RNS Number : 7740C
Palace Capital PLC
15 June 2023
 

 

15 June 2023

PALACE CAPITAL PLC

("Palace Capital", the "Group" or the "Company")

Preliminary Results for the year ended 31 March 2023

FOCUSED ON MAXIMISING CASH RETURNS TO SHAREHOLDERS

Palace Capital (LSE: PCA) announces its audited preliminary results for the year ended 31 March 2023.

Steven Owen, Interim Executive Chairman, commented:

"Despite a difficult market backdrop, the Group sold a number of assets during the year, reducing its debt and progressing its strategy to maximise cash returns to shareholders. A total of eight investment properties were sold for £15.6 million, which was 8% ahead of the 31 March 2022 book value, together with £10.1 million of sales of unencumbered residential units at Hudson Quarter, York.  Progress has continued since the year end, and we have either exchanged contracts on or completed the sales of properties totalling £43.4 million, 6% ahead of the 31 March 2023 book value and an accretion of 6 pence per share in EPRA NTA. In the twelve months to 31 March 2023, gross debt reduced by £37.5 million to £64.3 million (net debt £58.8 million) and by 31 July 2023 gross and net debt is expected to be c.£34 million and c.£20 million respectively, equating to a proforma LTV of c.13%.

"The Board's strategy remains focused on maximising cash returns to shareholders, whilst continuing to remain mindful of consolidation in the Real Estate sector. As part of its considerations, certain properties are either being marketed for sale or are being prepared and readied for sale, whilst other properties are undergoing asset management initiatives in order to prepare them for sale at a future date. Given its low leverage, the Company is well placed in terms of flexibility and optionality regarding the timing of its disposal programme and other strategic initiatives, including various options for returning capital to shareholders. Since July 2022, cash returned to shareholders from share buyback programmes totals £7.9 million.

"It is expected that further progress will be announced in a Trading Update to be released on 26 July 2023 prior to the AGM."

Income statement metrics

Year ended

31 March 2023

Year ended

31 March 2022

Change

Net rental income

£15.6m

£15.2m

2.6%

Adjusted profit before tax

£7.6m

£7.8m

-2.6%

Adjusted earnings per share

17.1p

16.9p

1.2%

IFRS (loss)/profit before tax

(£35.8m)

£24.6m


Basic earnings per share

(80.2p)

53.1p


Dividends

 


 

Dividend per share

15.0p

13.25p

13.2%

Balance Sheet and operational metrics

 



EPRA NTA per share

296p

390p

-24.1%

Net asset value

£128.5m

£177.2m

-27.5%

Like-for-like portfolio valuation (decrease)/increase

(18.6%)

3.9%

 

Total property return

(11.6%)

12.5%

 

Total accounting return

(20.4%)

14.8%

 

EPRA occupancy rate

87.7%

88.5%

 

Debt

 


 

Loan to value

31%

28%

 

Total gross debt

£64.3m

£101.8m

-36.8%

Average cost of debt

5.8%

3.2%

260bps

Average debt maturity

2.0 years

1.9 years

 

 

Financial highlights

·      Adjusted profit before tax decreased by 2.6% to £7.6 million (2022: £7.8 million), principally due to higher finance costs offset by an increase in net rental income and a reduction in recurring administration expenses.

·      IFRS loss before tax of £35.8 million (2022: £24.6 million profit), due primarily to the portfolio revaluation deficit of £42.9 million.

·      Adjusted EPS increased by 1.2% to 17.1 pence (2022: 16.9 pence) due to the accretive share buyback programmes.

·      Total dividends paid or declared for the year increased by 13.2% to 15.0 pence per share (2022: 13.25 pence per share).

·      EPRA NTA per share decreased by 24.1% to 296 pence (2022: 390 pence), due to the portfolio revaluation deficit, offset by the 8 pence per share buyback accretion.

·      Total property portfolio valuation reduced by 18.6% on a like-for-like basis (2022: 3.9% increase).

·      Total Property Return of -11.6% for the year (2022: 12.5%) outperforming the MSCI UK Quarterly Property Index benchmark of -12.6%.

·      LTV 31% (2022: 28%). In the twelve months to 31 March 2023 gross debt reduced by £37.5 million to £64.3 million (net debt £58.8 million) and by 31 July 2023 gross and net debt is expected to be c£34 million and c.£20 million respectively equating to proforma LTV of c.13%.

·      Annualised administration cost savings of £1.4 million following the Board changes and the relocation of the Company's head office, together with other ongoing cost reduction measures.

·      During FY23 two share buyback programmes announced with 2.6 million shares purchased for £6.7 million. Since 1 April 2023, a further 0.5 million shares have been purchased for £1.2 million. Total cash returned to shareholders from the buyback programmes to date is £7.9 million. The Company today announces an extension of the share buyback programme announced on 6 February 2023 to repurchase up to a further 1 million shares in the capital of the Company for an amount not exceeding £2.5m (excluding stamp duty and expenses) under the resolution passed at the 2022 AGM. A resolution proposing the renewal of this authority will be proposed at the 2023 AGM.

 

Operational highlights 

·      Successful disposal of eight investment properties for £15.6 million, 8% ahead of the 31 March 2022 book value.

·      Sale of 23 apartments at Hudson Quarter, York for £10.1 million.

·      Post 31 March 2023, exchanged contracts or completed the sales of nine investment properties totalling £43.4 million, 6% ahead of the 31 March 2023 book value and an accretion of 6 pence per share in EPRA NTA.

·      Apartment sales at Hudson Quarter, York have continued post 31 March 2023, with a further five apartment sales having completed to the value of £2.2 million. There are 18 units remaining.

·      14 new lettings, 15 lease renewals and 16 rent reviews were completed across 228,000 sq ft of space generating £1.1 million of additional annualised contracted rent, 11% ahead of 31 March 2022 ERV, which demonstrates the strong reversionary potential within the portfolio.

·      Robust rent collection for the 12 months to 31 March 2023 of 99% (2022: 98%).

·      Overall EPRA occupancy remained stable at 87.7% (2022: 88.5%).

·      WAULT of 4.8 years to break and 6.5 years to expiry reflecting asset management activities and resilience of portfolio (2022: 4.7 years to break and 6.5 years to expiry). 

·      Portfolio asset management activity continues to improve the EPC (Energy Performance Certificate) profile across the portfolio: 96.2% are now rated A-D and 72.2% are rated A-C (2022: 88.8% and 55.2% respectively).

 

Total returns


Year ended

31 March 2023

Year ended

31 March 2022

Total accounting return

-20.4%

14.8%

Income return

7.3%

6.5%

Capital return

-17.7

6.0%

Total property return

-11.6%

12.5%

 

Audio Webcast

A live webcast of the presentation including Q&A will be held today at 09:30am UK Time for investors and analysts and will be available on https://brrmedia.news/PCA_FYR.  This will be available for playback after the event and on our website https://palacecapitalplc.com.

 

PALACE CAPITAL PLC

Steven Owen, Interim Executive Chairman / Matthew Simpson, Chief Financial Officer
info@palacecapitalplc.com

Financial PR 

FTI Consulting

Dido Laurimore/ Giles Barrie

Tel: 44 (0)20 3727 1000

palacecapital@fticonsulting.com

 

Palace Capital plc

For further information on Palace Capital plc (LSE: PCA) please visit www.palacecapitalplc.com.

The Annual Reports and Accounts together with the Notice convening the 2023 Annual General Meeting will be posted to Shareholders in June 2023.

Cautionary Statement

This announcement does not constitute an offer of securities by the Company. Nothing in this announcement is intended to be, or intended to be construed as, a profit forecast or a guide as to the performance, financial or otherwise, of the Company or the Group whether in the current or any future financial year. This announcement may include statements that are, or may be deemed to be, ''forward-looking statements''. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ''believes'', ''estimates'', ''anticipates'', ''expects'', ''intends'', ''plans'', ''target'', ''aim'', ''may'', ''will'', ''would'', ''could'' or ''should'' or, in each case, their negative or other variations or comparable terminology. They may appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of the directors, the Company or the Group concerning, amongst other things, the operating results, financial condition, prospects, growth, strategies and dividend policy of the Group or the industry in which it operates. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond the Company's ability to control or predict. Forward-looking statements are not guarantees of future performance. The Group's actual operating results, financial condition, dividend policy or the development of the industry in which it operates may differ materially from the impression created by the forward-looking statements contained in this announcement. In addition, even if the operating results, financial condition and dividend policy of the Group, or the development of the industry in which it operates, are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause these differences include, but are not limited to, general economic and business conditions, industry trends, competition, changes in government and other regulation, changes in political and economic stability and changes in business strategy or development plans and other risks.

 

Other than in accordance with its legal or regulatory obligations, the Company does not accept any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

 

Interim Executive Chairman's Statement

Introduction and update on delivery of strategic objectives

This is my second annual results statement as Chairman of Palace Capital in what can only be described as a volatile and difficult year for the Company and for the property and financial markets.

The past year has been transformational both for the Company and for the wider macroeconomic and geo-political environment. The headwinds of the last twelve months are well documented, including the continued conflict in Ukraine, the UK's cost of living crisis, rising interest rates and inflationary pressures. Such uncertainty and volatility in the economic environment has negatively impacted the property market, particularly with regard to the reduction in property valuations due to the significant increases in both short and long term interest rates.

In July 2022, it was announced by the Company that the Board's strategy was to focus on maximising cash returns to shareholders, whilst continuing to remain mindful of consolidation in the Real Estate sector. As part of its considerations, several properties, including the industrial portfolio, were prepared and readied for sale.

However, the 'mini-budget' in September 2022 significantly accelerated the negative trends outlined above with the result that, in October 2022, the Company announced that it had decided to pause the timing of significant disposals for the time being, although the sale of small, individual assets which lent themselves to private buyers and special purchasers, would continue. Earlier this year it became evident that property market sentiment and pricing was significantly improving from the position in the last quarter of 2022 and the Company capitalised on this trend by marketing for sale certain properties that would enable it to continue to reduce its debt and therefore remain focused on maximising cash returns to shareholders.

On 5 May 2023, in its strategy and trading update, the Company announced the significant disposal of six industrial assets for £34.0 million at a NIY of 6.2%, 3.0% ahead of 31 March 2023 book value of £33.0 million as well as exchange of contracts for the sale of an Aldi supermarket, in Gosport, for £5.6 million at a NIY of 5.5%, 7.3% ahead of the 31 March 2023 valuation.

Disposal activity has continued and we have recently exchanged contracts for the sale of Millbarn Medical Centre at Beaconsfield for £1.5 million, 87.5% ahead of the March 2023 book value of £0.8 million. The Company has also exchanged contracts for the sale of Princeton House, Farnborough for £2.3 million, which is 31.7% ahead of the 31 March 2023 valuation. Both properties are expected to complete in July.

The Company expects to announce further investment property disposals in a Trading Update to be released ahead of the Company's AGM on 26 July assuming that those sales currently under offer are successfully executed.

Further progress was also achieved with residential sales at Hudson Quarter, York where a further 23 apartment sales were completed for a total of £10.1 million. A further five apartment sales have completed for £2.2 million since the year end leaving 18 units remaining.

Since the change of strategy announced on 19 July 2022, investment property disposals (either completed or exchanged) have generated proceeds of £54.5 million, a 9% reduction over the March 2022 valuation which was the peak of the current property cycle. If disposals are compared with the relevant March valuation prior to sale, the result is an increase of 5% ahead of such valuation.

Operationally, the business remains robust. The team has been proactive in implementing asset management plans to increase income, reduce void costs and improve our ESG performance, including EPCs, as set out in the Operating Review. Rent collection remains high and occupancy levels remain resilient.

In terms of managing our own costs, as previously announced, measures to reduce the level of administration expenses have been implemented and are continuing. Annualised cost savings are now at £1.4 million. These cost savings represent 30% of FY22 administrative expenses and 19% of FY22 EPRA earnings.

During the financial year, the Company announced two share buyback programmes, purchasing 2.6 million shares. The accretion to 2023 EPRA NTA was 8.0 pence per share. Since 1 April 2023 a further 0.5 million shares have been purchased. The total cash returned to shareholders from the buyback programmes to date is £7.9 million.

Overview of results

The Group's adjusted profit before tax decreased slightly to £7.6 million (2022: £7.8 million) principally due to higher finance costs offset by an increase in net rental income and a reduction in recurring administration expenses. Trading profits from the sale of residential units realised £0.5 million (2022: £3.8 million) whilst profits from investment property sales contributed £0.8 million (2022: £5.0 million).

The deficit on the revaluation of the portfolio for the year of £42.9 million was due to softening yields across the whole portfolio although disposals since 31 March 2023 have demonstrated that some value has been recovered and realised.

Contractual payments to the former Chief Executive and Executive Property Director of £1.8 million, including associated costs, have been treated as an exceptional item.

The aggregation of the profits and losses described in the preceding paragraphs account for the loss before tax reported under IFRS of £35.8 million (2022: £24.6 million profit).

Principally as a result of the revaluation deficit on the portfolio, offset by the 8 pence per share share-buyback accretion, EPRA NTA per share decreased by 24.1% to 296 pence per share (2022: 390 pence per share).

The Group's balance sheet has been significantly strengthened following the £37.5 million reduction in gross debt during the year to £64.3 million. Cash reserves were £5.5 million resulting in net debt of £58.8 million. Post period end and on completion of the disposal of currently contracted sales proforma gross and net debt is expected to be c.£34 million and c.£20 million respectively, equating to proforma LTV of c.13%.

Dividend

The Group paid or declared dividends of 15.0 pence per share (2022: 13.25 pence per share) in relation to the year ended 31 March 2023, including a proposed final fourth quarter dividend of 3.75 pence per share. The total dividend of 15.0 pence per share is covered 114% by adjusted earnings per share.

The final dividend of 3.75 pence per share will be paid, subject to shareholder approval at the AGM being held on 26 July 2023, on 4 August 2023 to shareholders on the register on 7 July 2023. The entire dividend will be paid as a Property Income Distribution.

Environmental, Social and Governance ("ESG")

The Company remains committed to responsible business and ESG matters, which are at the forefront of stakeholders' considerations. Further details on the approach to responsible business can be found in the Annual Report and on the website.

Board changes

On 14 June 2022, Neil Sinclair stepped down as Chief Executive and Steven Owen was appointed Interim Executive Chairman. As announced on 19 July 2022, in light of the amended strategy, Paula Dillon, Kim Taylor-Smith and Mickola Wilson stepped down as Independent Non-Executive Directors. Mark Davies was appointed as an Independent Non-Executive Director and in addition was appointed Chair of the Audit & Risk Committee, Remuneration Committee and Senior Independent Director on 1 August 2022. Richard Starr stepped down as Executive Property Director on 12 August 2022.

Outlook

The year ahead is likely to be further affected by continuing macroeconomic and geo-political uncertainty although the inflation outlook in the UK is expected to improve. The increases in interest rates have adversely impacted the commercial property market in relation to investment activity resulting in a re-pricing of assets as evidenced by recent transactions and published valuations. Notwithstanding this, the occupational market has remained resilient as evidenced by the increases over estimated rental values obtained on lettings, lease renewals and rent reviews together with a stable occupancy rate and high rent collection which demonstrates the resilience of the portfolio.

As previously announced, the Board's strategy remains focused on maximising cash returns to shareholders, whilst continuing to remain mindful of consolidation in the Real Estate sector. As part of its considerations, certain properties are either being marketed for sale or are being prepared and readied for sale whilst other properties are undergoing asset management initiatives in order to prepare them for sale at a future date. Given its low leverage, the Company is well placed in terms of flexibility and optionality regarding the timing of its disposal programme and other strategic initiatives, including various options for returning capital to shareholders.

It is expected that further progress will be announced in a Trading Update to be released on 26 July prior to the AGM.

 

Steven Owen

Interim Executive Chairman

OPERATIONAL REVIEW

SUMMARY OF THE YEAR

Operationally, the business remains robust. The team has been proactive in implementing asset management plans to increase income, reduce void costs and improve our ESG performance, including EPCs. Rent collection remains strong and occupancy levels remain resilient.

Total rent collection for the 12 months to 31 March 2023 was 99% (2022: 98%).  During the year ended 31 March 2023, the Company disposed of eight investment properties for £15.6 million, 8% ahead of the 31 March 2022 book value.

Apartment sales at Hudson Quarter, York have continued since 1 April 2023, with a further five apartment sales having completed to the value of £2.2 million. There are 18 units remaining.


ASSET MANAGEMENT

There have been 45 lease events completed totalling 228,000 sq ft of space, 11% above the 31 March 2022 ERV, generating £1.1 million of additional annualised contracted rent, which demonstrates the strong reversionary potential within the portfolio. The 45 lease events can be analysed as:

·      14 new lettings, 14% above ERV generating £0.8 million of additional annualised income.

·      15 lease renewals, 8% above of ERV generating £0.1 million of additional annualised income.

·      16 rent reviews, 12% above of ERV generating £0.2m of additional annualised income. 

In addition, void savings from new lettings was £0.3 million resulting in a total of £1.4 million of annualised net rental income created. This asset management activity has contributed to the Company outperforming the MSCI UK Quarterly Property Index over FY23.

Portfolio asset management activity continues to improve the EPC (Energy Performance Certificate) profile across the portfolio with 96.2% of the portfolio is now rated A-D and 72.2% is rated A-C (2022: 88.8% and 55.2% respectively).

New lettings in the year included:

·    15 year lease without break at Sol, Northampton let to Chi, an aspirational F&B operator at £85,000pa (with turnover top up) 107% above the March 2022 ERV. The unit had been vacant for over 5 years.

·    5 year lease on ground and lower ground at Regency House, Winchester to Ward Williams Associates at £47,081pa, 15% above the March 2022 ERV.

·    10 year lease at Verwood of two units at a rent of £68,600pa equivalent to £8.75psf which sets a new rental tone for the estate.

·    three lettings at Museum Street, York for a combined rent of £97,900 pa at an average WAULT to break of 4 years at an average premium to March 2022 ERV of 17%.

Notable lease renewals during the year were at:

·    Maidenhead, where the WAULT was extended from 3.5 years to 11.5 years.

·    Exeter, 10 years at £124,572pa, 8% above ERV.

·    Sutton, 5 years at £282,500pa, in line with ERV.

·    Verwood, to the key anchor tenant Global Filters for a 10-year term at £130,290pa, 53% above the previous passing rent.

·      Leamington Spa, Imperial House where both tenants Ubisoft and Altair Engineering renewed their leases for a further 5 years at £333,850pa, an average of 6% above ERV.

These successful asset management initiatives are part of the process of creating value and preparing assets for sale, the timing of which is within the control of the Company.

 

PORTFOLIO OVERVIEW

Following the recent disposal programme of carefully selected assets, as at 31 March 2023 the portfolio comprised 31 buildings (2022: 37) with 141 occupiers (2022: 164), of higher quality with improved EPC ratings and occupancy levels.

Our diversified portfolio has had a focus on the office and industrial sectors, which made up 68% of the total holdings. The remainder comprised leisure at 15%, retail and retail warehousing at 11% and residential at 6% (HQ York).

CBRE independently valued the portfolio as at 31 March 2023 at £192.4 million, resulting in a deficit of 18.6% on a like-for-like basis compared with the valuation as at 31 March 2022. The best performing sector was retail warehouse, increasing 5.8%. The largest declines were leisure at 20.9% and offices at 20.4%. The industrial assets were down 17.5% and retail declined 16.4%. This compares to declines in the market as provided by the MSCI UK Quarterly index of -15.4% for offices, with industrial asset declines of -23.2% and retail of -12.7%

 


FY23

FY22

Portfolio value

£192.4m

£259.0m

Net initial yield

7.4%

5.6%

Reversionary yield

9.6%

7.5%

Contractual rental income

£15.7m

£16.7m

Estimated rental value

£18.8m

£19.4m

WAULT to break

4.8 years

4.7 years

EPRA vacancy rate

12.3%

11.5%

 

 

DISPOSAL STRATEGY

As part of the ongoing strategy to maximise cash returns to shareholders, certain properties are either being marketed for sale or are being prepared and readied for sale whilst other properties are undergoing asset management initiatives in order to prepare them for sale at a future date.

During the year, eight investment properties were sold for £15.6 million at an average 8% ahead of March 2022 book value.

On 5 May 2023, the Company announced in a strategy and trading update the significant disposal of six industrial assets for £34.0 million at a NIY of 6.2%, 3.0% ahead of 31 March 2023 book value of £33.0 million. Five of the properties have now completed and the sixth is expected to complete in early July. The Company has also completed the sale of an Aldi supermarket, in Gosport, for £5.6 million at a NIY of 5.5%, 7.3% ahead of the 31 March 2023 valuation.

The Company has, since 5 May, exchanged contracts for the sale of Millbarn Medical Centre at Beaconsfield for £1.5 million, 87.5% ahead of the March 2023 book value of £0.8 million. The Company has also exchanged contracts for the sale of Princeton House, Farnborough for £2.3 million, which is 31.7% ahead of the 31 March 2023 valuation. Both properties are expected to complete in July. 

Apartment sales at Hudson Quarter, York continued to progress, despite the uncertain economic backdrop. During the year ended 31 March 2023 the Company completed on 23 apartments for a total of £10.1 million, bringing the total residential and investment property sales for the year to £25.7 million. 

Post 31 March 2023, total residential and investment sales exchanged or completed currently stand at £45.6 million and as a result, since the change of strategy announcement on 19 July 2022, investment property disposals (either completed or exchanged) have generated proceeds of £54.5 million at a 9% reduction to the March 2022 valuation (which was the peak of the current property cycle) or 5% ahead when compared with the relevant March valuation prior to sale.

 

 

ESG

In line with stakeholder requirements, buildings and occupiers increasingly need to improve their ESG impact. This includes fulfilling sustainable criteria in line with the Paris Accord net zero targets.

Central to this is the continuous improvement of our EPC ratings. The minimum rating within our portfolio as at 31 March 2023 is F at Bank House, Leeds. It is encouraging that 96.2% of our EPC's are rated A - D (2022: 88.8%).

ESG is embedded in our business and decision making. Our asset management initiatives and capital expenditure take into consideration the ESG benefits of improving buildings and we work with tenants to help them where possible reduce their utility costs, while improving the overall environmental impacts of our buildings and their use. Renewable electricity is used in 99% of landlord controlled properties.

 

Daniel Davies, Head of Asset Management

Thomas Hood, Head of Investment

 

14 June 2023

 

FINANCIAL REVIEW

CHIEF FINANCIAL OFFICER'S REPORT

Financial Overview

The Group's adjusted profit before tax decreased by 2.6% to £7.6 million (2022: £7.8 million) and EPRA NTA per share by 24.1% to 296 pence (2022: 390 pence). Against a backdrop of economic uncertainty, the Group continued to deliver at an operational level, by significantly reducing gross debt in a rising interest rate environment and making substantial progress in reducing administration costs, with £1.4 million of annualised cost savings made in the year.

The decrease in adjusted profit before tax to £7.6 million is principally due to the increase in interest rate costs and the loss of income through disposals in the year. However, this was largely offset by asset management letting activity increasing net rental income and a reduction in administration costs. In line with the strategy of returning capital to shareholders, the Group has increased the dividend paid or declared by 13.2% in the period to 15.0 pence per share (2022: 13.25 pence per share) and bought £6.7 million shares back in the year as part of the share buyback programme. The share buyback programme contributed 0.6 pence per share to adjusted earnings per share, which increased to 17.1p (2022: 16.9p) whilst also increasing EPRA NTA by 8.0 pence per share.

The £0.8 million (2022: £5.0 million) profit on disposal of eight investment properties, the £0.5 million realised profit on the sale of 23 residential units at Hudson Quarter and the fair value commercial property valuation deficit of £42.9 million (2022: £8.2 million surplus), contributed to the IFRS loss before tax of £35.8 million (2022: £24.6 million profit).

The fair value property revaluation deficit was largely as a result of the upward yield pressure driven by macroeconomic factors rather than underlying property performance as evidenced by a robust letting performance in the year, where asset management initiatives continue to drive rental growth above estimated rental values (ERV), contributing, amongst other factors, to an increase in adjusted earnings per share to 17.1p. The asset management performance in the year contributed to the Group outperforming the MSCI benchmark on a total property return basis, with the income outperformance being 3.1%. The Company's MSCI total return for the year was -11.6% compared with -12.6% for the MSCI benchmark.

 

FINANCIAL HIGHLIGHTS


2023

2022

Income growth



IFRS (loss)/profit before tax

(£35.8m)

£24.6m

Adjusted profit before tax

£7.6m

£7.8m

EPRA earnings

£5.7m

£7.4m

Basic EPS

(80.2p)

53.1p

EPRA EPS

12.7p

16.0p

Adjusted EPS

17.1p

16.9p

Dividend for the year

15.00p

13.25p




Capital growth



Portfolio like-for-like value

(18.6%)

3.9%

Net Asset Value

£128.5m

£177.2m

Basic NAV per share

294p

383p

EPRA NTA per share

296p

390p

Total accounting return

(20.4%)

14.8%

Total property return

(11.6%)

12.5%

Total shareholder return

(15.9%)

21.1%


 


 

The summary of the Group financial results are as follows:

Income Statement Summary

 

Income Statement

31 March 2023

31 March 2022


£m

£m

Gross property income (excluding Expected Credit Loss provision)

17.9

17.4

Property operating expenses

(2.6)

(2.6)

Expected Credit Loss provision

0.3

0.4

Net rental income

15.6

15.2

Recurring administration expenditure

(4.1)

(4.4)

Finance costs

(3.9)

(3.0)

Adjusted profit before tax

7.6

7.8

Tax

0.1

(0.1)

Adjusted profit after tax

7.7

7.7

Hudson Quarter development loan interest

-

(0.2)

Payments to former Directors (including associated costs)

(1.8)

-

Share based payments

(0.2)

(0.1)

EPRA earnings

5.7

7.4

(Loss)/gain on revaluations

(42.9)

8.2

Trading profit

0.5

3.8

Profit on disposal of investment properties

0.8

5.0

Other income statement movements

0.2

0.1

IFRS earnings

(35.7)

24.5

 

Net rental income in the year increased marginally to £15.6 million (2022 £15.2 million). Despite the loss of income from disposals since 31 March 2022 of £1.4 million, net rental income increased as a result of successful asset management initiatives. Property operating expenses remained stable at £2.6 million (2022: £2.6 million).

The Group has implemented measures to reduce its cost base, with annualised cost savings of £1.4 million being made in the year. These cost savings reflect changes in the board composition and a combination of other cost reduction measures, including the relocation of the head office in December 2022. The cost savings of £1.4 million represent 30% of FY22 administration expenses and 19% of FY22 EPRA earnings. Due to the timing of the savings and various contract notices, the subsequent impact of these costs was only reflected in the latter months of FY23. This is reflected in the recurring administration costs reducing by £0.3 million to £4.1 million (2022: £4.4 million) in the period.

Non-recurring administration expenses in the period include £1.8 million of payments, including associated costs, to the former Chief Executive and Executive Property Director, who both stepped down in the period, under the terms of their service contracts and the Company's remuneration policy.

Finance costs increased by £0.9 million to £3.9 million (2022: £3.0 million) in the year, as a result of swaps maturing and the Bank of England increasing interest rates in response to rising inflation. 

In accordance with IFRS 9, in relation to the expected credit loss, we have assessed the risk of recoverability of our rental arrears. We reversed £0.3 million of rental arrears from trade receivables to the income statement in the financial period. This included a reversal of the £0.1 million bad debt provision made at 30 September 2022, as rent collection remained strong at 99% throughout the year as tenant financial covenant health remained robust through the economic uncertainty.


Quarter

starting
Mar 22
£m

Quarter

starting
Jun 22
£m

Quarter

starting
Sep 22
£m

Quarter

starting
Dec 22
 £m

Year ended

31 Mar 23
 £m

Total demanded

4.0

4.1

4.1

4.0

16.2

Total collected

4.0

4.0

4.1

4.0

16.1

Outstanding

-

0.1

-

-

0.1

Current collection rates

99%

99%

99%

99%

99%

 

The March 2023 quarter rent collection rates remain robust at 99%, displaying a continuation of the strong rent collection seen throughout the year.

 

Shareholder value

EPRA Net Tangible Assets ("NTA") decreased by 94 pence per share or 24.1% to 296 pence (2022: 390 pence) during the year. This was largely due to the revaluation deficit of £42.9 million or 96.4 pence per share, equivalent to an 18.6% reduction in the portfolio on a like-for-like basis.

Other movements to note include the buyback of shares of £6.7 million, increasing EPRA NTA by 8.0 pence per share, the profit on disposal of assets and Hudson Quarter trading profit of £1.3 million, contributing 2.9 pence per share. These were offset by the fair value, downward adjustment of trading properties (HQ York residential) of £2.5 million, or 5.5 pence per share and the payments including associated costs to former Directors of £1.8 million reducing EPRA NTA by 4.1 pence per share. Conversely, net adjusted earnings, after dividends paid, increased EPRA NTA by a further 2.6 pence per share. Other movements contributed to a further reduction of 1.5 pence per share.

 

EPRA Net Tangible Assets Movement


            £m

No. of shares   (diluted)

      Pence       per share

EPRA NTA AT 31 MARCH 2022

180.6

46,325,236

390.0p

Deferred Bonus Plan award

0

11,609

0

Share buyback programme

(6.7)

(2,608,633)

8.0p

EPRA NTA AFTER BUYBACK

173.9

43,728,212

398.0p

Adjusted earnings

7.6


17.1p

Disposal of assets

0.8


1.8p

Hudson Quarter trading profit

0.5


1.1p

Property portfolio revaluation deficit

(42.9)


(96.4p)

Cash dividends paid

(6.5)


(14.5p)

Fair value adj. of trading properties

(2.5)


(5.5p)

Payments to former Directors including associated costs

(1.8)


(4.1p)

Other movements

0.2


(1.5p)

EPRA NTA AT 31 MARCH 2023

129.3

       43,728,212

296.0p





FINANCING

Given the economic uncertainty during the year, which has seen rising inflation and multiple increases in interest rates by the Bank of England, the Group has prioritised the efficient use of its capital and maintained an appropriate capital structure. The Group has significantly reduced its drawn debt in the year by 36.8% to £64.3 million (2022: £101.8 million). The debt repayments in the year have given the Group increased headroom on its bank covenants. The Group remained compliant on all covenants on its bank facilities in the year, despite the increase in interest rates. Interest rate cover ("ICR") ratios were renegotiated on two facilities in the year, providing further headroom on bank covenants in light of rising interest rates.

At 31 March 2023 the Group's cash and cash equivalents were £5.5 million (2022: £28.1 million). As at 12 June 2023, the cash balance was £9.6 million. The disposal proceeds from investment properties and Hudson Quarter residential sales continue to enhance cash reserves and gives the Company flexibility and optionality on how to deploy its capital.

Net debt at 31 March 2023 reduced by 20.1% to £58.8 million (2022: £73.6 million). The loan to value (LTV) ratio remained conservative at 31% (2022: 28%), despite the £42.9 million revaluation deficit on investment properties and the £6.7 million share buyback programme in the year.

Since 31 March 2023, the Company has exchanged or completed on nine investment property disposals and five Hudson Quarter residential sales, with a further £24.9 million of gross bank debt being repaid. This includes the full repayment of the Lloyd's facility which was due to mature within 12 months in March 2024. This has reduced our gross debt to £39.4 million as at 12 June 2023 and our net debt to £29.8 million. The combination of the disposals and £1.2 million share buyback programme since 31 March 2023 has resulted in proforma LTV based on the valuation as at 31 March 2023 reducing to 18.7% at 12 June 2023. On completion of the disposal of currently contracted sales proforma gross and net debt is expected to reduce further to c.£34 million and c.£20 million equating to proforma LTV of c.13%.

 

Set out below is a table showing the movement in gross debt during the year:



£m

Drawn debt at 31 March 2022

101.8

Repayment of debt from disposals

(35.8)

Amortisation of loans

(1.7)

Drawn debt at 31 March 2023

64.3

Repayment of debt from disposals

(24.5)

Amortisation of loans

(0.4)

Drawn debt at 12 June 2023

39.4

 

The average cost of debt in the year increased to 5.8% (2022: 3.2%), as a result of interest rate increases in the year. Despite the Group's two interest rate swaps maturing in the year, the Group has prioritised debt repayment to minimise the exposure and impact of interest rate increases to the Group. At 31 March 2023, we held £8.6 million of fixed debt (2022: £61.4 million), which was 13% of overall debt (2022: 60%), as shown in the table below:

DEBT


Fixed
£m

Floating
£m

Total drawn
£m

Years to

maturity

Barclays

-

19.4

19.4

1.2

NatWest

-

17.7

17.7

1.4

Santander

-

11.8

11.8

4.2

Lloyds

-

6.8

6.8

0.9

Scottish Widows

8.6

-

8.6

3.3


8.6

55.7

64.3

2.0

 

The Group's key debt metrics are summarised in the table below:

DEBT METRICS


31 March

2023

31 March 

2022

Net loan to value ratio

31%

28%

Debt drawn

£64.3m

£101.8m

Total fixed debt

£8.6m

£61.4m

Average cost of debt

5.8%

3.2%

Average debt maturity (yrs)

2.0yrs

1.9yrs

NAV gearing

46%

41%

 

 

Matthew Simpson

CHIEF FINANCIAL OFFICER

14 June 2023

 

RISK MANAGEMENT

RISK FRAMEWORK

The Board has overall responsibility for ensuring that an effective system of risk management and internal control exists within the business and confirms that it has undertaken a robust assessment of the Group's emerging and principal risks and uncertainties.

Risk management is an inherent part of the Board's decision making process. This is then embedded into the business and its systems and processes. The Board reviews its overall risk appetite and regularly considers, via the Audit and Risk Committee, the principal risks facing the company, management's plans for mitigating these and emerging risks. The Committee also considers, at least annually, the effectiveness of the Company's system of risk management and internal control. Further information on the work of the Committee in this area is available in the Audit and Risk Committee report in the Report and Accounts.

Our approach to risk identification and our open and supportive culture means that asset managers and key individuals in the finance team are able to report directly and at an early stage on issues, allowing management to take appropriate mitigating action.

 

EMERGING RISKS

If economic and geo-political stability remains uncertain or worsens, this could have an impact on the commercial property market with reduced valuations and rental income. Further cost of living issues may negatively impact consumer sentiment and inflation could reduce spending further while direct and indirect costs to the Group may increase further which may not be fully recoverable. A prolonged bout, new variants of COVID-19 or further pandemics may lead to further interruption of large parts of the economy for a significant period.

GOING CONCERN ASSESSMENT  

In accordance with the 2018 UK Corporate Governance Code (the Code), the Directors have assessed the Group's position over the:

·      Short-term (over the next 12 months to June 2024 as required by the 'Going concern' provision) and;

·      Medium-term (a 3-year period to June 2026 as required by the 'Viability statement' provision).

 

GOING CONCERN

The Directors regularly assess the Group's ability to continue as a going concern. The Strategic report sets out in detail the Group's financial position, cash flows, liquidity position, borrowing facilities and the factors which will affect future performance. In assessing the going concern, the Directors considered:

·      The Group's current financial position including cash, drawn debt, and LTV

·      The Groups 12 month 'base case scenario' forecast to June 2024, which is managements best estimate of market and business changes, taking into account:

Disposal of investment properties

Residential sales

Higher levels of inflation and rising interest rates

Ability to satisfy bank covenants

Committed capital expenditure

Rent collection

·      Downside scenario and stress testing on the 12-month base case scenario forecast to June 2024.

The Group is in a robust financial position. At 31 March 2023, the Group had £5.5 million of cash and cash equivalents. The fair value of our property portfolio at 31 March 2023 was £192.4 million with net assets of £128.5 million. During the year, the Group repaid £37.5 million of debt, funded by investment property and Hudson Quarter sales, with drawn debt at 31 March 2023 of £64.3 million (31 March 2022: £101.8 million). The Group has conservative gearing with LTV remaining stable at 31% (31 March 2022: 28%). During the year, the Group collected 99% of all rents and complied with all ICR and LTV bank covenants, despite SONIA interest rates rising from 0.75% at 31 March 2022 to 4.25% at 31 March 2023. The Group increased its quarterly dividends in the year by 13.2% to 15.0p, fully covered from rental income. The one bank facility which was due to expire within a year of 31 March 2023 was repaid on 31 May 2023. There is one bank facility which is due to expire at the end of June 2024, the Group currently has sufficient cash reserves to repay the majority of this facility, if required. In addition to the strong financial position of the Group at 31 March 2023, the Group continued to strengthen its balance sheet post year end, with nine investment properties sold for £43.4 million and five Hudson Quarter residential units sold for £2.2 million. As at 12 June 2023, the Group had cash of £9.6 million and gross debt and LTV of £39.4 million and 18.7% respectively.

The Directors conducted a detailed 12-month base case scenario forecast to June 2024, making various assumptions over asset sales, rising inflation and interest rates, letting assumptions, rent collection and committed capital expenditure. The forecasts indicated that the Group:

·      Has strong sustainable cash flows and would be able to meet its liabilities as they fall due over the next 12 months and;

·      Will comply with all ICR and LTV bank covenants.

 

In addition to the detailed 12-month base case scenario forecast to June 2024, the Directors have considered a downside scenario in assessing the Groups' ability to continue as a going concern. Sensitivity analysis and reverse stress testing were undertaken to assess the impact on the business and in particular the bank covenants.

The downside scenario assumptions used in the assessment included:

•      15% reduction in all property bank valuations.

•      15% reduction in rent collection from the two leisure assets.

•      Significant rise in SONIA interest rates of 1.5% to 6.0%.

 

Even on the downside scenario described above, the Group will still be able to meet its liabilities as they fall due over the next 12 months and will still be compliant on all ICR and LTV bank covenants. The stress testing on ICR and LTV bank covenants indicated that even if SONIA interest rates would reach 6.0% and bank valuations fell by 15%, the Group would still be compliant on all ICR and LTV bank covenants.

 

 

GOING CONCERN STATEMENT

Based on the analysis undertaken on the base case and downside scenarios, and the subsequent sensitivity analysis and stress testing, the Group has sufficient liquidity to meet its ongoing liabilities that fall due over the assessment period. Given the market information available, the Directors are not aware of any material uncertainty that exists that may cast doubt upon the Group's ability to continue as a going concern. As a result, the Directors consider it appropriate to continue to prepare the financial statements on a going concern basis.

VIABILITY

In accordance with provision 31 of the UK Corporate Governance Code and taking into consideration the current economic uncertainty, the Directors have assessed the prospects of the Group and future viability over a three-year period to June 2026, being longer than the 12 months required by the "Going Concern" provision.

The Board's assessment of the Group's viability for the next three years has been made with reference to:

•      The impact of the current economic uncertainties and resulting impact on the Group and our tenants' ability to operate and meet their rental obligations.

•      The key principal risks of the business and its risk appetite.

•      The Group's long-term strategy.

•      The impact on business operations, mainly rent collection, rising interest rates and progress on residential sales at Hudson Quarter, in the event of a downturn in the economy.

•      The Group's current position and its ability to meet future financial obligations to remain covenant compliant.

 

REVIEW PERIOD

The Board considers a period of three years to be appropriate over which to assess the long-term viability of the Company for the following reasons:

•      The Group's working capital model, detailed budgets and cash flows consist of a rolling three-year forecast.

•      It reflects the Group's asset management business plans.

•      The Group's weighted average debt maturity at 31 March 2023 was 2.0 years.

•      The Group's WAULT to break at 31 March 2023 was 4.8 years.

 

ASSESSMENT

The Directors conducted a detailed 3-Year viability assessment which included a base case scenario forecast to June 2026, making various assumptions over asset sales, rising inflation and interest rates, letting assumptions, rent collection and committed capital expenditure.

In addition to the base case scenario, the Directors have undertaken a robust scenario assessment of the risks which could threaten the 3-year viability or the operational existence of the Group. As part of the reasonable downside modelling, the Directors have stress-tested working capital model and cash flows using the same assumptions as stated above in the Going Concern assessment.

Based on the analysis undertaken on the base case and downside scenarios, and having assessed the current position of the Group, its prospects and principal risks, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the next three years.

 

STRATEGIC RISKS


 


FINANCIAL RISKS

01

MARKET CYCLE


02

ECONOMIC AND POLITICAL


03

CAPITAL STRUCTURE

Risk description

Failure to react appropriately to changing market conditions and adapt our corporate strategy could negatively impact shareholder returns.  A downturn in the market could reduce the appetite in the investment market, leading to lower valuations and affecting our disposal strategy and ability to return capital to shareholders.


Risk description

Uncertainty in the UK economic landscape, global supply chain issues, inflation and interest rates, cost of energy crisis brings risks to the property market, supply chains and to occupiers' businesses. This can significantly impact  market sentiment and our ability to extract value from our properties resulting in lower shareholder returns, reduced liquidity and increased occupier failure


Risk description

An inappropriate level of gearing or failure to comply with debt covenants or manage re-financing events could put pressure on cash resources and lead to a funding shortfall for operational activities.

Mitigation

The Board monitors market indicators and reviews the Group's strategy and business objectives on a regular basis. It will tailor the delivery of the Company's strategy in light of current and forecast market conditions.   Disposal of other assets will continue if the market conditions allow for value to be achieved, whilst active asset management of the assets will continue to support in delivering returns to shareholders. Third party agent's advice is taken on all disposals. Exco regularly reviews market conditions.

 


Mitigation

The Board monitors the political and economic conditions and emerging policy and any uncertainty when setting strategy. Sensitivity modelling is undertaken against a downturn in economic outlook to test the robustness of our financial position and have regard to economic and property industry research when making significant decisions.


Mitigation

The Board regularly reviews its capital risk management policy, gearing strategy and debt maturity profile. The Group's LTV limit is 35%, and capital has been used to repay debt to reduce exposure to interest rate volatility and ensure debt compliance. Management maintains a close relationship with key lenders. 

Current position

The Board is monitoring and considering the longer term impacts of the cycle including the potential future of the office and the effects of the enhanced ESG requirements.


Current position

Our plans reflect current trading conditions and future economic headwinds facing the country which can impact on bank debt covenants and costs.  We use consultants and experts so we can anticipate key planning and development policies and consider how these may impact our activities.

 


Current position

The Group's weighted average debt maturity is currently c2.0 years.  The Groups LTV limit is 35%. We continue to monitor whether the use of derivatives to mitigate against interest rate rises are appropriate.

Likelihood after mitigation
Score 1 (low) - 10 (high)

7


Likelihood after mitigation
Score 1 (low) - 10 (high)

8


Likelihood after mitigation
Score 1 (low) - 10 (high)

5

Impact after mitigation
Score 1 (low) - 10 (high)

8


Impact after mitigation
Score 1 (low) - 10 (high)

7


Impact after mitigation
Score 1 (low) - 10 (high)

5

Overall Risk Rating
Score 1 (low) - 20 (high)

15


Overall Risk Rating
Score 1 (low) - 20 (high)

15


Overall Risk Rating
Score 1 (low) - 20 (high)

10

 

04

LIQUIDITY


05

PORTFOLIO STRATEGY


06

ASSET MANAGEMENT

Risk description

Increasing costs of borrowing and increasing interest rates could affect the Group's ability to borrow or reduce its ability to repay its debts. Increasing inflation is causing interest rates to increase, which can reduce the cash position of the Company and its ability to fund working capital. It can have a material impact on profitability and dividend cover.


Risk description

An inappropriate investment strategy that is not aligned to overall corporate purpose objectives, economic conditions, or tenant demand may result in lower investment returns


Risk description

Failure to implement asset business plans and elevated risks associated with major development or refurbishment could lead to longer void periods, higher arrears and overall investment performance, adversely impacting returns and cashflows.

Mitigation

Undrawn bank facilities are in place to ensure sufficient funds are available to cover potential liabilities arising against projected cashflows.  The Board reviews financial forecasts on a regular basis, including sensitivity against financial covenants. The Audit and Risk Committee considers the going concern status of the Group biannually. The Board considers the allocation of its capital in granular detail to ensure the most efficient use. Sales of assets can be used to repay debt, fund working capital requirements or return to shareholders.


Mitigation

The Board regularly reviews the Group's investment strategy and asset allocation to ensure this is aligned to the overall corporate strategy.


Mitigation

The process for reviewing asset business plans is embedded in the annual budget process. The Group's Capital Risk Management Policy limits development expenditure to <25% of Gross Asset Value and the core portfolio generates sustainable cash flows. Our experienced management team and use of advisors and property managers supports the execution of asset management strategies. Our active management approach and new investment system improves security of income and limits exposure to voids.

Current position

The Company has repaid £37.5 million of bank debt in the year to 31 March 2023.


Current position

No single asset comprises more than 15% compared to the overall portfolio's value. The Company is selectively marketing certain assets, as the market stabilisation and recovery continues. Asset management initiatives utilised to maximise value. Appraisals for improving properties e.g. via refurbishment are ongoing for certain assets.


Current position

Our refurbishment pipeline is continuously assessed to ensure the right projects are being brought forward at appropriate times ensuring exposure at any one time is limited. The Executive Committee is reviewing the Group's Health and Safety systems and processes to ensure appropriate oversight of assets.

 


 


 

Likelihood after mitigation
Score 1 (low) - 10 (high)

5


Likelihood after mitigation
Score 1 (low) - 10 (high)

4


Likelihood after mitigation
Score 1 (low) - 10 (high)

4

Impact after mitigation
Score 1 (low) - 10 (high)

7


Impact after mitigation
Score 1 (low) - 10 (high)

6


Impact after mitigation
Score 1 (low) - 10 (high)

4

Overall Risk Rating
Score 1 (low) - 20 (high)

12


Overall Risk Rating
Score 1 (low) - 20 (high)

10


Overall Risk Rating
Score 1 (low) - 20 (high)

8

 

PORTFOLIO RISKS                                                                                                                                OPERATIONAL RISKS





 

07

VALUATION


08

TENANT DEMAND
AND DEFAULT


09

BUSINESS CONTINUITY AND CYBER SECURITY

Risk description

Decreasing capital and rental values could impact the Group's portfolio valuation leading to lower returns. Higher cost of debt can lead to property yields to be pushed out and valuations to fall as a result. Increasing gilt yields, can leave property investment less attractive unless the desired return can be achieved.


Risk description

Failure to adapt to changing occupier demands and/or poor tenant covenants may result in us losing significant tenants, which could materially impact income, capital values and profit. Rising inflation, interest rates and living costs could impact tenant businesses, such as the leisure industry, as demand falls for discretionary spending.

 


Risk description

Business disruption as a result of physical damage to buildings, Government policy and measures implemented in response to pandemics, cyber attacks or other operational or IT failures or unforeseen events may impact income and profits.

Mitigation

Independent valuations are undertaken for all assets at the half year and year end. These are reviewed by management and the Board. Members of the Audit and Risk Committee meet with the valuers at least once a year to discuss valuations and the valuation process. Management actively review leases, tenant covenants and asset management initiatives to grow capital and rental values.


Mitigation

The Board regularly reviews the portfolio's overall tenant profile and sector diversification. Tenant diversification is high with no tenant making up more than 10% of total rental income. Management maintain close relationships with tenants understanding their needs and supporting them throughout their business cycle. Managing agents support rent collection and collection of arrears on a regular basis. Tenant due diligence and credit checks are undertaken on an ongoing basis to review covenant strength of existing and prospective tenants.  The finance and property teams monitor all current tenant covenants and all future new tenants. All arrears are monitored on an ongoing basis.


Mitigation

Our governance structure and internal control systems ensure sufficient Board oversight, with delegated responsibilities, segregation of duties and clear authorisation processes. A comprehensive programme of insurance is in place which covers buildings, loss of rent, cyber risks, Directors' and Officers liability and public liability. Antivirus software and firewalls protect IT systems and data is regularly backed up.

 

Current position

Valuations of the portfolio reflect the commercial property market in general. The team continue to work to mitigate against falls in value through active asset management including ESG improvements.


Current position

Rent collection rates remain robust at 99%. The team are closely monitoring tenant covenants in high risk sectors, ensuring we are aware of any tenant distress which can impact the rental collection.


Current position

The Board continues to review the internal control environment and ensure good governance practices are adopted throughout the business. Cyber security arrangements have been kept under regular review to ensure we are deploying the most up to date technologies.

Likelihood after mitigation Score
1 (low) - 10 (high)

7


Likelihood after mitigation Score
1 (low) - 10 (high)

4


Likelihood after mitigation Score
1 (low) - 10 (high)

2

Impact after mitigation
Score 1 (low) - 10 (high)

8


Impact after mitigation
Score 1 (low) - 10 (high)

7


Impact after mitigation
Score 1 (low) - 10 (high)

2

Overall Risk Rating
Score 1 (low) - 20 (high)

15


Overall Risk Rating
Score 1 (low) - 20 (high)

11


Overall Risk Rating
Score 1 (low) - 20 (high)

4

 

ENVIRONMENTAL, SOCIAL AND GOVERNANCE RISKS




10

PEOPLE


11

CLIMATE CHANGE


12

REGULATORY AND TAX

Risk description

An inability to attract or retain staff with the right skills and experience or failure to implement appropriate succession plans may result in significant underperformance or impact the overall effectiveness of our operations. Health and Safety of staff and others including tenants both physically and mentally and providing a safe and healthy environment in our properties is of utmost importance. Failure to do so could lead to staff and tenant ill health, litigation and regulatory issues, negative media and market sentiment against the Company. 


Risk description

Failure to anticipate and prepare for transition and physical risks associated with climate change including increasing policy and compliance risks associated with existing and emerging environmental legislation could lead to increased costs and the Group's assets becoming obsolete or unable to attract occupiers.


Risk description

Non-compliance with the legal and regulatory requirements of a public real estate company, including the REIT regime could result in convictions or fines and negatively impact reputation.

 

Mitigation

We engage with staff regularly and encourage a positive working environment. We maintain an attractive reward and benefits package and undertake regular performance reviews for each employee. The Workforce Advisory Panel provides a forum that allows direct feedback to the Board on employee related matters. Insurance cover is in place for Directors. Health and Safety is undertaken both internally and via the tenants and a key issue for our property managers.


Mitigation

The Group's ESG Committee oversees the execution of ESG related matters and ensures these are integrated into our business model and corporate strategy. Climate related risks are considered as part of our overall corporate risk assessment and ongoing environmental management of our buildings.

 


Mitigation

The Company employs experienced staff and external advisers to provide guidance on key regulatory, accounting and tax issues. Compliance with the REIT regime is regularly monitored by the Board and the Executive team consider the impact on the regime as part of their decision making.

 

Current position

A competitive employment market and inflationary pressures are driving increased pay and benefits to ensure attraction and retention of individuals with the skills, knowledge and experience required to implement the strategy. The Group's headcount is stable with sufficient cover if any key personnel are unavailable. Employee engagement is high with regular meetings between employees and the Directors ensuring that the Board understands the views of the whole workforce.


Current position

There has been an increased focus on environmental management and management have focused on asset management initiatives to increase the EPC ratings of our assets, increasing the marketability of the assets in a cost effective way.


Current position

Emerging corporate governance and audit reforms, require additional processes and procedures to be put in place and additional reporting on the company's resilience. The Board is overseeing these changes.

Likelihood after mitigation Score
1 (low) - 10 (high)

5


Likelihood after mitigation Score
1 (low) - 10 (high)

5


Likelihood after mitigation Score
1 (low) - 10 (high)

4

Impact after mitigation
Score 1 (low) - 10 (high)

7


Impact after mitigation
Score 1 (low) - 10 (high)

5


Impact after mitigation
Score 1 (low) - 10 (high)

2

Overall Risk Rating
Score 1 (low) - 20 (high)

12


Overall Risk Rating
Score 1 (low) - 20 (high)

10


Overall Risk Rating
Score 1 (low) - 20 (high)

6

 

 

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law, the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as issued by UK adopted IFRS and applicable law and have elected to prepare the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and the Company for the period. In preparing each of the Group and Company financial statements the Directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and estimates that are reasonable and prudent;

•     for the Group financial statements, state whether they have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards as issued by UK adopted IFRS and applicable law subject to any material departures disclosed and explained in the financial statements;

•     for the Company financial statements, state whether they have been prepared in accordance with UK GAAP, subject to any material departure disclosed and explained in the parent company financial statements;

•     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent Company will continue in business; and

•     under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulations.

They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

 

DIRECTORS' RESPONSIBILITIES STATEMENT

The Directors confirm to the best of their knowledge:

•     the financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, international financial reporting standards as issued by UK adopted IFRS and applicable law, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation as a whole;

•     the Strategic Report includes a fair review of the development and performance of the business and the financial position of the Company and the undertakings included in the consolidation as a whole, together with a description of the principal risks and uncertainties that they face; and

•     the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group's and Company's performance, business model and strategy.

On behalf of the Board

Phil Higgins

Company Secretary

 

FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2023


 

Note

2023

£'000

2022

£'000

Revenue

1

32,973

49,064

Cost of sales

3b

(17,147)

(30,408)

Movement in expected credit loss

13

327

360

Net property income


16,153

19,016

Dividend income from listed equity investments


-

64

Administrative expenses

3c

(6,094)

(4,623)

Operating profit before gains and losses on property assets and listed equity investments

 

 

 

10,059

14,457

Profit on disposal of investment properties


819

4,946

(Loss)/gain on revaluation of investment property portfolio

9

(42,900)

8,222

Loss on disposal of listed equity investments


-

(80)

Operating (loss)/profit


(32,022)

27,545

Finance income


26

-

Finance expense

2

(3,970)

(3,196)

Debt termination costs


(15)

(63)

Changes in fair value of interest rate derivatives


210

329

(Loss)/profit before taxation


(35,771)

24,615

Taxation

5

67

(67)

(Loss)/profit after taxation for the year and total comprehensive (loss)/income attributable to owners of the Parent

 

 

(35,704)

24,548

Earnings per ordinary share




Basic

6

(80.2p)

53.1p

Diluted

6

(80.2p)

53.0p

 

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

 

Consolidated Statement of Financial Position

as at 31 March 2023


 

Note

2023

£'000

2022

£'000

Non-current assets




Investment properties

9

176,504

232,717

Right of use asset

12

132

17

Property, plant and equipment

12

23

45



176,659

232,779

Current assets




Trading property

10

11,055

20,287

Trade and other receivables

13

8,550

7,412

Cash and cash equivalents

14

5,509

28,143



25,114

55,842

Total assets


201,773

288,621

Current liabilities




Trade and other payables

15

(8,339)

(8,912)

Borrowings

17

(8,545)

(32,749)

Lease liabilities for right of use asset

20

(132)

-

Derivative financial instruments

16

-

(47)

Creditors: amounts falling due within one year


(17,016)

(41,708)

Net current assets


8,098

14,134

Non-current liabilities




Borrowings

17

(55,129)

(68,488)

Deferred tax liability

5

(76)

(143)

Lease liabilities for investment properties

20

(1,077)

(1,078)

Net assets


128,475

177,204

Equity




Called up share capital

21

4,639

4,639

Treasury shares


(7,343)

(717)

Merger reserve


3,503

3,503

Capital redemption reserve


340

340

Capital reduction reserve


118,477

125,019

Retained earnings


8,859

44,420

Equity - attributable to the owners of the Parent


128,475

177,204

Basic NAV per ordinary share

7

294p

383p

Diluted NAV per ordinary share

7

294p

383p

 

These financial statements were approved by the Board of Directors and authorised for issue on 14 June 2023 and are signed on its
behalf by:

MATTHEW SIMPSON        

Chief Financial Officer      

 

               

Consolidated Statement of Changes in Equity

for the year ended 31 March 2023


 

 

Note

Share
Capital

£'000

Treasury Share

Reserve

£'000

Other
Reserves

£'000

Capital Reduction Reserve

£'000

Retained Earnings

£'000

Total
Equity

£'000

At 31 March 2021


4,639

(1,288)

3,843

125,019

25,618

157,831

Total comprehensive income for the year


-

-

-

-

24,548

24,548

Share-based payments

22

-

-

-

-

162

162

Exercise of share options


-

571

-

-

(571)

-

Issue of deferred bonus share options


-

-

-

-

90

90

Dividends paid

8

-

-

-

-

(5,427)

(5,427)

At 31 March 2022


4,639

(717)

3,843

125,019

44,420

177,204

Total comprehensive loss for the year


-

-

-

-

(35,704)

(35,704)

Share-based payments

22

-

-

-

-

177

177

Exercise of share options


-

71

-

-

(71)

-

Issue of deferred bonus share options


-

-

-

-

37

37

Dividends paid

8

-

-

-

(6,542)

-

(6,542)

Share buyback


-

(6,697)

-

-

-

(6,697)

At 31 March 2023


4,639

(7,343)

3,843

118,477

8,859

128,475

 

The share capital represents the nominal value of the issued share capital of Palace Capital plc.

Treasury shares represents the consideration paid for shares bought back from the market.

Other reserves comprise the merger reserve and the capital redemption reserve.

The merger reserve represents the excess over nominal value of the fair value consideration for the acquisition of subsidiaries satisfied by the issue of shares in accordance with S612 of the Companies Act 2006.

The capital redemption reserve represents the nominal value of cancelled preference share capital redeemed.

The capital reduction reserve represents distributable profits generated as a result of the share premium reduction.

 

Consolidated Statement of Cash Flows

for the year ended 31 March 2023

 

 

Note

2023

£'000

2022

£'000

Operating activities




(Loss)/profit before taxation


(35,771)

24,615

Finance income


(26)

-

Finance expense

2

3,970

3,196

Changes in fair value of interest rate derivatives


(210)

(329)

Loss/(gain) on revaluation of investment property portfolio

9

42,900

(8,222)

Profit on disposal of investment properties


(819)

(4,946)

Loss on disposal of listed equity investments


-

80

Debt termination costs


15

63

Depreciation of tangible fixed assets

12

30

48

Amortisation of right of use asset

12

82

148

Share-based payments

22

177

162

(Increase)/decrease in receivables


(1,140)

2,289

Decrease in payables


(415)

(2,929)

Decrease in trading property


9,233

21,972

Net cash generated from operations


18,026

36,147

Interest received


26

 -

Interest and other finance charges paid


(3,427)

(3,417)

Corporation tax paid in respect of operating activities


(171)

(48)

Net cash flows from operating activities


14,454

32,682

Investing activities




Purchase of investment properties


-

(9,870)

Capital expenditure on refurbishment of investment property


(1,371)

(6,519)

Proceeds from disposal of investment property


15,410

31,221

Disposal of non-current asset - equity investment


-

3,169

Dividends from listed equity investments


-

64

Purchase of property, plant and equipment

12

(8)

(22)

Net cash flow generated from investing activities


14,031

18,043

Financing activities




Bank loans repaid

19

(37,419)

(38,033)

Proceeds from new bank loans

19

-

11,472

Loan issue costs paid

19

(461)

(11)

Dividends paid

8

(6,542)

(5,427)

Share buyback


(6,697)

-

Net cash flow used in financing activities


(51,119)

(31,999)

Net (decrease)/increase in cash and cash equivalents


(22,634)

18,726

Cash and cash equivalents at beginning of the year


28,143

9,417

Cash and cash equivalents at the end of the year

14

5,509

28,143

 

Notes to the Consolidated Financial Statements

BASIS OF ACCOUNTING


Basis of preparation

These preliminary results have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the UK Financial Conduct Authority and in accordance with International Accounting Standards, in conformity with the requirements of the Companies Act 2006, and International Financial Reporting Standards, as issued by the IASB (IFRS-UK) and applicable law.

The financial information does not constitute the Group's financial statements for the periods ended 31 March 2023 or 31 March 2022, but is derived from those financial statements.  Financial statements for the year ended 31 March 2022 have been delivered to the Registrar of Companies and those for the year ended 31 March 2023 will be delivered following the Company's Annual General Meeting. The auditor's reports on both the 31 March 2022 or 31 March 2023 financial statements were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

The Directors continue to adopt the going concern basis in preparing the Group's financial statements. The consolidated financial statements of the Group comprise the results of Palace Capital plc ("the Company") and its subsidiary undertakings.

The Company is quoted on the Main Market of the London Stock Exchange and is domiciled and registered in England and Wales and incorporated under the Companies Act. The address of its registered office is Fora, 6-8 Greencoat Place, London SW1P 1PL.


BASIS OF PREPARATION

The Group financial statements have been prepared in accordance with UK-adopted International Accounting Standards, (the 'applicable framework'), and have been prepared in accordance with the provisions of the Companies Act 2006 (the 'applicable legal requirements'). The Group financial statements have been prepared under the historical cost convention as modified by the revaluation of investment properties, the revaluation of property, plant and equipment, pension scheme and financial assets held at fair value.


GOING CONCERN

The Directors have made an assessment of the Group's ability to continue as a going concern which included the current economic headwinds created by rising inflation and rising interest rates, coupled with the Group's cash resources, borrowing facilities, rental income, disposals of investment properties, committed capital and other expenditure and dividend distributions.

The Group's business activities, together with the factors likely to affect its future performance and position, are set out in the Strategic Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in these financial statements. In addition, note 26 to the financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and its exposures to credit risk and liquidity risk.

As at 31 March 2023 the Group had £5.5m of unrestricted cash and cash equivalents, a conservative LTV of 31% and a property portfolio with a fair value of £192.4m. The Directors have reviewed the forecasts for the Group taking into account the impact of rising inflation and rising interest rates on trading over the 12 months from the date of signing this annual report. The forecasts have been assessed against a downside scenario incorporating lower levels of income and increased interest rates. See Going Concern and Viability Statement of the Annual Report for further details.

The Directors have a reasonable expectation that the Group have adequate resources to continue in operation for at least 12 months from the date of approval of the financial statements. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.


NEW STANDARDS ADOPTED DURING THE YEAR

New standards effective for the year ended 31 March 2023 did not have a material impact on the financial statements and were
not adopted.

New standards issued but not yet effective

There are no other standards that are not yet effective that would be expected to have a material impact on the Group in the current or future reporting periods and on the foreseeable future transactions.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of Palace Capital plc and its subsidiaries as at the year-end date.

Subsidiaries are all entities over which the Company has control being: power to direct the activities of the entity; exposure to variable returns from the entity; and the ability of the Company to use its power to affect those variable returns. Where necessary, adjustments have been made to the financial statements of subsidiaries and associates to bring the accounting policies used and accounting periods into line with those of the Group. Intra-group balances and any unrealised gains and losses arising from intra-group transactions are eliminated in preparing the Consolidated Financial Statements.

The results of subsidiaries acquired during a year are included from the effective date of acquisition, being the date on which the Group obtains control until the date that control ceases.

The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. This fair value includes any contingent consideration. Acquisition-related costs are expensed as incurred.

If the consideration is less than the fair value of the assets and liabilities acquired, the difference is recognised directly in the Statement of Comprehensive Income.

Where an acquired subsidiary does not meet the definition of a business, it is accounted for as an asset acquisition rather than a business combination. A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities.

Revenue

Revenue is primarily derived from property income and represents the value of accrued charges under operating leases for rental of
the Group's investment properties. Revenue is measured at the fair value of the consideration received. All income is derived in the United Kingdom.

Rental income from investment properties leased out under operating leases is recognised in the Statement of Comprehensive Income on a straight-line basis over the term of the lease. Contingent rent reviews are recognised when such reviews have been agreed with tenants. Lease incentives, rent concessions and guaranteed rent review amounts are recognised as an integral part of the net consideration for use of the property and amortised on a straight-line basis over the term of lease. Judgement is exercised when determining the term over which the lease incentives should be recognised.

Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the Group Statement of Comprehensive Income when the right to receive them arises. Surrender premium income are payments received from tenants to surrender their lease obligations and are recognised immediately in the Group's Consolidated Statement of Comprehensive Income.

Insurance commissions are recognised as performance obligations are fulfilled in terms of the individual performance obligations within the contract with the insurance provider. Revenue is determined by the transaction price in the contract and is measured at the fair value of the consideration received. Revenue is recognised once the underlying contract between insured and insurer has been signed.

Revenue from the sale of trading properties is recognised when control of the trading property, along with the significant risks and rewards, have transferred from the Group, which is usually on completion of contracts and transfer of property title.

Service charge income relates to expenditure that is directly recoverable from tenants. Service charge income is recognised as revenue in the period to which it relates as required by IFRS 15 Revenue from Contracts with Customers. Dividend income comprises dividends from the Group's listed equity investments and is recognised when the Shareholder's right to receive payment is established. Revenue is measured at the fair value of the consideration received. All income is derived in the United Kingdom.

The disposal of investment properties is recognised when significant risks and rewards attached to the property have transferred from the Group. This will ordinarily occur on completion of contract, with such transactions being recognised when this condition is satisfied. The profit or loss on disposal of investment property is recognised separately in the Consolidated Statement of Comprehensive Income and is the difference between the net sales proceeds and the opening fair value asset plus any capital expenditure during the period to disposal.

Deferred income

Where invoices to customers have been raised which relate to a period after the Group year end, being 31 March 2023, the Group will recognise deferred income for the difference between revenue recognised and amounts billed for that contract.

Cost of sales

Cost of sales includes direct expenditure relating to the construction of the trading properties, capitalised interest, and selling costs incurred as a result of residential sales. Selling costs includes agent and legal fees. Cost of sales is expensed to the income statement and is recognised on completion of each residential unit. The cost for each unit is calculated using the ratio of the unit selling price, over the total forecasted sales proceeds of all residential units.  This ratio is then applied to the total forecasted development cost to get the cost of sale per unit.

Service charges and other such receipts arising from expenses recharged to tenants are as stated in note 3b. Notwithstanding that the funds are held on behalf of the occupiers, the ultimate risk for paying and recovering these costs rests with the Group.

Borrowing costs

Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. After initial recognition, loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in profit or loss in the Consolidated Statement of Comprehensive Income when the liabilities are derecognised, as well as through the amortisation process.

Borrowing costs directly attributable to development properties are capitalised and not recognised in profit or loss in the Consolidated Statement of Comprehensive Income. The capitalisation of borrowing costs is suspended if there are prolonged periods when development activity is interrupted and cease at the completion of the development. Interest is also capitalised on the purchase cost of a site of property acquired specifically for redevelopment, but only where activities necessary to prepare the asset for redevelopment are in progress.

Interest associated with trading properties is capitalised from the start of the development work until the date of practical completion. The rate used is the rate on specific associated borrowings. Interest is then expensed through the income statement post completion of the development.

When the Group refinances a loan facility, the Group considers whether the new terms are substantially different from a quantitative and a qualitative perspective. From a quantitative perspective, the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability. Modifications that would be considered substantial from a qualitative perspective are those that result in a significant value transfer and/or a new underwriting/pricing assessment of the financial instrument.

If it is deemed to be a substantial modification of terms, this is accounted for as an extinguishment, and any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability.

Where the modification is not considered to be substantial, the loan continues to be measured at amortised cost using the original effective interest rate. Where the modification is substantial, the new effective interest rate is used.

Financial assets

The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Group's accounting policy for each category is as follows:

Fair value through profit or loss

This category comprises in-the-money derivatives (see "Financial liabilities" section for out-of-the-money derivatives classified as liabilities). They are carried in the Consolidated Statement of Financial Position at fair value with changes in fair value recognised in the Consolidated Statement of Comprehensive Income in the finance income or expense line.


Amortised cost

Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the Consolidated Statement of Comprehensive Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

The Group's financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents in the Consolidated Statement of Financial Position.

Listed equity investments

Listed equity investments are classified at fair value through profit and loss. Listed equity investments are subsequently measured using Level 1 inputs, the quoted market price, and all fair value gains or losses in respect of those assets are recognised in profit or loss in the Consolidated Statement of Comprehensive Income.

Fair value hierarchy

•     Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

•     Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

•     Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less.

Financial liabilities

The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired. The Group's accounting policy for each category is as follows:


Fair value through profit or loss

This category comprises out-of-the-money derivatives (see "Financial assets" for in-the-money derivatives where the time value offsets the negative intrinsic value). They are carried in the Consolidated Statement of Financial Position at fair value with changes in fair value recognised in the Consolidated Statement of Comprehensive Income.


Amortised cost

Trade payables and accruals are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.

Other financial liabilities

Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the Consolidated Statement of Financial Position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payment while the liability is outstanding.

Contributions to pension schemes

The Company operates a defined contribution pension scheme. The pension costs charged against profits are the contributions payable to the scheme in respect of the accounting period.

Investment properties

Investment properties are those properties that are held either to earn rental income or for capital appreciation or both.

Investment properties are measured initially at cost including transaction costs and thereafter are stated at fair value, which reflects market conditions at the balance sheet date. Surpluses and deficits arising from changes in the fair value of investment properties are recognised in the Consolidated Statement of Comprehensive Income in the year in which they arise.

Investment properties are stated at fair value as determined by the independent external valuers. The fair value of the Group's property portfolio is based upon independent valuations and is inherently subjective. The fair value represents the amount at which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm's length transaction at the date of valuation, in accordance with Global Valuation Standards. In determining the fair value of investment properties, the independent valuers make use of historical and current market data as well as existing lease agreements.

The Group recognises investment property as an asset when it is probable that the economic benefits that are associated with the investment property will flow to the Group and it can measure the cost of the investment reliably. This is usually the date of completion of acquisition or completion of construction if the development is a mixed-use scheme.

Investment properties cease to be recognised on completion of the disposal or when the property is withdrawn permanently from use and no future economic benefit is expected from disposal.

The Group evaluates all its investment property costs at the time they are incurred. These costs include costs incurred initially to acquire an investment property and costs incurred subsequently to add to, replace part of, or service a property. Any costs deemed as repairs and maintenance or any costs associated with the day-to-day running of the property are recognised in the Consolidated Statement of Comprehensive Income as they are incurred.

Investment properties under construction are initially recognised at cost (including any associated costs), which reflects the Group's investment in the assets. The Group undertakes certain works including demolition, remediation and other site preparatory works to bring a site to the condition ready for construction of an asset. Subsequently, the assets are remeasured to fair value at each reporting date. The fair value of investment properties under construction is estimated as the fair value of the completed asset less any costs still payable in order to complete, and an appropriate developer's margin. Consideration is also given to recent market transactions and offers received on properties.

Trading properties

Trading property is developed for sale or held for sale after development is complete, and is carried at the lower of cost and net realisable value. Trading properties are derecognised on completion of sales contracts. Costs includes direct expenditure and capitalised interest. Cost of sales, including costs associated with off-plan residential sales, are expensed to the Consolidated Statement of Comprehensive Income as incurred.

Right of use asset

Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

•     lease payments made at or before commencement of the lease;

•     initial direct costs incurred; and

•     the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset.

Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right of use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term. Lease liabilities are remeasured when there is a change in future lease payments arising from a change in an index or rate or when there is a change in the assessment of the term of any lease.

The rate of amortisation for right of use assets is over the period of the lease.

Lease liabilities

Lease obligations include lease obligations relating to investment properties and lease obligations relating to right of use assets.

Lease obligations relating to investment properties are capitalised at the lease's commencement and are measured at the present value of the remaining lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in liabilities. The finance charges are charged to the Consolidated Statement of Comprehensive Income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Investment properties classified as held under lease liabilities are subsequently carried at their fair value.

 

Lease obligations relating to right of use assets are measured at the present value of the contractual payments due to the lessor over the lease term, discounted at the Group's incremental borrowing rate. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

On initial recognition, the carrying value of the lease liability also includes:

•     amounts expected to be payable under any residual value guarantee;

•     the exercise price of any purchase option granted in favour of the Group if it is reasonable certain to assess that option; and

•     any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option,
being exercised.

Property, plant and equipment and depreciation

Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment. Depreciation is calculated to write down the cost less estimated residual value of all tangible fixed assets by equal annual instalments over their expected useful economic lives. The rates generally applicable are:

Fixtures, fittings and equipment 25% - 33% straight-line

Current taxation

Current tax assets and liabilities for the period not under UK REIT regulations are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and the tax laws used to compute the amount are those that are enacted or substantively enacted, by the balance sheet date.

Deferred taxation

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in profit or loss, except when it relates to items charged or credited directly to other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

The Government announced a proposal in March 2021 for an increase in the corporation tax rate from 19% main rate in the tax year 2021 to 25% with effect from 1 April 2023. This was enacted by the Finance Bill 2021 on 10 June 2021.

Dividends to equity holders of the parent

Interim ordinary dividends are recognised when paid and final ordinary dividends are recognised as a liability in the period in which they are approved by the Shareholders.

Share-based payments

The fair value of the share options are determined at the grant date and are expensed on a straight-line basis over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that ultimately the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair values of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

Commitments and contingencies

Commitments and contingent liabilities are disclosed in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable. A contingent asset is recognised when the realisation of the income is virtually certain.

Equity

The share capital represents the nominal value of the issued share capital of Palace Capital plc. Share premium represents the excess over nominal value of the fair value consideration received for equity shares net of expenses of the share issue. Treasury share reserve represents the consideration paid for shares bought back on the open market. The merger reserve represents the excess over nominal value of the fair value consideration for the acquisition of subsidiaries satisfied by the issue of shares in accordance with S612 of the Companies Act 2006. The capital redemption reserve represents the nominal value of cancelled preference share capital redeemed. The capital reduction reserve represents distributable profits generated as a result of the share premium reduction.

 

Critical accounting judgements and key sources of estimation and uncertainty

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Information about such judgements and estimation is contained in the accounting policies or the notes to the accounts, and the key areas are summarised below.

Estimates

Property Valuation

The key source of estimation uncertainty rests in the values of property assets, which significantly affects the value of investment properties in the Consolidated Statement of Financial Position. The investment property portfolio is carried at fair value, which requires a number of estimates in assessing the Group's assets relative to market transactions. The approach to this valuation and the amounts affected are set out in the accounting policies and note 9.

Trading properties are held at the lower of cost and net realisable value. Net realisable value is the value of an asset that can be realised upon the sale of the asset, less a reasonable estimate of the costs associated with the eventual sale or disposal of the asset.

The Group has valued the investment properties at fair value. To the extent that any future valuation affects the fair value of the investment properties and assets held for sale, this will impact on the Group's results in the period in which this determination is made.

Expected credit loss model

The Group applies the IFRS 9 simplified approach to the expected credit loss model, using 12 months of historic rental payment information for tenants, and adjusting risk profile rates based on forward-looking information. We remain cautious as rising inflation and interest rates continue to create economic uncertainty.

During the year, the Group collected 99% of all rents, and collected a large amount of historic arrears where payment plans were agreed with tenants. This has resulted in the ECL provisions calculated at 31 March 2023 being lower than in previous periods (refer to note 13).

In arriving at our estimates, we have considered the tenants at higher risk, particularly in the leisure and retail sectors, those in administration or CVA, and those tenants who have been impacted financially who are not necessarily in high-risk sectors.

Estimates and Judgements


Share-based payments

Equity-settled share awards are recognised as an expense based on their fair value at date of grant. The fair value of equity-settled share options is estimated through the use of option valuation models, which require inputs such as the risk-free interest rate, expected dividends, expected volatility and the expected option life, and is expensed over the vesting period. Some of the inputs used are not market observable and are based on estimates derived from available data. The models utilised are intended to value options traded in active markets. The share options issued by the Group, however, have a number of features that make them incomparable to such traded options (see note 22 on page •• for further details). The variables used to measure the fair value of share-based payments could have a significant impact on that valuation, and the determination of these variables requires a significant amount of professional judgement. A minor change in a variable which requires professional judgement, such as volatility or expected life of an instrument, could have a quantitatively material impact on the fair value of the share-based payments granted, and therefore will also result in the recognition of a higher or lower expense in the Consolidated Statement of Comprehensive Income.

Judgement is also exercised in assessing the number of options subject to non-market vesting conditions that will vest.

1. RENTAL AND OTHER INCOME

The chief operating decision maker ("CODM") takes the form of the Group's Executive Committee which is of the opinion that the principal activity of the Group is to invest in commercial real estate in the UK.

Operating segments are identified on the basis of internal financial reports about components of the Group that are regularly reviewed by the CODM.

The internal financial reports received by the Group's Executive Committee contain financial information at a Group level as a whole and there are no reconciling items between the results contained in these reports and the amounts reported in the financial statements. Additionally, information is provided to the Group's Executive Committee showing gross property income and property valuation by individual property. Therefore, each individual property is considered to be a separate operating segment in that its performance is monitored individually.

The Directors have considered the requirements of IFRS 8 as to aggregation of operating segments into reporting segments.  All of the Group's revenue is generated from investment and trading properties located outside of London. The properties are managed as a single portfolio by an asset management team whose responsibilities are not segregated by location or type but are managed on an asset-by-asset basis.

The route to market is determined by reference to the current economic circumstances that fluctuate through the life cycle of the portfolio.  The Group holds a diversified portfolio across different sectors including office, industrial, retail, leisure, retail warehouse and residential. The Group has from time to time engaged in development projects such as Hudson Quarter, York. This is not regarded as a separate business or division.

The Directors therefore consider that the individual properties have similar economic characteristics and therefore have been aggregated into a single reportable segment under the provision of IFRS 8.

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

Revenue - type

2023

£'000

2022

£'000

Gross rental income

17,425

16,670

Dilapidations and other property related income

401

732

Insurance commission

68

92

Gross property income

17,894

17,494

Service charge income

4,974

4,155

Trading property income

10,105

27,415

Total revenue

32,973

49,064

 

No single tenant accounts for more than 10% of the Group's total rents received from investment properties. Similarly, there was no individual or corporate that accounts for more than 10% of the trading property income.


2. INTEREST PAYABLE AND SIMILAR CHARGES


2023

£'000

2022

£'000

Interest on bank loans

3,643

2,748

Amortisation of loan arrangement fees

317

305

Other finance charges

10

143


3,970

3,196

 

3. PROFIT FOR THE YEAR

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


2023

£'000

2022

£'000

Depreciation of tangible fixed assets and amortisation of right of use assets:

112

196

Auditor's remuneration:



Fees payable to the Auditor for the audit of the Group's annual accounts

195

165

Fees payable to the Auditor for the audit of the subsidiaries' annual accounts

36

29

Additional fees payable to the Auditor in respect of the 2022 audit

15

-

Fees payable to the Auditor and its related entities for other services:



Audit related assurance services in respect of the interim results

11

11


257

205

 

b) The Group's cost of sales comprise the following:


2023

£'000

2022

£'000

Void, investment and development property costs

2,076

2,310

Legal, lettings and consultancy costs

502

328

Property operating expenses

2,578

2,638

Service charge expenses

4,974

4,155

Trading property cost of sales

9,595

23,615


17,147

30,408

 

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


2023

£'000

2022

£'000

Recurring staff costs

2,560

2,895

Payments to former Directors (including associated costs)

1,835

-

Other overheads*

624

595

Accounting and audit fees

318

269

Stock Exchange costs

207

235

Share-based payments

177

162

PR and marketing costs

108

150

Legal and professional fees (excluding costs associated with payments to former Directors)

82

62

Amortisation of right of use asset

82

148

ESG costs

71

59

Depreciation of tangible fixed assets

30

48


6,094

4,623

*Other overheads comprise of rents, rates, sales, service charge, consulting, recruitment and other office costs

d) EPRA cost ratios are calculated as follows:


2023

£'000

2022

£'000

Gross property income

17,894

17,494




Administrative expenses

6,094

4,623

Property operating expenses

2,578

2,638

Movement in expected credit loss

(327)

(360)

EPRA costs (including property operating expenses)

8,345

6,901

EPRA cost ratio (including property operating expenses)

46.6%

39.4%




Less property operating expenses

(2,578)

(2,638)

EPRA costs (excluding property operating expenses)

5,767

4,263

EPRA cost ratio (excluding property operating expenses)

32.2%

24.4%

Total expense ratio

3.0%

1.6%

 

4. EMPLOYEES AND DIRECTORS' REMUNERATION

Staff costs during the period were as follows:


2023

£'000

2022

£'000

Non-Executive Directors' fees

300

195

Wages and salaries

1,828

2,357

Pensions

147

116

Social security costs

262

227

Payments to former Directors (incl. NI and pension contributions)

1,677

-

Share-based payments

177

162


4,391

3,057

 

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


2023

Number

2022

Number

Directors

                       3

7

Senior management and other employees

                 8  

9


11

16

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


2023

£'000

2022

£'000

Emoluments for qualifying services

711

1,423

Social security costs

117

185

Pension

35

25

Payments to former Directors (incl. NI and pension contributions)

1,677

-


2,540

1,633

Share-based payments

32

116


2,572

1,749

The Executive Director accrues benefits under the Group's defined benefit pension scheme.

 

5. TAXATION


2023

£'000

2022

£'000

Current income tax charge

-

152

Deferred tax

(67)

(85)

Tax (credit)/charge

(67)

67

 


2023

£'000

2022

£'000

(Loss)/profit on ordinary activities before tax

(35,771)

24,615

Based on (loss)/profit for the period: Theoretical Tax at 19% (2022: 19%)

(6,797)

4,677

Effect of:



Net expenses not deductible for tax purposes

41

51

Deferred tax released to profit and loss on Hudson Quarter residential sales

(67)

(85)

Residual losses not recognised for deferred tax

-

(345)

Gain on appropriation for Hudson Quarter

-

119




REIT exempt income

(1,775)

(1,985)

Non-taxable items

8,531

(2,365)

Tax (credit)/charge for the period

(67)

67

 

As a UK REIT, the income profits of the Group's UK property rental business are exempt from corporation tax, as are any gains it makes from the disposal of its properties, provided they are not held for trading. The Group is otherwise subject to UK corporation tax at the prevailing rate.

Deferred taxes relate to the following:


2023

£'000

2022

£'000

Deferred tax liability - brought forward

(143)

(228)

Tax rate increase from 19% to 25%

-

(34)

Overprovided in prior year

(21)

-

Deferred tax release on sale of trading property

88

119

Deferred tax liability - carried forward

(76)

(143)

 


2023

£'000

2022

£'000

Investment property unrealised valuation gains

(76)

(143)

Deferred tax liability - carried forward

(76)

(143)

 

The deferred tax liability of £76,000 relates to investment properties transferred into trading stock, prior to the Group becoming a REIT. As at 31 March 2023 the Group had approximately £5,915,000 (2022: £5,915,000) of realised capital losses to carry forward. There has been no deferred tax asset recognised as the Directors do not consider it probable that future taxable profits will be available to utilise these losses.

Finance Act 2021 sets the main rate of UK corporation tax at 19%, with an increase in the main rate to 25% with effect from 1 April 2023. The deferred tax liability relates to trading properties and has been calculated on the basis of 25%.


6. EARNINGS PER SHARE

Basic earnings per share

Basic earnings per share and diluted earnings per share have been calculated on (loss)/profit after tax attributable to ordinary Shareholders for the year (as shown on the Consolidated Statement of Comprehensive Income) and for the earnings per share, the weighted average number of ordinary shares in issue during the period (see table below) and for diluted weighted average number of ordinary shares in issue during the year (see table below).


2023

£'000

2022

£'000

(Loss)/profit after tax attributable to ordinary Shareholders for the year

(35,704)

24,548

 


2023

No. of shares

2022

No. of shares

Weighted average number of shares for basic earnings per share

44,525,518

46,257,514

Dilutive effect of share options

-

36,766

Weighted average number of shares for diluted earnings per share

44,525,518

46,294,280

Earnings per ordinary share



Basic

(80.2p)

53.1p

Diluted

(80.2p)

53.0p

 

Key Performance Measures

The Group financial statements are prepared under IFRS which incorporates non-realised fair value measures and non-recurring items. Alternative Performance Measures ("APMs"), being financial measures which are not specified under IFRS, are also used by management to assess the Group's performance. These include a number of European Public Real Estate Association ("EPRA") measures, prepared in accordance with the EPRA Best Practice Recommendations reporting framework the latest update of which was issued in November 2019. The Group reports a number of these measures (detailed in the glossary of terms) because the Directors consider them to improve the transparency and relevance of our published results as well as the comparability with other listed European real estate companies.

EPRA EPS and EPRA Diluted EPS

EPRA Earnings is a measure of operational performance and represents the net income generated from the operational activities. It is intended to provide an indicator of the underlying income performance generated from the leasing and management of the property portfolio. EPRA earnings are calculated taking the profit after tax excluding investment property revaluations and gains and losses on disposals, changes in fair value of financial instruments and one-off finance termination costs. EPRA earnings is calculated on the basis of the basic number of shares in line with IFRS earnings as the dividends to which they give rise accrue to current Shareholders.

Adjusted profit before tax and Adjusted EPS

The Group also reports an adjusted earnings measure which is based on recurring earnings before tax and the basic number of shares. This is the basis on which the Directors consider dividend cover. This takes EPRA earnings as the starting point and then adds back tax and any other fair value movements or one-off items that were included in EPRA earnings. This includes share-based payments being a non-cash expense, as well as payments to former Directors, which is a one-off exceptional item. The corporation tax charge (excluding deferred tax movements, being a non-cash expense) is deducted in order to calculate the adjusted earnings per share, if the charge is in relation to recurring earnings.

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


2023

£'000

2022

£'000

(Loss)/profit after tax for the year

(35,704)

24,548

Adjustments:



Loss/(gain) on revaluation of investment property portfolio

42,900

(8,222)

Profit on disposal of investment properties

(819)

(4,946)

Trading profit

(510)

(3,800)

Loss on disposal of listed equity investments

-

80

Debt termination costs

15

63

Fair value gain on derivatives

(210)

(329)

EPRA earnings for the year

5,672

7,394

Payments to former Directors (including associated costs)

1,835

-

Share-based payments

177

162

Hudson Quarter development loan interest

-

189

Adjusted profit after tax for the year

7,684

7,745

Tax excluding deferred tax on EPRA adjustments and capital gain charged

(67)

67

Adjusted profit before tax for the year

7,617

7,812

EPRA and adjusted earnings per ordinary share



EPRA Basic

12.7p

16.0p

EPRA Diluted

12.7p

16.0p

Adjusted EPS

17.1p

16.9p

 

7. NET ASSET VALUE PER SHARE

The Group has adopted the EPRA NAV measures which came into effect for accounting periods starting 1 January 2020. EPRA issued best practice recommendations (BPR) for financial guidelines on its definitions of NAV measures. The NAV measures as outlined in the BPR are EPRA net tangible assets (NTA), EPRA net reinvestment value (NRV) and EPRA net disposal value (NDV).

The Group considered EPRA Net Tangible Assets (NTA) to be the most relevant NAV measure for the Group and we are now reporting this as our primary NAV measure, replacing our previously reported EPRA NAV and EPRA NNNAV per share metrics. EPRA NTA excludes the intangible assets and the cumulative fair value adjustments for debt-related derivatives which are unlikely to be realised.


As at 31 March 2023


EPRA NTA

£'000

EPRA NRV

£'000

ERPA NDV

£'000

Net assets attributable to Shareholders

128,475

128,475

128,475

Include:




Fair value adjustment of trading properties

730

730

730

Real estate transfer tax

-

11,922

-

Fair value of fixed interest rate debt

-

-

863

Exclude:




Deferred tax on latent capital gains and capital allowances

76

76

-

EPRA NAV

129,281

141,203

130,068

Number of ordinary shares issued for diluted and EPRA net assets per share

43,728,212

43,728,212

43,728,212

EPRA NAV per share

296p

323p

297p

 

The adjustments made to get to the EPRA NAV measures above are as follows:

•     Fair value adjustment of trading properties: Difference between development property held on the balance sheet at cost and fair value of that development property.

•     Real estate transfer tax: Gross value of property portfolio as provided in the Valuation Certificate (i.e. the value prior to any deduction of purchasers' costs).

•     Fair value of fixed interest rate debt: Difference between any financial liability and asset held on the balance sheet of the Group and the fair value of that financial liability or asset.

•     Fair value of derivatives: Exclude fair value financial instruments that are used for hedging purposes where the company has the intention of keeping the hedge position until the end of the contractual duration.

•     Deferred tax on latent capital gains and capital allowances: Exclude the deferred tax as per IFRS balance sheet in respect of the difference between the fair value and the tax book value of investment property, development property held for investment, intangible assets, or other non-current investments as this would only become payable if the assets were sold.


As at 31 March 2022


EPRA NTA

£'000

EPRA NRV

£'000

EPRA NDV

£'000

Net assets attributable to Shareholders

177,204

177,204

177,204

Include:




Fair value adjustment of trading properties

3,188

3,188

3,188

Real estate transfer tax

-

17,049

-

Fair value of fixed interest rate debt

-

-

413

Exclude:




Fair value of derivatives value

47

47

-

Deferred tax on latent capital gains and capital allowances

143

143

-

EPRA NAV

180,582

197,631

180,805

Number of ordinary shares issued for diluted and EPRA net assets per share

46,325,236

46,325,236

46,325,236

EPRA NAV per share

390p

427p

390p

 


2023

No of shares

2022

No of shares

Number of ordinary shares issued at the end of the year (excluding treasury shares)

43,718,381

46,288,470

Dilutive effect of share options

9,831

36,766

Number of ordinary shares issued for diluted and EPRA net assets per share

43,728,212

46,325,236

Net assets per ordinary share



Basic

294p

383p

Diluted

294p

383p

EPRA NTA

296p

390p

 

8. DIVIDENDS


Payment date

Dividend

per share

2023

£'000

2022

£'000

2023





Interim dividend

13 January 2023

3.75

1,651

-

Interim dividend

14 October 2022

3.75

1,651

-



7.50

3,302

-

2022





Final dividend

05 August 2022

3.75

1,736

-

Interim dividend

14 April 2022

3.25

1,504

-

Interim dividend

31 December 2021

3.25

-

1,504

Interim dividend

15 October 2021

2.50

-

1,389



13.25

3,240

2,893

2021



 


Interim dividend

05 August 2021

3.00

-

1,382

Interim dividend

09 April 2021

2.50

-

1,152




-

2,534

Dividends reported in the Group Statement of Changes in Equity


6,542

5,427

 

Dividends (continued)


2023

£'000

2022

£'000

August 2023 final dividend in respect of year end 31 March 2023: 3.75p (2022 final dividend: 3.75p)

1,621

1,736

April 2023 interim dividend in respect of year end 31 March 2023: 3.75p (2021 interim dividend: 3.25p)

1,645

1,504


3,266

3,240

Final dividends on ordinary shares are subject to approval at the Annual General Meeting. Such dividends are not recognised as a liability as at 31 March 2023.

 

9. PROPERTY PORTFOLIO


Freehold

investment properties

£'000

Leasehold

investment properties

£'000

Total

investment properties

£'000

At 31 March 2021

219,141

16,713

235,854

Additions - refurbishments

2,351

2,543

4,894

Additions - new properties

10,022

-

10,022

Gain on revaluation of investment properties

6,886

1,336

8,222

Disposals

(22,290)

(3,985)

(26,275)

At 31 March 2022

216,110

16,607

232,717

Additions - refurbishments

1,026

156

1,182

Gain on revaluation of investment properties

(38,663)

(4,237)

(42,900)

Disposals

(14,495)

-

(14,495)

At 31 March 2023

163,978

12,526

176,504

 

 

 

 

Standing investment properties

£'000

Investment properties under construction

£'000

Total investment properties

£'000

Trading properties

£'000

Total property portfolio

£'000

At 1 April 2021

223,904

11,950

235,854

42,719

278,573

Additions - refurbishments

4,894

-

4,894

-

4,894

Additions - new properties

10,022

-

10,022

-

10,022

Additions - trading property

-

-

-

1,182

1,182

Transfer from investment property under construction

11,950

(11,950)

-

-

-

Gain on revaluation of properties

8,222

-

8,222

-

8,222

Disposals

(26,275)

-

(26,275)

(23,614)

(49,889)

At 1 April 2022

232,717

-

232,717

20,287

253,004

Additions - refurbishments

1,182

-

1,182

-

1,182

Additions - trading property

-

-

-

363

363

Loss on revaluation of properties

(42,900)

-

(42,900)

-

(42,900)

Disposals

(14,495)

-

(14,495)

(9,595)

(24,090)

At 31 March 2023

176,504

-

176,504

11,055

187,559

 

The property portfolio has been independently valued at fair value. The valuations have been prepared in accordance with the RICS Valuation - Global Standards July 2017 ("the Red Book") and incorporate the recommendations of the International Valuation Standards and the RICS valuation - Professional Standards UK January 2014 (Revised April 2015) which are consistent with the principles set out in IFRS 13. At 31 March 2023, the Group's freehold and leasehold investment properties were externally valued by CBRE for the first time, a Royal Institution of Chartered Surveyors ("RICS") registered independent valuer.

The valuer in forming its opinion makes a series of assumptions, which are typically market related, such as net initial yields and expected rental values, and are based on the valuer's professional judgement. The valuer has sufficient current local and national knowledge of the particular property markets involved and has the skills and understanding to undertake the valuations competently.

In addition to the loss on revaluation of investment properties included in the table above, realised gains of £819,000 (2022 £4,946,000) relating to investment properties disposed of during the year were recognised in profit or loss.

The Group developed a mixed-use scheme at Hudson Quarter, York. Part of the scheme consists of commercial
units which the Group holds for leasing or has let. As a result of achieving practical completion in April 2021, the commercial element of the scheme is classified as investment properties. For investment properties under construction and trading properties, no borrowing costs have been capitalised in the year (2022: £51,674).

A reconciliation of the valuations carried out by the independent valuers to the carrying values shown in the Statement of Financial Position was as follows:


2023

£'000

2022

£'000

Property portfolio valuation: CBRE (2023) Cushman & Wakefield LLP (2022)

192,355

259,040

Adjustment in respect of minimum payment under head leases

1,077

1,078

Less trading properties at lower of cost and net realisable value

(11,055)

(20,287)

Less lease incentive balance included in accrued income

(5,143)

(3,926)

Less fair value uplift on trading properties

(730)

(3,188)

Carrying value of investment properties

176,504

232,717

 

The valuations of all investment property held by the Group is classified as Level 3 in the IFRS 13 fair value hierarchy as they are based on unobservable inputs. There have been no transfers between levels of the fair value hierarchy during the year.

Valuation process - investment properties

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

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

The Head of Investment, responsible for the valuation process verifies all major inputs to the external valuation reports, assesses the individual property valuation changes from the prior year valuation report and holds discussions with the independent valuers.

When this process is complete, the valuation report is recommended to the Audit & Risk Committee, which considers it as part of its
overall responsibilities.

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

•     The amount and timing of future income streams;

•     Anticipated maintenance costs and other landlord's liabilities;

•     An appropriate yield; and

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

Valuation technique - standing investment properties

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

31 March 2023

Office

Industrial

Significant unobservable inputs

Leisure

Other

Total

Fair value of property portfolio

95,615,000

35,855,000

29,290,000

31,595,000

192,355,000

Area (sq ft)

622,905

339,470

304,319

84,851

1,351,545

Gross Estimated Rental Value

11,050,952

2,820,749

3,324,009

1,556,403

18,752,113

Net Initial Yield

 

 

 

 

 

 Minimum

0.3%

3.7%

10.5%

5.3%

0.3%

 Maximum

24.4%

8.1%

12.3%

9.9%

24.4%

 Weighted average

6.6%

6.3%

11.5%

7.2%

7.4%

Reversionary Yield

 

 

 

 

 

 Minimum

6.9%

6.6%

8.7%

5.3%

5.3%

 Maximum

26.2%

8.4%

12.0%

10.0%

26.2%

 Weighted average

10.8%

7.4%

10.5%

7.2%

9.6%

Equivalent Yield

 

 

 

 

 

 Minimum

6.8%

6.3%

10.0%

6.0%

6.0%

 Maximum

9.9%

7.1%

10.6%

9.8%

10.6%

 Weighted average

9.4%

6.6%

10.3%

7.4%

9.0%

 

The "other" sector includes Residential, Retail and Retail Warehousing sectors.

31 March 2022

Office

Industrial

Significant unobservable inputs

Leisure

Other

Total

Fair value of property portfolio

£122,125,000

£43,345,000

£36,990,000

£56,580,000

£259,040,000

Area (sq ft)

633,591

345,586

303,993

169,762

1,452,932

Gross Estimated Rental Value

£10,952,762

£2,608,500

£3,270,645

£2,586,276

£19,418,183

Net Initial Yield






 Minimum

(5.1%)

3.5%

7.8%

3.5%

(5.1%)

 Maximum

9.6%

5.6%

9.2%

11.1%

11.1%

 Weighted average

4.7%

4.5%

8.4%

7.2%

5.6%

Reversionary Yield






 Minimum

4.5%

4.6%

7.3%

3.4%

3.4%

 Maximum

11.3%

6.3%

9.1%

10.4%

11.3%

 Weighted average

8.0%

5.5%

8.2%

7.2%

7.5%

Equivalent Yield






 Minimum

4.5%

4.5%

8.4%

3.4%

3.4%

 Maximum

8.8%

5.9%

9.8%

9.9%

9.9%

 Weighted average

7.6%

5.4%

9.6%

7.2%

7.4%

 

Negative net initial yields arise where properties are vacant or partially vacant and void costs exceed rental income.

The following descriptions and definitions relate to valuation techniques and key unobservable inputs made in determining fair values:

Market comparable method

Under the market comparable method (or market comparable approach), a property's fair value is estimated based on comparable transactions in the market.

Unobservable input: estimated rental value

The rent at which space could be let in the market conditions prevailing at the date of valuation (range: £81,443 to £1,971,755 per annum).

Rental values are dependent on a number of variables in relation to the Group's property. These include: size, location, tenant, covenant strength and terms of the lease.

Unobservable input: net initial yield

The net initial yield is defined as the initial gross income as a percentage of the market value (or purchase price as appropriate) plus standard costs of purchase.

Sensitivities of measurement of significant unobservable inputs

As set out within significant accounting estimates and judgements above, the Group's property Portfolio Valuation is open to judgements inherently subjective by nature.

Unobservable input

Impact on fair value measurement of significant increase in input

Impact on fair value measurement of significant decrease in input

Gross Estimated Rental Value

Increase

Decrease

Net Initial Yield

Decrease

Increase

Reversionary Yield

Decrease

Increase

Equivalent Yield

Decrease

Increase

 


-5% in passing

rent (£m)

5% in passing

 rent (£m)

0.25% in net

initial yield (£m)

-0.25% in net

initial yield (£m)

(Decrease)/increase in the fair value of investment properties as at 31 March 2023

(9.63)

9.63

(6.14)

6.92

(Decrease)/increase in the fair value of investment properties as at 31 March 2022

(10.76)

10.76

(9.74)

12.36

 

Valuation technique: properties under construction

Development assets are valued using the gross development value of the asset less any costs still payable in order to complete, and an appropriate developer's margin.


10. TRADING PROPERTY


Total

£'000

At 1 April 2021

42,719

Costs capitalised

1,182

Reversal of impairment of trading properties

(23,614)

At 1 April 2022

20,287

Costs capitalised

363

Disposal of trading properties

(9,595)

At 31 March 2023

11,055

 

The Group developed a large mixed-use scheme at Hudson Quarter, York. Part of the approved scheme consists of residential units which the Group is in the process of selling. As a result, the residential element of the scheme is classified as trading property.


11. LISTED EQUITY INVESTMENTS


Total

£'000

At 1 April 2021

3,249

Disposal of equity investment

(3,249)

At 31 March 2022 and 31 March 2023

-

 

12. PROPERTY, PLANT AND EQUIPMENT


IT, fixtures and fittings

£'000

Right of use asset

£'000

At 1 April 2021

274

461

Additions

22

-

At 1 April 2022

296

461

Additions

8

197

At 31 March 2023              

304

658

Depreciation



At 1 April 2021

203

296

Provided during the year

48

148

At 1 April 2022

251

444

Provided during the year

30

82

At 31 March 2023

281

526




Net book value at 31 March 2023

23

132

Net book value at 31 March 2022

45

17

 

13. TRADE AND OTHER RECEIVABLES


2023

£'000

2022

£'000

Current



Gross amounts receivable from tenants

2,550

2,624

Less: expected credit loss provision

(653)

(980)

Net amount receivable from tenants

1,897

1,644

Other taxes

97

156

Other debtors

993

1,022

Accrued income

5,143

3,926

Prepayments

420

664


8,550

7,412

Accrued income amounting to £5,143,000 (2022: £3,926,000) relates to rents recognised in advance of receipt as a result of spreading the effect of rent free and reduced rent periods, capital contributions in lieu of rent free periods and contracted rent uplifts over the expected terms of their respective leases.

The carrying value of trade and other receivables classified at amortised cost approximates fair value.

As at 31 March 2023 the lifetime expected credit loss provision for trade receivables and contract assets is as follows:


 

Current

£'000

More than
30 days

past due

£'000

More than
60 days

past due

£'000

More than
90 days

past due

£'000

Total

£'000

Expected loss rate

2%

3%

4%

92%

 

Gross carrying amount

1,808

39

32

669

2,550

Loss provision

33

1

1

618

653

 

Changes to credit risk management

Impairment calculations have been carried out on trade receivables using the IFRS 9 simplified approach, using 12 months of historic rental payment information, and adjusting risk profiles based on forward-looking information. In addition, the Group has reviewed its register of tenants at higher risk, particularly in the leisure and retail sectors, those in administration or CVA and the top 50 tenants by size with the remaining tenants considered on a sector by sector basis.

Concentration of credit risk

The credit risk in respect of trade receivables is not concentrated as the Group operates in many different sectors and locations around the UK, and has a wide range of tenants from a broad spectrum of business sectors. The Group predominantly operates in the office and industrial sectors. 69% of the ECL provision relates to tenants in the leisure sector.

How forward looking information was incorporated

In calculating the ECL provision, the Group used forward looking information when assessing the risk profiles of each tenant, most notably around the assessment over the likelihood of tenants having the ability to pay rent as demanded, as well as the likelihood of rent deferrals and rent frees being offered to tenants.

Key sources of estimation uncertainty

The Group's risk profile rates form a key part when calculating the ECL provision. Default rates were applied to each tenant based on the ageing of the outstanding receivable. Tenants were classified as either low (default range of 0.5% - 8%), medium (default range of 20% - 50%), high (default range of 65% - 80%), or extremely high risk (set default range of 100%), with default rates applied to each risk profile. These rates have been calculated by using historic and forward-looking information and is inherently subjective.

A sensitivity analysis performed to determine the impact on the Group Statement of Comprehensive Income from a 10% increase in each of the risk profile rates would result in a decrease in profit by £207,769.

The Group does not hold any material collateral as security.

As at 31 March 2022 the lifetime expected credit loss provision for trade receivables and contract assets was as follows:


 

Current

£'000

More than 30 days

past due

£'000

More than 60 days

past due

£'000

More than 90 days

past due

£'000

 

Total

£'000

Expected loss rate

7%

82%

0%

90%


Gross carrying amount

1,668

12

-

944

2,624

Loss provision

124

10

-

846

980

 

Movement in the expected credit loss provision was as follows:


2023

£'000

2022

£'000

Brought forward

980

1,340

Receivables written off during the year as uncollectable

(50)

(158)

Provisions released

(305)

(276)

Provisions increased

28

74


653

980

 

14. CASH AND CASH EQUIVALENTS

All of the Group's cash and cash equivalents at 31 March 2023 and 31 March 2022 are in sterling and held at floating interest rates.


2023

£'000

2022

£'000

Cash and cash equivalents

5,509

28,143

 

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


15. TRADE AND OTHER PAYABLES


2023

£'000

2022

£'000

Trade payables

508

604

Other taxes

646

1,167

Other payables

1,484

1,136

Deferred rental income

3,359

3,368

Accruals

2,342

2,637


8,339

8,912

The deferred rental income in the year ended 31 March 2022 of  £3,368,00 was recognised as income in the year to 31 March 2023.

The Directors consider that the carrying amount of trade and other payables measured at amortised cost approximates to their
fair value.


16. DERIVATIVES


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

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

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

At 31 March 2023, the Group has no derivative financial instruments as they matured within the financial year.

Further details on interest rate risks are included in note 26.

 

Bank

Notional principal

Expiry

date

Contract rate %

Valuation rate %

2023

Fair value

£'000

2022

Fair value

£'000

Barclays Bank plc

-

-

1.3420

-

-

3

Santander plc

-

-

1.3730

-

-

(50)


-




-

(47)

 

17. BORROWINGS


2023

£'000

2022

£'000

Current liabilities



Bank loans

8,563

32,813

Unamortised lending costs

(18)

(64)


8,545

32,749

Non-current liabilities



Bank loans

55,770

68,940

Unamortised lending costs

(641)

(452)


55,129

68,488

Total borrowings



Bank loans

64,333

101,753

Unamortised lending costs

(659)

(516)


63,674

101,237

 

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


2023

£'000

2022

£'000

Within one year

8,563

32,813

From one to two years

37,027

1,218

From two to five years

18,743

67,722


64,333

101,753

 

Facility and arrangement fees

As at 31 March 2023

Secured Borrowings

All in cost

Maturity date

Total Facility

£'000

Unused loan facilities

£'000

Facility drawn

£'000

Unamortised facility fees

£'000

Loan Balance

£'000

Santander Bank plc

6.38%

May 2027

11,750

-

11,750

(337)

11,413

Lloyds Bank plc

6.13%

March 2024

6,845

-

6,845

(18)

6,827

National Westminster Bank plc

6.28%

August 2024

37,724

(20,000)

17,724

(171)

17,553

Barclays

6.13%

June 2024

19,385

-

19,385

(62)

19,323

Scottish Widows

2.90%

July 2026

8,629

-

8,629

(71)

8,558


 

 

84,333

(20,000)

64,333

(659)

63,674

 

As at 31 March 2022

Secured Borrowings

All in cost

Maturity date

Total Facility

£'000

Unused loan facilities

£'000

Facility drawn

£'000

Unamortised facility fees

£'000

Loan Balance

£'000

Santander Bank plc

3.71%

August 2022

24,750

-

24,750

(29)

24,721

Lloyds Bank plc

2.64%

March 2023

6,845

-

6,845

(35)

6,810

National Westminster Bank plc

2.79%

August 2024

40,000

(7,957)

32,043

(230)

31,813

Barclays

3.41%

June 2024

29,168

-

29,168

(128)

29,040

Scottish Widows

2.90%

July 2026

8,947

-

8,947

(94)

8,853




109,710

(7,957)

101,753

(516)

101,237















Investment properties with a carrying value of £162,420,000 (2022: £218,780,000) are subject to a first charge to secure the Group's bank loans amounting to £64,333,000 (2022: £101,753,000). Trading properties with a carrying value of £11,055,000 (2022: £20,286,000) are no longer subject to a first charge to secure the Group's bank loans following the repayment of the Barclays loan in November 2021.

The Group has unused loan facilities amounting to £20,000,000 (2022: £7,957,000). A facility fee is charged on this balance at a rate of 1.05% p.a. and is payable quarterly. This facility is secured on the investment properties held by Property Investment Holdings Limited, Palace Capital (Properties) Limited and Palace Capital (Leeds) Limited as part of the NatWest loan.

The Group constantly monitors its approach to managing interest rate risk. The Group has fixed £8,629,000 (2022: £61,386,000) of its debt in order to provide surety of its interest cost and to mitigate interest rate risk.

The Group has a loan with Scottish Widows for £8,629,000 (2022: £8,947,000) which is fully fixed at a rate of 2.9%.

The Group has a loan with Barclays Bank plc for £19,385,000 (2022: £29,168,000), of which £Nil (2022: £33,848,000) is fixed using an interest rate swap (see note 16). The floating rate portion of the loan is charged at a margin of 1.95% plus SONIA.

The Group has a loan with Santander plc for £11,750,000 (2022: £24,750,000), of which £Nil (2022:£18,592,000) is fixed using an interest rate swap (see note 16). The floating rate portion of the loan is charged at a margin of 2.2% plus SONIA.

The Group has a loan with Lloyds Bank plc for £6,845,000 (2022: £6,845,000) which is fully charged at a floating rate margin of 1.95% plus SONIA.

The Group has a loan with National Westminster Bank plc for £17,724,000 (2022: £32,043,000) which is fully charged at a floating rate margin of 2.1% plus SONIA.

The fair value of borrowings held at amortised cost at 31 March 2023 was £64,537,000 (2022: £101,650,000). The difference in the fair value and carrying value of borrowings reflects the valuation of the fixed rate debt being higher than its carrying value. This is a level 2 fair value valuation of the fixed rate debt and was determined by an independent third party. The valuation is based on a net present value of the difference between the contracted rate and the valuation rate when applied to the projected balances for the period from the reporting date to the contracted expiry date.

The Group's bank loans are subject to various covenants including Loan to Value, Interest Cover, Debt Service Cover and Debt Yield requirements. During the year, the Group met all of its covenants.


18. GEARING AND LOAN TO VALUE RATIO

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


2023

£000

2022

£'000

EPRA net asset value (note 7)

129,281

180,582

Borrowings (net of unamortised issue costs)

63,674

101,237

Lease liabilities for investment properties

1,077

1,078

Cash and cash equivalents

(5,509)

(28,143)

Net debt

59,242

74,172

NAV gearing

46%

41%

 

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


2023

£000

2022

£'000

Fair value of investment properties

180,570

235,565

Fair value of trading properties

11,785

23,475

Fair value of property portfolio

192,355

259,040

Borrowings

64,333

101,753

Cash at bank

(5,509)

(28,143)

Net debt

58,824

73,610

Loan to value ratio

31%

28%

 

19. RECONCILIATION OF LIABILITIES TO CASH FLOWS FROM
FINANCING ACTIVITIES


Bank borrowings

£'000

Balance at 1 April 2021

127,285

Cash flows from financing activities:


Bank borrowings drawn

11,472

Bank borrowings repaid

(38,033)

Loan arrangement fees paid

(11)

Non-cash movements:


Amortisation of loan arrangement fees

305

Capitalised loan arrangement fees

219

Balance at 1 April 2022

101,237

Cash flows from financing activities:


Bank borrowings repaid

(37,419)

Loan arrangement fees paid

(461)

Non-cash movements:

 

Amortisation of loan arrangement fees

317

Balance at 31 March 2023

63,674

 

20. LEASES

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


2023

£'000

2022

£'000

Within one year

15,524

15,765

From one to two years

13,277

15,109

From two to three years

13,046

13,000

From three to four years

12,030

12,357

From four to five years

8,742

10,787

From five to 25 years

42,755

49,821


105,374

116,839

 

Lease liabilities are classified as follows:


2023

£'000

2022

£'000

Lease liabilities for investment properties

1,077

1,078

Lease liabilities for right of use asset

132

-


1,209

1,078

 

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


2023

2022

Present value

of lease

payments

£'000

Lease

payments

£'000

 

 

Interest

£'000

Present value of lease

payments

£'000

Within one year

54

(54)

-

-

From one to two years

54

(54)

-

-

From two to five years

162

(161)

1

-

From five to 25 years

595

(591)

4

8

After 25 years

5,244

(4,172)

1,072

1,070


6,109

(5,032)

1,077

1,078

 

Lease obligations in respect of rents payable on right of use assets were payable as follows:


2023

2022

Present value

of lease

payments

£'000

Lease

payments

£'000

 

 

Interest

£'000

Present value of lease

payments

£'000

Within one year

134

(2)

132

-

 

The net carrying amount of the leasehold properties is shown in note 9.

The Group has over 160 leases granted to its tenants. These vary depending on the individual tenant and the respective property and demise and vary considerably from short-term leases of less than one year to longer-term leases of over 10 years.

A number of these leases contain rent free periods. Standard lease provisions include service charge payments and recovery of other direct costs.

 

21. SHARE CAPITAL

 

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

2023

£'000

2022

£'000

46,388,515 ordinary shares of 10p each (2022: 46,388,515)

4,639

4,639


4,639

4,639

 

 

Reconciliation of movement in ordinary share capital

2023

£'000

2022

£'000

At start of year

4,639

4,639

Issued in the year

-

-

At end of year

4,639

4,639

 

Movement in ordinary authorised share capital


Price per share pence

Number of ordinary shares issued

Total number of shares

As at 31 March 2022 and 31 March 2023


-

-

46,388,515

 

Movement in treasury shares


Number of ordinary

shares issued

 

Total number

of shares

As at 31 March 2022



99,587

Shares transferred to EBT

31 May 2022

(40,000)


Shares repurchased and transferred to Treasury

11 July 2022

2,300,000


Shares repurchased and transferred to Treasury

20 March 2023

171,000


Shares repurchased and transferred to Treasury

29 March 2023

137,633


As at 31 March 2023



2,668,220

Total number of shares excluding the number of shares held in treasury at 31 March 2023



43,720,295

 

Year ended 31 March 2023

On 31 May 2022, 40,000 shares were transferred to the Employee Benefit Trust.

On 11 July 2022, 2,300,000 shares were purchased by the Group on the open market and transferred into treasury reserves.

On 20 March 2023, 171,000 shares were purchased by the Group on the open market and transferred into treasury reserves.

On 29 March 2023, 137,633 shares were purchased by the Group on the open market and transferred into treasury reserves.

 

Shares held in Employee Benefit Trust

 

 

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

2023

No. of

Options

2022

No. of

options

Brought forward

458

19,238

Transferred under scheme of arrangement

40,000

200,000

Shares exercised under deferred bonus share scheme

(38,544)

(90,049)

Shares exercised under employee LTIP scheme

-

(134,814)

Shares purchased by EBT

-

6,083

At end of year

1,914

458

 

Share options:

 

Reconciliation of movement in outstanding share options

2023

No. of options

2022

No. of options

At start of year

1,078,826

1,193,984

Issued in the year

-

402,717

Exercised in the year

-

(134,814)

Prior period accrued dividends on vested options

32,491

-

Lapsed in the year

(544,727)

(329,778)

Deferred bonus share options issued

9,831

36,766

Deferred bonus share options exercised

(38,544)

(90,049)

At end of year

537,877

1,078,826

 

As at 31 March 2023, the Company had the following outstanding unexpired options:

Description of unexpired share options

2023

2022

 

No. of

options

Weighted average

option price

 

No. of

Options

Weighted average

option price

Employee benefit plan

528,046

0p

1,042,060

0p

Deferred bonus share scheme issued

9,831

0p

36,766

0p

Total

537,877

0p

1,078,826

0p

Exercisable

-

0p

-

0p

Not exercisable

537,877

0p

1,078,826

0p

The weighted average remaining contractual life of share options at 31 March 2023 is 1.0 years (2022: 1.7 years).


22. SHARE-BASED PAYMENTS

Employee benefit plan

The following table illustrates the number and weighted average exercise prices of, and movements in, share options during the period:


Number of

options

Exercise

price

Average

share price at

date of

exercise

Grant

date

Vesting

date

Outstanding at 31 March 2021

1,193,984

0p




Exercised during the year (LTIP 2018)

(134,814)

0p

254p

13 July 2018

13 July 2021

Issued during the year (LTIP 2021)

402,717

0p

247p

16 November 2021

16 November 2024

Deferred bonus share options issued

36,766

0p

253p

15 June 2021

15 June 2022

Deferred bonus share options exercised

(90,049)

0p

254p

14 July 2020

14 July 2021

Lapsed during year (LTIP 2018)

(114,405)

0p




Lapsed during year (LTIP 2019)

(70,826)

0p




Lapsed during year (LTIP 2020)

(144,547)

0p




Outstanding at 31 March 2022

1,078,826

0p




Deferred bonus share options issued

9,831

0p

285p

18 August 2022

18 August 2023

Deferred bonus share options exercised

(38,544)

0p

263p

15 June 2021

15 June 2022

Prior period accrued dividends on vested options

32,491

0p




Lapsed in the year (LTIP 2019)

(241,147)

0p




Lapsed in the year (LTIP 2020)

(124,123)

0p




Lapsed in the year (LTIP 2021)

(179,457)

0p




Outstanding at 31 March 2023

537,877

0p




 

LTIP 2020

The options are awarded to employees on achievements against targets on two separate measures over the three-year period. The options are subject to a two-year holding period following vesting. Half the options will be awarded based on the first target and half based on the achievement of the second.

Total property return growth is based on the increase in the total property return of the Company compared with an increase in the MSCI IPD UK Quarterly Index (PV growth) as at 31 March 2020. This target will measure the annualised growth in total property return over the three-year period ending 31 March 2023 (PV performance period), and comparing this with the annualised total property return growth of the MSCI IPD UK Quarterly Index.

Total Shareholder return (TSR) measures the total Shareholder return (price rise plus dividends) over the period from 14 October 2020 to 13 October 2023. The base price is £1.88 per share which was the market price at the grant date.

 

Annualised TSR over the
TSR performance period

Vesting %

PV growth over the PV performance period

Vesting %

<5%

0

<0.5%

0

Equal to 5%

20

Equal to 0.5%

20

Between 5% and 9%

20-100

Between 0.5% and 2.5%

20-100

Equal to 9%

100

Equal to 2.5%

100

 

LTIP 2021

The options are awarded to employees on achievements against targets on two separate measures over the three-year period. For directors, the options are subject to a two-year holding period following vesting. Half the options will be awarded based on the first target and half based on the achievement of the second.

Total property return growth is calculated as Total Property Return of the Company over the Performance Period beginning on 31 March 2021 and ending on 31 March 2024, using the Total Property Return ("TPR") as calculated by MSCI for the Group as compared with the TPR for the MSCI IPD Index (the "Comparator") over the same period. The TPR for the Group and the Comparator will be its percentage increase over the three-year Performance Period.

Total Shareholder return (TSR) measures the total Shareholder return (price rise plus dividends) over the period from 16 November 2021 to 15 November 2024. The percentage of the TSR metric will be adjusted downwards according to the Company's share price discount to net asset value at the time of vesting. Share Price Discount will be calculated with reference to the closing share price on 15 November 2024 and EPRA Net Tangible Assets as at 30 September 2024. The base price is £2.44 per share which was the market price at the grant date.

 

Annualised TSR over the
TSR performance period

Vesting %

TPR equivalent total over performance period

Vesting %

<5%

0

<0.5%

0

Equal to 5%

20

Equal to 0.5%

20

Between 5% and 9%

20-100

Between 0.5% and 2.5%

20-100

Equal to 9%

100

Equal to 2.5%

100

 

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

 

 

Monte Carlo TSR

Tranche

Black-Scholes PV

Tranche

Grant date

16 November 2021

16 November 2021

Share price

£2.44

£2.44

Exercise price

0p

0p

Term

5 years

5 years

Expected volatility

38.03%

38.03%

Expected dividend yield

0.00%

0.00%

Risk free rate

0.59%

0.59%

Time to vest (years)

3.0

3.0

Expected forfeiture p.a.

0%

0%

Fair value per option

£1.28

£2.44

 

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


2023

2022

£'000

LTIP 2018

-

42

LTIP 2019

15

9

LTIP 2020

87

72

LTIP 2021

75

39

Total expense arising from share-based payment transactions

177

162

 

23. RELATED PARTY TRANSACTIONS

Charitable donations amounting to £6,000 (2022: £Nil) have been made by the Group to Variety, the Children's Charity, a charity where Neil Sinclair, previously Chief Executive, was a Trustee.

Dividend payments made to Directors amounted to £27,598 (2022: £262,265) during the year. See note 4 for further details of key management remuneration.


24. CAPITAL COMMITMENTS

The obligation for capital expenditure relating to the enhancement of investment properties entered into by the Group amounted to £456,901 (2022: £395,952).


25. POST BALANCE SHEET EVENTS

On 4 May 2023, the Group exchanged on the disposal of Courtauld House, Coventry, for a total consideration of £7.4m. The property is charged against the loan facility with Barclays Bank plc and as a result, £3.5m of the total consideration will be used to repay the loan facility. Completion of the sale is due to take place no earlier than 5 July 2023.

On 9 May 2023 the Group exchanged on the disposal of Millbarn Medical Centre, Beaconsfield, for a total consideration of £1.5m. The property is charged against the loan facility with Barclays Bank plc and as a result, £0.5m of the total consideration will be used to repay the loan facility. Completion of the sale is due to take place by 7 July 2023.

On 23 May 2023, the Group exchanged on the disposal of Princeton House, Farnborough, for a total consideration of £2.3m. The property is charged against the loan facility with NatWest plc and as a result, £0.9m of the total consideration will be used to repay the loan facility. Completion of the sale is due to take place by 31 July 2023.

On 26 May 2023, the Group completed the disposal of five industrial assets, for a total consideration of £26.6m. The properties disposed of were Point Four Industrial Estate, Avonmouth, Clayton Industrial Estate, Burgess Hill, Saxon House, Kettering, Bone Lane, Newbury and Black Moor Road, Verwood. The properties were charged against the loan facilities with NatWest plc and Barclays Bank plc. £9.8m of the total consideration was used to repay the loan facility with NatWest plc and £4.1m was used to repay the loan facility with Barclays Bank plc on 30 May 2023.

On 31 May 2023, the Group repaid the £6.8m loan facility with Lloyds Bank plc in full.

On 1 June 2023, the Group completed the disposal of Aldi, Gosport, for a total consideration of £5.6m. The property was charged against the loan facility with Barclays Bank plc and as a result, £3.7m of the total consideration was used to repay the loan facility on 2 June 2023.

Post year end, the Group purchased 505,000 ordinary shares from the open market for a total consideration of £1.2m. These shares have been transferred to treasury following the purchases.

Post year end, the Group completed on a further five residential unit sales at Hudson Quarter for a total consideration of £2.2m.


26. FINANCIAL RISK MANAGEMENT

The Group's principal financial liabilities are loans. The Group has rent and other receivables, trade and other payables and cash and short-term deposits that arise directly from its operations. The Group is exposed to market risk (including interest rate risk and real estate risk), credit risk and liquidity risk.

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

The Group manages its capital structure, and makes adjustments to it, in the light of changes in economic conditions.

To maintain or adjust the capital structure, the Group may adjust the dividend payment to Shareholders, return capital to Shareholders
or issue new shares.

 

Capital risk management

The Group considers its capital to comprise its share capital, share premium, other reserves and retained earnings which amounted to £128,475,000 (2022: £177,204,000). The Group's capital management objectives are to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for Shareholders and benefits for other stakeholders and to provide an adequate return to Shareholders by pricing its services commensurately with the level of risk. Within the subsidiaries of the Group, the business has covenanted to maintain a specified leverage ratio and a net interest expense coverage ratio, all the terms of which have been adhered to during the year.

Market risk

Market risk arises from the Group's use of interest bearing, and tradable instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk) or other market factors.

Interest rate risk

The interest rate exposure profile of the Group's financial assets and liabilities as at 31 March 2023 and 31 March 2022 were:


Nil rate

assets and liabilities

£'000

Floating rate assets

£'000

Fixed rate liability

£'000

Floating rate

liability

£'000

 

Total

£'000

As at 31 March 2023






Trade and other receivables

2,891

-

-

-

2,891

Cash and cash equivalents

-

5,509

-

-

5,509

Trade and other payables

(4,333)

-

-

-

(4,333)

Bank borrowings

-

-

(8,558)

(55,116)

(63,674)

Lease liabilities

-

-

(1,209)

-

(1,209)


(1,442)

5,509

(9,767)

(55,116)

(60,816)

 


Nil rate assets

and liabilities

£'000

Floating rate assets

£'000

Fixed rate

liability

£'000

Floating rate

liability

£'000

 

Total

£'000

As at 31 March 2022






Trade and other receivables

2,666

-

-

-

2,666

Cash and cash equivalents

-

28,143

-

-

28,143

Trade and other payables

(4,377)

-

-

-

(4,377)

Interest rate swaps

-

-

(47)

-

(47)

Bank borrowings

-

-

(61,386)

(39,851)

(101,237)

Lease liabilities

-

-

(1,078)

-

(1,078)


(1,711)

28,143

(62,511)

(39,851)

(75,930)

  

The Group's interest rate risk arises from borrowings issued at floating interest rates. The Group's interest rate risk is reviewed throughout the year by the Directors. The Board monitor the appropriate use of interest rate swaps to align with strategy and the level of drawn debt, to mitigate the risk of an increase in interest rates but also to allow the Group to benefit from a fall in interest rates.  Interest rate swaps are used to mitigate the risk of an increase in interest rates but also to allow the Group to benefit from a fall in interest rates. 13% of the Group's interest rate exposure is fixed and the remainder held on a floating rate. The Group has employed an external adviser when contracting hedging to advise on the structure of the hedging.

The Group is exposed to changes in interest rates as a result of the cash balances that it holds. The cash balances of the Group at the year end were £5,509,000 (2022: £28,143,000). Interest receivable in the income statement would be affected by £55,000 (2022: £281,000) by a one percentage point change in floating interest rates on a full year basis.

The Group's borrowings with Lloyds, Barclays, NatWest, Scottish Widows and Santander UK have all transitioned from the London Interbank Offer Rate (LIBOR) benchmark to Sterling Overnight Index Average (SONIA) benchmark. There has been and is expected to be negligible cost involved in the borrowing facility transition and the respective hedge instrument amendments.

The Group has loans amounting to £55,116,000 (2022: £39,851,000) which have interest payable at rates linked to the SONIA interest rates or bank base rates. A 1% increase in the SONIA or base rate will have the effect of increasing interest payable by £551,000 (2022: £399,000).

The Group has interest rate swaps with a nominal value of £Nil (2022: £52,939,449). If the SONIA or base rate was to increase above the fixed contract rate then the Group will benefit from a fair value increase of the interest rate swap. If, however, the SONIA or base rate was to decrease, then the Group would incur a decrease in the fair value of the interest rate swap.

 

                                                                                                                                                  Change in interest rate

-1%

£'000

1%

£'000

(Decrease)/increase in fair value of interest rates swaps as at 31 March 2023

-

-

(Decrease)/increase in fair value of interest rates swaps as at 31 March 2022

(326)

321

 

The Directors regularly review the Group's position with regard to interest rates in order to minimise its risk.

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.

The Group has its cash held on deposit with four large banks in the United Kingdom. At 31 March 2023 the cash balances of the Group were £5,509,000 (2022: £28,143,000). The concentration of credit risk held with Barclays Bank plc, the largest of these banks, was £2,997,000 (2022: £20,281,000).

Credit risk also results from the possibility of a tenant in the Group's property portfolio defaulting on a lease. The largest tenant by contractual income amounts to 6.0% (2022: 5.7%) of the Group's anticipated income. The Directors assess a tenant's creditworthiness prior to granting leases and employ professional firms of property management consultants to manage the portfolio to ensure that tenants debts are collected promptly and the Directors in conjunction with the property managers take appropriate actions when payment is not made on time.

The carrying amount of financial assets (excluding cash balances) recorded in the financial statements, net of any allowances for losses, represents the Group's maximum exposure to credit risk without taking account of the value of any collateral obtained. The carrying amount of these assets at 31 March 2023 was £2,890,000 (2022: £2,666,000). The details of the provision for expected credit loss are shown in note 13.

Liquidity risk management

The Group's policy is to hold cash and obtain loan facilities at a level sufficient to ensure that the Group has available funds to meet its medium-term capital and funding obligations. The Group holds cash to enable the Group to manage its liquidity risk.

The Group monitors its risk to a shortage of funds using a monthly working capital model. This process considers the maturity of both the Group's financial investments and financial assets (e.g. accounts receivable, other financial assets) and projected cash flows
from operations.

The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of multiple sources of funding including bank loans, term loans, loan notes, overdrafts and lease liabilities.

The tables below summarise the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:


On demand

£'000

0-1 years

£'000

1-2 years

£'000

2-5 years

£'000

> 5 years

£'000

Total

£'000

As at 31 March 2023







Interest bearing loans

-

12,161

38,606

19,598

-

70,365

Lease liabilities

-

54

54

162

5,839

6,109

Trade and other payables

4,333

-

-

-

-

4,333


4,333

12,215

38,660

19,760

5,839

80,807


On demand

£'000

0-1 years

£'000

1-2 years

£'000

2-5 years

£'000

> 5 years

£'000

Total

£'000

 


On demand

£'000

0-1 years

£'000

1-2 years

£'000

2-5 years

£,000

> 5 years

£'000

Total

£'000

As at 31 March 2022







Interest bearing loans

-

35,044

3,409

70,257

-

108,710

Lease liabilities

-

54

54

162

5,894

6,164

Derivative financial instruments

-

-

(3)

50

-

47

Trade and other payables

4,377

-

-

-

-

4,377


4,377

35,098

3,460

70,469

5,894

119,298

 

Company Statement of Financial Position

as at 31 March 2023


Note

2023

£000

2022

£'000

Fixed assets




Investments in subsidiaries

2

104,730

122,864

Property, plant and equipment

4

22

43



104,752

122,907

Current assets




Trade and other receivables

5

30,155

42,576

Cash at bank and in hand


1,049

479



31,204

43,055

Total assets


135,956

165,962

Current liabilities




Creditors: amounts falling due within one year

6

(33,660)

(28,953)

Net current assets


(2,456)

14,102





Total assets less current liabilities


102,296

137,009

Equity




Called up share capital

7

4,639

4,639

Treasury shares


(7,343)

(717)

Merger reserve


3,503

3,503

Capital redemption reserve


340

340

Capital reduction reserve


118,477

125,019

Accumulated losses/retained earnings


(17,320)

4,225

Equity - attributable to the owners of the Parent


102,296

137,009

 

The Company's loss after tax for the year was £21,688,000 (2022: £1,706,000).

The financial statements were approved by the Board of Directors and authorised for issue on 14 June 2023 and are signed on its behalf by:


MATTHEW SIMPSON        

Chief Financial Officer   

                   

Company Statement of Changes in Equity

as at 31 March 2023


Share

Capital

£'000

Treasury

Share

Reserve

£'000

Other

Reserves

£'000

Capital Reduction Reserve

£'000

Retained

Earnings

£'000

Total

Equity

£'000

At 31 March 2021

4,639

(1,288)

3,843

125,019

11,677

143,890

Total comprehensive loss for the year

-

-

-

-

(1,706)

(1,706)

Transactions with Equity Holders







Share-based payments

-

-

-

-

162

162

Exercise of share options

-

571

-

-

(571)

-

Issue of deferred bonus share options

-

-

-

-

90

90

Dividends

-

-

-

-

(5,427)

(5,427)

At 31 March 2022

4,639

(717)

3,843

125,019

4,225

137,009

Total comprehensive loss for the year

-

-

-

-

(21,688)

(21,688)

Transactions with Equity Holders







Share-based payments

-

-

-

-

177

177

Exercise of share options

-

71

-

-

(71)

-

Issue of deferred bonus share options

-

-

-

-

37

37

Dividends

-

-

-

(6,542)

-

(6,542)

Share buyback

-

(6,697)

-

-

-

(6,697)

At 31 March 2023

4,639

(7,343)

3,843

118,477

(17,320)

102,296

 

Treasury shares represents the consideration paid for shares bought back on the open market.

Other reserves comprise the merger reserve and the capital redemption reserve.

The merger reserve represents the excess over nominal value of the fair value consideration for the acquisition of subsidiaries satisfied by the issue of shares in accordance with S612 of the Companies Act 2006.

The capital redemption reserve represents the nominal value of cancelled preference share capital redeemed.

The capital reduction reserve represents distributable profits generated as a result of the share premium reduction.

Notes to the Company Financial Statements

Accounting policies

Palace Capital plc is a company incorporated in England and Wales under the Companies Act. The address of the registered office is given on the contents page and the nature of the Group's operations and its principal activities are set out in the Strategic Report. The financial statements of the Company have been prepared in accordance with FRS 102, the Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland.

The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires Company's management to exercise judgement in applying the Company's accounting policies (as detailed below). The Statement of Financial Position heading relating to the Company's investments and property, plant and equipment is in accordance with the balance sheet formats of the Companies Act 2006. Assets are classified in accordance with the definitions of fixed and current assets in the Companies Act instead of the presentation requirements of IAS 1 Presentation of Financial Statements

Dividends revenue

Revenue is recognised when the Company's right to receive payment is established, which is generally when Shareholders of the paying company approve the payment of the dividend.

Valuation of investments

Investments in subsidiaries are measured at cost less accumulated impairment. Where merger relief is applicable, the cost of the investment in a subsidiary undertaking is measured at the nominal value of the shares issued together with the fair value of any additional consideration paid.

Listed equity investments

Listed equity investments have been classified as being at fair value through profit and loss. Listed equity investments are subsequently measured using Level 1 inputs, the quoted market price, and all fair value gains or losses in respect of those assets are recognised in the profit and loss.

Current taxation

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and the tax laws used to compute the amount are those that are enacted or substantively enacted, by the balance sheet date.

Deferred taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax balances are recognised in respect of timing differences that have originated but not reversed on the balance sheet date. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Deferred tax balances are not recognised in respect of permanent differences between the fair value of assets acquired and the future
tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in profit or loss, except when it relates to items charged or credited directly to other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

The Government announced a proposal in March 2021 for an increase in the corporation tax rate from 19% main rate in the tax year 2021 to 25% with effect from 1 April 2023. This was enacted by the Finance Act 2021 on 10 June 2021.

Trade and other receivables

Trade and other receivables and intercompany receivables are recognised and carried at the original transaction value. A provision for impairment is established where there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables concerned.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liabilities and equity

Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below:

Trade payables

Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the fair value of proceeds received, net of direct issue costs.

Parent company disclosure exemptions

In preparing the separate financial statements of the Parent Company, advantage has been taken of the following disclosure exemptions available in FRS 102:

•     no cash flow statement has been presented for the Parent Company;

•     disclosures in respect of the Parent Company's financial instruments have not been presented as equivalent disclosures have been provided in respect of the Group as a whole;

•     disclosures in respect of the Parent Company's share-based payment arrangements have not been presented as equivalent disclosures have been provided in respect of the Group as a whole; and

•     disclosure has been given for the aggregate remuneration of the key management personnel of the Parent Company as their remuneration is included in the totals for the Group as a whole.

Judgements in applying accounting policies and key sources of estimation uncertainty

 

Investments and loans to subsidiary undertakings (see note 3)

The most critical estimates, assumptions and judgements relate to the determination of carrying value of unlisted investments in the Company's subsidiary undertakings and the carrying value of the loans that the Company has made to them. The nature, facts and circumstance of the investment or loan are taken into account in assessing whether there are any indications of impairment.

Provisions provided in the year reflect the reduction in net asset value of subsidiaries for the year ended 31 March 2023. Write-down of investments reflect the winding up of subsidiaries within the year.


1. PROFIT FOR THE FINANCIAL PERIOD

The Company has taken advantage of section 408 of the Companies Act 2006 and consequently a profit and loss account for the Company alone has not been presented.


2. INVESTMENTS IN SUBSIDIARIES

Cost:

Investments

in subsidiaries

£'000

Loans

to subsidiaries

£'000

 

Total

£'000

At 1 April 2021

183,614

-

183,614

Write-down of investments

(2,658)

 -

(2,658)

At 1 April 2022

180,956

-

180,956

Write-down of investments

 -

 -

-

At 31 March 2023

180,956

-

180,956

Provision for impairment:




At 1 April 2021

58,047

-

58,047

Provided during the year

45

-

45

At 1 April 2022

58,092

-

58,092

Provided during the year

18,134

-

19,750

At 31 March 2023

76,226

-

77,842





Net book value at 31 March 2023

104,730

-

103,114

Net book value at 31 March 2022

122,864

-

122,864

 

 

The Group comprises a number of companies; all subsidiaries included within these financial statements are noted below:

Subsidiary undertaking:

Class of share held

% shareholding

Principal activity

Palace Capital (Leeds) Limited

Ordinary

100

Property Investments

Palace Capital (Northampton) Limited

Ordinary

100

Property Investments

Palace Capital (Properties) Limited

Ordinary

100

Property Investments

Palace Capital (Developments) Limited

Ordinary

100

Property Investments

Palace Capital (Halifax) Limited

Ordinary

100

Property Investments

Palace Capital (Manchester) Limited

Ordinary

100

Property Investments

Palace Capital (Liverpool) Limited

Ordinary

100

Property Investments

Palace Capital (Signal) Limited

Ordinary

100

Property Investments

Property Investment Holdings Limited

Ordinary

100

Property Investments

Palace Capital (Dartford) Limited

Ordinary

100

Property Management

Palace Capital (Newcastle) Limited

Ordinary

100

Property Investments

Palace Capital (York) Limited

Ordinary

100

Property Management

Associated Company:




HBP Services Limited*

Ordinary

21.4

Property Management

Clubcourt Limited*

Ordinary

40

Property Management

*     Held indirectly

The results of the associated companies are immaterial to the Group.

The registered addresses for the subsidiaries across the Group are consistent based on their country of incorporation and are as follows: Fora Victoria, 6-8 Greencoat Place, London SW1P 1PL


3. LISTED EQUITY INVESTMENTS


Total

£'000

At 31 March 2021

3,249

Disposal of listed equity investment

(3,249)

At 31 March 2022 and 31 March 2023

-

 

4. PROPERTY, PLANT AND EQUIPMENT


IT, fixtures and fittings £'000

At 31 March 2021

269

Additions

22

At 31 March 2022

291

Additions

8

At 31 March 2023

291

Depreciation


At 31 March 2021

201

Provided during the period

47

At 31 March 2022

248

Provided during the period

29

At 31 March 2023

277



Net book value at 31 March 2023

22

Net book value at 31 March 2022

43

 

5. TRADE AND OTHER RECEIVABLES


2023

£,000

2022

£'000

Amounts owed by subsidiary undertakings

28,034

36,374

Trade debtors

1,703

5,607

Other debtors

47

44

Accrued interest on amounts owed by subsidiary undertakings

309

309

Prepayments

62

242


30,155

42,576

 

Trade debtors represent amounts owed from subsidiary undertakings in relation to management charges.

All amounts that fall due for repayment within one year and are presented within current assets as required by the Companies Act. The amounts owed by subsidiary undertakings are repayable on demand with no fixed repayment date, although it is noted that a significant proportion of the amounts may not be sought for repayment within one year depending on activity in the subsidiary undertakings.

A loan amounting to £14,023,501 remains outstanding at 31 March 2023 (2022: £28,888,501) from Palace Capital (Developments) Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £153,534 remains outstanding at 31 March 2023 (2022: £519,534) from Palace Capital (Leeds) Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £1,079,417 remains outstanding at 31 March 2023 (2022: £2,781,417) from Palace Capital (Halifax) Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £1,645,430 remains outstanding at 31 March 2023 (2022: £4,034,646) from Palace Capital (Properties) Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £4,945,582 remains outstanding at 31 March 2023 (2022: £150,000) from Palace Capital (Northampton) Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £3,084,996 remains outstanding at 31 March 2023 (2022: £Nil) from Palace Capital (Manchester) Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £3,101,452 remains outstanding at 31 March 2023 (2022: £Nil) from Palace Capital (Newcastle) Limited. No interest is charged on this loan. This loan is repayable on demand.

 

6. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR


2023

£,000

2022

£'000

Trade creditors

124

168

Amount owed to subsidiary undertaking

32,143

27,528

Other taxes

268

278

Other creditors

15

5

Accruals and deferred income

1,110

974


33,660

28,953

 

A loan amounting to £19,264,032 remains outstanding at 31 March 2023 (2022 £10,113,143) to Palace Capital (Signal) Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £10,612,686 remains outstanding at 31 March 2023 (2022: £16,314,718) to Property Investment Holdings Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £2,146,000 remains outstanding at 31 March 2023 (2022: £1,100,000) to Palace Capital (Liverpool) Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £120,000 remains outstanding at 31 March 2023 (2022: £Nil) to Palace Capital (York) Limited. No interest is charged on this loan. This loan is repayable on demand.


7. SHARE CAPITAL

The details of the Company's share capital are provided in note 21 of the notes to the Consolidated Financial Statements.


8. LEASES

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


2023

£'000

2022

£'000

Within one year

134

19


134

19

 

9. POST BALANCE SHEET EVENTS

Post year end, the Company purchased 505,000 ordinary shares from the open market for a total consideration of £1.2m. These shares have been transferred to treasury following the purchases.

 

Officers and Professional Advisors

Directors

Steven Owen                        Interim Executive Chairman

Matthew Simpson                 Chief Financial Officer

Mark Davies                          Independent Non-Executive Director

 

Secretary

Phil Higgins

Registered office

Fora Victoria

6-8 Greencoat Place

London

SW1P 1PL

 

Registered number

05332938 (England and Wales)

Auditor

BDO LLP

55 Baker Street
London
W1U 7EU

Registrar

Link Group

10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL

Broker

Numis Securities Limited

45 Gresham Street
London
EC2V 7BF

Glossary

Adjusted EPS: Is adjusted profit before tax less corporation tax charge on recurring earnings (excluding deferred tax movements) divided by the average basic number of shares in the period.

Adjusted profit before tax: Is the IFRS profit before taxation excluding investment property revaluations, gains/losses on disposals, acquisition costs, fair value movement in derivatives, share-based payments and exceptional items.

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

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

Building Research Establishment Environmental Assessment Methodology (BREEAM) rating: A set of assessment methods and tools designed to help construction professionals understand and mitigate the environmental impacts of the developments they design and build. Performance is measured across a series of ratings: Good, Very Good, Excellent and Outstanding.

Dividend cover: Is the Adjusted profit before tax plus trading profit divided by dividends paid in the period, expressed as a percentage.

Employee Benefit Trust (EBT): the Employee Benefit Trust, administrator of the Company's share plans. 

Expected credit loss (ECL): In accordance with IFRS 9, the risk of recoverability of our rental arrears are assessed. This is done using a probability weighted estimate of credit losses, being the difference between the cash flows that are due in accordance with the contract and the cash flows that the Group expects to receive. This replaced the previous bad debt provision.

EPRA: Is the European Public Real Estate Association.

EPRA cost ratio (including direct vacancy costs): Is a proportionally consolidated measure of the ratio of net overheads and operating expenses against gross rental income (with both amounts excluding ground rents payable). Net overheads and operating expenses relate to all administrative and operating expenses, net of any service fees, recharges or other income specifically intended to cover overhead and property expenses.

EPRA cost ratio (excluding direct vacancy costs): Is the ratio calculated above, but with direct vacancy costs removed from the net overheads and operating expenses balance.

EPRA diluted EPS: Is EPRA earnings divided by the average diluted number of shares in the period.

EPRA earnings: Is the IFRS profit after taxation excluding investment property revaluations, gains/losses on disposals and changes in fair value of financial derivatives.

EPRA EPS: Is EPRA earnings divided by the average basic number of shares in the period.

EPRA net assets (EPRA NAV): Are the balance sheet net assets according to the definitions of the various NAV measures defined in the EPRA Best Practice Recommendations that came into effect for accounting periods starting 1 January 2020.

EPRA net tangible assets (EPRA NTA): Is the NAV adjusted to reflect the fair value of trading properties and to exclude deferred taxation and derivatives.

EPRA NTA per share: Is EPRA NTA divided by the diluted number of shares at the period end.

EPRA occupancy rate: Is the ERV of occupied space divided by ERV of the whole portfolio, excluding developments and residential property.

EPRA topped-up net initial yield: Is the current annualised rent, net of costs, topped up for contracted uplifts, where these are not in lieu of rental growth, expressed as a percentage of capital value.

EPRA vacancy rate: Is the ERV of vacant space divided by ERV of the whole portfolio, excluding developments and residential property.

Equivalent yield: Is the net weighted average return a property will produce based upon the timing of the income received. In accordance with usual practice, the equivalent yields (as determined by the external valuers) assume rent received annually in arrears.

Estimated rental value (ERV): Is the external valuers' opinion as to the open market rent which, on the date of valuation, could reasonably be expected to be obtained on a new letting or rent review of a property.

IAS/IFRS: Is the International Financial Reporting Standards issued by the International Accounting Standards Board and adopted by the UK.

Interest cover ratio (ICR): Is the number of times net interest payable is covered by underlying profit before net interest payable and taxation.

Investment Property Databank (IPD): A wholly-owned subsidiary of MSCI producing an independent benchmark of property returns and the Group's portfolio returns.

Key Performance Indicators (KPIs): Are the most critical metrics that measure the success of specific activities used to meet business goals - measured against a specific target or benchmark, adding context to each activity being measured.

Like-for-like net rental income: Is the change in net rental income on properties owned throughout the current and previous periods under review. This growth rate includes revenue recognition and lease accounting adjustments but excludes properties held for development in either period, properties with guaranteed rent reviews, asset management determinations and surrender premiums.

Like-for-like valuation: Is the change in the fair value of properties owned throughout the entire year.

This excludes properties acquired during the year and disposed of during the year, but includes capital expenditure spent on the properties.

Loan to value (LTV): Is the ratio of principal value of gross debt less cash, short-term deposits and liquid investments to the aggregate fair value of properties and investments.

MSCI Inc. (MSCI IPD): Is a company that produces independent benchmarks of property returns. The Group measures its performance against both the Central London Offices Index and the UK All Property Index.

Net asset value (NAV) per share: Is the equity attributable to owners of the Group divided by the number of ordinary shares in issue at the period end.

Net initial yield (NIY): Is the current annualised rent, net of costs, expressed as a percentage of capital value, after adding notional purchaser's costs.

Net rental income: Is the rental income receivable in the period after payment of net property outgoings. Net rental income will differ from annualised net rents and passing rent due to the effects of income from rent reviews, net property outgoings and accounting adjustments for fixed and minimum contracted rent reviews and lease incentives.

Net reversionary yield (NRY): Is the anticipated yield, which the initial yield will rise to once the rent reaches the estimated rental value.

Passing rent: Is the gross rent, less any ground rent payable under head leases.

Peer Group: A selection of small/medium sized property companies within the listed real estate sector with a diversified portfolio.

Property Portfolio: the total fair value of all investment properties and trading properties as determined by the independent valuer, CBRE.

Portfolio Valuation: The value of the Company's property portfolio, including all investment and trading properties as valued by our independent valuer, CBRE.

Property Income Distribution (PID): A dividend received by a Shareholder of the principal company in respect of profits and gains of the Property Rental Business of the UK resident members of the REIT Group or in respect of the profits or gains of a non-UK resident member of the REIT Group.

Real Estate Investment Trust (REIT): A UK Real Estate Investment Trust must be a company listed on a recognised stock exchange with at least three-quarters of its profits and assets derived from a qualifying property rental business. Income and capital gains from the property rental business are exempt from tax but the REIT is required to distribute at least 90% of those profits to Shareholders. Tax is payable on profits from non-qualifying activities of the residual business.

SONIA: Is the Sterling Overnight Index Average, the interest rate charged by one bank to another for lending money.

Special Purpose Vehicle (SPV): Is a separate legal entity created by an organisation. The SPV is a distinct company with its own assets and liabilities, as well as its own legal status. Usually, they are created for a specific objective, often which is to isolate financial risk. As it is a separate legal entity, if the Parent Company goes bankrupt, the special purpose vehicle can carry its obligations.

Tenant (or lease) incentives: Are any incentives offered to occupiers to enter into a lease. Typically the incentive will be an initial rent free period, or a cash contribution to fit-out or similar costs. Under accounting rules the value of lease incentives given to tenants is amortised through the Income Statement on a straight-line basis to the lease expiry.

Total Accounting Return (TAR): Is the increase or decrease in EPRA NAV per share plus dividends paid in the year, and this can be expressed as a percentage of EPRA NAV per share at the beginning of the period.

Total Expense Ratio: Is calculated as total administrative costs for the year divided by total asset value in the year.

Total Property Return (TPR): Total property return is a performance measure calculated by the MSCI IPD and defined in the MSCI Global Methodology Standards for Real Estate Investment as "the percentage value change plus net income accrual, relative to the capital employed".

Total Shareholder Return (TSR): Is calculated as the movement in the share price for the period plus dividends paid in the year, divided by opening share price

Weighted average debt maturity: Is measured in years when each tranche of Group debt is multiplied by the remaining period to its maturity and the result is divided by total Group debt in issue at the period end.

Weighted average interest rate: Is the loan interest per annum at the period end, divided by total debt in issue at the period end.

Weighted average unexpired lease term (WAULT): Is the average lease term remaining to first break, or expiry, across the portfolio weighted by rental income. This is also disclosed assuming all break clauses are exercised at the earliest date, as stated.

WiredScore: Wired Certification is a commercial real estate rating system that empowers landlords to understand, improve, and promote their buildings' digital infrastructure. Connectivity is measured across a series of ratings: Platinum, Gold, Silver and Certified.

 

 

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