TIDMPCA
RNS Number : 2961S
Palace Capital PLC
07 July 2020
7 July 2020
CORRECTION: Final Results for the year ended 31 March 2020
The following amendments have been made to the 'Final Results'
announcement released on 7 July 2020 at 07:00am (UK Time) under RNS
Number 1883S.
The original RNS stated the Dividend record date as 23 July
2020. This is corrected to a Dividend record date of 24 July 2020
and the ex-dividend date will be 23 July 2020.
All other details remain unchanged.
PALACE CAPITAL PLC
("Palace Capital" or the "Company")
Final Results for the year ended 31 March 2020
CAPITAL EXPITURE STRATEGY AND LETTING ACTIVITY UNDERPIN POSITIVE
PERFORMANCE DESPITE COVID-19 HEADWINDS
Palace Capital (LSE: PCA), the UK REIT that has a UK regional
commercial real estate portfolio with a bias towards the office and
industrial sectors in carefully selected locations outside of
London, announces its first set of annual results since converting
to a REIT in August 2019.
Financial Highlights
Focus on regional office and industrial sectors driving
continued total property return outperformance
-- Total property return of 1.1%, outperforming the MSCI UK
Quarterly Benchmark of -0.5% and marking three successive years of
outperformance
-- Final dividend proposed of 2.5p per share, following prudent
cancellation of Q3 interim dividend to preserve the Group's cash
resources in response to Covid-19, taking the total dividends for
the year to 12.0p per share
-- EPRA earnings increased to GBP10.8 million (March 2019:
GBP7.6 million), reflecting underlying strength of investment
portfolio and including one-off surrender premium of GBP2.9
million
-- 41% uplift in EPRA EPS to 23.4p (March 2019: 16.6p),
reflecting 195% cover of 12.0p dividends for the full year;
adjusted EPS of 17.5p (March 2019: 17.3p), reflecting 146% cover of
total dividends payable for the year
-- EPRA NAV per share 364p (March 2019: 407p) and IFRS net
assets of GBP166.3 million (March 2019: GBP180.3 million) with
reductions due to asset revaluations following the pandemic and
strategic capital expenditure on development and refurbishments
-- Portfolio valuation of GBP277.8 million (March 2019: 286.3
million), down 5.7% on a like-for-like basis reflecting the impact
of Covid-19 on independent valuations, resulting in inclusion of
'material uncertainty' clause
-- Stable balance sheet with cash and debt facilities totalling
GBP153.7million; GBP120.8 million of debt drawn at year end with a
further GBP32.9 million available and undrawn
-- Revolving credit facility with NatWest increased to GBP40.0
million in August 2019 and extended for a further five years at a
lower margin, providing additional flexibility
-- LTV of 38% (March 2019: 34%) and weighted average interest rate reduced from 3.3% to 3.1%
Operational Highlights
Active asset management delivering long term portfolio
enhancement
-- Hudson Quarter on track for completion in March 2021 and the
remaining expenditure is fully funded by Barclays, with over 25% of
127 apartments already sold as at 30 June 2020.
-- Planning consent secured for 28 apartments and 4,000 sq ft of
retail space at 45 High Street, Weybridge, Surrey in one of the
UK's most affluent areas
-- GBP17.3 million of disposals during the period, including
remaining non-core residential units from Warren Portfolio and the
lease surrender at Priory House, Birmingham for GBP2.9 million,
being the remaining rent due under the lease, with vacant costs
reduced through the sale of the short leasehold interest
-- 18 lease renewals and seven rent reviews completed at an
average of 4% above ERV and a 25% uplift on previous passing rents,
creating GBP0.6 million of additional annual rental income
-- 22 new leases providing GBP1.2 million of additional annual
income, including 23,500 sq ft at Sol, the leisure scheme in
Northampton, to Gravity Fitness for a minimum term of 10 years at a
20% premium to ERV
-- WAULT increased to 4.8 years to break and 6.5 years to expiry
(31 March 2019: 4.5 years to break) as a result of lease renewals
and new lettings
-- Overall EPRA occupancy increased to 87.3% (2019: 86.9%), with
majority of remaining vacancy having been recently refurbished or
identified for strategic refurbishment or redevelopment
Covid-19 Update
-- 93% of March quarter rents collected to date, this includes
91% cash collected, 2% on payment plans and the remaining 7%
outstanding at 6 July 2020
-- 84% of June quarter rents collected to date, this includes
64% cash collected, 20% on payment plans and the remaining 16%
outstanding at 6 July 2020
-- All debt covenants are expected to be compliant in July
-- Hudson Quarter York construction site remained open
throughout lockdown with strict social distancing measures in place
for site staff and the marketing suite has reopened
-- All assets in the portfolio have reopened and are fully
compliant with Government guidelines
Neil Sinclair, Chief Executive of Palace Capital said:
"During the year we strategically increased our development
& refurbishment activity to create an even stronger portfolio
that can meet the demand we are seeing outside of London for well
located, fit for purpose property, which will also deliver higher
quality income and capital growth. We believe our commitment to a
total return strategy focused on the regions will deliver
outperformance and enhance shareholder value over the long-term.
Our strength in the regional office and industrial sectors, taking
advantage of the structural dynamics across the economy whilst
limiting our exposure to the retail and leisure sectors, has
enabled us to beat the MSCI benchmark on both a one and three year
basis.
"We have now exchanged contracts on 32 apartments at Hudson
Quarter York, with a further 5 under offer. Covid-19 has slightly
slowed our progress, pushing out practical completion by
approximately two months, however activity is picking up again at
the marketing suite and online interest is encouraging. We remain
positive about our ability to grow income and ultimately pay a
sustainable level of dividends to our shareholders, despite the
current political and economic uncertainty."
Stanley Davis, Chairman of Palace Capital said:
"Our total return strategy at Palace Capital is supported by a
balanced portfolio, both in terms income-producing assets and
opportunities for capital growth through refurbishment and
redevelopments. While the significant capital expenditure we have
deployed across a number of different properties has not yet fully
resulted in a corresponding uplift in property valuations, due to
the natural time lag between completing capital works and letting
the refurbished & redeveloped space, I firmly believe this
investment will support our future growth. In the six and a half
years since listing in October 2013 we have produced a total
accounting return of 112.6%, outperforming most of the peer
group.
"We continue to abide by a disciplined acquisition policy, and
we believe there will be opportunities to deploy capital in the
latter part of the year. Palace Capital is well positioned for the
future, with a defensive core-income portfolio let on low,
sustainable rents and with a number of value enhancing
refurbishment and redevelopment opportunities."
For further information please contact:
PALACE CAPITAL PLC
Neil Sinclair, Chief Executive / Stephen Silvester, Finance
Director
Tel. +44 (0)20 3301 8331
Broker
Numis Securities
Heraclis Economides / George Fry
Tel: +44 (0)20 7260 1000
Broker
Arden Partners plc
Corporate Finance: Paul Shackleton / Ciaran Walsh
Corporate Broking: James Reed-Daunter
Tel: +44 (0)207 614 5900
Financial PR
FTI Consulting
Claire Turvey / Methuselah Tanyanyiwa
Tel: +44 (0)20 3727 1000
palacecapital@fticonsulting.com
About Palace Capital plc
Palace Capital plc (LSE: PCA) is a UK REIT that has a GBP277.8
million diversified portfolio of UK regional commercial property.
The Company maintains a disciplined investment strategy focused on
towns and cities outside of London that are characterised by
thriving local economies and strengthening fundamentals. Within
those locations the highly experienced management team select
assets that provide opportunities to drive both capital value and
long-term rental income through tailored active asset management
programmes ultimately delivering attractive shareholder
returns.
www.palacecapitalplc.com
The Annual Reports and Accounts together with the Notice
convening the 2020 Annual General Meeting will be posted to
Shareholders on 15 July 2020.
chief executive's review
I did not expect to be reporting to you during an unprecedented
lockdown, a pandemic and a severe jolt to our economy.
Remote working has enabled us to conduct our business
successfully during this period, with our first task being to
conduct an extensive stress test on our Company, taking into
account the sudden deterioration of the UK economy. Our Board was
very satisfied with the outcome, the details of which can be found
in our viability statement. Over the past year, we continued to
execute our strategy aimed at growing our income, and as part of
that we have been pushing ahead with our refurbishment and
redevelopment programme, including our flagship development, Hudson
Quarter in York.
As expected, our capital expenditure on these value enhancing
projects, together with the impact of Covid-19 in the last month of
our financial year, has had an effect on the value of our
portfolio. In recognition of the uncertainty created by the
pandemic, most real estate companies have been subject to a
material uncertainty clause from independent valuers.
Our EPRA earnings for the year were GBP10.8 million resulting in
EPRA earnings per share of 23.4p (2019: 16.6p). However, as a
result of the reduction in the value of our properties for the
reasons outlined, we are reporting a statutory loss before tax of
GBP9.1million.
We continue to be an exciting and ambitious property investment
company with a quality portfolio that has been carefully selected.
Our active asset management strategy aims to maximise the potential
of those assets and across 47 new lettings, rent reviews and lease
renewals over the course of the year we have increased our
contractual rental income by GBP1.8m per annum.
STRATEGY
Our focus since we were founded ten years ago has been on value
creation through targeting regional assets and creating increased
value through refurbishment and redevelopment, underpinned by the
positive fundamentals in those locations in which we have chosen to
invest. This strategic capital expenditure is not necessarily
reflected in increased values until the properties are completed
and let or sold. The effect of Covid-19 in the final month of our
financial year has not been helpful. However, notwithstanding
current market conditions, we firmly believe that this strategy of
selected, value enhancing capital deployment is the right policy
which will benefit shareholders over the medium to long term,
particularly when we turn the corner and the economy begins to
recover.
Offices make up nearly 50% of our portfolio. The regions have
been starved of supply of good quality office space with limited
construction and the amount of office space lost to Permitted
Development without being replaced, particularly in cities such as
Liverpool, Southampton, Winchester and Brighton. This supply
pipeline is unlikely to be replenished any time soon and we believe
that we will continue to see underlying growth in our
portfolio.
REGIONAL FOCUS
Through careful stock selection we have acquired city centre
office buildings in Liverpool, Manchester, Leeds and Newcastle,
adding to that a 35,000 sq ft office building as part of the Hudson
Quarter development only one minute's walk from York Station. All
of these properties fall within the domain of the Northern
Powerhouse, which we firmly believe in, and following the election
of a Conservative Government with a significant majority we expect
to be a beneficiary of the Prime Minister's "levelling up agenda".
This is intended to boost the regions, particularly the Midlands
and the North where we are very well represented.
The authorisation for the construction of HS2 is just the
beginning and we expect to see further backing for Northern
Powerhouse rail infrastructure in the near future, with the first
stage being a high-speed connection between Leeds and Manchester.
In due course the government's intention is to connect Hull, Leeds,
Manchester, Sheffield, Liverpool and Newcastle.
Graduate retention is rising in the core regional cities with
Manchester at over 50%, Birmingham at just under 50% and Newcastle
at over 35%. This is encouraging for companies seeking to relocate
to the regions as it gives them the confidence that they can secure
the appropriate talent, which was not the case even ten years
ago.
One of the nasty effects of Covid-19 is unemployment and we are
confident that the Government will provide every possible incentive
to regenerate hard-hit areas, particularly in the Midlands and the
North. We are well placed to play our part in supporting the growth
of the regional economy.
2020 HIGHLIGHTS
As stated earlier, we have had a very active year. We sold the
34 remaining residential properties in the Warren portfolio for
GBP11.7 million, bringing the total to 63 non-core properties
disposed in all since the Warren portfolio was acquired. We have
retained two for strategic reasons because they adjoin one of our
commercial properties.
The construction of our flagship project at Hudson Quarter, York
where we are building 127 apartments and 39,500 sq ft of offices
has only been slightly impacted by Covid-19. We are working with a
strong and highly reputable Yorkshire contractor who has
long-standing relationships with its subcontractors, and this has
proved particularly helpful in ensuring that work has continued
throughout the lockdown period (in adherence with government
guidelines) and delays have been minimised. The project is due for
completion in March 2021.
Although the marketing suite was closed during the lockdown
interest in the apartments continued to be robust through our
website and social media, and the suite has now reopened. As at 30
June 2020 we had exchanged contracts on 32 apartments to the value
of GBP8.5 million, while five apartments are currently under offer
to the value of GBP1.6 million.
Victoria, one of the four buildings at Hudson Quarter, has a
commercial use at ground floor level and in February we pre-let
4,500 sq ft to Knights, the quoted law firm, at a record rent for
York of GBP25 psf per annum.
VALUATIONS
Our independent valuations show a decrease of 5.7%, compared to
the like-for-like values as at 31 March 2019. This takes into
account the reduction due to Covid-19; our capital expenditure
strategy, where value impacts are yet to materialise; and a small
like-for-like decline. We have also taken the decision to develop
some of our properties and this includes tactically securing vacant
possession, which could be followed by demolition or short-term
letting. This can naturally have a short-term negative effect on
values, but these are ultimately enhanced in the medium to long
term when the new or refurbished buildings are completed and let or
sold. We believe we will see the positive effect of this at Hudson
Quarter and at other properties as our capital deployment begins to
bear fruit.
Our EPRA Net Asset Value per share on 31 March 2020 was 364p
which is 10.5% below that as of 31 March 2019. This is largely due
to the impact of Covid-19 on the year end valuations.
PORTFOLIO
Our portfolio is now valued at GBP277.8 million with a
contracted rental income of GBP17.6 million per annum. Our net
rental income after surrender premiums and the deduction of
property operating expenses is GBP18.8 million for the year ended
31 March 2020. This value includes Hudson Quarter, York which is
currently under construction and due for completion in March
2021.
One of the advantages of the regions is that rents are
relatively modest compared to London, while the cost of living is
lower, and the quality of life considered high. We believe that
companies will now examine whether they need to lease expensive
offices, or as much office space, in and around London. Prior to
Covid-19, several companies had already relocated out of London
including Talk Talk (Salford), Burberry (Leeds), Channel 4 (Leeds)
and Hiscox (York).
We currently have office space available in Milton Keynes and
Leeds. In the current climate our view is that companies and the
public sector will be very cost conscious, therefore we are
reasonably confident that a sizeable proportion of our office
vacancy will be let during this financial year.
We have two leisure assets at Northampton and Halifax which make
up 13.7% of our portfolio and, in line with experiences across the
sector, these have been particularly challenging. However, most of
our properties are let to solid covenants, some of whom have
recently carried out successful equity raises on the London Stock
Exchange. We expect to collect any outstanding rental arrears from
these tenants when the legislation protecting them expires.
At Sol Northampton during the lockdown period, we agreed with
Accor, the largest hotel company in France, a five-year lease
extension from 2027 to 2032 in return for a six-month rent-free
period from March 2020. In view of the fact that the lease yields
GBP0.5 million per annum plus a share of turnover we consider this
to be a very satisfactory outcome.
Our exposure to retail is limited but our two retail warehouses
are let to Booker (a subsidiary of Tesco), Wickes (part of Travis
Perkins) and Pets at Home, while our only supermarket is let to
Aldi on a long lease. Our retail shops, of which there are few, are
generally let at very modest levels.
We are not looking in the next month or two to increase the size
of our portfolio until we see where the economy may be heading. Our
focus will be on actively asset managing our portfolio and
particularly on rent collection, making sure that we maintain
maximum liquidity.
In addition to our cash balances, we have six uncharged
properties with a total value of GBP18.2 million and a 5.6%
shareholding in a listed company valued at GBP2.5 million at the
year end. Most of these uncharged properties are earmarked for sale
but only at a time of our choosing.
ASSET MANAGEMENT
We continue to make good progress with our properties in Milton
Keynes, Weybridge, Leeds, Newcastle, Northampton and Leamington Spa
which have been identified for refurbishment or redevelopment,
although against the current backdrop we have taken the prudent
decision to defer all non-essential capital expenditure for this
year.
Notwithstanding this, we own a prime site in Weybridge, Surrey
with planning consent for 28 apartments and a small amount of
retail. Weybridge has always been a very buoyant area, even in
difficult times, and we are now carrying out a review of the scheme
in light of current market conditions. This is one of our uncharged
assets so this could either be sold or alternatively developed,
which we would only proceed with when we consider it the
appropriate time. These economic conditions will mean that a number
of potentially competing schemes will not go ahead. However, with a
recovery in the residential market expected in 2022, it may be in
our interest to commence the development in our next financial
year, if the viability can provide an acceptable return.
We have plans to develop or refurbish our city centre properties
in Leeds and Milton Keynes but even if satisfactory planning
consents are secured, these projects will not commence until 2024
at the earliest. Based on my many years of experience throughout
cycles, development can provide very lucrative returns if the
timing coincides with a growing economic upturn. We will keep
shareholders updated on these initiatives.
LISTED INVESTMENT
We currently hold 1,592,500 ordinary shares representing a 5.6%
stake in Circle Property Plc, an AIM listed property investment
company. This company is not dissimilar to ours but is considerably
smaller and we continue to keep our shareholding under review.
INVESTMENT STRATEGY
As indicated, we have grown our portfolio based on very careful
stock selection criteria. Besides our core office holdings in the
Midlands and the North, we also have office buildings in
Southampton, Winchester, Staines, Exeter, and Farnborough with
industrial holdings in Bristol, Burgess Hill, Verwood, Coventry,
Kettering, and Newbury. Office and industrial assets make up 60.3%
of our portfolio.
In the period leading up to the General Election, with the
uncertain backdrop caused by Brexit, there were very few investment
opportunities for us to seriously consider which met our strict
value criteria and which we could recommend to shareholders. We
have a strong commitment to our policy of not investing where we
believe properties are overpriced, based on our many years of
experience and in depth knowledge of the UK's regional markets, and
this approach holds us in very good stead.
We will continue to focus on the office and industrial sectors.
Our 39,500 sq ft office development in York will be retained within
our portfolio as York has a very low vacancy rate and is the
fastest connection to the North from London, being only 1 hour and
50 minutes by train. This building will have a WiredScore
certificate "Platinum" making it one of the best in the country for
connectivity.
The team at Palace Capital is highly experienced and has a deep
network of contacts across the property and financial worlds,
exposing us to both real estate and corporate opportunities. Most
of our acquisitions since inception in 2010 have been corporate and
we view this as a cost-effective way of accessing property
portfolios, so remain alive to any opportunities that may arise in
the second half of the year.
DIVID POLICY
We maintain a progressive dividend policy, however following the
outbreak of the pandemic we proactively reviewed this in order to
preserve maximum liquidity in the Group. Taking a prudent approach
in view of the uncertainty, on 2 April 2020 we announced our
decision to cancel the third quarter dividend.
Parliament has since passed the Corporate Insolvency and
Governance Act 2020, and this prevents commercial landlords serving
statutory demands or winding up orders on tenants who do not meet
their contractual obligations. We are very proud of our good
relationships with our occupiers, but unfortunately a few have
taken the opportunity this legislation provides to avoid paying any
rent and service charge, or to discount any need to engage with us
to find a mutually satisfactory conclusion. This legislation has
now been extended until 30 September 2020. As with other commercial
property owners, it is restricting our ability to recover rents
from occupiers who are adopting a "will not pay" policy, rather
than a "can pay" policy. Fortunately, the effect of this is
relatively limited and we hope that the recently published Covid-19
Code of Practice for commercial real estate relationships will have
a positive influence in these minority cases.
Having carefully considered our liquidity position and our
positive rent collection record over the past quarter, we are
proposing a final dividend of 2.5p, bringing the total annual
dividend to 12p. This will be fully covered by earnings. We have
conducted a very comprehensive review as to the likely outcome for
the year ending 31 March 2021. Taking an ultra-conservative
approach, we would expect the final dividend to be the minimum
level of dividend to be paid each quarter for the year ending 31
March 2021.
We have a superb team at Palace Capital and an experienced Board
with a wide range of expertise. I have worked through several
downturns and pandemics and I am in no doubt that we will weather
the storm and emerge fitter and stronger than ever. I am
particularly grateful to our hard-working team and our
long-standing shareholders who have been incredibly supportive.
Neil Sinclair
Chief Executive
6 July 2020
property review
This year has been challenging on many levels. The political
deadlock since the referendum to leave the EU, ensured there was a
continuous cloud hanging over the real estate sector for much of
the financial year. The final quarter saw the "Boris bounce"
following a significant Conservative majority in the general
election, with a positive message for balancing the regions with
London. However, by the end of March the Covid-19 pandemic had
struck and this led to a decline in values across the sector,
including our own portfolio, as material uncertainty clauses came
into effect due to the lack of comparable and reliable market
evidence.
Our holdings are predominantly in the office sector, in which we
own 28 buildings, and we have ten industrial assets. Both of these
subsectors have performed well over the last couple of years and we
expect continued growth in the coming year. We own two leisure
assets and 8.6% of the portfolio is held in the retail sector, with
two development assets making up the remainder of the value.
Sector Split
Offices 46.3%
Industrial 14.0%
Leisure 13.7%
Development 13.6%
Retail 8.6%
Retail Warehouses 3.8%
Cushman & Wakefield independently valued the portfolio as at
31 March 2020 at GBP277.8 million, which is a decrease of 5.7% on a
like-for-like basis compared to the previous year for reasons
already outlined.
Despite the challenges, our active asset management strategy has
delivered positive results. In total we completed 47 lease events
which added GBP1.8 million to our annual contracted rent roll and
achieved GBP267,732 per annum above the independent ERV. New
lettings secured at a 9% premium to ERV increased income by GBP1.2m
per annum; an additional GBP248,193 per annum was generated from
lease renewals, which is a 21% increase in annual rent (6% above
ERV); and we secured a 30% increase in annual rent from open market
rent reviews, or an additional GBP283,113 per annum (2% above
ERV).
Alongside this, we continued to improve our buildings through
refurbishment and development. We spent a total of GBP24.0 million,
of which GBP17.9 million was on our Hudson Quarter development in
York, where we also secured a pre-let of 4,500 sq ft of office
space for a 10 year term at a record rent of GBP25 psf, a
significant milestone for this development and the York office
market. Other buildings to benefit from capital expenditure during
the year included those in Newcastle and Winchester. We also have
plans to further invest in our properties in Kettering, Manchester
and Avonmouth.
Acquisitions
The financial year was challenging on many fronts. The delay to
leaving the EU, exacerbated by the political impasse, meant that
while opportunities did present themselves, pricing meant our
returns requirement would not be met, so our existing portfolio was
strategically prioritised for equity deployment.
Disposals
We are continuously looking to recycle assets that no longer
meet our returns requirement.
We completed the sale of 34 residential assets acquired from the
RT Warren purchase in October 2017 for a consideration of GBP11.7
million. We achieved 97% of book value from these assets, which was
higher than originally anticipated from a portfolio sale.
Disposals of commercial properties totalled GBP5.6 million,
reflecting a 19.0% premium to book value, in Weybridge, Southampton
and Birmingham. The latter was sold at 25% above book value.
Top 10 occupiers
We value our customer relationships and the property team
inspect our buildings as regularly as possible, engaging with
occupiers to understand their business needs. This ensures that our
strategies for each property are current and flexible enough to be
adapted to changing occupier demands.
Occupier Annual Rent
Vue GBP913,104
Rockwell Automation GBP543,617
Accor Hotels GBP510,000
National Lottery GBP444,413
Brose GBP431,500
Eldon GBP408,978
Wickes GBP401,405
Blake Morgan GBP360,000
Exela GBP355,363
Apcoa GBP345,000
Offices
The Government has announced a levelling of investment away from
a historical bias towards southern England. However, the emergence
of Covid-19 has raised questions on how quickly this will be
implemented. We remain confident that our holdings are well placed
to benefit from this investment as and when it occurs. A topic of
debate in recent months has been whether working habits have been
changed sufficiently by lockdown to affect demand for office space
long term. While we believe there will inevitably be more desire to
work from home where appropriate, we expect the office market to
remain resilient, as it has in comparable moments over cycles. The
key component will remain location, followed by connectivity and a
continued emphasis on sustainability.
The flexible model will evolve further as businesses adapt and
are not tied into specific buildings. This can benefit landlords'
ability to capture increasing rental values on a regular basis.
We currently hold 46.3% of our portfolio in the office sector.
We are looking at how we can maximise returns from our holdings,
having invested GBP2.6 million in refurbishing our properties in
Newcastle, Manchester and Leeds, and adapt our space to meet
shifting demands and changing structural trends. We are working
with Backbone Connect, an IT services specialist, to ensure our
significant holdings meet the expectations of existing tenants and
attract new ones to the vacant space.
industrial
Demand has continued to be driven by retailers needing "last
mile" distribution space to meet increased customer demand from
e-commerce. Warehousing and distribution in locations with good
transport links should see continued rental growth.
Having accelerated existing structural trends, including the
shift towards online, the Covid-19 pandemic has highlighted the
importance of warehouse space.
The industrial sector is an attractive proposition, but growing
demand has left it challenging to find opportunities to invest at
acceptable levels. This is unlikely to change in the forthcoming
year, however we will continue to seek opportunities to increase
our 14.0% holding.
leisure
The leisure sector as a whole has struggled, although we have
not been as adversely affected as some. There has been a continued
shift towards operators meeting customer demand for "experiences",
which we have built into our asset management strategies, however
the emergence of Covid-19 has forced widespread temporary closures.
We continue to communicate regularly with our tenants which is
especially critical in this difficult time. The planned reopening
of leisure and hospitality venues from 4 July should provide a
positive stimulus at our two leisure schemes.
Assets in the leisure sector make up 13.7% of our portfolio and
we have continued to devise marketing campaigns to attract new
tenants. As a result, we secured a key anchor tenant at Sol,
Northampton in Gravity Fitness, for a minimum term of 10 years at a
20% premium to ERV. Post the financial year we have successfully
extended the lease to Accor so that it now expires in 2032.
RETAIL AND RETAIL WAREHOUSE
As is well reported, the retail market continues to be
challenging. Traditional retailers are struggling to compete with
online operators, who have less fixed costs, and changing consumer
habits towards online shopping have been accelerated by the
government lockdown. The Covid-19 pandemic has decimated trading
due to the enforced social distancing measures. Businesses that
innovate and reposition will remain competitive.
The Company has a limited exposure to the retail market with
only 10% of our portfolio represented in this sector. Our tenants
include Tesco and Aldi, as well as Wickes and Pets at Home which
benefit from strong financial balance sheets. We will continue to
have an open dialogue with our tenants and support their ability to
trade where we can.
SUSTAINABILITY
We have increased our focus on the sustainability of our
portfolio with a view to improving the environmental performance of
individual assets on an annual basis. The specific areas we are
looking at are EPC rating, energy supply and use, waste collection
and water consumption.
Outlook
As this report is being prepared, our team are working from
home, leisure schemes have closed their doors and high street shops
have only just reopened having been closed for three months. This
has meant the occupational and investment market has effectively
closed down, preventing us from letting our vacant space or
investing our capital into new opportunities. The critical factor
for the forthcoming year is to continue efforts to maximise our
income and work with our tenants to help them operate and grow
their businesses as best they can. We work closely with our
managing agents CBRE, JLL, Knight Frank and Savills to ensure
efficient rent collection. We have looked at the impact on our
rental income and capital expenditure programme and continue to
focus on the aspects of our business that we can control. Due to
our responsive asset management team, we are well positioned
operationally and financially to respond quickly once the ongoing
pandemic passes, which inevitably it will.
Richard Starr
Executive Property Director
6 July 2020
financial review
Along with the rest of the UK business community, Palace Capital
has faced a challenging year with a backdrop of ongoing political
and economic instability. However, the financial performance for
the financial year was solid, generating recurring earnings of
GBP8.0 million.
We have maintained a conservative capital structure and utilised
our working capital to support a highly active year of
refurbishment and redevelopment. The Group did make a loss before
tax of GBP9.1 million though this was largely due to the GBP17.9
million decline in the value of our assets that resulted from the
latest independent valuations from Cushman & Wakefield which
offset the recurring earnings.
Other than the reduction in property values, the emergence of
the Covid-19 pandemic and the resulting lockdown had a limited
impact on the financial performance for the year ended 31 March
2020. However, it has had a significant impact on business
operations post year end, with rent collection challenges and debt
covenants, particularly interest cover ratios (ICR) under pressure
as a result.
Rent collection and working capital have become our priorities
post year end in order to manage the Group through this economic
crisis. Consequently, the April 2020 quarterly dividend was
cancelled in order to preserve cash, along with freezing all
significant discretionary capital expenditure until we have greater
clarity on the future.
Rent collection in the March 2020 and June 2020 quarters is
somewhat impacted due to the moratorium on lease forfeiture and
Government legislation in force until 30 September 2020. This has
given tenants (even those well capitalised with a strong
credit-rating) a "carte blanche" not to pay rent in order to manage
their working capital. Hence landlords, ourselves included, have
been left without a portion of the usual quarterly income with
which to pay out dividends. Consequently, the Bank of England has
firmly requested UK lenders waive covenant breaches at this
unprecedented time in order to support borrowers while this
moratorium is in force.
All that being said, we are well positioned with a conservative
capital base and sufficient cash available to continue to grow the
business and deliver on its objective to drive income and capital
growth and outperform the MSCI benchmark on a Total Property Return
basis. We have received covenant waivers on two of our facilities
for the April quarterly test and all our lenders have either
provided or offered to provide covenant waivers during these
unprecedented times, if required.
As a result of our robust rent collection at both the March
quarter (93% collected to date, including 91% cash collected and 2%
on payment plans) and June quarter (84% to date, including 64% cash
collected and 20% on payment plans) we have proposed a final
dividend of 2.5p to be approved at the Annual General Meeting and
have set out an expected minimum quarterly dividend level for the
next financial year. As the economy recovers, we expect normal
trading to resume and our rent collection to return to normal
levels which will give us far better visibility as the year
progresses.
HEADLINE FY20 RESULTS
Despite the impact of Covid-19 at the back end of the financial
year, the Group continues to outperform the MSCI benchmark on a
Total Property Return basis, generating 1.1% for the year, versus
the benchmark performance of -0.5%. This was made up of income
return of 7.5% for the year and capital return of -6.0%. Despite
this strong performance on a relative basis, it has nonetheless
resulted in an overall IFRS loss after tax of GBP5.4 million (2019:
GBP5.2 million profit) and a reduction in the Group net asset value
to GBP166.3 million (2019: GBP180.3 million) as at 31 March
2020.
EPRA earnings is the industry measure of underlying profit
excluding revaluation gains, profits on disposals and exceptional
items. EPRA earnings for the year ended 31 March 2020 increased by
41.9% to GBP10.8 million compared to GBP7.6 million last year,
reflecting the increased earnings from the portfolio and
specifically including GBP2.9 million for a surrender premium
received from the tenant at the Priory House, Birmingham property
which we subsequently sold.
The Group also report an adjusted profit before tax in order to
track recurring earnings and to form a basis for calculating
dividend cover. This totalled GBP8.0 million for the year (2019:
GBP8.9 million), down 10.2%, albeit adjusted earnings per share
increased to 17.5p from 17.3p as a result of a lower tax bill from
REIT conversion.
On the capital side, we have experienced a 7.7% reduction in our
IFRS net asset value to GBP166.3 million (2019: GBP180.3 million),
a reduction in net asset value per share from 393p in 2019 to 361p
and this translates into EPRA net asset value per share of 364p,
down from 407p in 2019. The 43p decrease, together with the total
dividends of 12.0p paid during the year, represents a -7.5% total
accounting return overall. The reduction in net asset value in the
year is reflective of the write down in property valuations based
on Cushman's assessment of the market as a result of Covid-19
impacting the economy in an unprecedented way. There is also a
timing issue, given that GBP24.0 million of capital expenditure
across the portfolio, including the major investment into our
flagship development scheme at Hudson Quarter in York, has been
incurred and until the newly developed space has been let, the
valuation cannot fully account for any uplift.
We have undertaken significant capital expenditure in the year,
and we expect to benefit from future rental and capital growth
subsequent to re-letting vacant, refurbished space. Our approach to
recycling capital out of lower-performing assets and sectors
continued as we sold the final 34 residential assets which were
acquired as part of the R.T. Warren portfolio in 2017. This
completed the sale of the residential portfolio, releasing surplus
funds into working capital to support our capital expenditure
strategy.
FINANCIAL HIGHLIGHTS
2020 2019 2018
Income growth
IFRS (loss)/profit after tax (GBP5.4m) GBP5.2m GBP12.5m
Adjusted profit before tax GBP8.0m GBP8.9m GBP8.5m
EPRA earnings GBP10.8m GBP7.6m GBP6.5m
Basic EPS (11.8p) 11.3p 35.9p
EPRA EPS 23.4p 16.6p 18.7p
Adjusted EPS 17.5p 17.3p 21.2p
Dividend per share 12.0p 19.0p 19.0p
Dividend cover 1.5× 0.9× 1.1×
------------------------------ --------- --------- ---------
Capital growth
Portfolio like-for-like value -5.7% +0.5% +3.5%
Net Asset Value GBP166.3m GBP180.3m GBP183.3m
Basic NAV per share 361p 393p 400p
EPRA NAV per share 364p 407p 415p
Total accounting return -7.5% 2.6% -2.0%
Total shareholder return -30.9% -6.0% -1.4%
------------------------------ --------- --------- ---------
Debt finance
Debt balance GBP120.8m GBP119.4m GBP101.4m
Average cost of debt 3.1% 3.3% 3.4%
Average debt maturity 3.9yrs 3.6yrs 4.7yrs
Loan to Value Ratio 38% 34% 30%
NAV gearing 63% 52% 43%
------------------------------ --------- --------- ---------
KEY PERFORMANCE MEASURES
The Group's financial statements are prepared under IFRS which
incorporates non-realised fair value measures and nonrecurring
items. Alternative Performance Measures ("APMs"), being financial
measures which are not specified under IFRS, are also used by the
Directors to assess the Group's performance included in the
highlights for the year and throughout this document. These include
a number of European Public Real Estate Association (EPRA)
measures, prepared in accordance with the EPRA Best Practice
Recommendations (BPR) framework, and Group adjusted measures.
Further details are given in notes 6 and 7 to the financial
statements. We report a number of these measures (detailed in the
glossary of terms) because the Directors consider them to improve
the transparency and relevance of our published results as well as
the comparability with other listed European real estate
companies.
RECURRING EARNINGS
Gross income totalled GBP21.1 million in the year ended 31 March
2020 (2019: GBP18.8 million) maintained by a steady portfolio and
supported by the significant GBP2.9 million surrender premium
received from a departing tenant at Priory House, Birmingham as
part of their lease surrender. Net rental income similarly
increased to GBP18.8 million (2019: GBP16.4 million).
Administrative expenses increased to GBP4.3 million (2019:
GBP4.1 million) largely due to amortisation of a right of use asset
and including one-off costs associated with converting to a REIT on
1 August 2019 and recruitment fees in relation to the appointment
of an additional Non--Executive Director in early 2020.
The employee numbers were fairly stable throughout the year and,
including the Board, totalled 17 people at the balance sheet date,
compared to 16 in the prior year. Finance costs remained stable at
GBP3.8 million (2019: GBP3.8 million). There was GBP0.5 million of
debt termination costs as a result of a refinancing which has had a
positive impact by contributing to a reduction in the average cost
of debt to 3.1% (2019: 3.3%) leveraging our larger diversified
portfolio and established banking relationships for an improvement
to lender terms.
Looking forward, the business is capable of scalability with the
team and systems in place to support significant growth of the
portfolio.
The Group has a gross rent roll of GBP17.6 million per annum as
at 31 March 2020 with a reversion to GBP20.6 million per annum as
well as holding cash to support working capital, fund further
acquisitions and continue to reinvest in the portfolio to generate
further growth.
Income statement as follows
FY20 FY19
(GBP'm) (GBP'm)
INCOME STATEMENT
Adjusted profit after tax 8.0 7.9
Surrender premium & fair value of options 2.8 (0.3)
------------------------------------------ -------- --------
EPRA earnings 10.8 7.6
Revaluation losses (17.9) (0.7)
Equity investment revaluation losses (0.4) (0.2)
Losses on disposals (0.2) (0.4)
Hedging and derivative losses (0.9) (1.0)
Debt termination costs (0.5) -
Deferred tax REIT adjustment 3.7 (0.2)
------------------------------------------ -------- --------
IFRS (loss)/profit for the year (5.4) 5.1
------------------------------------------ -------- --------
VALUATION LOSSES & PROFITS ON DISPOSAL
The movement in the values of our investment properties can make
a significant impact on profit before tax, even though they are not
cash-based or realised. They are determined by independent valuers'
assessment of what a willing purchaser would pay for the property
on the basis of an arm's length transaction. At this reporting
date, Cushman & Wakefield carried out the portfolio-wide
valuation exercise and included a "material uncertainty" clause in
their report to acknowledge the difficulty of valuing in a market
impacted by Covid-19 and with limited transactional evidence.
Like-for-like valuations at year-end were consequently down 5.7%.
This resulted in a GBP17.9 million downward revaluation through the
income statement.
We have progressed extremely well with our flagship development
at Hudson Quarter, York, where we have seen 28 flats exchanged as
at the year end and secured a ten-year lease on 4,500 sq ft at a
record rent for York of GBP25 psf on one of the commercial units.
With completion expected in March 2021, this will have a
significant impact on income and capital for the business.
DIVIDS
In light of the Covid-19 outbreak, the Board has given careful
consideration to our obligations to all our stakeholders.
Therefore, the Board is recommending a final quarterly dividend of
2.5p per share to be paid 14 August 2020 to shareholders registered
at the close of business on 24 July 2020 and the ex-dividend date
will be 23 July 2020. The Group announced on 2 April that it would
cancel the payment of the April 2020 quarterly dividend, as the
Covid-19 pandemic began to impact on the global economy. The Group
made this prudent decision to ensure maximum liquidity at such an
unprecedented time. The full year dividend, when taking account of
the quarterly dividends paid in October and December 2019, will
total 12.0p, representing a 6.7% yield on the share price at 31
March 2020.
Dividends record as follows
FY16 FY17 FY18 FY19 FY20
DIVIDS
Adjusted EPS 18.9p 22.2p 21.2p 17.3p 17.5p
DPS 16.0p 18.5p 19.0p 19.0p 12.0p
Dividend cover 1.2× 1.2× 1.1× 0.9× 1.5×
neT ASSETS
At 31 March 2020, our net assets totalled GBP166.3 million,
equating to a basic net asset per share of 361p, a decrease of 32p
since 31 March 2019. The decrease in our net assets was driven
largely by the decrease in value of our investment properties and
also the GBP0.4 million mark-to-market reduction in the value of
the equity investment we hold, priced at 31 March 2020 subsequent
to the stock market fall as a result of the Covid-19 economic
lockdown and the GBP0.3 million loss on disposal of the remaining
residential assets held for sale, in addition to the one-off debt
termination costs of GBP0.5 million.
We calculate an EPRA NAV consistent with standard practice in
the property industry to adjust for any dilution of outstanding
share options and fair value adjustments of financial instruments
and deferred tax which totalled 364p at 31 March 2020, down from
407p at 31 March 2019.
DEBT FINANCING
The Group maintained its conservative capital structure ending
the year with a loan to value (LTV) of 38% net of cash (2019: 34%).
This increased over the year in line with expectations as the Group
commenced monthly drawdowns of the development facility for Hudson
Quarter, York.
We refinanced two debt facilities during the year resulting in
an improved debt profile, lowering our overall total cost of debt
to 3.1% (2019: 3.3%). We have increased the revolving credit
facility with NatWest from GBP30.0 million to GBP40.0 million and
extended it to August 2024, reducing the margin to 2.1% from 2.5%.
We charged additional security to access a further GBP3.5 million
on the Barclays investment facility due to expire in August 2023
and extended this to June 2024 at the same margin of 1.95% over
three-month LIBOR. This has provided additional capacity to support
our capital expenditure strategy.
We began our monthly drawdown on the Barclays development
facility for the Hudson Quarter, York, development in January 2020.
We have completed our equity investment into the project, and we
will now fund this project solely from the debt facility through to
completion in early 2021. Finally, we repaid the remaining GBP3.5
million on one of our two Lloyds facilities in May 2019 from our
cash reserves as the maturity date approached.
The Group debt facilities at year end total GBP120.8m with a
further GBP32.9 million undrawn. We continue to monitor swap rates
and as at year end held GBP67.9 million of fixed or hedged debt
which was approximately 56% of overall debt drawn. The average debt
maturity on the investment facilities has increased to 3.9 years
and there is no investment facility that is due for repayment
within the next two years.
debt
Years to
Fixed Floating Total drawn maturity
--------------------- ----- -------- ----------- ---------
Barclays 34.9 6.0 40.9 4.2
NatWest - 28.6 28.6 4.4
Santander 19.3 6.5 25.8 2.3
Lloyds - 6.8 6.8 2.9
Scottish Widows 13.7 - 13.7 6.3
Barclays development - 5.0 5.0 1.5
--------------------- ----- -------- ----------- ---------
67.9 52.9 120.8 3.9
--------------------- ----- -------- ----------- ---------
NET DEBT & GEARING
Each debt facility is secured at a Special Purpose Vehicle (SPV)
level and we assess the gearing mainly through interest cover
ratios (ICR) and loan to value ratios (LTV). In normal market
conditions we gear our assets within a range of 40% to 60% LTV. At
a Group level we measure both the debt to net asset value ratio
(NAV gearing) and loan to value net of cash. NAV gearing at 31
March 2020 was 63% and the LTV ratio was 38% at 31 March 2020. The
Group remains conservatively geared and at year end had GBP14.9
million of cash and GBP32.9 million of unutilised facilities
available, along with GBP18.2 million of properties uncharged to
lenders.
Post year end, two of our facilities have breached ICR covenants
as part of the quarterly April test due to the non-payment of rent
specifically at our two leisure assets. Both banks have provided
covenant waivers and we expect to return to compliance once the
leisure schemes reopen and the tenants recommence rental
payments.
REiT CONVERSION AND TAXATION
The Group converted to a UK REIT on 1 August 2019. As a
consequence, our UK tax liability has reduced as the majority of
the Group's activities falls within the REIT exemption. The Group
has a tax credit for the year ended 31 March 2020 of GBP3.6
million. The bulk of this was in relation to the deferred tax
credit of GBP5.6 million as part of the REIT conversion, which was
offset by a corporation tax charge for the year of GBP2.0 million.
If the Group had not converted to a REIT, an additional GBP0.7
million corporation tax liability would have been recognised in the
financial statements for the year.
OUTLOOK
The Group has performed well from a financial perspective
against a challenging political and economic environment, made more
difficult with the emergence of Covid-19. We have continued to
outperform the UK MSCI IPD index benchmark while remaining
financially robust with conservative gearing at 38%, cash reserves
of GBP14.9 million and the ability to draw down further on our
revolving credit facility with NatWest. This provides the Group
with capacity to support our working capital requirements and
invest in our excellent regional assets, to continue to grow income
and capital values. We have proposed a final dividend of 2.5p and
we expect to maintain this as the minimum level of quarterly
dividend going forwards. We look forward to continued progress on
our flagship development at Hudson Quarter in York, where we expect
to deliver an excellent sustainable mixed-use scheme which will
benefit the local economy of York, come completion in 2021.
Stephen Silvester
Finance Director
6 July 2020
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.
Risk management is an inherent part of the Executive team's
day-to-day decision making, as they work hard to deliver the
Company's strategy. The amount of risk taken is assessed in light
of our strengths, the external environment, our financial position
and where we are in the property cycle. Our risk appetite will vary
over time but as a business with a small number of employees and a
relatively flat management structure, we are able to assess and
respond quickly to new and emerging risks.
Our top down, bottom up approach to risk identification means
that asset managers and key individuals in the finance team are
able to report directly and at an early stage, allowing management
to take appropriate mitigating action. The Executive team maintain
a formal register of current and emerging risks and this is
reviewed by the Audit and Risk Committee twice a year.
The Audit and Risk Committee will support the Board in
determining the principal risks facing the business and reviewing,
at least annually, the effectiveness of the Company's system of
risk management and internal control.
COVID-19
A number of risks are heightened during the current period of
disruption caused by Covid-19 and we have seen an impact across all
aspects of the business. As uncertainty increased, we paid
particularly close attention to our tenant exposure and the
macroeconomic environment.
While the full effects are yet to be seen, there is no doubt
that the ramifications will be far-reaching. We expect all sectors
of the commercial property market to be impacted, not only
affecting our business, but those of our tenants and suppliers.
Our team mobilised quickly to respond to the various risks and
challenges that presented themselves following the outbreak. The
Board has met and continues to meet fortnightly to review the
businesses response and take any decisions that are required. For
further detail regarding the impact on the business and the
mitigating action that has been taken please refer to the eight
Principal Risks set out on the following pages.
Emerging risks
While the UK's exit from the European Union is somewhat
overshadowed by the ongoing pandemic, the Board continues to
consider how supply and demand and consumer confidence may be
affected once the UK leaves the EU.
Cyber risks and the potential impact on operations are
increasing for all businesses and are further heightened as working
from home becomes vital in the fight against Covid-19. We have
taken steps to increase our security measures during the year and
continue to review ways in which we can further mitigate the risk
to our network and data.
In addition, climate change is a global issue which presents
both risks and opportunities to the commercial real estate market,
with the potential to adversely impact the macroeconomic
environment as well as our own operations and those of our supply
chain.
GOING CONCERN STATEMENT
The Directors have made an assessment of the Group's ability to
continue as a going concern which includes the current
uncertainties created by Covid-19, coupled with the Group's cash
resources, borrowing facilities, rental income, acquisition and
disposals of investment properties, committed capital expenditure
and dividend distributions.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic Report. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities
are described in the 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 2020 the Group had GBP14.9m of cash and cash
equivalents, of which GBP13.9m was unrestricted cash, a low gearing
level of 38% and a fair value property portfolio of GBP277.8m. The
Directors have reviewed the forecasts for the Group taking into
account the impact of Covid-19 on trading over the twelve months
from the date of signing this annual report. The forecasts have
been assessed against a range of possible downside outcomes
incorporating significantly lower levels of income in line with the
possible effects of the pandemic.
The key assumptions used in the review are summarised below:
-- The Group rental income receipts were modelled for each tenant on an individual basis
-- Existing loan facilities remain available, but no new financing is arranged; and
-- Free cash is utilised to repay debt/cure bank facilities covenants.
DEBT COVENANTS
Although there has been significant headroom on the majority of
covenants within the year ended 31 March 2020, the impact of
Covid-19 and the resultant lock-down post year-end has resulted in
a number of tenants withholding rental payments and, in particular
,at the two leisure schemes in Halifax and Northampton. As a
result, two of the facilities, Scottish Widows and Santander, did
not meet their ICR covenant tests at the April 2020 test dates. On
request the banks provided covenant waivers for both the April and
July covenant test dates. In addition, during the year GBP0.8m cash
was placed in a lock-up account on behalf of Scottish Widows in
order to satisfy the LTV covenant resulting from a reduction in the
property valuation prepared on behalf of the bank in August 2019.
All other facilities remain within covenants.
As part of the going concern assessment, and taking the above
into consideration, the Directors reviewed a number of scenarios
which included extreme downside sensitivities and reverse stress
tests in relation to rental cash collection assuming no property
acquisitions, no further capital expenditure beyond that committed
and no dividends.
STRESS TESTS
The debt covenants were reverse stress-tested to validate
resilience to property valuation declines and rental income
declines as well as increases in future interest costs. It assessed
the limits at which key financial covenants and ratios would be
breached. To supplement the scenario planning, constructive
discussions were held with all the Group's lenders around the
ability to waive or change the respective covenants, if required.
All lenders have indicated they will be willing to provide covenant
waivers for the June and September quarters in the event of a
breach. This was further underpinned by the Bank of England's
financial services regulatory and supervisory body, the Prudential
Regulation Authority ("PRA") providing guidance to its regulated
members on 26 March 2020. The Group has organised its debt at a
loan security sub pool / single purpose vehicle ("SPV") level so in
the unlikely event of a covenant breach that led to a lender
requesting early repayment of the loan, the facility is
non-recourse and does not affect the financing and cash flow for
the rest of the Group.
DOWNSIDE SCENARIO
The downside scenario considered the impact on the working
capital model, including the loss of 50% of all rental income over
a 12-month period, taking into consideration no property
acquisitions, only committed capital expenditure and no dividend
payments. In this scenario the business would be loss-making and
therefore it would be unlikely to be required to pay out any
dividends under the REIT regime. A 50% reduction in rental income
would result in a breach of the financing cost ratio requirement of
1.25x under the REIT regime. However, there would be no adverse
implication in terms of going concern from exiting the REIT regime,
albeit the payment of corporation tax would commence when the
business returned to profitability.
More critical would be the covenant breaches with the debt
lenders. The main covenants on the Group's loans are the interest
cover ratio ("ICR"), debt service cover ("DSC") and loan to value
("LTV") ratios. Our reverse stress tests indicate that, depending
on the particular loan security sub pool, income would need to fall
by between 7% and 62% and values by between 6% and 26% before key
ICR, DSC and LTV covenants were breached. Mitigating the various
covenant requirements would, in the first instance, involve
requests for covenant waivers.
If the property values fell by approximately 20%, a GBP9.2m
repayment of debt would be required to cure loan breaches under the
existing debt facilities and future covenants, which could be
satisfied with existing working capital. However, in the downside
scenario allowing for loss of 50% of all rental income over the
going concern period, assuming the lenders require debt covenant
cures, the business would need to reduce loan balances by up to
GBP38m in order to bring down interest costs in line with ICR and
DSC requirements. This is above and beyond current cash balances
available. The Group would therefore look to access additional cash
through liquidating various assets within the balance sheet not
secured to lenders.
As noted above, the ICR covenants for the two loan facilities
relating to the two leisure schemes had to be waived by the lenders
at the April testing date. Whilst we forecast that these covenants
will be met at the July testing date and future periods, in the
worst case scenario that the covenants are not met, and the Group
is unable to agree a suitable cure right position with the lenders,
this could result in early repayment of the debt forcing the sale
of some or all of the assets charged to these loans which include
two office assets in addition to the two leisure assets. On
aggregate they are currently valued at GBP73.8 million compared to
the drawn debt balances of GBP39.2 million so the disposal of all
the assets would most likely lead to surplus cash available to the
Group once debt has been repaid. However, in a downside scenario
and assuming it would not be possible to sell the assets and the
banks took control of the assets, the Group's net assets would be
reduced by GBP34.6 million, loss of annual net income would total
GBP4.9 million and reduction in annual finance costs would total
GBP1.3 million.
CONCLUSION
Subject to these downside scenarios, the results of the
sensitivity analysis and stress testing demonstrates that the Group
has sufficient liquidity to meet its on-going liabilities and
committed capital expenditure as they fall due over the period of
assessment. Given the amount of unrestricted cash currently held by
the Group, the limited level of committed capital expenditure in
the forthcoming 12 months, and reasonable downside sensitivities,
the Directors are satisfied that the Group has adequate resources
to continue in operational existence, for a period of at least 12
months from the date that these Financial Statements were
approved.
Should the impacts of the pandemic on trading conditions be more
prolonged or severe than currently forecast by the Directors, the
Going Concern statement would be dependent on the Group's ability
to take further actions. Detailed consideration was given to the
availability and likely effectiveness of mitigating actions that
could be taken, including future cash conservation strategies and
discussions with lenders regarding the terms of the loan
agreements, being mindful of recent PRA guidance to lenders.
Furthermore, the Directors are not aware of any material
uncertainties that may cast significant doubt upon the Group's
ability to continue as a going concern. Based on these
considerations, together with available market information and the
Directors' knowledge and experience of the Company's property
portfolio and markets, the Directors have adopted the going concern
basis in preparing the accounts.
The Audit and Risk Committee reviewed whether it was appropriate
to adopt the going concern basis in the preparation of the
financial statements. In considering this the Committee reviewed
the 12-month forecasts, availability of bank facilities and the
headroom under the financial covenants in our debt arrangements.
With this knowledge and following the review the Committee
recommended to the Board that it was appropriate to adopt a going
concern basis.
VIABILITY STATEMENT
In accordance with provision 31 of the UK Corporate Governance
Code, and taking into consideration Covid-19, the Directors have
assessed the prospects of the Group and future viability over a
three-year period from the year end, being longer than the 12
months required by the 'Going Concern' provision. The Board
conducted the review with regard to the Group's long-term strategy,
principal risks and risk appetite, current position, asset
performance and future plans, and determined that three years to 31
March 2023 is the maximum timescale over which the performance of
the Group can be forecast with any material degree of accuracy, and
so is an appropriate period over which to consider the Group's
viability.
A range of downside sensitivity analyses were stress tested to
form part of the review, with material inputs filtered to consider
differing economic backdrops, and how such challenges would be met.
Achievement of the one-year forecast has a greater level of
certainty and is used to set near-term targets across the Group.
Achievement of the subsequent forecasted years is less certain than
the one year. The Board's forecast, though provides a longer-term
outlook against which strategic decisions can be made.
ASSESSMENT OF REVIEW PERIOD
The viability review was conducted over a three-year period of
assessment, which the Board considered appropriate for the
following reasons:
-- The Group's working capital model, detailed budgets and cash
flows consist of a rolling three-year forecast.
-- It reflects the short cycle nature of the Group's
developments and asset management initiatives.
-- Office refurbishments completed to date have taken less than
12 months and the major redevelopment at Hudson Quarter in York is
expected to take no longer than 24 months from commencement to
practical completion.
-- The Group's weighted average debt maturity at 31 March 2020 was 3.9 years.
-- The Group's WAULT at 31 March 2020 was 4.8 years.
Three years is considered to be the optimum balance between long
term property investment and the inability to accurately forecast
ahead given the cyclical nature of property investment.
ASSESSMENT OF PROSPECTS
The financial planning process considers the Group's
profitability, capital values, cash flows, dividend cover, banking
covenants including but not exclusively LTV and ICR tests, and
other key financial metrics over the three-year period. The metrics
were subject to a sensitivity analysis, in which a number of the
main underlying assumptions are flexed and reverse stress-tested to
consider a range of alternative macro-environments and portfolio
compositions. In addition, the review was updated to consider the
impact of Covid-19 using a severe but plausible downside
scenario.
STRESS TESTS & DOWNSIDE
The debt covenants were reverse stress-tested beyond the 12
month going concern period to allow for changes to banking
covenants over the three-year viability period to validate
resilience to property valuation declines and rental income
declines as well as increases in future interest costs. As noted
above, the ICR covenants have come under pressure at the April 2020
test dates due to the impact of lockdown on tenants who have
withheld rent. However, we expect to be compliant with all ICR
covenants at the July 2020 test dates across all the debt
facilities. Longer term, in the event of an economic downturn there
is a greater risk that LTV covenants would come under pressure
during the viability period. We have considered the fall in
property values which could be sustained without an impact on
banking covenants. In the event of covenant breaches, the Group
would in the first instance apply cure rights and the Group would
therefore look to access additional cash through liquidating
various assets not secured by lenders. In the worst case scenario
that covenants are not met, the Group is unable to agree a suitable
cure right position with a lender, and the assets cannot be sold to
repay the debt, then the properties effectively become the property
of the bank. However, all debt is secured at an SPV level and is
non-recourse to Palace Capital plc which would enable the Group to
continue operating, albeit in a reduced form.
In the period of the viability assessment and on the assumption
the current economic turbulence resulting from the impact of
Covid-19 will be ameliorated by the UK Government actions and
normalise within one year and taking into account lender support
and mitigating management actions, the Company would have adequate
resources to continue its operations and in the downside scenario,
any debt covenant curing could be resolved with a combination of
disposals in order to release sufficient cash to pay down debt.
Furthermore, the Board, in conjunction with the Audit and Risk
Committee, carried out a robust assessment of the principal risks
and uncertainties facing the Group, including those that would
threaten its business model, strategy, future performance, solvency
or liquidity over the three-year period. The risk review process
provided the Board with assurance that the mitigations and
management systems are operating as intended. The Board believes
that the Group is well positioned to manage its principal risks and
uncertainties successfully, taking into account the current
COVID-19 risk, and the economic and political environment.
The Board's expectation is further underpinned by the regular
briefings provided by the Executive team. These briefings consider
updated rent collections, tenant negotiations, debt covenant
status, market conditions, opportunities, the ability to raise
third-party funds and deploy these promptly, and changes in the
regulatory landscape, and the current political and economic risks
and uncertainties. These risks, and other potential risks which may
arise, continue to be closely monitored by the Board.
Confirmation of Viability
The Board confirms that it 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, taking
account of the Group's current position, the principal risks as set
out on the following pages and on the assumption the current
economic turbulence resulting from the impact of Covid-19 will be
ameliorated by the UK Government actions and normalise within one
year.
01 Development
Risk description
Overexposure to development could put pressure on cash flow and
debt finance and must be managed in the context of the REIT
regime.
Delays with construction, increased costs, adverse planning
judgements and failure of a major contractor may all impact our
underlying income.
As a result of Covid-19 there may be implications if access to
labour is limited and the availability of raw materials continue to
be affected. Over the longer term, profitability of schemes may be
impaired as macroeconomic circumstances worsen.
Mitigation
-- The Group's Capital Risk Management Policy limits development
expenditure to <25% of Gross Asset Value.
-- Core portfolio generates sustainable cash flows.
-- Developments are modelled and financed appropriately to minimise risk and maximise return.
-- A competitive tender process is undertaken, and Contractors
are assessed for financial stability.
-- Project managers are utilised to closely monitor the design,
construction and delivery of projects.
-- Professional teams engaged to develop sales strategies.
Progress 2019/2020
-- GBP34m construction contract in respect of Hudson Quarter is
underway and part funded by GBP26.5m Barclays Development
facility.
-- Principal Contractor appointed with proven track record and strong safety credentials.
-- Development pipeline continuously assessed.
02 Tenant
Risk description
Exposure to tenant administration and poor tenant covenants
could result in lower income, liability for voids and management
time spent chasing arrears. The ongoing Covid-19 pandemic is likely
to result in an increase in business failures.
Changing tenant demand in relation to new technologies, energy
efficiency and new trends and practices.
Mitigation
-- Our strategy to invest across different sectors reduces our
exposure to an individual sector or tenant.
-- We maintain close relationships with our tenants,
understanding their needs and supporting them throughout their
business cycle.
-- Management meet with managing agents to review rent
collection and arrears on a regular basis.
-- We actively manage our properties to improve security of income and limit exposure to voids.
Progress 2019/2020
-- Total number of leases across portfolio: 220, making up contractual rent roll of GBP17.6m.
-- Loss of income from tenant administrations and CVAs in the
year totalled GBP67.4k, which is 0.4% of portfolio contractual
income.
-- Portfolio weighted average lease length is 4.8 years,
providing reasonable longevity of income.
-- Occupancy across the portfolio is 87%.
-- Corporate Social Responsibility committee established to
ensure sufficient Board oversight of stakeholder interests.
-- In light of the Covid-19 pandemic we have undertaken a risk
review of each one of our tenants. We are regularly communicating
with each of our tenants and continue to work with them through
this difficult time.
03 Financing and Cash Flow
Risk description
Breach of debt covenants could trigger loan defaults and
repayment of facilities putting pressure on surplus cash resources.
Bank of England monetary policy may result in interest rate rises
and increased cost of borrowing. Financial regulatory changes under
Basel III may increase the cost to borrowers.
As the full impact of Covid-19 materialises we could see cash
flows impacted where tenants request payment holidays or are unable
to pay rent.
Mitigation
-- The Group actively engages in close relationships with its
key lenders, ensuring transparency when it comes to monitoring the
properties secured by debt.
-- Assets are purchased that generate surplus cash and
significant headroom on ICR and LTV Loan Covenants.
-- Gearing is maintained at a conservative level and hedging
utilised to reduce exposure to interest rate volatility.
-- We maintain significant cash balances and where necessary we
will defer capital expenditure projects.
Progress 2019/2020
-- Amendment and extension to NatWest RCF providing additional
financial support and longevity at lower margin.
-- The Group's weighted average debt maturity is currently 3.9 years.
-- The Group's net LTV is conservative at 38%.
-- 56% of drawn debt at year end is hedged, limiting the Group's
exposure to increases in Bank of England base rate and LIBOR.
-- We continue to stress test our budgets and cash flows and
have updated our scenario modelling in light of the current
Covid-19 pandemic.
04 Economic and Political
Risk description
Uncertainty from Covid-19 and other world events (including
Brexit) could impact economic growth, weakening demand of our
tenants and the profitability of their businesses. Decisions made
by Government and local councils can have a significant impact on
our ability to extract value from our properties.
MITIGATION
-- Monitoring of economic and property industry research by
Executive team and review at Board meetings, adjusting strategy
accordingly.
-- Our activities are focused solely on the UK regions with no foreign exchange exposure.
-- We undertake sensitivity modelling against a downturn in
economic outlook to test the robustness of our financial
position.
-- Use of consultants and experts when considering planning and development work.
-- Review tenant profile and sector diversification.
Progress 2019/2020
-- The full impact of the ongoing Covid-19 pandemic is yet to be
seen. Where we can, we have updated our budget in respect of the
next financial year and continue to closely monitor the
situation.
-- Concerns remain as to whether there will be an orderly Brexit
and the climate of uncertainty continues to impact decision
making.
-- Government support for regional development initiatives bodes
well for the markets in which we operate.
05 Accounting, tax, legal and regulatory
Risk description
Non-compliance as a result of changes to accounting standards,
and the legal and regulatory requirements for a public real estate
company.
Non-compliance with REIT regime leading to loss of REIT status
or other changes to the Company's tax status and/or incorrect
application of new tax rules.
Mitigation
-- Advisers including Solicitors and Brokers are engaged on key
regulatory, accounting and tax issues.
-- Engagement with The British Property Federation on regulatory
changes that impact the real estate industry.
-- REIT regime compliance is regularly monitored by the Board
and the Executive team will consider the impact of the regime as
part of their decision making.
Progress 2019/2020
-- Greater level of scrutiny from the Board covering corporate
governance and the FRCs reporting requirements.
-- Business forecasts and strategy allow for changes to
corporation tax rates and interest deductibility rules.
-- Following conversion to a REIT on 1 August 2019 the Company
has complied with the REIT regime.
06 Operational
Risk description
Business disruption as a result of physical damage to buildings,
IT systems failure, cybercrime, extreme weather occurrences, or
other environmental events, including those arising from climate
change.
Without adequate systems and controls our exposure to
operational risk and business disruption is increased.
Mitigation
-- Our buildings are covered by comprehensive buildings and loss of rent insurance.
-- Antivirus software and firewalls protect IT systems and data
is regularly backed up. Cyber insurance is in place.
-- Tight-knit team with systems in place to ensure Executive
team have shared responsibility across all major decisions.
-- Segregation of duties applied to payments processing and bank authorisations.
-- Climate related risks are considered as part of our ongoing
environmental management. For example, flood risk assessments are
considered as part of our acquisition strategy and compliance with
Minimum Energy Efficiency Standards is regularly monitored.
Progress 2019/2020
-- Continued to keep under review the internal control
environment and ensure good governance practices are adopted
throughout the business.
-- Reviewed our cyber security arrangements to ensure we are
deploying the most up-to-date technologies.
-- Increased our focus on environmental management, which forms
a key part of the work of the Corporate Social Responsibility
Committee.
07 people
Risk description
The Group's strategy and core business operations are led by a
small number of individuals.
An inability to attract or retain staff and Directors, suppliers
and/or managing agents with the right skills and experience may
result in significant underperformance or impact the overall
effectiveness of our operations.
Mitigation
-- Key man insurance cover in place for Executive Directors.
-- Succession planning is a regular agenda item for the Nominations Committee.
-- We engage with staff regularly and encourage a positive working environment.
-- We maintain an attractive reward and benefits package and
undertake regular performance reviews.
-- General policy of retaining incumbent managing agents on new
property acquisitions to avoid awkward transitions and potential
loss of income.
Progress 2019/2020
-- The number of staff remains at 12 and provides cover across
the team reducing exposure should any of the key personnel be
unavailable.
-- Formed the Workforce Advisory Panel to further enhance
employee engagement and ensure the Board understands the views of
the whole workforce.
08 portfolio
Risk description
Decrease in portfolio valuation, volatile rental values and
general underperformance of assets through inappropriate investment
strategies and failure to implement asset business plans will
adversely impact profitability and net assets.
Mitigation
-- Diversification of portfolio minimising exposure to any one
geographic location or sector with no exposure to London.
-- All investment decisions require Board approval.
-- Experienced management team with vast experience, networks
and use of advisers to support the assessment of investment
opportunities.
-- Asset managers report regularly to the Executive management
team on their progress implementing their business plans.
-- Independent valuations are undertaken for all assets at the year end and half year end.
-- Property returns are benchmarked against MSCI IPD UK
Quarterly Index and performance against the benchmark is reviewed
formally at the half year and year end.
Progress 2019/2020
-- We have a balanced portfolio across a range of geographical areas outside of London.
-- No single asset comprises more than 10% of the portfolio's value.
-- The portfolio's valuation is slightly down taking into
consideration capital expenditure and the impact of Covid-19.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the Group and parent Company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. Under that
law, the Directors have prepared the Group financial statements in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union, and have elected to prepare the
Company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent Company and of
the profit or loss of the Group for the period. In preparing each
of the Group and parent Company financial statements the Directors
are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- for the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the European
Union, subject to any material departures disclosed and explained
in the financial statements;
-- for the parent Company financial statements, state whether
they have been prepared in accordance with UK GAAP, subject to any
material departure disclosed and explained in the parent company
financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the parent
Company will continue in business; and
-- under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Parent Company and enable them
to ensure that the financial statements comply with the
requirements of the Companies Act 2006 and, as regards the Group
Financial Statements, Article 4 of the IAS Regulations.
They are also responsible for safeguarding the assets of the
Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for ensuring the Annual Report and
the financial statements are made available on a website. Financial
statements are published on the Company's website in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the Company's website is the responsibility of the Directors.
The Directors' responsibility also extends to the ongoing integrity
of the financial statements contained therein.
Directors' Responsibilities Statement
We confirm to the best of our knowledge:
-- the financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted
by The European Union and Article 4 of the IAS regulation, and give
a true and fair view of the assets, liabilities, financial position
and profit or loss of the Company and the undertakings included in
the consolidation as a whole;
-- the Strategic Report includes a fair review of the
development and performance of the business and the financial
position of the Company and the undertakings included in the
consolidation as a whole, together with a description of the
principal risks and uncertainties that they face; and
-- the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for Shareholders to assess the Company's performance, business
model and strategy.
On behalf of the Board
Nicola Grinham
Company Secretary
6 July 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2020
2020 2019
Note GBP'000 GBP'000
----------------------------------------------- ------ -------- --------
Rental and other income 1 21,147 18,750
Property operating expenses 3b (2,392) (2,318)
----------------------------------------------- ------ -------- --------
Net rental income 18,755 16,432
Dividend income from listed equity investments 105 43
Administrative expenses 3c (4,284) (4,122)
----------------------------------------------- ------ -------- --------
Operating profit before gains and losses
on property assets, listed equity investments
and cost of acquisitions 14,576 12,353
Profit on disposal of investment properties 138 218
Loss on revaluation of investment property
portfolio 9 (17,154) (382)
Impairment of trading properties 10 (763) -
Loss on disposal of assets held for
sale (269) (579)
Impairment on assets held for sale 9 - (291)
Loss on revaluation of listed equity
investments 11 (425) (214)
----------------------------------------------- ------ -------- --------
Operating (loss)/profit (3,897) 11,105
Finance income 18 20
Finance expense 2 (3,845) (3,763)
Debt termination costs (501) -
Changes in fair value of interest rate
derivatives (846) (929)
----------------------------------------------- ------ -------- --------
(Loss)/profit before taxation (9,071) 6,433
Taxation 5 3,632 (1,263)
----------------------------------------------- ------ -------- --------
(Loss)/profit after taxation for the
year and total comprehensive income
attributable
to owners of the Parent (5,439) 5,170
----------------------------------------------- ------ -------- --------
Earnings per ordinary share
Basic 6 (11.8p) 11.3p
----------------------------------------------- ------ -------- --------
Diluted 6 (11.8p) 11.3p
----------------------------------------------- ------ -------- --------
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 2020
2020 2019
Note GBP'000 GBP'000
-------------------------------------------- ------ --------- ---------
Non-current assets
Investment properties 9 248,699 258,331
Listed equity investments at fair value 11 2,540 2,636
Right of use asset 12 313 -
Property, plant and equipment 12 101 97
-------------------------------------------- ------ --------- ---------
251,653 261,064
-------------------------------------------- ------ --------- ---------
Current assets
Assets held for sale 9 - 11,756
Trading property 10 27,557 14,367
Trade and other receivables 13 9,323 6,243
Cash and cash equivalents 14 14,919 22,890
-------------------------------------------- ------ --------- ---------
51,799 55,256
-------------------------------------------- ------ --------- ---------
Total assets 303,452 316,320
-------------------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 15 (14,053) (10,001)
Borrowings 17 (1,836) (5,999)
Lease liabilities for right of use asset 20 (164) -
-------------------------------------------- ------ --------- ---------
Creditors: amounts falling due within
one year (16,053) (16,000)
-------------------------------------------- ------ --------- ---------
Net current assets 35,746 39,256
-------------------------------------------- ------ --------- ---------
Non-current liabilities
Borrowings 17 (117,520) (112,017)
Deferred tax liability 5 (228) (5,580)
Lease liabilities for investment properties 20 (1,806) (1,585)
Lease liabilities for right of use asset 20 (154) -
Derivative financial instruments 16 (1,343) (815)
-------------------------------------------- ------ --------- ---------
Net assets 166,348 180,323
-------------------------------------------- ------ --------- ---------
Equity
Called up share capital 21 4,639 4,639
Share premium account 125,019 125,019
Treasury shares (1,349) (1,771)
Merger reserve 3,503 3,503
Capital redemption reserve 340 340
Retained earnings 34,196 48,593
-------------------------------------------- ------ --------- ---------
Equity - attributable to the owners
of the Parent 166,348 180,323
-------------------------------------------- ------ --------- ---------
Basic NAV per ordinary share 7 361p 393p
Diluted NAV per ordinary share 7 361p 392p
-------------------------------------------- ------ --------- ---------
These financial statements were approved by the Board of
Directors and authorised for issue on 6 July 2020 and are signed on
its behalf by:
Stephen Silvester Neil Sinclair
Finance Director Chief Executive
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2020
Treasury
Share Share Share Other Retained Total
Capital Premium Reserve Reserves Earnings Equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------ -------- -------- -------- --------- --------- --------
At 31 March 2018 4,639 125,036 (2,011) 3,843 51,792 183,299
Total comprehensive
income for the year - - - - 5,170 5,170
Transactions with
Equity Holders:
Cost of issue of
new shares - (17) - - - (17)
Share-based payments 22 - - - - 332 332
Exercise of share
options 22 - - 240 - (240) -
Issue of deferred
bonus share options - - - - 257 257
Dividends paid 8 - - - - (8,718) (8,718)
--------------------- ------ -------- -------- -------- --------- --------- --------
At 31 March 2019 4,639 125,019 (1,771) 3,843 48,593 180,323
--------------------- ------ -------- -------- -------- --------- --------- --------
Total comprehensive
income for the year - - - - (5,439) (5,439)
Transactions with
Equity Holders:
Share-based payments 22 - - - - 130 130
Exercise of share
options 22 - - 422 - (422) -
Issue of deferred
bonus share options - - - - 77 77
Dividends paid 8 - - - - (8,743) (8,743)
--------------------- ------ -------- -------- -------- --------- --------- --------
At 31 March 2020 4,639 125,019 (1,349) 3,843 34,196 166,348
--------------------- ------ -------- -------- -------- --------- --------- --------
The share capital represents the nominal value of the issued
share capital of Palace Capital plc.
Share premium represents the excess over nominal value of the
fair value consideration received for equity shares net of expenses
of the share issue.
Treasury shares represents the consideration paid for shares
bought back from the market. Other reserves comprise the merger
reserve and the capital redemption reserve.
The merger reserve represents the excess over nominal value of
the fair value consideration for the acquisition of subsidiaries
satisfied by the issue of shares in accordance with S612 of the
Companies Act 2006.
The capital redemption reserve represents the nominal value of
cancelled preference share capital redeemed.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2020
2020 2019
Note GBP'000 GBP'000
------------------------------------------------- ---- -------- --------
Operating activities
(Loss)/profit before taxation (9,071) 6,433
Finance income (18) (20)
Finance expense 2 3,845 3,763
Changes in fair value of interest rate
derivatives 846 929
Loss on revaluation of investment property
portfolio 9 17,154 382
Impairment on assets held for sale 9 - 291
Profit on disposal of investment properties 9 (138) (218)
Loss on disposal of assets held for sale 269 579
Impairment of trading properties 10 763 -
Loss on revaluation of listed equity investments 11 425 214
Debt termination costs 501 -
Depreciation of tangible fixed assets 12 32 31
Amortisation of right of use asset 12 148 -
Share-based payments 22 130 332
Increase in receivables (481) (734)
Increase/(decrease) in payables 1,341 (105)
------------------------------------------------- ---- -------- --------
Net cash generated from operations 15,746 11,877
------------------------------------------------- ---- -------- --------
Interest received 18 20
Interest and other finance charges paid (3,680) (3,405)
Corporation tax paid in respect of operating
activities (2,173) (1,639)
------------------------------------------------- ---- -------- --------
Net cash flows from operating activities 9,911 6,853
------------------------------------------------- ---- -------- --------
Investing activities
Purchase of investment property and acquisition
costs capitalised 9 - (15,505)
Capital expenditure on refurbishment of
investment property 9 (5,667) (2,453)
Capital expenditure on developments 9 (3,925) (1,923)
Capital expenditure on trading property 9 (13,915) (535)
Proceeds from disposal of investment property 2,708 2,078
Proceeds from assets held for sale 11,487 9,082
Amounts transferred from restricted cash
deposits 14 (525) 553
Purchase of non-current asset - equity
investment 11 (329) (2,850)
Dividends from listed equity investments 105 43
Purchase of property, plant and equipment 12 (36) (7)
------------------------------------------------- ---- -------- --------
Net cash flow used in investing activities (10,097) (11,517)
------------------------------------------------- ---- -------- --------
Financing activities
Bank loans repaid 19 (18,325) (8,037)
Proceeds from new bank loans 19 19,736 25,991
Loan issue costs paid 19 (978) (145)
Costs from issue of Ordinary Share capital - (17)
Dividends paid 8 (8,743) (8,718)
------------------------------------------------- ---- -------- --------
Net cash flow from financing activities (8,310) 9,074
------------------------------------------------- ---- -------- --------
Net (decrease)/increase in cash and cash
equivalents (8,496) 4,410
------------------------------------------------- ---- -------- --------
Cash and cash equivalents at beginning
of the year 22,395 17,985
------------------------------------------------- ---- -------- --------
Cash and cash equivalents at the end of
the year 14 13,899 22,395
------------------------------------------------- ---- -------- --------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF ACCOUNTING
The consolidated financial statements of the Group comprise the
results of Palace Capital plc ("the Company") and its subsidiary
undertakings.
The Company is quoted on the Main Market of the London Stock
Exchange and is domiciled and registered in England and Wales and
incorporated under the Companies Act. The address of its registered
office is 4th Floor, 25 Bury Street, St James's, London, United
Kingdom, SW1Y 6AL.
BASIS OF PREPARATION
The financial information contained in this results announcement
has been prepared on the basis of the accounting policies set out
in the financial statements for the year ended 31 March 2019 except
for the adoption of IFRS 16 during the year ended 31 March 2020
which has not had a material impact on the results. Whilst the
financial information included in this announcement has been
computed in accordance with the recognition and measurement
requirements of IFRS, as adopted by the European Union, this
announcement does not itself contain sufficient disclosures to
comply with IFRS.
The financial information does not constitute the Group's
financial statements for the years ended 31 March 2020 or 31 March
2019 but is derived from those financial statements. Financial
statements for the year ended 31 March 2019 have been delivered to
the Registrar of Companies and those for the year ended 31 March
2020 will be delivered following the Company's Annual General
Meeting. The auditors' reports on both the 31 March 2020 and 31
March 2019 financial statements were unqualified and did not
contain statements under section 498 (2) or (3) of the Companies
Act 2006. The report for the year ended 31 March 2020 did include
an emphasis of matter paragraph, drawing attention to the material
valuation uncertainty statement made by the valuers which is
disclosed in the Properties Estimates note. The opinion was not
modified in respect of this matter.
GOING CONCERN
The Directors have made an assessment of the Group's ability to
continue as a going concern which included the current
uncertainties created by Covid-19, coupled with the Group's cash
resources, borrowing facilities, rental income, acquisitions and
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 development, performance and position
are set out in the Strategic Report. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities
are described in these financial statements. In addition, note 26
to the financial statements includes the Group's objectives,
policies and processes for managing its capital, its financial risk
management objectives, details of its financial instruments and its
exposures to credit risk and liquidity risk.
As at 31 March 2020 the Group had GBP14.9m of cash and cash
equivalents, of which GBP13.9m was unrestricted cash, a low gearing
level of 38% and a fair value property portfolio of GBP277.8m. The
directors have reviewed the forecasts for the Group taking into
account the impact of Covid-19 on trading over the twelve months
from the date of signing this annual report. The forecasts have
been assessed against a range of possible downside outcomes
incorporating significantly lower levels of income in line with the
possible effects of the pandemic. See Going Concern and Viability
on pages 41-42 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
The following new standards are effective and have been adopted
for the year ended 31 March 2020.
Standards in issue and effective from 1 January 2019
IFRS 16 Leases (Effective 1 January 2019)
IFRS 16 provides a single lessee accounting model, requiring the
recognition of assets and liabilities for all leases, together with
options to exclude leases where the lease term is 12 months or
less, or where the underlying asset is of low value. The Group
adopted IFRS 16 on 1 April 2019, using the modified retrospective
approach under which comparatives are not restated.
In applying IFRS 16 for the first time, the Group has used the
following practical expedients, for transition only, permitted by
the standard:
-- Excluding initial direct costs for the measurement of the
right of use asset at the date of initial application.
The Group has leased its head office at 25 Bury Street, London,
SW1Y 6AL, which has been accounted for in accordance with IFRS 16
since 1 April 2019. As a result, the Group has recognised a lease
liability, which was initially measured at the present value of the
remaining lease payments, discounted using the Group's incremental
borrowing rate as of 1 April 2019. The Group's incremental
borrowing rate is the rate at which a similar borrowing could be
obtained from an independent creditor under comparable terms and
conditions. The weighted-average rate applied was 3.2%.
A right of use asset has also been recognised on the balance
sheet and measured at an amount equal to the lease liability,
adjusted by the amount of any prepaid or accrued lease
payments.
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial
statements of Palace Capital plc and its subsidiaries as at the
year end date.
Subsidiaries are all entities (including special purpose
entities) over which the Company has control. The Company controls
an entity when the following three elements are present: power to
direct the activities of the entity, exposure to variable returns
from the entity and the ability of the Company to use its power to
affect those variable returns. Where necessary, adjustments have
been made to the financial statements of subsidiaries and
associates to bring the accounting policies used and accounting
periods into line with those of the Group. Intra-group balances and
any unrealised gains and losses arising from intra-group
transactions are eliminated in preparing the Consolidated Financial
Statements.
The results of subsidiaries acquired during the year are
included from the effective date of acquisition, being the date on
which the Group obtains control until the date that control
ceases.
The consideration transferred for the acquisition of a
subsidiary is the fair value of the assets transferred, the
liabilities incurred and the equity interests issued by the Group.
This fair value includes any contingent consideration. Acquisition
related costs are expensed as incurred.
If the consideration is less than the fair value of the assets
and liabilities acquired, the difference is recognised directly in
the Statement of Comprehensive Income.
Where an acquired subsidiary does not meet the definition of a
business, it is accounted for as an asset acquisition rather than a
business combination. A business is an integrated set of activities
and assets that is capable of being conducted and managed for the
purpose of providing goods or services to customers, generating
investment income (such as dividends or interest) or generating
other income from ordinary activities.
REVENUE
Revenue is primarily derived from property income and represents
the value of accrued charges under operating leases for rental of
the Group's investment properties. Revenue is measured at the fair
value of the consideration received. All income is derived in the
United Kingdom.
Rental income from investment properties leased out under
operating leases is recognised in the Statement of Comprehensive
Income on a straight-line basis over the term of the lease.
Contingent rent reviews are recognised when such reviews have been
agreed with tenants. Lease incentives and guaranteed rent review
amounts are recognised as an integral part of the net consideration
for use of the property and amortised on a straight-line basis over
the term of lease.
Amounts received from tenants to terminate leases or to
compensate for dilapidations are recognised in the Group Statement
of Comprehensive Income when the right to receive them arises.
Insurance commissions are recognised as performance obligations
are fulfilled in terms of the individual performance obligations
within the contract with the insurance provider. Revenue is
determined by the transaction price in the contract and is measured
at the fair value of the consideration received. Revenue is
recognised once the underlying contract between insured and insurer
has been signed.
Revenue from the disposal of investment properties is recognised
when significant risks and rewards attached to the property have
transferred from the Group. This will ordinarily occur on
completion of contracts. Such transactions are recognised when any
conditions are satisfied. The profit or loss on disposal of
investment property is recognised separately in the Consolidated
Statement of Comprehensive Income and is the difference between the
net sales proceeds and the opening fair value asset plus any
capital expenditure during the period to disposal.
Revenue from the sale of trading properties is recognised when
significant risks and rewards attached to the trading property have
transferred from the Group, which is usually on completion of
contracts and transfer of property title.
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.
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.
Deferred income
Where invoices to customers have been raised which relate to a
period after the Group year end, being 31 March 2020, the Group
will recognise deferred income for the difference between revenue
recognised and amounts billed for that contract.
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. 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.
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 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.
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, 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 construction.
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.
ASSETS HELD FOR SALE
Assets are classified as held for sale when:
-- They are available for immediate sale;
-- Management are committed to a plan to sell;
-- It is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn;
-- An active programme to locate a buyer has been initiated;
-- The asset is being marketed at a reasonable price in relation to its fair value; and
-- A sale is expected to complete within 12 months from the date of classification.
Investment properties classified as held for sale are measured
at fair value in accordance with the measurement criteria of IAS
40.
Assets held for sale are derecognised when significant risks and
rewards attached to the asset have transferred from the Group which
is on completion of contracts or when there are changes to a plan
of sales.
TRANSFERS BETWEEN INVESTMENT PROPERTIES AND TRADING
PROPERTIES
When the Group begins to redevelop an existing investment
property for continued future use as an investment property, the
property continues to be held as an investment property. When the
Group begins to redevelop an existing investment property with a
view to sell, the property is transferred to trading properties and
held as a current asset. The property is remeasured to fair value
as at the date of the transfer with any gain or loss being taken to
the Consolidated Statement of Comprehensive Income. The remeasured
amount becomes the deemed initial cost of the trading property.
TRADING PROPERTIES
Trading property is being developed for sale or being held for
sale after development is complete, and is carried at the lower of
cost and net realisable value. Trading properties are derecognised
on completion of sales contracts. 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 generally applicable is:
Right of use asset 33% straight-line
LEASE liabilities for investment properties
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 liabilities for right of use assets
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;
-- 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.
As a result of the Company's conversion to a REIT on 1 August
2019, the Group is no longer required to pay UK corporation tax in
respect of property rental income and capital gains relating to its
property rental business. Consequently a GBP3,700,000 credit on the
profit and loss account and debit to the balance sheet has been
recognised for the reversal of deferred tax provided for capital
gains tax due to revaluation of investment properties to fair value
and the capital allowances that have been claimed on improvements
to investment properties.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in profit or loss,
except when it relates to items charged or credited directly to
other comprehensive income, in which case the deferred tax is also
dealt with in other comprehensive income.
The Government announced in the summer 2015 Budget the reduction
in the corporation tax rate from 20% main rate in the tax year 2016
to 19% with effect from 1 April 2017.
DIVIDS TO EQUITY HOLDERS OF THE PARENT
Interim ordinary dividends are recognised when paid and final
ordinary dividends are recognised as a liability in the period in
which they are approved by the shareholders.
SHARE-BASED PAYMENTS
The fair value of the share options are determined at the grant
date and are expensed on a straight-line basis over the vesting
period. Non-market vesting conditions are taken into account by
adjusting the number of equity instruments expected to vest at each
reporting date so that ultimately the cumulative amount recognised
over the vesting period is based on the number of options that
eventually vest. Non-vesting conditions and market vesting
conditions are factored into the fair values of the options
granted. As long as all other vesting conditions are satisfied, a
charge is made irrespective of whether the market vesting
conditions are satisfied. The cumulative expense is not adjusted
for failure to achieve a market vesting condition or where a
non-vesting condition is not satisfied.
COMMITMENTS AND CONTINGENCIES
Commitments and contingent liabilities are disclosed in the
financial statements. They are disclosed unless the possibility of
an outflow of resources embodying economic benefits is remote. A
contingent asset is not recognised in the financial statements but
disclosed when an inflow of economic benefits is probable. 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.
The merger reserve represents the excess over nominal value of
the fair value consideration for the acquisition of subsidiaries
satisfied by the issue of shares in accordance with S612 of the
Companies Act 2006.
Treasury share reserve represents the consideration paid for
shares bought back from the market.
The capital redemption reserve represents the nominal value of
cancelled preference share capital redeemed.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION AND
UNCERTAINTY
The preparation of the financial statements requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates. Information about such judgements and estimation is
contained in the accounting policies or the notes to the accounts,
and the key areas are summarised below.
Estimates
Properties
The key source of estimation uncertainty rests in the values of
property assets, which significantly affects the value of
investment properties in the Consolidated Statement of Financial
Position. The investment property portfolio and assets held for
sale are carried at fair value, which requires a number of
judgements and estimates in assessing the Group's assets relative
to market transactions. The approach to this valuation and the
amounts affected are set out in the accounting policies and note
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.
Due to Covid-19, March 2020 valuations have been issued by
Cushman & Wakefield subject to a material uncertainty
disclosure as follows:
The outbreak of the Novel Coronavirus (Covid-19), declared by
the World Health Organisation as a "Global Pandemic" on 11 March
2020, has impacted global financial markets. Travel restrictions
have been implemented by many countries. Market activity is being
impacted in many sectors. As at the valuation date, we consider
that we can attach less weight to previous market evidence for
comparison purposes to inform opinions of value. Indeed, the
current response to Covid-19 means that we are faced with an
unprecedented set of circumstances on which to base a judgement.
Our valuations are therefore reported on the basis of "material
valuation uncertainty" as per VPS 3 and VPGA 10 of the RICS Red
Book Global. Consequently, less certainty - and a higher degree of
caution - should be attached to our valuation than would normally
be the case. Given the unknown future impact that Covid-19 might
have on the real estate market, we recommend that you keep the
valuation of these Properties under frequent review.
Expected credit loss model
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses using a lifetime expected credit loss
provision for trade receivables and contract assets. The expected
loss rates are based on the Group's historical credit losses
experienced over the three-year period prior to the period end. The
historical loss rates are then adjusted for current and
forward-looking information on macroeconomic factors affecting the
Group's tenants. In times of heightened uncertainty these
estimations become more difficult.
The severity of the economic impact of Covid-19 has raised a
significant challenge in identifying relevant forward looking
information. However, the Group has made estimates based on
reasonable and supportable information that is available at the
reporting date.
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. 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 three Executive Directors (the Group's Executive Committee).
The Group's Executive Committee are of the opinion that the
principal activity of the Group is to invest in commercial real
estate in the UK.
Operating segments are identified on the basis of internal
financial reports about components of the Group that are regularly
reviewed by the CODM.
The internal financial reports received by the Group's Executive
Committee contain financial information at a Group level as a whole
and there are no reconciling items between the results contained in
these reports and the amounts reported in the financial statements.
Additionally, information is provided to the Group's Executive
Committee showing gross property income and property valuation by
individual property. Therefore, each individual property is
considered to be a separate operating segment in that its
performance is monitored individually.
The Group's property portfolio includes investment properties
located throughout England, predominantly regional investments
outside London and comprises a diverse portfolio of commercial
buildings. The Directors consider that these properties have
similar economic characteristics. Therefore, these individual
properties have been aggregated into a single operating segment. In
the view of the Directors, there is one reportable segment.
All of the Group's properties are based in the UK. No
geographical grouping is contained in any of the internal financial
reports provided to the Group's Executive Committee and, therefore,
no geographical segmental analysis is required.
2020 2019
Revenue - type GBP'000 GBP'000
------------------------------------------------ ======== ========
Rents received from investment properties 17,717 17,960
Dilapidations and other property related income 439 589
Priory House surrender premium 2,850 -
Insurance commission 141 201
------------------------------------------------ ======== --------
Total Revenue 21,147 18,750
------------------------------------------------ ======== --------
No single tenant accounts for more than 10% of the Group's total
rents received from investment properties.
2. INTEREST PAYABLE AND SIMILAR CHARGES
2020 2019
GBP'000 GBP'000
------------------------------ ======== ========
Interest on bank loans 3,351 3,291
Loan arrangement fees 358 364
Interest on lease liabilities 123 108
Other finance charges 13 -
------------------------------ ======== --------
3,845 3,763
------------------------------ ======== --------
3. PROFIT FOR THE YEAR
a) The Group's profit for the year is stated after charging the
following:
2020 2019
GBP'000 GBP'000
------------------------------------------------------- ======== ========
Depreciation of tangible fixed assets and amortisation
of right of use assets: 180 31
Auditor's remuneration:
Fees payable to the Auditor for the audit of the
Group's annual accounts 124 109
Fees payable to the Auditor for the audit of the
subsidiaries' annual accounts 26 25
Additional fees payable to the Auditor in respect
of the 2018 audit - 20
Fees payable to the Auditor and its related entities
for other services:
Audit related assurance services 9 8
Tax services - 3
------------------------------------------------------- ======== --------
159 165
------------------------------------------------------- ======== --------
b) The Group's property operating expenses comprise the
following:
2020 2019
GBP'000 GBP'000
------------------------------------------------ ======== ========
Void, investment and development property costs 2,218 1,844
Legal, lettings and consultancy costs 174 474
------------------------------------------------ ======== --------
2,392 2,318
------------------------------------------------ ======== --------
c) The Group's administrative expenses comprise the
following:
2020 2019
GBP'000 GBP'000
-------------------------------------- ======== ========
Staff costs 2,593 2,202
Other overheads 273 264
Accounting and audit fees 267 225
Stock Exchange costs 207 176
PR and marketing costs 193 169
Consultancy and recruitment fees 164 213
Amortisation of right of use asset 148 -
Legal and professional fees 143 143
Rent, rates and other office costs 134 363
Share-based payments 130 332
Depreciation of tangible fixed assets 32 31
Property management fees - 4
-------------------------------------- ======== --------
4,284 4,122
-------------------------------------- ======== --------
d) EPRA cost ratios are calculated as follows:
2020 2019
GBP'000 GBP'000
--------------------------------------------------- ======== ========
Gross property income 21,147 18,750
Administrative expenses 4,284 4,122
Property operating expenses 2,392 2,318
=================================================== ======== ========
EPRA costs (including property operating expenses) 6,676 6,440
=================================================== ======== ========
EPRA Cost Ratio (including property operating
expenses) 31.6% 34.3%
Less property operating expenses (2,392) (2,318)
=================================================== ======== ========
EPRA costs (excluding property operating expenses) 4,284 4,122
=================================================== ======== ========
EPRA Cost Ratio (excluding property operating
expenses) 20.3% 22.0%
4. EMPLOYEES AND DIRECTORS' REMUNERATION
Staff costs during the period were as follows:
2020 2019
GBP'000 GBP'000
------------------------------ ======== ========
Non-Executive Directors' fees 188 152
Wages and salaries 2,054 1,696
Pensions 91 98
Social security costs 260 256
------------------------------ ======== --------
2,593 2,202
------------------------------ ======== --------
Share-based payments 130 332
------------------------------ ======== --------
2,723 2,534
------------------------------ ======== --------
The average number of employees of the Group and the Company
during the period was:
2020 2019
Number Number
-------------------------------------- ======= =======
Directors 8 7
Senior management and other employees 9 9
-------------------------------------- ======= -------
17 16
-------------------------------------- ======= -------
Key management are the Group's Directors. Remuneration in
respect of key management was as follows:
2020 2019
GBP'000 GBP'000
----------------------------------- ======== ========
Emoluments for qualifying services 1,423 1,127
Social security costs 196 156
Pension 34 33
----------------------------------- ======== --------
1,653 1,316
----------------------------------- ======== --------
Share-based payments 100 291
----------------------------------- ======== --------
1,753 1,607
----------------------------------- ======== --------
5. TAXATION
2020 2019
GBP'000 GBP'000
--------------------------------------- ======== ========
Current income tax charge 198 1,008
Capital gains charge in period 1,744 1,194
Tax (over)/underprovided in prior year (222) 12
Deferred tax (5,352) (951)
--------------------------------------- ======== --------
Tax charge (3,632) 1,263
--------------------------------------- ======== --------
2020 2019
GBP'000 GBP'000
---------------------------------------------------- ======== ========
(Loss)/profit on ordinary activities before tax (9,071) 6,433
Based on profit for the period: Theoretical Tax
at 19% (2019: 19%) (1,724) 1,222
Effect of:
Utilisation of tax losses not previously recognised
in deferred tax - (5)
Net expenses not deductible for tax purposes 28 75
Chargeable gain in excess of/(lower than) profit
or loss on investment property 197 (126)
Tax (over)/underprovided in prior years (222) 12
Movement on sale and revaluation not recognised
through deferred tax (371) 85
Deferred tax released to profit and loss on REIT
conversion (3,699) -
REIT exempt income (993) -
Non-taxable items 3,152 -
---------------------------------------------------- ======== --------
Tax (credit)/charge for the period (3,632) 1,263
---------------------------------------------------- ======== --------
As a result of the Company's conversion to a REIT on 1 August
2019, the Group is no longer required to pay UK corporation tax in
respect of property rental income and capital gains relating to its
property rental business. Consequently a GBP3,727,000 credit on the
profit and loss account and debit to the balance sheet has been
recognised for the reversal of deferred tax provided for capital
gains tax due to revaluation of investment properties to fair value
and the capital allowances that have been claimed on improvements
to investment properties. UK corporation tax was payable for the
first four months of the period up to 31 July 2019 before entry to
the REIT "regime". Taxable profits from 1 August 2019 are not
subject to UK corporation tax.
Deferred taxes relate to the following:
2020 2019
GBP'000 GBP'000
-------------------------------------------------------- ======== ========
Deferred tax liability - brought forward (5,580) (6,531)
Deferred tax release to profit and loss on REIT
conversion 3,699 -
Deferred tax liability on accredited capital allowances - (647)
Deferred tax on fair value of investment property 1,653 1,598
======================================================== ======== ========
Deferred tax liability - carried forward (228) (5,580)
-------------------------------------------------------- ======== --------
2020 2019
GBP'000 GBP'000
----------------------------------------------- ======== ========
Accelerated capital allowances - (3,241)
Investment property unrealised valuation gains (228) (2,339)
=============================================== ======== ========
Deferred tax liability - carried forward (228) (5,580)
----------------------------------------------- ======== --------
Capital allowances have been claimed on improvements to
investment properties amounting to GBPNil (2019: GBP19,065,000). A
deferred tax liability amounting to GBPNil (2019: GBP3,241,000) has
been recognised in the financial statements, although the Directors
do not expect that the capital allowances will reverse when the
properties are disposed of as a result of section 198 elections
being agreed with purchasers.
A deferred tax liability on the revaluation of investment
properties to fair value has been provided totalling GBP228,000
(2019: GBP2,339,000) as once the availability of capital losses,
indexation allowances and the 1982 valuations for certain
properties have been taken into account, it is anticipated that
capital gains tax would be payable if the properties were disposed
of at their fair value. The deferred tax liability relates to
investment properties transferred into trading stock, prior to the
Group becoming a REIT. As at 31 March 2020 the Group had
approximately GBP6,848,000 (2019: GBP6,328,000) of realised capital
losses to carry forward. There has been no deferred tax asset
recognised as the Directors do not consider it probable that future
taxable profits will be available to utilise these losses.
Finance Act 2015 sets the main rate of UK corporation tax at 20%
with effect on 1 April 2015. The enactment of Finance (No. 2) Act
2015 and Finance Act 2016 reduces the main rate of corporation tax
to 19% from April 2017. The deferred tax liability has been
calculated on the basis of 19% due to the expectation that all
properties are retained through April 2021.
6. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share and diluted earnings per share have
been calculated on profit after tax attributable to ordinary
shareholders for the year (as shown on the Consolidated Statement
of Comprehensive Income) and for the earnings per share, the
weighted average number of ordinary shares in issue during the
period (see table below) and for diluted weighted average number of
ordinary shares in issue during the year (see table below).
2020 2019
GBP'000 GBP'000
------------------------------------------------- ======== ========
(Loss)/profit after tax attributable to ordinary
shareholders for the year (5,439) 5,170
------------------------------------------------- ======== --------
2019
2020 No. of
No. of shares shares
----------------------------------------------------- ============== ==========
Weighted average number of shares for basic earnings
per share 45,988,353 45,834,436
Dilutive effect of share options - 63,690
===================================================== ============== ==========
Weighted average number of shares for diluted
earnings per share 45,988,353 45,898,126
===================================================== ============== ==========
Earnings per ordinary share
Basic (11.8p) 11.3p
===================================================== ============== ==========
Diluted (11.8p) 11.3p
----------------------------------------------------- ============== ----------
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, associated close-out costs, one-off
finance termination costs, share-based payments and other one-off
exceptional items. EPRA earnings is calculated on the basis of the
basic number of shares in line with IFRS earnings as the dividends
to which they give rise accrue to current shareholders. The EPRA
diluted earnings per share also takes into account the dilution of
share options and warrants if exercised. There are 32,108 options
that are exercisable but these are not included in the earnings as
these would be anti-dilutive.
Adjusted profit before tax and Adjusted EPS
The Group also reports an adjusted earnings measure which is
based on recurring earnings before tax and the basic number of
shares. This is the basis on which the Directors consider dividend
cover. This takes EPRA earnings as the starting point and then adds
back tax and any other fair value movements or one-off items that
were included in EPRA earnings. This includes share-based payments
being a non-cash expense. The corporation tax charge (excluding
deferred tax movements, being a non-cash expense) is deducted in
order to calculate the adjusted earnings per share.
The EPRA and adjusted earnings per share for the period are
calculated based upon the following information:
2020 2019
GBP'000 GBP'000
------------------------------------------------------ ======== ========
(Loss)/profit for the year (5,439) 5,170
Adjustments:
Loss on revaluation of investment property portfolio 17,154 382
Impairment on assets held for sale - 291
Write-down of trading stock 763 -
Profit on disposal of investment properties (138) (218)
Loss on disposal of assets held for sale 269 579
Loss on revaluation of listed equity investments 425 214
Debt termination costs 501 -
Fair value loss on derivatives 846 929
Deferred tax relating to EPRA adjustments and capital
gain charged (3,608) 243
------------------------------------------------------ ======== --------
EPRA earnings for the year 10,773 7,590
Share-based payments 130 332
Priory House surrender premium (2,850) -
====================================================== ======== ========
Adjusted profit after tax for the year 8,053 7,922
Tax excluding deferred tax on EPRA adjustments and
capital gain charged (25) 1,020
====================================================== ======== ========
Adjusted profit before tax for the year 8,028 8,942
------------------------------------------------------ ======== --------
EPRA and adjusted earnings per ordinary share
EPRA Basic 23.4p 16.6p
====================================================== ======== ========
EPRA Diluted 23.4p 16.5p
====================================================== ======== ========
Adjusted EPS 17.5p 17.3p
------------------------------------------------------ ======== --------
7. NET ASSET VALUE PER SHARE
EPRA NAV calculation makes adjustments to IFRS NAV to provide
stakeholders with the most relevant information on the fair value
of the assets and liabilities within a true real estate investment
company with a long-term investment strategy. EPRA NAV is adjusted
to take effect of the exercise options, convertibles and other
equity interests and excludes the fair value of financial
instruments and deferred tax on latent gains. EPRA NNNAV measure is
to report net asset value including fair values of financial
instruments and deferred tax on latent gains.
The diluted net assets and the number of diluted ordinary issued
shares at the end of the period assumes that all the outstanding
options that are exercisable at the period end are exercised at the
option price.
Net asset value is calculated using the following
information:
2020 2019
GBP'000 GBP'000
---------------------------------------------------- ======== ========
Net assets at the end of the year 166,348 180,323
==================================================== ======== ========
Diluted net assets at end of the year 166,348 180,323
==================================================== ======== ========
Include fair value adjustment of trading properties - 250
Exclude fair value of derivatives 1,343 815
Exclude deferred tax on latent capital gains and
capital allowances 228 5,580
==================================================== ======== ========
EPRA NAV 167,919 186,968
==================================================== ======== ========
Include fair value of derivatives (1,343) (815)
Include deferred tax on latent capital gains and
capital allowances (228) (5,580)
==================================================== ======== ========
EPRA NNNAV 166,348 180,573
---------------------------------------------------- ======== --------
2020 2019
No of shares No of shares
--------------------------------------------------- ============= =============
Number of ordinary shares issued at the end of the
year (excluding treasury shares) 46,036,508 45,883,249
Dilutive effect of share options 32,108 63,690
=================================================== ============= =============
Number of ordinary shares issued for diluted and
EPRA net assets per share 46,068,616 45,946,939
=================================================== ============= =============
Net assets per ordinary share
Basic 361p 393p
=================================================== ============= =============
Diluted 361p 392p
=================================================== ============= =============
EPRA NAV 364p 407p
=================================================== ============= =============
EPRA NNNAV 361p 393p
--------------------------------------------------- ============= -------------
8. DIVIDS
Dividend 2020 2019
Payment date per share GBP'000 GBP'000
-------------------------- -------------------- ========== ======== ========
2020
27 December
Interim dividend 2019 4.75 2,189 -
18 October
Interim dividend 2019 4.75 2,189 -
-------------------------- -------------------- ---------- ======== --------
9.50 4,378 -
----------------------------------------------- ---------- ======== --------
2019
Final dividend 13 July 2019 4.75 2,183 -
Interim dividend 12 April 2019 4.75 2,182 -
28 December
Interim dividend 2018 4.75 - 2,182
19 October
Interim dividend 2018 4.75 - 2,182
-------------------------- -------------------- ---------- ======== --------
19.00 4,365 4,364
----------------------------------------------- ---------- ======== --------
2018
Final dividend 31 July 2018 4.75 - 2,177
Interim dividend 13 April 2018 4.75 - 2,177
-------------------------- -------------------- ---------- ======== --------
9.50 - 4,354
----------------------------------------------- ---------- ======== --------
Dividends reported in the Group Statement of
Changes in Equity 8,743 8,718
------------------------------------------------ ---------- ======== --------
Proposed Dividends
2020 2019
GBP'000 GBP'000
------------------------------------------------------------ ======== ========
August 2020 final dividend in respect of year end 31 March
2020: 2.5p (2019 final dividend: 4.75p) 1,152 2,182
April 2020 interim dividend in respect of year end 31 March
2020: 0.00p (2019 interim dividend: 4.75p) - 2,182
------------------------------------------------------------ ======== --------
1,152 4,364
------------------------------------------------------------ ======== --------
Proposed dividends on ordinary shares are subject to approval at
the Annual General Meeting and are not recognised as a liability as
at 31 March 2020.
9. PROPERTY PORTFOLIO
Freehold Leasehold Total
investment investment investment
properties properties properties
GBP'000 GBP'000 GBP'000
------------------------------------------------- =========== =========== ===========
At 1 April 2018 232,742 21,121 253,863
Additions - refurbishments 2,521 179 2,700
Additions - new properties 15,505 - 15,505
Capital expenditure on assets under construction 2,014 - 2,014
Transfer to trading property (13,509) - (13,509)
Loss on revaluation of investment properties (122) (260) (382)
Disposals (1,860) - (1,860)
------------------------------------------------- ----------- ----------- -----------
At 1 April 2019 237,291 21,040 258,331
------------------------------------------------- ----------- ----------- -----------
Additions - refurbishments 5,495 661 6,156
Capital expenditure on assets under construction 3,936 - 3,936
Loss on revaluation of investment properties (13,756) (3,398) (17,154)
Disposals (2,570) - (2,570)
------------------------------------------------- =========== =========== ===========
At 31 March 2020 230,396 18,303 248,699
------------------------------------------------- =========== =========== ===========
Standing Investment Assets
investment properties Total investment Trading held for Total property
properties under construction properties properties sale portfolio
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- =========== =================== ================ =========== ========= ==============
At 1 April 2018 253,863 - 253,863 - 21,708 275,571
Additions - refurbishments 2,700 - 2,700 - - 2,700
Additions - new properties 15,505 - 15,505 - - 15,505
Transfer to investment
property under
construction (3,810) 3,810 - - - -
Capital expenditure on
developments 1,772 242 2,014 - - 2,014
Transfer to trading
property (13,509) - (13,509) 13,509 - -
Additions - trading
property - - - 858 - 858
Loss/(gain) on revaluation
of properties (452) 70 (382) - - (382)
Loss on revaluation of
assets held for sale - - - - (291) (291)
Disposals (1,860) - (1,860) - (9,661) (11,521)
-------------------------- ----------- ------------------- ---------------- ----------- --------- --------------
At 1 April 2019 254,209 4,122 258,331 14,367 11,756 284,454
-------------------------- ----------- ------------------- ---------------- ----------- --------- --------------
Additions - refurbishments 6,156 - 6,156 - - 6,156
Capital expenditure on
developments - 3,936 3,936 - - 3,936
Additions - trading
property - - - 13,953 - 13,953
Loss on revaluation of
properties (16,868) (286) (17,154) (763) - (17,917)
Disposals (2,570) - (2,570) - (11,756) (14,326)
-------------------------- =========== =================== ================ =========== ========= ==============
At 31 March 2020 240,927 7,772 248,699 27,557 - 276,256
-------------------------- =========== =================== ================ =========== ========= ==============
The property portfolio (other than assets held for sale) has
been independently valued at fair value. The valuations have been
prepared in accordance with the RICS Valuation - Global Standards
July 2017 ("the Red Book") and incorporate the recommendations of
the International Valuation Standards and the RICS valuation -
Professional Standards UK January 2014 (Revised April 2015) which
are consistent with the principles set out in IFRS 13.
The valuer in forming its opinion 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 GBP138,000 (2019:
GBP218,000) relating to investment properties disposed of during
the year were recognised in profit or loss.
The Group is developing a large mixed-use scheme at Hudson
Quarter, York. Part of the approved scheme consists of commercial
units which the Group holds for leasing. As a result, the
commercial element of the scheme is classified as investment
properties under construction.
For investment properties under construction, GBP474,558 (2019:
GBPNil) of borrowing costs have been capitalised in the year.
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:
2020 2019
GBP'000 GBP'000
------------------------------------------------- ======== ========
Cushman & Wakefield LLP (property portfolio) 277,770 274,560
Assets held for sale - 11,756
================================================= ======== ========
Fair value of property portfolio 277,770 286,316
================================================= ======== ========
Adjustment in respect of minimum payment under
head leases 1,806 1,600
Less assets held for sale - (11,756)
Less trading properties at lower of cost and net
realisable value (27,557) (14,367)
Less lease incentive balance included in accrued
income (3,320) (2,752)
Less rent top-up adjustment - (460)
Less fair value uplift on trading properties - (250)
================================================= ======== ========
Carrying value of investment properties 248,699 258,331
------------------------------------------------- ======== --------
The valuations of all investment property held by the Group is
classified as Level 3 in the IFRS 13 fair value hierarchy as they
are based on unobservable inputs. There have been no transfers
between levels of the fair value hierarchy during the year.
Valuation process - investment properties
The valuation reports produced by the independent valuers are
based on information provided by the Group such as current rents,
terms and conditions of lease agreements, service charges and
capital expenditure. This information is derived from the Group's
financial and property management systems and is subject to the
Group's overall control environment.
In addition, the valuation reports are based on assumptions and
valuation models used by the independent valuers. The assumptions
are typically market related, such as yields and discount rates,
and are based on their professional judgement and market
observations. Each property is considered a separate asset, based
on its unique nature, characteristics and the risks of the
property.
Due to Covid-19, March 2020 valuations have been issued by
Cushman & Wakefield subject to a material uncertainty
disclosure as stated on page 104, critical accounting judgements
and key sources of estimation and uncertainty.
The Executive Director responsible for the valuation process
verifies all major inputs to the external valuation reports,
assesses the individual property valuation changes from the prior
year valuation report and holds discussions with the independent
valuers. When this process is complete, the valuation report is
recommended to the Audit Committee, which considers it as part of
its overall responsibilities.
The key assumptions made in the valuation of the Group's
investment properties are:
-- The amount and timing of future income streams;
-- Anticipated maintenance costs and other landlord's liabilities;
-- An appropriate yield; and
-- For investment properties under construction: gross
development value, estimated cost to complete and an appropriate
developer's margin.
Valuation technique - standing investment properties
The valuations reflect the tenancy data supplied by the Group
along with associated revenue costs and capital expenditure. The
fair value of the investment portfolio has been derived from
capitalising the future estimated net income receipts at
capitalisation rates reflected by recent arm's length sales
transactions.
Significant unobservable
inputs
======================= ============== ============= ============================ ==============
31 March 2020 Office Industrial Leisure Other Total
======================= ============== ============= ============= ============= ==============
Fair value of property
portfolio GBP128,495,000 GBP38,805,000 GBP37,850,000 GBP72,620,000 GBP277,770,000
Area (sq ft) 778,218 409,593 306,970 196,309 1,691,090
Gross Estimated Rental
Value GBP11,480,070 GBP2,795,890 GBP3,295,049 GBP3,047,761 GBP20,618,770
Net Initial Yield
Minimum (4.6%) 1.3% 6.8% (0.5%) (4.6%)
Maximum 9.4% 8.3% 8.7% 30.7% 30.7%
Weighted average 5.4% 5.8% 7.7% 6.6% 6.0%
Reversionary Yield
Minimum 4.7% 5.6% 7.2% 4.5% 4.5%
Maximum 13.8% 8.1% 7.9% 34.5% 34.5%
Weighted average 8.1% 5.0% 7.5% 5.5% 6.6%
Equivalent Yield
Minimum 4.1% 5.4% 7.8% 4.3% 4.1%
Maximum 11.4% 7.8% 8.7% 14.2% 14.2%
Weighted average 7.7% 6.5% 8.6% 3.3% 7.1%
----------------------- ============== ============= ============= ============= ==============
Negative net initial yields arise where properties are vacant or
partially vacant and void costs exceed rental income.
Significant unobservable
inputs
--------------------------------- ============== ============= ============================================
31 March 2019 Office Industrial Leisure Other Total
--------------------------------- ============== ============= ============= ============= ==============
Fair value of property portfolio GBP135,455,000 GBP37,395,000 GBP41,380,000 GBP60,330,000 GBP274,560,000
Area (sq ft) 794,726 409,593 247,470 205,649 1,657,438
Gross Estimated Rental Value GBP12,094,259 GBP2,891,320 GBP3,341,944 GBP3,145,621 GBP21,473,144
Net Initial Yield
Minimum (4.6%) 4.2% 6.2% (7.3%) (7.3%)
Maximum 14.6% 8.5% 6.9% 25.0% 25.0%
Weighted average 5.4% 5.7% 6.5% 6.0% 5.7%
Reversionary Yield
Minimum 4.7% 5.5% 7.1% 4.5% 4.5%
Maximum 14.6% 8.7% 7.6% 28.1% 28.1%
Weighted average 8.0% 6.6% 7.3% 5.3% 7.0%
Equivalent Yield
Minimum 4.1% 5.4% 7.5% 5.0% 4.1%
Maximum 10.2% 8.1% 8.3% 13.2% 13.2%
Weighted average 7.5% 6.3% 7.8% 7.1% 6.8%
--------------------------------- -------------- ------------- ------------- ------------- --------------
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: GBP47,900-GBP1,901,463
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 Impact on fair
value measurement value measurement
of significant 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% -0.25%
-5% in +5% in in net in net
passing passing initial initial
rent (GBPm) rent (GBPm) yield (GBPm) yield (GBPm)
-------------------------------------- ============ ============ ============= =============
(Decrease)/increase in the fair value
of investment properties as at 31
March 2020 (13.36) 13.36 (12.21) 8.48
-------------------------------------- ============ ============ ============= =============
(Decrease)/increase in the fair value
of investment properties as at 31
March 2019 (12.95) 12.95 (10.16) 12.63
-------------------------------------- ------------ ------------ ------------- -------------
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 2018 -
Transfer from standing investment properties 13,509
Costs capitalised 858
--------------------------------------------- --------
At 1 April 2019 14,367
Costs capitalised 13,953
Impairment of trading properties (763)
--------------------------------------------- --------
At 31 March 2020 27,557
--------------------------------------------- ========
The Group is developing a large mixed-use scheme at Hudson
Quarter, York. Part of the approved scheme consists of residential
units which the Group holds for sale. As a result, the residential
element of the scheme is classified as trading property.
11. LISTED EQUITY INVESTMENTS
Total
GBP'000
--------------------------------------------------------------- ========
At 1 April 2018 -
Additions 2,850
Loss on revaluation of equity investment shown in Consolidated
Statement of Comprehensive Income (214)
--------------------------------------------------------------- --------
At 1 April 2019 2,636
Additions 329
Loss on revaluation of equity investment shown in Consolidated
Statement of Comprehensive Income (425)
--------------------------------------------------------------- --------
At 31 March 2020 2,540
--------------------------------------------------------------- ========
During the year the Group purchased listed equity investments to
the value of GBP329,000. The investment has subsequently been
revalued using level 1 inputs, the quoted market price.
12. PROPERTY, PLANT AND EQUIPMENT
IT, fixtures Head office
and fittings lease
GBP'000 GBP'000
-------------------------------- ============= ===========
At 1 April 2018 215 -
Additions 7 -
================================ ============= ===========
At 1 April 2019 222 -
Additions 36 461
-------------------------------- ------------- -----------
At 31 March 2020 258 461
-------------------------------- ------------- -----------
Depreciation
At 1 April 2018 94 -
Provided during the year 31 -
================================ ============= ===========
At 1 April 2019 125 -
Provided during the year 32 148
-------------------------------- ------------- -----------
At 31 March 2020 157 148
-------------------------------- ------------- -----------
Net book value at 31 March 2020 101 313
-------------------------------- ------------- -----------
Net book value at 31 March 2019 97 -
-------------------------------- ------------- -----------
13. TRADE AND OTHER RECEIVABLES
2020 2019
GBP'000 GBP'000
-------------------------------------- ======== ========
Current
Gross amounts receivable from tenants 2,963 2,006
Less: expected credit loss provision (391) (71)
====================================== ======== ========
Net amount receivable from tenants 2,572 1,935
Other taxes 625 177
Other debtors 2,378 604
Accrued income 3,320 2,752
Prepayments 428 775
-------------------------------------- ======== --------
9,323 6,243
-------------------------------------- ======== --------
Accrued income amounting to GBP3,320,000 (2019: GBP2,752,000)
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 2020 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 9% 1% 100% 61%
Gross carrying amount 2,651 43 2 267 2,963
Loss provision 226 1 2 162 391
---------------------- --------- --------- --------- --------- ---------
As at 31 March 2019 the lifetime expected credit loss provision
for trade receivables and contract assets is as follows:
More than More than More than
30 days 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 0% 1% 1% 16%
Gross carrying amount 1,400 144 26 436 2,006
Loss provision - 2 - 69 71
---------------------- --------- --------- --------- --------- ---------
Movement in the expected credit loss provision was as
follows:
2020 2019
GBP'000 GBP'000
-------------------------------------------------------- ======== ========
Brought forward 71 163
Receivable written off during the year as uncollectable (4) (154)
Provisions increased 324 62
-------------------------------------------------------- ======== --------
391 71
-------------------------------------------------------- ======== --------
14. CASH AND CASH EQUIVALENTS
All of the Group's cash and cash equivalents at 31 March 2020
and 31 March 2019 are in sterling and held at floating interest
rates.
2020 2019
GBP'000 GBP'000
----------------------------------------- ======== ========
Cash and cash equivalents - unrestricted 13,899 22,395
Restricted cash 1,020 495
----------------------------------------- ======== --------
14,919 22,890
----------------------------------------- ======== --------
The Directors consider that the carrying amount of cash and cash
equivalents approximates to their fair value.
Restricted cash is cash where there is a legal restriction to
specify its type of use. This is typically where the Group has
agreed to deposit cash with a lender with regards to top-ups
received from vendors on completion funds, to be realised over time
consistent with the loss of income on vacant units, and where the
Group has agreed to deposit cash with a lender to provide
additional security over loan facilities.
15. TRADE AND OTHER PAYABLES
2020 2019
GBP'000 GBP'000
----------------------- ======== ========
Trade payables 2,911 1,229
Corporation tax 1,173 1,626
Other taxes 912 914
Other payables 2,344 503
Deferred rental income 3,567 3,457
Accruals 3,146 2,272
----------------------- ======== --------
14,053 10,001
----------------------- ======== --------
The Directors consider that the carrying amount of trade and
other payables measured at amortised cost approximates to their
fair value.
Included within other payables are deposits on pre sales of
apartments at Hudson Quarter, York totalling GBP600k. These amounts
will be recognised as revenue when the development is completed and
title is transferred to the buyer, which is expected to take place
in early 2021.
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 valuation rate is the variable LIBOR and bank base rate the
banks are paying for the interest rate swaps. Details of the
interest rate swaps the Group has entered can be found in the table
below.
The valuations of all derivatives held by the Group are
classified as Level 2 in the IFRS 13 fair value hierarchy as they
are based on observable inputs. There have been no transfers
between levels of the fair value hierarchy during the year.
Further details on interest rate risks are included in note
26.
2020 2019
Notional Expiry Contract Valuation Fair value Fair value
Bank principal date rate % rate % GBP'000 GBP'000
------------------ ========== ========== ======== ========= =========== ===========
Barclays Bank plc 34,847,900 25/01/2023 1.3420 0.3932 (909) (526)
Santander plc 19,342,723 03/08/2022 1.3730 0.3751 (434) (289)
------------------ ---------- ---------- -------- --------- =========== -----------
54,190,623 (1,343) (815)
------------------ ---------- ---------- -------- --------- =========== -----------
17. BORROWINGS
2020 2019
GBP'000 GBP'000
------------------------ ======== ========
Current liabilities
Bank loans 1,836 5,999
======================== ======== ========
Non-current liabilities
Bank loans 117,520 112,017
------------------------ ======== --------
Total borrowings 119,356 118,016
------------------------ ======== --------
2020 2019
GBP'000 GBP'000
-------------------------- ======== ========
Non-current liabilities
Secured bank loans drawn 118,925 113,351
Unamortised lending costs (1,405) (1,334)
-------------------------- ======== --------
117,520 112,017
-------------------------- ======== --------
The maturity profile of the Group's debt was as follows:
2020 2019
GBP'000 GBP'000
----------------------- ======== ========
Within one year 1,836 5,999
From one to two years 6,792 29,825
From two to five years 100,589 71,546
After five years 11,544 11,980
----------------------- ======== --------
120,761 119,350
----------------------- ======== --------
Facility and arrangement fees
As at 31 March 2020
Unamortised
facility Facility
All in Maturity Loan Balance fees drawn
Secured Borrowings cost date GBP'000 GBP'000 GBP'000
========================== ====== ============ ============ =========== ========
Santander Bank plc 3.68% August 2022 25,563 (187) 25,750
Lloyds Bank plc 2.55% March 2023 6,748 (97) 6,845
National Westminster Bank
plc 2.70% August 2024 28,225 (395) 28,620
Barclays 3.18% June 2024 40,611 (255) 40,866
Barclays 3.48% October 2021 4,649 (307) 4,956
Scottish Widows 2.90% July 2026 13,560 (164) 13,724
-------------------------- ====== ============ ============ =========== ========
119,356 (1,405) 120,761
-------------------------- ====== ============ ============ =========== ========
As at 31 March 2019
Unamortised
facility Facility
All in Maturity Loan Balance fees drawn
Secured Borrowings cost date GBP'000 GBP'000 GBP'000
--------------------- ====== ============ ============ =========== ========
Santander Bank plc 3.74% August 2022 25,961 (289) 26,250
Lloyds Bank plc 2.95% May 2019 3,562 (1) 3,563
Lloyds Bank plc 2.80% March 2023 6,715 (130) 6,845
National Westminster
Bank plc 3.35% March 2021 29,204 (185) 29,389
Barclays 3.24% January 2023 38,589 (554) 39,143
Scottish Widows 2.90% July 2026 13,985 (175) 14,160
--------------------- ------ ------------ ------------ ----------- --------
118,016 (1,334) 119,350
--------------------- ------ ------------ ------------ ----------- --------
Investment properties with a carrying value of GBP232,023,000
(2019: GBP236,592,000) and trading properties with a carrying value
of GBP27,557,000 (2019: GBP14,368,000) are subject to a first
charge to secure the Group's bank loans amounting to GBP120,761,000
(2019: GBP119,350,000).
The Group has unused loan facilities amounting to GBP32,924,000
(2019: GBP26,500,000). A facility fee is changed on GBP11,380,000
of these facilities 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 an Palace Capital
(Properties) Limited as part of the NatWest loan. The GBP21,544,000
balance of the unused facilities relates to the Barclays
development loan. This facility is secured on the Hudson Quarter,
York development held by Palace Capital (Developments) Limited.
The Group constantly monitors its approach to managing interest
rate risk. The Group has fixed GBP67,915,000 (2019: GBP69,226,000)
of its debt in order to provide surety of its interest cost and to
mitigate interest rate risk. The remaining debt in place at year
end is subject to floating rate in order to take advantage of the
historically low interest rate environment.
The Group has a loan with Scottish Widows for GBP13,724,000
(2019: GBP14,160,000) which is fully fixed at a rate of 2.9%.
The Group has a loan with Barclays Bank plc for GBP40,866,000
(2019: GBP39,143,000), of which GBP34,848,000 (2019: GBP35,348,000)
is fixed using an interest rate swap (see note 16). The floating
rate portion of the loan is charged at three-month LIBOR plus
1.95%.
The Group has a loan with Santander plc for GBP25,750,000 (2019:
GBP26,250,000), of which GBP19,343,000 (2019: GBP19,718,000) is
fixed using an interest rate swap (see note 16). The floating rate
portion of the loan is charged at three-month LIBOR plus 2.5%.
The Group has a loan with Lloyds Bank plc for GBP6,845,000
(2019: GBP6,845,000) which is fully charged at floating rate of
three-month LIBOR plus 1.95%.
The Group has a loan with National Westminster Bank plc for
GBP28,620,000 (2019: GBP29,389,000) which is fully charged at
floating rate of three-month LIBOR plus 2.1%.
The fair value of borrowings held at amortised cost at 31 March
2020 was GBP119,356,000 (2019: GBP118,016,000).
The Group has been in compliance with all financial covenants of
the above facilities applicable throughout the year.
18. GEARING AND LOAN TO VALUE RATIO
The calculation of gearing is based on the following
calculations of net assets and net debt:
2020 2019
GBP'000 GBP'000
-------------------------------------------- ======== ========
EPRA net asset value (note 7) 167,919 186,968
============================================ ======== ========
Borrowings (net of unamortised issue costs) 119,356 118,016
Lease liabilities for investment properties 1,806 1,585
Cash and cash equivalents (14,919) (22,890)
============================================ ======== ========
Net debt 106,243 96,711
============================================ ======== ========
NAV gearing 63% 52%
-------------------------------------------- ======== --------
The calculation of bank loan to property value is calculated as
follows:
2020 2019
GBP'000 GBP'000
------------------------------------ ======== ========
Fair value of investment properties 250,213 259,943
Fair value of trading properties 27,557 14,617
==================================== ======== ========
Fair value per Cushmans valuation 277,770 274,560
==================================== ======== ========
Fair value of assets held for sale - 11,756
==================================== ======== ========
Fair value of property portfolio 277,770 286,316
==================================== ======== ========
Borrowings 120,761 119,350
Cash at bank (14,919) (22,890)
==================================== ======== ========
Net bank borrowings 105,842 96,460
==================================== ======== ========
Loan to value ratio 38% 34%
------------------------------------ ======== --------
19. RECONCILIATION OF LIABILITIES TO CASH FLOWS FROM FINANCING
ACTIVITIES
Bank borrowings Total
GBP'000 GBP'000
-------------------------------------- =============== ========
Balance at 1 April 2018 99,843 99,843
Cash flows from financing activities:
Bank borrowings drawn 25,991 25,991
Bank borrowings repaid (8,037) (8,037)
Loan arrangement fees paid (145) (145)
Non-cash movements:
Amortisation of loan arrangement fees 364 364
-------------------------------------- --------------- --------
Balance at 1 April 2019 118,016 118,016
-------------------------------------- --------------- --------
Cash flows from financing activities:
Bank borrowings drawn 19,736 19,736
Bank borrowings repaid (18,325) (18,325)
Loan arrangement fees paid (978) (978)
Non-cash movements:
Amortisation of loan arrangement fees 358 358
Capitalised loan arrangement fees 48 48
Debt termination costs 501 501
-------------------------------------- =============== ========
Balance at 31 March 2020 119,356 119,356
-------------------------------------- =============== ========
20. LEASES
Operating lease receipts in respect of rents on investment
properties are receivable as follows:
2020 2019
GBP'000 GBP'000
------------------------- ======== ========
Within one year 16,794 16,118
From one to two years 15,239 14,803
From two to three years 14,079 12,890
From three to four years 12,102 11,872
From four to five years 10,317 10,277
From five to 25 years 53,108 59,685
------------------------- ======== --------
121,639 125,645
------------------------- ======== --------
The following table reconciles the minimum lease commitments
payable disclosed in the 31 March 2019 financial statements to the
amount of lease liabilities recognised on 1 April 2019:
Total
GBP'000
------------------------------------------------------------ ========
Minimum operating lease commitment as at 31 March 2019 553
Less: effect of discounting using the incremental borrowing
rate as at date of initial application (92)
------------------------------------------------------------ --------
Lease liability for right of use asset as at 1 April 2019 461
------------------------------------------------------------ ========
Lease liabilities are classified as follows:
2020 2019
GBP'000 GBP'000
-------------------------------------------- ======== ========
Lease liabilities for investment properties 1,806 1,585
Lease liabilities for right of use asset 318 -
============================================ ======== ========
2,124 1,585
-------------------------------------------- ======== --------
Lease obligations in respect of rents payable on leasehold
properties were payable as follows:
2020
----------------------- ================================ =========
2019
Present Present
value of value of
Lease lease lease
payments Interest payments payments
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ========= ========== ========= =========
Within one year 107 (105) 2 2
From one to two years 108 (105) 3 2
From two to five years 323 (314) 9 8
From five to 25 years 1,600 (1,550) 50 56
After 25 years 9,307 (7,565) 1,742 1,517
----------------------- ========= ========== ========= ---------
11,445 (9,639) 1,806 1,585
----------------------- ========= ========== ========= ---------
Lease obligations in respect of rents payable on right of use
assets were payable as follows:
2020
---------------------- ================================ =========
2019
Present Present
value of value of
Lease lease lease
payments Interest payments payments
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ========= ========== ========= =========
Within one year 172 (8) 164 -
From one to two years 156 (2) 154 -
---------------------- ========= ========== ========= ---------
328 (10) 318 -
---------------------- ========= ========== ========= ---------
The net carrying amount of the leasehold properties is shown in
note 9.
The Group has over 220 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 ten years.
A number of these leases contain rent free periods. Standard
lease provisions include service charge payments and recovery of
other direct costs. All investment properties in the Group's
portfolio generated rental income during both the current and prior
periods, with the exception of Hudson Quarter, York held in Palace
Capital (Developments) Limited which commenced development in
February 2018. Direct operating costs of GBPNil were incurred on
the property.
21. SHARE CAPITAL
Authorised, issued and fully paid share capital is 2020 2019
as follows: GBP'000 GBP'000
---------------------------------------------------------- ======== ========
46,388,515 ordinary shares of 10p each (2019: 46,388,515) 4,639 4,639
---------------------------------------------------------- ======== --------
4,639 4,639
---------------------------------------------------------- ======== --------
2020 2019
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 of
Movement in ordinary authorised ordinary shares Total number
share capital issued of shares
----------------------------------- ================ ============
As at 31 March 2018, 31 March 2019
and 31 March 2020 - 46,388,515
------------------------------------- ---------------- ------------
Number
of ordinary
shares Total number
Movement in treasury shares issued of shares
------------------------------------------ ============= ============ ==============
As at 31 March 2018 583,235
========================================================= ============ ==============
Shares issued under deferred bonus share 27 September
scheme 2018 (38,586)
Share options exercised under employee 14 January
LTIP scheme 2019 (39,383)
========================================== ============= ============ ==============
As at 31 March 2019 505,266
========================================================= ============ ==============
Shares issued under deferred bonus share
scheme 24 July 2019 (67,798)
Share options exercised under employee
LTIP scheme 24 July 2019 (85,461)
------------------------------------------ ------------- ------------ --------------
As at 31 March 2020 352,007
--------------------------------------------------------- ------------ --------------
Total number of shares excluding the
number held in treasury at 31 March 2020 46,036,508
--------------------------------------------------------- ------------ --------------
Year ended 31 March 2020
On 24 July 2019, 67,798 share options were exercised under the
deferred bonus share scheme.
On 24 July 2019, 85,461 share options were exercised under the
2016 employee LTIP scheme.
Year ended 31 March 2019
On 27 September 2018, 38,586 share options were exercised under
the deferred bonus share scheme.
On 14 January 2019, 39,383 share options were exercised under
the 2015 employee LTIP scheme.
Issue costs amounting to GBP17,000 were incurred and were
deducted from the share premium account relating to shares issued
in the prior year.
Shares held in Employee Benefit Trust
2020 2019
Authorised, issued and fully paid share capital No. of No. of
is as follows: options options
--------------------------------------------------- ======== ========
Brought forward 55,679 33,648
Transferred under scheme of arrangement 150,000 100,000
Shares exercised under deferred bonus share scheme (67,798) (38,586)
Shares exercised under employee LTIP scheme (85,461) (39,383)
--------------------------------------------------- ======== --------
At end of year 52,420 55,679
--------------------------------------------------- ======== --------
Share options:
2020 2019
Reconciliation of movement in outstanding share No. of No. of
options options options
-------------------------------------------------- ======== =========
At start of year 651,730 536,827
Issued in the year 329,848 265,774
Exercised in the year (85,461) (39,383)
Lapsed in the year (90,204) (138,856)
Deferred bonus share options issued 32,108 63,690
Deferred bonus share options exercised (67,798) (36,322)
-------------------------------------------------- ======== ---------
At end of year 770,223 651,730
-------------------------------------------------- ======== ---------
As at 31 March 2020, the Company had the following outstanding
unexpired options:
2020 2019
----------------------------------- ===================
Weighted Weighted
average average
Description of unexpired share No. of option No. of option
options options price options price
----------------------------------- ========= ======== ========= ========
Employee benefit plan (note 22) 738,115 0p 588,040 0p
Deferred bonus share scheme issued 32,108 0p 63,690 0p
----------------------------------- ========= ======== --------- --------
Total 770,223 0p 651,730 0p
----------------------------------- ========= ======== --------- --------
Exercisable - 0p - 0p
Not exercisable 770,223 0p 651,730 0p
----------------------------------- ========= ======== --------- --------
The weighted average remaining contractual life of share options
at 31 March 2020 is 1.5 years (2019: 1.4 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
2018 536,827 0p
Exercised during the year
(LTIP 2015) (39,383) 0p 309p
Issued during the year
(LTIP 2018) 265,774 0p 13 July 2018 13 July 2021
Deferred bonus share options
issued 63,690 0p 13 July 2018 13 July 2021
Deferred bonus share options 25 September 25 September
exercised (36,322) 0p 306p 2017 2018
Lapsed during year (LTIP
2015) (80,885) 0p
Lapsed during year (LTIP
2017) (21,000) 0p
Lapsed during year (LTIP
2018) (36,971) 0p
============================= ======== ======== ============ ============ ============
Outstanding at 31 March
2019 651,730 0p
Exercised during the year
(LTIP 2016) (85,461) 0p 276p
Issued during the year
(LTIP 2019) 329,848 0p 25 June 2019 25 June 2022
Deferred bonus share options
issued 32,108 0p 25 June 2019 25 June 2020
Deferred bonus share options
exercised (67,798) 0p 276p 13 July 2018 13 July 2019
Lapsed during year (LTIP
2016) (85,820) 0p
Lapsed during year (LTIP
2019) (4,384) 0p
============================= ======== ======== ============ ============ ============
Outstanding at 31 March
2020 770,223 0p
----------------------------- -------- -------- ------------ ------------ ------------
LTIP 2017
The options are awarded to employees on achievements against
targets on two separate measures over the three-year period. Half
the options will be awarded based on the first target and half
based on the achievement of the second.
Net asset value per share (NAV) growth is based on the Company's
EPRA NAV value per share as at 31 March 2017. This target will
measure the annualised growth in NAV over the three-year period
ending 31 March 2020, and comparing this with the annualised Net
Asset Value Growth of a group of comparable companies. The base NAV
per share is GBP3.89.
Total shareholder return (TSR) measures the total shareholder
return (price rise plus dividends) over the period from 1 November
2017 to 31 October 2020. The base price is GBP3.40 per share which
was the market price at the grant date.
Annualised TSR over the TSR Vesting NAV growth over the NAV performance Vesting
performance period % period %
---------------------------- ======= ----------------------------------- =======
<8% 0 Below median 0
Equal to 8% 33.33 At median 20
33.33
Between 8% and 13% - 100 Between median and upper quartile 20-100
Equal to 13% 100 Upper quartile and above 100
---------------------------- ------- ----------------------------------- -------
LTIP 2018
The options are awarded to employees on achievements against
targets on two separate measures over the three-year period. The
options are subject to a two-year holding period following vesting.
Half the options will be awarded based on the first target and half
based on the achievement of the second.
Total property return growth is based on the increase in the
total property return of the Company compared with an increase in
the MSCI IPD UK Quarterly Index (PV growth) as at 31 March 2018.
This target will measure the growth in total property return over
the three-year period ending 31 March 2021 (PV performance period),
and comparing this with the 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 13 July
2018 to 12 July 2021. The base price is GBP3.54 per share which was
the market price at the grant date.
Annualised TSR over the TSR Vesting PV growth over the PV performance Vesting
performance period % period %
---------------------------- ======= --------------------------------- =======
<8% 0 <1% 0
Equal to 8% 33.33 Equal to 1% 33.33
33.33
Between 8% and 13% - 100 Equal to 2% 66.67
Equal to 13% 100 Equal to 3% 100
---------------------------- ------- --------------------------------- -------
LTIP 2019
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 2019.
This target will measure the annualised growth in total property
return over the three-year period ending 31 March 2022 (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 25 June
2019 to 24 June 2022. The base price is GBP2.85 per share which was
the market price at the grant date.
Annualised TSR over the TSR Vesting PV growth over the PV performance Vesting
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
---------------------------- ------- --------------------------------- -------
The fair value of grants was measured at the grant date using a
Black - Scholes pricing model for the Portfolio Value (PV) tranche
and using a Monte Carlo pricing model for the TSR tranche, taking
into account the terms and conditions upon which the instruments
were granted. The services received and a liability to pay for
those services are recognised over the expected vesting period. The
main assumptions of both the Black - Scholes and Monte Carlo
pricing models are as follows:
Monte Carlo Black-Scholes
TSR PV
Tranche Tranche
------------------------- =========== =============
25 June 25 June
Grant date 2019 2019
Share price GBP2.85 GBP2.85
Exercise price 0p 0p
Term 5 years 5 years
Expected volatility 21.77% 21.77%
Expected dividend yield 0.00% 0.00%
Risk free rate 0.53% 0.53%
Time to vest (years) 3.0 3.0
Expected forfeiture p.a. 0% 0%
Fair value per option GBP1.11 GBP2.85
------------------------- ----------- -------------
The expense recognised for employee share-based payment received
during the period is shown in the following table:
2020 2019
GBP'000 GBP'000
----------------------------------------------- ======== ========
LTIP 2015 - 46
LTIP 2016 25 171
LTIP 2017 (48) 67
LTIP 2018 67 48
LTIP 2019 86 -
=============================================== ======== ========
Total expense arising from share-based payment
transactions 130 332
=============================================== ======== ========
23. RELATED PARTY TRANSACTIONS
Accounting services amounting to GBP2,783 (2019: GBP1,960) have
been provided to the Group by Stanley Davis Group Limited, a
company where Stanley Davis is a Director and shareholder.
Charitable donations amounting to GBP19,335 (2019: GBP13,757)
have been made by the Group to Variety, the Children's Charity, a
charity where Neil Sinclair is a Trustee.
Dividend payments made to Directors amounted to GBP416,056
(2019: GBP404,734) during the year.
24. CAPITAL COMMITMENTS
The obligation for capital expenditure relating to the
construction, development or enhancement of investment properties
entered into by the Group amounted to GBP19,234,661 (2019:
GBP35,412,295).
25. POST BALANCE SHEET EVENTS
On 22 April 2020, the Group signed an amend and restate for the
NatWest Bank facility. The amend and restate charged Bank House in
Leeds, providing an additional GBP5,000,000 to the revolving credit
facility that can be drawn. The balance is treated as a floating
rate loan and is charged at three-month LIBOR plus 1.05%.
Post year end, two of the Groups facilities have breached ICR
covenants as part of the quarterly April 2020 test due to the
non-payment of rent. Both banks have provided covenant waivers and
the Group expects to return to compliance once tenants recommence
rental payments.
26. FINANCIAL RISK MANAGEMENT
The Group's principal financial liabilities are loans and
borrowings. The main purpose of the Group's loans and borrowings is
to finance the acquisition and development of the Group's property
portfolio. The Group has rent and other receivables, trade and
other payables and cash and short-term deposits that arise directly
from its operations.
The Group is exposed to market risk (including interest rate
risk and real estate risk), credit risk and liquidity risk.
The Group's senior management oversee the management of these
risks, and the Board of Directors has overall responsibility for
the determination of the Group's risk management objectives and
policies and it sets policies that seek to reduce risk as far as
possible without unduly affecting the Group's competitiveness and
flexibility. Further details regarding these policies are set out
below:
Capital risk management
The Group considers its capital to comprise its share capital,
share premium, other reserves and retained earnings which amounted
to GBP166,348,000 at 31 March 2020 (2019: GBP180,323,000). The
Group's capital management objectives are to safeguard the entity's
ability to continue as a going concern, so that it can continue to
provide returns for shareholders and benefits for other
stakeholders and to provide an adequate return to shareholders by
pricing its services commensurately with the level of risk.
Within the subsidiaries of the Group, the business has
covenanted to maintain a specified leverage ratio and a net
interest expense coverage ratio, all the terms of which have been
adhered to during the year.
The Group manages its capital structure, and makes adjustments
to it, in the light of changes in economic conditions.
To maintain or adjust the capital structure, the Group may
adjust the dividend payment to shareholders, return capital to
shareholders
or issue new shares.
Market risk
Market risk arises from the Group's use of interest bearing, and
tradable instruments. It is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in interest rates (interest rate risk) or other market
factors.
Interest rate risk
The interest rate exposure profile of the Group's financial
assets and liabilities as at 31 March 2020 and 31 March 2019
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 2020
Trade and other receivables 4,950 - - - 4,950
Cash and cash equivalents - 14,919 - - 14,919
Trade and other payables (8,400) - - - (8,400)
Equity investments 2,540 - - - 2,540
Interest rate swaps - - (1,343) - (1,343)
Bank borrowings - - (67,915) (51,441) (119,356)
Lease liabilities - - (2,124) - (2,124)
---------------------------- ================ ============ ========== ========== =========
(910) 14,919 (71,382) (51,441) (108,814)
---------------------------- ================ ============ ========== ========== =========
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 2019
Trade and other receivables 2,539 - - - 2,539
Cash and cash equivalents - 22,890 - - 22,890
Trade and other payables (4,004) - - - (4,004)
Equity investments 2,636 - - - 2,636
Interest rate swaps - - (815) - (815)
Bank borrowings - - (69,226) (48,790) (118,016)
Lease liabilities - - (1,585) - (1,585)
---------------------------- ---------------- ------------ ---------- ---------- ---------
1,171 22,890 (71,626) (48,790) (96,355)
---------------------------- ---------------- ------------ ---------- ---------- ---------
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 Group manages its
exposure to interest rate risk on borrowings through the use of
interest rate derivatives (see note 16). 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. 57% 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 GBP14,919,000 (2019: GBP22,890,000). Interest
receivable in the income statement would be affected by GBP149,000
(2019: GBP229,000) by a one percentage point change in floating
interest rates on a full year basis.
The Group has loans amounting to GBP51,441,000 (2019:
GBP48,790,000) which have interest payable at rates linked to the
three-month LIBOR interest rates or bank base rates. A 1% increase
in the LIBOR or base rate will have the effect of increasing
interest payable by GBP514,000 (2019: GBP488,000).
The Group has interest rate swaps with a nominal value of
GBP54,190,623 (2019: GBP55,066,210). If the LIBOR or base rate was
to increase above the fixed contract rate then the Group will
benefit from a fair value increase of the interest rate swap. If,
however, the LIBOR or base rate was to decrease, then the Group
would incur a decrease in the fair value of the interest rate
swap.
-1% +1%
Change in interest rate GBP'000 GBP'000
---------------------------------------------- ======== ========
(Decrease)/increase in fair value of interest
rates swaps as at 31 March 2020 (1,418) 1,359
(Decrease)/increase in fair value of interest
rates swaps as at 31 March 2019 (1,947) 1,869
---------------------------------------------- -------- --------
Upward movements in medium and long-term interest rates,
associated with higher interest rate expectations, increase the
value of the Group's interest rate swaps that provide protection
against such moves. The converse is true for downward movements in
the yield curve.
The Group is therefore relatively sensitive to changes in
interest rates. The Directors regularly review 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 2020 the cash balances of the Group
were GBP14,919,000 (2019: GBP22,890,000). The concentration of
credit risk held with Barclays Bank plc, the largest of these
banks, was GBP10,552,000 (2019: GBP16,964,000). Credit risk on
liquid funds is limited because the counterparty is a UK bank with
a high credit rating assigned by international credit rating
agencies.
Credit risk also results from the possibility of a tenant in the
Group's property portfolio defaulting on a lease. The largest
tenant by contractual income amounts to 5.2% (2019: 5.2%) 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 2020 was
GBP2,572,000 (2019: GBP1,935,000). The details of the provision for
expected credit loss are shown in note 13.
Liquidity risk management
The Group's policy is to hold cash and obtain loan facilities at
a level sufficient to ensure that the Group has available funds to
meet its medium-term capital and funding obligations, including
organic growth and acquisition activities, and to meet certain
unforeseen obligations and opportunities. The Group holds cash to
enable the Group to manage its liquidity risk.
The Group monitors its risk to a shortage of funds using a
monthly cash management process. This process considers the
maturity of both the Group's financial investments and financial
assets (e.g. accounts receivable, other financial assets) and
projected cash flows from operations.
The Group's objective is to maintain a balance between
continuity of funding and flexibility through the use of multiple
sources of funding including bank loans, term loans, loan notes,
overdrafts and 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 2020
Interest bearing loans - 6,062 10,264 107,093 12,973 136,392
Lease liabilities - 107 108 323 10,907 11,445
Derivative financial
instruments - - - 1,343 - 1,343
Trade and other payables 8,400 - - - - 8,400
------------------------- ========= ========= ========= ========= ========= ========
8,400 6,169 10,372 108,759 23,880 157,580
------------------------- ========= ========= ========= ========= ========= ========
On demand 0-1 years 1-2 years 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP,000 GBP'000 GBP'000
------------------------- ========= ========= ========= ========= ========= ========
As at 31 March 2019
Interest bearing loans - 9,484 32,323 76,132 12,767 130,706
Lease liabilities - 96 96 289 9,722 10,203
Derivative financial
instruments - - - 815 - 815
Trade and other payables 4,004 - - - - 4,004
------------------------- --------- --------- --------- --------- --------- --------
4,004 9,580 32,419 77,236 22,489 145,728
------------------------- --------- --------- --------- --------- --------- --------
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 March 2020
2020 2019
Note GBP'000 GBP'000
--------------------------------------- ==== ======== ========
Non-current assets
Investments in subsidiaries 2 127,417 77,671
Loans to subsidiary undertakings 2 40 53,823
Listed equity investments 3 2,540 2,636
Property, plant and equipment 4 96 92
--------------------------------------- ---- ======== --------
130,093 134,222
--------------------------------------- ---- ======== --------
Current assets
Trade and other receivables 5 23,643 22,042
Cash at bank and in hand 4,887 12,176
--------------------------------------- ---- ======== --------
28,530 34,218
--------------------------------------- ---- ======== --------
Total assets 158,623 168,440
--------------------------------------- ---- ======== --------
Current liabilities
Creditors: amounts falling due within
one year 6 (8,923) (5,862)
--------------------------------------- ---- ======== --------
Net current assets 19,607 28,356
--------------------------------------- ---- ======== --------
Net assets 149,700 162,578
--------------------------------------- ---- ======== --------
Equity
Called up share capital 7 4,639 4,639
Share premium account 125,019 125,019
Treasury shares (1,349) (1,771)
Merger reserve 3,503 3,503
Capital redemption reserve 340 340
Retained earnings 17,548 30,848
======================================= ==== ======== ========
Equity - attributable to the owners of
the Parent 149,700 162,578
--------------------------------------- ---- ======== --------
The Company's loss after tax for the year was GBP4,342,000
(2019: GBP16,126,000 profit).
The Company has applied the S408 exemption for company
accounts.
The financial statements were approved by the Board of Directors
and authorised for issue on 6 July 2020 and are signed on its
behalf by:
Stephen Silvester Neil Sinclair
Finance Director Chief Executive
Company Statement of Changes in Equity
Share Share Treasury Other Retained Total
Capital Premium shares Reserves earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ======== ======== ======== ========= ========= ========
At 1 April 2018 4,639 125,036 (2,011) 3,843 23,091 154,598
Total comprehensive income
for the year - - - - 16,126 16,126
Transactions with Equity
Holders
Costs of issue of new
shares - (17) - - - (17)
Share-based payments - - - - 332 332
Exercise of share options - - 240 - (240) -
Issue of deferred bonus
share options - - - - 257 257
Dividends - - - - (8,718) (8,718)
--------------------------- -------- -------- -------- --------- --------- --------
At 31 March 2019 4,639 125,019 (1,771) 3,843 30,848 162,578
--------------------------- -------- -------- -------- --------- --------- --------
Total comprehensive income
for the year - - - - (4,342) (4,342)
Transactions with Equity
Holders
Costs of issue of new
shares - - - - - -
Share-based payments - - - - 130 130
Exercise of share options - - 422 - (422) -
Issue of deferred bonus
share options - - - - 77 77
Dividends - - - - (8,743) (8,743)
--------------------------- ======== ======== ======== ========= ========= ========
At 31 March 2020 4,639 125,019 (1,349) 3,843 17,548 149,700
--------------------------- ======== ======== ======== ========= ========= ========
Share premium represents the excess over nominal value of the
fair value consideration received for equity shares net of expenses
of the share issue.
Treasury shares represents the consideration paid for shares
bought back from the market. Other reserves comprise the merger
reserve and the capital redemption reserve.
The merger reserve represents the excess over nominal value of
the fair value consideration for the acquisition of subsidiaries
satisfied by the issue of shares in accordance with S612 of the
Companies Act 2006.
The capital redemption reserve represents the value of
preference shares capital redeemed.
Notes to the Company Financial Statements
ACCOUNTING POLICIES
Palace Capital plc is a company incorporated in England and
Wales under the Companies Act. The address of the registered office
is given on the contents page and the nature of the Group's
operations and its principal activities are set out in the
Strategic Report. The financial statements of the Company have been
prepared in accordance with FRS 102, the Financial Reporting
Standard applicable in the United Kingdom and the Republic of
Ireland.
The preparation of financial statements in compliance with FRS
102 requires the use of certain critical accounting estimates. It
also requires Company's management to exercise judgement in
applying the Company's accounting policies (as detailed below).
DIVIDS REVENUE
Revenue is recognised when the Company's right to receive
payment is established, which is generally when shareholders of the
paying company approve the payment of the dividend.
VALUATION OF INVESTMENTS
Investments in subsidiaries are measured at cost less
accumulated impairment. Where merger relief is applicable, the cost
of the investment in a subsidiary undertaking is measured at the
nominal value of the shares issued together with the fair value of
any additional consideration paid.
LISTED EQUITY INVESTMENTS
Listed equity investments been classified as being at fair value
through profit and loss. Listed equity investments are subsequently
measured using level 1 inputs, the quoted market price, and all
fair value gains or losses in respect of those assets are
recognised in the profit and loss.
CURRENT TAXATION
Current tax assets and liabilities for the current and prior
periods are measured at the amount expected to be recovered from or
paid to the tax authorities. The tax rates and the tax laws used to
compute the amount are those that are enacted or substantively
enacted, by the balance sheet date.
DEFERRED TAXATION
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group's
liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet
date.
Deferred tax balances are recognised in respect of timing
differences that have originated but not reversed on the balance
sheet date. Deferred tax liabilities are generally recognised for
all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised.
Deferred tax balances are not recognised in respect of permanent
differences between the fair value of assets acquired and the
future tax deductions available for them and the differences
between the fair values of liabilities acquired and the amount that
will be assessed for tax.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in profit or loss,
except when it relates to items charged or credited directly to
other comprehensive income, in which case the deferred tax is also
dealt with in other comprehensive income.
The Government announced in the summer 2015 Budget the reduction
in the corporation tax rate from 20% main rate in the tax year 2016
to 19% with effect from 1 April 2017.
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.
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 2018 127,861 26,569 154,430
Additions 3,743 27,254 30,997
Write-down of investments (9,360) - (9,360)
============================================ ================ ================ =========
At 1 April 2019 122,244 53,823 176,067
Additions - capitalisation of loans
to subsidiaries 61,370 (53,717) 7,653
Additions - capitalisation of loan interest - (66) (66)
============================================ ================ ================ =========
At 31 March 2020 183,614 40 183,654
============================================ ================ ================ =========
Provision for impairment:
At 1 April 2018 1,530 - 1,530
Provided during the year 43,043 - 43,043
============================================ ================ ================ =========
At 1 April 2019 44,573 - 44,573
Provided during the year 11,624 - 11,624
-------------------------------------------- ---------------- ---------------- ---------
At 31 March 2020 56,197 - 56,197
-------------------------------------------- ---------------- ---------------- ---------
Net book value at 31 March 2020 127,417 40 127,457
-------------------------------------------- ---------------- ---------------- ---------
Net book value at 31 March 2019 77,671 53,823 131,494
-------------------------------------------- ---------------- ---------------- ---------
Loans to Subsidiaries
A loan amounting to GBP25,000 remains outstanding at 31 March
2020 (2019: GBP2,566,660) from Palace Capital (Northampton)
Limited. Interest on this loan is charged at a fixed rate of 5% per
year. This loan is repayable on 14 June 2020. Prior to the year end
a loan of GBP4,511,438 was capitalised as an investment in the
subsidiary.
A loan amounting to GBPNil remains outstanding at 31 March 2020
(2019: GBP13,711,448) from Palace Capital (Properties) Limited.
Interest on this loan is charged at a fixed rate of 5% per year.
This loan is repayable on 11 March 2021. Prior to the year end a
loan of GBP15,842,510 was capitalised as an investment in the
subsidiary.
A loan amounting to GBPNil remains outstanding at 31 March 2020
(2019: GBP944,025) from Palace Capital (Halifax) Limited. Interest
on this loan is charged at a fixed rate of 5% per year. This loan
is repayable on 11 March 2021. Prior to the year end a loan of
GBP1,609,633 was capitalised as an investment in the
subsidiary.
A loan amounting to GBP15,000 remains outstanding at 31 March
2020 (2019: GBP3,067,963) from Palace Capital (Manchester) Limited.
Interest on this loan is charged at a fixed rate of 5% per year.
This loan is repayable on 31 December 2020. Prior to the year end a
loan of GBP3,427,624 was capitalised as an investment in the
subsidiary.
A loan amounting to GBPNil remains outstanding at 31 March 2020
(2019: GBP4,328,294) from Palace Capital (Liverpool) Limited.
Interest on this loan is charged at a fixed rate of 5% per year.
This loan is repayable on 7 March 2023. Prior to the year end a
loan of GBP4,308,517 was capitalised as an investment in the
subsidiary.
A loan amounting to GBPNil remains outstanding at 31 March 2020
(2019: GBP29,204,796) from Palace Capital (Signal) Limited.
Interest on this loan is charged at a fixed rate of 5% per year.
This loan is repayable on 31 October 2023. Prior to the year end a
loan of GBP24,017,272 was capitalised as an investment in the
subsidiary.
Investment in Subsidiaries
Year ended 31 March 2020
On 25 March 2020 the Company purchased an additional 7,652,636
ordinary GBP1 shares at par in Palace Capital (Leeds) Limited in
order to refinance the subsidiary.
On 26 March 2020 the Company purchased an additional 4,308,517
ordinary GBP1 shares at par in Palace Capital (Liverpool) Limited
in order to refinance the subsidiary.
On 26 March 2020 the Company purchased an additional 1,609,633
ordinary GBP1 shares at par in Palace Capital (Halifax) Limited in
order to refinance the subsidiary.
On 31 March 2020 the Company purchased an additional 4,511,348
ordinary GBP1 shares at par in Palace Capital (Northampton) Limited
in order to refinance the subsidiary.
On 31 March 2020 the Company purchased an additional 3,427,624
ordinary GBP1 shares at par in Palace Capital (Manchester) Limited
in order to refinance the subsidiary.
On 31 March 2020 the Company purchased an additional 15,842,510
ordinary GBP1 shares at par in Palace Capital (Properties) Limited
in order to refinance the subsidiary.
On 31 March 2020 the Company purchased an additional 24,017,272
ordinary GBP1 shares at par in Palace Capital (Signal) Limited in
order to refinance the subsidiary.
Year ended 31 March 2019
On 21 December 2018 the Company acquired One Derby Square,
Liverpool. The Company issued 3,500,000 ordinary GBP1 share in
Palace Capital (Liverpool) Limited.
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
Quintain (Signal) Member
B Limited* Ordinary 100 Holding
Signal Property Investments
LLP* Member 100 Property Investments
Signal Investments LLP* Member 100 Holding
Property Investment Holdings
Limited Ordinary 100 Property Investments
Palace Capital (Dartford)
Limited Ordinary 100 Property Management
Palace Capital (Newcastle)
Limited Ordinary 100 Property Investments
R.T. Warren (Investments)
Limited Ordinary 100 Property Investments
Palace Capital (York) Limited Ordinary 100 Property Management
Associate Company:
=================================== ============== ============== ====================
HBP Services Limited* Ordinary 21.4 Property Management
Meadowcourt Management (Meadowhall)
Limited* Ordinary 30 Property Management
Clubcourt Limited* Ordinary 40 Property Management
----------------------------------- -------------- -------------- --------------------
* Held indirectly
The results of the associates are immaterial to the Group.
The registered addresses for the subsidiaries across the Group
are consistent based on their country of incorporation and are as
follows:
-- UK entities: 4th Floor, 25 Bury Street, St James's, London, SW1Y 6AL.
3. LISTED EQUITY INVESTMENTS
Total
GBP'000
------------------------------------------------------ ========
At 1 April 2018 -
Additions 2,850
Loss on revaluation of listed equity investment shown
in statement of comprehensive income (214)
------------------------------------------------------ --------
At 1 April 2019 2,636
Additions 329
Loss on revaluation of listed equity investment shown
in statement of comprehensive income (425)
------------------------------------------------------ --------
At 31 March 2020 2,540
------------------------------------------------------ --------
During the year the Company purchased listed equity investments
to the value of GBP329,000. The investment has subsequently been
revalued using level 1 inputs, the quoted market price.
4. PROPERTY, PLANT AND EQUIPMENT
IT, fixtures
and fittings
GBP'000
-------------------------------- =============
At 1 April 2018 215
Additions 2
================================ =============
At 1 April 2019 217
Additions 36
================================ =============
At 31 March 2020 253
================================ =============
Depreciation
At 1 April 2018 94
Provided during the period 31
================================ =============
At 1 April 2019 125
Provided during the period 32
-------------------------------- -------------
At 31 March 2020 157
-------------------------------- -------------
Net book value at 31 March 2020 96
-------------------------------- -------------
Net book value at 31 March 2019 92
-------------------------------- -------------
5. TRADE AND OTHER RECEIVABLES
2020 2019
GBP'000 GBP'000
----------------------------------------------- ======== ========
Amounts owed by subsidiary undertakings 22,965 14,250
Trade debtors 414 720
Other debtors 30 48
Other taxes and social security 25 34
Accrued interest on amounts owed by subsidiary
undertakings - 6,882
Prepayments 209 108
----------------------------------------------- ======== --------
23,643 22,042
----------------------------------------------- ======== --------
A loan amounting to GBP22,965,362 remains outstanding at 31
March 2020 (2019: GBP10,160,251) from Palace Capital (Developments)
Limited. No interest is charged on this loan. This loan is
repayable on demand.
A loan amounting to GBPNil remains outstanding at 31 March 2020
(2019: GBP4,090,165) from Palace Capital (Leeds) Limited. Interest
on this loan is charged at a fixed rate of 5% per year. This loan
is repayable on 8 May 2019. Prior to the year end a loan of
GBP7,652,636 was capitalised as an investment in the
subsidiary.
6. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2020 2019
GBP'000 GBP'000
-------------------------------------- ======== ========
Trade creditors 223 57
Amount owed to subsidiary undertaking 7,697 5,104
Corporation tax payable 57 -
Other taxes 75 55
Other creditors 5 -
Accruals and deferred income 866 646
-------------------------------------- ======== --------
8,923 5,862
-------------------------------------- ======== --------
A loan amounting to GBP43,012 remains outstanding at 31 March
2020 (2019: GBP1,538,132) to Palace Capital (Newcastle) Limited. No
interest is charged on this loan. This loan is repayable on
demand.
A loan amounting to GBP3,317,480 remains outstanding at 31 March
2020 (2019: GBPNil) to R.T. Warren Investments Limited. No interest
is charged on this loan. This loan is repayable on demand.
A loan amounting to GBP4,336,489 remains outstanding at 31 March
2020 (2019: GBP3,566,350) to Property Investment Holdings Limited.
No interest is charged on this loan. This loan is repayable on
demand.
7. SHARE CAPITAL
The details of the Company's share capital are provided in note
21 of the notes to the Consolidated Financial Statements.
8. LEASES
Operating lease payments in respect of rents on leasehold
properties occupied by the Company are payable as follows:
2020 2019
GBP'000 GBP'000
----------------------- ======== ========
Within one year 178 178
From one to two years 178 178
From two to five years 19 197
----------------------- ======== ========
375 553
----------------------- ======== --------
9. POST BALANCE SHEET EVENT
There are no post balance sheet events.
Glossary
Adjusted EPS: Is adjusted profit before tax less corporation tax
charge (excluding deferred tax movements) divided by the average
basic number of shares in the period.
Adjusted profit before tax: Is the IFRS profit before taxation
excluding investment property revaluations, gains/losses on
disposals, acquisition costs, fair value movement in derivatives
and share-based payments and exceptional items.
Assets Under Management (AUM): Is a measure of the total market
value of all properties owned and managed by the Group.
Balance sheet gearing: Is the balance sheet net debt divided by
IFRS net assets.
Building Research Establishment Environmental Assessment
Methodology (BREEAM) rating: A set of assessment methods and tools
designed to help construction professionals understand and mitigate
the environmental impacts of the developments they design and
build. Performance is measured across a series of ratings: Good,
Very Good, Excellent and Outstanding.
Core-plus: Is a property investment management style which
adopts a certain risk appetite growth strategy. Core-plus is
typically associated with a low to moderate risk profile. Core-plus
property owners would have the ability to increase cash flows
through light refurbishment and asset management strategies.
Core-plus properties tend to be high-quality and well-occupied.
Dividend cover: Is the Adjusted EPS divided by dividend per
share declared in the period.
EPRA: Is the European Public Real Estate Association.
EPRA cost ratio (including direct vacancy costs): Is a
proportionally consolidated measure of the ratio of net overheads
and operating expenses against gross rental income (with both
amounts excluding ground rents payable). Net overheads and
operating expenses relate to all administrative and operating
expenses, net of any service fees, recharges or other income
specifically intended to cover overhead and property expenses.
EPRA cost ratio (excluding direct vacancy costs): Is the ratio
calculated above, but with direct vacancy costs removed from the
net overheads and operating expenses balance.
EPRA diluted EPS: Is EPRA earnings divided by the average
diluted number of shares in the period.
EPRA earnings: Is the IFRS profit after taxation excluding
investment property revaluations and gains/losses on disposals and
changes in fair value of financial derivatives.
EPRA EPS: Is EPRA earnings divided by the average basic number
of shares in the period.
EPRA net assets (EPRA NAV): Are the balance sheet net assets
excluding the mark to market on effective cash flow hedges and
related debt adjustments, deferred taxation on revaluations and
diluting for the effect of those shares potentially issuable under
employee share schemes.
EPRA NAV per share: Is EPRA NAV divided by the diluted number of
shares at the period end.
EPRA NNNAV: Is the EPRA NAV adjusted to reflect the fair value
of debt and derivatives and to include deferred taxation on
revaluations.
EPRA occupancy rate: Is the ERV of occupied space divided by ERV
of the whole portfolio, excluding developments and residential
property.
EPRA topped-up net initial yield: Is the current annualised
rent, net of costs, topped up for contracted uplifts, where these
are not in lieu of rental growth, expressed as a percentage of
capital value.
EPRA vacancy rate: Is the ERV of vacant space divided by ERV of
the whole portfolio, excluding developments and residential
property.
Equivalent yield: Is the net weighted average income return a
property will produce based upon the timing of the income received.
In accordance with usual practice, the equivalent yields (as
determined by the external valuers) assume rent received annually
in arrears and on values before deducting prospective purchaser's
costs.
Estimated rental value (ERV): Is the external valuers' opinion
as to the open market rent which, on the date of valuation, could
reasonably be expected to be obtained on a new letting or rent
review of a property.
IAS/IFRS: Is the International Financial Reporting Standards
issued by the International Accounting Standards Board and adopted
by the EU.
Interest cover ratio (ICR): Is the number of times net interest
payable is covered by underlying profit before net interest payable
and taxation.
Investment Property Databank (IPD): A wholly owned subsidiary of
MSCI producing an independent benchmark of property returns and the
Group's portfolio returns.
Key Performance Indicators (KPIs): Are the most critical metrics
that measure the success of specific activities used to meet
business goals - measured against a specific target or benchmark,
adding context to each activity being measured.
LIBOR: Is the London Interbank Offered Rate, the interest rate
charged by one bank to another for lending money.
Like-for-like net rental income: Is the change in net rental
income on properties owned throughout the current and previous
periods under review. This growth rate includes revenue recognition
and lease accounting adjustments but excludes properties held for
development in either period, properties with guaranteed rent
reviews, asset management determinations and surrender
premiums.
Like-for-like valuation: Is the change in the carrying value of
properties owned throughout the entire year.
This excludes properties acquired during the year and disposed
of during the year.
Loan to value (LTV): Is the ratio of principal value of gross
debt less cash, short-term deposits and liquid investments to the
aggregate value of properties and investments.
MSCI Inc. (MSCI IPD): Is a company that produces independent
benchmarks of property returns.
The Group measures its performance against 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 equivalent yield (NEY): Is the weighted average income
return (after adding notional purchaser's costs) a property will
produce based upon the timing of the income received. In accordance
with usual practice, the equivalent yields (as determined by the
external valuers) assume rent is received annually in arrears.
Net initial yield (NIY): Is the current annualised rent, net of
costs, expressed as a percentage of capital value, after adding
notional purchaser's costs.
Net Loan to Value (LTV): Is the ratio of gross debt less cash,
short-term deposits and liquid investments to the aggregate value
of properties and investments.
Net rental income: Is the rental income receivable in the period
after payment of net property outgoings. Net rental income will
differ from annualised net rents and passing rent due to the
effects of income from rent reviews, net property outgoings and
accounting adjustments for fixed and minimum contracted rent
reviews and lease incentives.
Net reversionary yield (NRY): Is the anticipated yield, which
the initial yield will rise to once the rent reaches the estimated
rental value.
Northern Powerhouse: Is a proposal to boost economic growth in
the North of England by the 2010-15 coalition Government and
2015-2017 Conservative Government in the United Kingdom,
particularly in the "Core Cities" of Manchester, Liverpool, Leeds,
Sheffield, Hull and Newcastle.
Passing rent: Is the gross rent, less any ground rent payable
under head leases.
Peer Group: Is 16 companies within the listed real estate
sector.
Portfolio Valuation: The value of the Company's property
portfolio, including all investment and trading properties as
valued by our independent valuers, Cushman & Wakefield, and
assets held for sale.
Portfolio Value (PV): The value of the investment properties
within the Palace Capital property portfolio as measured by Cushman
& Wakefield. It is referenced in relation the 2018 LTIP's
awarded to employees in 2018.
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.
Special Purpose Vehicle (SPV): Is a separate legal entity
created by an organisation. The SPV is a distinct company with its
own assets and liabilities, as well as its own legal status.
Usually, they are created for a specific objective, often which is
to isolate financial risk. As it is a separate legal entity, if the
Parent Company goes bankrupt, the special purpose vehicle can carry
its obligations.
Tenant (or lease) incentives: Are any incentives offered to
occupiers to enter into a lease. Typically the incentive will be an
initial rent free period, or a cash contribution to fit-out or
similar costs. Under accounting rules the value of lease incentives
given to tenants is amortised through the Income Statement on a
straight-line basis to the lease expiry.
Total Accounting Return (TAR): Is the increase or decrease in
EPRA NAV per share plus dividends paid, and this can be expressed
as a percentage of EPRA NAV per share at the beginning of the
period.
Total 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 by the growth in
capital from purchasing a share in the Company assuming that the
dividends are reinvested each time they are paid.
Value added: Is a risk appetite growth strategy. Typically
associated with a moderate to high risk profile. Value add
properties tend to have low cash flows at acquisition but have the
potential to produce future cash flow uplifts once value has been
added. This could be by taking on larger capital refurbishment
projects to improve the layout and look of the property to ensure
rental increases and capital value enhancement.
Weighted average debt maturity: Is measured in years when each
tranche of Group debt is multiplied by the remaining period to its
maturity and the result is divided by total Group debt in issue at
the period end.
Weighted average interest rate: Is the loan interest per annum
at the period end, divided by total debt in issue at the period
end.
Weighted average unexpired lease term (WAULT): Is the average
lease term remaining to first break, or expiry, across the
portfolio weighted by rental income. This is also disclosed
assuming all break clauses are exercised at the earliest date, as
stated.
WiredScore: Wired Certification is a commercial real estate
rating system that empowers landlords to understand, improve, and
promote their buildings' digital infrastructure. Connectivity is
measured across a series of ratings: Platinum, Gold, Silver and
Certified.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FLFSVDFIDIII
(END) Dow Jones Newswires
July 07, 2020 09:52 ET (13:52 GMT)
Palace Capital (LSE:PCA)
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