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RNS
Palace Capital PLC  -  PCA   

Half-year Report

Released 07:00 26-Nov-2018

RNS Number : 4051I
Palace Capital PLC
26 November 2018
 

Palace Capital plc

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

 

Interim Results for the 6 months ended 30 September 2018

 

Continued delivery of income and capital growth through active asset management

Palace Capital (LSE: PCA), the Main Market listed property investment company that has a diversified portfolio of UK regional commercial real estate in carefully selected locations outside of London, is pleased to announce its unaudited half yearly results for the six months ended 30 September 2018.

Highlights

Financial Highlights

 

Operational Highlights

 

Neil Sinclair, CEO of Palace Capital, said: 

"Today's results are further evidence of the continued success of our focus on total returns, driving both income and capital growth.

"Following a busy 12 months to 31 March 2018, where we added significantly to our portfolio with the £68 million RT Warren portfolio acquisition, this period has very much been one of consolidation. We have been actively assessing the investment market, but remain resolute in our adherence to our investment strategy and have found it difficult to find value, where an appropriate return can be delivered to our shareholders, in the current market. However, in these somewhat uncertain times we believe there will be opportunities over the coming six months and, with a strong balance sheet, we are well positioned to act when the right opportunity arises."             

 

Stanley Davis, Chairman of Palace Capital, said:

"I am very pleased to report that the Company is delivering increasing growth both in income and capital value. While our EPRA NAV per share was diluted somewhat last year with the successful £70 million equity raise, notwithstanding this we have virtually doubled our NAV since listing five years ago and we have outperformed the sector over that period on a total accounting return basis of 128%.

The acquisition of the RT Warren portfolio will in due course be earnings and value enhancing for the company and, with momentum building in our asset management progress, the signs of this are beginning to show. Our strategy of selectively investing in the best towns and cities in the UK outside of London is delivering and with a positive outlook for regional fundamentals, we believe we are well positioned for the year ahead."

For more information:

 

Palace Capital:

 

Neil Sinclair

Stephen Silvester

020 3301 8330

FTI Consulting:

 

Claire Turvey

Meth Tanyanyiwa

020 3727 1000

Palacecapital@fticonsulting.com

 

About Palace Capital PLC:

Palace Capital plc (LSE: PCA) is a Main Market listed property investment company that has a £283.3 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 selects assets that provide opportunity to drive both capital value and long term rental income through tailored active asset management programmes, ultimately delivering attractive shareholder returns.

 

 Chairman's Statement

I am pleased to report our interim results for the six months ended 30 September 2018, which shows that the Group has made a profit before tax of £8.4 million, up 71.9% from £4.9 million in the comparative period. We continue to exercise our brand of active management with successful lettings, rent reviews, lease renewals and one asset sale at 30.1% above 31 March 2018 book value. Reference has already been made to the fact that it is difficult to buy in the current market but we were successful in purchasing a small vacant office building in Fareham, Hampshire, for £0.75 million. This property immediately adjoins one of our existing holdings in our portfolio. We are evaluating our long-term options for this property which is part let until March 2020.

As at 30 September 2018, our portfolio was valued by Cushman and Wakefield and the directors at £283.3 million, with an annual contracted rent roll of £17.4 million and a net income after property costs of £15.8 million per annum. We are very conservatively geared at only 30.3% LTV net of cash. Our EPRA NAV per share has increased by 1.4% to 421p per share (March 2018: 415p). At 30 September 2018, the Group had a net asset value of £186.6 million (March 2018:  £183.3 million).

We continue to look to grow our recurring income but maintain a parallel focus on increasing capital values. This will enable us to maintain our dividend policy and grow NAV. For the six months to 30 September 2018, rental income, net of non-recoverable costs, totalled £8.1 million (up 25.5% from £6.5 million in the comparative period).

Our second quarterly dividend of 4.75p will be payable on 28 December 2018 to shareholders on the register as at 7 December 2018. As we have not made a significant acquisition for over a year this has caused a drag on our dividend cover which was 84% covered in the first six months of the year. However, we consider that this will resolve through a combination of earnings enhancing lettings through our active asset management within the existing portfolio and off the back of deploying resources in suitable acquisitions. In the meantime, we have every intention of maintaining the dividend.

We consider that we are different from most of our peer group. Firstly, we believe that we have created considerable shareholder value by making mainly corporate acquisitions rather than direct purchases. This has provided us with considerable savings in SDLT and often tangible benefits with inherent tax losses and capital allowances. Secondly, we are a property company and while we keep REIT status under review as a matter of course, the Board takes the view that this is the right vehicle through which to deliver on our objectives.

While it has been a challenge to find the right assets that meet our strict investment criteria in the current market, our highly regarded management team has been working hard in actively assessing investment opportunities throughout the period. Notwithstanding the positive activity in HY19 growing both income and capital, our prudent approach to acquisitions will likely have a marginal impact on our adjusted profit before tax for this financial year. However, we remain confident in our disciplined approach to making acquisitions that will deliver value for the portfolio. We are in a strong position to act swiftly when the right investment opportunities are identified as we have the cash and bank facilities available to deploy and we hope to make an announcement in this regard in the coming weeks.

 

ACQUISITIONS AND DISPOSALS

We continue to grow the Company by our entrepreneurial brand of active management, which requires a level of cash on the balance sheet, to ensure that we are able to carry out our development and refurbishment plans, and can opportunistically act on investment opportunities that meet our criteria.

We stated last year that we would sell the residential element of the RT Warren portfolio which, on acquisition, comprised 65 units. We sold three earlier this year and we will retain two for strategic reasons. We have now exchanged contracts to sell 50 units all of which are uncharged. The sale of the units will provide further flexibility for new acquisitions as well as our active management programme, which includes development and refurbishment.

In April we acquired a small vacant office building in Fareham in Hampshire for £0.75 million which immediately adjoins one of our holdings in our portfolio. We have medium term development plans for these two properties.

Our investment strategy has always been to focus on economically vibrant towns and cities which are being positively affected by strengthening fundamentals such as urbanisation and infrastructure improvements. In many of these locations there has been a significant reduction in space, be it offices or industrial assets, as a result of either permitted development, allowing change of use to residential, or the lack of speculative development. This is holding us in good stead, particularly in locations such as Southampton, Winchester, Newcastle and York.

PORTFOLIO ACTIVITY

Hudson Quarter, Toft Green, York

As shareholders are aware, we secured planning consent in August last year to redevelop this two-acre site only one minute's walk from York Railway Station with 127 flats, 5,000 sq ft of retail/restaurant space, 34,500 sq ft of offices and car parking. We also took the decision to undertake the development of this scheme ourselves, which we believe will deliver the best returns.

I am pleased to report that the demolition of the site is nearly complete and our Project Managers are in discussion with a major contractor who has submitted the most favourable tender with a view to work starting in February of next year.

We have agreed Heads of Terms with a leading bank to finance the construction element. We will be making a relatively small contribution to this element and we have the necessary cash resources to do so.

We do not intend to offer any of the residential units until the marketing suite has been completed in early June 2019. However, we formally launched the scheme as "Hudson Quarter" in October and we are already receiving strong interest through the website www.hudsonquarteryork.com 

We are very excited about this scheme which is due to be completed in January 2021.

 

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

We are delighted with this acquisition which comprises 82,500 sq ft of multi-let offices plus 16,500 sq ft of retail.

We will shortly commence a limited refurbishment of this property involving an outlay of £2 million which includes giving it a more prominent identity and improving a 11,000 sq ft office floor which has become vacant. Comparable properties in the area are letting at 15-20% more than what we are currently securing and with very limited development and shrinking office supply in Newcastle, we are optimistic about the prospects for this asset.

Sol, Northampton

While the challenges faced in the leisure sector have somewhat hindered our progress here, we continue to deliver a very satisfactory return from key tenants including Vue, Accor and Fitness for Less. In addition, with letting and managing agents having been appointed, we are seeing increased interest in the vacant space. I hope to be able to report some positive news in due course.

Boulton House, Chorlton Street, Manchester

We bought this 75,000 sq ft property for £10.45 million just before the result of the Referendum on the EU was announced and it is a good example of our ability to realise value potential. We have spent about £800,000 on the property to date and it was recently valued at £14.5 million. In 2016 the building was commanding rents at £12.50-£13.00 per sq ft, but we recently let about 2,000 sq ft of offices at £18.95 per sq ft. Manchester is a thriving city and we are very pleased with this investment.

249 Midsummer Boulevard, Milton Keynes

Milton Keynes is part of the growth corridor between Oxford and Cambridge. We have a vacant unit of 14,500 sq ft at this office building situated only a few minutes' walk from the railway station and we are hopeful of securing rents well in excess of what was being achieved when we bought it in 2016.

Bridge House, 41-45 High Street Weybridge

We have made a planning application for 4,000 sq ft of retail and 28 apartments in this affluent Surrey town. A decision on this is anticipated in Q1 of the next financial year.

Museum Street/Lendal, York

This retail and office building was acquired as part of the RT Warren Portfolio. There is a major shortage of offices in York and the vacancy rate has fallen to 3%. We have 5,500 sq ft, most of which had been vacant for some time but in urgent need of refurbishment. We have now placed a contract to refurbish the offices and this is due for completion in February 2019.

Regency House, High Street, Winchester

This building is partly let to a firm of solicitors but 4,600 sq ft is vacant and we have just placed a contract to refurbish it. Again, there is a severe shortage of office space in Winchester and we are very hopeful of growing the value considerably.

Aldi Supermarket, Mumby Road, Gosport, Hants

Post the end of the half year we announced that we had concluded a letting to Aldi on our Gosport property to include a small adjoining site for a term of 20 years at an increased rental of £291,000 per annum with annual increases.

Summary

In the upcoming period, there are a raft of new opportunities for us to address, ranging from lease expiries and redevelopments. A case in point is our property in Royal Leamington Spa, which currently comprises two office buildings of 40,000 sq ft producing £600,000 per annum. It sits on a 1.5 acre site in the town centre, just over an hour by train to Marylebone, and has very considerable potential that we will look to unlock in the future.

BALANCE SHEET

At the half year we had borrowings of £99.2 million at an average cost of 3.5% per annum, of which 70% is hedged. We continue to maintain positive working relationships with our banks and we see their contribution as key to enhancing the performance of our business.

Our second quarterly dividend of 4.75p will be payable on 28 December 2018 to shareholders on the register as at 7 December 2018. Our adherence to our investment criteria in the current market - which is absolutely the right approach for shareholders - means we have not made a significant acquisition for over a year. While this has resulted in a drag on our dividend cover, which was 84% covered in the first six months of the year, I firmly believe that, in time, this will resolve itself through a combination of earnings enhancing lettings, active asset management within the existing portfolio and off the back of deploying resources in suitable acquisitions.

CONCLUSION AND OUTLOOK

Our active management strategy is bearing fruit, and having sold or in the process of selling those properties with limited or no growth potential, we are focusing on our core sectors where we see the greatest opportunity in the coming years to grow both our income and capital returns: City centre offices close to railway stations in growth locations, and the industrial and distribution sector. We have had another successful period of growing both the income and capital and with a strong balance sheet we remain primed and ready to make further acquisitions which will be accretive to earnings.

The market has been somewhat uncertain, which was to be expected as we entered uncharted waters in negotiating our exit from the European Union, but the momentum behind the fundamentals that underpin our investment case continues to take a positive trajectory. We are a strong country full of talent and I am in no doubt that we have the resilience to weather every storm. Palace Capital is an exciting company with a growth strategy and we have built a quality portfolio full of potential with a management team second to none. I am very optimistic about our future.

 

STANLEY DAVIS, CHAIRMAN

23 November 2018

 

  

 

Palace Capital plc

Condensed consolidated statement of comprehensive income

For the six months ended 30 September 2018

 

 

 

 

 

 

 

 

Notes

 

Unaudited

6 months to

30 September

2018

£000

Unaudited

6 months to

30 September

2017

£000

Audited

Year to

31 March

2018

£000

 

 

 

 

 

 

Rental and other income

 

      3

 

9,210

7,138

16,733

Property operating expenses

 

 

 

(1,101)

(675)

(1,824)

Net property income

 

 

8,109

6,463

14,909

 

 

 

 

 

 

Administrative costs

 

 

(1,985)

(1,487)

(4,185)

Operating profit before gains on investment properties

 

 

6,124

4,976

10,724

 

 

 

 

 

 

Gains on revaluation of investment properties

8

 

3,880

1,396

5,738

Profit/(loss) on disposal of investment properties

 

 

211

(159)

274

Operating profit

 

 

10,215

6,213

16,736

 

 

 

 

 

 

Finance income

 

 

88

-

10

Finance costs

 

 

(1,953)

(1,354)

(3,442)

Profit before taxation

 

 

8,350

4,859

13,304

 

 

 

 

 

 

Taxation

   4

 

(1,078)

(507)

(773)

Profit for the period and total comprehensive income

 

 

7,272

4,352

12,531

 

 

 

                  

                 

                  

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per ordinary share

 

 

Basic

6

 

15.9p

17.3p

35.9p

Diluted

6

 

15.8p

17.3p

35.8p

                 

 

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

 

 

Palace Capital plc

Condensed consolidated statement of financial position

30 September 2018

 

 

 

Notes

Unaudited

30 September

2018

£000

Unaudited

30 September

2017

£000

Audited

31 March

2018

£000

Non-current assets

 

 

 

 

 

Investment properties

 

8

260,178

202,832

253,863

Tangible fixed assets

 

 

103

129

121

 

 

 

260,281

202,961

253,984

 

 

 

 

 

 

Current assets

 

 

 

 

 

Assets held for sale

 

 

21,708

-

21,708

Trade and other receivables

 

9

5,702

5,018

5,551

Cash and cash equivalents

 

10

13,818

8,733

19,033

Total current assets

 

 

41,228

13,751

46,292

Total assets

 

 

301,509

216,712

300,276

 

 

 

 

 

                  

Current liabilities

 

 

 

 

 

Trade and other payables

 

11

(8,460)

(8,353)

(8,834)

Borrowings

 

12

(6,124)

(2,186)

(2,686)

Total current liabilities

 

 

(14,584)

(10,539)

(11,520)

 

 

 

 

Net current assets

26,644

3,212

34,772

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Borrowings

 

12

(91,692)

(90,464)

(97,157)

Deferred tax

 

 

(6,972)

(2,499)

(6,531)

Obligations under finance leases

 

 

(1,587)

(1,588)

(1,588)

Derivative Financial Instruments

 

 

(104)

-

(181)

Total non-current liabilities

 

 

(100,355)

(94,551)

(105,457)

 

 

 

 

 

 

Net Assets

 

 

186,570

111,622

183,299

 

 

 

 

 

                 

Equity

 

 

 

 

 

Share capital

 

13

4,639

2,580

4,639

Share premium account

 

 

125,019

59,444

125,036

Merger reserve

 

 

3,503

3,503

3,503

Capital redemption reserve

 

 

340

340

340

Treasury share reserve

 

 

(1,893)

(2,250)

(2,011)

Retained earnings

 

 

54,962

48,005

51,792

Equity shareholders' funds

186,570

111,622

183,299

 

 

 

 

 

                 

Basic NAV per ordinary share

 

7

407p

442p

400p

Diluted NAV per ordinary share

 

7

406p

441p

400p

EPRA NAV per ordinary share

 

7

421p

451p

415p

             

 

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

The condensed consolidated interim financial statements were approved by the Board of Directors on 23 November 2018.

  

 

Palace Capital plc

Condensed consolidated statement of cash flows

For the six months ended 30 September 2018

 

 

 

 

 

 

Notes

Unaudited

6 months to

30 September

2018

£000

Unaudited

6 months to

30 September

2017

£000

Audited

Year to

31 March

2018

£000

Operating activities

 

 

 

 

Profit before tax

 

8,350

4,859

13,304

Adjustments for non-cash items: 

 

 

 

 

Loss/(Profit) on sale of investment properties

 

(211)

159

(274)

Gain on revaluation of investment properties

 

(3,880)

(1,396)

(5,738)

Depreciation

 

16

30

45

Share-based payment

 

113

100

174

Net finance costs

 

1,865

1,354

3,432

Cash generated by operations

 

6,253

5,106

10,943

Changes in working capital

 

(1,070)

(847)

(1,044)

 

 

 

 

 

Cash flows from operations

 

5,183

4,259

9,899

Corporation tax received/(paid)   

 

9

(111)

(395)

Interest and other finance costs paid

 

(1,620)

(913)

(2,714)

Interest received

 

11

-

10

Cash flows from operating activities

 

3,583

3,235

6,800

 

 

 

 

 

Investing activities

 

 

 

 

Purchase of property, plant and equipment

 

-

(117)

(123)

Capital expenditure on refurbishments and new developments

 

(2,368)

(925)

(2,754)

Purchase of investment property

 

(797)

(20,000)

(72,808)

Proceeds from disposal of investment properties

 

948

3,246

8,765

Amounts transferred out of/(into) restricted cash deposits

 

336

-

(805)

 

 

 

 

 

Cash flows from investing activities

 

(1,881)

(17,796)

(67,725)

 

 

 

 

 

Financing activities

 

 

 

 

Proceeds from issue of Ordinary Share capital

 

-

-

70,000

Costs from issue of Ordinary Share capital

 

(17)

-

(2,349)

Dividends paid

5

(4,355)

(2,389)

(6,744)

Bank loan received

 

4,146

17,545

53,393

Bank loan repaid

 

(6,343)

(2,682)

(46,327)

Capital element of finance lease rental payments

 

-

(361)

-

Loan issue costs

 

(13)

-

-

Cash flows from financing activities

 

(6,582)

12,113

67,973

 

 

 

 

 

Net (decrease)/increase in cash

 

(4,880)

(2,448)

7,048

Opening cash and cash equivalents

10

17,985

11,181

10,937

Closing cash and cash equivalents

10

13,105

8,733

17,985

 

 

                   

                   

                 

 

 

 

 

 

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

Palace Capital plc

Condensed consolidated statement of changes in equity

For the six months ended 30 September 2018

 

 

 

Share

 Capital

£000

 

Share

 Premium

£000

Treasury Shares

Reserve

£000

 

Other

Reserves

£000

 

Retained Earnings

£000

 

Total 

equity

 £000

As at 31 March 2017

2,580

59,444

(2,250)

3,843

45,942

109,559

 

 

 

 

 

 

 

Total comprehensive income for the period

-

-

-

-

4,352

4,352

Share based payments

-

-

-

-

100

100

Dividends

-

-

-

-

(2,389)

(2,389)

 

     

     

 

 

  

  

As at 30 September 2017

2,580

59,444

(2,250)

3,843

48,005

111,622

 

 

 

 

 

 

 

Total comprehensive income for the period

-

-

-

-

8,179

8,179

Share based payments

-

-

-

-

74

74

Gross proceeds from issue of new shares

2,059

67,941

-

-

-

70,000

Costs from issue of new shares

 

(2,349)

 

 

 

(2,349)

Exercise of share options

-

-

239

-

(239)

-

Issue of deferred bonus share options

 

 

 

 

128

128

Dividends

-

-

-

-

(4,355)

(4,355)

 

 

 

 

 

 

 

As at 31 March 2018

4,639

125,036

(2,011)

3,843

51,792

183,299

 

 

 

 

 

 

 

Total comprehensive income for the period

-

-

-

-

7,272

7,272

Share based payments

-

-

-

-

113

113

Costs from issue of new shares

-

(17)

-

-

-

(17)

Exercise of share options

-

-

118

-

(118)

-

Issue of deferred bonus share options

-

-

-

-

257

257

Dividends

-

-

-

-

(4,354)

(4,354)

 

 

 

 

 

 

 

As at 30 September 2018

4,639

125,019

(1,893)

3,843

54,962

186,570

 

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

 

  

 

Palace Capital plc

Notes to the condensed consolidated financial statements                                            

For the six months ended 30 September 2018

 

 

1              General information

 

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

 

The Company's shares are admitted to trading on the Main Market of the London Stock Exchange. The Company is domiciled and registered in England and Wales and incorporated under the Companies Act 2006.  The address of its registered office is Lower Ground Floor, One George Yard, London, EC3V 9DF.

 

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

 

Basis of preparation

 

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

 

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

The accounting policies and methods of computations used are consistent with those as reported in the Group's Annual Report for the year ended 31 March 2018 and are expected to be used in the Group's Annual Report for the year ended 31 March 2019.

The financial information for the year ended 31 March 2018 presented in these unaudited condensed Group interim financial statements does not constitute the Company's statutory accounts for that period but has been derived from them. The Report and Accounts for the year ended 31 March 2018 were audited and have been filed with the Registrar of Companies. The Independent Auditor's Report on the Report and Accounts for the year ended 31 March 2018 was unqualified and did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of the Companies Act 2006. The financial information for the periods ended 30 September 2017 and 30 September 2018 are unaudited and have not been subject to a review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information performed by the Independent Auditor of the Entity, issued by the Auditing Practices Board.

 

The interim report was approved by the Board of Directors on 23 November 2018.

 

Copies of this statement are available to the public for collection at the Company's Registered Office at Lower Ground Floor, One George Yard, London, EC3V 9DF and on the Company's website, www.palacecapitalplc.com.

 

Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in these financial statements.

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

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

 

Changes in accounting policies and disclosures

 

IRFS 9 Financial Instruments (became effective for accounting periods commencing on or after 1 January 2018)

This standard deals with the classification, measurement and recognition of financial assets and liabilities. The Group does not apply hedge accounting on the financial derivatives held, and as such there is no material impact on the financial statements relating to such items. Derivative financial instruments continue to qualify for designation as at fair value through profit and loss.

IFRS 9 requires the Group to make an assessment of Expected Credit Losses ('ECLs') on its debtors based on tenant payment history and the Directors' assessment of the future credit risk relating to its trade receivables at reporting dates. The Directors assessment resulted in no material differences and there has been no adjustment to opening balances as a result of IFRS 9.

 

IFRS 15 Revenue from Contracts with Customers (became effective for accounting periods commencing on or after 1 January 2018)

This standard is applicable to management fees and other income but excludes rent receivable. The majority of the Group's income is from tenant leases and is outside the scope of the new standard. The financial impact of the new standard is considered immaterial and does not materially impact the financial statements.

 

IFRS 16 Leases (became effective for accounting periods commencing on or after 1 January 2019)

This standard requires lessees to recognise a right-of-use asset and related lease liability representing the obligation to make lease payments. Interest expense on the lease liability and depreciation on the right-of-use asset will be recognised in the statement of comprehensive income. Lessor accounting is substantially unchanged from current accounting. As the Group is primarily a lessor, the Directors do not anticipate that the adoption of this will have a material impact on the Group's financial statements as the Group only holds one operating lease, being the head office. The Directors will continue to assess the impact of the new standard going forward.

 

2              Segmental reporting

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

 

3              Net property income

 

 

Unaudited

6 months to

30 September

2018

£000

Unaudited

6 months to

30 September

2017

£000

Audited

Year to

31 March

2018

£000

 

 

 

 

 

Rent receivable

 

8,750

7,138

16,360

Management fees & other income

 

460

-

               373     

Total revenue

 

9,210

7,138

16,733

Service charge & vacant rates

 

(600)

(675)

(1,445)

Other property costs

 

(501)

-

(379)

Property operating expenses

 

(1,101)

(675)

(1,824)

 

 

 

 

 

Net property income

 

8,109

6,463

14,909

 

 

  

 

4              Taxation

 

 

Unaudited

6 months to

30 September

2018

£000

Unaudited

6 months to

30 September

2017

£000

Audited

Year to

31 March

2018

£000

 

 

 

 

 

Current income tax charge

 

637

490

1,062

Tax underprovided in prior year

 

-

-

10

Capital gains charged in period

 

-

-

31

Deferred tax

 

441

17

(330)

Tax charge

 

1,078

507

773

 

 

5              Dividends

 

 

 

 

 

 

Payment Date

Unaudited

6 months to

30 September

2018

£000

Unaudited

6 months to

30 September

2017

£000

Audited

Year to

31 March

2018

£000

Ordinary dividends paid

 

 

 

 

 

2017 Final dividend: 9.50p per share

 

28 July 2017

-

2,389

2,389

2018 Interim dividend: 9.50p per share

 

29 December 2017

-

-

4,355

2018 Interim dividend: 4.75p per share

 

13 April 2018

2,177

-

-

2018 Final dividend: 4.75p per share

 

31 July 2018

2,177

-

-

 

4,354

                 2,389

        6,744

 

 

Proposed dividend

2019 Q1 interim dividend: 4.75p per share paid on 19 October 2018.

2019 Q2 interim dividend: 4.75p per share payable on 28 December 2018.

 

6              Earnings per share

 

The Group 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 Management to assess the Group's performance. These include a number of European Public Real Estate Association ('EPRA') measures, prepared in accordance with the EPRA Best Practice Recommendations (BPR) reporting framework the latest update of which was issued in November 2016. We report a number of these measures (detailed in the glossary of terms) because the Directors considers them to improve the transparency and relevance of our published results as well as the comparability with other listed European real estate companies.

 

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

accrue to current shareholders. The EPRA diluted earnings per share also takes into account the dilution of share options and warrants if exercised.

 

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

 

 

 

Unaudited

6 months to

30 September

2018

£000

Unaudited

6 months to

30 September

2017

£000

Audited

Year to

31 March

2018

£000

 

 

 

 

 

 

Profit after tax attributable to ordinary shareholders for the period

7,272

4,352

12,531

 

 

 

 

 

 

Adjustments:

 

 

 

 

Gains on revaluation of investment property portfolio

(3,880)

(1,396)

(5,738)

 

(Profit)/loss on disposal of investment properties

(211)

159

(274)

 

Debt termination costs

-

-

127

 

Fair value (loss)/gain on derivatives

(77)

-

181

 

Deferred tax relating to EPRA adjustments and capital gains charged

441

-

(299)

 

EPRA earnings for the period

3,545

3,115

6,528

 

 

 

 

 

 

Share-based payments

113

100

174

 

Costs in respect of move to Main Market

-

-

698

 

 

 

 

 

 

Adjusted profit after tax for the period

3,658

3,215

7,400

 

Tax excluding deferred tax on EPRA adjustments and capital gain charged

637

490

1,071

 

Adjusted profit before tax for the period

4,295

3,705

8,471

           

 

 

Unaudited

6 months to

30 September

2018

Unaudited

6 months to

30 September

2017

Audited

Year to

31 March

2018

 

Weighted average number of shares for basic earnings per share

45,806,334

25,156,703

34,943,855

 

Dilutive effect of share options

106,695

36,322

36,322

 

Weighted average number of shares for diluted earnings per share

45,913,029

25,193,025

34,980,177

 

 

 

 

                  

 

Earnings per ordinary share

 

 

 

 

Basic

15.9p

17.3p

35.9p

 

Diluted

15.8p

17.3p

35.8p

 

EPRA and adjusted earnings per ordinary share

 

EPRA basic

7.7p

12.4p

18.7p

 

EPRA diluted

7.7p

12.4p

18.7p

 

Adjusted EPS

8.0p

12.8p

21.2p

 

7              Net asset value per share

 

EPRA NAV calculation makes adjustments to IFRS NAV to provide stakeholders with the most relevant information on the fair value of the assets and liabilities within a true real estate investment company with a long-term investment strategy. EPRA NAV is adjusted to take effect of the exercise of options, convertibles and other equity interests and excludes the fair value of financial instruments and deferred tax on latent gains. EPRA NNNAV measure is to report net asset value including fair values of financial instruments and deferred tax on latent gains.

 

The diluted net assets and the number of diluted ordinary issued shares at the end of the period assumes that all the outstanding options that are exercisable at the period end are exercised at the option price.

 

Net asset value is calculated using the following information:

 

 

 

             Unaudited

 30 September

2018

£000

Unaudited

30 September

2017

£000

Audited

31 March

2018

£000

 

 

Net assets at the end of the period

186,570

111,622

183,299

 

 

Diluted net assets

186,570

111,622

183,299

 

 

Exclude deferred tax on latent capital gains & capital allowances

6,972

2,499

6,531

 

 

Exclude fair value of financial instruments

104

-

181

 

 

EPRA NAV

193,646

114,121

190,011

 

 

Include deferred tax on latent capital gains & capital allowances

(6,972)

(2,499)

(6,531)

 

 

Include fair value of financial instruments

(104)

-

(181)

 

 

EPRA NNNAV

186,570

111,622

183,299

 

 

 

 

 

 

 

 

 

Unaudited

 30 September

2018

Unaudited

30 September

2017

Audited

31 March

2018

 

 

Number of ordinary shares issued at the end of the period

45,843,866

25,250,692

45,805,280

 

 

Dilutive effect of share options

106,695

36,322

36,322

 

 

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

45,950,561

25,287,014

45,841,602

 

 

 

 

 

 

 

 

Net assets per ordinary share

 

 

 

 

 

Basic NAV

407p

442p

           400p

 

 

Diluted NAV

406p

441p

           400p

 

 

EPRA NAV

421p

451p

           415p

 

 

EPRA NNNAV

406p

441p

           400p

 

 

 

 

 

 

 

8              Investment Properties

 

 

Freehold Investment properties

Leasehold Investment properties

 

 

Total

 

 

£000

£000

£000

At 1 April 2017

160,228

23,688

183,916

Additions - new properties

92,014

-

92,014

Additions - refurbishments and developments

2,681

73

2,754

Transfer to assets held for sale

(21,708)

-

(21,708)

Gains on revaluation of investment properties

4,888

850

5,738

Disposals

(5,361)

(3,490)

(8,851)

At 31 March 2018

232,742

21,121

253,863

Additions - new properties

797

-

797

 

Additions - refurbishments and new developments

2,348

20

2,368

 

Gains on revaluation of investment properties

3,972

(92)

3,880

 

Disposals

(730)

-

(730)

 

At 30 September 2018

239,129

21,049

260,178

 

                                                        

Investment properties are stated at fair value based upon external valuations and is inherently subjective.  The fair value represents the amount at which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arms-length transaction at the date of valuation.

 

As a result of the level of judgement used in arriving at the market valuations, the amounts which may ultimately be realised in respect of any giving property may differ from the valuations shown in the statement of financial position.

 

At 30 September 2018, the Group's freehold and leasehold investment properties were externally valued by Royal Institution of Chartered Surveyors ("RICS") registered independent valuers. A reconciliation of the valuations carried out by the external valuers to the carrying values shown in the balance sheet was as follows:

 

 

 

Unaudited

 30 September

2018

£000

Unaudited

30 September

2017

£000

Audited

31 March

2018

£000

 

 

 

 

 

Fair value per independent valuer

 

261,625

202,840

255,024

 

 

 

 

 

Adjustment in respect of minimum payment

 

 

 

 

under head leases included as a liability

 

1,600

1,600

1,600

Less lease incentive balance in prepayments

 

(2,346)

(1,608)

(1,731)

Less rent top-up adjustment

 

(701)

-

(1,030)

 

 

 

 

 

Carrying value per financial statements

 

260,178

202,832

253,863

 

 

                    

                  

                  

               

 

Investment properties with a carrying value of £234,948,600 (31 March 2018: £234,429,000) are subject to a first charge to secure the Group's bank loans amounting to £99,204,600 (31 March 2018: £101,395,000).

 

Valuation process

 

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

 

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

 

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

- The amount and timing of future income streams;

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

- An appropriate yield.

 

Valuation technique

 

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

 

 

 

Assets held for sale

 

 

Unaudited

 30 September

2018

£000

Unaudited

30 September

2017

£000

Audited

31 March

2018

£000

 

 

 

 

 

Assets held for sale

 

21,708

-

21,708

 

 

 

 

 

Assets held for sale consist of the residential portfolio acquired in October 2017 as part of the Warren acquisition. The Group announced it was its intention to dispose of the portfolio as soon as terms with a potential buyer could be agreed. In accordance with the Group's accounting policy, these properties are classified as held for sale at 30 September 2018.

 

The residential portfolio has been valued by the board of directors based on open market information available and discussions with valuation professionals. The valuation has been held in the financial statements at a lower of their carrying value immediately prior to being classified as held for sale and fair value less costs to sell.

 

9              Trade and other receivables

 

 

Unaudited

 30 September

2018

£000

Unaudited

30 September

2017

£000

Audited

31 March

2018

£000

Current

 

 

 

 

Trade receivables

 

2,531

2,285

2,435

Prepayments and accrued income

 

2,797

2,230

2,393

Other taxes

 

250

359

609

Other debtors

 

124

144

114

 

 

5,702

5,018

5,551

 

 

 

 

 

           

                      

10           Cash and cash equivalents

 

 

Unaudited

 30 September

2018

£000

Unaudited

30 September

2017

£000

Audited

31 March

2018

£000

Cash and cash equivalents - unrestricted

 

13,105

8,733

17,985

Restricted cash

 

713

-

1,048

 

 

13,818

8,733

19,033

 

Restricted cash is cash where there is a legal restriction to specify its type of use. This is typically where the Group has agreed to deposit cash with a lender with regards to top-ups received from vendors on completion funds, to be realized over time consistent with the loss of income on vacant units.

 

11           Current trade and other payables

 

 

Unaudited

 30 September

2018

£000

Unaudited

30 September

2017

£000

Audited

31 March

2018

£000

 

 

 

 

 

Trade payables

 

632

875

986

Accruals

 

1,757

1,346

1,916

Deferred rental income

 

3,155

4,273

3,466

Taxes

 

2,697

1,852

2,358

Other payables

 

219

7

108

 

 

8,460

8,353

8,834

 

 

 

 

12           Borrowings

 

 

Unaudited

 30 September

2018

£000

Unaudited

30 September

2017

£000

Audited

31 March

2018

£000

Current borrowings

 

6,124

2,186

2,686

Non-current borrowings

 

91,692

90,464

97,157

Total borrowings

 

97,816

92,650

99,843

 

 

 

 

 

Non-current borrowings

 

 

 

 

Secured bank loans drawn

 

93,081

91,571

98,709

Unamortised facility fees

 

(1,389)

(1,107)

(1,552)

 

 

91,692

90,464

97,157

 

 

                   

                   

                  

           

 

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

 

 

Unaudited

 30 September

2018

£000

Unaudited

30 September

2017

£000

Audited

31 March

2018

£000

 

 

 

 

 

Within one year

 

6,124

2,186

2,686

From one to two years

 

2,436

2,186

2,686

From two to five years

 

78,447

76,751

83,607

From five to ten years

 

12,198

12,634

12,416

Total borrowings

 

99,205

93,757

101,395

 

Facility and arrangement fees

As at 30 September 2018

Secured borrowings

 

 

All in cost

%

 

Maturity

date

Facility drawn

£000

Unamortised facility fees

£000

Loan balance

£000

 

 

 

 

 

 

 

Scottish Widows

 

2.91

Jul 2026

14,191

(187)

14,378

National Westminster Bank plc

 

3.63

Mar 2021

14,658

(231)

14,889

Barclays

3.14

Jan 2023

39,123

(627)

39,750

Santander Bank plc

3.69

Aug 2022

26,169

(331)

26,500

Lloyds Bank plc

2.91

Apr 2019

3,675

(13)

3,688

 

 

 

 

97,816

(1,389)

99,205

 

The Group has unused loan facilities amounting to £15,000,000 (31 March 2018: £14,152,000). Interest is charged on this facility at a rate of 1.25% and is payable quarterly. This facility is secured on the investment properties held by Property Investment Holdings Limited and Palace Capital (Properties) Limited.

 

13           Share capital

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

 

 

Unaudited

 30 September

2018

Unaudited

30 September

2017

Audited

31 March

2018

 

 

 

 

 

Ordinary 10p shares 

 

46,388,515

25,800,279

46,388,515

 

 

                   

                   

                   

Share capital - number of shares in issue

 

46,388,515

25,800,279

46,388,515

 

 

                   

                   

                   

Share capital - £

 

4,638,852

2,580,028

4,638,852

           

 

 

The Company has set up an employee benefit trust, 'The Palace Capital Employee Benefit Trust', for the granting of shares applicable to directors and employees under the Long-Term Incentive Plan. On 15 August 2018 the Company transferred 100,000 ordinary shares held in Treasury into The Palace Capital Employee Benefit Trust.

 

On 27 September 2018 the Company granted 38,586 shares, being the awards granted on 25 September 2017 under the Palace Capital Deferred Bonus Plan from The Palace Capital Employee Benefit Trust. As at 31 March 2018 there were 549,587 shares held in treasury but as a result of the 100,000 shares transferred into the Employee Benefit Trust, there are 449,587 shares remaining in Treasury.

 

 

Movement in ordinary authorised share capital

 

 

Price per share pence

Number of ordinary shares issued

Total number of shares

 

 

 

 

 

 

As at 1 Apr 2017

 

 

 

 

25,800,279

Equity issue

 

9 October 2017

340

20,588,236

 

 

As 31 March 2018 and 30 Sep 2018

 

 

46,388,515

 

 

 

 

 

 

 

The Company's issued share capital as at 30 September 2018 comprises 45,843,866 ordinary shares which is the denominator for the calculations of earnings per share and net asset value per share. This excludes the 544,649 ordinary shares held in treasury and the Employee Benefits Trust.

 

 

 

  

14           Palace Capital plc - Company Statement of Financial Position

 

 

 

 

Interim Balance sheet

as at 16 November

2018

£000

Audited

31 March

2018

£000

Prior Year Adjustment

£000

Restated

31 March

2018

£000

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment

 

 

101

121

-

121

 

Investments

 

 

120,872

126,331

-

126,331

 

Loans to subsidiary undertaking

 

 

25,099

26,569

-

26,569

 

 

 

 

146,072

153,021

-

153,021

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Trade and other receivables

 

 

20,270

22,185

(790)

21,395

 

Cash at bank and in hand

 

 

912

5,363

-

5,363

 

Total current assets

 

 

21,182

27,548

(790)

26,758

 

Total assets

 

 

167,254

180,569

(790)

179,779

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Creditors: amounts falling due within one year

 

 

(3,667)

(1,772)

(23,409)

(25,181)

 

 

 

 

 

 

 

 

 

Net current assets

 

 

17,515

25,776

(24,199)

1,577

 

 

 

 

 

 

 

Net assets

163,587

178,797

(24,199)

154,598

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Called up share capital

 

 

4,639

4,639

-

4,639

 

Share premium account

 

 

125,019

125,036

-

125,036

 

Treasury shares

 

 

(1,893)

(2,011)

-

(2,011)

 

Merger reserve

 

 

3,503

3,503

-

3,503

 

Capital redemption reserve

 

 

340

340

-

340

 

Retained earnings

 

 

31,979

47,290

(24,199)

23,091

 

Equity - attributable to the owners of the parent

 

163,587

178,797

(24,199)

154,598

 

 

 

 

 

 

 

                 

 

                 

The Palace Capital plc parent company balance sheet has been restated to reflect the post balance sheet event in note 15.

 

15           Post balance sheet events

During the year ended 31 March 2018 the parent company, Palace Capital plc, received a dividend from a subsidiary company which, due to a technical error, was subsequently found to have been declared unlawfully (as the subsidiary did not have relevant accounts that had been properly prepared as prescribed by Companies Act 2006 at the time that it declared the dividend). Consequently the parent company's financial statements for the year ending 31 March 2019 will reflect a prior year adjustment which reduces its profit after tax for the year ended 31 March 2018 by £24.2 million and increases amounts due by the parent company to subsidiaries at that date by the same amount. There is no impact on the consolidated financial statements.

In November 2018, Palace Capital was released from the liability to repay the dividend which has restored the £24.2 million of profit after tax and decreased the sum due to the subsidiary by an equivalent amount.

Palace Capital plc paid out dividends of 4.75p per share in July 2018 and a further dividend in October 2018 of 4.75p per share on the basis of its last annual accounts for the year ended 31 March 2018. Although the parent company had distributable reserves in excess of those needed to pay such dividends, even after adjusting for the unlawful dividend received, in view of the above, the 31 March 2018 accounts produced by the parent company did not constitute relevant accounts as prescribed by Companies Act 2006 to justify these dividends.

Note 14 in these interim accounts reflects the most current unaudited parent company balance sheet properly prepared as prescribed by Companies Act 2006, relevant for future dividends payable. The Company will be convening a General Meeting in due course in order to enter into a Shareholders' Deed of Release and Directors' Deed of Release with regard to the July 2018 and October 2018 dividends.  A circular will be sent out to shareholders notifying them of the resolutions and date of the meeting.

On 22 November 2018 contracts were exchanged to sell 50 residential units, acquired as part of the RT Warren (Investments) Ltd portfolio in October 2017, for a total consideration of £18.2 million, reflecting 97% of their book value, to the London Borough of Barnet. Completion for each respective unit sold will take place when they become vacant with all the properties expected to be sold on or before 31 March 2019. 

 

 

 

 

 

 

 

 

 


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