RNS announcement

RNS Number : 2073H

Palace Capital PLC

06 June 2017

6 June 2017

Palace Capital plc

("Palace Capital" or the "Company")

Audited results for the year ended 31 March 2017

Notice of AGM

Palace Capital, the property investment company that focuses on commercial property outside London, is pleased to announce its audited results for the year ended 31 March 2017.

HIGHLIGHTS

Financial Highlights

· IFRS Profit before tax: increased by 7% to £12.6m (31 March 2016: £11.8m) reflecting a combination of trading profit, revaluation gains and profit on disposals

· Portfolio valuation at 31 March 2017: increased by 6% to £183.2m (31 March 2016: £173.4m)

· EPRA NAV per share^*: increased by 7% to 443p at 31 March 2017 (31 March 2016: 414p)

· Adjusted profit before tax^*: increased by 20% to £6.7m (2016: £5.6m)

· Adjusted EPS^*: increased by 17% to 22.2p (31 March 2016: 18.9p)

· Final dividend: 9.5p proposed, making a total for the year of 18.5p, a 16% increase (31 March 2016: 16.0p)

Operational highlights

· Acquisition: Boulton House, Central Manchester office building for £10.6m at a NIY 5.5% and reversionary yield of 8.5%

· 13 sales, totalling £12.6m, generating £3.2m profit

· Total ownership as at 31 March 2017 of 44 properties across 1.6m sq ft with over 165 leases

· Overall occupancy of investment portfolio up to 91%** (2016: 89%)

Asset management highlights

· Application for planning permission at Hudson House, Central York submitted in March 2017 to include 127 apartments, 34,000 sq ft offices, 5,000 sq ft commercial space and car parking

· £2.1m conversion of the vacant first floor offices at Dartford into
13 self-contained flats was successfully let for 10 years to Dartford Borough Council at a rental of £146,500 per annum

· Rent roll of £12.7m at 31 March 2017 (reduced from £13.5m at 31 March 2016 as a result of recent disposals)

· Weighted average unexpired lease term to break of 5.8 years (31 March 2016: 6.3 years)

* We report a number of Alternative Performance Measures ('APMs') including EPRA and Adjusted earnings measures detailed in the glossary of terms to improve the transparency and comparability with other listed European real estate companies

** Overall occupancy is adjusted to exclude Hudson House, York, which is currently held for development

Neil Sinclair, Chief Executive of Palace Capital said:

"Our results for the year to 31 March 2017 demonstrate further strong progress in our NAV and profitability. This is a testament to the solid foundations which the management team has built over the last 4 years.

Our quality portfolio and our strategy of active management has enabled Palace Capital to outperform the sector in terms of NAV growth. We continue to source off-market opportunities to recycle capital from sales which, I believe, will boost income and allow us to maintain our progressive dividend policy for the benefit of our shareholders."

Notice of Annual General Meeting

A copy of the annual report and accounts and notice of annual general meeting ("AGM") will be posted to shareholders shortly and is available from the Company's website, www.palacecapitalplc.com/. The AGM will be held at the offices of Hamlins LLP, Roxburghe House, 273-287 Regent Street, London W1B 2AD at 10.00 a.m. on 11 July 2017.

For further information please contact:

PALACE CAPITAL plc

Neil Sinclair, Chief Executive

Stephen Silvester, Finance Director

Tel. 44 (0)20 3301 8331

ALLENBY CAPITAL LIMITED (Nominated Adviser and Joint Broker)

Nick Naylor / James Reeve

Tel. 44 (0)20 3328 5656

Arden Partners plc (Joint Broker)

Chris Hardie

Tel. 44 (0)207 614 5917

Capital Access Group (Investor & public relations)

Scott Fulton

Tel: 44 (0) 203 763 3405

CHIEF EXECUTIVES REVIEW

We are delighted to report the Company's results for the year ended 31 March 2017 which show an IFRS profit before tax of £12.6m and a net asset value of £109.6m.

Our strategy continues to focus on growing both income and capital returns for our shareholders. The year to March has been extremely successful on both fronts. Reflecting this success, the Board proposes a final dividend of 9.5p which, if approved, takes total dividends for the year to 18.5p, more than 1.2x covered by recurring earnings.

EPRA Net Asset Value (NAV) per share increased by 7% from 414p as at 31 March 2016 to 443p as at 31 March 2017. We made our first significant acquisition, which was the Signal Portfolio, in October 2013 when our reported NAV was 218p. More than doubling this key indicator in just 41 months supports our view that a regional focus, active portfolio management and an innovative acquisition strategy will create value.

Following further acquisitions, the carrying value of the Company's portfolio is now at £183.2m compared to £173.4m twelve months prior. This takes into account the acquisition of Boulton House, Manchester in August 2016 and a number of disposals made during the year at or above book value.

Our contracted rent roll is now £12.7m per annum with a net income of £11.0m per annum, allowing for head rents, service charge shortfall and empty rates. The contracted rent roll has been reduced by the number of successful disposals. However, as our trading and portfolio update on 2 May 2017 highlighted, we have agreed a corporate acquisition for £20.0m which, if concluded, will more than compensate for any loss of income.

One of our significant assets at Hudson House, York, a 103,000 sq ft office building on a two acre site close to York Station is now predominantly empty pending redevelopment. This has increased the empty rates and service charge shortfall issue in the short term.

We remain conservatively geared by design. Our bank borrowings are at £78.7m, net of cash, representing a net loan to value (LTV) of 37% (31 March 2016: £72.7m and 37% respectively).

In our initial Admission Document in October 2013 we stated that we would adopt a progressive dividend policy and pay 12p for the year ended 31 March 2015. In the current year, we paid an interim dividend of 9p per share on 30 December 2016 and we now intend to pay a final dividend of 9.5p per share on 28 July 2017 to those shareholders on the register as at 7 July 2017, making a total dividend for the year of 18.5p.

We are making excellent progress, notwithstanding difficult market conditions. We are cautious but very opportunistic and last June took advantage of market conditions to acquire a 75,300 sq ft office building within a few minutes walk of Manchester Piccadilly Station. We had been trying to buy in the centre of Manchester for nearly three years which wasn't without its challenges. The announcement of the EU Referendum resulted in most property investors withdrawing from the market pending the result. This allowed us to buy Boulton House at what we consider to be a very satisfactory price.

Boulton House was the only acquisition made during our last financial year. We considered a number of opportunities but they were either not of sufficient quality or we could not achieve the desired return.

My colleagues and I continue to travel the country meeting owners, agents, lawyers and accountants in order to source off market acquisitions. At the same time we take the opportunity to meet Regional Wealth Managers & Brokers as well as private investors.

Government policy is to encourage investment in the Regions. Our focus is to invest not just in the right cities and towns but in the right places in the right cities and towns. This has had the desired effect of growing the NAV well ahead of our peer group. We will not deviate from our strict buying policy criteria as we continue to source acquisitions which will provide us with the desired return.

An update on our portfolio is contained in our Property Review. We consider our current portfolio to have a number of assets with exceptional potential in the short to medium-term. Part of our planning application for Hudson House, York includes 127 apartments and the sales market in the York/Harrogate area is particularly buoyant as buyers move from the outskirts to the town centres.

We have refurbished vacant space in Manchester, Leeds and Milton Keynes. There is interest from potential tenants and once let, this will have a material effect on values. I stated last year that public transport and in particular access to railway hubs will play an increasing part for an office development/refurbishment to be successful. This bodes very well for our properties in Manchester, Leeds, Milton Keynes, York, Sutton, Leamington Spa, Brighton and Staines. Although not imminent, the HS2 will cut the journey time from York to London to 80 minutes and from Manchester to London to 95 minutes.

At the moment, buying opportunities are somewhat limited but we continue to focus on properties that require our brand of active management. Our aspiration remains to join the Official List of the London Stock Exchange so we continue to look at portfolios of a particular size that fit our criteria and where we can achieve the desired return.

We are grateful for the support of our shareholders and I know that we have the management team to grow the Company significantly.

We believe we are one of the most exciting companies in the sector, continuing to outperform most of our peers and we are proud to have been recognised recently by the London Stock Exchange's '1000 Companies to Inspire Britain' as one of the top 25 property growth companies.

The Strategic Report has been approved by the Board and signed on its behalf by

Neil Sinclair

Chief Executive

PROPERTY REVIEW

During the year we have been able to buy in Manchester in an improving location close to Manchester Piccadilly station.

The purchase provides us with the opportunity to grow the modest rental value whilst also being a medium-term development/refurbishment opportunity. The general investment market during 2016 and especially since the turn of the year has been starved of stock so we have taken this opportunity to sell assets which we believed offered little opportunity for growth or were vacant. These sales created a profit above book values of £3.2m.

We now have a property portfolio independently valued at £183.2m which we consider still has considerable opportunity for growth in capital value.

STATISTICS

· 44 (2016: 54) properties comprising 1.6m sq ft (2016: 1.8m sq ft)

· 165 tenants providing a contractual rent roll of £12.7m per annum (2016: £13.5m per annum) as at 31 March 2017

· WAULT of 5.8 years (2016: 6.3 years) - a reflection of our active asset management initiatives to maintain this through the sales and acquisitions

Diversity of sectors including offices, industrial, leisure and retail, which is complemented by a residential conversion in Dartford, Kent.

acquisitionS

Boulton House, Manchester

As referred to in the Chief Executive's Review, we completed the purchase of Boulton House, Chorlton Street in Manchester for £10.6m in August 2016. The property comprises 75,300 sq ft of multi-let offices with a WAULT of 1.59 years. The net initial yield was 5.5% and equated to a capital value of £145 per sq ft overall. This yield was predicted to rise to 6.9% based on conservative rental values of £12 per sq ft.

Located within close proximity to Manchester Piccadilly Station and the proposed HS2 interchange, this location will improve in the medium- term. We have sought a purchase in Manchester for several years but were priced out by competitors. However, because of the EU Referendum, the opportunity arose for us and we consider the prospects for this building as very encouraging.

Since the purchase, we have refurbished the vacant space as well as the ground floor reception and entrance hall at a cost of £700,000. Terms are being negotiated with potential tenants at rentals ahead of expectations at the time of purchase.

SALES

Thirteen properties were sold during the financial year, totalling £12.6m, compared to an aggregated book value of £9.2m. The decision to sell was based on our consideration that further added value would be difficult to achieve and that our efforts were better directed to other holdings. These other holdings include:

Allen House, Stockport	Victoria Road, Stoke On Trent
Argent Court, Tolworth	3 buildings in the Hockenhull Portfolio
Warwick House, Leeds	ICS, 4 and 5 Hall Road, Maldon
Land and roads in West Molesey	Unit C, Meadowcourt, Sheffield

EXISTING HOLDINGS

The Signal portfolio purchase in October 2013 has performed exceptionally well where values have more than doubled since acquisition.

We continue to visit all the properties and meet our tenants regularly. This gives us immediate knowledge of occupational requirements so that we can ensure maximum occupation where possible and adapt our asset management plan accordingly.

Hudson House, York

The property comprises a 1960's office building of 103,000 sq ft opposite York Railway Station and within the city wall. Transport links are excellent with a direct service to London in under two hours.

We have been granted planning permission to convert the property to a residential and commercial use. In September 2014, an application was made to convert the property into 82 residential units as well as create 37,000 sq ft of grade A office space.

This consent was approved in April 2016, subject to a section 106 agreement. Previously, consent had been granted to convert the building into 139 residential units through Permitted Development Rights in February 2016.

Obtaining planning consent for the best scheme is not straightforward. After consulting with our technical team, we began the process of seeking consent for a new building, similar to the previous consent granted. In March 2017, we submitted plans for 127 residential apartments, 34,000 sq ft of offices and 5,000 sq ft of ground floor commercial. Discussions continue with City of York Council on this exciting opportunity.

Broad Street Plaza, Halifax

This significant leisure scheme was acquired in March 2016 for £24.18m, providing a net initial yield of 7.25%. Significantly, 40% of the leases benefit from minimum uplifts which will increase this yield to more than 8% by August 2017. The scheme provides an excellent WAULT of 13 years to break. Whilst the scheme is trading well, we continue to work on increasing footfall, ensuring the scheme reaches its full potential through implementing various marketing initiatives as well as new branding.

Copperfields, Dartford, Kent

In 2013 the Government introduced Legislation known as Permitted Development Rights (PDR) which grants permission, in certain circumstances, to allow the conversion of office space to residential use.

This mixed-use retail and office property in a South East commuter town is situated directly opposite the Priory Shopping Centre and within walking distance of the railway station. The offices became vacant and due to a lack of demand we sought consent for the conversion of the offices to 13 residential units. We went ahead with the conversion which completed within budget in September 2016. During the works, we were negotiating directly with Dartford Borough Council about an overriding lease for all the flats. A 10 year term was concluded with the benefit of annual increases based on 2.5%. These works have transformed a tertiary shopping scheme into a vibrant mixed use investment.

Point Four Industrial Estate, Avonmouth

Over the year we managed two lease renewals and two rent reviews during which we negotiated to remove forthcoming break clauses. One unit remains vacant and is undergoing a refurbishment. Significantly, rental values in this estate have risen by 10% over the year.

Bank House, Leeds

Purchased in April 2015 and recently valued at £10.68m (2016: £10m), this Grade II listed city centre office property was built in 1970 and comprises 88,000 sq ft around a large central atrium. The property is home to The Bank of England, who have occupied it since it was built, as well as Walker Morris who are the largest independent firm of solicitors in Leeds.

Since the purchase, we have extended the Bank of England lease until July 2023 with a minimum increase in the annual rent from the passing level of £117,300 per annum to £232,000 per annum at the March 2020 rent review. This will reflect a modest £7.50 per sq ft overall.

The vacant first floor has been fully refurbished at a cost of £350,000 to provide a single floor plate of approximately 17,000 sq ft which is one of the largest second-hand refurbished office floors available in Leeds city centre. We are seeking to attract occupiers who are looking for a discount to the prime rents being paid of £28 per sq ft.

We are investigating the medium-term redevelopment/refurbishment prospects for this property.

Marsh Barton Trading Estate, Exeter

In our results for the year ending 31 March 2016, we announced that administrators had been appointed to our tenant occupying this building. We subsequently announced last November that we had secured a letting to a new company that had purchased the assets. We took the decision at that time to instruct architects and planning consultants to draw up plans for the redevelopment of the site, irrespective of the letting. The new tenant has recently gone into administration but fortunately we are very advanced with our plans and we hope to be in a position to submit a planning application for a new building of circa 100,000 sq ft by September 2017.

Kiln Farm, 2-4 Pitfield, Milton Keynes

The tenant at unit 2 exercised its option to terminate the lease in March 2016. We negotiated a dilapidation settlement and then undertook a refurbishment to the same specification as the adjacent units we own. We are seeking to let this 14,500 sq ft unit at a significantly higher rental tone than was achieved next door, thereby creating the evidence to support an uplift in December 2018.

Sol Central, Northampton

In May 2015, we acquired the holding company which owned a prominent city centre leisure scheme, Sol Central, in Northampton for £20.7m, reflecting a net initial yield of 8.86%. Comprising a 10 screen cinema, casino, 151 room hotel, gym and 375 space car park, this 200,000 sq ft development has not been trading at its optimum level for a number of years and significantly, the scheme lacks restaurants.

Our specialist leisure architect has designed a scheme to transform this dominant and iconic city centre building, offering to take advantage of the number of Council led initiatives for Northampton city centre. The space formerly occupied by Gala Casino who vacated in 2011 has been stripped out ready for occupation following a surrender premium of £3.2m in 2016.

The occupational market has been slow during the financial year and before we commit the funds required for a full transformation, we will require a significant new pre-let.

In the short-term, repairs to the external lighting and roof are required and a contract is being placed shortly.

249 Midsummer Boulevard, Milton Keynes

Purchased in February 2016 for £7.2m, reflecting a net initial yield of 7.25%, the property comprises multi let offices of 50,000 sq ft with the tenants including DHL & Crawford's. The average rental equates to £12 per sq ft. When the 2nd floor lease expires in June 2017 and the tenant vacates, we will upgrade this space as well as the common parts and reception area, estimated to cost £450,000.

Milton Keynes is one of the fastest growing towns in the UK and directly opposite our holding the Council is proposing to develop a mixed use 20 storey tower. Milton Keynes continues to see steady rental growth beyond £20 per sq ft. Our ownership is situated on a large site and has the potential for significant development in the medium-term.

Maldon

This property was bought in October 2013 and formed part of the Signal portfolio acquisition. With a lease expiring within three and a half years, we investigated the potential for an alternative use in case the tenant vacated. After consultation with the local authority, it became apparent that the local plan would resist a loss of employment use. We therefore negotiated with the tenant, who wanted maximum flexibility, for a 10 year lease extension, incorporating minimum increases in rent and mutual break options. Subsequently marketed & sold for £3.9m.

MINIMUM ENERGY EFFICIENCY STANDARDS (MEES)

As of April 2018, it will be unlawful for commercial and residential landlords of properties with an Energy Performance Certificate (EPC) rating of less than "E" to grant new leases or renew tenant leases (except for some exemptions). Landlords will need to carry out works to improve the energy performance of their buildings to achieve the minimum standards or face civil penalties.

We have undertaken a full review of our portfolio and are delighted to say that only a few minor works are required at this stage to comply with the proposed new guidelines. We have a specialist consultant advising us to ensure that none of our holdings are affected.

Rating Revaluation

In April 2017, the Chancellor of the Exchequer brought in new rates assessments based on values as at April 2015, which had a significant impact on London real estate. In contrast, across our regional portfolio, rates have been reduced on aggregate, ensuring continuing affordability for our tenants.

THE FUTURE

We remain committed to our brand of active asset management and we are confident that there are still many opportunities for us to continue to grow the income, supporting our progressive dividend policy and grow capital values through our refurbishment plans.

Richard Starr MRICS

Executive Director

FINANCIAL REVIEW

Financial highlights

	/ -	2017	2016
CAPITAL GROWTH
Accounting return		11.4%	8.1%
Total shareholder return		7.4%	-2.3%
Net Asset Value		£109.6m	£106.8m
Basic NAV per share		436p	414p
EPRA NAV per share		443p	414p

INCOME GROWTH
IFRS profit before tax		£12.6m	£11.8m
Adjusted profit before tax		£6.7m	£5.6m
EPRA earnings (excluding one-off surrender premiums)		£5.4m	£4.5m
Basic EPS	-	36.6p	43.9p
EPRA EPS	-	21.2p	31.3p
Adjusted EPS		22.2p	18.9p
Dividend per share		18.5p	16.0p

DEBT FINANCE
Debt balance		£77.8m	£71.9m
Average cost of debt	-	2.9%	3.1%
Average debt maturity		4.6 yrs	3.9 yrs
Net Loan to Value Ratio		37%	37%
NAV gearing		61%	61%

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 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) reporting framework. We report a number of these measures (detailed in the glossary of terms) because Management considers them to improve the transparency and relevance of our published results as well as the comparability with other listed European real estate companies.

OVERVIEW AND HEADLINE RESULTS

This review summarises the financial performance for the year and provides a number of key metrics illustrating that the Company continues to deliver on its objective to drive income and capital growth and generate attractive, sector-leading returns for our investors.

This year we delivered an IFRS profit before tax of £12.6m, which reflects a basic earning per share of 36.6p. EPRA earnings is the industry measure of underlying profit stripping out revaluation gains, profits on disposals and one-off costs. EPRA earnings for the year ended 31 March 2017 increased by 20% to £5.4m compared to £4.5m last year (excluding a significant £3.2m one-off surrender premium in 2016).

Management also report an adjusted profit before tax in order to track recurring earnings and to form a basis for the progressive dividend. This totalled £6.7m for the year ended 31 March 2017 (2016: £5.6m), up 20%, and as a result adjusted earnings per share improved to 22.2p from 18.9p. The Board has proposed a final dividend of 9.5p which ensures a dividend of 18.5p on aggregate across the year up 16%, covered by adjusted earnings 1.2x.

On the capital side, net asset value has grown to £109.6m up 3% from the previous year-end of £106.8m and this translates into EPRA net asset value per share of 443p, up 7% from 414p. This 29p increase, together with the total dividends of 18p paid during the year, represents an 11.4% total accounting return.

RECURRING EARNINGS

Rental income totalled £14.3m in the year ended 31 March 2017 (2016: £11.4m excluding one-off surrender premiums) driven by the improving portfolio, with fully annualised income from the acquisitions in the prior year and also benefiting from the acquisition of the office building Boulton House, Central Manchester in August 2016. Net rental income similarly was up to £12.2m (2016: £9.8m, adjusted to exclude surrender premium) and this included £1.0m of non-recoverable costs in the current year from properties held for development which should reduce as projects progress.

Administrative expenses increased to £2.9m (2016: £2.0m) largely as a result of increasing resources and building a team capable of delivering results on a far larger scale. The team, including the Board, totalled eleven at the balance sheet date up from nine the prior year. Finance costs increased to £3.0m from £2.3m as a result of the rise in debt finance and £0.2m termination costs as a result of refinancing during the year. Despite increasing the base costs of the business, adjusted profit before tax grew 20% to £6.7m from £5.6m reflecting the increasing profitability of the business as a result of both scale and reliable stock selection.

Looking forward, the business is now capable of scalability, with the team and systems in place to support significant growth in the portfolio. The Company recently announced the planned redeployment of capital from recent disposals into a £20.0m corporate acquisition which will more than replace the lost income from those disposals and continue the process of improving the assets and reliability of income across the portfolio. The Group has a gross rent roll of £12.7m per annum and this is set to increase further once the acquisition completes later in the year.

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. During the financial year the UK property market was impacted by the result of the Brexit Vote on 23 June 2016 and valuers had to consider property values in light of the Referendum. Consequently, there was significant downward pressure on property values. Despite the recent headwinds we have been extremely pleased with how our properties have performed as a result of our regional strategy. This year £3.1m of gains were achieved, with property values on a like for like basis up 4.5%.

In addition, we have continued to recycle capital out of smaller, time-consuming properties with little growth prospects into properties core to the business strategy. Thirteen properties were sold in the year for a total consideration of £12.6m, all at or above book value, resulting in profits on disposal of £3.2m. The combination of revaluation gains and profits on disposal have a significant impact on the underlying value of the business, reflecting 22p uplift in net asset value per share. One of the key advantages of the Company's relatively small size compared to its peer group is its ability to 'shift the dial' and grow the underlying value of the business on a per share basis.

The combination of careful stock selection, buying at the right price and the impact of our asset management and capex initiatives, particularly at our strategic properties such as Hudson House, York, where we currently have a planning application lodged with the Council to redevelop the property, are having a significant income and capital impact on the business. We continue to recycle capital through disposals of individual units and small properties where we can realise profit that reflects good value from our investment and reinvest funds into growth opportunities.

EPS

Basic earnings per share (EPS) was 36.6p compared to 43.9p last year. Similar to the adjustments we make to profit before tax, which remove unrealised capital profits and one-off items such as profits on disposal and costs on acquisition, we report EPRA earnings per share. This reduced to 21.2p from 31.3p last year, however, stripping out the significant one-off impact of the Gala surrender premium, last year's EPRA EPS would have been 18.3p. Finally, we also report an adjusted earnings per share to provide a basis for dividend cover and this was 22.2p for the year up from 18.9p.

DIVIDENDS

The Board is recommending a final dividend of 9.5p per share to be paid on 28 July 2017 to shareholders registered at the close of business on 6 July 2017. Taken with the interim dividend of 9.0p, our full year dividend will be up 16% to 18.5p. The Company is very well placed to provide our shareholders with an increased dividend payment due to the growth in the portfolio and the core assets producing sustainable, long-term income. However, we continue to reinvest surplus funds into our strategic assets to provide investors with a two-pronged return through both income and capital growth.

NET ASSETS

At 31 March 2017, our net assets were £109.6m, equating to basic net asset per share of 436p an increase of 22p since 31 March 2016. The increase in our net assets was driven largely by the increase in value of our investment properties, profits on disposal of investment properties and surplus profits after dividends paid. 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 we believe better reflects the underlying net assets attributable to shareholders. Our EPRA NAV was 443p at 31 March 2017, up from 414p at 31 March 2016.

DEBT FINANCING

During the year our debt profile improved as we refinanced one facility and repaid two others. In June 2016, we refinanced the £15.2m Barclays facility which we inherited as part of the acquisition of Broad Street Plaza, Halifax with a 10-year fixed rate loan through Scottish Widows. We were able to lock in at an all-time low swap rate as a result of the Brexit Vote impacting swap markets and consequently we have secured a cost of debt of 2.9% for the term of the loan.

We extended the Santander facility during the year in order to part-fund the Boulton House, Manchester acquisition and prior to year-end we also repaid the £1.2m Close Brothers facility as a result of a number of small disposals from the Hockenhull portfolio.

The Group debt facilities total £82.3m, with £78.7m drawn at the year-end. Our lenders include the majority of the UK clearing banks at an average margin of 2.35%. We have fixed just over 30% of our debt and continue to take the decision to keep the majority of our debt floating as a result of the historically low interest rates and therefore enjoy an all in average cost of debt of 2.9%, currently one of the lowest in the sector. The average debt maturity is 4.6 years which gives us security over income streams net of interest costs for a number of years before the need to refinance.

NET DEBT AND GEARING

Each debt facility is secured at an 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 40-60% 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 2017 was 61% and the net LTV ratio was 37% at 31 March 2017 similar to last year. The Group remains conservatively geared and at year-end had £11.2m of cash and £3.6m of unutilised facilities available, along with over £15.0m of properties uncharged.

TAXATION

The Group has a tax charge of £3.2m for the year ended 31 March 2017. This includes a corporation tax charge of £0.7m to reflect the tax payable on taxable profit in the year and deferred tax charge of £2.5m to reflect capital allowances claimed in excess of depreciation and losses utilised in the year. The effective tax rate for the year for tax payable on IFRS profit remains low at 5.4% due largely to utilisation of brought forward losses and capital allowances.

OUTLOOK

From a financial point of view, the Company has had an outstanding year, generating income and capital profits that have enabled us to grow the dividends and improve the EPRA NAV per share. We expect to add to the portfolio shortly on completion of the recently announced potential acquisition. In addition, some of the non-recoverable costs incurred in the short-term on development projects will diminish as we progress these, improving income returns. We are well positioned to continue to grow the business on the basis of both income and capital growth, rewarding our shareholders as this improvement emerges.

Stephen Silvester ACA

Finance Director

PALACE CAPITAL PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2017

	Note	2017 £'000	2016 £'000
Rental and other income	1	14,266	14,593
Non recoverable property costs	5b	(2,055)	(1,624)
Net rental income		12,211	12,969

Administrative expenses	5c	(2,915)	(2,048)
Operating profit before gains and losses on property assets and cost of acquisitions		9,296	10,921

Gains on revaluation of investment property portfolios		3,101	3,620
Profit on disposal of investment properties		3,191	290
Cost of acquisitions		-	(815)
Operating profit		15,588	14,016

Finance income	3	3	34
Finance expense	4	(3,014)	(2,298)
Profit before taxation		12,577	11,752

Taxation	7	(3,191)	(953)
Profit after taxation for the year attributable to owners of the parent		9,386	10,799

Other comprehensive income for the year		-	-
Total comprehensive income for the year		9,386	10,799

Attributable to: Equity holders of the parent		9,386	10,799

EARNINGS PER ORDINARY SHARE
Basic	8	36.6p	43.9p
Diluted		36.5p	43.9p

All activities derive from continuing operations of the Group. The Notes form an integral part of these financial statements.

PALACE CAPITAL PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Company Registration Number: 05332938

As at 31 March 2017

	Note	2017 £'000	2016 £'000
Non-current assets
Investment properties	11	183,916	174,542
Property, plant and equipment	12	43	37
Deferred tax	7	-	334
Trade and other receivables	13	-	825
		183,959	175,738

Current assets
Trade and other receivables	13	2,511	3,327
Cash at bank and in hand	14	11,181	8,576
		13,692	11,903
Total assets		197,651	187,641

Current liabilities
Trade and other payables	15	(6,161)	(6,815)
Borrowings	16	(2,036)	(2,233)
Creditors: amounts falling due within one year		(8,197)	(9,048)
Net current assets		5,495	2,855

Non-current liabilities
Borrowings	16	(75,758)	(69,711)
Deferred tax	7	(2,187)	-
Obligations under finance leases	18	(1,950)	(2,067)
Net assets		109,559	106,815

Equity
Called up share capital	19	2,580	2,862
Share premium account		59,444	59,408
Treasury shares		(2,250)	-
Merger reserve		3,503	3,503
Capital redemption reserve		340	65
Retained earnings		45,942	40,977
Equity - attributable to the owners of the parent		109,559	106,815

Basic NAV per ordinary share	9	436p	414p
Diluted NAV per ordinary share		434p	414p

These financial statements were approved by the Board of Directors and authorised for issue on 5 June 2017 and are signed on its behalf by:

Stephen Silvester Neil Sinclair

Finance Director Chief Executive

PALACE CAPITAL PLC

CONSOLIDATED STATEMENT OF CHANGS IN EQUITY

For the year ended 31 March 2017

	Share Capital £'000	Share Premium £'000	Treasury Share Reserve £'000	Merger Reserve £'000	Capital Redemption Reserve £'000	Retained Earnings £'000	Total Equity £'000
At 31 March 2015	2,307	40,852	-	3,503	65	33,289	80,016

Total comprehensive income for the year	-	-	-	-	-	10,799	10,799
Issue of ordinary share capital net of expenses	555	18,556	-	-	-	-	19,111
Share based payments	-	-	-	-	-	110	110
Dividends	-	-	-	-	-	(3,221)	(3,221)
At 31 March 2016	2,862	59,408	-	3,503	65	40,977	106,815

Total comprehensive income for the year	-	-	-	-	-	9,386	9,386
Redemption of shares	-	-	(2,357)	-	-	-	(2,357)
Issue of ordinary share capital net of expenses	2	36	107	-	-	-	145
Redemption of deferred shares	(284)	-	-	-	275	-	(9)
Share based payments	-	-	-	-	-	237	237
Exercise of share options	-	-	-	-	-	(41)	(41)
Dividends	-	-	-	-	-	(4,617)	(4,617)
At 31 March 2017	2,580	59,444	(2,250)	3,503	340	45,942	109,559

For the purpose of preparing the consolidated financial statement 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 shares 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.

PALACE CAPITAL PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 March 2017

	Note	2017 £'000	2016 £'000
Operating activities
Net cash generated in operations	2	10,294	12,287
Interest received		-	34
Interest and other finance charges paid		(2,516)	(3,455)
Corporation tax paid in respect of operating activities		(1,047)	(158)
Net cash flows from operating activities		6,731	8,708

Investing activities
Purchase of investment property	11	(10,950)	(21,689)
Payments to acquire subsidiary undertakings		-	(28,656)
Capital expenditure on refurbishment of investment property	11	(4,579)	(1,182)
Proceeds from disposal of investment property		12,447	1,957
Purchases of property, plant and equipment	12	(26)	(3)
Net cash flow (used in)/from investing activities		(3,108)	(49,573)

Financing activities
Bank loans repaid		(19,952)	(17,010)
Proceeds from new bank loans		25,813	38,282
Issue of new share capital		29	19,114
Dividends paid	10	(4,617)	(3,221)
Purchase of treasury shares		(2,250)	-
Capital element of finance lease rental payments		-	(2)
Payment of share options exercised		(41)	-
Net cash flow from financing activities		(1,018)	37,163

Net increase in cash and cash equivalents		2,605	(3,702)
Cash and cash equivalents at beginning of the year		8,576	12,278
Cash and cash equivalents at the end of the year		11,181	8,576

PALACE CAPITAL PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 March 2017

BASIS OF ACCOUNTING

The financial information does not constitute the Group's statutory accounts for the year ended 31 March 2017 and 31 March 2016 but is derived from those accounts. Statutory accounts for the year ended 31 March 2016 have been delivered to the Registrar of Companies and those for the year ended 31 March 2017 will be delivered following the Company's Annual General Meeting. The Auditor has reported on the 2017 accounts; the report was unqualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498 of the Companies Act 2006.

The Company is quoted on the AIM market of the London Stock Exchange and is domiciled and registered in England and Wales and incorporated under the Companies Act 1985. The address of its registered office is Lower Ground Floor, One George Yard, London, United Kingdom, EC3V 9DF.

The nature of the Company's operations and its principal activities are set out in the Strategic Report.

BASIS OF PREPARATION

The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006.

These financial statements are for the year ended 31 March 2017 and have been prepared on a historical cost basis, except for investment properties which have been measured at fair value. The consolidated financial statements are presented in pounds sterling ("GBP") which is also the Company and the Group's functional currency.

1. SEGMENTAL REPORTING

For the purpose of IFRS 8, 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 business of the Group is as follows.

The principal activity of the Group was to invest in commercial real estate in the UK.

IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal financial reports about components of the Group that are regularly reviewed by the chief operating decision maker (which in the Group's case is its Group's Executive Committee).

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, for the purposes of IFRS 8, 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 under the provisions of IFRS 8.

All of the Group's properties are based in the UK. No geographical grouping is contained in any of the internal financial reports provided to the Group's Executive Committee and, therefore, no geographical segmental analysis is required by IFRS 8.

Revenue - type	2017 £'000	2016 £'000
Rents received from investment properties	13,809	11,375
Management fees & other income	457	46
Surrender premium	-	3,172
Total Revenue	14,266	14,593

No single tenant accounts for more than 10% of the Groups total rents received from investment properties.

The surrender premium in the prior year resulted from the surrender of a lease by Gala (part of the Gala Coral Group) who held a lease until March 2028 on 28,000 sq ft at Sol Central, Northampton at a rental payable of £312,852 per annum. Gala paid to Palace Capital a cash sum of £3.0 million plus a proportion of a rates refund due to them to be relieved of any further liability for rent, service charge and rates.

2. RECONCILIATION OF OPERATING PROFIT

Reconciliation of operating profit to cash utilised in operations

	2017 £'000	2016 £'000
Profit before taxation	12,577	11,752
Finance income	(3)	(34)
Finance costs	3,014	2,298
Gains on revaluation of investment property portfolio	(3,101)	(3,620)
Profit on disposal of investment properties	(3,191)	(290)
Goodwill write off	-	6
Depreciation	20	18
Share based payments	237	110
Decrease/(Increase) in receivables	1,681	(399)
(Decrease)/Increase in payables	(940)	2,446
Net cash generated in operations	10,294	12,287

3. OTHER INTEREST RECEIVABLE AND SIMILAR INCOME

2017

£'000

2016

£'000

Bank interest received

4. INTEREST PAYABLE AND SIMILAR CHARGES

	2017 £'000	2016 £'000
Interest on bank loans	2,452	1,652
Loan arrangement fees	249	502
Debt termination cost	155	-
Interest on finance leases	158	144
	3,014	2,298

5. PROFIT FOR THE PERIOD

a) The Group's profit for the period is stated after charging the following:

	2017 £'000	2016 £'000
Depreciation of tangible fixed assets:	20	18

Auditor's remuneration:
Fees payable to the auditor for the audit of the Group's annual accounts	50	42
Fees payable to the auditor for the audit of the subsidiaries annual accounts	21	15
Fees payable to the auditor and its related entities for other services:
Corporate advisory services	-	98
Audit related assurance services	8	17
Tax services	18	13
	97	185

Amounts payable to BDO LLP in respect of audit and non-audit services are disclosed in the table above.

b) The Group's property costs comprise the following:

	2017 £'000	2016 £'000
Void investment property costs	1,010	1,236
Void development property costs	1,045	275
Repairs and maintenance expenses	-	90
Legal and consultancy	-	23
	2,055	1,624

c) The Group's administrative expenses comprise the following:

	2017 £'000	2016 £'000
Staff costs	1,413	803
Legal & professional fees	393	269
Share based payments	237	110
PR and marketing costs	197	201
Property management fees	178	122
Accounting and audit fees	141	133
Consultancy and recruitment fees	93	84
Stock Exchange costs	86	88
Rent, rates and other office costs	80	79
Other overheads	77	135
Depreciation	20	18
Write-off of goodwill	-	6
	2,915	2,048

6. EMPLOYEES AND DIRECTORS' REMUNERATION

Staff costs during the period were as follows:

	2017 £'000	2016 £'000
Non-Executive Directors' fees	84	80
Wages and salaries	1,150	640
Pensions	55	14
Social security costs	124	69
Share based payments	237	110
	1,650	913

The average number of employees of the Group and the company during the period was:

	2017 Number	2016 Number
Directors and management	6	7
Administration	5	2
	11	9

Key management are the Group's Directors. Remuneration in respect of key management was as follows:

	2017 Number	2016 Number
Short-term employee benefits:
Emoluments for qualifying services	992	610
Social security costs	132	76
Pension	37	13
	1,161	699

Share based payments	198	99
Gain on share options exercised	30	-
	1,389	798

The amounts set out above include remuneration in respect of the highest paid Director as follows:

	2017 £'000	2016 £'000
Short-term employee benefits:
Emoluments for qualifying services	413	299
	413	299

Share based payments	120	64
Gain on share options exercised	20	-
	553	363

7. taxation

	2017 £'000	2016 £'000
Current income tax charge	683	726
Tax (over)/underprovided in prior year	(13)	6
Deferred tax	2,521	221
Tax charge	3,191	953

	2017 £'000	2016 £'000
Profit on ordinary activities before tax	12,577	11,752

Based on profit for the period: Tax at 20.0% (2016: 20%)	2,515	2,350

Effect of:
Expenses not deductible for tax purposes	-	163
Capital losses and indexation used in the period	(1,260)	(1,416)
Capital allowances in excess of depreciation	-	(89)
Other adjustments	52	59
Tax under/over provided in prior years	(13)	6
Deferred tax not previously recognised	1,897	(120)
Tax charge for the period	3,191	953

Deferred taxes at 31 March relates to the following:

	2017 £'000	2016 £'000
Deferred tax asset - brought forward	334	500
Losses used in the year	(321)	(221)
Deferred tax liability on accelerated capital allowances	(2,142)	-
Deferred tax on fair value of investment property	(58)	-
Deferred tax recognised on acquisition	-	55
Deferred tax (liability)/asset - carried forward	(2,187)	334

	2017 £'000	2016 £'000
Accelerated capital allowances	(2,142)	-
Investment property unrealised valuation gains	(58)	-
Losses carried forward	13	334
Deferred tax (liability)/asset	(2,187)	334

Capital allowances have been claimed on improvements to investments properties amounting to £12,908,312 (2016: £13,846,721). A deferred tax liability amounting to £2,141,760 has been recognised in the financial statements, although it is expected that they will not reverse when the properties are disposed of.

A deferred tax liability on the revaluation of investment properties to fair value has been provided totalling £58,000 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 2017 the Group had approximately £6,500,000 (2016: £1,872,057) of realised capital losses to carry forward.

Finance Act 2015 sets the main rate of UK corporation tax at 20 per cent 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 per cent from April 2017 and 17 per cent from April 2020. The deferred tax liability has been calculated on the basis of 17 percent due to the expectation that all properties are retained through April 2020.

8. 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 period (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 period (see below table).

2017

£'000

2016

£'000

Profit after tax attributable to ordinary shareholders for the period

9,386

10,799

	2017 No of shares	2016 No of shares
Weighted average number of shares for basic earnings per share	25,650,141	24,597,258
Dilutive effect of share options	87,584	20,730
Weighted average number of shares for diluted earnings per share	25,737,725	24,617,988

Earnings per ordinary share;
Basic	36.6p	43.9p
Diluted	36.5p	43.9p

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 (BPR) reporting framework the latest update of which was issued in November 2016. We report a number of these measures (detailed in the glossary of terms) because Management considers 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 and therefore it is more appropriate to use the basic number of shares. 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

Palace Capital also report an adjusted earnings measure which is based on recurring earnings before tax and on the basis of the basic number of shares. 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 fair value measure and also one-off surrender premiums received. This provides the underlying income performance of the company and therefore the basis for the dividend policy. The corporation tax charge (excluding deferred tax movements) is deducted in order to calculate the adjusted earnings per share and dividend cover is based on this calculation.

The EPRA and adjusted earnings per share for the period are calculated based upon the following information:

	2017 £'000	2016 £'000
Profit before tax	12,577	11,752
Adjustments:
Costs of acquisition	-	815
Gains on revaluation of investment property portfolio	(3,101)	(3,620)
Profit on disposal of investment properties	(3,191)	(290)
Debt termination cost	155	-
Surrender Premium	-	(3,172)
Share based payment	237	110


Adjusted profit before tax for the period	6,677	5,595
Tax charge for the year	(3,191)	(953)
Deferred tax charge on revaluation gains and capital allowances reversed	2,200	-

Adjusted profit after tax for the period	5,686	4,642
Share based payment	(237)	(110)
Surrender premium	-	3,172
EPRA earnings for the period	5,449	7,704

EPRA AND ADJUSTED EARNINGS PER ORDINARY SHARE;
EPRA Basic	21.2p	31.3p
EPRA Diluted	21.2p	31.3p
Adjusted EPS	22.2p	18.9p

9. NET ASSETS 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 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:

	2017 £'000	2016 £'000
Net assets at the end of the period	109,559	106,815
Effect of exercise of share options	-	109
Diluted net assets at end of the period	109,559	106,924

Exclude fair value of financial instruments & exclude deferred tax on latent capital gains	2,200	-
EPRA NAV	111,759	106,924
Include fair value of financial instruments & include deferred tax on latent capital gains	(2,200)	-
EPRA NNNAV	109,559	106,924

	2017 No of shares	2016 No of shares
Number of ordinary shares issued at the end of the period (excluding treasury shares)	25,150,692	25,781,229
Dilutive effect of share options	87,584	20,730
Number of ordinary shares issued for diluted and EPRA net assets per share	25,238,276	25,801,959

Net assets per ordinary share
Basic	436p	414p
Diluted	434p	414p
EPRA NAV	443p	414p
EPRA NNNAV	434p	414p

10. DIVIDENDS

	Payment date	Dividend per share	2017 £'000	2016 £'000
2017
Final dividend proposed	28 July 2017	9.50	-	-
Interim dividend	30 December 2016	9.00	2,309	-
Distribution of current year profit		18.50	2,309	-

2016
Final dividend	29 July 2016	9.00	2,308	-
Interim dividend	30 December 2015	7.00	-	1,805
Distribution of prior year profit		16.00	2,308	1,805

2015
Final dividend	31 July 2015	7.00	-	1,416
Interim dividend	30 December 2014	6.00	-	-
		13.00	-	1,416

Dividends reported in the Group statement of changes in equity			4,617	3,221

Proposed Dividends

2017

£'000

2016

£'000

2017 final dividend: 9.50p (2016: 9.00p)

2,389

2,320

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 2017.

11. Investment Properties

	Freehold Investment properties £'000	Leasehold Investment properties £'000	Total £'000
At 1 April 2015	84,568	18,420	102,988
Arising on acquisition of subsidiary undertakings	44,880	-	44,880
Additions - refurbishment	1,149	33	1,182
Additions - new properties	18,653	4,886	23,539
Gains on revaluation of investment properties	1,840	1,780	3,620
Disposals	(1,667)	-	(1,667)
At 1 April 2016	149,423	25,119	174,542
Additions - refurbishment	4,505	74	4,579
Additions - new properties	10,950	-	10,950
Gains on revaluation of investment properties	3,090	11	3,101
Disposals	(7,740)	(1,516)	(9,256)
At 31 March 2017	160,228	23,688	183,916

Investment properties are stated at fair value as determined by independent valuers who make use of historical and current market data as well as existing lease agreements. 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 Financial Reporting Standard The fair value of each of the properties has been assessed by the independent valuers.

As a result of the level of judgement used in arriving at the market valuations, the amounts which may ultimately be realised in respect of any given property may differ from the valuations shown in the Statement of Financial Position.

In addition to the gain on revaluation of investment properties included in the table above, realised gains of £3,191,417 (2016: £290,525) 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:

	2017 £'000	2016 £'000
Scanlans Consultant Surveyors LLP	-	2,017
Cushman & Wakefield LLP	183,175	147,174
Knight Frank	-	24,000
Directors' valuation	-	250
Fair value	183,175	173,441
Adjustment in respect of minimum payment under head leases	1,959	2,076
Less lease incentive balance included in prepayments	(1,218)	(975)
Carrying value	183,916	174,542

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

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 external 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; and

- An appropriate yield.

Valuation technique

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.

31 March 2017	Significant unobservable inputs
31 March 2017	Cushman & Wakefield
Value of investment properties	£183,175,000
Area (sq. ft.)	1,576,206
Gross Estimated Rental Value	£15,892,432

Net Initial Yield
Minimum	0.9%
Maximum	9.2%
Weighted average	5.9%
Reversionary Yield
Minimum	5.5%
Maximum	18.7%
Weighted average	6.9%
Equivalent Yield
Minimum	3.2%
Maximum	11.7%
Weighted average	7.6%

Negative Net Initial Yields arise where properties are vacant or partially vacant and void costs exceed rental income.

31 March 2016	Significant unobservable inputs
31 March 2016	Cushman & Wakefield	Knight Frank	Scanlans
Value of investment properties	£147,174,000	£24,000,000	£2,017,000
Area (sq ft)	1,710,355	114,274	22,820
Gross Estimated Rental Value	£12,559,734	£1,775,104	£196,910
Net Initial Yield
Minimum	-6.9%	6.3%	8.3%
Maximum	13.4%	31.0%	10.5%
Weighted average	6.1%	7.0%	9.8%
Reversionary Yield
Minimum	5.5%	6.9%	8.3%
Maximum	15.8%	6.9%	10.5%
Weighted average	6.7%	6.9%	9.8%
Equivalent Yield
Minimum	3.2%	6.3%	8.3%
Maximum	12.1%	17.5%	10.5%
Weighted average	8.0%	7.5%	9.8%

Sensitivity of measurement to variations in the significant unobservable inputs.

Unobservable input	Impact on fair value measurement of significant increase in input	Impact on fair value measurement of significant decrease in input
Gross Estimated Rental Value	Increase	Decrease
Net Initial Yield	Decrease	Increase
Reversionary Yield	Increase	Decrease
Equivalent Yield	Decrease	Increase

The relationship between the unobservable inputs and their impact on the fair value measurement is not certain. Changes to the tenancies and/or income profile of an investment asset may also impact the fair value outside one or more of the above inter-relationships according to individual circumstances.

12. PROPERTY, PLANT AND EQUIPMENT

	IT, fixtures and fittings £000
At 1 April 2015	63
Assets acquired	-
Additions	3
At 1 April 2016	66
Assets acquired	-
Additions	26
At 31 March 2017	92

Depreciation
At 1 April 2015	11
Provided during the year	18
At 1 April 2016	29
Provided during the year	20
At 31 March 2017	49

Net book value at 31 March 2017	43
Net book value at 31 March 2016	37

13. TRADE AND OTHER RECEIVABLES

	2017 £000	2016 £000
Current
Gross amounts receivable from tenants	1,090	2,727
Less: provision for impairment	(139)	(243)
Net amount receivable from tenants	951	2,484
Other taxes	-	68
Other debtors	61	37
Accrued income	1,218	150
Prepayments	281	588
	2,511	3,327

	2017 £000	2016 £000
Non-Current
Accrued income	-	825
	-	825

Accrued income amounting to £1,218,000 (2016: £975,000) relates to rents recognised in advance 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.

Movements in the provision for impairment of trade receivables were as follows:

	2017 £'000	2016 £'000
Brought forward	243	90
Utilised in the period	(182)	(11)
Provisions increased	78	164
	139	243

As at 31 March, the analysis of trade receivables that were past due but not impaired is as follows:

	2017 £'000	2016 £'000
0 - 30 days	630	2,106
31 - 60 days	92	95
61 - 90 days	21	66
91 - 120 days	78	46
More than 120 days	130	171
	951	2,484

14. CASH AND CASH EQUIVALENTS

All of the Group's cash and cash equivalents at 31 March 2017 and 31 March 2016 are in sterling and held at floating interest rates.

2017

£'000

2016

£'000

Cash and cash equivalents

11,181

8,576

The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.

15. TRADE AND OTHER PAYABLES

	2017 £'000	2016 £'000
Trade payables	570	638
Corporation tax	564	662
Other taxes	844	1,036
Other payables	6	67
Deferred rental income	2,860	2,605
Accruals	1,317	1,807
	6,161	6,815

16. BORROWINGS

	2017 £'000	2016 £'000
Current
Bank loans	2,036	2,233
Non-current liabilities
Bank loans	75,758	69,711
Total borrowings	77,794	71,944

	2017 £'000	2016 £'000
Non-current liabilities
Secured Bank loans drawn	76,694	70,445
Unamortised lending costs	(936)	(734)
	75,758	69,711

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

	2017 £'000	2016 £'000
Within one year	2,036	2,233
From one to two years	2,036	17,068
From two to five years	61,806	53,377
After 5 years	12,852	-
	78,730	72,678

Facility and arrangement fees

As at 31 March 2017

Secured Borrowings	All in cost	Maturity date	Loan Balance £'000	Unamortised facility fees £'000	Facility drawn £'000
Santander Bank PLC	2.59%	Jun 2020	15,512	(200)	15,712
Lloyds Bank PLC	2.44%	May 2019	4,018	(45)	4,063
National Westminster Bank PLC	2.84%	Mar 2021	25,360	(308)	25,668
Nationwide Building Society	3.12%	Nov 2020	18,096	(159)	18,255
Scottish Widows	2.90%	Jul 2026	14,808	(224)	15,032
	2.90%		77,794	(936)	78,730

Investment properties with a carrying value of £162,320,000 (2016: £151,065,990) are subject to a first charge to secure the Group's bank loans amounting to £78,730,000 (2016: £72,678,233).

The Group has an unused loan facility amounting to £3,582,000 (2016: £8,000,000). Interest is charged on this facility at a rate of 1.25% and is payable quarterly. This facility is secured on the investment properties held by Property Investment Holdings Limited and Palace Capital (Properties) Limited.

The Group constantly monitors its approach to managing interest rate risk. The Group has fixed £25,032,000 (2016: £nil) 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 been in compliance with all financial covenants of the above facilities applicable throughout the year.

17. GEARING and loan to value RATIO

The calculation of gearing is based on the following calculations of net assets and net debt:

	2017 £'000	2016 £'000
EPRA Net asset value	111,759	106,815
Borrowings net of issue costs	77,794	71,944
Obligations under finance leases	1,950	2,067
Cash and cash equivalents	(11,181)	(8,576)
Net Debt	68,563	65,435
EPRA NAV Gearing	61%	61%

The calculation of bank loan to property value is calculated as follows:

	2017 £'000	2016 £'000
Fair value of Property portfolio	183,175	173,441
Borrowings	78,730	72,678
Cash at bank	(11,181)	(8,576)
Net bank borrowings	67,549	64,102
Loan to value ratio	43%	42%
Net Loan to value ratio	37%	37%

18. LEASES

Operating lease receipts in respect of rents on investment properties are receivable as follows:

	2017 £'000	2016 £'000
Within one year	13,204	12,165
From one to two years	10,882	10,734
From two to five years	22,810	24,987
From five to 25 years	41,001	44,204
After 25 years	-	685
	87,897	92,775

Operating lease payments in respect of rents on leasehold properties occupied by the Group are payable as follows:

	2017 £'000	2016 £'000
Within one year	13	45
From one to two years	-	12
From two to five years	-	-
	13	57

Finance lease obligations in respect of rents payable on leasehold properties were payable as follows:

	2017			2016
	Minimum lease payments £'000	Interest £'000	Present value of minimum lease payments £'000	Present value of minimum lease payments £'000
Within one year	122	(120)	2	2
From one to two years	122	(120)	2	2
From two to five years	366	(358)	8	6
From five to 25 years	2,392	(2,329)	63	68
After 25 years	9,739	(7,864)	1,875	1,989
	12,741	(10,791)	1,950	2,067

The net carrying amount of the leasehold properties is shown in note 11.

The Group has over 150 leases granted to its tenants. These vary dependent on the individual tenant and the respective property and demise and vary considerably from short-term leases of less than 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.

19. Share capital

Authorised, issued and fully paid share capital is as follows:	2017 £'000	2016 £'000
25,800,279 Ordinary Shares of 10p each (2016: 25,781,229)	2,580	2,578
Nil Deferred Shares of 90p each (2016: 315,937)	-	284
	2,580	2,862

Reconciliation of movement in ordinary share capital	2017 £'000	2016 £'000
At start of year	2,578	2,023
Issued in the year	2	555
At end of year	2,580	2,578

Movement in ordinary authorised share capital		Price per share pence	Number of ordinary shares issued 000s	Total number of shares 000s
As at 1 Apr 2015				20,225,673
Equity issue	17 June 2015	360	5,555,556

As at 31 Mar 2016				25,781,229

Exercise of warrants	15 June 2016	200	19,050
Share buy-back by company	17 June 2016	360	(91,587)
Share buy-back by company	20 June 2016	360	(58,000)
Share options issued from Treasury	10 March 2017	340	31,593
Share buy-back by company	10 March 2017	340	(531,593)
Total number of shares excluding the number held in treasury				25,150,692

Year ending 31 March 2017

On 15 June 2016 the Company issued 19,050 ordinary 10p shares. The issue costs amounting to £36,195 have been deducted from the share premium account.

On 17 June 2016 the Company purchased 91,587 ordinary 10p shares at a price of £3.60. All these purchased shares are to be held as treasury shares.

On 20 June 2016 the Company purchased 58,000 ordinary 10p shares at a price of £3.60. All these purchased shares are to be held as treasury shares.

On 10 March 2017 the Company issued 31,593 ordinary 10p shares from treasury at a price of £3.40.

On 10 March 2017 the Company purchased 531,593 ordinary 10p shares at a price of £3.40. All these purchased shares are to be held as treasury shares.

A reduction of the Company's share capital by way of cancellation of the Deferred Shares was carried out and completed on 31 August 2016. The Company's issued share capital included 315,938 Deferred Shares as at 31 March 2016. The nominal value of the Deferred Shares was part of the capital of the Company and therefore not distributable. The Deferred Shares were created as a result of the reorganisation of the Company's share capital on 18 October 2013 when each issued ordinary share of £0.01 was consolidated and converted into one new Ordinary Share of £0.10 and one Deferred Share of £0.90. The Deferred Shares carried no voting or dividend rights and only very limited rights to participate in the capital of the Company upon a winding-up. These rights are such as to make the Deferred Shares virtually worthless in the hands of the holder.

In the Company's books the capital paid up on the Deferred Shares represented £284,244, being the aggregate nominal value of all the Deferred Shares. Cancelling the Deferred Shares with the prior approval of Shareholders by way of a special resolution and the subsequent approval of the Court has resulted in the removal of them from the Company's balance sheet and permitted an amount of £284,244 to be released to the Capital Redemption Reserve, which may be used to reduce or eliminate losses (if any) arising on the profit and loss account, and will also be retained for the protection of the Company's creditors that are in existence as at the date of the Capital Reduction. Additional fees of £8,786 were incurred as a result of the cancellation of the Deferred Shares and have been recognised as a debit against the Capital Redemption Reserve.

Year ending 31 March 2016

On 17 June 2015 the Company issued 5,555,556 ordinary 10p shares at a price of £3.60. Issue costs amounting to £885,383 were incurred and have been deducted from the share premium account.

Share options:

Reconciliation of movement in outstanding share options	2017 No of options	2016 No of options
At start of year	569,022	448,754
Issued in the year	171,281	120,268
Exercised in the year	(50,643)	-
Lapsed in the year	-	-
At end of year	689,660	569,022

As at 31 March 2017, the Company had the following outstanding unexpired options.

Description of unexpired share options	2017		2016
Description of unexpired share options	No of options	Weighted average option price	No of options	Weighted average Option price
Employee benefit plan (note 20)	689,660	0p	549,972	13p
Warrants issued to Nominated Adviser and Broker	-	0p	19,050	200p
Total	689,660	0p	569,022	20p

Exercisable	-	0p	50,643	216p
Not exercisable	689,660	0p	518,379	0p

Warrants issued to the Group's Nominated Adviser and Broker

The Group's Nominated Adviser and Broker received 248,715 options in 2014 in exchange for part of the fee charged by the brokers for the share issue that occurred during that year and the Directors considered the fair value of the service to be £50,000. All options had been exercised by the balance sheet date and there were none remaining at 31 March 2017.

20. 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 year:

	Number of options	Exercise price	Grant date	Vesting date
Outstanding at 31 March 2015	429,704	17p
Issued during the year (LTIP 2015)	120,268	0p	8 Dec 2015	8 Dec 2018
Outstanding at 31 March 2016	549,972	13p
Issued during the year (LTIP 2016)	171,281	0p	4 July 2016	4 July 2019
Exercised during the year	(31,593)	225p
Outstanding at 31 March 2017	689,660	0p

LTIP 2014

The options are awarded to employees on achievements against target on two separate measures over the three financial years ending 31 March 2017. Half the options will be awarded based on the first target and half based on the achievement of the second.

Earnings per share (EPS) growth: is based on an adjusted profit after tax excluding property revaluations and disposal profits/losses for the financial year. This target will measure the compound growth in EPS over the three year period ending 31 March 2017.

Total shareholder return (TSR) measures the total shareholder return (share price rise plus dividends) over the period from 21 October 2013 to 31 March 2017. The base price being £2.00 per share which was the placing price on that day.

Average annual TSR (compounded) over the TSR performance period	Vesting %	Average annual EPS growth (compounded) over the EPS performance period	Vesting %
<20%	0	<15%	0
Equal to 20%	33.33	Equal to 15%	50
Equal to 25%	66.66	Equal to 30%	100
Equal to 30%	100

For the TSR measure, the achievement of between 25% and 30% compound growth will result in the number of Ordinary shares vesting to be calculated on a straight line basis between 66.66% and 100%. A similar rule will apply between 20% and 25% and for the EPS condition between 15% and 30%.

LTIP 2015

The options are awarded to management on achievements against target on two separate measures over the three-year period ending 30 September 2018. 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 per share as at 30 September 2018 adding back dividends per share paid during the period. This target will measure the compound growth in NAV over the three-year period ending 30 September 2018. The base level being £4.04 per share which was the EPRA NAV per share as at 30 September 2015.

Total shareholder return (TSR) measures the total shareholder return (price rise plus dividends) over the period from 1 October 2015 to 30 September 2018. The base price being £3.70 per share which was the market price at the grant date.

Average annual TSR (compounded) over the TSR performance period	Vesting %	Average annual NAV growth (compounded) over the TSR performance period	Vesting %
<8%	0	<8%	0
Equal to 8%	33.33	Equal to 8%	33.33
Equal to 13%	100	Equal to 13%	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 between 8% and 13%.

LTIP 2016

The options are awarded to employees on achievements against targets on two separate measures over the three financial years ending 31 March 2019. 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 ending 31 March 2019, and comparing this with the Net Asset Value Growth of a group of comparable companies. The base NAV per share being £4.14.

Total shareholder return (TSR) measures the total shareholder return (price rise plus dividends) over the period from 1 April 2016 to 31 March 2019. The base price being £3.16 per share which was the market price at the grant date.

Average annual TSR (compounded) over the TSR performance period	Vesting %	Average annual NAV growth (compounded) over the TSR performance period	Vesting %
<8%	0	At median	20
Equal to 8%	33.33	Between median and upper quartile	20-100
Equal to 13%	100	Upper quartile and above	100

The fair value of grants was measured at the grant date using a Black-Scholes pricing model for the NAV tranche and using a Monte Carlo pricing model for the TSR tranche, taking into account the terms and conditions upon which the instruments were granted. The services received and a liability to pay for those services are recognised over the expected vesting period. The main assumptions of both the Black-Scholes and Monte Carlo pricing models are as follows:

	Monte Carlo TSR Tranche	Black Scholes NAV Tranche
Grant date	04.07.16	04.07.16
Share price	£3.16	£3.16
Exercise price	0p	0p
Term	3 years	3 years
Expected volatility	20.80%	20.80%
Expected dividend yield	4.41%	4.41%
Risk free rate	0.17%	0.17%
Time to vest (years)	3.0	3.0
Expected forfeiture p.a.	0%	0%
Fair value per option	£0.79	£2.77

The expense recognised for employee share based payment received during the period is shown in the following table:

	2017 £'000	2016 £'000
Palace Capital No 1 share option scheme	-	-
LTIP 2014	108	77
LTIP 2015	82	33
LTIP 2016	47
Total expense arising from share-based payments	237	110

21. RELATED PARTY TRANSACTIONS

Accounting services amounting to £85,863 (2016: £75,633) have been provided to the Group by Stanley Davis Group Limited, a company where Stanley Davis is a Director.

22. CAPITAL COMMITMENTS

The obligation for capital expenditure relating to the construction, development or enhancement of investment properties entered into by the Group at 31 March 2017 amounted to £78,363 (2016: £1,435,985).

23. POST BALANCE SHEET EVENT

The Company announced on the 2 May 2017 that it had entered into an agreement to acquire an office building for £20m subject to contract and is expected to complete in the Summer 2017.

24. 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. All financial assets are classified as loans and receivables and all financial liabilities are measured at amortised cost.

The Group is exposed to market risk (including interest rate risk and real estate risk), credit risk and liquidity risk.

The Group's senior management oversee the management of these risks, and the Board of Directors has overall responsibility for the determination of the Group's risk management objectives and policies and it sets policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below:

Capital risk management

The Group considers its capital to comprise its share capital, share premium, other reserves and retained earnings which amounted to £109,559,765 at 31 March 2017 (2016: £106,815,113). 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.

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in the Group's statutory accounts.

Market risk

Market risk arises from the Group's use of interest bearing, tradable and foreign currency financial 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), foreign exchange rates (foreign currency 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 2017 and 31 March 2016 were:

	Nil rate assets and liabilities £'000	Floating rate assets £'000	Fixed rate liability £'000	Floating rate liability £'000	Total £'000
As at 31 March 2017
Trade and other receivables	1,012	-	-	-	1,012
Cash and cash equivalents	-	11,181	-	-	11,181
Trade and other payables	(1,894)	-	-	-	(1,894)
Bank borrowings	-	-	(25,032)	(52,762)	(77,794)
Obligation under finance leases	-	-	(1,950)	-	(1,950)
	(882)	11,181	(26,982)	(52,762)	(69,445)

	Nil rate assets and liabilities £'000	Floating rate assets £'000	Fixed rate liability £'000	Floating rate liability £'000	Total £'000
As at 31 March 2016
Trade and other receivables	2,521	-	-	-	2,521
Cash and cash equivalents	-	8,576	-	-	8,576
Trade and other payables	(2,512)	-	-	-	(2,512)
Bank borrowings	-	-	-	(71,944)	(71,944)
Obligation under finance leases	-	-	(2,067)	-	(2,067)
	9	8,576	(2,067)	(71,944)	(65,426)

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 £11,181,000 (2016: £8,576,000). The income statement would be affected by £112,000 (2016: £80,000) by a one percentage point change in floating interest rates on a full year basis.

The Group has loans amounting to £53,684,000 (2016: £72,678,000) 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 £536,840 (2016: £726,780).

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 2017 the concentration of credit risk held with Barclays Bank plc, the largest of these banks, was £7,770,015 (2016: £7,138,979). 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 6.7% (2016: 6.2%) 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 2017 was £951,000 (2016: £2,521,000). The details of the provision for impairment 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 £'000	0 - 1 years £'000	1 to 2 years £'000	2 to 5 years £'000	> 5 years £'000	Total £'000
As at 31 March 2017
Interest bearing loans	-	4,190	4,293	65,678	14,325	88,486
Finance leases	-	122	122	366	12,131	12,741
Trade and other payables	1,894	-	-	-	-	1,894
	1,894	4,312	4,415	66,044	26,456	103,121

	On demand £'000	0 - 1 years £'000	1 to 2 years £'000	2 to 5 years £'000	> 5 years £'000	Total £'000
As at 31 March 2016
Interest bearing loans	-	4,529	19,967	57,234	-	81,730
Finance leases	-	130	130	386	12,831	13,477
Trade and other payables	2,521	-	-	-	-	2,521
	2,521	4,659	20,097	57,620	12,831	97,728

Derivative financial instruments

The Group does not currently use derivative financial instruments as hedging is not considered necessary. Should the Group identify a requirement for the future use of such financial instruments, a comprehensive set of policies and systems, as approved by the Directors, will be implemented.

In accordance with IAS 39, "Financial instruments: recognition and measurement", the Group has reviewed all contracts for embedded derivatives that are required to be separately accounted for if they do not meet specific requirements set out in the standard. No material embedded derivatives have been identified.

The directors consider that the fair value of the Group's financial instruments are not materially different to their carrying value. This view was formed on the basis that, as indicated in note 16 of the financial statements, the majority of bank loans and the loan notes attracted a variable rate of interest and that the cash deposits, and trade payables and receivables, are short-term in nature. Consequently, in accordance with paragraph 29(a) of IFRS 7, no fair value information has been disclosed and the information in paragraph 97 of IFRS 13 is not required.

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 share-based payments, one-off finance termination costs and one-off surrender premiums received.

Assets under Management (AUM): Is a measure of the total market value of all properties owned by the Group.

Balance sheet gearing: Is the balance sheet net debt divided by IFRS net assets.

Dividend cover: Adjusted Earnings per share divided by dividend per share declared in the period.

EPRA: Is the European Public Real Estate Association.

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.

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.

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: Is the number of times net interest payable is covered by underlying profit before net interest payable and taxation.

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.

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: 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: 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.

Reversionary yield: Is the anticipated yield, which the initial yield will rise to once the rent reaches the estimated rental value.

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.

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 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.

This information is provided by RNS

The company news service from the London Stock Exchange

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