TIDMPCA
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
-- Joined FTSE SmallCap and FTSE All-Share Index in May 2018
following the premium listing on the Main Market in March 2018
-- EPRA NAV per share up 1.4% to 421p (Mar-18: 415p)
-- Total accounting return for the period of 4.0% (NAV growth plus dividends paid)
-- Portfolio valuation GBP283.3m, up 2.4% from 31 March 2018 (Mar-18: GBP276.7m)
-- Gross rental income GBP9.2m, up 29.0% (Sep-17: GBP7.1m)
-- IFRS Profit after Tax of GBP7.3m, up 67.1% (Sep-17: GBP4.4m)
-- Quarterly Dividends maintained at 4.75p per quarter
-- Adjusted EPS of 8.0p, 0.84x covering dividends of 9.5p for
the 6 months (uncovered due to increased equity base following
GBP70m raise in October 2017 and patient strategy on
acquisitions)
-- Net debt GBP84.0m, maintaining conservative net LTV of 30.3% (Mar-18: 29.9%)
-- Average cost of debt 3.5% with 70% fixed (Mar-18: 3.4% and 70% fixed)
Operational Highlights
-- Total property return of 5.3%, outperforming the MSCI IPD Quarterly Benchmark of 3.3%
-- Like-for-like valuation increase of 1.7%, driven by industrial and office sectors
-- Annualised contracted rental income GBP17.4m per annum with
significant reversionary potential (ERV: GBP21.1m per annum)
-- Demolition due to be completed next month of 2-acre Hudson
Quarter site in York, ready for construction to start in first
quarter of 2019
-- One disposal for GBP0.95m, 30.1% above 31 March 2018 book valuation
-- 22 lease events in the period across 140,000 sq ft 9% ahead of ERV
-- Overall EPRA occupancy remains high at 88% (Mar-18: 90%) to a sustainable tenant base
-- WAULT of 5.5 years to break and 7.3 years to expiry
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 GBP68 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
GBP70 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 020 3727 1000
Meth Tanyanyiwa Palacecapital@fticonsulting.com
About Palace Capital PLC:
Palace Capital plc (LSE: PCA) is a Main Market listed property
investment company that has a GBP283.3 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 GBP8.4 million, up 71.9% from GBP4.9 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 GBP0.75 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 GBP283.3 million, with an annual
contracted rent roll of GBP17.4 million and a net income after
property costs of GBP15.8 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
GBP186.6 million (March 2018: GBP183.3 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 GBP8.1 million (up 25.5% from GBP6.5 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 GBP0.75 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 GBP2 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 GBP10.45 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 GBP800,000 on the property to date and it was
recently valued at GBP14.5 million. In 2016 the building was
commanding rents at GBP12.50-GBP13.00 per sq ft, but we recently
let about 2,000 sq ft of offices at GBP18.95 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
GBP291,000 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
GBP600,000 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 GBP99.2 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 Unaudited Audited
6 months 6 months Year to
to to 31 March
30 September 30 September 2018
2018 2017 GBP000
GBP000 GBP000
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
Unaudited Unaudited Audited
30 September 30 September 31 March
2018 2017 2018
Notes GBP000 GBP000 GBP000
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 Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2018 2017 2018
GBP000 GBP000 GBP000
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
Treasury
Share Share Shares Other Retained Total
Capital Premium Reserve Reserves Earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------- --------- --------- -------- ---------- ---------- --------
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 Unaudited
6 months 6 months Audited
to to Year to
30 September 30 September 31 March
2018 2017 2018
GBP000 GBP000 GBP000
------------------------------- ------------- ------------- -----------------
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 Unaudited
6 months 6 months Audited
to to Year to
30 September 30 September 31 March
2018 2017 2018
GBP000 GBP000 GBP000
-------------------------------- ------------- ------------- ---------
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
Unaudited Unaudited
6 months 6 months Audited
to to Year to
30 September 30 September 31 March
Payment Date 2018 2017 2018
GBP000 GBP000 GBP000
----------------------- -------------- ------------- --------------------- ------------
Ordinary dividends
paid
----------------------- -------------- ------------- --------------------- ------------
2017 Final dividend:
9.50p per share 28 July 2017 - 2,389 2,389
2018 Interim dividend: 29 December
9.50p per share 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 Unaudited
6 months 6 months Audited
to to Year to
30 September 30 September 31 March
2018 2017 2018
GBP000 GBP000 GBP000
-------------------------------------- ------------- ------------- ---------
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 Unaudited Audited
to 6 months to Year to
30 September 30 September 31 March
2018 2017 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 Unaudited Audited
30 September 30 September 31 March
2018 2017 2018
GBP000 GBP000 GBP000
------------------------------------ ------------------------- ------------- --------------
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 Unaudited Audited
30 September 30 September 31 March
2018 2017 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 Leasehold
Investment Investment
properties properties Total
GBP000 GBP000 GBP000
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 Unaudited Audited
30 September 30 September 31 March
2018 2017 2018
GBP000 GBP000 GBP000
---------------------------------- ------------- ------------- ---------
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 GBP234,948,600
(31 March 2018: GBP234,429,000) are subject to a first charge to
secure the Group's bank loans amounting to GBP99,204,600 (31 March
2018: GBP101,395,000).
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 Unaudited Audited
30 September 30 September 31 March
2018 2017 2018
GBP000 GBP000 GBP000
--------------------- ------------- ------------- ---------
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 Unaudited Audited
30 September 30 September 31 March
2018 2017 2018
GBP000 GBP000 GBP000
------------------------------- ------------- ------------- ---------
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 Unaudited Audited
30 September 30 September 31 March
2018 2017 2018
GBP000 GBP000 GBP000
-------------------------- ------------- ------------- ---------
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 Unaudited Audited
30 September 30 September 31 March
2018 2017 2018
GBP000 GBP000 GBP000
----------------------- ------------- ------------- ---------
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 Unaudited Audited
30 September 30 September 31 March
2018 2017 2018
GBP000 GBP000 GBP000
-------------------------- ------------- ------------- ---------
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 Unaudited Audited
30 September 30 September 31 March
2018 2017 2018
GBP000 GBP000 GBP000
----------------------- ------------- ------------- ---------
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
Unamortised
All in cost Maturity facility
% date Facility drawn fees Loan balance
Secured borrowings GBP000 GBP000 GBP000
--------------------- ------------- ---------- -------------- ----------- ------------
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 GBP15,000,000
(31 March 2018: GBP14,152,000). 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 Unaudited Audited
30 September 30 September 31 March
2018 2017 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 - GBP 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 Price per Number of ordinary Total number
capital share pence shares issued of shares
--------------------- ---------- ------------ ------------------ ------------
As at 1 Apr 2017 25,800,279
9 October
Equity issue 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 Audited Restated
November 31 March Prior Year 31 March
2018 2018 Adjustment 2018
GBP000 GBP000 GBP000 GBP000
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 GBP24.2
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 GBP24.2 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 GBP18.2
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.
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
IR LLFLALSLVFIT
(END) Dow Jones Newswires
November 26, 2018 02:00 ET (07:00 GMT)
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