-- Average cost of debt reduced to 3.3%
Proposed REIT conversion to support Total Return Strategy
-- UK REIT conversion recommended by the Board following
extensive professional, independent advice
-- Conversion expected 1 August 2019
Palace Capital Chairman, Stanley Davis, commented:
"We've delivered another set of positive results against an
uncertain economic backdrop, generating a total property return of
7.1% well above the UK Quarterly Property Index - testimony to our
strategy of focussing on selected regions outside of London. Having
taken extensive independent advice, it is clear that Palace Capital
has now reached a certain scale where the benefits of converting to
a REIT are tangible and we are convinced that this is the best
course to support our Total Return Strategy as the Company
continues to grow. The Board is therefore recommending that the
Company converts to a REIT, which will also unlock new pools of
capital and improve liquidity."
Neil Sinclair, Chief Executive of Palace Capital, commented:
"Our portfolio structure and proactive approach to asset
management has enabled us to continue to grow both income and
capital values, building further on our strong track record. We are
well positioned to take advantage of investment opportunities, but
remain disciplined in this regard as we believe that pricing in the
market at the moment does not provide sustainable value and,
therefore, doesn't meet our strict criteria. Our priority is
therefore to exploit our own portfolio, where there is significant
reversionary potential and accretive redevelopment opportunities.
Looking ahead to FY20, we will remain focussed on growing income
through lease restructuring, improving occupancy and other asset
management projects including refurbishments and developments."
This announcement contains inside information.
For further information please contact:
PALACE CAPITAL PLC
Neil Sinclair, Chief Executive
Stephen Silvester, Finance Director
Tel. +44 (0)20 3301 8331
Broker
Numis Securities
Heraclis Economides / Oliver Hardy
Tel: +44 (0)20 7260 1000
Broker
Arden Partners plc
Corporate Finance: Paul Shackleton / Ciaran Walsh / Daniel
Gee-Summons
Corporate Broking: James Reed-Daunter
Tel: +44 (0)207 614 5900
Financial PR
FTI Consulting
Claire Turvey / Methuselah Tanyanyiwa
Tel: +44 (0)20 3727 1000
palacecapital@fticonsulting.com
About Palace Capital plc (www.palacecapitalplc.com)
Palace Capital is a property investment company with a premium
listing on the Main Market of the London Stock Exchange (Stock
Code: PCA). The Company owns a diversified regional portfolio
across the UK and has a reputation for being entrepreneurial and
opportunistic. Palace Capital acquires properties where it can
enhance the long-term income and capital value through asset
management and strategic capital development in locations outside
London.
The Annual Reports and Accounts together with the Notice
convening the Annual General Meeting for 10.00am on 12 July 2019
will be posted to Shareholders shortly.
Chief Executive's Review
I am pleased to report the Company's results for the year ended
31 March 2019 which shows an IFRS profit before tax for the year of
GBP6.4 million (2018: GBP13.3 million) and a net asset value as at
31 March 2019 of GBP180.3 million (2018: GBP183.3 million).
Although profit for the year is down on last year due to the fair
value reductions compared to uplifts last year, adjusted profit
before tax has increased to GBP8.9 million (2018: GBP8.4 million),
reflecting underlying rental growth from the portfolio.
We are an ambitious and exciting real estate company which only
had a market capitalisation of GBP108,000 in July 2010 and now has
a portfolio valued at GBP286.3 million so we have made considerable
progress. You would have noted in our Portfolio and Trading Update
announced early last month that we have had a busy year achieving a
number of our strategic objectives notwithstanding the uncertain
political environment.
reiT conversion
One of these objectives was to convert to a Real Estate
Investment Trust (REIT) and this is due to take effect on 1 August
2019 pending shareholder approval to amend the Articles of
Association at the AGM in July. The Board has taken extensive
professional independent advice and is convinced that REIT
conversion supports our Total Return Strategy, harnessing the core
income-producing portfolio for income growth, whilst exploiting
value-add and development opportunities for capital growth.
We expect REIT conversion to increase liquidity in our shares
through unlocking new pools of capital, improve earnings through
elimination of the tax charge on rental profits and increase our
net assets through elimination of deferred tax liabilities.
strategy
Our focus is on value creation through our targeted acquisition
of regional commercial property in select growth locations and
sectors, exploiting the low interest rate environment to leverage
the yield differential of core-plus regional assets versus the low
return London sectors. Specifically, city centre offices make up
47.3% of our portfolio and our skillset and ability to enhance the
income profile through refurbishments and redevelopments is at the
heart of our continuing success.
highlights
There have been a number of highlights in the last financial
year including a full year on the Main Market of the London Stock
Exchange, as well as being part of the FTSE Small Cap Index and the
FTSE All Share Index.
When we bought R.T. Warren (Investments) Ltd in October 2017 for
GBP68 million we acquired 21 commercial buildings and alongside
these, 65 residential properties which for us were non-core. We
sold three very quickly and just before the year end, we exchanged
contracts to sell 50 to Barnet Council, with 26 completing by 31
March 2019 and 24 in May 2019. We have achieved 98% of book value
so far which is well ahead of the business plan on acquisition.
Post the year end, a further five have been sold with the remainder
to be sold imminently.
Our flagship project is the development under construction on
our two-acre site known as Hudson Quarter, York. We are erecting
127 apartments, 35,000 sq ft of offices and 5,000 sq ft of other
commercial space plus car parking which is all due to complete in
the early part of 2021. We already announced that we have secured a
GBP26.5 million funding facility from Barclays Bank on very
competitive terms and that we have placed a building contract with
Caddick Construction.
The marketing suite for the apartments is virtually complete and
June will see the first batch of apartments launched for sale. York
was voted the best place to live in the UK in 2018 and was a
regional winner this year. In the Nationwide House Price Index for
the first quarter of this year house prices rose 2% in Yorkshire
and Humberside whilst in London they fell 4%, further emphasising
the benefits of our targeted regional strategy.
acquisitions
We have very selective investment criteria and with vendors
endeavouring to secure prices that we believe are no longer
realistic, we only made one acquisition in the year for GBP14.0
million which was One Derby Square, Liverpool, a virtually fully
let retail and office property in a superb location. One Derby
Square produces rent in excess of GBP1.0 million per annum. I am
proud of the high-quality income producing portfolio we have
assembled primarily since 2013 and this bodes well for the years
ahead.
As a result of the limited opportunities to acquire properties
that meet our strict criteria, we held surplus cash in the year.
Management took the decision to acquire a 5% holding in a listed
equity investment with a strategy focussed on the regional office
sector, consistent with our own.
valuations
Our independent valuations show an underlying increase from the
previous year of 0.5% and this is no mean feat in a year dominated
by political uncertainty and negative retail sentiment. Our
strategy of focussing on offices in university towns and cities
across the UK continues to bear fruit.
A number of our office properties are in core city centre
locations such as Leeds, Milton Keynes, Leamington Spa and
Manchester, and some of these have significant development and
refurbishment potential. The Board has made the strategic decision
to harness this potential, as we are doing in York, and we will of
course update shareholders as and when appropriate.
total return
We operate on a total return basis so it is important to grow
our capital values as well as our income. There is no doubt that
major tenants want quality buildings which are preferably new or
almost new, therefore achieving satisfactory planning consents on
our potential development pipeline will be crucial going forward.
We secured planning consent at Hudson Quarter, York through a
pro-active, engaged approach with a pragmatic City of York Council
harnessing a superb professional team. This will benefit not only
the residents and visitors to York but our shareholders as well as
value is created.
dividend policy
I have always referred to our progressive dividend policy. This
should not necessarily mean that it increases every year but does
over time. This year we intend to maintain it and we are proposing
a final dividend of 4.75p per share payable on 13 July 2019 to
those shareholders on the Register as at 14 June 2019, which if
approved takes the total dividends for the year to 19p.
epra nav
Our EPRA Net Asset Value per share at 31 March 2019 is 407p
which is 1.9% below that of last year. We have had to take account
of the Stamp Duty Land Tax on the Liverpool acquisition as well as
the reduction in the share price of our listed investment. These
factors, in my view, are short term in nature and will not affect
our medium to long-term strategic goals or ambition to outperform
our peer group on a total return basis.
PORtfolio
Following the acquisition of One Derby Square, Liverpool, the
fair value of the Company's portfolio is now at GBP286.3 million
(including trading properties and assets held for sale) compared to
GBP276.7 million as at 31 March 2018. This takes into account the
relevant acquisitions and disposals we have made during the
financial year.
Our contracted rent roll as at 31 March 2019 was GBP17.7 million
per annum with a net income of GBP16.4 million after allowing for
head rents, service charge shortfall and empty rates. Looking
forward, this rent roll may increase during the year if we find the
right acquisition opportunities but this year's patient approach
will be more rewarding in time.
conservative gearing
Having personally experienced a number of economic downturns it
is crucial to keep our gearing at a conservative level. Our bank
borrowings are GBP96.5 million net of cash representing a loan to
value (LTV) of 34% (2018: 30%)
ASSET MANagement
We are making good progress with our asset management
initiatives on our strategically well-located holdings in Leeds,
Manchester, Liverpool, Newcastle, Southampton, Brighton,
Winchester, Leamington Spa, Milton Keynes and Northampton and these
are referred to in our Property Review.
POSITIVE regional OUTLOOK
Government policy is being directed to encourage investment in
the regions, supporting our outlook. Many leading companies have,
or are about to, relocate to the regions including Hiscox,
Burberry, Channel 4 and Talk Talk. Graduate retention in the
regions, particularly in the core cities, is rising providing a
pool of talent as London becomes unaffordable to many.
Chancellor Philip Hammond recently told the House of Commons
Treasury Select Committee that the next Spending Review expected in
the autumn of this year would have a focus on improving regional
productivity, with the modern industrial strategy at the heart of
the plan. He advised that the review's priority will be to focus on
geographical areas which have high potential for productivity
growth and projects such as the Northern Powerhouse Rail which can
enable this. This project will connect Hull, Leeds, Manchester,
Liverpool, Newcastle and Sheffield. The purpose is to create a
single economic geography out of a belt of northern cities and to
further create an overall area of economic activity which can rival
London. Except for Hull, we have holdings in all of these
cities.
disciplined investment strategy
We are focussing on exploiting our own portfolio through active
management, but we are also very much in the market for acquisition
opportunities that conform with our criteria. However, in my view,
prices that might have been attainable nine to twelve months ago no
longer provide sustainable value. Therefore, we are adopting a
patient approach as we increase our cash balances, although this
does affect short-term profitability. This will enable us to act
very quickly when the right opportunity presents itself. In this
business a crucial discipline is to know when to walk away as well
as striking when the iron is hot. However, we have built up a large
network of contacts, particularly in the regions, and I am
confident that we will secure the mainly off-market opportunities
that have helped us to grow this Company to date.
We travel extensively in the regions to meet investors both
large and small as well as regularly reviewing our portfolio and
this policy will continue.
Notwithstanding the risks associated with current economic
conditions and the Brexit transition in particular, we believe
these are exciting times for the Company. We want to build on our
track record and regional strategy and continue to deliver
efficiencies for shareholders as we grow. We have a clear business
strategy, and we are confident that this will enable Palace to
flourish within the UK REIT regime.
I am extremely grateful for the support of our shareholders. We
have a management and support team together with our Non-Executive
Directors which is second to none and I continue to be very
confident about our future.
Neil Sinclair
Chief Executive
Property Review
We continued to focus on finding value from our existing
portfolio this year. Many of the assets in the R.T. Warren
portfolio acquired in October 2017 complemented our existing
holdings and we have begun to extract value. Buying in the last 12
months has been competitive with private equity institutions and
local authorities covering 71% of the market (ACRE Real Estate Q1
2019 snapshot). Our stringent acquisition strategy and being
prepared to 'walk away' if the price required doesn't provide us
with the opportunity to generate market leading Total Property
Returns meant we selected only to purchase One Derby Square,
Liverpool.
Most major cities have experienced rental growth for new or
refurbished offices in the last couple of years, so buying a
property where the passing rents are 20% below current market
levels is an achievement.
We have our portfolio independently valued every six months and
as at 31 March 2019, Cushman & Wakefield reported the value at
GBP274.6 million of commercial property, a like-for-like increase
of 0.5% over the year.
We have maintained our WAULT (4.5 years to break) enabling us to
prepare a strategy for each asset in advance and adapt as
situations evolve.
We have focussed on the office sector for the last couple of
years which has outperformed the retail sector as the high street
goes through a revolutionary change. With 47.3% of our portfolio
predominantly in university city centres, we have seen rental
growth and completed lettings or lease renewals in Brighton,
Manchester, Milton Keynes, Harlow, Exeter, Farnborough and
Newcastle.
The industrial market continues to be the sector of choice for
investors as demand from national multiples drives investment and
limited supply generates rental growth. Our highest rental increase
was in Coventry where a new five year lease saw an uplift of 32.8%.
Our tenant, a German car parts manufacturer, is evidence that
leaving the EU is potentially not all doom and gloom. At our
industrial estate in Verwood, following a refurbishment, we
completed a new letting at a rent 22.3% higher than at the time of
purchase.
Following the recent letting to Soo Yoga at Sol, Northampton, we
have started a new branding and marketing campaign to promote the
scheme. In September, the opening of the GBP330 million university
campus which is within walking distance, could be the catalyst to
attracting further tenants.
We have commenced the development of our signature scheme,
Hudson Quarter, formerly known as Hudson House, in York. The first
new mixed residential and office development within the historic
city walls in ten years is the culmination of four years
determination to obtain the best consent possible. We have
appointed locally based advisors to ensure the design of the
apartments and office buildings are of the highest quality and
match the local architecture. We have already had interest in the
speculative 35,000 sq ft office building, with practical completion
not until early 2021, so we will look to update shareholders as
this progresses.
The Company completed the sale of four commercial properties
during the year. Additionally, the majority of the residential
properties in the R.T. Warren portfolio acquired in the prior year
were sold pre and post year end.
We have resolution to grant planning consent for the development
of Bridge House, High Street, Weybridge, and are looking at how we
can maximise values in a number of our other significant
assets.
We made a conscious decision to avoid buying retail investments
a few years ago due to the concern rental levels wouldn't be
sustainable. As the high street adapts to the changing habits of
shoppers, we have limited exposure to the Company Voluntary
Arrangements (CVA) process, which has resulted in only two
tenancies ending prior to their expiry date.
There are a number of value-accretive opportunities in our
portfolio, including in Leamington Spa, Milton Keynes, Leeds and
Manchester. We have noticed the amount of residential development
through Permitted Development Rights fall as the returns from
commercial-led refurbishment increases.
Statistics
-- We own 59 commercial properties (2018: 60 commercial properties)
-- Properties comprising 1.7 million sq ft (2018: 1.8 million sq ft)
-- Tenants providing a contractual rent roll of GBP17.7million
per annum (2018: GBP18.0million per annum)
Acquisitions
Despite the Brexit headwinds, the investment market remained
more resilient than had been predicted. UK real estate is still
very much on the radar for domestic and foreign investors. Colliers
reported that investment volumes in 2018 'broke through the GBP60
billion mark for the fourth time in the past five years' even
though transaction activity was slightly below 2017. The beginning
of 2019 continued this trend and vendors' expectations are mainly
higher than the levels buyers are prepared to pay, which we expect
to continue until there is a more certain political climate.
Our acquisition strategy of only buying when investments can
generate the returns we seek has resulted in us often 'walking
away' from competitive bidding scenarios. However, we did acquire
One Derby Square, Liverpool, a mixed-use property in December 2018
for GBP14.0 million. This reflects a net initial yield of 6.75%.
The property is 96% occupied with a WAULT of four years to break or
expiry. The tenants include Tesco, Pret a Manger, Medicash and
Exchange Chambers who contribute 49.7% of the income. We anticipate
being able to improve returns by increasing the rental tone of the
offices from their current low base of GBP12 psf.
SECTOR FOCUS
Offices
Even though political uncertainty has dominated the headlines,
activity levels in the UK city office market proved resilient.
Knight Frank reported the number of occupier deals completed was
'up 8% year-on-year, meaning overall take-up was almost a fifth
above the long-term trend'. The biggest shift to this sector is
institutional acceptance that flexible leases should not be
discounted from a valuation perspective. It all comes back to the
'property fundamentals' of location and quality of product. The
former is essential to our acquisition strategy and the latter
provided by the refurbishment work we undertake. We focus on city
centre locations and Knight Frank reported that in 2018, occupier
migration into cities from business parks served to underpin demand
for office space and this inward shift accounted for 20% of take-up
in 2018.
With almost half our portfolio invested in this sector we have
strived to ensure that we can deliver the quality of office space
required. We have completed 13 lettings and lease renewals covering
87,000 sq ft per annum totalling GBP1.4 million. The significant
lettings have been in Milton Keynes, Newcastle and Harlow.
Our EPRA occupancy as at 31 March 2019 is 87% which is something
we are looking to increase in the coming year as we complete our
refurbishment projects.
We are looking at further refurbishment works at Boulton House,
Manchester and 249 Midsummer Boulevard, Milton Keynes. The vacant
office space in both locations has been refurbished and we are now
concentrating on the upgrade of the common areas.
Two key aspects that office occupiers are focussed on and
require are connectivity and flexibility. We have instructed
WiredScore to assess the former in our major office buildings. In
Leeds, Manchester and Newcastle they are all rated Gold or better.
We have committed to a Platinum rating at our Hudson Quarter
development and in 249 Midsummer Boulevard, Milton Keynes the
rating is Certified. There is a continuing trend away from long
leases towards flexible leases, as they become more acceptable as
an institutional investment. We are comfortable with this approach
as it provides the opportunity to increase rents in line with the
market on a more regular basis.
Our office holdings represent 47.3% of the total value of the
portfolio.
The largest letting was to Exela Technologies Limited, for
28,500 sq ft, who expanded within Sandringham House, Harlow to take
87% of the building on a new five year lease. The annual rent of
GBP355,363 (GBP12.50 per sq ft) was more than double their prior
commitment as they expanded to take an additional 30% more space.
An incentive equating to nine months' rent free was provided as
half rent for 18 months.
The letting of Solaris House, Kiln Farm, Milton Keynes in April
2018 was also very positive as we had completed a significant
refurbishment of the building during which time rental values
increased. Crucially, the terms of the letting and the
refurbishment matched the adjoining properties we own, let to
Rockwell Automation, where we are negotiating the rent review from
December 2018. The building comprises 14,500 sq ft and was let for
10 years without break at a headline rent equating to GBP16.50 per
sq ft. The tenant was granted the equivalent of 20 months' rent
free as half rent for 40 months, which was less than the average
lease incentive for comparable lettings.
At St James Gate in Newcastle Upon Tyne, we renewed the lease to
Serco for 12 months which was the length of their contract. Since
the end of the financial year we have completed a new lease for
five years with a tenant option to determine after two years at a
rental of GBP245,916 per annum, reflecting an increase of 10.8%. We
are currently refurbishing the vacant third floor of 11,187 sq ft
and the ground floor reception area. This work is to ensure that
the building remains attractive to current occupiers and will
attract new ones in the future.
The remaining lettings were in Manchester, Exeter, Beaconsfield,
Gerrards Cross, Farnborough and Brighton.
Retail
Our retail holdings represent 10.0% of the total value of the
portfolio which we consider conservative enough to limit our
exposure to the challenges facing this sector. Our largest exposure
is Aldi in Gosport at GBP291,000 per annum representing 13.9% of
our retail rents.
The challenges being faced by the high street is a common and
continuing theme within the media. However, the difficulty
surrounding the sector is akin more to the change in how consumers
shop, which is only part of the issue. Since 2015, the number of
retail businesses entering into administration has increased by 30%
according to figures from the Centre for Retail Research. There is
an overwhelming acceptance within the property industry that
business rates are at punitive levels. This is compounded by
business owners of multiple stores historically expanding quickly
by increasing debt to achieve short-term high returns, as well as
not adapting to changing consumer habits. Department stores are now
paying the price for carrying out sale and leasebacks in the last
cycle, committing themselves to increasing rents over long periods
of time.
Landlords have been handed the short straw with many retailers
returning stores that are not performing to owners by entering a
CVA. New ventures are more likely to start new businesses online,
which is not helping to address the large number of vacancies in
the high street. However, there is an equilibrium as we have
observed that in many regional cities, high street shopping also
has a social advantage, so we expect this sector to continue to
evolve over the coming years.
During the year we completed six new lettings totalling 21,376
sq ft totalling GBP431,500 per annum. The significant part of this
was the new lease to Aldi in Gosport where we held a small area of
land with planning consent for a 'drive thru' unit to be developed.
Aldi required additional car parking so a new lease incorporating
this land was agreed. The rent subsequently increased from
GBP247,000 per annum to GBP291,000 per annum, an increase of 17.8%,
which was the equivalent rent achievable from the additional land.
The lease term was extended from 12 years to 20 years retaining the
existing rent review provisions of minimum increases in line with
inflation, capped at 2.75% and collared at 1.0% per annum
compounded.
The other lettings were in Brighton, Dartford, York and
Banbury.
Industrial
This was again the sector of choice for institutional investment
across the UK last year. This has been driven principally by the
requirements from retailers to have large regional distribution
centres with excellent transport links and the 'last mile'
requirement so customers can have products delivered as quickly as
possible. It is inevitable that this expansion must slow down as
the operators reach saturation point at a future point in time.
Our industrial holdings represent 13.1% of the total value of
the portfolio. Whilst this is a sector we would invest further in,
the opportunity to buy assets which provide an attractive initial
return is difficult as it is common for inherent rental growth to
be priced in.
During the year we agreed five new lettings across 25,000 sq ft
totalling GBP189,000 per annum. These lettings were predominately
at Black Moor Road, Verwood which was purchased as part of the R.T.
Warren portfolio in October 2017. The average rent at that time was
GBP5.25 per sq ft and, following a refurbishment of some vacant
space, the new rent equates to GBP7.00 per sq ft which is more than
10% higher than anticipated at the time of purchase.
We have also completed the refurbishment of Unit 8B at Point 4
Industrial Estate, Avonmouth. This followed a tenant going into
administration in June 2018. Agents have been appointed and we are
looking to agree terms with a new tenant before the end of the
current financial year.
Post the year end, at Courtauld House, Foleshill Enterprise
Park, Coventry, Brose completed a five year lease renewal at a rent
of GBP431,500 per annum. This equates to GBP5.55 per sq ft, an
uplift of 32.8% to the passing rent. Getting commitment from a
German supplier to the automotive industry from Germany is a
positive sign that companies from the EU will continue to work in
the UK post Brexit.
We also settled a rent review at Plot 24, Blackwater Way
Aldershot where the rent increased from GBP181,475 per annum to
GBP210,000 per annum, equating to 15.7% and slightly ahead of
ERV.
Leisure
The leisure market has been in a state of flux for the last
couple of years. Several tenants have struggled to survive whilst
many do not exist anymore as many brands have suffered from similar
issues highlighted in the Retail commentary. The letting of vacant
space has been challenging but we consider that the market has now
turned. There are new concepts from operators seeking to provide an
'experience' for customers. We know that the branding and marketing
campaigns at both Northampton and Halifax are having a positive
impact on bringing customers to the schemes.
Our holdings represent 14.5% of the total value of the
portfolio.
At Sol, Northampton, we let 12,800 sq ft to Soo Yoga who signed
a 15 year lease at an initial rental of GBP85,000 per annum, with a
minimum increase after five years to GBP100,000 per annum. The
scheme is now undergoing a branding and marketing change and we are
in discussions to let a significant remainder of the vacant space.
The remaining tenants are trading well which is evidenced by Ibis
Hotels who has made a turnover payment of GBP107,000 in addition to
their GBP510,000 rent.
We have been working to attract tenants to the vacant space at
Broad Street Plaza, Halifax. Post the year end we completed the
letting to Whitecross Dental Care on a 15 year lease for 7,000 sq
ft which was a former Chinese Buffet. The rent of GBP111,625 per
annum represents an uplift of 20.7% on rents previously received.
We are confident that interest in the remaining vacant units will
increase with this letting and when the College opens opposite our
asset in September 2019.
Development
We placed the contract for the development of Hudson Quarter,
York. Since 2013, we have worked on obtaining planning consent for
127 apartments, 35,000 sq ft of grade A offices and 5,000 sq ft of
other commercial space and car parking. This will be the first
significant office development within the historic city wall for
over a decade. We are excited about the development which will
formally launch in June 2019. We expect to sell many of the
apartments prior to practical completion in early 2021. The initial
interest from prospective tenants for the new offices is
encouraging and we are targeting an unprecedented rental tone for
York. Further information can be found at
www.hudsonquarteryork.com. A loan of GBP26.5 million has been
agreed on competitive terms to part fund the development.
In March 2019, after 15 months of consultation and planning
meetings, a resolution to grant planning consent was secured for
Bridge House, High Street, Weybridge. The new development is for 28
apartments and 4,000 sq ft of retail. The residential scheme is
targeting the affordable level of the local market as most of the
units are one bedroom apartments. We are looking to complete the
Section 106 agreement and will finalise costs during the year.
Disposals
We completed four commercial sales over the period raising a
total of GBP2.1million. The key factor being that all the
properties were either vacant or due to become vacant. Post the
year end, we completed the sale of Rathbone and Old House for
GBP1.5 million.
When we acquired the R.T. Warren portfolio, we announced that we
would sell the residential element. Of the 65 properties, all of
which were income producing, three were sold last year and two are
being retained for strategic purposes. The significant sale was for
50 houses to Barnet Council for GBP18.2 million. Contracts were
exchanged in December 2018 with 26 completed before the year end
and 24 completed post the year end on 1 May 2019. Post the year end
a further five properties were sold, with the remaining five due to
be sold imminently.
Minimum Energy Efficiency Standards (MEES)
From 1 April 2018 in England and Wales it was illegal to renew
or grant new tenancies at properties that have F or G Energy
Performance Certificate (EPC) ratings. The scope of these
regulations is due to increase from 2023 to include existing
leases. We identified this risk a number of years ago and have
action plans in place to ensure our buildings are compliant.
Outlook
Our view on the market has not fundamentally changed since last
year, with strong occupational demand in the regional office
markets continuing and rental growth following suit. Continuing
uncertainty around Brexit will only lead to further procrastination
to decision making among the business community.
Industrial investment, development and occupation will probably
continue to be the leading performer, whilst the retail and leisure
sector may have further tenant failures as the sector finds its own
solutions to increased competition from online and rising
occupational costs and changing shopping habits.
During the forthcoming year we are focussed on letting the
vacant space as a priority. This will increase our cashflow and
reduce our holding costs. However, we are also mindful of the
opportunities to carry out significant refurbishment or development
where appropriate. This may mean that strategically, we do not
actively seek to let all the vacant space which could enable us to
maximise shareholder returns in the medium to long term.
We believe that we remain well placed to grow income and add
further value to the portfolio.
Richard Starr, MRICS
Executive Director
Financial Review
OVERVIEW AND HEADLINE RESULTS
The Company continues to deliver on its objective to drive
income and capital growth and outperform the MSCI industry
benchmark on a Total Return basis.
The performance of the Group in the year ended 31 March 2019 was
financially robust, maintaining our conservative capital structure
with a LTV of 34% (2018: 30%), whilst generating strong income and
capital performance against a politically uncertain backdrop. We
delivered an adjusted profit before tax of GBP8.9million for the
year and maintained a dividend yield over 6.5% based on 31 March
2019 share price, as a result of total dividends for the year of
19p, 0.9 times covered.
Balance sheet value remains significantly above share price,
illustrated by an EPRA NAV per share of 407p (2018: 415p). This
performance was driven by our outstanding regional portfolio that
achieved a Total Property Return of 7.1% for the year against the
MSCI IPD index comparable of 4.6%. We added to the core-plus
element of the portfolio with One Derby Square, Liverpool in
December 2018 for GBP14.0million, acquired at 6.75% NIY and
generating GBP1.0million net rental income p.a. Our approach to
recycling capital out of lower-performing assets and sectors
continued as we agreed to sell 50 of the houses acquired as part of
the R.T. Warren portfolio to Barnet Council for GBP18.2million,
with 26 completing before the year end and 24 completing on 1 May
2019, releasing surplus funds back into working capital.
This year we delivered an IFRS profit before tax of
GBP6.4million (2018: GBP13.3million), which reflects a basic
earnings per share of 11.3p (2018: 35.9p), down on last year due to
GBP0.6million loss on disposal and GBP0.3million downward
revaluation of the residential assets held for sale in the year,
compared to almost GBP6.0million upward revaluation of the
investment portfolio in the prior year.
EPRA earnings is the industry measure of underlying profit
excluding revaluation gains, profits on disposals and one-off
costs. EPRA earnings for the year ended 31 March 2019 increased by
16.2% to GBP7.6million compared to GBP6.5million last year
reflecting the increased earnings from the growing portfolio.
We also report an adjusted profit before tax in order to track
recurring earnings and to form a basis for calculating dividend
cover. This totalled GBP8.9million for the year ended 31 March 2019
(2018: GBP8.5million), up 5.6%, and adjusted earnings per share
reduced to 17.3p from 21.2p as a result of the increased
shareholder base whilst not fully deploying available capital in
the year. The proposed final dividend of 4.75p will be payable in
July 2019 which ensures a total dividend for the year of 19.0p
covered by adjusted earnings 0.9 times.
On the capital side, net asset value has fallen to
GBP180.3million, down 1.6% from the previous year-end of
GBP183.3million and this translates into EPRA net asset value per
share of 407p, down from 415p. This 8p decrease, together with the
total dividends of 19p paid during the year, overall represents a
2.6% total accounting return.
financial highlights
2019 2018 2017
INCOME GROWTH
====================== ========= ========= =========
IFRS profit before
tax GBP6.4m GBP13.3m GBP12.6m
====================== ========= ========= =========
Adjusted profit
before tax GBP8.9m GBP8.5m GBP6.7m
====================== ========= ========= =========
EPRA earnings GBP7.6m GBP6.5m GBP5.4m
====================== ========= ========= =========
Basic EPS 11.3p 35.9p 36.6p
====================== ========= ========= =========
EPRA EPS 16.6p 18.7p 21.2p
====================== ========= ========= =========
Adjusted EPS 17.3p 21.2p 22.2p
====================== ========= ========= =========
Dividend per share 19.0p 19.0p 18.5p
====================== ========= ========= =========
Dividend cover 0.9x 1.1x 1.2x
========= ========= =========
CAPITAL GROWTH
====================== ========= ========= =========
Portfolio like
for like value +0.5% +3.5% +4.5%
====================== ========= ========= =========
Net Asset Value GBP180.3m GBP183.3m GBP109.6m
====================== ========= ========= =========
Basic NAV per
share 393p 400p 436p
====================== ========= ========= =========
EPRA NAV per share 407p 415p 443p
====================== ========= ========= =========
Total accounting
return 2.6% -2.0% 11.4%
====================== ========= ========= =========
Total shareholder
return -6.0% -1.4% 7.4%
========= ========= =========
DEBT FINANCE
====================== ========= ========= =========
Debt balance GBP119.4m GBP101.4m GBP78.7m
====================== ========= ========= =========
Average cost of
debt 3.3% 3.4% 2.9%
====================== ========= ========= =========
Average debt maturity 3.6yrs 4.7yrs 4.6 yrs
====================== ========= ========= =========
Loan to Value
Ratio 34% 30% 37%
====================== ========= ========= =========
NAV gearing 52% 43% 61%
========= ========= =========
RECURRING EARNINGS
Rental income totalled GBP18.8million in the year ended 31 March
2019 (2018: GBP16.7million) driven by the improving portfolio. Net
rental income similarly increased to GBP16.4million (2018:
GBP14.9million).
Administrative expenses decreased to GBP4.1million (2018:
GBP4.2million). The employee numbers were relatively stable during
the year and, including the Board, totalled 16 people at the
balance sheet date, compared to 14 in the prior year as a result of
one new role within the team created and a new Non-Executive
Director who joined in early 2019.
KEY PERFORMANCE MEASURES
The Group's 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 the
Directors to assess the Group's performance included in the
highlights for the year and throughout this document. These include
a number of European Public Real Estate Association (EPRA)
measures, prepared in accordance with the EPRA Best Practice
Recommendations (BPR) framework, and company adjusted measures.
Further details are given in notes 6 and 7 of the financial
statements. We report 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.
Finance costs increased to GBP3.8million from GBP3.3million as a
result of increasing the debt book to support the larger asset base
and average cost of debt reduced slightly to 3.3% (2018: 3.4%) as
we leveraged our larger, diversified portfolio to improve our
lender terms.
Looking forward, the business is capable of scalability, with
the team and systems in place to support significant growth of the
portfolio. The Group has a gross rent roll of GBP17.7million per
annum as at 31 March 2019 with a reversion to GBP21.5million per
annum as well as holding cash funding for further acquisitions and
reinvestment in the portfolio to generate further growth.
VALUATION GAINS & PROFITS ON DISPOSAL
The movement in the values of our investment properties can make
a significant impact on profit before tax and is determined by
independent valuers' assessment of what a willing purchaser would
pay for the property on the basis of an arms' length
transaction.
We have been extremely pleased with how our properties have
performed as a result of our regional strategy. This year property
values on an underlying basis were up 0.5% in a flat market where
MSCI recorded 0.1% capital growth across the UK.
In addition, we have continued to recycle capital out of
low-yielding residential assets and vacant properties with limited
growth prospects into income-generating properties as part of the
core-plus element of the business strategy. 26 residential
properties were sold in the year for a total consideration of
GBP9.3million, generating loss on disposal of GBP0.5million, along
with four commercial properties for GBP2.1million, resulting in
profits on disposal of GBP0.2million. The combination of
revaluation movements and losses on disposal can have a significant
impact on the underlying value of the business, and this reflected
a 2p drop in net asset value per share.
EPS
We report EPRA earnings per share, which removes property
revaluation, losses and one-off items such as losses on disposal
and costs on acquisition. This reduced to 16.6p from 18.7p last
year. Finally, we also report an adjusted earnings per share to
provide a basis for dividend cover and this was 17.3p for the year
down from 21.2p.
DIVIDS
The Board is recommending a final quarterly dividend of 4.75p
per share to be paid 13 July 2019 to shareholders registered at the
close of business on 14 June 2019. Taken with the total interim
dividends of 14.25p, our full year dividend will total 19.0p which
remains over 6.5% yield on the latest share price. It should be
noted that the Q1 and Q2 dividends were paid on the basis of the
Parent Company balance sheet which was subsequently restated during
the year as the result of a technical error. This is detailed in
note 10 of the Company Accounts.
The Company has sufficient distributable reserves to provide our
shareholders with a consistent quarterly dividend on the back of
the core-plus assets that make up the majority of our portfolio
which generates strong cash-on-cash returns. In addition there are
value-added assets and also a growing pipeline of opportunistic
development assets within our portfolio that we look to apply
pro-active asset management strategies to generate both income and
capital growth.
NET ASSETS
At 31 March 2019, our net assets were GBP180.3million, equating
to basic net asset per share of 393p, a decrease of 7p since 31
March 2018. The decrease in our net assets was driven largely by
the absorption of acquisition costs and fair value of derivatives
despite the increase in underlying portfolio values. We calculate
an EPRA NAV consistent with standard practice in the property
industry to adjust for any dilution of outstanding share options
and fair value adjustments of financial instruments and deferred
tax which totalled 407p at 31 March 2019, down from 415p at 31
March 2018 due to the realisation of tax on disposal of the
residential held for sale.
DEBT FINANCING
During the year our debt profile improved as we entered into two
new facilities. In February 2019 we agreed a GBP26.5million
development facility with Barclays Bank plc in order to provide the
majority of the funding for our significant development of Hudson
Quarter, York. Terms include a margin of 3.25% over LIBOR and a
non-utilisation rate of 1.30% for the undrawn element of the
facility throughout the term. The facility is available once the
remaining equity has been invested in the project and it is
expected that the monthly drawdown will commence in the second half
of this year.
We also entered into a new facility with Lloyds Bank plc for
GBP6.845million secured against the recent acquisition in Liverpool
on competitive terms at a margin of 1.95% over three month LIBOR.
The Group debt facilities total GBP119.4million, fully drawn at the
year-end. We continue to monitor swap rates and as at year-end held
GBP69.2million of fixed or hedged debt which was approximately 59%
of overall debt drawn. Our lenders include the majority of the UK
clearing banks and the Group's all-in average cost of debt is 3.3%.
The average debt maturity on the investment facilities is 3.6 years
which gives us security over income streams net of interest costs
for a number of years before the need to refinance.
debt
Total
Fixed Floating Drawn Years
GBPm GBPm GBPm to maturity
Barclays 35.3 3.8 39.1 3.8
================ ===== ======== ====== ============
NatWest - 29.4 29.4 1.9
================ ===== ======== ====== ============
Santander 19.7 6.6 26.3 3.3
================ ===== ======== ====== ============
Lloyds - 10.4 10.4 2.6
================ ===== ======== ====== ============
Scottish Widows 14.2 - 14.2 7.3
===== ======== ====== ============
Total 69.2 50.2 119.4 3.6
===== ======== ====== ============
NET DEBT AND GEARING
Each debt facility is secured at a Special Purpose Vehicle (SPV)
level and we assess the gearing mainly through interest cover
ratios (ICR) and loan to value ratios (LTV). In normal market
conditions we gear our assets within a range of 40% to 60% LTV. At
a Group level we measure both the debt to net asset value ratio
(NAV gearing) and loan to value net of cash. NAV gearing at 31
March 2019 was 52% and the LTV ratio was 34% at 31 March 2019. The
Group remains conservatively geared and at year-end had
GBP22.9million of cash along with over GBP22.1million of properties
uncharged to lenders.
TAXATION
The Group has a tax charge of GBP1.3million for the year ended
31 March 2019. This includes a corporation tax charge of
GBP2.2million to reflect the tax payable in the year, less a
deferred tax credit of GBP0.9million.
REIT Conversion
The Company's plans to convert to a UK REIT, and the potential
benefits, are set out on page 27 of the Report. The Group currently
pays UK income tax on its net rental income, after deductions. Its
estimated UK tax liability for recurring earnings for this year is
GBP1.0 million. Following REIT conversion we expect this tax
liability to be reduced to zero, as the bulk of the Group's
activities will fall within the REIT exemption. Conversely, if the
Company did not join the REIT regime, we would expect the Group's
tax liability to increase as the Group continues to grow.
OUTLOOK
From a financial point of view, the Company has had a solid year
and performed well against the politically uncertain backdrop. It
remains financially robust with conservative gearing at 34% and
GBP22.9million of cash in the bank provides capacity for the Group
to make further acquisitions and invest in its assets, to grow both
the income and capital values. We continue to pay out an attractive
dividend yield of over 6.5% on the share price at 31 March 2019,
whilst retaining surplus capital to reinvest in our portfolio to
drive performance and maximise total returns for our investors. In
addition, we have commenced the Hudson Quarter, York development
which is forecast to deliver an award-winning, sustainable
mixed-use scheme in the heart of York which will have significant
benefits for all involved in the heart of the local community.
Stephen Silvester FCA
Finance Director
Risk management
THE BOARD CONTINUALLY ASSESSES THE KEY RISKS TO THE BUSINESS TO
ENSURE EXPOSURE IS MITIGATED
Responsibilities of the risk committee
The Executive Team is responsible for risk management on a
day-to-day basis. The current principal risks facing the Company
are described in the table below.
Risk Mitigation Progress 2018/19 Rating
Development Medium
Over exposure * Core portfolio generates sustainable cash flows. * The Group's Capital Risk Management Policy limits Risk
to development development expenditure to less than 25% of Gross Rating
could put Asset Value. High
pressure * Conservative gearing used to take advantage of the Risk
on cash flow gap between property yields and cost of borrowing. Impact
and debt * Limited capital expenditure during the current year
finance. across a range of properties.
* Clear strategy on each property to create and deliver
value.
* The only development the Group has entered into is
the GBP33.6million construction contract signed for
* All developments require Board approval based on the development of Hudson Quarter, York, which is
merits of strategy for assets. part funded by a GBP26.5million facility with
Barclays Bank plc.
* Developments are modelled and financed appropriately
to minimise risk and maximise return.
----------------------------------------------------------------- ----------------------------------------------------------------- ------
Financing and Low
Cash Flow * The Group actively engages in close relationships * The Group's weighted average debt maturity is Risk
Breach of debt with its key lenders, ensuring transparency when it currently 3.6 years and looking to extend this Rating
covenants comes to monitoring the properties secured by debt. further providing longevity and financial support to High
could maintain the current portfolio. Risk
trigger loan Impact
defaults and * Assets are purchased that generate surplus cash and
repayment of significant headroom on ICR & LTV loan covenants. * The Group's LTV is conservative at 34%.
facilities
putting
pressure on * Gearing is maintained at a conservative level and * 59% of drawn debt at year-end is fixed, limiting the
surplus hedging utilised to reduce exposure to interest rate Group's exposure to increases in Bank of England base
cash volatility. rate & LIBOR.
resources.
Bank of
England
monetary
policy
may result in
interest rate
rises and
increased
cost of
borrowing.
Financial
regulatory
changes under
Basel III may
increase the
cost to
borrowers.
----------------------------------------------------------------- ----------------------------------------------------------------- ------
Accounting, High
tax, * Key advisors including Auditors, Tax Advisers, * Greater level of scrutiny required by the Board Risk
legal and Solicitors and Brokers are engaged on key regulatory, covering corporate governance and requirements for Rating
regulatory accounting and tax issues. reporting to the FRC following the move to the Main Low
Non-compliance Market. Risk
as a result of Impact
changes to * Engagement with British Property Federation (BPF) on
accounting regulatory changes that impact the real estate * Business forecasts and strategy allows for changes to
standards, industry. corporation tax rates and interest deductibility
regulatory rules.
requirements
for public * Engagement with Deloitte on REIT conversion.
real * Clarity has now been provided following the passing
estate company of legislation to take effect from 1 April 2017 for
and incorrect corporate interest restriction.
application of
tax rules.
* Board has given sign off for REIT conversion on 1
August 2019.
----------------------------------------------------------------- ----------------------------------------------------------------- ------
Property Low
Exposure to * Our strategy to invest across different sectors * Total number of commercial leases across portfolio: Risk
tenant reduces our exposure to an individual sector or 234 making up contractual rent roll of GBP17.7m. Rating
administration tenant. Low
and poor Risk
tenant * Loss of income from tenant administrations and CVAs Impact
covenants * We maintain close relationships with our tenants and in the year totalled GBP39,222, which is very small
could support them throughout their business cycle. percentage of portfolio contractual income.
result in
lower
income, and * Management meet with managing agents to review rent * Portfolio weighted average lease length is 4.5 years
therefore collection and arrears on a regular basis. providing reasonable longevity of income.
property
values
could * We actively manage our properties to improve security * Our occupancy for the year ending 31 March 2019 was
decrease. of income and limit exposure to voids, and as a 87%, with the target occupancy across the portfolio
result falling property values. 90% for the year ending 31 March 2020. Property
values have increased 0.5% from 2018.
* Tenant diversification is high with no tenant making
up more than 7% of total rental income.
----------------------------------------------------------------- ----------------------------------------------------------------- ------
Economical and High
Political * Monitoring of economic and property industry research * Concerns remain as to the effect of Brexit on the UK Risk
Uncertainty by executive team and review at Board Meetings. economy. Rating
from High
Brexit and Risk
world * Use of consultants and experts when considering * Government support for regional development Impact
events could planning and development work. initiatives bodes well for the markets in which we
impact our operate.
tenants
and the * Review tenant profile and sector diversification.
profitability
of their
businesses. * Member of various industry bodies including BPF in
Decisions made order to monitor the impact of all relevant current
by councils issues.
and
local
government
can have a
significant
impact on our
ability to
extract
value from our
properties.
----------------------------------------------------------------- ----------------------------------------------------------------- ------
Operational High
Business * Insurance cover for loss of rent up to three years. * Continuing to keep under review the Financial Risk
disruption. Position and Prospects Procedures Board Memorandum Rating
Without put in place as part of the move to the Main Market Low
adequate * Tight-knit team with systems in place to ensure in 2018, ensuring plans in place to deal with Risk
systems and Executive Team have shared responsibility across all disruption risk. Impact
controls major decisions.
our exposure
to operational * Increase in staff numbers to 16 which provides cover
risk and * General policy of retaining incumbent managing agents reducing exposure should any of the key personnel
business on new property acquisitions to avoid difficult become unavailable.
disruption is transitions and potential loss of income.
increased.
* Key man insurance cover in place for Executive
* Segregation of duties applied to payments processing Directors.
and bank authorisations.
----------------------------------------------------------------- ----------------------------------------------------------------- ------
Viability Statement
In accordance with provision C.2.2 of the UK Corporate
Governance Code, the Directors have assessed the prospects of the
Group and future viability over a three-year period, being longer
than the 12 months required by the 'Going Concern' provision. The
Board conducted this review taking account of the Group's long-term
strategy, principal risks and risk appetite, current position,
asset performance and future plans.
Assessment of review period
The viability review was conducted over a three-year period of
assessment, which the Board considered appropriate for the
following reasons:
-- The Group's working capital model, detailed budgets and
cashflows consist of a rolling three-year forecast.
-- It reflects the short cycle nature of the Group's
developments and asset management initiatives.
-- Office refurbishments completed to date have taken less than
12 months and the major redevelopment at Hudson Quarter in York is
due to take 23 months from commencement to practical
completion.
-- The Group's weighted average debt maturity at 31 March 2019 was 3.6 years.
-- The Group's WAULT at 31 March 2019 was 4.5 years.
Three years is considered to be the optimum balance between
long-term property investment and the inability to accurately
forecast ahead given the cyclical nature of property
investment.
Assessment of prospects
The Group's working capital model consists of a base case
scenario which only includes deals under offer and also a
reasonable case which factors in acquisition and disposal
assumptions.
The working capital model includes budgeted profit and cash
flows and also considers capital commitments, dividend cover and
loan to value metrics. Additionally, we look at our earnings per
share and net asset value per share metrics. These are updated at
least quarterly against actual performance.
The Executive Committee provides regular strategic input to the
financial forecasts covering investment, divestment and development
plans, capital allocation and hedging. Executive Directors and
senior managers receive regular presentations from external
advisors on the macroeconomic outlook which assist with the
development of strategy and forecasts. Forecasts are updated at
least quarterly, reviewed against actual performance and reported
to the Board.
Assessment of viability
A sensitivity analysis was carried out in March 2019 which
involved flexing a number of key assumptions to consider the impact
of changes to the Group's principal risks affecting the viability
of the business, being:
-- Changes to macro-economic conditions impacting rental income levels and property values.
-- Availability of funds for capex and investment.
-- Changes to interest rates.
The debt covenants were stress tested to validate resilience to
property valuation and rental income decline, as well as increases
in future LIBOR and swap rates. It assessed the limits at which key
financial covenants and ratios would be breached. If the property
values fell by approximately 20%, a GBP4.6m repayment of debt would
be required to cure any loan breaches under the existing debt
facilities. The interest cover across the Group was also sufficient
that net income would need to fall by 37% or interest costs
increase by 62% to breach the interest cover ratios.
The Group has signed a design and build construction contract in
February 2019 for GBP33.6m with a contractor in order to complete
the redevelopment of Hudson Quarter, York. In order to part finance
the development, a new facility with Barclays Bank plc for GBP26.5m
was agreed. The NatWest facility, due to expire in March 2021, is
currently being refinanced.
The Directors have also taken into account the strong financial
position at 31 March 2019, significant cash and available
facilities, low LTV, uncharged properties and the Group's ability
to raise new finance.
Conclusion
Based on the results of their review, the Directors have a
reasonable expectation that the Company and Group will be able to
continue in operation and meet its liabilities as they fall due
over the three-year period of their assessment.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the Group and Parent Company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent
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 adopted by the European Union and the 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 Parent Company and of
the profit or loss of the Group for the period. In preparing each
of the Group and parent 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 IFRSs as adopted by the European
Union, subject to any material departures disclosed and explained
in the financial statements;
-- for the Parent 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 Parent
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Parent 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.
Director' Responsibilities Statement
We confirm to the best of our knowledge:
-- the financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted
by The European Union and Article 4 of the IAS regulation, 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 Company's performance, business
model and strategy.
Provision of information to auditors
Each of the persons who are Directors at the time when the
Directors' Report is approved has confirmed that:
-- so far as that Director is aware, there is no relevant audit
information of which the Company's auditors are unaware; and
-- that Director has taken all the steps that ought to have been
taken as a Director in order to be aware of any information needed
by the Company's auditors in connection with preparing their report
and to establish that the Company's auditors are aware of the
information.
On behalf of the Board
David Kaye
Company Secretary
3 June 2019
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2019
2019 2018
Note GBP'000 GBP'000
------------------------------------------------- ---- -------- --------
Rental and other income 1 18,750 16,733
------------------------------------------------- ---- -------- --------
Property operating expenses 3b (2,318) (1,824)
------------------------------------------------- ---- -------- --------
Net rental income 16,432 14,909
------------------------------------------------- ---- -------- --------
Dividend income from listed equity investments 43 -
------------------------------------------------- ---- -------- --------
Administrative expenses 3c (4,122) (4,185)
------------------------------------------------- ---- -------- --------
Operating profit before gains and losses
on property assets, listed equity investments
and cost of acquisitions 12,353 10,724
------------------------------------------------- ---- -------- --------
Profit on disposal of investment properties 218 274
------------------------------------------------- ---- -------- --------
(Loss)/gain on revaluation of investment
property portfolio 9 (382) 5,738
------------------------------------------------- ---- -------- --------
Loss on disposal of assets held for sale (579) -
------------------------------------------------- ---- -------- --------
Impairment on assets held for sale 9 (291) -
------------------------------------------------- ---- -------- --------
Loss on revaluation of listed equity investments 11 (214) -
------------------------------------------------- ---- -------- --------
Operating profit 11,105 16,736
------------------------------------------------- ---- -------- --------
Finance income 20 10
------------------------------------------------- ---- -------- --------
Finance expense 2 (3,763) (3,261)
------------------------------------------------- ---- -------- --------
Changes in fair value of interest rate
derivatives (929) (181)
------------------------------------------------- ---- -------- --------
Profit before taxation 6,433 13,304
------------------------------------------------- ---- -------- --------
Taxation 5 (1,263) (773)
------------------------------------------------- ---- -------- --------
Profit after taxation for the year and
total comprehensive income attributable
to owners of the Parent 5,170 12,531
------------------------------------------------- ---- -------- --------
EARNINGS PER ORDINARY SHARE
------------------------------------------------- ---- -------- --------
Basic 6 11.3p 35.9p
------------------------------------------------- ---- -------- --------
Diluted 11.3p 35.8p
------------------------------------------------- ---- -------- --------
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 2019
2019 2018
Note GBP'000 GBP'000
------------------------------------------ ---- --------- --------
Non-current assets
------------------------------------------ ---- --------- --------
Investment properties 9 258,331 253,863
------------------------------------------ ---- --------- --------
Listed equity investments at fair value 11 2,636 -
------------------------------------------ ---- --------- --------
Property, plant and equipment 12 97 121
------------------------------------------ ---- --------- --------
261,064 253,984
------------------------------------------ ---- --------- --------
Current assets
------------------------------------------ ---- --------- --------
Assets held for sale 9 11,756 21,708
------------------------------------------ ---- --------- --------
Trading property 10 14,367 -
------------------------------------------ ---- --------- --------
Trade and other receivables 13 6,243 5,551
------------------------------------------ ---- --------- --------
Cash and cash equivalents 14 22,890 19,033
------------------------------------------ ---- --------- --------
55,256 46,292
------------------------------------------ ---- --------- --------
Total assets 316,320 300,276
------------------------------------------ ---- --------- --------
Current liabilities
------------------------------------------ ---- --------- --------
Trade and other payables 15 (10,001) (8,834)
------------------------------------------ ---- --------- --------
Borrowings 17 (5,999) (2,686)
------------------------------------------ ---- --------- --------
Creditors: amounts falling due within one
year (16,000) (11,520)
------------------------------------------ ---- --------- --------
Net current assets 39,256 34,772
------------------------------------------ ---- --------- --------
Non-current liabilities
------------------------------------------ ---- --------- --------
Borrowings 17 (112,017) (97,157)
------------------------------------------ ---- --------- --------
Deferred tax liability 5 (5,580) (6,531)
------------------------------------------ ---- --------- --------
Obligations under finance leases 20 (1,585) (1,588)
------------------------------------------ ---- --------- --------
Derivative financial instruments 16 (815) (181)
------------------------------------------ ---- --------- --------
Net assets 180,323 183,299
------------------------------------------ ---- --------- --------
Equity
------------------------------------------ ---- --------- --------
Called up share capital 21 4,639 4,639
------------------------------------------ ---- --------- --------
Share premium account 125,019 125,036
------------------------------------------ ---- --------- --------
Treasury shares (1,771) (2,011)
------------------------------------------ ---- --------- --------
Merger reserve 3,503 3,503
------------------------------------------ ---- --------- --------
Capital redemption reserve 340 340
------------------------------------------ ---- --------- --------
Retained earnings 48,593 51,792
------------------------------------------ ---- --------- --------
Equity - attributable to the owners of
the parent 180,323 183,299
------------------------------------------ ---- --------- --------
Basic NAV per ordinary share 7 393p 400p
------------------------------------------ ---- --------- --------
Diluted NAV per ordinary share 392p 400p
------------------------------------------ ---- --------- --------
These financial statements were approved by the Board of
Directors and authorised for issue on 3 June 2019 and are signed on
its behalf by:
Stephen Silvester Neil Sinclair
Finance Director Chief Executive
Consolidated Statement
of Changes in Equity
For the year ended 31 March 2019
Treasury
Share Share Share Other Retained Total
Capital Premium Reserve Reserves Earnings Equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ----- -------- -------- -------- --------- --------- --------
At 31 March 2017 2,580 59,444 (2,250) 3,843 45,942 109,559
--------------------- ----- -------- -------- -------- --------- --------- --------
Total comprehensive
income
for the year - - - - 12,531 12,531
--------------------- ----- -------- -------- -------- --------- --------- --------
Transactions with
Equity Holders
--------------------- ----- -------- -------- -------- --------- --------- --------
Gross proceeds of
issue
from new shares 21 2,059 67,941 - - - 70,000
--------------------- ----- -------- -------- -------- --------- --------- --------
Cost of issue of
new shares 21 - (2,349) - - - (2,349)
--------------------- ----- -------- -------- -------- --------- --------- --------
Share-based payments 22 - - - - 174 174
--------------------- ----- -------- -------- -------- --------- --------- --------
Exercise of share
options 21 - - 239 - (239) -
--------------------- ----- -------- -------- -------- --------- --------- --------
Issue of deferred
bonus share options 21 - - - - 128 128
--------------------- ----- -------- -------- -------- --------- --------- --------
Dividends paid 8 - - - - (6,744) (6,744)
--------------------- ----- -------- -------- -------- --------- --------- --------
At 31 March 2018 4,639 125,036 (2,011) 3,843 51,792 183,299
--------------------- ----- -------- -------- -------- --------- --------- --------
Total comprehensive
income for the year - - - - 5,170 5,170
--------------------- ----- -------- -------- -------- --------- --------- --------
Transactions with
Equity Holders
--------------------- ----- -------- -------- -------- --------- --------- --------
Costs of issue of
new shares - (17) - - - (17)
--------------------- ----- -------- -------- -------- --------- --------- --------
Share based payments 22 - - - - 332 332
--------------------- ----- -------- -------- -------- --------- --------- --------
Exercise of share
options 21 - - 240 - (240) -
--------------------- ----- -------- -------- -------- --------- --------- --------
Issue of deferred
bonus share options 21 - - - - 257 257
--------------------- ----- -------- -------- -------- --------- --------- --------
Dividends paid 8 - - - - (8,718) (8,718)
--------------------- ----- -------- -------- -------- --------- --------- --------
At 31 March 2019 4,639 125,019 (1,771) 3,843 48,593 180,323
--------------------- ----- -------- -------- -------- --------- --------- --------
For the purpose of preparing the consolidated financial
statements of the Group, 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 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.
Consolidated Statement
of Cash Flows
For the year ended 31 March 2019
2019 2018
Note GBP'000 GBP'000
------------------------------------------------ ---- -------- --------
Operating activities
------------------------------------------------ ---- -------- --------
Profit before taxation 6,433 13,304
------------------------------------------------ ---- -------- --------
Finance income (20) (10)
------------------------------------------------ ---- -------- --------
Finance expense 2 3,763 3,261
------------------------------------------------ ---- -------- --------
Changes in fair value of interest rate
derivatives 929 181
------------------------------------------------ ---- -------- --------
Loss/(gain) on revaluation of investment
property 9 382 (5,738)
------------------------------------------------ ---- -------- --------
Loss on revaluation of assets held for
sale 9 291 -
------------------------------------------------ ---- -------- --------
Profit on disposal of investment properties 9 (218) (274)
------------------------------------------------ ---- -------- --------
Loss on disposal of investment properties
held for sale 579 -
------------------------------------------------ ---- -------- --------
Loss on revaluation of investments 11 214 -
------------------------------------------------ ---- -------- --------
Depreciation 12 31 45
------------------------------------------------ ---- -------- --------
Share-based payments 22 332 174
------------------------------------------------ ---- -------- --------
Increase in receivables (691) (3,081)
------------------------------------------------ ---- -------- --------
(Decrease)/increase in payables (105) 2,037
------------------------------------------------ ---- -------- --------
Net cash generated from operations 11,920 9,899
------------------------------------------------ ---- -------- --------
Interest received 20 10
------------------------------------------------ ---- -------- --------
Interest and other finance charges paid (3,405) (2,714)
------------------------------------------------ ---- -------- --------
Corporation tax paid in respect of operating
activities (1,639) (395)
------------------------------------------------ ---- -------- --------
Net cash flows from operating activities 6,896 6,800
------------------------------------------------ ---- -------- --------
Investing activities
------------------------------------------------ ---- -------- --------
Purchase of investment property and acquisition
costs capitalised 9 (15,505) (72,808)
------------------------------------------------ ---- -------- --------
Capital expenditure on refurbishment of
investment property 9 (2,453) (2,754)
------------------------------------------------ ---- -------- --------
Capital expenditure on developments 9 (1,923) -
------------------------------------------------ ---- -------- --------
Capital expenditure on trading property 9 (535) -
------------------------------------------------ ---- -------- --------
Proceeds from disposal of investment property 2,078 8,765
------------------------------------------------ ---- -------- --------
Proceeds from assets held for sale 9,082 -
------------------------------------------------ ---- -------- --------
Amounts transferred from restricted cash
deposits 14 553 (805)
------------------------------------------------ ---- -------- --------
Purchase of non-current asset - equity
investment 11 (2,850) -
------------------------------------------------ ---- -------- --------
Purchase of property, plant and equipment 12 (7) (123)
------------------------------------------------ ---- -------- --------
Net cash flow used in investing activities (11,560) (67,725)
------------------------------------------------ ---- -------- --------
Financing activities
------------------------------------------------ ---- -------- --------
Bank loans repaid 19 (8,037) (45,242)
------------------------------------------------ ---- -------- --------
Proceeds from new bank loans 19 25,991 53,393
------------------------------------------------ ---- -------- --------
Loan issue costs paid 19 (145) (1,085)
------------------------------------------------ ---- -------- --------
Proceeds from issue of Ordinary Share capital - 70,000
------------------------------------------------ ---- -------- --------
Costs from issue of Ordinary Share capital (17) (2,349)
------------------------------------------------ ---- -------- --------
Dividends paid 8 (8,718) (6,744)
------------------------------------------------ ---- -------- --------
Net cash flow from financing activities 9,074 67,973
------------------------------------------------ ---- -------- --------
Net increase in cash and cash equivalents 4,410 7,048
------------------------------------------------ ---- -------- --------
Cash and cash equivalents at beginning
of the year 17,985 10,937
------------------------------------------------ ---- -------- --------
Cash and cash equivalents at the end of
the year 14 22,395 17,985
------------------------------------------------ ---- -------- --------
Notes to the Consolidated
Financial Statements
BASIS OF ACCOUNTING
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 Lower Ground Floor, One George Yard, London, United
Kingdom, EC3V 9DF.
BASIS OF PREPARATION
The financial information contained in this results announcement
has been prepared on the basis of the accounting policies set out
in the financial statements for the year ended 31 March 2018 except
for the adoption of IFRS 9 and IFRS 15 during the year ended 31
March 2019 which have not had a material impact on the results.
Whilst the financial information included in this announcement has
been computed in accordance with the recognition and measurement
requirements of IFRS, as adopted by the European Union, this
announcement does not itself contain sufficient disclosures to
comply with IFRS. The financial information does not constitute the
Group's financial statements for the years ended 31 March 2019 or
31 March 2018, but is derived from those financial statements.
Financial statements for the year ended 31 March 2018 have been
delivered to the Registrar of Companies and those for the year
ended 31 March 2019 will be delivered following the Company's
Annual General Meeting. The auditors' reports on both the 31 March
2019 and 31 March 2018 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.
GOING CONCERN
The Group's business activities, together with the factors
likely to affect its future development, 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 2019 the Group had GBP22.9m of cash and cash
equivalents, a low gearing level of 34% and a fair value property
portfolio of GBP286.3m. Accordingly the Group has the financial
resources together with long term leases with a wide range of
tenants, to continue to adopt the going concern basis in preparing
the Annual Report and financial statements.
After making enquiries, and in accordance with the FRC's
Guidance on Risk Management, Internal Control and Related Financial
and Business Reporting 2014, the Directors have a reasonable
expectation that the Company and 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
The following new standards are effective and have been adopted
for the year ended 31 March 2019.
Standards in issue and effective from 1 January 2018
IFRS 9 Financial Instruments
-- This standard deals with the classification, measurement and
recognition of financial assets and liabilities, impairment
provisioning and hedge accounting.
-- The Group does not apply hedge accounting on the financial
derivatives held. The Group's assessment of IFRS 9 determined that
the main area of potential impact was impairment provisioning on
trade receivables, given the requirement to use a forward-looking
expected credit loss model. However, the Group concludes that this
has no material impact on its financial statements. This is due to
the Company having a majority of tenants with strong covenants and
generally tenant receipts are received in advance or on the due
date, therefore the Group considers the probability of default to
be low.
-- In 2018 the Group extended a loan facility. Under IAS 39, the
difference arising on reestimation of the cash flows was amortised
over the remaining term of the loan. Under IFRS 9, this difference
is recognised through profit and loss immediately. The impact of
this change was not material.
IFRS 15 Revenue from Contracts with Customers
-- IFRS 15 combines a number of previous standards, setting out
a five-step model for the recognition of revenue and establishing
principles for reporting useful information to users of financial
statements about the nature, amount, timing and uncertainty of
revenue.
-- The standard is applicable to insurance commission income,
investment property disposals and trading property disposals, but
excludes rent receivable, which is within the scope of IAS 17. This
adoption had no material impact on the financial statements.
Standards in issue but not yet effective
IFRS 16 Leases (Effective 1 January 2019)
-- This standard requires lessees to recognise a right-of-use
asset and related lease liability representing the obligation to
make lease payments. Interest expense on the lease liability and
depreciation on the right-of-use asset will be recognised in the
Statement of Comprehensive Income. The Directors do not anticipate
that the adoption of this standard will have a material impact on
the Group's financial statements as the Group only holds one
operating lease, being the head office. The Directors will continue
to assess the impact of the new standard going forward. The
accounting for lessors will not significantly change as we will
continue to account for leases either as finance or operating
leases.
SIGNIFICANT ACCOUNTING POLICIES
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 (including special purpose
entities) over which the Company has control. The Company controls
an entity when the following three elements are present: 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 the 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 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.
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.
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 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 contracts. Such transactions are recognised when any
conditions are 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.
Revenue from the sale of trading properties are recognised when
significant risks and rewards attached to the trading property have
transferred from the Group, which is usually on completion of
contracts.
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.
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.
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-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.
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.
amortised cost
These assets arise principally from the provision of goods and
services to customers (eg trade receivables), but also incorporate
other types of financial assets where the objective is to hold
these assets in order to collect contractual cash flows and
contractual cash flows are solely payments of principal and
interest. They are initially recognised at fair value plus
transaction costs that are directly attributable to their
acquisition or issue and are subsequently carried at amortised cost
being the effective interest rate method, less provision for
expected credit loss.
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.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held
at call with banks, 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 liabilites
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 ensure 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 arms-length
transaction at the date of valuation, in accordance with
International 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.
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 will be 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 reflect
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.
assets held for sale
Assets are classified as held for sale when:
-- They are available for immediate sale;
-- Management is committed to a plan to sell;
-- It is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn;
-- An active programme to locate a buyer has been initiated;
-- The asset is being marketed at a reasonable price in relation
to its fair value; and
-- A sale is expected to complete within 12 months from the date
of classification.
Investment properties classified as held for sale are measured
at fair value in accordance with the measurement criteria of IAS
40.
Assets held for sale are derecognised when significant risks and
rewards attached to the asset have transferred from the Group which
is on completion of contracts.
Transfers between investment properties and TRADING
PROPERTIES
When the Group begins to redevelop an existing investment
property for continued future use as an investment property, the
property continues to be held as an investment property. When the
Group begins to redevelop an existing investment property with a
view to sell, the property is transferred to trading properties and
held as a current asset. The property is re-measured to fair value
as at the date of the transfer with any gain or loss being taken to
the Consolidated Statement of Comprehensive Income. The re-measured
amount becomes the deemed initial cost of the trading property.
TRADING PROPERTIES
Trading property is being developed for sale or being 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. Cost 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.
OBLIGATIONS UNDER FINANCE LEASES
Leases of assets where the Group has substantially all the risks
and rewards of ownership are classified as finance leases. Finance
leases are capitalised at the lease's commencement at the lower of
the fair value of the property and the present value of the minimum
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 finance leases are subsequently carried at their fair
value.
OPERATING LEASES
Amounts payable under operating leases are charged directly to
the Consolidated Statement of Comprehensive Income on a
straight-line basis over the period of the lease. The aggregate
costs of operating lease incentives provided by the Group are
recognised as a reduction in rental income on a straight-line basis
over the lease term.
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 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
Statement of Comprehensive Income 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 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 in the summer 2015 budget the reduction
in the corporation tax rate from 20% main rate in the tax year 2016
to 19% with effect from 1 April 2017 and to 17% from 1 April
2020.
DIVIDS 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.
EQUITY
For the purpose of preparing the consolidated financial
information of the Group, 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.
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.
Treasury share reserve represents the consideration paid for
shares bought back from the market.
The capital redemption reserve represents the nominal value of
cancelled preference share capital redeemed.
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
Properties
The key source of estimation uncertainty rests in the values of
property assets, which significantly affects the value of
investment properties and assets held for sale in the Consolidated
Statement of Financial Position. The investment property portfolio
and assets held for sale are carried at fair value, which requires
a number of judgements and 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 11.
The Group has valued the investment properties and assets held
for sale 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.
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. 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 require 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 quantitively 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.
Deferred tax
In determining the quantum of deferred tax balances to be
recognised, judgement is required in assessing the extent to which
it is probable that future taxable profit will arise in the
companies concerned and the timing and tax rate applied to these
transactions. Management use forecasts of future taxable profits
and make assumptions on growth rates for each entity in assessing
the recoverability of assets recognised.
1. RENTAL And other income
The chief operating decision maker ('CODM') takes the form of
the three Executive Directors (the Group's Executive Committee).
The Group's Executive Committee are 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 Group's property portfolio includes investment properties
located throughout England, predominantly regional investments
outside London and comprises a diverse portfolio of commercial
buildings. The Directors consider that these properties have
similar economic characteristics. Therefore, these individual
properties have been aggregated into a single operating segment. In
the view of the Directors, there is one reportable segment.
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.
2019 2018
Revenue - type GBP'000 GBP'000
------------------------------------------------ -------- --------
Rents received from investment properties 17,960 16,360
------------------------------------------------ -------- --------
Dilapidations and other property related income 589 257
------------------------------------------------ -------- --------
Insurance commission 201 116
------------------------------------------------ -------- --------
Total Revenue 18,750 16,733
------------------------------------------------ -------- --------
No single tenant accounts for more than 10% of the Group's total
rents received from investment properties.
2. INTEREST PAYABLE AND SIMILAR CHARGES
2019 2018
GBP'000 GBP'000
--------------------------- -------- --------
Interest on bank loans 3,291 2,677
--------------------------- -------- --------
Loan arrangement fees 364 342
--------------------------- -------- --------
Debt termination cost - 127
--------------------------- -------- --------
Interest on finance leases 108 115
--------------------------- -------- --------
3,763 3,261
--------------------------- -------- --------
3. PROFIT FOR THE year
a) The Group's profit for the year is stated after charging the
following:
2019 2018
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Depreciation of tangible fixed assets: 31 45
-------------------------------------------------- -------- --------
Auditor's remuneration:
-------------------------------------------------- -------- --------
Fees payable to the auditor for the audit of
the Group's annual accounts 109 83
-------------------------------------------------- -------- --------
Fees payable to the auditor for the audit of
the subsidiaries' annual accounts 25 21
-------------------------------------------------- -------- --------
Additional fees payable to the auditor in respect
of the 2018 audit 20 -
-------------------------------------------------- -------- --------
Fees payable to the auditor and its related
entities for other services:
-------------------------------------------------- -------- --------
Audit related assurance services 8 8
-------------------------------------------------- -------- --------
Tax services 3 64
-------------------------------------------------- -------- --------
165 176
-------------------------------------------------- -------- --------
In addition to the above, the auditor's remuneration for 2018
included an amount of GBP240,000 which related to share issues,
which was debited to the share premium account.
b) The Group's property operating expenses comprise the
following:
2019 2018
GBP'000 GBP'000
------------------------------------------------ -------- --------
Void, investment and development property costs 1,844 1,445
------------------------------------------------ -------- --------
Legal, lettings and consultancy costs 474 379
------------------------------------------------ -------- --------
2,318 1,824
------------------------------------------------ -------- --------
c) The Group's administrative expenses comprise the
following:
2019 2018
GBP'000 GBP'000
---------------------------------------- -------- --------
Staff costs 2,202 2,200
---------------------------------------- -------- --------
Rent, rates and other office costs 363 207
---------------------------------------- -------- --------
Share based payments 332 174
---------------------------------------- -------- --------
Other overheads 264 162
---------------------------------------- -------- --------
Accounting and audit fees 225 188
---------------------------------------- -------- --------
Consultancy and recruitment fees 213 145
---------------------------------------- -------- --------
Stock Exchange costs 176 93
---------------------------------------- -------- --------
PR and marketing costs 169 160
---------------------------------------- -------- --------
Legal and professional fees 143 108
---------------------------------------- -------- --------
Depreciation 31 45
---------------------------------------- -------- --------
Property management fees 4 5
---------------------------------------- -------- --------
Costs in respect of move to Main Market - 698
---------------------------------------- -------- --------
4,122 4,185
---------------------------------------- -------- --------
d) EPRA cost ratios are calculated as follows:
2019 2018
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Gross property income 18,750 16,733
--------------------------------------------------- -------- --------
Administrative expenses 4,122 4,185
--------------------------------------------------- -------- --------
Property operating expenses 2,318 1,824
--------------------------------------------------- -------- --------
EPRA costs (including property operating expenses) 6,440 6,009
--------------------------------------------------- -------- --------
EPRA Cost Ratio (including property operating
expenses) 34.3% 35.9%
--------------------------------------------------- -------- --------
Less property operating expenses (2,318) (1,824)
--------------------------------------------------- -------- --------
EPRA costs (excluding property operating expenses) 4,122 4,185
--------------------------------------------------- -------- --------
EPRA Cost Ratio (excluding property operating
expenses) 22.0% 25.0%
--------------------------------------------------- -------- --------
Adjust for:
--------------------------------------------------- -------- --------
Exceptional costs in respect of move to Main
Market - (698)
--------------------------------------------------- -------- --------
Net administrative expenses 4,122 3,487
--------------------------------------------------- -------- --------
Company administrative cost ratio 22.0% 20.8%
--------------------------------------------------- -------- --------
4. EMPLOYEES AND DIRECTORS' REMUNERATION
Staff costs during the period were as follows:
2019 2018
GBP'000 GBP'000
------------------------------ -------- --------
Non-Executive Directors' fees 152 108
------------------------------ -------- --------
Wages and salaries 1,696 1,795
------------------------------ -------- --------
Pensions 98 67
------------------------------ -------- --------
Social security costs 256 230
------------------------------ -------- --------
2,202 2,200
------------------------------ -------- --------
Share based payments 332 174
------------------------------ -------- --------
2,534 2,374
------------------------------ -------- --------
The average number of employees of the Group and the Company
during the period was:
2019 2018
Number Number
-------------------------------------- ------- -------
Directors 7 6
-------------------------------------- ------- -------
Senior management and other employees 9 8
-------------------------------------- ------- -------
16 14
-------------------------------------- ------- -------
Key management are the Group's Directors. Remuneration in
respect of key management was as follows:
2019 2018
GBP'000 GBP'000
-------- --------
Emoluments for qualifying services 1,127 1,369
----------------------------------- -------- --------
Social security costs 156 200
----------------------------------- -------- --------
Pension 33 38
----------------------------------- -------- --------
1,316 1,607
----------------------------------- -------- --------
Share-based payments 291 153
----------------------------------- -------- --------
1,607 1,760
----------------------------------- -------- --------
Full details of the Directors' individual remuneration can be
found in the Corporate Governance section on pages 66 to 67.
5. taxation
2019 2018
GBP'000 GBP'000
-------------------------------- -------- --------
Current income tax charge 1,008 1,062
-------------------------------- -------- --------
Capital gains charge in period 1,194 31
-------------------------------- -------- --------
Tax underprovided in prior year 12 10
-------------------------------- -------- --------
Deferred tax (951) (330)
-------------------------------- -------- --------
Tax charge 1,263 773
-------------------------------- -------- --------
2019 2018
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Profit on ordinary activities before tax 6,433 13,304
---------------------------------------------------- -------- --------
Based on profit for the period: Tax at 19.0%
(2018: 19%) 1,222 2,528
---------------------------------------------------- -------- --------
Effect of:
---------------------------------------------------- -------- --------
Utilisation of tax losses not previously recognised
in deferred tax (5) (1,142)
---------------------------------------------------- -------- --------
Net expenses not deductible for tax purposes 75 48
---------------------------------------------------- -------- --------
Chargeable gain (lower than)/in excess of profit
or loss on investment property (126) 31
---------------------------------------------------- -------- --------
Tax underprovided in prior years 12 10
---------------------------------------------------- -------- --------
Movement on sale and revaluation not recognised
through deferred tax 85 (702)
---------------------------------------------------- -------- --------
Tax charge for the period 1,263 773
---------------------------------------------------- -------- --------
Deferred taxes relate to the following:
2019 2018
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Deferred tax liability - brought forward (6,531) (2,187)
-------------------------------------------------- -------- --------
Losses used in the year - (13)
-------------------------------------------------- -------- --------
Deferred tax liability on accredited capital
allowances (647) 400
-------------------------------------------------- -------- --------
Deferred tax on fair value of investment property 1,598 (40)
-------------------------------------------------- -------- --------
Deferred tax recognised on acquisition - (4,691)
-------------------------------------------------- -------- --------
Deferred tax liability - carried forward (5,580) (6,531)
-------------------------------------------------- -------- --------
2019 2018
GBP'000 GBP'000
----------------------------------------------- -------- --------
Accelerated capital allowances (3,241) (2,594)
----------------------------------------------- -------- --------
Investment property unrealised valuation gains (2,339) (3,937)
----------------------------------------------- -------- --------
Deferred tax liability - carried forward (5,580) (6,531)
----------------------------------------------- -------- --------
Capital allowances have been claimed on improvements to
investment properties amounting to GBP19,065,000 (2018:
GBP15,259,000). A deferred tax liability amounting to GBP3,241,000
(2018: GBP2,594,000) has been recognised in the financial
statements, although the Directors do not expect that the capital
allowances will reverse when the properties are disposed of as a
result of section 198 elections being agreed with purchasers.
A deferred tax liability on the revaluation of investment
properties to fair value has been provided totalling GBP2,339,000
(2018: GBP3,937,000) as once the availability of capital losses,
indexation allowances and the 1982 valuations for certain
properties have been taken into account, it is anticipated that
capital gains tax would be payable if the properties were disposed
of at their fair value. As at 31 March 2019 the Group had
approximately GBP6,328,000 (2018: GBP6,413,000) 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 2015 sets the main rate of UK corporation tax at 20%
with effect on 1 April 2015. The enactment of Finance (No. 2) Act
2015 and Finance Act 2016 reduces the main rate of corporation tax
to 19% from April 2017 and 17% from April 2020. The deferred tax
liability has been calculated on the basis of 17 % due to the
expectation that all properties are retained through April 2020,
with the exception of the assets held for sale which have been
calculated on the current corporation tax basis of 19%.
6. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share and diluted earnings per share have
been calculated on profit after tax attributable to ordinary
shareholders for the 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 below table) and for diluted weighted average number of
ordinary shares in issue during the year (see below table).
2019 2018
GBP'000 GBP'000
------------------------------------------------------- -------- --------
Profit after tax attributable to ordinary shareholders
for the year 5,170 12,531
------------------------------------------------------- -------- --------
2019 2018
No of shares No of shares
---------------------------------------------- ------------- -------------
Weighted average number of shares for basic
earnings per share 45,834,436 34,943,855
---------------------------------------------- ------------- -------------
Dilutive effect of share options 63,690 36,322
---------------------------------------------- ------------- -------------
Weighted average number of shares for diluted
earnings per share 45,898,126 34,980,177
---------------------------------------------- ------------- -------------
Earnings per ordinary share
---------------------------------------------- ------------- -------------
Basic 11.3p 35.9p
---------------------------------------------- ------------- -------------
Diluted 11.3p 35.8p
---------------------------------------------- ------------- -------------
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 2016. 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, associated close-out costs, one-off
finance termination costs, share-based payments and other one-off
exceptional items. EPRA earnings is calculated on the basis of the
basic number of shares in line with IFRS earnings as the dividends
to which they give rise accrue to current shareholders. The EPRA
diluted earnings per share also takes into account the dilution of
share options and warrants if exercised.
Adjusted profit before tax and Adjusted EPS
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. The corporation tax charge (excluding
deferred tax movements, being a non-cash expense) is deducted in
order to calculate the adjusted earnings per share.
The EPRA and adjusted earnings per share for the period are
calculated based upon the following information:
2019 2018
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Profit for the year 5,170 12,531
-------------------------------------------------- -------- --------
Adjustments:
-------------------------------------------------- -------- --------
Loss/(gain) on revaluation of investment property
portfolio 382 (5,738)
-------------------------------------------------- -------- --------
Impairment on assets held for sale 291 -
-------------------------------------------------- -------- --------
Profit on disposal of investment properties (218) (274)
-------------------------------------------------- -------- --------
Loss on disposal of assets held for sale 579 -
-------------------------------------------------- -------- --------
Loss on revaluation of listed equity investments 214 -
-------------------------------------------------- -------- --------
Debt termination interest rate costs - 127
-------------------------------------------------- -------- --------
Fair value loss on derivatives 929 181
-------------------------------------------------- -------- --------
Deferred tax relating to EPRA adjustments and
capital gain charged 243 (299)
-------------------------------------------------- -------- --------
EPRA earnings for the year 7,590 6,528
-------------------------------------------------- -------- --------
Share based payments 332 174
-------------------------------------------------- -------- --------
Costs in respect of move to Main Market - 698
-------------------------------------------------- -------- --------
Adjusted profit after tax for the year 7,922 7,400
-------------------------------------------------- -------- --------
Tax excluding deferred tax on EPRA adjustments
and capital gain charged 1,020 1,071
-------------------------------------------------- -------- --------
Adjusted profit before tax for the year 8,942 8,471
-------------------------------------------------- -------- --------
EPRA AND ADJUSTED EARNINGS PER ORDINARY SHARE
-------------------------------------------------- -------- --------
EPRA Basic 16.6p 18.7p
-------------------------------------------------- -------- --------
EPRA Diluted 16.5p 18.7p
-------------------------------------------------- -------- --------
Adjusted EPS 17.3p 21.2p
-------------------------------------------------- -------- --------
7. NET ASSET VALUE PER SHARE
EPRA NAV calculation makes adjustments to IFRS NAV to provide
stakeholders with the most relevant information on the fair value
of the assets and liabilities within a true real estate investment
company with a long-term investment strategy. EPRA NAV is adjusted
to take effect of the exercise of options, convertibles and other
equity interests and excludes the fair value of financial
instruments and deferred tax on latent gains. EPRA NNNAV measure is
to report net asset value including fair values of financial
instruments and deferred tax on latent gains.
The diluted net assets and the number of diluted ordinary issued
shares at the end of the period assumes that all the outstanding
options that are exercisable at the period end are exercised at the
option price.
Net asset value is calculated using the following
information:
2019 2018
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Net assets at the end of the year 180,323 183,299
---------------------------------------------------- -------- --------
Diluted net assets at end of the year 180,323 183,299
---------------------------------------------------- -------- --------
Include fair value adjustment of trading properties 250 -
---------------------------------------------------- -------- --------
Exclude fair value of derivatives 815 181
---------------------------------------------------- -------- --------
Exclude deferred tax on latent capital gains
and capital allowances 5,580 6,531
---------------------------------------------------- -------- --------
EPRA NAV 186,968 190,011
---------------------------------------------------- -------- --------
Include fair value of derivatives (815) (181)
---------------------------------------------------- -------- --------
Include deferred tax on latent capital gains
and capital allowances (5,580) (6,531)
---------------------------------------------------- -------- --------
EPRA NNNAV 180,573 183,299
---------------------------------------------------- -------- --------
2019 2018
No of shares No of shares
--------------------------------------------- ------------- -------------
Number of ordinary shares issued at the end
of the year (excluding treasury shares) 45,883,249 45,805,280
--------------------------------------------- ------------- -------------
Dilutive effect of share options 63,690 36,322
--------------------------------------------- ------------- -------------
Number of ordinary shares issued for diluted
and EPRA net assets per share 45,946,939 45,841,602
--------------------------------------------- ------------- -------------
Net assets per ordinary share
--------------------------------------------- ------------- -------------
Basic 393p 400p
--------------------------------------------- ------------- -------------
Diluted 392p 400p
--------------------------------------------- ------------- -------------
EPRA NAV 407p 415p
--------------------------------------------- ------------- -------------
EPRA NNNAV 393p 400p
--------------------------------------------- ------------- -------------
8. DIVIDS
Dividend 2019 2018
Payment date per share GBP'000 GBP'000
----------------------- -------------------- ---------- --------- --------
2019
----------------------- -------------------- ---------- --------- --------
28 December
Interim dividend 2018 4.75 2,182 -
----------------------- -------------------- ---------- --------- --------
Interim dividend 19 October 2018 4.75 2,182 -
----------------------- -------------------- ---------- --------- --------
9.50 4,364 -
-------------------------------------------- ---------- --------- --------
2018
----------------------- -------------------- ---------- --------- --------
Final dividend 31 July 2018 4.75 2,177 -
----------------------- -------------------- ---------- --------- --------
Interim dividend 13 April 2018 4.75 2,177 -
----------------------- -------------------- ---------- --------- --------
29 December
Interim dividend 2017 9.50 - 4,355
----------------------- -------------------- ---------- --------- --------
19.00 4,354 4,355
-------------------------------------------- ---------- --------- --------
2017
----------------------- -------------------- ---------- --------- --------
Final dividend 28 July 2017 9.50 - 2,389
----------------------- -------------------- ---------- --------- --------
9.50 - 2,389
-------------------------------------------- ---------- --------- --------
Dividends reported in the Group Statement
of Changes in Equity 8,718 6,744
--------------------------------------------- ---------- --------- --------
Proposed Dividends
2019 2018
GBP'000 GBP'000
------------------------------------------------ --------- --------
July 2019 final dividend in respect of year
end 31 March 2019: 4.75p (2018 final dividend:
4.75p) 2,182 2,177
------------------------------------------------ --------- --------
April 2019 interim dividend in respect of year
end 31 March 2019: 4.75p (2018 final dividend:
4.75p) 2,182 2,177
------------------------------------------------ --------- --------
4,364 4,354
------------------------------------------------ --------- --------
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 2019.
9. property portfolio
Freehold Leasehold Total
investment investment investment
properties properties properties
GBP'000 GBP'000 GBP'000
--------------------------------------------- ----------- ----------- -----------
At 1 April 2017 160,228 23,688 183,916
--------------------------------------------- ----------- ----------- -----------
Additions - refurbishment 2,681 73 2,754
--------------------------------------------- ----------- ----------- -----------
Additions - new properties 70,306 - 70,306
--------------------------------------------- ----------- ----------- -----------
Gains on revaluation of investment
properties 4,888 850 5,738
--------------------------------------------- ----------- ----------- -----------
Disposals (5,361) (3,490) (8,851)
--------------------------------------------- ----------- ----------- -----------
At 1 April 2018 232,742 21,121 253,863
--------------------------------------------- ----------- ----------- -----------
Additions - refurbishments 2,521 179 2,700
--------------------------------------------- ----------- ----------- -----------
Additions - new properties 15,505 - 15,505
--------------------------------------------- ----------- ----------- -----------
Capital expenditure on developments 2,014 - 2,014
--------------------------------------------- ----------- ----------- -----------
Transfer to trading property (13,509) - (13,509)
--------------------------------------------- ----------- ----------- -----------
Loss on revaluation of investment properties (122) (260) (382)
--------------------------------------------- ----------- ----------- -----------
Disposals (1,860) - (1,860)
--------------------------------------------- ----------- ----------- -----------
At 31 March 2019 237,291 21,040 258,331
--------------------------------------------- ----------- ----------- -----------
Standing Investment Total Assets Total
investment properties investment Trading held for property
properties under construction properties properties sale portfolio
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
At 1 April 2017 183,916 - 183,916 - - 183,916
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Additions - refurbishment 2,754 - 2,754 - - 2,754
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Additions - new properties 70,306 - 70,306 - 21,708 92,014
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Gains on revaluation
of investment properties 5,738 - 5,738 - - 5,738
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Disposals (8,851) - (8,851) - - (8,851)
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
At 1 April 2018 253,863 - 253,863 - 21,708 275,571
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Additions - refurbishments 2,700 - 2,700 - - 2,700
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Additions - new properties 15,505 - 15,505 - - 15,505
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Transfer to investment
property under construction (3,810) 3,810 - - - -
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Capital expenditure on
developments 1,772 242 2,014 - - 2,014
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Transfer to trading property (13,509) - (13,509) 13,509 - -
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Additions - trading property - - - 858 - 858
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Loss/(gain) on revaluation
of investment properties (452) 70 (382) - - (382)
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Loss on revaluation of
assets held for sale - - - - (291) (291)
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
Disposals (1,860) - (1,860) - (9,661) (11,521)
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
At 31 March 2019 254,209 4,122 258,331 14,367 11,756 284,454
----------------------------- ----------- ------------------- ----------- ----------- --------- ----------
The property portfolio (other than assets held for sale) has
been independently valued at fair value. The valuations have been
prepared in accordance with the RICS Valuation - Global Standards
July 2017 ("the Red Book") and incorporate the recommendations of
the International Valuation Standards and the RICS valuation -
Professional Standards UK January 2014 (Revised April 2015) which
are consistent with the principles set out in IFRS 13.
The valuer in forming its opinion make 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 gain on revaluation of investment properties
included in the table above, realised gains of GBP218,000 (2018:
GBP274,000) relating to investment properties disposed of during
the year were recognised in profit or loss.
A reconciliation of the valuations carried out by the
independent valuers to the carrying values shown in the Statement
of Financial Position was as follows:
2019 2018
GBP'000 GBP'000
------------------------------------------------- -------- --------
Cushman & Wakefield LLP (property portfolio) 274,560 255,024
------------------------------------------------- -------- --------
Assets held for sale 11,756 21,708
------------------------------------------------- -------- --------
Fair value of property portfolio 286,316 276,732
------------------------------------------------- -------- --------
Adjustment in respect of minimum payment under
head leases 1,600 1,600
------------------------------------------------- -------- --------
Less assets held for sale (11,756) (21,708)
------------------------------------------------- -------- --------
Less trading properties at cost (14,367) -
------------------------------------------------- -------- --------
Less lease incentive balance included in accrued
income (2,752) (1,731)
------------------------------------------------- -------- --------
Less rent top-up adjustment (460) (1,030)
------------------------------------------------- -------- --------
Less fair value uplift on trading properties (250) -
------------------------------------------------- -------- --------
Carrying value of investment properties 258,331 253,863
------------------------------------------------- -------- --------
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 the independent valuers are
based on information provided by the Group such as current rents,
terms and conditions of lease agreements, service charges and
capital expenditure. This information is derived from the Group's
financial and property management systems and is subject to the
Group's overall control environment.
In addition, the valuation reports are based on assumptions and
valuation models used by the independent valuers. The assumptions
are typically market related, such as yields and discount rates,
and are based on their professional judgment and market
observations. Each property is considered a separate asset, based
on its unique nature, characteristics and the risks of the
property.
The Executive Director responsible for the valuation process
verifies all major inputs to the external valuation reports,
assesses the individual property valuation changes from the prior
year valuation report and holds discussions with the independent
valuers. When this process is complete, the valuation report is
recommended to the Audit Committee, which considers it as part of
its overall responsibilities.
The key assumptions made in the valuation of the Group's
investment properties are:
-- The amount and timing of future income streams;
-- Anticipated maintenance costs and other landlord's
liabilities;
-- An appropriate yield; and
-- For investment properties under construction: gross
development value, estimated cost to complete and an appropriate
developer's margin.
Valuation technique - standing investment properties
The valuations reflect the tenancy data supplied by the Group
along with associated revenue costs and capital expenditure. The
fair value of the investment portfolio has been derived from
capitalising the future estimated net income receipts at
capitalisation rates reflected by recent arm's length sales
transactions.
Significant
unobservable
inputs
----------------------- -------------- ------------- ------------- ------------- --------------
31 March 2019 Office Leisure Industrial Other Total
----------------------- -------------- ------------- ------------- ------------- --------------
Fair value of property
portfolio GBP135,455,000 GBP41,380,000 GBP37,395,000 GBP60,330,000 GBP274,560,000
----------------------- -------------- ------------- ------------- ------------- --------------
Area (sq ft) 794,726 247,470 405,593 205,649 1,657,438
----------------------- -------------- ------------- ------------- ------------- --------------
Gross Estimated Rental
Value GBP12,094,259 GBP3,341,944 GBP2,891,320 GBP3,145,621 GBP21,473,144
----------------------- -------------- ------------- ------------- ------------- --------------
Net Initial Yield
----------------------- -------------- ------------- ------------- ------------- --------------
Minimum (4.6%) 6.2% 4.2% (7.3%) (7.3%)
----------------------- -------------- ------------- ------------- ------------- --------------
Maximum 14.6% 6.9% 8.5% 25.0% 25.0%
----------------------- -------------- ------------- ------------- ------------- --------------
Weighted average 5.4% 6.5% 5.7% 6.0% 5.7%
----------------------- -------------- ------------- ------------- ------------- --------------
Reversionary Yield
----------------------- -------------- ------------- ------------- ------------- --------------
Minimum 4.7% 7.1% 5.5% 4.5% 4.5%
----------------------- -------------- ------------- ------------- ------------- --------------
Maximum 14.6% 7.6% 8.7% 28.1% 28.1%
----------------------- -------------- ------------- ------------- ------------- --------------
Weighted average 8.0% 7.3% 6.6% 5.3% 7.0%
----------------------- -------------- ------------- ------------- ------------- --------------
Equivalent Yield
----------------------- -------------- ------------- ------------- ------------- --------------
Minimum 4.1% 7.5% 5.4% 5.0% 4.1%
----------------------- -------------- ------------- ------------- ------------- --------------
Maximum 10.2% 8.3% 8.1% 13.2% 13.2%
----------------------- -------------- ------------- ------------- ------------- --------------
Weighted average 7.5% 7.8% 6.3% 7.1% 6.8%
----------------------- -------------- ------------- ------------- ------------- --------------
Negative net initial yields arise where properties are vacant or
partially vacant and void costs exceed rental income.
Significant
unobservable
inputs
----------------------- -------------- ------------- ------------- ------------- --------------
31 March 2018 Office Leisure Industrial Other Total
----------------------- -------------- ------------- ------------- ------------- --------------
Fair value of property
portfolio GBP117,724,000 GBP42,070,000 GBP36,075,000 GBP59,155,000 GBP255,024,000
----------------------- -------------- ------------- ------------- ------------- --------------
Area (sq ft) 722,977 247,472 427,789 208,418 1,606,656
----------------------- -------------- ------------- ------------- ------------- --------------
Gross Estimated Rental
Value GBP10,453,820 GBP3,341,875 GBP2,691,524 GBP3,400,050 GBP19,887,269
----------------------- -------------- ------------- ------------- ------------- --------------
Net Initial Yield
----------------------- -------------- ------------- ------------- ------------- --------------
Minimum (4.0%) 6.2% 3.8% 1.6% (4.0%)
----------------------- -------------- ------------- ------------- ------------- --------------
Maximum 8.7% 8.8% 8.0% 21.5% 21.5%
----------------------- -------------- ------------- ------------- ------------- --------------
Weighted average 5.9% 6.7% 5.8% 7.0% 6.2%
----------------------- -------------- ------------- ------------- ------------- --------------
Reversionary Yield
----------------------- -------------- ------------- ------------- ------------- --------------
Minimum 4.7% 7.1% 5.6% 5.2% 4.7%
----------------------- -------------- ------------- ------------- ------------- --------------
Maximum 13.2% 7.5% 9.6% 15.0% 15.0%
----------------------- -------------- ------------- ------------- ------------- --------------
Weighted average 8.0% 7.4% 5.2% 5.1% 6.9%
----------------------- -------------- ------------- ------------- ------------- --------------
Equivalent Yield
----------------------- -------------- ------------- ------------- ------------- --------------
Minimum 4.2% 7.8% 5.7% 3.5% 3.5%
----------------------- -------------- ------------- ------------- ------------- --------------
Maximum 15.5% 8.3% 9.3% 13.4% 15.5%
----------------------- -------------- ------------- ------------- ------------- --------------
Weighted average 7.4% 7.8% 6.5% 6.9% 7.2%
----------------------- -------------- ------------- ------------- ------------- --------------
The following descriptions and definitions relating to valuation
techniques and key unobservable inputs made in determining fair
values are as follows:
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: GBP38,400 -
GBP1,761,669 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.
Impact on fair value Impact on fair value
measurement of significant measurement of significant
Unobservable input increase in input decrease in input
---------------------------- --------------------------- ---------------------------
Gross Estimated Rental Value Increase Decrease
---------------------------- --------------------------- ---------------------------
Net Initial Yield Decrease Increase
---------------------------- --------------------------- ---------------------------
Reversionary Yield Decrease Increase
---------------------------- --------------------------- ---------------------------
Equivalent Yield Decrease Increase
---------------------------- --------------------------- ---------------------------
+0.25% in -0.25% in
-5% in passing +5% in passing net initial net initial
rent (GBPm) rent (GBPm) yield (GBPm) yield (GBPm)
------------------------------------- -------------- -------------- ------------- -------------
(Decrease)/increase in the
fair value of investment properties
as at 31 March 2019 (12.95) 12.95 (10.16) 12.63
------------------------------------- -------------- -------------- ------------- -------------
(Decrease)/increase in the
fair value of investment properties
as at 31 March 2018 (8.77) 10.33 (9.73) 10.74
------------------------------------- -------------- -------------- ------------- -------------
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.
Assets held for sale
Assets held for sale consist of the residential portfolio
acquired in October 2017 as part of the Warren acquisition. On
acquisition, the Group announced it was its intention to dispose of
the portfolio as soon as terms with a potential buyer could be
agreed.
Assets totalling GBP9,661,000 were disposed of during the year.
The remaining GBP11,756,000 are expected to be sold within the next
12 months. Details of disposals post year end can be found in note
25.
In accordance with the Group's accounting policy, these
properties are classified as held for sale at 31 March 2019 and
measured at fair value.
The residential portfolio has been valued by the Directors based
on open market information available and discussions with valuation
professionals.
10. Trading property
Total
GBP'000
--------------------------------------------- --------
At 1 April 2018 -
--------------------------------------------- --------
Transfer from standing investment properties 13,509
--------------------------------------------- --------
Costs capitalised 858
--------------------------------------------- --------
At 31 March 2019 14,367
--------------------------------------------- --------
The Group is developing a large mixed-use scheme at Hudson
Quarter, York. Part of the approved scheme consists of residential
units which the Group holds for sale. As a result, the residential
element of the scheme is classified as trading property.
11. LISTED EQUITY INVESTMENTS
Total
GBP'000
-------------------------------------------------- --------
At 1 April 2018 -
-------------------------------------------------- --------
Additions 2,850
-------------------------------------------------- --------
Loss on revaluation of equity investment shown in
Consolidated Statement of Comprehensive Income (214)
-------------------------------------------------- --------
At 31 March 2019 2,636
-------------------------------------------------- --------
During the year the Group purchased listed equity investments to
the value of GBP2,850,000. The investment has subsequently been
revalued using level 1 inputs, the quoted market price.
12. PROPERTY, PLANT AND EQUIPMENT
IT, fixtures
and fittings
GBP'000
-------------------------------- -------------
At 1 April 2017 92
-------------------------------- -------------
Additions 123
-------------------------------- -------------
At 1 April 2018 215
-------------------------------- -------------
Additions 7
-------------------------------- -------------
At 31 March 2019 222
-------------------------------- -------------
Depreciation
-------------------------------- -------------
At 1 April 2017 49
-------------------------------- -------------
Provided during the year 45
-------------------------------- -------------
At 1 April 2018 94
-------------------------------- -------------
Provided during the year 31
-------------------------------- -------------
At 31 March 2019 125
-------------------------------- -------------
Net book value at 31 March 2019 97
-------------------------------- -------------
Net book value at 31 March 2018 121
-------------------------------- -------------
13. TRADE AND OTHER RECEIVABLES
2019 2018
GBP'000 GBP'000
-------------------------------------- -------- --------
Current
-------------------------------------- -------- --------
Gross amounts receivable from tenants 2,006 2,598
-------------------------------------- -------- --------
Less: expected credit loss provision (71) (163)
-------------------------------------- -------- --------
Net amount receivable from tenants 1,935 2,435
-------------------------------------- -------- --------
Other taxes 177 609
-------------------------------------- -------- --------
Other debtors 604 114
-------------------------------------- -------- --------
Accrued income 2,752 1,731
-------------------------------------- -------- --------
Prepayments 775 662
-------------------------------------- -------- --------
6,243 5,551
-------------------------------------- -------- --------
Accrued income amounting to GBP2,752,000 (2018: GBP1,731,000)
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.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses using a lifetime expected credit loss
provision for trade receivables and contract assets. To measure
expected credit losses on a collective basis, trade receivables and
contract assets are grouped based on similar credit risk and aging.
The contract assets have similar risk characteristics to the trade
receivables for similar types of contracts. The expected credit
loss provision and the incurred loss provision in the prior year is
immaterial. No reasonably possible changes in the assumptions
underpinning the expected credit loss provision would give rise to
a material difference.
The expected loss rates are based on the Group's historical
credit losses experienced over the three year period prior to the
period end. The historical loss rates are then adjusted for current
and forward-looking information on macroeconomic factors affecting
the Group's tenants.
As at 31 March 2019 the lifetime expected credit loss provision
for trade receivables and contract assets is as follows:
More than More than More than
30 days past 60 days past 90 days past
Current due due due Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------- ------------- ------------- ------------- --------
Expected loss rate 0% 1% 1% 16%
---------------------- -------- ------------- ------------- ------------- --------
Gross carrying amount 1,400 144 26 436 2,006
---------------------- -------- ------------- ------------- ------------- --------
Loss provision - 2 - 69 71
---------------------- -------- ------------- ------------- ------------- --------
Movement in the expected credit loss provision was as
follows:
2019 2018
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Brought forward 163 139
-------------------------------------------------------- -------- --------
Receivable written off during the year as uncollectible (154) (71)
-------------------------------------------------------- -------- --------
Provisions increased 62 95
-------------------------------------------------------- -------- --------
71 163
-------------------------------------------------------- -------- --------
14. CASH AND CASH EQUIVALENTS
All of the Group's cash and cash equivalents at 31 March 2019
and 31 March 2018 are in sterling and held at floating interest
rates.
2019 2018
GBP'000 GBP'000
----------------------------------------- -------- --------
Cash and cash equivalents - unrestricted 22,395 17,985
----------------------------------------- -------- --------
Restricted cash 495 1,048
----------------------------------------- -------- --------
22,890 19,033
----------------------------------------- -------- --------
The Directors consider that the carrying amount of cash and cash
equivalents approximates to their fair value.
Restricted cash is cash where there is a legal restriction to
specify its type of use. This is typically where the Group has
agreed to deposit cash with a lender with regards to top-ups
received from vendors on completion funds, to be realised over time
consistent with the loss of income on vacant units.
15. TRADE AND OTHER PAYABLES
2019 2018
GBP'000 GBP'000
----------------------- -------- --------
Trade payables 1,229 986
----------------------- -------- --------
Corporation tax 1,626 1,051
----------------------- -------- --------
Other taxes 914 1,307
----------------------- -------- --------
Other payables 503 108
----------------------- -------- --------
Deferred rental income 3,457 3,466
----------------------- -------- --------
Accruals 2,272 1,916
----------------------- -------- --------
10,001 8,834
----------------------- -------- --------
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 are paying for its
interest rate swaps.
The valuation rate is the variable LIBOR and bank base rate the
banks are paying for the interest rate swaps.
Details of the interest rate swaps the Group has entered can be
found in the table below.
The valuations of all derivatives held by the Group are
classified as Level 2 in the IFRS 13 fair value hierarchy as they
are based on observable inputs. There have been no transfers
between levels of the fair value hierarchy during the year.
Further details on interest rate risks are included in note
26.
Contract Valuation 2019 2018
Notional rate rate Fair value Fair value
Bank principal Expiry date % % GBP'000 GBP,000
-------------- ---------- ----------- -------- --------- ----------- -----------
Barclays Bank
plc 35,347,900 25/01/2023 1.3420 1.2850 (526) (92)
-------------- ---------- ----------- -------- --------- ----------- -----------
Santander plc 19,718,310 03/08/2022 1.3730 1.2630 (289) (89)
-------------- ---------- ----------- -------- --------- ----------- -----------
55,066,210 (815) (181)
-------------- ---------- ----------- -------- --------- ----------- -----------
17. BORROWINGS
2019 2018
GBP'000 GBP'000
-------- --------
Current liabilities
------------------------ -------- --------
Bank loans 5,999 2,686
------------------------ -------- --------
Non-current liabilities
------------------------ -------- --------
Bank loans 112,017 97,157
------------------------ -------- --------
Total borrowings 118,016 99,843
------------------------ -------- --------
Non-current liabilities
-------------------------- ------- -------
Secured bank loans drawn 113,351 98,709
-------------------------- ------- -------
Unamortised lending costs (1,334) (1,552)
-------------------------- ------- -------
112,017 97,157
-------------------------- ------- -------
The maturity profile of the Group's debt was as follows:
2019 2018
GBP'000 GBP'000
----------------------- -------- --------
Within one year 5,999 2,686
----------------------- -------- --------
From one to two years 29,825 2,686
----------------------- -------- --------
From two to five years 71,546 83,607
----------------------- -------- --------
After five years 11,980 12,416
----------------------- -------- --------
119,350 101,395
----------------------- -------- --------
Facility and arrangement fees
As at 31 March 2019
Unamortised
facility Facility
Maturity Loan Balance fees drawn
Secured Borrowings All in cost date GBP'000 GBP'000 GBP'000
--------------------- ----------- ----------- ------------ ----------- ---------
Santander Bank plc 3.74% August 2022 25,961 (289) 26,250
--------------------- ----------- ----------- ------------ ----------- ---------
Lloyds Bank plc 2.95% May 2019 3,562 (1) 3,563
--------------------- ----------- ----------- ------------ ----------- ---------
Lloyds Bank plc 2.80% March 2023 6,715 (130) 6,845
--------------------- ----------- ----------- ------------ ----------- ---------
National Westminster
Bank plc 3.35% March 2021 29,204 (185) 29,389
--------------------- ----------- ----------- ------------ ----------- ---------
January
Barclays 3.24% 2023 38,589 (554) 39,143
--------------------- ----------- ----------- ------------ ----------- ---------
Scottish Widows 2.90% July 2026 13,985 (175) 14,160
--------------------- ----------- ----------- ------------ ----------- ---------
118,016 (1,334) 119,350
--------------------- ----------- ----------- ------------ ----------- ---------
As at 31 March 2018
Unamortised
facility Facility
Maturity Loan Balance fees drawn
Secured Borrowings All in cost date GBP'000 GBP'000 GBP'000
--------------------- ----------- ----------- ------------ ----------- ---------
Santander Bank plc 3.71% August 2022 26,376 (374) 26,750
--------------------- ----------- ----------- ------------ ----------- ---------
Lloyds Bank plc 2.81% May 2019 3,789 (23) 3,812
--------------------- ----------- ----------- ------------ ----------- ---------
National Westminster
Bank plc 3.21% March 2021 20,113 (276) 20,389
--------------------- ----------- ----------- ------------ ----------- ---------
January
Barclays 2.66% 2023 35,169 (679) 35,848
--------------------- ----------- ----------- ------------ ----------- ---------
Scottish Widows 2.91% July 2026 14,396 (200) 14,596
--------------------- ----------- ----------- ------------ ----------- ---------
99,843 (1,552) 101,395
--------------------- ----------- ----------- ------------ ----------- ---------
Investment properties with a carrying value of GBP250,960,000
(2018: GBP234,429,000) are subject to a first charge to secure the
Group's bank loans amounting to GBP119,350,000 (2018:
GBP101,395,000).
The Group has unused loan facilities amounting to GBP26,500,000
(2018: GBP14,152,000). This facility is with Barclays Bank plc is
secured on the Hudson Quarter, York development held by Palace
Capital (Developments) Limited.
The Group constantly monitors its approach to managing interest
rate risk. The Group has fixed GBP69,226,000 (2018: GBP70,119,000)
of its debt in order to provide surety of its interest cost and to
mitigate interest rate risk. The remaining debt in place at year
end is subject to floating rate in order to take advantage of the
historically low interest rate environment.
The Group has a loan with Scottish Widows for GBP14,160,000
(2018: GBP14,596,000) which is fully fixed at a rate of 2.9%.
The Group has a loan with Barclays Bank plc for GBP39,143,000
(2018: GBP35,848,000), of which GBP35,348,000 (2018: GBP35,723,000)
is fixed using an interest rate swap (see note 16). The floating
rate portion of the loan is charged at 3m LIBOR plus 1.95%.
The Group has a loan with Santander plc for GBP26,250,000 (2018:
GBP26,750,000), of which GBP19,718,000 (2018: GBP20,000,000) is
fixed using an interest rate swap (see note 16). The floating rate
portion of the loan is charged at 3m LIBOR plus 2.5%.
The fair value of borrowings held at amortised cost at 31 March
2019 was GBP117,720,000 (2018: GBP99,843,000).
The Group has two loans with Lloyds Bank plc; one for
GBP3,563,000 (2018: GBP3,812,000) which is fully charged at
floating rate of 3m LIBOR plus 2.1%, and one for GBP6,845,000 which
is fully charged at floating rate of 3m LIBOR plus 1.95%.
The Group has a loan with National Westminster Bank plc for
GBP29,389,000 (2018: GBP20,389,000) which is fully charged at
floating rate of 3m LIBOR plus 2.5%.
The Group has been in compliance with all financial covenants of
the above facilities applicable throughout the year.
18. GEARING and loan to value RATIO
The calculation of gearing is based on the following
calculations of net assets and net debt:
2019 2018
GBP'000 GBP'000
-------------------------------------------- -------- --------
EPRA net asset value (note 7) 186,968 190,011
-------------------------------------------- -------- --------
Borrowings (net of unamortised issue costs) 118,016 99,843
-------------------------------------------- -------- --------
Obligations under finance leases 1,585 1,588
-------------------------------------------- -------- --------
Cash and cash equivalents (22,890) (19,033)
-------------------------------------------- -------- --------
Net debt 96,711 82,398
-------------------------------------------- -------- --------
NAV gearing 52% 43%
-------------------------------------------- -------- --------
The calculation of bank loan to property value is calculated as
follows:
2019 2018
GBP'000 GBP'000
------------------------------------ -------- --------
Fair value of investment properties 259,943 255,024
------------------------------------ -------- --------
Fair value of trading properties 14,617 -
------------------------------------ -------- --------
Fair value per Cushmans valuation 274,560 255,024
------------------------------------ -------- --------
Fair value of assets held for sale 11,756 21,708
------------------------------------ -------- --------
Fair value of property portfolio 286,316 276,732
------------------------------------ -------- --------
Borrowings 119,350 101,395
------------------------------------ -------- --------
Cash at bank (22,890) (19,033)
------------------------------------ -------- --------
Net bank borrowings 96,460 82,362
------------------------------------ -------- --------
Loan to value ratio 34% 30%
------------------------------------ -------- --------
19. RECONCILIATION OF LIABILITIES TO CASH FLOWS FROM FINANCING
ACTIVITIES
Bank borrowings Total
GBP'000 GBP'000
---------------------------------------------- --------------- --------
Balance at 1 April 2017 77,794 77,794
---------------------------------------------- --------------- --------
Cash flows from financing activities:
---------------------------------------------- --------------- --------
Bank borrowings drawn 53,392 53,392
---------------------------------------------- --------------- --------
Bank borrowings repaid (45,242) (45,242)
---------------------------------------------- --------------- --------
Loan arrangement fees paid (1,085) (1,085)
---------------------------------------------- --------------- --------
Non cash movements:
---------------------------------------------- --------------- --------
Bank loan acquired on purchase of R.T. Warren 14,515 14,515
---------------------------------------------- --------------- --------
Amortisation of loan arrangement fees 342 342
---------------------------------------------- --------------- --------
Amortisation of loan arrangement fees on the
repayment of loans 127 127
---------------------------------------------- --------------- --------
Balance at 1 April 2018 99,843 99,843
---------------------------------------------- --------------- --------
Cash flows from financing activities:
---------------------------------------------- --------------- --------
Bank borrowings drawn 25,991 25,991
---------------------------------------------- --------------- --------
Bank borrowings repaid (8,037) (8,037)
---------------------------------------------- --------------- --------
Loan arrangement fees paid (145) (145)
---------------------------------------------- --------------- --------
Non cash movements:
---------------------------------------------- --------------- --------
Amortisation of loan arrangement fees 364 364
---------------------------------------------- --------------- --------
Balance at 31 March 2019 118,016 118,016
---------------------------------------------- --------------- --------
20. LEASES
Operating lease receipts in respect of rents on investment
properties are receivable as follows:
2019 2018
GBP'000 GBP'000
----------------------- -------- --------
Within one year 16,118 16,911
----------------------- -------- --------
From one to two years 14,803 14,699
----------------------- -------- --------
From two to five years 35,039 29,612
----------------------- -------- --------
From five to 25 years 59,685 41,635
----------------------- -------- --------
125,645 102,857
----------------------- -------- --------
Operating lease payments in respect of rents on leasehold
properties occupied by the Group are payable as follows:
2019 2018
GBP'000 GBP'000
----------------------- -------- --------
Within one year 178 178
----------------------- -------- --------
From one to two years 178 178
----------------------- -------- --------
From two to five years 197 375
----------------------- -------- --------
553 731
----------------------- -------- --------
Finance lease obligations in respect of rents payable on
leasehold properties were payable as follows:
2019 2018
----------------------- ---------------------------------------- ---------------
Present value Present value
Minimum lease of minimum of minimum
payments Interest lease payments lease payments
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ------------- -------- --------------- ---------------
Within one year 96 (94) 2 2
----------------------- ------------- -------- --------------- ---------------
From one to two years 96 (94) 2 2
----------------------- ------------- -------- --------------- ---------------
From two to five years 289 (281) 8 8
----------------------- ------------- -------- --------------- ---------------
From five to 25 years 1,870 (1,814) 56 58
----------------------- ------------- -------- --------------- ---------------
After 25 years 7,852 (6,335) 1,517 1,518
----------------------- ------------- -------- --------------- ---------------
10,203 (8,618) 1,585 1,588
----------------------- ------------- -------- --------------- ---------------
The net carrying amount of the leasehold properties is shown in
note 9.
The Group has over 230 leases granted to its tenants. These vary
dependent on the individual tenant and the respective property and
demise and vary considerably from short-term leases of less than
one year to longer-term leases of over 10 years.
A number of these leases contain rent free periods. Standard
lease provisions include service charge payments and recovery of
other direct costs. All investment properties in the Group's
portfolio generated rental income during the both the current and
prior periods, with the exception of Hudson Quarter, York held in
Palace Capital (Developments) Limited which commenced development
in February 2018. Direct operating costs of GBPNil were incurred on
the property.
21. Share capital
Authorised, issued and fully paid share capital 2019 2018
is as follows: GBP'000 GBP'000
------------------------------------------------ -------- --------
46,388,515 ordinary shares of 10p each (2018:
46,388,515) 4,639 4,639
------------------------------------------------ -------- --------
4,639 4,639
------------------------------------------------ -------- --------
Reconciliation of movement in ordinary share 2019 2018
capital GBP'000 GBP'000
--------------------------------------------- -------- --------
At start of year 4,639 2,580
--------------------------------------------- -------- --------
Issued in the year - 2,059
--------------------------------------------- -------- --------
At end of year 4,639 4,639
--------------------------------------------- -------- --------
Number
Movement in ordinary authorised Price per of ordinary Total number
share capital share pence shares issued of shares
-------------------------------- ---------- ------------ -------------- ------------
As at 31 March 2017 25,800,279
-------------------------------------------- ------------ -------------- ------------
9 October
Equity issue 2017 340 20,588,236
-------------------------------- ---------- ------------ -------------- ------------
As at 31 March 2018 and 31
March 2019 46,388,515
-------------------------------------------- ------------ -------------- ------------
Number
of ordinary Total number
Movement in treasury shares shares issued of shares
-------------------------------- ------------------ -------------- ------------
As at 31 March 2017 649,587
---------------------------------------------------- -------------- ------------
Shares exercised under employee
LTIP scheme 20 September 2017 (66,352)
-------------------------------- ------------------ -------------- ------------
As at 31 March 2018 583,235
---------------------------------------------------- -------------- ------------
Shares issued under deferred
bonus share scheme 27 September 2018 (38,586)
-------------------------------- ------------------ -------------- ------------
Share options exercised
under employee LTIP scheme 14 January 2019 (39,383)
-------------------------------- ------------------ -------------- ------------
As at 31 March 2019 505,266
---------------------------------------------------- -------------- ------------
Total number of shares excluding the number
held in treasury at 31 March 2019 45,883,249
---------------------------------------------------- -------------- ------------
Year ended 31 March 2019
On 27 September 2018, 38,586 share options were exercised under
the deferred bonus share scheme.
On 14 January 2019, 39,383 share options were exercised under
the 2015 employee LTIP scheme.
Issue costs amounting to GBP17,000 were incurred and were
deducted from the share premium account relating to shares issued
in the prior year.
Year ended 31 March 2018
On 20 September 2017, 66,352 share options were exercised under
the 2014 employee LTIP scheme.
On 9 October 2017 the company issued 20,588,236 ordinary 10p
shares at a price of GBP3.40. Issue costs amounting to GBP2,349,000
were incurred and were deducted from the share premium account.
Shares held in Employee Benefit Trust
Authorised, issued and fully paid share capital 2019 2018
is as follows: No of options No of options
------------------------------------------------ -------------- --------------
Brought forward 33,648 -
------------------------------------------------ -------------- --------------
Transferred under scheme of arrangement 100,000 100,000
------------------------------------------------ -------------- --------------
Shares exercised under deferred bonus share
scheme (38,586) -
------------------------------------------------ -------------- --------------
Shares exercised under employee LTIP scheme (39,383) (66,352)
------------------------------------------------ -------------- --------------
At end of year 55,679 33,648
------------------------------------------------ -------------- --------------
Share options:
Reconciliation of movement in outstanding share 2019 2018
options No of options No of options
------------------------------------------------ -------------- --------------
At start of year 536,827 689,660
------------------------------------------------ -------------- --------------
Issued in the year 265,774 215,456
------------------------------------------------ -------------- --------------
Exercised in the year (39,383) (66,352)
------------------------------------------------ -------------- --------------
Lapsed in the year (138,856) (338,259)
------------------------------------------------ -------------- --------------
Deferred bonus share options issued 63,690 36,322
------------------------------------------------ -------------- --------------
Deferred bonus share options exercised (36,322) -
------------------------------------------------ -------------- --------------
At end of year 651,730 536,827
------------------------------------------------ -------------- --------------
As at 31 March 2019, the Company had the following outstanding
unexpired options.
2019 2018
---------------------------- ------------------------------- ------------------------------
Weighted
Description of unexpired Weighted average average option
share options No of options option price No of options price
---------------------------- ------------- ---------------- ------------- ---------------
Employee benefit plan (note
22) 588,040 0p 500,505 0p
---------------------------- ------------- ---------------- ------------- ---------------
Deferred bonus share scheme
issued 63,690 0p 36,322 0p
---------------------------- ------------- ---------------- ------------- ---------------
Total 651,730 0p 536,827 0p
---------------------------- ------------- ---------------- ------------- ---------------
Exercisable - 0p - 0p
---------------------------- ------------- ---------------- ------------- ---------------
Not exercisable 651,730 0p 536,827 0p
---------------------------- ------------- ---------------- ------------- ---------------
The weighted average remaining contractual life of share options
at 31 March 2019 is 1.4 years (2018: 1.3 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:
Average share
Number Exercise price at date Grant Vesting
of options price of exercise date date
--------------------- ------------ --------- -------------- ------------ ------------
Outstanding at 31
March 2017 689,660 0p -
--------------------- ------------ --------- -------------- ------------ ------------
Exercised during the
year (LTIP 2014) (66,352) 0p 337p
--------------------- ------------ --------- -------------- ------------ ------------
Issued during the 1 November 1 November
year (LTIP 2017) 215,456 0p - 2017 2020
--------------------- ------------ --------- -------------- ------------ ------------
Deferred bonus share 25 September 25 September
options 36,322 0p - 2017 2018
--------------------- ------------ --------- -------------- ------------ ------------
Lapsed during year
(LTIP 2014) (331,759) 0p -
--------------------- ------------ --------- -------------- ------------ ------------
Lapsed during year
(LTIP 2017) (6,500) 0p -
--------------------- ------------ --------- -------------- ------------ ------------
Outstanding at 31
March 2018 536,827 0p -
--------------------- ------------ --------- -------------- ------------ ------------
Exercised during the
year (LTIP 2015) (39,383) 0p 309p
--------------------- ------------ --------- -------------- ------------ ------------
Issued during the
year (LTIP 2018) 265,774 0p - 13 July 2018 13 July 2021
--------------------- ------------ --------- -------------- ------------ ------------
Deferred bonus share
options issued 63,690 0p - 13 July 2018 13 July 2019
--------------------- ------------ --------- -------------- ------------ ------------
Deferred bonus share 25 September 25 September
options exercised (36,322) 0p 306p 2017 2018
--------------------- ------------ --------- -------------- ------------ ------------
Lapsed during year
(LTIP 2015) (80,885) 0p -
--------------------- ------------ --------- -------------- ------------ ------------
Lapsed during year
(LTIP 2017) (21,000) 0p -
--------------------- ------------ --------- -------------- ------------ ------------
Lapsed during year
(LTIP 2018) (36,971) 0p -
--------------------- ------------ --------- -------------- ------------ ------------
Outstanding at 31
March 2019 651,730 0p -
--------------------- ------------ --------- -------------- ------------ ------------
The performance conditions applicable to the LTIPs 2015 and 2016
were adjusted following the acquisition of the R.T. Warren
portfolio and related placing.
LTIP 2016
The options are awarded to employees on achievements against
targets on two separate measures over the three-year period . Half
the options will be awarded based on the first target and half
based on the achievement of the second.
Net asset value per share (NAV) growth is based on the Company's
EPRA NAV value per share as at 31 March 2016. This target will
measure the compound growth in NAV over the three-year period ended
31 March 2019, and comparing this with the Net Asset Value Growth
of a group of comparable companies. The base NAV per share was
GBP4.14 and this was adjusted to GBP3.89 for the final 18 months of
calculations as reported previously.
Total shareholder return (TSR) measures the total shareholder
return (price rise plus dividends) over the period from
4 July 2016 to 3 July 2019. The base price was GBP3.16 per share
which was the market price at the grant date.
Average annual NAV
Average annual TSR (compounded) growth (compounded)
over the TSR performance over the TSR performance
period Vesting % period Vesting %
-------------------------------- --------- ------------------------- ---------
<8% 0 At median 20
-------------------------------- --------- ------------------------- ---------
Between median and
Equal to 8% 33.33 upper quartile 20-100
-------------------------------- --------- ------------------------- ---------
Upper quartile and
Equal to 13% 100 above 100
-------------------------------- --------- ------------------------- ---------
For the TSR measure, the achievement of between 8% and 13%
compound growth will result in the number of ordinary shares
vesting to be calculated on a straight-line basis between 33.33%
and 100%. A similar rule will apply for the NAV condition median
and upper quartile.
LTIP 2017
The options are awarded to employees on achievements against
targets on two separate measures over the three-year period. Half
the options will be awarded based on the first target and half
based on the achievement of the second.
Net asset value per share (NAV) growth is based on the Company's
EPRA NAV value per share as at 31 March 2017. This target will
measure the compound growth in NAV over the three-year period
ending 31 March 2020, and comparing this with the Net Asset Value
Growth of a group of comparable companies. The base NAV per share
is GBP3.89.
Total shareholder return (TSR) measures the total shareholder
return (price rise plus dividends) over the period from 1 November
2017 to 31 October 2020. The base price is GBP3.40 per share which
was the market price at the grant date.
Average annual NAV
Average annual TSR (compounded) growth (compounded)
over the TSR performance over the TSR performance
period Vesting % period Vesting %
-------------------------------- --------- ------------------------- ---------
<8% 0 At median 20
-------------------------------- --------- ------------------------- ---------
Between median and
Equal to 8% 33.33 upper quartile 20-100
-------------------------------- --------- ------------------------- ---------
Upper quartile and
Equal to 13% 100 above 100
-------------------------------- --------- ------------------------- ---------
LTIP 2018
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 as at 31 March 2018. This target
will measure the compound growth in total property return over the
three-year period ending 31 March 2021, and comparing this with the
total property return growth of a group of comparable
companies.
Total shareholder return (TSR) measures the total shareholder
return (price rise plus dividends) over the period from 13 July
2018 to 12 July 2021. The base price is GBP3.54 per share which was
the market price at the grant date.
Average annual PV
Average annual TSR (compounded) growth (compounded)
over the TSR performance over the TSR performance
period Vesting % period Vesting %
-------------------------------- --------- ------------------------- ---------
<8% 0 <1% 0
-------------------------------- --------- ------------------------- ---------
Equal to 8% 33.33 Equal to 1% 33.33
-------------------------------- --------- ------------------------- ---------
Equal to 13% 100 Equal to 3% 100
-------------------------------- --------- ------------------------- ---------
The fair value of grants was measured at the grant date using a
Black-Scholes pricing model for the Portfolio Value (PV) 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 Black-Scholes
TSR Tranche PV Tranche
------------------------- ------------ -------------
Grant date 13.07.18 13.07.18
------------------------- ------------ -------------
Share price GBP3.54 GBP3.54
------------------------- ------------ -------------
Exercise price 0p 0p
------------------------- ------------ -------------
Term 5 years 5 years
------------------------- ------------ -------------
Expected volatility 15.84% 15.84%
------------------------- ------------ -------------
Expected dividend yield 5.44% 5.44%
------------------------- ------------ -------------
Risk free rate 0.77% 0.77%
------------------------- ------------ -------------
Time to vest (years) 3.0 3.0
------------------------- ------------ -------------
Expected forfeiture p.a. 0% 0%
------------------------- ------------ -------------
Fair value per option GBP0.65 GBP3.00
------------------------- ------------ -------------
The expense recognised for employee share-based payment received
during the period is shown in the following table:
2019 2018
GBP'000 GBP'000
----------------------------------------------- -------- --------
LTIP 2015 46 82
----------------------------------------------- -------- --------
LTIP 2016 171 61
----------------------------------------------- -------- --------
LTIP 2017 67 31
----------------------------------------------- -------- --------
LTIP 2018 48 -
----------------------------------------------- -------- --------
Total expense arising from share-based payment
transactions 332 174
----------------------------------------------- -------- --------
23. RELATED PARTY TRANSACTIONS
Accounting services amounting to GBP1,960 (2018: GBP84,951) have
been provided to the Group by Stanley Davis Group Limited, a
company where Stanley Davis is a Director and shareholder. Prior
year includes one off fees paid for property searches in connection
with the acquisition of R.T. Warren (Investments) Limited of
GBP61,069.
Charitable donations amounting to GBP13,757 (2018: GBP19,953)
have been made by the Group to Variety, the Children's Charity, a
charity where Neil Sinclair is a Trustee.
Dividend payments made to Directors amounted to GBP404,734
(2018: GBP372,000) during the year.
24. CAPITAL COMMITMENTS
The obligation for capital expenditure relating to the
construction, development or enhancement of investment properties
entered into by the Group amounted to GBP35,412,295 (2018:
GBP1,595,028).
25. POST BALANCE SHEET EVENTs
On 16 April 2019 the Group completed the disposal of one
residential unit for a total consideration of GBP525,000.
On 17 April 2019, the Group completed the disposal of one
residential unit, with a further 23 residential units completing on
1 May 2019. These units were part of the 50 residential units where
contracts were exchanged with London Borough of Barnet on 28
November 2018. The disposal of 26 of these units completed before
31 March 2019.
On 30 April 2019, the Group completed the disposal of Rathbone
House and Old House in Weybridge, for a total consideration of
GBP1.5million.
On 2 May 2019, the Group repaid its loan facility with Lloyds
Bank plc, which was fully charged at 3m LIBOR plus 2.1%. At 31
March 2019, the outstanding amount of this loan facility was
GBP3,563,000.
On 7 May 2019, the Group completed the disposal of one
residential unit for a total consideration of GBP285,000.
On 7 May 2019, the Group contractually agreed the surrender of
the occupational lease at Priory House, Gooch Street North, in
Birmingham. The tenant has agreed to surrender its lease, which
runs to December 2027 at a rent of GBP322,000 per annum, and to pay
effectively all rent due to expiry, totalling GBP2.85 million. The
contract for surrender completed on 31 May 2019, with the tenant
continuing to pay all outgoings until then. The Group will continue
to be liable for empty rates and insurance. The lease surrender
will allow Palace Capital to move forward with a business plan for
the property, with all options to maximise shareholder value
currently being assessed.
On 30 May 2019, the Group exchanged sales contracts on three
residential units for a total consideration of GBP720,000.
26. Financial RISK MANAGEMENT
The Group's principal financial liabilities are loans and
borrowings. The main purpose of the Group's loans and borrowings is
to finance the acquisition and development of the Group's property
portfolio. The Group has rent and other receivables, trade and
other payables and cash and short-term deposits that arise directly
from its operations.
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 GBP180,323,000 at 31 March 2019 (2018: GBP183,299,000). 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.
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.
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 2019 and 31 March 2018
were:
Nil rate
assets and Floating Fixed rate Floating
liabilities rate assets liability rate liability Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------ ------------ ---------- --------------- ---------
As at 31 March 2019
---------------------------- ------------ ------------ ---------- --------------- ---------
Trade and other receivables 2,539 - - - 2,539
---------------------------- ------------ ------------ ---------- --------------- ---------
Cash and cash equivalents - 22,890 - - 22,890
---------------------------- ------------ ------------ ---------- --------------- ---------
Trade and other payables (4,004) - - - (4,004)
---------------------------- ------------ ------------ ---------- --------------- ---------
Equity investments 2,636 - - - 2,636
---------------------------- ------------ ------------ ---------- --------------- ---------
Interest rate swaps - - (815) - (815)
---------------------------- ------------ ------------ ---------- --------------- ---------
Bank borrowings - - (69,226) (48,790) (118,016)
---------------------------- ------------ ------------ ---------- --------------- ---------
Obligation under
finance leases - - (1,585) - (1,585)
---------------------------- ------------ ------------ ---------- --------------- ---------
1,171 22,890 (71,626) (48,790) (96,355)
---------------------------- ------------ ------------ ---------- --------------- ---------
Nil rate
assets and Floating Fixed rate Floating
liabilities rate assets liability rate liability Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------ ------------ ---------- --------------- --------
As at 31 March 2018
---------------------------- ------------ ------------ ---------- --------------- --------
Trade and other receivables 2,549 - - - 2,549
---------------------------- ------------ ------------ ---------- --------------- --------
Cash and cash equivalents - 19,033 - - 19,033
---------------------------- ------------ ------------ ---------- --------------- --------
Trade and other payables (3,010) - - - (3,010)
---------------------------- ------------ ------------ ---------- --------------- --------
Interest rate swaps - - (181) - (181)
---------------------------- ------------ ------------ ---------- --------------- --------
Bank borrowings - - (70,119) (29,724) (99,843)
---------------------------- ------------ ------------ ---------- --------------- --------
Obligation under
finance leases - - (1,588) - (1,588)
---------------------------- ------------ ------------ ---------- --------------- --------
(461) 19,033 (71,888) (29,724) (83,040)
---------------------------- ------------ ------------ ---------- --------------- --------
The Group's interest rate risk arises from borrowings issued at
floating interest rates (see note 16). The Group's interest rate
risk is reviewed throughout the year by the Directors. The Group
manages its exposure to interest rate risk on borrowings through
the use of interest rate derivatives. 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. The Group
does not hedge 100% of its debt, with 59% of the Group's interest
rate exposure being 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 GBP22,890,000 (2018: GBP19,033,000). The income
statement would be affected by GBP229,000 (2018: GBP190,000) by a
one percentage point change in floating interest rates on a full
year basis.
The Group has loans amounting to GBP48,790,000 (2018:
GBP29,724,000) which have interest payable at rates linked to the
three-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 GBP488,000 (2018: GBP297,000).
The Group has interest rate swaps with a nominal value of
GBP55,066,210 (2018: GBP55,722,900). If the LIBOR 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 LIBOR 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 GBP'000 GBP'000
---------------------------------------------- -------- --------
(Decrease)/increase in fair value of interest
rates swaps as at 31 March 2019 (1,947) 1,869
---------------------------------------------- -------- --------
(Decrease)/increase in fair value of interest
rates swaps as at 31 March 2018 (2,619) 2,149
---------------------------------------------- -------- --------
Upward movements in medium and long-term interest rates,
associated with higher interest rate expectations, increase the
value of the Group's interest rate swaps that provide protection
against such moves. The converse is true for downward movements in
the yield curve.
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.
The Group has its cash held on deposit with four large banks in
the United Kingdom. At 31 March 2019 the cash balances of the Group
were GBP22,890,000 (2018: GBP19,033,000). The concentration of
credit risk held with Barclays Bank plc, the largest of these
banks, was GBP16,964,000 (2018: GBP11,884,000). 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
tenant by contractual income amounts to 5.2% (2018: 5.4%) 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 2019 was
GBP1,935,000 (2018: GBP2,435,000). 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, including
organic growth and acquisition activities, and to meet certain
unforeseen obligations and opportunities. 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 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 1-2 years 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- --------- --------- --------- --------- --------
As at 31 March 2019
------------------------- --------- --------- --------- --------- --------- --------
Interest bearing loans - 9,484 32,323 76,132 12,767 130,706
------------------------- --------- --------- --------- --------- --------- --------
Finance leases - 96 96 289 9,722 10,203
------------------------- --------- --------- --------- --------- --------- --------
Derivative financial
instruments - - - 815 - 815
------------------------- --------- --------- --------- --------- --------- --------
Trade and other payables 4,004 - - - - 4,004
------------------------- --------- --------- --------- --------- --------- --------
4,004 9,580 32,419 77,236 22,489 145,728
------------------------- --------- --------- --------- --------- --------- --------
On 0-1 years 1-2 years 2-5 years > 5 years Total
demand GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
------------------------- --------- --------- --------- --------- --------- --------
As at 31 March 2018
------------------------- --------- --------- --------- --------- --------- --------
Interest bearing loans - 5,168 4,780 90,294 13,705 113,947
------------------------- --------- --------- --------- --------- --------- --------
Finance leases - 96 96 290 9,819 10,301
------------------------- --------- --------- --------- --------- --------- --------
Derivative financial
instruments - - - 181 - 181
------------------------- --------- --------- --------- --------- --------- --------
Trade and other payables 3,010 - - - - 3,010
------------------------- --------- --------- --------- --------- --------- --------
3,010 5,264 4,876 90,765 23,524 127,439
------------------------- --------- --------- --------- --------- --------- --------
Company Statement
of Financial Position
As at 31 March 2019
As previously
stated Prior Year Restated
2019 2018 Adjustment 2018
Note GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ---- -------- ------------- ----------- --------
Non-current assets
--------------------------------- ---- -------- ------------- ----------- --------
Investments in subsidiaries 2 77,671 126,331 - 126,331
--------------------------------- ---- -------- ------------- ----------- --------
Loans to subsidiary undertakings 2 53,823 26,569 - 26,569
--------------------------------- ---- -------- ------------- ----------- --------
Listed equity investments 3 2,636 - - -
--------------------------------- ---- -------- ------------- ----------- --------
Property, plant and equipment 4 92 121 - 121
--------------------------------- ---- -------- ------------- ----------- --------
134,222 153,021 - 153,021
--------------------------------- ---- -------- ------------- ----------- --------
Current assets
--------------------------------- ---- -------- ------------- ----------- --------
Trade and other receivables 5 22,042 22,185 (790) 21,395
--------------------------------- ---- -------- ------------- ----------- --------
Cash at bank and in hand 12,176 5,363 - 5,363
--------------------------------- ---- -------- ------------- ----------- --------
34,218 27,548 (790) 26,758
--------------------------------- ---- -------- ------------- ----------- --------
Total assets 168,440 180,569 (790) 179,779
--------------------------------- ---- -------- ------------- ----------- --------
Current liabilities
--------------------------------- ---- -------- ------------- ----------- --------
Creditors: amounts falling
due within one year 6 (5,862) (1,772) (23,409) (25,181)
--------------------------------- ---- -------- ------------- ----------- --------
Net current assets 28,356 25,776 (24,199) 1,577
--------------------------------- ---- -------- ------------- ----------- --------
Net assets 162,578 178,797 (24,199) 154,598
--------------------------------- ---- -------- ------------- ----------- --------
Equity
--------------------------------- ---- -------- ------------- ----------- --------
Called up share capital 7 4,639 4,639 - 4,639
--------------------------------- ---- -------- ------------- ----------- --------
Share premium account 125,019 125,036 - 125,036
--------------------------------- ---- -------- ------------- ----------- --------
Treasury shares (1,771) (2,011) - (2,011)
--------------------------------- ---- -------- ------------- ----------- --------
Merger reserve 3,503 3,503 - 3,503
--------------------------------- ---- -------- ------------- ----------- --------
Capital redemption reserve 340 340 - 340
--------------------------------- ---- -------- ------------- ----------- --------
Retained earnings 30,848 47,290 (24,199) 23,091
--------------------------------- ---- -------- ------------- ----------- --------
Equity - attributable to the
owners of the parent 162,578 178,797 (24,199) 154,598
--------------------------------- ---- -------- ------------- ----------- --------
The Company's profit after tax for the year was GBP16,126,000
(restated 2018: GBP8,565,000).
The financial statements were approved by the Board of Directors
and authorised for issue on 3 June 2019 and are signed on its
behalf by:
Stephen Silvester Neil Sinclair
Finance Director Chief Executive
Company Statement of
Changes in Equity
Share Share Treasury Other Retained Total
Capital Premium shares Reserves earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------- -------- -------- --------- --------- --------
At 31 March 2017 2,580 59,444 (2,250) 3,843 21,207 84,824
---------------------------- -------- -------- -------- --------- --------- --------
Total comprehensive income
for the year - - - - 32,764 32,764
---------------------------- -------- -------- -------- --------- --------- --------
Transactions with
Equity Holders
--------------------------- -------- -------- -------- --------- --------- --------
Gross proceeds of issue
from new shares 2,059 67,941 - - - 70,000
---------------------------- -------- -------- -------- --------- --------- --------
Costs of issue of
new shares - (2,349) - - - (2,349)
---------------------------- -------- -------- -------- --------- --------- --------
Share based payments - - - - 174 174
---------------------------- -------- -------- -------- --------- --------- --------
Exercise of share
options - - 239 - (239) -
---------------------------- -------- -------- -------- --------- --------- --------
Issue of deferred bonus
share options - - - - 128 128
---------------------------- -------- -------- -------- --------- --------- --------
Dividends - - - - (6,744) (6,744)
---------------------------- -------- -------- -------- --------- --------- --------
At 31 March 2018
as previously stated 4,639 125,036 (2,011) 3,843 47,290 178,797
---------------------------- -------- -------- -------- --------- --------- --------
Prior year adjustment
(note 10) - - - - (24,199) (24,199)
---------------------------- -------- -------- -------- --------- --------- --------
At 31 March 2018
restated 4,639 125,036 (2,011) 3,843 23,091 154,598
---------------------------- -------- -------- -------- --------- --------- --------
Total comprehensive income
for the year - - - - 16,126 16,126
---------------------------- -------- -------- -------- --------- --------- --------
Transactions with
Equity Holders
--------------------------- -------- -------- -------- --------- --------- --------
Costs of issue of
new shares - (17) - - - (17)
---------------------------- -------- -------- -------- --------- --------- --------
Share based payments - - - - 332 332
---------------------------- -------- -------- -------- --------- --------- --------
Exercise of share
options - - 240 - (240) -
---------------------------- -------- -------- -------- --------- --------- --------
Issue of deferred bonus
share options - - - - 257 257
---------------------------- -------- -------- -------- --------- --------- --------
Dividends - - - - (8,718) (8,718)
---------------------------- -------- -------- -------- --------- --------- --------
At 31 March 2019 4,639 125,019 (1,771) 3,843 30,848 162,578
---------------------------- -------- -------- -------- --------- --------- --------
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 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 value of
preference shares capital redeemed.
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).
DIVIDS 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 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 in the Summer 2015 budget the reduction
in the corporation tax rate from 20% main rate in the tax year 2016
to 19% with effect from 1 April 2017 and to 17% from 1 April
2020.
Trade and other receivables
Trade and other 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
-- do 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.
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
Investments Loans to
in subsidiaries subsidiaries Total
Cost: GBP'000 GBP'000 GBP'000
-------------------------------- ---------------- ------------- --------
At 1 April 2017 44,213 38,682 82,895
-------------------------------- ---------------- ------------- --------
Acquisitions 62,648 - 62,648
-------------------------------- ---------------- ------------- --------
Additions - 8,887 8,887
-------------------------------- ---------------- ------------- --------
Transfer 21,000 (21,000) -
-------------------------------- ---------------- ------------- --------
At 31 March 2018 127,861 26,569 154,430
-------------------------------- ---------------- ------------- --------
Additions 3,743 27,254 30,997
-------------------------------- ---------------- ------------- --------
Write down of investments (9,360) - (9,360)
-------------------------------- ---------------- ------------- --------
At 31 March 2019 122,244 53,823 176,067
-------------------------------- ---------------- ------------- --------
Provision for impairment:
-------------------------------- ---------------- ------------- --------
At 1 April 2017 1,530 - 1,530
-------------------------------- ---------------- ------------- --------
Provided during the year - - -
-------------------------------- ---------------- ------------- --------
At 31 March 2018 1,530 - 1,530
-------------------------------- ---------------- ------------- --------
Provided during the year 43,043 - 43,043
-------------------------------- ---------------- ------------- --------
At 31 March 2019 44,573 - 44,573
-------------------------------- ---------------- ------------- --------
Net book value at 31 March 2019 77,671 53,823 131,494
-------------------------------- ---------------- ------------- --------
Net book value at 31 March 2018 126,331 26,569 152,900
-------------------------------- ---------------- ------------- --------
Loans to Subsidiaries
A loan amounting to GBP2,566,660 remains outstanding at 31 March
2019 (2018: GBP3,430,660) from Palace Capital (Northampton)
Limited. Interest on this loan is charged at a fixed rate of 5% per
year. This loan is repayable on 14 June 2020.
A loan amounting to GBP13,711,448 remains outstanding at 31
March 2019 (2018: GBP14,614,856) from Palace Capital (Properties)
Limited. Interest on this loan is charged at a fixed rate of 5% per
year. This loan is repayable on 11 March 2021.
A loan amounting to GBP944,025 remains outstanding at 31 March
2019 (2018: GBP1,875,025) from Palace Capital (Halifax) Limited.
Interest on this loan is charged at a fixed rate of 5% per year.
This loan is repayable on 11 March 2021.
A loan amounting to GBP3,067,963 remains outstanding at 31 March
2019 (2018: GBP2,992,963) from Palace Capital (Manchester) Limited.
Interest on this loan is charged at a fixed rate of 5% per year.
This loan is repayable on 31 December 2020.
A loan amounting to GBP4,328,294 remains outstanding at 31 March
2019 from Palace Capital (Liverpool) Limited. Interest on this loan
is charged at a fixed rate of 5% per year. This loan is repayable
on 7 March 2023.
A loan amounting to GBP29,204,796 remains outstanding at 31
March 2019 (2018: GBP33,703,000) from Palace Capital (Signal)
Limited. Interest on this loan is charged at a fixed rate of 5% per
year. This loan is repayable on 31 October 2023.
Investment in Subsidiaries
Year ended 31 March 2019
On 21 December 2018 the Company acquired One Derby Square,
Liverpool. The Company issues 3,500,000 ordinary GBP1 share in
Palace Capital (Liverpool) Limited.
Year ended 31 March 2018
On 4 August 2017 the Company acquired 100% of the share capital
of SM Newcastle OB Limited for GBP20,000,000. Following the
acquisition, the subsidiary changed its name to Palace Capital
(Newcastle) Limited. The Company purchased 5,000,000 ordinary GBP1
shares in Palace Capital (Newcastle) Limited.
On 9 October 2017 the Company acquired the entire share capital
of R.T. Warren (Investments) Limited for a total consideration of
GBP53,400,000.
On 31 March 2018 the Company purchased an additional 21,000,000
ordinary GBP1 shares at par in Palace Capital (Signal) Limited in
order to refinance the subsidiary.
The Group comprises a number of companies, all subsidiaries
included within these financial statements are noted below:
Class of %
share held shareholding Principal activity
==================================== =========== ============= ====================
Subsidiary undertaking:
=========== ============= ====================
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
=========== ============= ====================
Hockenhull Estates Limited ** Ordinary 100 Property Investments
=========== ============= ====================
Palace Capital (Signal) Limited Ordinary 100 Property Investments
=========== ============= ====================
Quintain (Signal) Member B Limited* Ordinary 100 Holding
=========== ============= ====================
Signal Property Investments LLP* Member 100 Property Investments
=========== ============= ====================
Signal Investments LLP* Member 100 Holding
=========== ============= ====================
Property Investment Holdings Limited Ordinary 100 Property Investments
=========== ============= ====================
Palace Capital (Dartford) Limited Ordinary 100 Property Management
=========== ============= ====================
Palace Capital (Newcastle) Limited Ordinary 100 Property Investments
=========== ============= ====================
R.T. Warren (Investments) Limited Ordinary 100 Property Investments
=========== ============= ====================
Associate Company:
==================================== =========== ============= ====================
HBP Services Limited* Ordinary 21.4 Property Management
=========== ============= ====================
Meadowcourt Management (Meadowhall)
Limited* Ordinary 30 Property Management
=========== ============= ====================
Clubcourt Limited* Ordinary 40 Property Management
==================================== =========== ============= ====================
* Held indirectly
** Incorporated in Isle of Man
The results of the associates 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:
-- UK entities: Lower Ground Floor, 1 George Yard, London, EC3V
9DF.
-- Isle of Man entity: 2nd Floor, Quay House, South Quay,
Douglas, Isle of Man, IM1 5AR.
3. listed EQUITY INVESTMENTS
Total
GBP'000
------------------------------------------------ --------
At 1 April 2018 -
------------------------------------------------ --------
Additions 2,850
------------------------------------------------ --------
Loss on revaluation of listed equity investment
shown in statement of comprehensive income (214)
------------------------------------------------ --------
At 31 March 2019 2,636
------------------------------------------------ --------
During the year the Company purchased listed equity investments
to the value of GBP2,850,000. The investment has subsequently been
revalued using level 1 inputs, the quoted market price.
4. Property, plant and equipment
IT, fixtures
and fittings
GBP'000
-------------------------------- -------------
At 1 April 2017 76
-------------------------------- -------------
Additions 139
-------------------------------- -------------
At 1 April 2018 215
-------------------------------- -------------
Additions 2
-------------------------------- -------------
At 31 March 2019 217
-------------------------------- -------------
Depreciation
-------------------------------- -------------
At 1 April 2017 49
-------------------------------- -------------
Provided during the period 45
-------------------------------- -------------
At 1 April 2018 94
-------------------------------- -------------
Provided during the period 31
-------------------------------- -------------
At 31 March 2019 125
-------------------------------- -------------
Net book value at 31 March 2019 92
-------------------------------- -------------
Net book value at 31 March 2018 121
-------------------------------- -------------
5. TRADE AND other RECEIVABLES
Restated
2019 2018
GBP'000 GBP'000
----------------------------------------------- -------- --------
Current
----------------------------------------------- -------- --------
Amounts owed by subsidiary undertakings 14,250 15,944
----------------------------------------------- -------- --------
Trade debtors 720 540
----------------------------------------------- -------- --------
Corporation tax recoverable - 144
----------------------------------------------- -------- --------
Other debtors 48 37
----------------------------------------------- -------- --------
Other taxes and social security 34 150
----------------------------------------------- -------- --------
Accrued interest on amounts owed by subsidiary
undertakings 6,882 4,499
----------------------------------------------- -------- --------
Prepayments 108 81
----------------------------------------------- -------- --------
22,042 21,395
----------------------------------------------- -------- --------
A loan amounting to GBP10,160,251 remains outstanding at 31
March 2019 (2018: GBP7,976,000) from Palace Capital (Developments)
Limited. No interest is charged on this loan. This loan is
repayable on demand.
A loan amounting to GBP4,090,165 remains outstanding at 31 March
2019 (2018: GBP3,655,165) from Palace Capital (Leeds) Limited.
Interest on this loan is charged at a fixed rate of 5% per year.
This loan is repayable on 8 May 2019.
6. CREDITORS: Amounts falling due within one yeaR
Restated
2019 2018
GBP'000 GBP'000
-------------------------------------- -------- --------
Trade creditors 57 476
-------------------------------------- -------- --------
Amount owed to subsidiary undertaking 5,104 23,839
-------------------------------------- -------- --------
Other taxes 55 52
-------------------------------------- -------- --------
Accruals and deferred income 646 814
-------------------------------------- -------- --------
5,862 25,181
-------------------------------------- -------- --------
A loan amounting to GBPNil remains outstanding at 31 March 2019
(2018: GBP165,000) to Hockenhull Investments Limited. No interest
is charged on this loan. This loan is repayable on demand.
A loan amounting to GBP1,538,132 remains outstanding at 31 March
2019 (2018: GBP265,000) to Palace Capital (Newcastle) Limited. No
interest is charged on this loan. This loan is repayable on
demand.
A loan amounting to GBPNil remains outstanding at 31 March 2019
(2018: GBP32,913,000) to R.T. Investments Limited. No interest is
charged on this loan. This loan is repayable on demand.
A loan amounting to GBP3,566,350 remains outstanding at 31 March
2019 (2018: GBP7,969,000 debtor) to Property Investment Holdings
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:
2019 2018
GBP'000 GBP'000
----------------------- -------- --------
Within one year 178 178
----------------------- -------- --------
From one to two years 178 178
----------------------- -------- --------
From two to five years 197 375
----------------------- -------- --------
553 731
----------------------- -------- --------
9. POST BALANCE SHEET EVENT
There are no post balance sheet events.
10. Prior year adjustment
During the year ended 31 March 2018 the Parent Company, Palace
Capital plc, received a dividend from a subsidiary company which,
due to a technical error, was subsequently found to have been
declared unlawfully (as the subsidiary did not have relevant
accounts that had been properly prepared as prescribed by Companies
Act 2006 at the time that it declared the dividend). Consequently,
the Parent Company's financial statements for the year ending 31
March 2019 reflect a prior year adjustment which reduces its profit
after tax for the year ended 31 March 2018 by GBP24.2 million and
increases amounts due by the Parent Company to subsidiaries at that
date by the same amount. There was no impact on the Consolidated
Financial Statements. In November 2018, Palace Capital was released
from the liability to repay the dividend which has restored the
GBP24.2 million of profit after tax and decreased the sum due to
the subsidiary by an equivalent amount.
Glossary
Adjusted EPS: Is adjusted profit before tax less corporation tax
charge (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 movements in derivatives
and 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.
Core plus: Is a property investment management style which
adopts a certain risk appetite growth strategy. Core plus is
typically associated with a low to moderate risk profile. Core plus
property owners would have the ability to increase cash flows
through light refurbishment and asset management strategies. Core
plus properties tend to be high-quality and well-occupied.
Dividend cover: Is the Adjusted EPS divided by dividend per
share declared in the period.
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 and 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
excluding the mark to market on effective cash flow hedges and
related debt adjustments, deferred taxation on revaluations and
diluting for the effect of those shares potentially issuable under
employee share schemes.
EPRA NAV per share: Is EPRA NAV divided by the diluted number of
shares at the period end.
EPRA NNNAV: Is the EPRA NAV adjusted to reflect the fair value
of debt and derivatives and to include deferred taxation on
revaluations.
EPRA occupancy rate: Is the ERV of occupied space divided by ERV
of the whole portfolio, excluding developments and residential
property.
EPRA topped-up net initial yield: Is the current annualised
rent, net of costs, topped up for contracted uplifts, where these
are not in lieu of rental growth, expressed as a percentage of
capital value.
EPRA vacancy rate: Is the ERV of vacant space divided by ERV of
the whole portfolio, excluding developments and residential
property.
Equivalent yield: Is the net weighted average income return a
property will produce based upon the timing of the income received.
In accordance with usual practice, the equivalent yields (as
determined by the external valuers) assume rent received annually
in arrears and on values before deducting prospective purchaser's
costs.
Estimated rental value (ERV): Is the external valuers' opinion
as to the open market rent which, on the date of valuation, could
reasonably be expected to be obtained on a new letting or rent
review of a property.
IAS/IFRS: Is the International Financial Reporting Standards
issued by the International Accounting Standards Board and adopted
by the EU.
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.
LIBOR: Is the London Interbank Offered Rate, the interest rate
charged by one bank to another for lending money.
Like-for-like net rental income: Is the change in net rental
income on properties owned throughout the current and previous
periods under review. This growth rate includes revenue recognition
and lease accounting adjustments but excludes properties held for
development in either period, properties with guaranteed rent
reviews, asset management determinations and surrender
premiums.
Like-for-like valuation: Is the change in the carrying value of
properties owned throughout the entire year. This excludes
properties acquired during the year and disposed of during the
year.
Loan to value (LTV): Is the ratio of principal value of gross
debt less cash, short-term deposits and liquid investments to the
aggregate 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 the UK All Property Index.
Net Loan to Value (LTV): Is the ratio of gross debt less cash,
short-term deposits and liquid investments to the aggregate value
of properties and investments.
Net asset value (NAV) per share: Is the equity attributable to
owners of the Group divided by the number of ordinary shares in
issue at the period end.
Net equivalent yield (NEY): Is the weighted average income
return (after adding notional purchaser's costs) a property will
produce based upon the timing of the income received. In accordance
with usual practice, the equivalent yields (as determined by the
external valuers) assume rent is received annually in arrears.
Net initial yield (NIY): Is the current annualised rent, net of
costs, expressed as a percentage of capital value, after adding
notional purchaser's costs.
Net rental income: Is the rental income receivable in the period
after payment of net property outgoings. Net rental income will
differ from annualised net rents and passing rent due to the
effects of income from rent reviews, net property outgoings and
accounting adjustments for fixed and minimum contracted rent
reviews and lease incentives.
Net reversionary yield (NRY): Is the anticipated yield, which
the initial yield will rise to once the rent reaches the estimated
rental value.
Northern Powerhouse: Is a proposal to boost economic growth in
the North of England by the 2010-15 coalition government and
2015-2017 Conservative government in the United Kingdom,
particularly in the 'Core Cities' of Manchester, Liverpool, Leeds,
Sheffield, Hull and Newcastle.
Passing rent: Is the gross rent, less any ground rent payable
under head leases.
Peer Group: Is 16 companies in the listed real estate
sector.
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.
Portfolio Valuation: Is the value of the Company's property
portfolio, including all investment and trading properties as
valued by our independent valuers, Cushman & Wakefield, and
assets held for sale.
Portfolio Value (PV): Is the value of the investment properties
within the Palace Capital property portfolio as measured by Cushman
& Wakefield. It is referenced in relation the 2018 LTIP's
awarded to employees in 2018.
Real Estate Investment Trust (REIT): A UK Real Estate Investment
Trust must be a publicly quoted company 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 non-qualifying activities of the
residual business.
Special Purpose Vehicle (SPV): Is a separate legal entity
created by an organisation. The SPV is a distinct company with its
own assets and liabilities, as well as its own legal status.
Usually, they are created for a specific objective, often which is
to isolate financial risk. As it is a separate legal entity, if the
Parent Company goes bankrupt, the special purpose vehicle can carry
its obligations.
Tenant (or lease) incentives: Are any incentives offered to
occupiers to enter into a lease. Typically the incentive will be an
initial rent-free period, or a cash contribution to fit-out or
similar costs. Under accounting rules the value of lease incentives
given to tenants is amortised through the Income Statement on a
straight-line basis to the lease expiry.
Total Accounting Return (TAR): Is the increase or decrease in
EPRA NAV per share plus dividends paid, and this can be expressed
as a percentage of EPRA NAV per share at the beginning of the
period.
Total Shareholder Return (TSR): Is calculated by the growth in
capital from purchasing a share in the Company assuming that the
dividends are reinvested each time they are paid.
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.'
Value added: Is a risk appetite growth strategy. Typically
associated with a moderate to high risk profile. Value add
properties tend to have low cash flows at acquisition but have the
potential to produce future cash flow uplifts once value has been
added. This could be by taking on larger capital refurbishment
projects to improve the layout and look of the property to ensure
rental increases and capital value enhancement.
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 or visit www.rns.com.
END
FR LXLLBKQFFBBK
(END) Dow Jones Newswires
June 04, 2019 02:00 ET (06:00 GMT)
Grafico Azioni Palace Capital (LSE:PCA)
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Da Mar 2024 a Apr 2024
Grafico Azioni Palace Capital (LSE:PCA)
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