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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Palace Capital Plc | LSE:PCA | London | Ordinary Share | GB00BF5SGF06 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -6.00 | -2.54% | 230.00 | 233.00 | 240.00 | 230.00 | 230.00 | 230.00 | 58 | 16:35:28 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Agents & Mgrs | 33.3M | -35.7M | -0.9506 | -2.42 | 86.39M |
From Apr 2019 to Apr 2024
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
Hot Features
Premium
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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