TIDMPCA
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 GBP15.6 million, which was 8%
ahead of the 31 March 2022 book value, together with GBP10.1
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 GBP43.4 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 GBP37.5
million to GBP64.3 million (net debt GBP58.8 million) and by 31
July 2023 gross and net debt is expected to be c.GBP34 million and
c.GBP20 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 GBP7.9 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 Year ended Change
31 March 31 March
2023 2022
Net rental income GBP15.6m GBP15.2m +2.6%
----------- ----------- --------
Adjusted profit before tax GBP7.6m GBP7.8m -2.6%
----------- ----------- --------
Adjusted earnings per share 17.1p 16.9p +1.2%
----------- ----------- --------
IFRS (loss)/profit before tax (GBP35.8m) GBP24.6m
----------- ----------- --------
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 GBP128.5m GBP177.2m -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 GBP64.3m GBP101.8m -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 GBP7.6
million (2022: GBP7.8 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 GBP35.8 million (2022: GBP24.6
million profit), due primarily to the portfolio revaluation deficit
of GBP42.9 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 GBP37.5 million to GBP64.3 million (net debt
GBP58.8 million) and by 31 July 2023 gross and net debt is expected
to be cGBP34 million and c.GBP20 million respectively equating to
proforma LTV of c.13%.
-- Annualised administration cost savings of GBP1.4 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 GBP6.7 million. Since 1 April 2023, a
further 0.5 million shares have been purchased for GBP1.2 million.
Total cash returned to shareholders from the buyback programmes to
date is GBP7.9 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 GBP2.5m (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
GBP15.6 million, 8% ahead of the 31 March 2022 book value.
-- Sale of 23 apartments at Hudson Quarter, York for GBP10.1 million.
-- Post 31 March 2023, exchanged contracts or completed the
sales of nine investment properties totalling GBP43.4 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 GBP2.2 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 GBP1.1 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 Year ended
31 March 31 March
2023 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
GBP34.0 million at a NIY of 6.2%, 3.0% ahead of 31 March 2023 book
value of GBP33.0 million as well as exchange of contracts for the
sale of an Aldi supermarket, in Gosport, for GBP5.6 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 GBP1.5 million, 87.5% ahead of the March 2023 book value of
GBP0.8 million. The Company has also exchanged contracts for the
sale of Princeton House, Farnborough for GBP2.3 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 GBP10.1 million. A further five apartment
sales have completed for GBP2.2 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 GBP54.5 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
GBP1.4 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 GBP7.9
million.
Overview of results
The Group's adjusted profit before tax decreased slightly to
GBP7.6 million (2022: GBP7.8 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 GBP0.5 million (2022:
GBP3.8 million) whilst profits from investment property sales
contributed GBP0.8 million (2022: GBP5.0 million).
The deficit on the revaluation of the portfolio for the year of
GBP42.9 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 GBP1.8 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 GBP35.8 million (2022: GBP24.6 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 GBP37.5 million reduction in gross debt during the
year to GBP64.3 million. Cash reserves were GBP5.5 million
resulting in net debt of GBP58.8 million. Post period end and on
completion of the disposal of currently contracted sales proforma
gross and net debt is expected to be c.GBP34 million and c.GBP20
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 GBP15.6 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 GBP2.2 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 GBP1.1
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 GBP0.8 million of additional annualised income.
-- 15 lease renewals, 8% above of ERV generating GBP0.1 million
of additional annualised income.
-- 16 rent reviews, 12% above of ERV generating GBP0.2m of additional annualised income.
In addition, void savings from new lettings was GBP0.3 million
resulting in a total of GBP1.4 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 GBP85,000pa (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 GBP47,081pa, 15% above
the March 2022 ERV.
-- 10 year lease at Verwood of two units at a rent of
GBP68,600pa equivalent to GBP8.75psf which sets a new rental tone
for the estate.
-- three lettings at Museum Street, York for a combined rent of
GBP97,900 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 GBP124,572pa, 8% above ERV.
-- Sutton, 5 years at GBP282,500pa, in line with ERV.
-- Verwood, to the key anchor tenant Global Filters for a
10-year term at GBP130,290pa, 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
GBP333,850pa, 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
GBP192.4 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 GBP192.4m GBP259.0m
-------------------------- --------- ---------
Net initial yield 7.4% 5.6%
-------------------------- --------- ---------
Reversionary yield 9.6% 7.5%
-------------------------- --------- ---------
Contractual rental income GBP15.7m GBP16.7m
-------------------------- --------- ---------
Estimated rental value GBP18.8m GBP19.4m
-------------------------- --------- ---------
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
GBP15.6 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
GBP34.0 million at a NIY of 6.2%, 3.0% ahead of 31 March 2023 book
value of GBP33.0 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
GBP5.6 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 GBP1.5 million,
87.5% ahead of the March 2023 book value of GBP0.8 million. The
Company has also exchanged contracts for the sale of Princeton
House, Farnborough for GBP2.3 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
GBP10.1 million, bringing the total residential and investment
property sales for the year to GBP25.7 million.
Post 31 March 2023, total residential and investment sales
exchanged or completed currently stand at GBP45.6 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 GBP54.5 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
GBP7.6 million (2022: GBP7.8 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 GBP1.4 million of annualised
cost savings made in the year.
The decrease in adjusted profit before tax to GBP7.6 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
GBP6.7 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 GBP0.8 million (2022: GBP5.0 million) profit on disposal of
eight investment properties, the GBP0.5 million realised profit on
the sale of 23 residential units at Hudson Quarter and the fair
value commercial property valuation deficit of GBP42.9 million
(2022: GBP8.2 million surplus), contributed to the IFRS loss before
tax of GBP35.8 million (2022: GBP24.6 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 (GBP35.8m) GBP24.6m
Adjusted profit before tax GBP7.6m GBP7.8m
EPRA earnings GBP5.7m GBP7.4m
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 GBP128.5m GBP177.2m
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 31 March
2023 2022
GBPm GBPm
-------- --------
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 GBP15.6
million (2022 GBP15.2 million). Despite the loss of income from
disposals since 31 March 2022 of GBP1.4 million, net rental income
increased as a result of successful asset management initiatives.
Property operating expenses remained stable at GBP2.6 million
(2022: GBP2.6 million).
The Group has implemented measures to reduce its cost base, with
annualised cost savings of GBP1.4 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
GBP1.4 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 GBP0.3 million to
GBP4.1 million (2022: GBP4.4 million) in the period.
Non-recurring administration expenses in the period include
GBP1.8 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 GBP0.9 million to GBP3.9 million
(2022: GBP3.0 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 GBP0.3 million of rental arrears from trade
receivables to the income statement in the financial period. This
included a reversal of the GBP0.1 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 Quarter Quarter Quarter Year ended
starting starting starting starting 31 Mar
Mar 22 Jun 22 Sep 22 Dec 22 23
GBPm GBPm GBPm GBPm GBPm
------------------------- --------- --------- --------- --------- ----------
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 GBP42.9 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 GBP6.7
million, increasing EPRA NTA by 8.0 pence per share, the profit on
disposal of assets and Hudson Quarter trading profit of GBP1.3
million, contributing 2.9 pence per share. These were offset by the
fair value, downward adjustment of trading properties (HQ York
residential) of GBP2.5 million, or 5.5 pence per share and the
payments including associated costs to former Directors of GBP1.8
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
GBPm No. of shares Pence
(diluted) 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
GBP64.3 million (2022: GBP101.8 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
GBP5.5 million (2022: GBP28.1 million). As at 12 June 2023, the
cash balance was GBP9.6 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 GBP58.8 million
(2022: GBP73.6 million). The loan to value (LTV) ratio remained
conservative at 31% (2022: 28%), despite the GBP42.9 million
revaluation deficit on investment properties and the GBP6.7 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 GBP24.9 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 GBP39.4 million as at 12 June
2023 and our net debt to GBP29.8 million. The combination of the
disposals and GBP1.2 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.GBP34 million and c.GBP20
million equating to proforma LTV of c.13%.
Set out below is a table showing the movement in gross debt
during the year:
GBPm
--------------------------------- ------
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
GBP8.6 million of fixed debt (2022: GBP61.4 million), which was 13%
of overall debt (2022: 60%), as shown in the table below:
DEBT
Years
Fixed Floating Total drawn to
GBPm GBPm GBPm 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 31 March
2023 2022
---------------------------- -------- ---------
Net loan to value ratio 31% 28%
Debt drawn GBP64.3m GBP101.8m
Total fixed debt GBP8.6m GBP61.4m
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:
o Disposal of investment properties
o Residential sales
o Higher levels of inflation and rising interest rates
o Ability to satisfy bank covenants
o Committed capital expenditure
o 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 GBP5.5 million of cash and cash equivalents. The fair
value of our property portfolio at 31 March 2023 was GBP192.4
million with net assets of GBP128.5 million. During the year, the
Group repaid GBP37.5 million of debt, funded by investment property
and Hudson Quarter sales, with drawn debt at 31 March 2023 of
GBP64.3 million (31 March 2022: GBP101.8 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 GBP43.4
million and five Hudson Quarter residential units sold for GBP2.2
million. As at 12 June 2023, the Group had cash of GBP9.6 million
and gross debt and LTV of GBP39.4 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 02 03
MARKET CYCLE ECONOMIC AND POLITICAL CAPITAL STRUCTURE
Risk description Risk description Risk description
Failure to react appropriately Uncertainty in the UK An inappropriate level
to changing market conditions economic landscape, global of gearing or failure
and adapt our corporate supply chain issues, inflation to comply with debt covenants
strategy could negatively and interest rates, cost or manage re-financing
impact shareholder returns. of energy crisis brings events could put pressure
A downturn in the market risks to the property on cash resources and
could reduce the appetite market, supply chains lead to a funding shortfall
in the investment market, and to occupiers' businesses. for operational activities.
leading to lower valuations This can significantly
and affecting our disposal impact market sentiment
strategy and ability to and our ability to extract
return capital to shareholders. value from our properties
resulting in lower shareholder
returns, reduced liquidity
and increased occupier
failure
Mitigation Mitigation Mitigation
The Board monitors market The Board monitors the The Board regularly reviews
indicators and reviews political and economic its capital risk management
the Group's strategy and conditions and emerging policy, gearing strategy
business objectives on policy and any uncertainty and debt maturity profile.
a regular basis. It will when setting strategy. The Group's LTV limit
tailor the delivery of Sensitivity modelling is 35%, and capital has
the Company's strategy is undertaken against been used to repay debt
in light of current and a downturn in economic to reduce exposure to
forecast market conditions. outlook to test the robustness interest rate volatility
Disposal of other assets of our financial position and ensure debt compliance.
will continue if the market and have regard to economic Management maintains a
conditions allow for value and property industry close relationship with
to be achieved, whilst research when making significant key lenders.
active asset management decisions.
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.
Current position Current position Current position
The Board is monitoring Our plans reflect current The Group's weighted average
and considering the longer trading conditions and debt maturity is currently
term impacts of the cycle future economic headwinds c2.0 years. The Groups
including the potential facing the country which LTV limit is 35%. We continue
future of the office and can impact on bank debt to monitor whether the
the effects of the enhanced covenants and costs. We use of derivatives to
ESG requirements. use consultants and experts mitigate against interest
so we can anticipate key rate rises are appropriate.
planning and development
policies and consider
how these may impact our
activities.
Likelihood after mitigation Likelihood after mitigation Likelihood after mitigation
Score 1 (low) - 10 (high) Score 1 (low) - 10 (high) Score 1 (low) - 10 (high)
7 8 5
Impact after mitigation Impact after mitigation Impact after mitigation
Score 1 (low) - 10 (high) Score 1 (low) - 10 (high) Score 1 (low) - 10 (high)
8 7 5
Overall Risk Rating Overall Risk Rating Overall Risk Rating
Score 1 (low) - 20 (high) Score 1 (low) - 20 (high) Score 1 (low) - 20 (high)
15 15 10
04 05 06
LIQUIDITY PORTFOLIO STRATEGY ASSET MANAGEMENT
Risk description Risk description Risk description
Increasing costs of An inappropriate investment Failure to implement
borrowing and increasing strategy that is not asset business plans
interest rates could aligned to overall corporate and elevated risks associated
affect the Group's ability purpose objectives, with major development
to borrow or reduce economic conditions, or refurbishment could
its ability to repay or tenant demand may lead to longer void
its debts. Increasing result in lower investment periods, higher arrears
inflation is causing returns and overall investment
interest rates to increase, performance, adversely
which can reduce the impacting returns and
cash position of the cashflows.
Company and its ability
to fund working capital.
It can have a material
impact on profitability
and dividend cover.
Mitigation Mitigation Mitigation
Undrawn bank facilities The Board regularly The process for reviewing
are in place to ensure reviews the Group's asset business plans
sufficient funds are investment strategy is embedded in the annual
available to cover potential and asset allocation budget process. The
liabilities arising to ensure this is aligned Group's Capital Risk
against projected cashflows. to the overall corporate Management Policy limits
The Board reviews financial strategy. development expenditure
forecasts on a regular to <25% of Gross Asset
basis, including sensitivity Value and the core portfolio
against financial covenants. generates sustainable
The Audit and Risk Committee cash flows. Our experienced
considers the going management team and
concern status of the use of advisors and
Group biannually. The property managers supports
Board considers the the execution of asset
allocation of its capital management strategies.
in granular detail to Our active management
ensure the most efficient approach and new investment
use. Sales of assets system improves security
can be used to repay of income and limits
debt, fund working capital exposure to voids.
requirements or return
to shareholders.
Current position Current position Current position
The Company has repaid No single asset comprises Our refurbishment pipeline
GBP37.5 million of bank more than 15% compared is continuously assessed
debt in the year to to the overall portfolio's to ensure the right
31 March 2023. value. The Company is projects are being brought
selectively marketing forward at appropriate
certain assets, as the times ensuring exposure
market stabilisation at any one time is limited.
and recovery continues. The Executive Committee
Asset management initiatives is reviewing the Group's
utilised to maximise Health and Safety systems
value. Appraisals for and processes to ensure
improving properties appropriate oversight
e.g. via refurbishment of assets.
are ongoing for certain
assets.
Likelihood after mitigation Likelihood after mitigation Likelihood after mitigation
Score 1 (low) - 10 Score 1 (low) - 10 Score 1 (low) - 10
(high) (high) (high)
5 4 4
Impact after mitigation Impact after mitigation Impact after mitigation
Score 1 (low) - 10 Score 1 (low) - 10 Score 1 (low) - 10
(high) (high) (high)
7 6 4
Overall Risk Rating Overall Risk Rating Overall Risk Rating
Score 1 (low) - 20 Score 1 (low) - 20 Score 1 (low) - 20
(high) (high) (high)
12 10 8
PORTFOLIO RISKS OPERATIONAL RISKS
08 09
07 TENANT DEMAND BUSINESS CONTINUITY
VALUATION AND DEFAULT AND CYBER SECURITY
Risk description Risk description Risk description
Decreasing capital and Failure to adapt to Business disruption
rental values could changing occupier demands as a result of physical
impact the Group's portfolio and/or poor tenant covenants damage to buildings,
valuation leading to may result in us losing Government policy and
lower returns. Higher significant tenants, measures implemented
cost of debt can lead which could materially in response to pandemics,
to property yields to impact income, capital cyber attacks or other
be pushed out and valuations values and profit. Rising operational or IT failures
to fall as a result. inflation, interest or unforeseen events
Increasing gilt yields, rates and living costs may impact income and
can leave property investment could impact tenant profits.
less attractive unless businesses, such as
the desired return can the leisure industry,
be achieved. as demand falls for
discretionary spending.
Mitigation Mitigation Mitigation
Independent valuations The Board regularly Our governance structure
are undertaken for all reviews the portfolio's and internal control
assets at the half year overall tenant profile systems ensure sufficient
and year end. These and sector diversification. Board oversight, with
are reviewed by management Tenant diversification delegated responsibilities,
and the Board. Members is high with no tenant segregation of duties
of the Audit and Risk making up more than and clear authorisation
Committee meet with 10% of total rental processes. A comprehensive
the valuers at least income. Management maintain programme of insurance
once a year to discuss close relationships is in place which covers
valuations and the valuation with tenants understanding buildings, loss of rent,
process. Management their needs and supporting cyber risks, Directors'
actively review leases, them throughout their and Officers liability
tenant covenants and business cycle. Managing and public liability.
asset management initiatives agents support rent Antivirus software and
to grow capital and collection and collection firewalls protect IT
rental values. of arrears on a regular systems and data is
basis. Tenant due diligence regularly backed up.
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.
Current position Current position Current position
Valuations of the portfolio Rent collection rates The Board continues
reflect the commercial remain robust at 99%. to review the internal
property market in general. The team are closely control environment
The team continue to monitoring tenant covenants and ensure good governance
work to mitigate against in high risk sectors, practices are adopted
falls in value through ensuring we are aware throughout the business.
active asset management of any tenant distress Cyber security arrangements
including ESG improvements. which can impact the have been kept under
rental collection. regular review to ensure
we are deploying the
most up to date technologies.
Likelihood after mitigation Likelihood after mitigation Likelihood after mitigation
Score Score Score
1 (low) - 10 (high) 1 (low) - 10 (high) 1 (low) - 10 (high)
7 4 2
Impact after mitigation Impact after mitigation Impact after mitigation
Score 1 (low) - 10 Score 1 (low) - 10 Score 1 (low) - 10
(high) (high) (high)
8 7 2
Overall Risk Rating Overall Risk Rating Overall Risk Rating
Score 1 (low) - 20 Score 1 (low) - 20 Score 1 (low) - 20
(high) (high) (high)
15 11 4
ENVIRONMENTAL, SOCIAL AND GOVERNANCE RISKS
10 11 12
PEOPLE CLIMATE CHANGE REGULATORY AND TAX
Risk description Risk description Risk description
An inability to attract Failure to anticipate Non-compliance with
or retain staff with and prepare for transition the legal and regulatory
the right skills and and physical risks associated requirements of a public
experience or failure with climate change real estate company,
to implement appropriate including increasing including the REIT regime
succession plans may policy and compliance could result in convictions
result in significant risks associated with or fines and negatively
underperformance or existing and emerging impact reputation.
impact the overall effectiveness environmental legislation
of our operations. Health could lead to increased
and Safety of staff costs and the Group's
and others including assets becoming obsolete
tenants both physically or unable to attract
and mentally and providing occupiers.
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.
Mitigation Mitigation Mitigation
We engage with staff The Group's ESG Committee The Company employs
regularly and encourage oversees the execution experienced staff and
a positive working environment. of ESG related matters external advisers to
We maintain an attractive and ensures these are provide guidance on
reward and benefits integrated into our key regulatory, accounting
package and undertake business model and corporate and tax issues. Compliance
regular performance strategy. Climate related with the REIT regime
reviews for each employee. risks are considered is regularly monitored
The Workforce Advisory as part of our overall by the Board and the
Panel provides a forum corporate risk assessment Executive team consider
that allows direct feedback and ongoing environmental the impact on the regime
to the Board on employee management of our buildings. as part of their decision
related matters. Insurance making.
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.
Current position Current position Current position
A competitive employment There has been an increased Emerging corporate governance
market and inflationary focus on environmental and audit reforms, require
pressures are driving management and management additional processes
increased pay and benefits have focused on asset and procedures to be
to ensure attraction management initiatives put in place and additional
and retention of individuals to increase the EPC reporting on the company's
with the skills, knowledge ratings of our assets, resilience. The Board
and experience required increasing the marketability is overseeing these
to implement the strategy. of the assets in a cost changes.
The Group's headcount effective way.
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.
Likelihood after mitigation Likelihood after mitigation Likelihood after mitigation
Score Score Score
1 (low) - 10 (high) 1 (low) - 10 (high) 1 (low) - 10 (high)
5 5 4
Impact after mitigation Impact after mitigation Impact after mitigation
Score 1 (low) - 10 Score 1 (low) - 10 Score 1 (low) - 10
(high) (high) (high)
7 5 2
Overall Risk Rating Overall Risk Rating Overall Risk Rating
Score 1 (low) - 20 Score 1 (low) - 20 Score 1 (low) - 20
(high) (high) (high)
12 10 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
2023 2022
Note GBP'000 GBP'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
2023 2022
Note GBP'000 GBP'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
Treasury Capital
Share Share Other Reduction Retained Total
Capital Reserve Reserves Reserve Earnings Equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
2023 2022
Note GBP'000 GBP'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 GBP5.5m of unrestricted cash
and cash equivalents, a conservative LTV of 31% and a property
portfolio with a fair value of GBP192.4m. 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.
2023 2022
Revenue - type GBP'000 GBP'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 2022
GBP'000 GBP'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 2022
GBP'000 GBP'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 2022
GBP'000 GBP'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 2022
GBP'000 GBP'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 2022
GBP'000 GBP'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 2022
GBP'000 GBP'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 2022
Number 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 2022
GBP'000 GBP'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 2022
GBP'000 GBP'000
-------------------------- -------- --------
Current income tax charge - 152
Deferred tax (67) (85)
-------------------------- -------- --------
Tax (credit)/charge (67) 67
-------------------------- -------- --------
2023 2022
GBP'000 GBP'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 2022
GBP'000 GBP'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 2022
GBP'000 GBP'000
----------------------------------------------- -------- --------
Investment property unrealised valuation gains (76) (143)
----------------------------------------------- -------- --------
Deferred tax liability - carried forward (76) (143)
----------------------------------------------- -------- --------
The deferred tax liability of GBP76,000 relates to investment
properties transferred into trading stock, prior to the Group
becoming a REIT. As at 31 March 2023 the Group had approximately
GBP5,915,000 (2022: GBP5,915,000) 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 2022
GBP'000 GBP'000
-------------------------------------------------------------- -------- --------
(Loss)/profit after tax attributable to ordinary Shareholders
for the year (35,704) 24,548
-------------------------------------------------------------- -------- --------
2023
No. of 2022
shares 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 2022
GBP'000 GBP'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 EPRA NRV ERPA NDV
GBP'000 GBP'000 GBP'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 EPRA NRV EPRA NDV
GBP'000 GBP'000 GBP'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 2022
No of shares 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. DIVIDS
Dividend 2023 2022
Payment date per share GBP'000 GBP'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 2022
GBP'000 GBP'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 Leasehold Total
investment investment investment
properties properties properties
GBP'000 GBP'000 GBP'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
investment properties Total investment Trading Total property
properties under construction properties properties portfolio
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP819,000 (2022
GBP4,946,000) 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:
GBP51,674).
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 2022
GBP'000 GBP'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.
Significant unobservable
inputs
--------------------------------- ---------- ----------
31 March 2023 Office Industrial 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.
Significant unobservable
inputs
--------------------------------- -------------- -------------
31 March 2022 Office Industrial Leisure Other Total
--------------------------------- -------------- ------------- ------------- ------------- --------------
Fair value of property portfolio GBP122,125,000 GBP43,345,000 GBP36,990,000 GBP56,580,000 GBP259,040,000
Area (sq ft) 633,591 345,586 303,993 169,762 1,452,932
Gross Estimated Rental Value GBP10,952,762 GBP2,608,500 GBP3,270,645 GBP2,586,276 GBP19,418,183
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: GBP81,443 to
GBP1,971,755 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.
Impact on fair value Impact on fair value
measurement of significant measurement of significant
Unobservable input increase in input decrease in input
---------------------- --------------------------- ---------------------------
Gross Estimated Rental
Value Increase Decrease
Net Initial Yield Decrease Increase
Reversionary Yield Decrease Increase
Equivalent Yield Decrease Increase
---------------------- --------------------------- ---------------------------
+0.25% in -0.25% in
net net
-5% in passing +5% in passing initial yield initial yield
rent (GBPm) rent (GBPm) (GBPm) (GBPm)
-------------------------------- -------------- -------------- -------------- --------------
(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
GBP'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
GBP'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 Right of
and fittings use asset
GBP'000 GBP'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 2022
GBP'000 GBP'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 GBP5,143,000 (2022: GBP3,926,000)
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:
More than More than More than
30 days 60 days 90 days
Current past due past due past due Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP207,769.
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:
More than More than More than
30 days 60 days 90 days
Current past due past due past due Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 2022
GBP'000 GBP'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 2022
GBP'000 GBP'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 2022
GBP'000 GBP'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
GBP3,368,00 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.
2023 2022
Notional Expiry Contract Valuation Fair value Fair value
Bank principal date rate % rate % GBP'000 GBP'000
------------------ ---------- ------ -------- --------- ----------- -----------
Barclays Bank plc - - 1.3420 - - 3
Santander plc - - 1.3730 - - (50)
------------------ ---------- ------ -------- --------- ----------- -----------
- - (47)
------------------ ---------- ------ -------- --------- ----------- -----------
17. BORROWINGS
2023 2022
GBP'000 GBP'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 2022
GBP'000 GBP'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
Unamortised
Total Unused Facility facility
All in Maturity Facility loan facilities drawn fees Loan Balance
Secured Borrowings cost date GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 August
Bank plc 6.28% 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
Unamortised
Total Unused Facility facility
All in Maturity Facility loan facilities drawn fees Loan Balance
Secured Borrowings cost date GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP162,420,000
(2022: GBP218,780,000) are subject to a first charge to secure the
Group's bank loans amounting to GBP64,333,000 (2022:
GBP101,753,000). Trading properties with a carrying value of
GBP11,055,000 (2022: GBP20,286,000) 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 GBP20,000,000
(2022: GBP7,957,000). 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 GBP8,629,000 (2022: GBP61,386,000)
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 GBP8,629,000
(2022: GBP8,947,000) which is fully fixed at a rate of 2.9%.
The Group has a loan with Barclays Bank plc for GBP19,385,000
(2022: GBP29,168,000), of which GBPNil (2022: GBP33,848,000) 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 GBP11,750,000 (2022:
GBP24,750,000), of which GBPNil (2022:GBP18,592,000) 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 GBP6,845,000
(2022: GBP6,845,000) 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
GBP17,724,000 (2022: GBP32,043,000) 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 GBP64,537,000 (2022: GBP101,650,000). 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 2022
GBP000 GBP'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 2022
GBP000 GBP'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
GBP'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 2022
GBP'000 GBP'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 2022
GBP'000 GBP'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
----------------------- --------------
Present 2022
value of Present value
Lease lease of lease
payments Interest payments payments
GBP'000 GBP'000 GBP'000 GBP'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 Present
value of value
Lease lease of lease
payments Interest payments payments
GBP'000 GBP'000 GBP'000 GBP'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 2023 2022
as follows: GBP'000 GBP'000
---------------------------------------------------------- -------- --------
46,388,515 ordinary shares of 10p each (2022: 46,388,515) 4,639 4,639
---------------------------------------------------------- -------- --------
4,639 4,639
---------------------------------------------------------- -------- --------
2023 2022
Reconciliation of movement in ordinary share capital GBP'000 GBP'000
------------------------------------------------------- -------- --------
At start of year 4,639 4,639
Issued in the year - -
------------------------------------------------------- -------- --------
At end of year 4,639 4,639
------------------------------------------------------- -------- --------
Number
Price of ordinary Total
Movement in ordinary authorised per share shares number
share capital pence issued of shares
--------------------------------- ----------- ------------ ----------
As at 31 March 2022 and 31 March
2023 - - 46,388,515
---------------------------------- ---------- ------------ ----------
Number
of ordinary
shares Total number
Movement in treasury shares issued 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
2023 2022
Authorised, issued and fully paid share capital is as No. of No. of
follows: Options 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:
2023
No. of 2022
Reconciliation of movement in outstanding share options options 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:
2023 2022
---------------------------------------
Weighted
average Weighted
No. of option No. of average
Description of unexpired share options options price Options 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:
Average
share price
Number at
of Exercise date of Grant Vesting
options price exercise date 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 16 November 16 November
(LTIP 2021) 402,717 0p 247p 2021 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 GBP1.88 per share which
was the market price at the grant date.
Annualised TSR over the Vesting PV growth over the PV performance Vesting
TSR performance period % period %
------------------------ ------- --------------------------------- -------
<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 GBP2.44 per share which was the market price at
the grant date.
Annualised TSR over the Vesting TPR equivalent total over Vesting
TSR performance period % performance period %
------------------------ ------- ------------------------- -------
<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 Black-Scholes
TSR PV
Tranche Tranche
------------------------- ----------- -------------
16 November 16 November
Grant date 2021 2021
Share price GBP2.44 GBP2.44
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 GBP1.28 GBP2.44
------------------------- ----------- -------------
The expense recognised for employee share-based payment received
during the period is shown in the following table:
2023 2022
GBP'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 GBP6,000 (2022: GBPNil) 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 GBP27,598 (2022:
GBP262,265) 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 GBP456,901 (2022: GBP395,952).
25. POST BALANCE SHEET EVENTS
On 4 May 2023, the Group exchanged on the disposal of Courtauld
House, Coventry, for a total consideration of GBP7.4m. The property
is charged against the loan facility with Barclays Bank plc and as
a result, GBP3.5m 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 GBP1.5m.
The property is charged against the loan facility with Barclays
Bank plc and as a result, GBP0.5m 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 GBP2.3m. The
property is charged against the loan facility with NatWest plc and
as a result, GBP0.9m 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 GBP26.6m. 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. GBP9.8m of the total consideration was
used to repay the loan facility with NatWest plc and GBP4.1m was
used to repay the loan facility with Barclays Bank plc on 30 May
2023.
On 31 May 2023, the Group repaid the GBP6.8m 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 GBP5.6m. The property was
charged against the loan facility with Barclays Bank plc and as a
result, GBP3.7m 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 GBP1.2m. 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
GBP2.2m.
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 GBP128,475,000 (2022: GBP177,204,000). 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 Floating
assets Floating Fixed rate rate
and liabilities rate assets liability liability Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Floating
assets Floating Fixed rate rate
and liabilities rate assets liability liability Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP5,509,000 (2022: GBP28,143,000). Interest
receivable in the income statement would be affected by GBP55,000
(2022: GBP281,000) 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 GBP55,116,000 (2022:
GBP39,851,000) 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
GBP551,000 (2022: GBP399,000).
The Group has interest rate swaps with a nominal value of GBPNil
(2022: GBP52,939,449). 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 -1% +1%
rate GBP'000 GBP'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 GBP5,509,000 (2022: GBP28,143,000). The concentration of
credit risk held with Barclays Bank plc, the largest of these
banks, was GBP2,997,000 (2022: GBP20,281,000).
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
GBP2,890,000 (2022: GBP2,666,000). 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 0-1 years 1-2 years 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- --------- --------- --------- --------- --------
As at 31 March 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 0-1 years 1-2 years 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- --------- --------- --------- --------- --------
On demand 0-1 years 1-2 years 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP,000 GBP'000 GBP'000
------------------------- --------- --------- --------- --------- --------- --------
As at 31 March 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
2023 2022
Note GBP000 GBP'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 GBP21,688,000
(2022: GBP1,706,000).
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
Treasury Capital
Share Share Other Reduction Retained Total
Capital Reserve Reserves Reserve Earnings Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
Investments Loans
in subsidiaries to subsidiaries Total
Cost: GBP'000 GBP'000 GBP'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:
Class of share
Subsidiary undertaking: 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
GBP'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
GBP'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 2022
GBP,000 GBP'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 GBP14,023,501 remains outstanding at 31
March 2023 (2022: GBP28,888,501) from Palace Capital (Developments)
Limited. No interest is charged on this loan. This loan is
repayable on demand.
A loan amounting to GBP153,534 remains outstanding at 31 March
2023 (2022: GBP519,534) from Palace Capital (Leeds) Limited. No
interest is charged on this loan. This loan is repayable on
demand.
A loan amounting to GBP1,079,417 remains outstanding at 31 March
2023 (2022: GBP2,781,417) from Palace Capital (Halifax) Limited. No
interest is charged on this loan. This loan is repayable on
demand.
A loan amounting to GBP1,645,430 remains outstanding at 31 March
2023 (2022: GBP4,034,646) from Palace Capital (Properties) Limited.
No interest is charged on this loan. This loan is repayable on
demand.
A loan amounting to GBP4,945,582 remains outstanding at 31 March
2023 (2022: GBP150,000) from Palace Capital (Northampton) Limited.
No interest is charged on this loan. This loan is repayable on
demand.
A loan amounting to GBP3,084,996 remains outstanding at 31 March
2023 (2022: GBPNil) from Palace Capital (Manchester) Limited. No
interest is charged on this loan. This loan is repayable on
demand.
A loan amounting to GBP3,101,452 remains outstanding at 31 March
2023 (2022: GBPNil) 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 2022
GBP,000 GBP'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 GBP19,264,032 remains outstanding at 31
March 2023 (2022 GBP10,113,143) to Palace Capital (Signal) Limited.
No interest is charged on this loan. This loan is repayable on
demand.
A loan amounting to GBP10,612,686 remains outstanding at 31
March 2023 (2022: GBP16,314,718) to Property Investment Holdings
Limited. No interest is charged on this loan. This loan is
repayable on demand.
A loan amounting to GBP2,146,000 remains outstanding at 31 March
2023 (2022: GBP1,100,000) to Palace Capital (Liverpool) Limited. No
interest is charged on this loan. This loan is repayable on
demand.
A loan amounting to GBP120,000 remains outstanding at 31 March
2023 (2022: GBPNil) 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 2022
GBP'000 GBP'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 GBP1.2m. 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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END
FR GPUCWQUPWPWC
(END) Dow Jones Newswires
June 15, 2023 02:00 ET (06:00 GMT)
Palace Capital (LSE:PCA)
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