TIDMPCA

RNS Number : 8161T

Palace Capital PLC

19 November 2019

19 November 2019

PALACE CAPITAL PLC

("Palace Capital" or the "Company")

Interim Results for the 6 months ended 30 September 2019

CAPITAL EXPITURE STRATEGY AND INCREASED LETTING ACTIVITY UNDERPIN CONTINUED POSITIVE PERFORMANCE

Palace Capital (LSE: PCA), the UK REIT that has a diversified portfolio of UK regional commercial real estate in carefully selected locations outside of London, is pleased to announce its unaudited results for the six months ended 30 September 2019.

HIGHLIGHTS

Continued total property return outperformance

-- Total property return of 1.5% over the period, outperforming the MSCI UK Quarterly Benchmark of 0.8% and marking three successive years of outperformance

-- EPRA earnings increased to GBP6.7 million (September 2018: GBP3.5 million) reflecting underlying strength of investment portfolio

   --    EPRA EPS of 14.5p, 153% cover of 9.5p dividend for the six-month period 
   --    Q2 dividend of 4.75p declared and payable in December 2019 
   --    IFRS net assets of GBP178.7 million maintained (March 2019: GBP180.3 million) 
   --    EPRA NAV per share 391p reduced by 3.9% (March 2019: 407p) 

-- Conservative gearing maintained at 34% LTV and weighted average interest rate reduced from 3.3% to 3.2%

-- WAULT increased to 5.2 years to break and 6.6 years to expiry (31 March 2019: 4.5 years to break) as a result of lease renewals and new lettings

   --    Converted to REIT status with effect from 1 August 2019 

-- Increased revolving credit facility with NatWest to GBP40 million and extended for a further five years at a lower margin

Active asset management delivering long term portfolio enhancement

-- Hudson Quarter flagship development scheme in York, which includes 127 apartments with over 20% already sold or under offer, on track for completion in January 2021

-- Planning consent secured for 28 apartments and 4,000 sq ft of retail space at 45 High Street, Weybridge, Surrey in one of the UK's most affluent areas

-- GBP13.2 million of disposals during the period, including remaining non-core residential units from Warren Portfolio

-- Overall EPRA occupancy at 84% reducing temporarily as we continue to focus on strategic refurbishment or redevelopment delivering long term benefits

Positive leasing momentum driving income

-- 12 lease renewals and five rent reviews completed at an average 3% above ERV and a 25% uplift on previous passing rents, creating GBP0.4 million additional annual rental income

   --    Nine new leases provided an additional GBP0.5 million of annual income, including: 

o 23,500 sq ft at Sol, Northampton to Gravity Fitness for a minimum term of 10 years at a 17% premium to ERV

o 14,665 sq ft of space let at Boulton House, Manchester, bringing the asset to 82% occupancy with 13,170 sq ft remaining to be let

-- Lease surrender with Forensic Science Service at Priory House, Birmingham secured GBP2.85 million, being all the remaining rent due under the lease, and discussions underway to dispose of remaining short leasehold interest

-- Adjoining site to the 28,000 sq ft holding at 24 Blackwater Way, Aldershot acquired for GBP0.2 million and a new 10-year lease agreed with BHW Automotive Limited for the entire property at a rent of GBP227,000 per annum exclusive, an increase of GBP10,000 per annum. The lease benefits from a fixed increase after five years to GBP250,254 per annum and the latest valuation of the property shows a 51% capital value uplift as a result

 
   Balance Sheet            30 Sept 2019      31 March 2019 
   Property valuation       GBP275.8m         GBP286.3m 
   Net assets               GBP178.7m         GBP180.3m 
   EPRA NAV per share       391p              407p 
 
 
   Income Statement                 Six months to     Six months to 
                                     30 Sept 2019      30 Sept 2018 
   Profit after tax                 GBP2.6m           GBP7.3m 
   EPRA earnings                    GBP6.7m           GBP3.5m 
   Earnings per share               5.6p              15.9p 
   EPRA earnings per share          14.5p             7.7p 
   Adjusted earnings per share      8.5p              8.0p 
   Total accounting return          -1.5%             3.7% 
   Total shareholder return         0.2%              -3.8% 
   Total dividend per share         9.5p              9.5p 
   Dividend cover*                  90%               84% 
 

*Dividend cover is calculated on the adjusted earnings per share which is a recurring earnings basis and specifically excludes the one-off significant surrender premium of GBP2.85m received in the current period.

Neil Sinclair, Chief Executive of Palace Capital said:

"During the period we have stepped up our development activity, a strategy we believe is best placed to increase shareholder value in the long term by creating an even stronger portfolio that can meet the demand we are seeing outside of London for well located, fit for purpose property that delivers higher quality income and capital growth. Our commitment to a total return strategy is now starting to pay off, both in terms of income and capital growth, and should enable us to maintain our positive performance.

"At the end of June, we placed 20 apartments at Hudson Quarter, York, on the market and demand has been such that we have now sold 21 with a further 7 under offer. We are well ahead of our business plan at Hudson Quarter and with letting activity brisk on our other refurbishments, we are most encouraged despite the current political uncertainty."

Stanley Davis, Chairman of Palace Capital said:

"Our strategy at Palace Capital is delivering growth, both in terms of income and long-term capital value, and I am very pleased that we have now outperformed the MSCI IPD Quarterly Benchmark for three consecutive years. While the significant capital expenditure we have deployed across a number of different properties has not yet fully resulted in a corresponding uplift in property valuations due to the time lag between completing capital works and letting the refurbished space, and therefore has had a slight impact on our NAV, I firmly believe this investment will support our future growth. In the six years since our re-admission in October 2013 we have produced a total accounting return of 123%, outperforming almost the entire peer group.

"We continue to abide by a disciplined acquisition policy and, having not assessed a suitable opportunity in the period that meets our strict criteria, we believe that the best use of capital to deliver value for our shareholders in the current market is to unlock the growth potential in our existing portfolio. The Board is confident Palace Capital is well positioned for the future, with a strong core income profile and a number of value-enhancing refurbishment and redevelopment opportunities."

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 plc (LSE: PCA) is a UK REIT that has a GBP275.8 million diversified portfolio of UK regional commercial property. The Company maintains a disciplined investment strategy focused on towns and cities outside of London that are characterised by thriving local economies and strengthening fundamentals. Within those locations the highly experienced management team select assets that provide opportunities to drive both capital value and long-term rental income through tailored active asset management programmes ultimately delivering attractive shareholder returns.

www.palacecapitalplc.com

CHAIRMAN'S STATEMENT:

I am pleased to report our interim results for the six months ended 30 September 2019. Overall, we have had an encouraging start to the year as we continue to work hard to ensure our strategic aims are met and that we are delivering value to our Shareholders despite the ongoing political and economic uncertainty in the UK.

PERFORMANCE:

Our total property return is 1.5% and the Group made a profit after tax of GBP2.6 million in the period with an EPS of 5.6p per share. EPRA earnings totalled GBP6.7 million, translating to an EPRA EPS of 14.5p per share and providing over 150% cover for dividends in the period of 9.5p per share. An alternative measure of recurring earnings is our adjusted earnings of GBP3.9 million, which excludes the GBP2.85 million in cash received from the surrender of the lease at Priory House, Birmingham, and totalled 8.5p per share for the six months to 30 September 2019 (September 2018: 8.0p per share).

Following shareholder support for our conversion to a UK REIT on 1 August, we are already experiencing tax savings and we expect these to continue to flow through for the remainder of this financial year.

In the first half of the year, our style of active management continued to deliver improvements through our highly skilled and experienced team, resulting in a number of successful lettings, renewals and rent reviews. As a result of this we generate the necessary income which allows us to maintain our dividend, while growing the net assets of the Company.

In line with our strategy, we have tactically reserved space for refurbishment or redevelopment. This means that portfolio occupancy has fallen to 84% whilst we await appropriate planning consent for certain redevelopments, and in some instances, we have let space on a short-term basis. This normally means lower rentals than conventional leases, but we believe the long-term benefits will justify this approach in the current investment market. A case in point is the Hudson Quarter development in York, where we are now starting to reap the benefits as planned.

As at 30 September 2019, our portfolio was independently valued by Cushman and Wakefield at GBP275.8 million with an annual contracted rent roll of GBP16.3 million and a net income after property costs of GBP14.8 million per annum.

Our EPRA NAV has decreased by 3.9% to 391p per share (March 2019: 407p) as we continue to invest in our portfolio and dispose of non-core assets. However, we have maintained net assets which have only slightly reduced to GBP178.7 million as compared to GBP180.3 million in March 2019, a reduction of less than 1%.

Recurring income growth is a continuing focus but increasing our capital values is also a priority. For the six months to 30 September 2019 there was a 32% uplift in rental income, including the surrender premium net of irrecoverable costs, which totalled GBP10.7 million (up from GBP8.1 million for the six months to 30 September 2018). Our contractual passing rental income totalled GBP16.3 million per annum compared to an ERV of GBP21.2 million per annum and it is this growth-gap that we are targeting in order to further increase our income and improve dividend cover.

Our second quarterly dividend of 4.75p will be payable on 27 December 2019 to shareholders on the register as at 6 December 2019 and this will take us to 9.5p for the six-month period. The dividend will include a Property Income Distribution (PID) in light of the minimum REIT distribution requirements.

While our ability to cover our dividend has been limited by the fact that we have not made a significant earnings enhancing acquisition since 1 Derby Square, Liverpool in December 2018, we remain committed to our investment criteria. While we are constantly looking at possible acquisitions, my colleagues and I believe that in the current market, investing in our core portfolio is the correct strategy for our shareholders and we intend to maintain this approach for the foreseeable future.

I stated last year that we are somewhat different from our peer group. Firstly, the majority of our acquisitions have been of corporate entities; we have saved in excess of GBP10.0 million in SDLT (Stamp Duty Land Tax) since re-admission and have inherited tax losses and unclaimed capital allowances. Secondly, we are a total return property company and consequently we are prepared to redevelop or refurbish our assets in order to create additional value. We believe this approach will outperform a pure income policy over time.

In any event the real estate investment market has been particularly subdued, and leading agents are reporting much lower volumes of transactions from their capital market divisions. This is likely to continue whilst there is political uncertainty in the UK. In the meantime, this is impacting our share price which does not fully reflect the underlying net asset value of the Company. However, we have maintained our performance and we are well positioned to unlock further value from within the portfolio.

Overall, we have a strong and well-located core portfolio with sustainable income from high quality tenants, as well as significant reversionary potential to grow rental income by over 30% together with the added value of a pipeline of development and refurbishment projects.

We therefore approach the second half of the year with confidence.

MARKET BACKDROP:

The UK regional office market remains robust, particularly in those locations where we have significant holdings.

In Manchester, according to Savills Research published in September, the total office take up for the six months to 30 June was 806,024 sq ft, which is 7% ahead of the same period last year and 32% ahead of the five-year average. Alongside this significant rise in demand, office availability has fallen to its lowest level ever.

Savills research in August also showed that Leeds, where we own a 90,000 sq ft building at Bank House, King Street, saw record take up in the first half of the year. 436,312 sq ft of office space was leased, 41% ahead of the same period last year, including major lettings of 71,000 sq ft at Central Square and 135,000 sq ft at 4 Wellington Place.

Finally, there is ever increasing activity in Liverpool. We have highlighted that we are seeing a broader trend of occupiers relocating from out of town properties into city centres, which are often more accessible for employees and provide them with a more vibrant surrounding as work and leisure time becomes increasingly blended. Sony recently announced that it is moving from the Wavertree Technology Park on the city outskirts and taking 65,000 sq ft at the former Liverpool Echo building in the city centre. In addition, BT, which has a requirement for 100,000 sq ft, has shortlisted three city centre locations and is expected to make a decision by the end of this year.

Since 2014, Liverpool has lost over 1 million sq ft of office space which has been converted to either residential or student accommodation; this trend has been felt across the UK and we have focused in the regions on those cities which have a limited and dwindling office supply. With political parties stating that they intend to commit investment towards connectivity and a better regional transport infrastructure, we are well placed to take advantage of this policy.

Regional office returns have exceeded those generated by London every year since 2016. In addition, regional offices (48% of the Company's portfolio) provide the strongest, risk adjusted sector in the UK and remain a key sector that we are focused on. In contrast, the retail sector continues to contract but our conservative strategy means we have a very limited exposure and the assets that we do hold are primarily let to tenants with quality covenants.

PORTFOLIO ACTIVITY:

Hudson Quarter, Toft Green, York

Construction commenced on this two-acre site in February 2019 and it remains on time and on budget. Progress on the residential sales is well ahead of expectations and soft marketing has now commenced to let the office space. Our drawdown with Barclays commences next month, so all costs to date, including demolition, have been met from our own resources. Given the backdrop of political uncertainty, we are delighted with progress to date.

Sol, Northampton

We have faced challenges in the leisure sector which are well known, particularly since we accepted the surrender of the Gala Casino lease for GBP4 million in 2015. However, our asset management strategy is now delivering positive results; not only did we let 12,000 sq ft to Soo Yoga earlier this year, but we have also let 23,500 sq ft to Gravity Fitness for a minimum term of 10 years at 17% above the ERV with additional rent achievable based on turnover targets. The scheme is now 89% let and strong interest is being shown in the remaining 21,000 sq ft.

Boulton House, Chorlton Street, Manchester

We acquired this 75,000 sq ft office building in Manchester city centre for GBP10.6 million just before the Referendum result in June 2016, when most of our competitors withdrew from the market. The property is now valued at GBP15.2 million, after a circa GBP800,000 refurbishment, and we are achieving close to GBP19.00 per sq ft, a significant increase from the rents of GBP12.50-GBP13.50 per sq ft at the point of purchase.

41-45, High Street, Weybridge, Surrey

Planning consent was secured in July 2019 for 4,000 sq ft of retail space and 28 apartments on this prime site, which is immediately opposite a Waitrose supermarket. We have commenced stripping out the existing building to mitigate the rates liability and the professional team are now being engaged with a view to us commencing the scheme late next year.

2-3 St James' Gate, Newcastle-upon-Tyne

We have committed circa GBP2.5 million to refurbish two vacant floors, the entrance hall and other areas in order to give the building a more prominent identity. There is an underlying shortage of Grade A space in Newcastle and we believe that this property has excellent growth prospects, both in terms of income and capital value in light of the rents being achieved on similar buildings in the area.

249 Midsummer Boulevard, Milton Keynes

We are currently evaluating a major development of this site and we intend to make appointments to move forward with a planning application in the near future. We have already received a preliminary report indicating that the site is capable of a scheme with a floor area of more than double the existing property. In the meantime, it will be our intention to limit our outgoings by letting the vacant space on a relatively short-term basis. An economic report called 'UK Powerhouse', published by the leading law firm Irwin Mitchell and the Centre for Economic Research in July of this year, reveals that Milton Keynes will be the fastest growing city at the start of 2021. This was affirmed by national commercial consultancy Lambert Smith Hampton in research released in February of this year.

Imperial Court & Imperial House, Leamington Spa

These two adjacent office buildings totalling 40,000 sq ft stand on a 1.5-acre town centre site and currently produce GBP600,000 per annum on leases expiring in 2022. This is a high value location and we will shortly start assessing future redevelopment options.

Lendal, Museum Street, York

This retail and office building was part of the Warren Portfolio acquired in 2017. There is a critical shortage of office space in York, so we took the decision to refurbish 5,600 sq ft of offices on the upper floors. We have let one floor at a headline rental of GBP22.50 per sq ft which is the highest achieved within York. We have agreed terms to let the majority of the remaining space.

Regency House, High Street, Winchester

This office building is also part of the Warren Portfolio. Part was let on acquisition, but we have refurbished 4,500 sq ft, most of which is now under offer at rents in excess of what we might have expected at the point of purchase.

BALANCE SHEET:

Despite a challenging economic backdrop, we are well capitalised and continue to remain conservatively geared at 34% net of cash. At the half year we had borrowings of GBP106.9 million, of which 63% is hedged. We pride ourselves on having a productive working relationship with our lenders, as demonstrated by our increased GBP40 million NatWest Revolving Credit Facility, which was secured in August of this year for a further term of five years at a lower margin. The contribution from our lenders is key to maintaining an efficient capital structure and enhancing the performance of our business.

CONCLUSION AND OUTLOOK:

These results are being announced in the middle of a General Election campaign. All parties are encouraging economic development in the UK's regions and with our assets being well-positioned in the right locations, we are well placed to take advantage of this. Our core income producing properties, together with our development and refurbishment pipeline and the ongoing progress at Hudson Quarter, means that we can expect to generate significant value for shareholders over the long term.

We have holdings in towns and cities that are affected by a lack of development and the loss of office use to residential, and this supply / demand pressure is leading to increasing rental values.

Property is a medium to long term investment and I remain confident that we are well positioned to continue to grow the value of our portfolio for our investors. Although I have been in business a long time, I believe the best years for Palace Capital are yet to come in what continues to be an exciting journey.

Statement of principal risks and uncertainties

Whilst we consider there has been no material changes to the Group's principal risks, as set out on pages 40-41 of the Annual Report and Accounts for the year ended 31 March 2019, several risks associated with the commercial property market in general are elevated as a result of the continuing political uncertainty surrounding the UK's departure from the EU and the General Election.

The Board continues to monitor external events and is taking appropriate action to prepare for any short-term risks that could arise whilst this period of uncertainty continues. Our business is resilient, and we are able to respond quickly, positioning us well for the longer term.

Statement of directors' responsibilities

The directors' confirm that the condensed set of consolidated financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

-- an indication of important events that have occurred during the first six months and their impact on the condensed interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

-- material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The directors of Palace Capital plc are listed on the Company website https://www.palacecapitalplc.com/

By order of the Board

Stanley Davis, Chairman

18 November 2019

Palace Capital plc

Condensed consolidated statement of comprehensive income

For the six months ended 30 September 2019

 
                                                         Notes            Unaudited            Unaudited              Audited 
                                                                           6 months             6 months              Year to 
                                                                                 to                   to             31 March 
                                                                       30 September         30 September                 2019 
                                                                               2019                 2018               GBP000 
                                                                             GBP000               GBP000 
 
            Rental and other 
             income                                          3               11,917                9,210               18,750 
            Property operating 
             expenses                                                       (1,214)              (1,101)              (2,318) 
--------------------------------------  --------------  ------  -------------------  -------------------  ------------------- 
Net property income                                                          10,703                8,109               16,432 
 
            Dividend income from listed 
             equity investments                                                  53                    -                   43 
            Administrative expenses                                         (2,193)              (1,985)              (4,122) 
Operating profit before gains 
 and losses on property assets 
 and listed equity investments                                                8,563                6,124               12,353 
 
            (Loss)/profit on disposal of 
             investment properties                                             (24)                  211                  218 
            (Loss)/gain on revaluation 
             of investment properties                        8              (6,177)                3,880                (382) 
            Impairment of trading properties                 8                (305)                    -                    - 
            Loss on disposal of assets 
             held for sale                                                    (269)                    -                (579) 
            Impairment on assets held for 
             sale                                            8                    -                    -                (291) 
            Gain/(loss) on revaluation 
             of listed equity investments                                       101                    -                (214) 
Operating profit                                                              1,889               10,215               11,105 
 
Finance income                                                                   11                   11                   20 
Finance expense                                                             (2,414)              (1,953)              (3,763) 
Changes in fair value of interest 
 rate derivatives                                                             (663)                   77                (929) 
(Loss)/profit before taxation                                               (1,177)                8,350                6,433 
 
Taxation                                                     4                3,729              (1,078)              (1,263) 
------------------------------------------------------  ------  -------------------  -------------------  ------------------- 
Profit for the period and total 
 comprehensive income                                                         2,552                7,272                5,170 
======================================================  ======  ===================  ===================  =================== 
 
 
 
Earnings per ordinary share 
Basic                                                        6                 5.6p                15.9p                11.3p 
Diluted                                                      6                 5.6p                15.8p                11.3p 
 
 

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

Palace Capital plc

Condensed consolidated statement of financial position

30 September 2019

 
                                                Unaudited      Unaudited    Audited 
                                             30 September   30 September   31 March 
                                                     2019           2018       2019 
                                     Notes         GBP000         GBP000     GBP000 
Non-current assets 
Investment properties                    8        255,514        260,178    258,331 
Listed equity investments 
 at fair value                                      3,066              -      2,636 
Right of use asset                                    405              -          - 
Property, plant and 
 equipment                                             81            103         97 
                                                  259,066        260,281    261,064 
 ---                                 -----  -------------  -------------  --------- 
 
Current assets 
Assets held for sale                     8              -         21,708     11,756 
Trading property                         8         18,895              -     14,367 
Trade and other receivables              9          7,102          5,702      6,243 
Cash and cash equivalents               10         13,965         13,818     22,890 
-----------------------------------  -----  -------------  -------------  --------- 
Total current assets                               39,962         41,228     55,256 
-----------------------------------  -----  -------------  -------------  --------- 
Total assets                                      299,028        301,509    316,320 
-----------------------------------  -----  -------------  -------------  --------- 
 
Current liabilities 
Trade and other payables                11        (9,700)        (8,460)   (10,001) 
Borrowings                              12        (1,836)        (6,124)    (5,999) 
-----------------------------------  -----  -------------  -------------  --------- 
Total current liabilities                        (11,536)       (14,584)   (16,000) 
-----------------------------------  -----  -------------  -------------  --------- 
 
Net current assets                                 28,426         26,644     39,256 
------------------------------------------  -------------  -------------  --------- 
 
Non-current liabilities 
Borrowings                              12      (105,026)       (91,692)  (112,017) 
Deferred tax                                        (204)        (6,972)    (5,580) 
Lease obligations                                 (2,240)        (1,587)    (1,585) 
Derivative financial 
 instruments                            13        (1,335)          (104)      (815) 
-----------------------------------  -----  -------------  -------------  --------- 
Total non-current liabilities                   (108,805)      (100,355)  (119,997) 
-----------------------------------  -----  -------------  -------------  --------- 
 
Net Assets                                        178,687        186,570    180,323 
-----------------------------------  -----  -------------  -------------  --------- 
 
Equity 
Share capital                           14          4,639          4,639      4,639 
Share premium account                             125,019        125,019    125,019 
Merger reserve                                      3,503          3,503      3,503 
Capital redemption 
 reserve                                              340            340        340 
Treasury share reserve                            (1,348)        (1,893)    (1,771) 
Retained earnings                                  46,534         54,962     48,593 
-----------------------------------  -----  -------------  -------------  --------- 
Equity shareholders' funds                        178,687        186,570    180,323 
------------------------------------------  -------------  -------------  --------- 
 
Basic NAV per ordinary 
 share                                   7           388p           407p       393p 
Diluted NAV per ordinary 
 share                                   7           388p           406p       392p 
EPRA NAV per ordinary 
 share                                   7           391p           421p       407p 
-------------------------------      -----  -------------  -------------  --------- 
 
 

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

The condensed consolidated interim financial statements were approved by the Board of Directors on 18 November 2019.

Palace Capital plc

Condensed consolidated statement of cash flows

For the six months ended 30 September 2019

 
                                         Notes      Unaudited 
                                                     6 months      Unaudited    Audited 
                                                           to    6 months to    Year to 
                                                 30 September   30 September   31 March 
                                                         2019           2018       2019 
                                                       GBP000         GBP000     GBP000 
Operating activities 
Loss before tax                                       (1,177)          8,350      6,433 
Adjustments for non-cash items: 
Loss/(gain) on revaluation of 
 properties                               8             6,177        (3,880)        382 
Impairment of trading properties          8               305              -          - 
Loss on revaluation of assets 
 held for sale                            8                 -              -        291 
Gain on revaluation of investments        8             (101)              -        214 
Loss/(profit) on sale of investment 
 properties                               8                24          (211)      (218) 
Loss on disposal of investment 
 property held for sale                   8               269              -        579 
Depreciation                                               98             16         31 
Share-based payment                                       100            113        332 
Net finance costs                                       3,066          1,865      4,672 
--------------------------------------  ------  -------------  -------------  --------- 
Cash generated by operations                            8,761          6,253     12,716 
Changes in working capital                            (1,300)        (1,070)      (796) 
--------------------------------------  ------  -------------  -------------  --------- 
 
Cash flows from operations                              7,461          5,183     11,920 
Interest received                                          11             11         20 
Interest and other finance costs 
 paid                                                 (1,985)        (1,620)    (3,405) 
Corporation tax received/(paid)                       (1,554)              9    (1,639) 
Cash flows from operating activities                    3,933          3,583      6,896 
--------------------------------------  ------  -------------  -------------  --------- 
 
Investing activities 
Purchase of investment property           8                 -          (797)   (15,505) 
Capital expenditure on refurbishments 
 of property                              8           (3,061)        (2,368)    (2,453) 
Capital expenditure on developments       8           (1,363)              -    (1,923) 
Capital expenditure on trading 
 property                                 8           (4,833)              -      (535) 
Proceeds from disposal of investment 
 properties                               8             1,476            948      2,078 
Proceeds from assets held for 
 sale                                     8            11,488              -      9,082 
Amounts transferred (into)/out 
 of restricted cash deposits                            (620)            336        553 
Purchase of non-current asset 
 - equity investment                                    (328)              -    (2,850) 
Purchase of property, plant and 
 equipment                                                  -              -        (7) 
Cash flows from investing activities                    2,759        (1,881)   (11,560) 
--------------------------------------  ------  -------------  -------------  --------- 
 
Financing activities 
Bank loan repaid                                     (16,717)        (6,343)    (8,037) 
Proceeds from new bank loans                            5,471          4,146     25,991 
Loan issue costs                                        (627)           (13)      (145) 
Costs from issue of ordinary 
 share capital                                              -           (17)       (17) 
Dividends paid                            5           (4,364)        (4,355)    (8,718) 
Cash flows from financing activities                 (16,237)        (6,582)      9,074 
--------------------------------------  ------  -------------  -------------  --------- 
 
Net (decrease)/increase in cash                       (9,545)        (4,880)      4,410 
Opening cash and cash equivalents         10           22,395         17,985     17,985 
--------------------------------------  ------  -------------  -------------  --------- 
Closing cash and cash equivalents         10           12,850         13,105     22,395 
 
 
 

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

Palace Capital plc

Condensed consolidated statement of changes in equity

For the six months ended 30 September 2019

 
                                               Treasury 
                             Share      Share    Shares       Other    Retained     Total 
                           Capital    Premium   Reserve    Reserves    Earnings    equity 
                            GBP000     GBP000    GBP000      GBP000      GBP000    GBP000 
-----------------------  ---------  ---------  --------  ----------  ----------  -------- 
As at 31 March 2018          4,639    125,036   (2,011)       3,843      51,792   183,299 
-----------------------  ---------  ---------  --------  ----------  ----------  -------- 
 
Total comprehensive 
 income for the period           -          -         -           -       7,272     7,272 
Share based payments             -          -         -           -         113       113 
Costs from issue of 
 new shares                      -       (17)         -           -           -      (17) 
Exercise of share 
 options                         -          -       118           -       (118)         - 
Issue of deferred 
 bonus share options             -          -         -           -         257       257 
Dividends                        -          -         -           -     (4,354)   (4,354) 
 
As at 30 September 
 2018                        4,639    125,019   (1,893)       3,843      54,962   186,570 
-----------------------  ---------  ---------  --------  ----------  ----------  -------- 
 
Total comprehensive 
 income for the period           -          -         -           -     (2,102)   (2,102) 
Share based payments             -          -         -           -         220       220 
Exercise of share 
 options                         -          -       122           -       (122)         - 
Dividends                        -          -         -           -     (4,365)   (4,365) 
 
As at 31 March 2019          4,639    125,019   (1,771)       3,843      48,593   180,323 
-----------------------  ---------  ---------  --------  ----------  ----------  -------- 
 
Total comprehensive 
 income for the period           -          -         -           -       2,552     2,552 
Share based payments             -          -         -           -         100       100 
Exercise of share 
 options                         -          -       423           -       (423)         - 
Issue of deferred 
 bonus share options             -          -         -           -          76        76 
Dividends                        -          -         -           -     (4,364)   (4,364) 
 
As at 30 September 
 2019                        4,639    125,019   (1,348)       3,843      46,534   178,687 
=======================  =========  =========  ========  ==========  ==========  ======== 
 

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

Palace Capital plc

Notes to the condensed consolidated financial statements

For the six months ended 30 September 2019

   1              General information 

These financial statements are for Palace Capital plc ("the Company") and its subsidiary undertakings (together "the Group").

The Company's shares are admitted to trading on the Main Market of the London Stock Exchange. The Company is domiciled and registered in England and Wales and incorporated under the Companies Act 2006. The address of its registered office is 25 Bury Street, London, SW1Y 6AL. On 1 August 2019 the Company converted to a UK Real Estate Investment Trust ("REIT").

The nature of the Company's operations and its principal activities are that of property investment in the UK.

Basis of preparation

The condensed consolidated financial information included in this half yearly report has been prepared in accordance with the IAS 34 "Interim Financial Reporting", as adopted by the European Union. The current period information presented in this document is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

The interim results have been prepared in accordance with applicable International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). These standards are collectively referred to as "IFRS".

The accounting policies and methods of computations used are consistent with those as reported in the Group's Annual Report for the year ended 31 March 2019, except as described below, and are expected to be used in the Group's Annual Report for the year ended 31 March 2020.

The financial information for the year ended 31 March 2019 presented in these unaudited condensed Group interim financial statements does not constitute the Company's statutory accounts for that period but has been derived from them. The Report and Accounts for the year ended 31 March 2019 were audited and have been filed with the Registrar of Companies. The Independent Auditor's Report on the Report and Accounts for the year ended 31 March 2019 was unqualified and did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of the Companies Act 2006. The financial information for the periods ended 30 September 2018 and 30 September 2019 are unaudited and have not been subject to a review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information performed by the Independent Auditor of the Entity, issued by the Auditing Practices Board.

The interim report was approved by the Board of Directors on 18 November 2019.

Copies of this statement are available to the public for collection at the Company's Registered Office at 25 Bury Street, London, SW1Y 6AL and on the Company's website, www.palacecapitalplc.com.

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 Chairman's Statement. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in these financial statements.

The Directors have reviewed the current and projected financial position of the Group, making reasonable assumptions about future trading performance. As part of the review the Directors have considered the Group's cash balances, debt maturity profile of its undrawn facilities, and the long-term nature of tenant leases. On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue operational existence for the foreseeable future. As a consequence, the Directors believe that the Group is well placed to manage its business risk successfully.

Accordingly, they continue to adopt the going concern basis in preparing the Half Year Report.

Changes in accounting policies and disclosures

IFRS 16 Leases (became effective for accounting periods commencing on or after 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 have assessed the impact of this standard by calculating the present value of minimum lease payments on the head office lease, a right-of-use asset was recognised on the Balance Sheet at 1 April 2019 with a corresponding lease liability, using the cumulative catch up transition approach.

The right-of-use asset will be depreciated over the remaining lease life and the corresponding lease liability interest will also be recognised in the Groups Statement of Comprehensive Income.

   2              Segmental reporting 

During the period the Group operated in one business segment, being property investment in the UK and as such no further information is provided.

   3              Net property income 
 
                                      Unaudited      Unaudited 
                                       6 months       6 months    Audited 
                                             to             to    Year to 
                                   30 September   30 September   31 March 
                                           2019           2018       2019 
                                         GBP000         GBP000     GBP000 
-------------------------------   -------------  -------------  --------- 
 
Rent receivable                           8,813          8,750     17,960 
Surrender premium                         2,850              -          - 
Management fees & other income              254            460        790 
--------------------------------  -------------  -------------  --------- 
Total revenue                            11,917          9,210     18,750 
--------------------------------  -------------  -------------  --------- 
Service charge & vacant rates             (732)          (600)    (1,844) 
Other property costs                      (482)          (501)      (474) 
--------------------------------  -------------  -------------  --------- 
Property operating expenses             (1,214)        (1,101)    (2,318) 
--------------------------------  -------------  -------------  --------- 
 
Net property income                      10,703          8,109     16,432 
================================  =============  =============  ========= 
 
   4              Taxation 
 
                                       Unaudited      Unaudited 
                                        6 months       6 months    Audited 
                                              to             to    Year to 
                                    30 September   30 September   31 March 
                                            2019           2018       2019 
                                          GBP000         GBP000     GBP000 
--------------------------------   -------------  -------------  --------- 
 
Current income tax charge                    166            637      1,008 
Tax overprovided in prior year             (168)              -         12 
Capital gains charged in period            1,649              -      1,194 
Deferred tax                             (5,376)            441    (951) 
Tax (credit)/charge                      (3,729)          1,078      1,263 
=================================  =============  =============  ========= 
 

As a result of the Company's conversion to a REIT on 1 August 2019, the Group is no longer required to pay UK corporation tax in respect of property rental income and capital gains relating to its property rental business. Consequently a GBP3,727,000 credit on the profit and loss account and debit to the balance sheet has been recognised for the reversal of deferred tax provided for capital gains tax due to revaluation of investment properties to fair value and the capital allowances that have been claimed on improvements to investment properties. UK corporation tax was payable for the first 4 months of the period up to 31 July 2019 before entry to the REIT "regime".

   5              Dividends 
 
                                               Unaudited              Unaudited 
                                                6 months               6 months       Audited 
                                                      to                     to       Year to 
                                            30 September           30 September      31 March 
                            Payment Date            2019                   2018          2019 
                                                  GBP000                 GBP000        GBP000 
-----------------------   ---------------  -------------  ---------------------  ------------ 
Ordinary dividends 
 paid 
-----------------------   ---------------  -------------  ---------------------  ------------ 
2018 Interim dividend: 
 4.75p per share            13 April 2018              -                  2,177         2,177 
2018 Final dividend: 
 4.75p per share             31 July 2018              -                  2,177         2,177 
2019 Interim dividend: 
 4.75p per share          19 October 2018              -                      -         2,182 
2019 Interim dividend:        28 December 
 4.75p per share                     2018              -                      -         2,182 
2019 Interim dividend: 
 4.75p per share            12 April 2019          2,182                      -             - 
2019 Final dividend: 
 4.75p per share             13 July 2019          2,182                      -             - 
                                                   4,364                  4,354         8,718 
========================  ==============================  =====================  ============ 
 
 
Proposed dividend 
2020 Q1 interim dividend: 4.75p 
 per share paid on 18 October 
 2019. 
2020 Q2 interim dividend: 4.75p 
 per share payable on 27 December 
 2019. 
 

Since becoming a REIT on 1 August 2019, the Group is required to distribute at least 90% of qualifying income profits each year as a Property Income Distribution (PID). The first proposed qualifying PID will be on 27 December 2019, which will also consist of an interim dividend (non-PID). Further REIT information is available on the Company's website.

   6              Earnings per share 

The Group financial statements are prepared under IFRS which incorporates non-realised fair value measures and non-recurring items. Alternative Performance Measures ('APMs'), being financial measures, which are not specified under IFRS, are also used by Management to assess the Group's performance. These include a number of European Public Real Estate Association ('EPRA') measures, prepared in accordance with the EPRA Best Practice Recommendations (BPR) reporting framework the latest update of which was issued in November 2016. We report a number of these measures because the Directors consider them to improve the transparency and relevance of our published results as well as the comparability with other listed European real estate companies.

EPRA Earnings is a measure of operational performance and represents the net income generated from the operational activities. It is intended to provide an indicator of the underlying income performance generated from the leasing and management of the property portfolio. EPRA earnings are calculated taking the profit after tax excluding investment property revaluations and gains and losses on disposals, changes in fair value of financial instruments, associated closeout costs, one-off finance termination costs, 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.

Palace Capital also reports an adjusted earnings measure which is based on recurring earnings before tax and the basic number of shares. This is the basis on which the directors consider dividend cover. This takes EPRA earnings as the starting point and then adds back tax and any other fair value movements or one-off items that were included in EPRA earnings. For Palace Capital this includes share-based payments being a non-cash expense and also one-off surrender premiums received. The corporation tax charge (excluding deferred tax movements, being a non-cash expense) is deducted in order to calculate the adjusted earnings per share. The earnings per ordinary share for the period is calculated based upon the following information:

 
                                             Unaudited      Unaudited 
                                              6 months       6 months    Audited 
                                                    to             to    Year to 
                                          30 September   30 September   31 March 
                                                  2019           2018       2019 
                                                GBP000         GBP000     GBP000 
 --------------------------------------  -------------  -------------  --------- 
 
 Profit after tax attributable 
  to ordinary shareholders for 
  the period                                     2,552          7,272      5,170 
 
 Adjustments: 
 Loss/(gain) on revaluation of 
  property portfolio                             6,482        (3,880)        382 
 Impairment on assets held for 
  sale                                               -              -        291 
 Loss/(profit) on disposal of 
  investment properties                             24          (211)      (218) 
 Loss on disposal of assets held 
  for sale                                         269              -        579 
 Gain on revaluation of listed 
  equity investments                             (101)              -        214 
 Debt termination costs                            501              -          - 
 Fair value loss/(gain) on derivatives             663           (77)        929 
 Deferred tax relating to EPRA 
  adjustments and capital gains 
  charged                                      (3,727)            441        243 
 EPRA earnings for the period                    6,663          3,545      7,590 
 --------------------------------------  -------------  -------------  --------- 
 
 Share-based payments                              100            113        332 
 Surrender premium                             (2,850)              -          - 
 --------------------------------------  -------------  -------------  --------- 
 Adjusted profit after tax for 
  the period                                     3,913          3,658      7,922 
 --------------------------------------  -------------  -------------  --------- 
 Tax excluding deferred tax on 
  EPRA adjustments and capital 
  gain charged                                     (2)            637      1,020 
 --------------------------------------  -------------  -------------  --------- 
 Adjusted profit before tax for 
  the period                                     3,911          4,295      8,942 
 --------------------------------------  -------------  -------------  --------- 
 
 
                                       Unaudited 
                                        6 months      Unaudited     Audited 
                                              to    6 months to     Year to 
                                    30 September   30 September    31 March 
                                            2019           2018        2019 
 --------------------------------  -------------  -------------  ---------- 
 Weighted average number 
  of shares for basic earnings 
  per share                           45,940,198     45,806,334  45,834,436 
 Dilutive effect of share 
  options                                 32,108        106,695      63,690 
 Weighted average number 
  of shares for diluted earnings 
  per share                           45,972,306     45,913,029  45,898,126 
 ================================  =============  =============  ========== 
 
 Earnings per ordinary share 
 Basic                                      5.6p          15.9p       11.3p 
 Diluted                                    5.6p          15.8p       11.3p 
 EPRA and adjusted earnings per ordinary share 
 EPRA basic                                14.5p           7.7p       16.6p 
 EPRA diluted                              14.5p           7.7p       16.5p 
 Adjusted EPS                               8.5p           8.0p       17.3p 
 --------------------------------  -------------  -------------  ---------- 
 
   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:

 
                                                       Unaudited      Unaudited    Audited 
                                                    30 September   30 September   31 March 
                                                            2019           2018       2019 
                                                          GBP000         GBP000     GBP000 
 ------------------------------------  -------------------------  -------------  --------- 
 Net assets at the end of the 
  period                                                 178,687        186,570    180,323 
 Diluted net assets                                      178,687        186,570    180,323 
 Include fair value adjustment 
  on trading properties                                        -              -        250 
 Exclude deferred tax on latent 
  capital gains & capital allowances                         204          6,972      5,580 
 Exclude fair value of financial 
  instruments                                              1,335            104        815 
 ------------------------------------  -------------------------  -------------  --------- 
 EPRA NAV                                                180,226        193,646    186,968 
 Include deferred tax on latent 
  capital gains & capital allowances                       (204)        (6,972)    (5,580) 
 Include fair value of financial 
  instruments                                            (1,335)          (104)      (815) 
 ------------------------------------  -------------------------  -------------  --------- 
 EPRA NNNAV                                              178,687        186,570    180,573 
 ------------------------------------  -------------------------  -------------  --------- 
 
 
 
                                        Unaudited      Unaudited         Audited 
                                     30 September   30 September        31 March 
                                             2019           2018            2019 
 ---------------------------------  -------------  -------------  -------------- 
 Number of ordinary shares issued 
  at the end of the period             46,036,508     45,843,866      45,883,249 
 Dilutive effect of share options          32,108        106,695          63,690 
 ---------------------------------  -------------  -------------  -------------- 
 Number of diluted ordinary 
  shares for diluted and EPRA 
  net assets per share                 46,068,616     45,950,561      45,946,939 
 ---------------------------------  -------------  -------------  -------------- 
 
 Net assets per ordinary share 
 Basic NAV                                   388p           407p            393p 
 Diluted NAV                                 388p           406p            392p 
 EPRA NAV                                    391p           421p            407p 
 EPRA NNNAV                                  388p           406p            393p 
 
 
   8              Property Portfolio 
 
                                        Freehold Investment   Leasehold Investment   Total investment 
                                                 properties             properties         properties 
                                                     GBP000                 GBP000             GBP000 
 At 1 April 2018                                    232,742                 21,121            253,863 
-------------------------------------  --------------------  ---------------------  ----------------- 
 Additions - new properties                          15,505                      -             15,505 
 Additions - refurbishments                           2,521                    179              2,700 
 Capital expenditure on developments                  2,014                      -              2,014 
 Transfer to trading properties                    (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 
 Additions - refurbishments                           3,099                    398              3,497 
 Capital expenditure on developments                  1,363                      -              1,363 
 Loss on revaluation of investment 
  properties                                        (3,659)                (2,518)            (6,177) 
 Disposals                                          (1,500)                      -            (1,500) 
-------------------------------------  --------------------  ---------------------  ----------------- 
 At 30 September 2019                               236,594                 18,920            255,514 
-------------------------------------  --------------------  ---------------------  ----------------- 
 
 
 
                                    Standing      Investment           Total       Trading      Assets        Total 
                                  investment      properties      investment    properties    held for     property 
                                  properties           under      properties                      sale    portfolio 
                                                construction 
                                      GBP000          GBP000          GBP000        GBP000      GBP000       GBP000 
 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             -           - 
 Transfer to investment 
  property in the 
  course of construction             (3,810)           3,810               -             -           -            - 
 Capital expenditure 
  on developments                      1,772             242           2,014             -           -        2,014 
 Transfer to trading 
  properties                        (13,509)               -        (13,509)        13,509           -            - 
 Additions - trading 
  properties                               -               -               -           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 
 Additions - refurbishments            3,497               -           3,497             -           -        3,497 
 Capital expenditure 
  on developments                          -           1,363           1,363             -           -        1,363 
 Additions - trading 
  properties                               -               -               -         4,833           -        4,833 
 Loss on revaluation 
  of properties                      (6,021)           (156)         (6,177)         (305)           -      (6,482) 
 Disposals                           (1,500)               -         (1,500)             -    (11,756)     (13,256) 
 At 30 September 
  2019                               250,185           5,329         255,514        18,895           -      274,409 
----------------------------  --------------  --------------  --------------  ------------  ----------  ----------- 
 

The property portfolio has been independently valued at fair value. The valuations have been prepared in accordance with the RICS Valuation - Global Standards July 2017 ("the Red Book") and incorporate the recommendations of the International Valuation Standards and the RICS valuation - Professional Standards UK January 2014 (Revised April 2015) which are consistent with the principles set out in IFRS 13.

The valuer in forming its opinion 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.

At 30 September 2019, the Group's freehold and leasehold investment properties were externally valued by Royal Institution of Chartered Surveyors ("RICS") registered independent valuers. A reconciliation of the valuations carried out by the external valuers to the carrying values shown in the balance sheet was as follows:

 
                                         Unaudited      Unaudited    Audited 
                                      30 September   30 September   31 March 
                                              2019           2018       2019 
                                            GBP000         GBP000     GBP000 
----------------------------------   -------------  -------------  --------- 
 
Cushman & Wakefield LLP (property 
 portfolio)                                275,800        261,625    274,560 
Assets held for sale                             -         21,708     11,756 
-----------------------------------  -------------  -------------  --------- 
Fair value of property portfolio           275,800        283,333    286,316 
 
Adjustment in respect of minimum 
 payment 
under head leases included 
 as a liability                              1,835          1,600      1,600 
Less assets held for sale                        -       (21,708)   (11,756) 
Less trading properties                   (18,895)              -   (14,367) 
Less lease incentive balance 
 in prepayments                            (3,028)        (2,346)    (2,752) 
Less rent top-up adjustment                  (198)          (701)      (460) 
Less fair value uplift on trading 
 properties                                      -              -      (250) 
 
Carrying value per financial 
 statements                                255,514        260,178    258,331 
===================================  =============  =============  ========= 
 

Investment properties with a carrying value of GBP232,735,000 (31 March 2019: GBP250,960,000) are subject to a first charge to secure the Group's bank loans amounting to GBP108,103,000 (31 March 2019: GBP119,350,000).

Valuation process - investment properties

The valuation reports produced by the independent valuers are based on information provided by the Group such as current rents, terms and conditions of lease agreements, service charges and capital expenditure. This information is derived from the Group's financial and property management systems and is subject to the Group's overall control environment.

In addition, the valuation reports are based on assumptions and valuation models used by the independent valuers. The assumptions are typically market related, such as yields and discount rates, and are based on their professional judgment and market observations. Each property is considered a separate asset, based on its unique nature, characteristics and the risks of the property.

The Executive Director responsible for the valuation process verifies all major inputs to the external valuation reports, assesses the individual property valuation changes from the prior year valuation report and holds discussions with the independent valuers. When this process is complete, the valuation report is recommended to the Audit Committee, which considers it as part of its overall responsibilities.

The key assumptions made in the valuation of the Group's investment properties are:

-- The amount and timing of future income streams;

-- Anticipated maintenance costs and other landlord's liabilities;

-- An appropriate yield; and

-- For investment properties under construction: gross development value, estimated cost to complete and an appropriate developer's margin.

Valuation technique - standing investment properties

The valuations reflect the tenancy data supplied by the group along with associated revenue costs and capital expenditure. The fair value of the commercial investment portfolio has been derived from capitalising the future estimated net income receipts at capitalisation rates reflected by recent arm's length sales transactions.

   9              Trade and other receivables 
 
                                      Unaudited      Unaudited    Audited 
                                   30 September   30 September   31 March 
                                           2019           2018       2019 
                                         GBP000         GBP000     GBP000 
-------------------------------   -------------  -------------  --------- 
Current 
Trade receivables                         2,223          2,531      1,935 
Prepayments and accrued income            4,229          2,797      3,527 
Other taxes                                 374            250        177 
Other debtors                               276            124        604 
--------------------------------  -------------  -------------  --------- 
                                          7,102          5,702      6,243 
 ===============================  =============  =============  ========= 
 
 
 
   10           Cash and cash equivalents 
 
                                 Unaudited      Unaudited    Audited 
                              30 September   30 September   31 March 
                                      2019           2018       2019 
                                    GBP000         GBP000     GBP000 
--------------------------   -------------  -------------  --------- 
Cash and cash equivalents 
 - unrestricted                     12,850         13,105     22,395 
Restricted cash                      1,115            713        495 
---------------------------  -------------  -------------  --------- 
                                    13,965         13,818     22,890 
 ==========================  =============  =============  ========= 
 

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 realized over time consistent with the loss of income on vacant units.

   11           Trade and other payables 
 
                              Unaudited      Unaudited    Audited 
                           30 September   30 September   31 March 
                                   2019           2018       2019 
                                 GBP000         GBP000     GBP000 
-----------------------   -------------  -------------  --------- 
Current 
Trade payables                    1,888            632      1,229 
Accruals                          1,909          1,757      2,272 
Deferred rental income            3,281          3,155      3,457 
Taxes                             2,418          2,697      2,540 
Other payables                      204            219        503 
------------------------  -------------  -------------  --------- 
                                  9,700          8,460     10,001 
 =======================  =============  =============  ========= 
 
   12           Borrowings 
 
                                 Unaudited      Unaudited    Audited 
                              30 September   30 September   31 March 
                                      2019           2018       2019 
                                    GBP000         GBP000     GBP000 
--------------------------   -------------  -------------  --------- 
Current borrowings                   1,836          6,124      5,999 
Non-current borrowings             105,026         91,692    112,017 
---------------------------  -------------  -------------  --------- 
Total borrowings                   106,862         97,816    118,016 
===========================  =============  =============  ========= 
 
Non-current borrowings 
Secured bank loans drawn           106,267         93,081    113,351 
Unamortised facility fees          (1,241)        (1,389)    (1,334) 
---------------------------  -------------  -------------  --------- 
                                   105,026         91,692    112,017 
 ==========================  =============  =============  ========= 
 

The maturity profile of the Group's debt was as follows

 
                              Unaudited      Unaudited    Audited 
                           30 September   30 September   31 March 
                                   2019           2018       2019 
                                 GBP000         GBP000     GBP000 
-----------------------   -------------  -------------  --------- 
 
Within one year                   1,836          6,124      5,999 
From one to two years             1,836          2,436     29,825 
From two to five years           92,669         78,447     71,546 
From five to ten years           11,762         12,198     11,980 
------------------------  -------------  -------------  --------- 
Total borrowings                108,103         99,205    119,350 
========================  =============  =============  ========= 
 

Facility and arrangement fees

As at 30 September 2019

 
                                                                 Unamortised 
                          All in cost    Maturity                   facility  Facility 
                                    %        date  Loan balance         fees     drawn 
Secured borrowings                                       GBP000       GBP000    GBP000 
---------------------   -------------  ----------  ------------  -----------  -------- 
 
Scottish Widows                 2.90%   July 2026        13,765        (177)    13,942 
National Westminster                       August 
 Bank plc                       2.86%        2024        19,560        (440)    20,000 
Barclays                        3.20%   June 2024        41,032        (284)    41,316 
                                           August 
Santander Bank plc              3.72%        2022        25,774        (226)    26,000 
Lloyds Bank plc                 2.71%  March 2023         6,731        (114)     6,845 
                                                        106,862      (1,241)   108,103 
 =====================  =============  ==========  ============  ===========  ======== 
 

Facility and arrangement fees

As at 31 March 2019

 
                                                                 Unamortised 
                          All in cost    Maturity                   facility  Facility 
                                    %        date  Loan balance         fees     drawn 
Secured borrowings                                       GBP000       GBP000    GBP000 
---------------------   -------------  ----------  ------------  -----------  -------- 
 
Scottish Widows                 2.90%   July 2026        13,985        (175)    14,160 
National Westminster 
 Bank plc                       3.35%  March 2021        29,204        (185)    29,389 
                                          January 
Barclays                        3.24%        2023        38,589        (554)    39,143 
                                           August 
Santander Bank plc              3.74%        2022        25,961        (289)    26,250 
Lloyds Bank plc                 2.80%  March 2023         6,715        (130)     6,845 
Lloyds Bank plc                 2.95%    May 2019         3,562          (1)     3,563 
----------------------  -------------  ----------  ------------  -----------  -------- 
                                                        118,016      (1,334)   119,350 
 =====================  =============  ==========  ============  ===========  ======== 
 

Facility and arrangement fees

As at 30 September 2018

 
                                                                 Unamortised 
                          All in cost    Maturity                   facility  Facility 
                                    %        date  Loan balance         fees     drawn 
Secured borrowings                                       GBP000       GBP000    GBP000 
---------------------   -------------  ----------  ------------  -----------  -------- 
 
Scottish Widows                  2.91   July 2026        14,191        (187)    14,378 
National Westminster 
 Bank plc                        3.63  March 2021        14,658        (231)    14,889 
                                          January 
Barclays                         3.14        2023        39,123        (627)    39,750 
                                           August 
Santander Bank plc               3.69        2022        26,169        (331)    26,500 
Lloyds Bank plc                  2.91  April 2019         3,675         (13)     3,688 
                                                         97,816      (1,389)    99,205 
 =====================  =============  ==========  ============  ===========  ======== 
 

The Group has unused loan facilities amounting to GBP46,500,000 (31 March 2019: GBP26,500,000). A facility fee is charged on GBP20,000,000 at a rate of 1.05% p.a. and a fee is charged on GBP26,500,000 at a rate of 1.30% p.a. and both are payable quarterly. This facility is secured on the investment properties held by Property Investment Holdings Limited and Palace Capital (Properties) Limited. The GBP26,500,000 balance of the unused facilities relates to a Barclays loan secured on the Hudson Quarter, York development held by Palace Capital (Developments) Limited.

   13           Derivatives financial instruments 

The Group adopts a policy of entering into derivative financial instruments with banks to provide an economic hedge to its interest rate risks and ensure its exposure to interest rate fluctuations is mitigated.

The contract rate is the fixed rate the Group are paying for its interest rate swaps.

The valuation rate is the variable LIBOR and bank base rate the banks are paying for the interest rate swaps.

Details of the interest rate swaps the Group has entered can be found in the table below.

The valuations of all derivatives held by the Group are classified as Level 2 in the IFRS 13 fair value hierarchy as they are based on observable inputs. There have been no transfers between levels of the fair value hierarchy during the year.

 
                 Notional     Expiry    Contract  Valuation      Unaudited      Unaudited    Audited 
                 principal     date       rate       rate     30 September   30 September   31 March 
Bank                                        %         %               2019           2018       2019 
Barclays Bank 
 plc            35,097,900  25/01/2023    1.3420     0.5483          (897)           (37)      (526) 
Santander 
 plc            19,530,516  03/08/2022    1.3730     0.5549          (438)           (67)      (289) 
--------------  ----------  ----------  --------  ---------  -------------  -------------  --------- 
                54,628,416                                         (1,335)          (104)      (815) 
--------------  ----------  ----------  --------  ---------  -------------  -------------  --------- 
 
   14           Share capital 

Authorised, issued and fully paid share capital is as follows:

 
                                        Unaudited      Unaudited     Audited 
                                     30 September   30 September    31 March 
                                             2019           2018        2019 
 
Ordinary 10p shares                    46,388,515     46,388,515  46,388,515 
 
Share capital - number of shares 
 in issue                              46,388,515     46,388,515  46,388,515 
==================================  =============  =============  ========== 
 
Share capital - GBP                     4,638,852      4,638,852   4,638,852 
==================================  =============  =============  ========== 
 
 

The Company has set up an employee benefit trust, 'The Palace Capital Employee Benefit Trust', for the granting of shares applicable to directors and employees under the Long-Term Incentive Plan. On 20 June 2019 the Company transferred 150,000 ordinary shares held in Treasury into The Palace Capital Employee Benefit Trust.

On 24 July 2019 the Company granted 67,798 shares, being the awards granted on 17 July 2018 under the Palace Capital Deferred Bonus Plan from The Palace Capital Employee Benefit Trust. On 24 July 2019, 85,461 share options were exercised under the 2016 employee LTIP scheme.

As at 31 March 2019 there were 449,587 shares held in treasury but as a result of the 150,000 shares transferred into the Employee Benefit Trust, there are 299,587 shares remaining in Treasury.

The Company's issued share capital as at 30 September 2019 comprises 46,036,508 ordinary shares which is the denominator for the calculations of earnings per share and net asset value per share. This excludes the 352,007 ordinary shares held in treasury and the Employee Benefit Trust.

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

IR LFFLILELTLIA

(END) Dow Jones Newswires

November 19, 2019 02:00 ET (07:00 GMT)

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