Final Results

RNS Number : 2361A

Palace Capital PLC

06 June 2016

 



6 June 2016

Palace Capital plc

("Palace Capital" or the "Company")

Audited results for the year ended 31 March 2016 -

Palace Capital delivers income and value creation

Palace Capital, the property investment company that focuses on commercial property outside London, is pleased to announce its audited results for the year ended 31 March 2016. 

HIGHLIGHTS

Corporate highlights

·      Portfolio valuation at 31 March 2016: increased by 69% to £174.5 million (31 March 2015: £103.0 million)

·      EPRA NAV per share: increased by 5% to 414p at 31 March 2016 (31 March 2015: 396p) includes the absorption of equity raised at 360p

·      Profit before tax of £11.8 million (31 March 2015: £14.0 million)  

·      EPRA earnings: increased by 64% to £7.7 million (31 March 2015: £4.7 million)

·      EPRA EPS: increased by 13% to 31.3p (31 March 2015: 27.7p)

·      Final dividend of 9p proposed, making a total for the year of 16p which is a 23% increase (31 March 2015: 13p)

Operational highlights

Five acquisitions totalling £66.0m:

·      Broad Street Plaza, Halifax for £24.18 million

·      Sol Central, Northampton for £20.7 million

·      249 Midsummer Boulevard, Milton Keynes for £7.225 million

·      Bank House King Street, Leeds for £10.0 million

·      46-54 High Street, Sutton for £3.95 million

Three sales, totalling £2.0million, all well above book value:

·      Unit 1, Clayton Manor, Burgess Hill for £1.25 million

·      54 Albert Road North, Reigate for £0.45 million

·      Unit F, 61 Albert Road North, Reigate for £0.31 million

Asset management highlights

·      Approval by City of York Council for 139 apartments at Hudson House, York in February 2016

·      Secured the surrender of a lease held by Gala Casinos at Sol Central, Northampton for £3.8 million plus £0.2 million rates refund

·      Strip out of the Gala space in anticipation of agreeing new leases with prospective tenants completed

·      Work nearing completion on office-to-residential conversion of 14 apartments at The  Copperfields, Dartford, Kent

·      Rent roll up 52% to £13.5 million per annum (31 March 2015: £8.9 million)

·      Weighted average unexpired lease term 6.3 years (31 March 2015: 4.5 years)

Financial highlights

·      £20m equity raised at 360p in June 2015

·      £80.0 million new debt facilities secured across the portfolio including a £30.0 million revolving credit facility on a 5 year term

·      Loan to value net of cash: 37% (31 March 2015: 23%)

·      Weighted average cost of debt: 3.1% (31 March 2015: 3.9%)

·      Weighted average debt maturity: 3.9 years (31 March 2015: 2.8 years)

* EPRA is the European Public Real Estate Association

Neil Sinclair, Chief Executive of Palace Capital, said:

"This has been a particularly exciting year for us and we are delighted with the progress that we are making. Our property portfolio has been strengthened by the acquisition of first class assets in growth locations as our active asset management strategy continues to grow both our rental income and capital values.

We are confident that our ability to source off market opportunities and our active asset management strategy will enable us to fulfil our progressive dividend policy for the benefit of shareholders in the medium term"

Notice of AGM

A copy of the annual report and accounts and notice of annual general meeting ("AGM") will shortly be posted to shareholders and is available from the Company's website, www.palacecapitalplc.com. The AGM will be held at the offices of Hamlins LLP, Roxburghe House, 273-287 Regent Street, London W1B 2AD at 10.00 a.m. on 6 July 2016.

For further information contact:

Palace Capital plc

Neil Sinclair, Chief Executive

Stephen Silvester, Finance Director

Tel. [phone]

Allenby Capital Limited (Nominated Adviser and Joint Broker)

Nick Naylor / James Reeve

Tel. [phone]

Arden Partners plc (Joint Broker)

Chris Hardie / Ciaran Walsh

Tel. [phone]

Capital Access Group (Financial PR)

Simon Courtenay

Tel. [phone]

CHIEF EXECUTIVE'S REVIEW

We are delighted to report the Company's results for the year ended 31 March 2016, which show that we made a profit before tax of £11.8m. Net Asset Value per share increased by 5% from 396p to 414p and this includes the absorption of the dilutive impact of our £20m share placing last June at 360p per share.

The carrying value of the Company's portfolio is now at £174.5m compared to £103.0m 12 months prior largely reflecting acquisitions of £66m during the year.

Our contracted rent roll is now £13.5m per annum with a net income of £11.8m per annum allowing for head rents, service charge shortfall and empty rates. The latter would have been considerably lower but for the fact that one of our significant assets at Hudson House, York, the 103,000 sq ft office building adjoining the Railway Station, cannot be let on reasonable leases as it is pending refurbishment/redevelopment.

Our bank borrowings are at £71.9m representing a net LTV of 37% meaning we remain conservatively geared.

We have adopted a progressive dividend policy allowing our shareholders to benefit as the company prospers. We paid an interim dividend of 7.0 pence per share on 30 December 2015 and as we stated on 10 May 2016 we intend to pay a final dividend of 9.0 pence per share on 29 July 2016 to those shareholders on the register as at 8 July 2016.

We are making sure and steady progress. We have strict criteria on any potential acquisition so we are cautious but very opportunistic and only focus on those where we can achieve the desired

return. We are constantly travelling around the country meeting owners and agents and this has helped us to source and conclude off-market acquisitions.

Our focus has been to acquire properties outside London. We made the small £1.8m acquisition of Hockenhull Estates in 2011 comprising nine Cheshire based income producing properties but then made the significant £39.25m corporate acquisition of the Quintain subsidiary known as the Signal Portfolio in October 2013 comprising 24 properties and the £32m corporate acquisition of Property Investment Holdings Ltd in August 2014 comprising 17 properties.

We were investing in the regional market at a time when there were very few players with no talk of a Northern Powerhouse or Regional Devolution. We have seen very considerable growth from these two major acquisitions. The remaining properties in the Signal Portfolio have recently been valued at £71.0m and it is worth bearing in mind that £3.9m of sales have already taken place. In addition the remaining properties in the PIH portfolio have been valued at £36.5m with £2.0m of sales having been completed from this portfolio. The Board considers there are still considerable asset management opportunities on these two portfolios and we envisage continuing growth from them.

Our enlarged network has allowed us to make five opportunistic acquisitions totalling £66.0m in the last financial year three of which were off market. These were:

·      Bank House, King Street, Leeds - £10.0m

·      Sol Central, Northampton - £20.7m

·      46-54 High Street, Sutton - £3.95m

·      249 Midsummer Boulevard, Milton Keynes - £7.225m

·      Broad Street Plaza, Halifax - £24.18m

Further details of these acquisitions are contained in our Property Report.  As with the rest of our portfolio,  we will apply our own style of active management to all of these acquisitions, however, in our Portfolio Update announced on 10 May 2016 we made particular reference to Broad Street Plaza, Halifax. We have now received credit approval from a major insurance company to replace the existing short-term facility with a new loan of £15.2m for a term of ten years at a fixed interest rate of 3.5% including margin. Not only does this provide us with a current return on our equity of 14.5% but this rises to 16% in 2017 when the fixed rent increases take place. In addition, we have also been advised that we can claim full capital allowances as these have not been claimed to date so we have every opportunity of an exceptional return from this property. We are cash managers as well as property asset managers and Broad Street Plaza is a particular example.

Broad Street Plaza is within half a mile of one of the country's most successful but largely unknown urban regeneration schemes. Dean Clough in Halifax is a former mill which was once a carpet factory and which closed in 1983. It is now flourishing after tens of millions of pounds of investment with over 1,000,000 sq. ft of offices, restaurants, galleries and retail and is virtually fully occupied. This is very complementary to Broad Street Plaza.

We are really excited about Hudson House, York situated within a minute's walk from the Railway Station. City of York Council are one of only three councils in the country to recently announce a major initiative to see surplus railway land developed into thriving office, retail and residential schemes. This will be known as York Central and can only benefit our 103,000 sq ft office building where we are planning a major office and residential scheme. Our view is that public transport and in particular railway hubs such as York will play an increasing part for an office and residential development to be successful. We are exceptionally well placed at Hudson House as York is a growing business, educational and tourist destination.

We are delighted to have appointed Stephen Silvester as Group Finance Director and Matthew Simpson as Finance Manager during the year.  We are also pleased to report that our Property Director, Richard Starr will be joining us as a full-time Executive Director on Monday 4 July 2016. They have made a significant contribution to the growth of Palace Capital.  With Andrew Thomas joining us on 13 June 2016  as Investment Manager, we will have a formidable acquisition, asset management and finance team.

We are looking at a number of significant opportunities at the moment as we strive to grow the Company and joining the Official List of the London Stock Exchange remains our objective. Our acquisition strategy remains cautious but opportunistic. We are very grateful for the support shown by our shareholders and we believe we have the management team to achieve our goals. We look to the future with continued confidence.

Neil Sinclair FRICS

Chief Executive

3 June 2016

PROPERTY REVIEW

This year we have continued to build our property portfolio through five acquisitions totalling £66.0 million. At the same time we have sold some of our smaller holdings above book value. We now have a property portfolio valued at £174.5 million which is a meteoric rise since the significant purchase in October 2013 of the Signal portfolio.

KEY STATISTICS

• 54 properties comprising 1.85 million sq ft of space.

• Over 140 tenants providing a contractual rent roll of £13.5 million per annum at 31 March 2016 (2015: £8.9 million).

• 34 new lettings and lease renewals completed during the year representing 10% of the total floor area.

• Diversity of sectors within the portfolio including offices, industrial and retail, which is complemented by our new acquisitions in the leisure sector.

• WAULT increased to 6.3 years (2015: 4.5 years) - a reflection of our active asset management initiatives.

ACQUISITIONS

These are referred to in the Chief Executive's Review and are set out in more detail below.

Bank House, Leeds

In April 2015 we completed the purchase of Bank House, Leeds for £10 million reflecting a net initial yield of 8.6%. A Grade II listed city centre office property, built in 1970, comprising 88,000 sq. ft. around a large central atrium. The property is home to The Bank of England, who have occupied it since it was built, as well as Walker Morris who are the largest independent firm of solicitors in Leeds.

Since the purchase we have extended the Bank of England lease until July 2023 with a minimum increase in the annual rent from £115,000 per annum to £232,000 per annum at the March 2020 rent review. The first floor, as anticipated, became vacant recently and we are in the process of starting a refurbishment programme following the settlement of dilapidations. When completed, this will provide a single floor plate of 17,000 sq. ft. which will be one of the largest second-hand office floors available.

We will be seeking to attract occupiers looking for a discount to the prime rents.

Sol Central, Northampton

In May 2015, we acquired the holding company of a prominent city centre leisure scheme, Sol Central in Northampton for £20.7m reflecting a net initial yield of 8.86%. Comprising a 10 screen cinema, casino, 151 room hotel, gym and 375 space car park, this 200,000 sq ft development has not been trading at its optimum level for a number of years. Significantly, the scheme lacks restaurants.

We intend to transform the scheme to create a dominant city centre offering to take advantage of the number of Council led initiatives within the city centre. A specialist architect and technical team have been instructed to ensure our vision can be achieved. To facilitate this we have taken a surrender of the lease to Gala Casino, who vacated in 2011 in return for £4 million to account for loss of rent, dilapidations  and a rates rebate in August 2015.

46-54 High Street, Sutton

In August 2015, we completed the purchase of 46 - 54 High Street Sutton for £3.95 million reflecting a net initial yield of 8%. Comprising three retail units and 15,000 sq ft of offices, the building is held on a lease with 120 years unexpired from The London Borough of Sutton, with ground rent of 12.5% of rents receivable.  Located moments from the railway station, the offices are let to Sutton Housing Partnership at £13.50 per sq. ft. which we consider modest  and offers excellent rental growth potential in December 2017 when the next rent review is due.  One of the retail units was recently let to Foxtons on a new 15 year lease.

Since the start of 2016 we have acquired two further investments, taken advantage of the new £30million Revolving Credit Facility with NatWest Bank and the capital created from our historic ownership.

249 Midsummer Boulevard, Milton Keynes

In February we completed the purchase of 249 Midsummer Boulevard, Milton Keynes for £7.225m reflecting a net initial yield of 7.25%. The property comprises 49,000 sq. ft. and is multi let to seven tenants including DHL & Crawford's. The majority of tenants are paying an average of £12 per sq. ft. which is a discount to a recently let suite at £13.50 per sq. ft. Milton Keynes is one of the fastest growing towns in the UK and so we consider there is excellent potential for these rents to continue to rise in line with those being currently achieved. The building is situated on a large site and has the potential for significant development in the medium term.

Broad Street Plaza, Halifax

Our final purchase of the financial year was completed in March. A significant leisure scheme known as Broad Street Plaza, Halifax was acquired for £24.18m providing a net initial yield of 7.25%. Significantly 40% of the leases benefit from minimum uplifts which will increase this yield to over 8% by August 2017. The scheme provides an excellent WAULT of 14 years to break. Whilst the scheme is trading well, we consider that this could be improved and we are undertaking various marketing initiatives to ensure the scheme reaches its full potential.

We set out below the highlights of our existing holdings:

HOCKENHULL PORTFOLIO

This was the initial portfolio acquired in 2011. Comprising nine individual properties, the portfolio remains fundamentally unchanged during the year although we have renewed two leases.

SIGNAL PORTFOLIO

The significant portfolio purchase in October 2013 has performed exceptionally well. We regularly visit the properties and meet our tenants which gives us immediate knowledge of occupational requirements so that we can ensure maximum occupation where possible In 2013 the Government introduced Legislation Permitted known as Development Rights PDR which grants permission in certain circumstances to allow the conversion of office space to residential use. We have taken advantage of this in Dartford and York. There is continual demand for residential properties in good locations which is being supported by institutional investors who now consider the private rented sector a sustainable investment. It is our opinion that there is long-term rental growth in this sector and will be looking to retain these units.

Hudson House, York

We have worked with our technical team to take this property into its next phase. The property comprises a 1960's 103,000 sq. ft. office building directly opposite York Railway Station. Transport links are excellent with a direct fast service to London and Edinburgh.

In September 2014 an application was made to convert the property into 82 residential units as well as create 37,000 sq. ft. of grade A office.  A resolution to grant consent was approved in April 2016, subject to a section 106 agreement, as stated in our Portfolio Update in May 2016. An alternative consent had also been granted to convert the building into 139 residential units through PDR in February of this year. We are currently evaluating all our options to maximise value and will update our shareholders in due course.

Copperfields, Dartford

This is a mixed-use retail and office property in a commuter town, South East of London. Situated directly opposite the Priory Shopping Centre and within walking distance of the train station, the scheme provides nine retail units below vacant offices. PDR was granted for the conversion of the offices to 14 residential units in October 2015. The conversion is due to complete in August 2016 and our intention is to rent them. Once completed we will have transformed a tertiary shopping scheme into a vibrant mixed use investment. 

Point Four Industrial Estate, Avonmouth

This 10 unit scheme is fully let to seven different tenants. Significantly we have completed the letting of a vacant unit to an existing tenant, who also extended their current leases so they are all co-terminus after 10 years. Refurbishment works were carried out to ensure the unit was let in an improved condition.  In addition, minimum uplifts at the rent review in year 5 were agreed based on 2% per annum compound. We have negotiated to remove break clauses and settled rent reviews on other units at marginally higher than the passing rents.

Cater Road, Bristol

Following extensive negotiations, the lease with Computershare was surrendered and a new lease for 15 years to Wincanton Holdings Ltd was completed. The tenant has an option to determine after 10 years whilst the rent is subject to a minimum increase at rent review after five years, based on a minimum of 2.5% per annum compound.

Marsh Barton Trading Estate, Exeter

Following the year end the tenant company appointed Administrators. The Administrator is seeking to grant a licence to a newly formed company for 12 months, providing continuity of income.  We are undertaking a strategic review to assess the long-term prospects for this well positioned site, as there is potential for a significant redevelopment.

Kiln Farm, Milton Keynes

The tenant at unit 2 has exercised their option to determine the lease from March 2016. We are progressing the dilapidation negotiations on this 14,500 sq ft office building and will evaluate all the options before deciding the best way forward.

Allen House, Stockport

Following the surrender of the lease in September 2015, we have been seeking to sell this 68,000 sq ft property. Demand has been limited but there are reasonably regular inspections so we are hopeful for an early sale.

Victoria Road, Stoke On Trent

The lease expired in September 2015 and a schedule of dilapidations with the outgoing tenant was settled at £250,000. We are seeking a buyer for this 45,000 sq ft building as the costs of refurbishment are not in the best interests of the Company.

Argent Court, Tolworth

This property has performed extremely well. Having purchased the property for £750,000 in October 2013, separate parts were sold in November and December 2013 for £1,070,000. We are now proposing to sell the remainder due to imminent lease expiries and strong demand from owner-occupiers.

PIH PORTFOLIO

Ovest House, Brighton

This is excellently located, equidistant between the Railway Station and the sea, within the city centre. We have undertaken a refurbishment of the 4th floor and reception area following a successful dilapidations settlement with the previous tenant. This attracted Quarto Publishing Plc to the property who have agreed to occupy all the offices being let at a 40% increase in rent. We have negotiated surrenders of the other leases to facilitate this and the new tenant will refurbish the remaining floors. The remaining floors will be refurbished to a similar specification.

Clayton Industrial Estate, Burgess Hill

We completed the letting to Polar Audio following a minor refurbishment using the dilapidation settlement from the former tenant. A new lease for 10 years incorporating an option to determine at year 5 was completed in August 2015. The tenant has an option to purchase at £1,450,000 no later than 28 July 2016.

Albert Road North, Reigate

We have sold No. 54 in April 2015 for £445,000 and Unit F at No. 61 in January 2016 for £310,000, both of which were in excess of book value.

There have been changes in legislation which affect the portfolio and we highlight these below:

MINIMUM ENERGY EFFICIENCY STANDARDS (MEES)

As of April 2018, it will be unlawful for commercial and residential landlords of properties with an Energy Performance Certificate (EPC) rating of less than "E" to grant new leases or renew tenant leases (except for some exemptions). Landlords will need to carry out works to improve the energy performance of their buildings to a rating of "E" or above or face civil penalties.

We have instructed a specialist to undertake a full review of our holdings to ensure that none of our holdings are affected.

STAMP DUTY LAND TAX

In March 2016, the Chancellor of the Exchequer introduced reforms to Stamp Duty Land Tax on commercial property which increased the top rate payable from 4% to 5% above £250,000. This has been factored into the latest independent valuations carried out as at 31 March 2016. Despite this impact, our portfolio valuations have continued to grow  over the year.

THE FUTURE

We remain committed to our active brand of asset management and are confident there are still plenty of opportunities for us to continue to grow the income to support our progressive dividend policy, whilst we grow capital value through our expenditure and refurbishment programmes. 

RICHARD STARR MRICS

FINANCIAL REVIEW

OVERVIEW AND HEADLINE RESULTS

This year we delivered a profit before tax of £11.8m, which reflects a basic earning per share of 43.9p. EPRA earnings is the industry measure of underlying profit stripping out revaluation gains and one-off acquisition costs. EPRA earnings for the year ended 31 March 2016 increased by 64% to £7.7m compared to £4.7m last year and as a result EPRA earnings per share improved to 31.3p from 27.7p.

The value of our portfolio increased by 69% at the year-end to £174.5m from £103.0m principally as a result of the opportunistic acquisitions made throughout the year and also due to £3.6m of revaluation gains. EPRA net assets per share increased by 10% to 414p taking into account the dilution from the £20 million equity raise and FY15 final dividend paid in July 2015. This 36p increase together with the total dividends of 16p paid in relation to FY16 represents a 14% total business return.

Our capital base grew during the year as a result of the £20.0m capital raising in June 2015 and also £80.0m of new debt facilities raised and this was utilised to fund £66.0m of new acquisitions in the year.

RECURRING EARNINGS

Rental income net of property costs totalled £13.0m in the year ended 31 March 2016 (2015: £7.4m), driven by the new acquisitions and also supported by the significant £3.0m surrender premium received from Gala Casinos at Sol Central, the Northampton leisure scheme acquired in June of last year. Administrative expenses increased to £2.0m from a low base in the prior year of £1.4m due to a strategic decision to increase resources and build a team capable of delivering results across a far larger portfolio. There was also a mid-year review into director remuneration to bring it closer in line with our peer group. Finance costs increased to £2.3m from £1.4m as a result of the increase in debt finance to help fund the acquisitions. Despite increasing the base costs of the business, underlying EPRA earnings grew 64% to £7.7m from £4.7m reflecting the increasing profitability of the business as a result of both scale and reliable stock selection.

Looking forward, the business is now capable of scalability, with the team and systems in place to support a significant growth in the portfolio. 249 Midsummer Boulevard, Milton Keynes and Broad Street Plaza, Halifax were acquired close to the year-end. Next year the impact of these on recurring earnings will be significant and at the time of writing the Group has a current gross rent roll of £13.5m per annum up from £8.9m per annum at 31 March 2015 and net of non-recoverable property costs of £11.8m per annum.

VALUATION GAINS & PROFITS ON DISPOSAL

The movement in the values of our investment properties can make a significant impact on our profit before tax, as demonstrated last year when we saw £9.8m uplift on the portfolio. This year £3.6m gains were achieved, however this should be combined with the £3.0m surrender premium received from Gala Casinos due to the direct impact the loss of income has on the Sol Central property valuation in the short-term, results in a £6.6m overall gain.

The portfolio has almost doubled in the past year and therefore the impact of like for like uplift in values is diminished as the initial absorption of purchase costs and stamp duty are taken into account this year. The 1% increase in stamp duty for commercial properties valued over £250,000 to 5% has had a one-off impact on the net valuations performed by the Independent Valuers this year. Despite this, we continue to see the impact of our asset management and capex initiatives particularly at our strategic properties such as Hudson House, York where we received approvals in the year and we have seen a significant uplift in value with this property now valued at £14.9m.

We continue to recycle capital through disposals of individual units and small properties where we can realise profit that reflects good value from our investment and £0.3m profit on disposal was achieved from three disposals during the current year.

EPS

Basic earnings per share (EPS) were 43.9p compared to 82.4p last year, down primarily due to the significant valuation surplus last year. Similarly to the adjustments we make to profit before tax which remove unrealised capital profits and one-off items such as profits on disposal and costs on acquisition we report EPRA earnings per share. This improved to 31.3p from 27.7p due to the significant one-off impact of the Gala surrender premium. Finally, we also report an adjusted earnings per share to provide a basis for dividend cover which excludes the impact of the surrender premium and this was 18.9p for the year.

DIVIDENDS

We are recommending a final dividend of 9p per share to be paid on 29 July 2016 to shareholders registered at the close of business on 8 July 2016. Taken with the interim dividend of 7p our full year dividend will be up 23% to 16p. The Company is very well placed to provide our shareholders with an increased dividend yield due to the growth in our portfolio and the core assets producing stable, long-term income. However, we continue to reinvest surplus funds into our strategic assets to provide investors with a two- pronged return through both income and capital growth.

NET ASSETS

At 31 March 2016 our net assets per share were 414p an increase of 18p since 31 March 2015.

2015. The increase in our net assets was driven by the increase in value of our investment properties, profits on disposal of investment properties and surplus profits remaining after dividends paid. We calculate an EPRA NAV consistent with standard practice in the property industry to adjust for any dilution of outstanding share options and fair value adjustments of financial instruments which we believe better reflects the underlying net assets attributable to shareholders. Our EPRA NAV was 414p at 31 March 2016 up from 396p at 31 March 2015. In fact, the growth was greater when the dilution of the £20.0m equity raise at 360p in June 2015 is taken into account along with the final dividend of 7p relating to FY15 resulting in an overall increase of 10% from 377p.

DEBT FINANCING

During the year our debt profile transformed. We entered into £80.0m of new debt facilities across the Group. The existing facility secured on the Signal portfolio was refinanced with a new five year £20.0m facility at a lower margin of 2.45% and due to the uplift in value since acquisition we were able to release six properties which became uncharged.

We also replaced the existing £16.0m NatWest facility on the PIH portfolio with a new combined £30.0m revolving credit facility secured across the existing portfolio and a number of new acquisitions. Lloyds and Santander also provided new facilities on the Bank House, Leeds and Sol Central, Northampton acquisitions made during the year and finally we took over the £15.2m Barclays facility secured on the Broad Street Plaza, Halifax property acquired in March 2016.

The Group debt profile is now spread across the majority of the UK clearing banks at an average margin of 2.5% over 3 month libor. We continue to take the decision not to put hedging in place as a result of the historically low interest rates and therefore enjoy an all in average cost of debt of 3.1% currently one of the lowest in the sector. The average debt maturity is 3.9 years which gives us security over income streams net of interest costs for a number of years before the need to refinance.

NET DEBT AND GEARING

Each debt facility is secured at a SPV level and we assess the gearing mainly through interest cover ratios (ICR) and loan to value ratios (LTV). In normal market conditions we gear our assets at a SPV level within a range of 40-60% LTV. At a group level we measure both the debt to net asset value ratio (NAV gearing) and loan to value net of cash. NAV gearing at 31 March 2016 was 61% up from 31% last year and the net LTV ratio was 37% at 31 March 2016 up from 23% last year. The Group remains conservatively geared and at year-end had £8.0m of unutilised facilities available along with £18.0m of properties uncharged.

TAXATION

The Group has a tax charge of £0.95m for the year ended 31 March 2016. This includes a corporation tax charge of £0.71m to reflect the tax payable on taxable profit in the year, an income tax charge of £0.02m on non- resident landlord income and an adjustment of £0.22m to reduce the deferred tax asset as a result of the utilisation of tax losses in the year. The effective tax rate for the year for tax payable remains low at 13% due to utilisation of brought forward losses and capital allowances.

STEPHEN SILVESTER ACA

Palace Capital plc

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2016

	Note	2016	2015
		£000	£000
Rental and other income	1	14,593	8,637
Non recoverable property costs	5b	(1,624)	(1,200)
Net rental income		12,969	7,437
Administrative expenses	5c	(2,048)	(1,439)
Operating profit before gains and losses on property assets and cost of acquisitions		10,921	5,998
Gains on revaluation of investment property portfolios		3,620	9,769
Profit on disposal of investment properties		290	178
Cost of acquisitions		(815)	(639)
Operating profit		14,016	15,306
Finance income	3	34	18
Finance expense	4	(2,298)	(1,416)
Profit before taxation		11,752	13,908
Taxation	7	(953)	107
Profit after taxation for the year attributable to owners of the parent		10,799	14,015
Other comprehensive income for the year		-	-
Total comprehensive income for the year		10,799	14,015
Attributable to: Equity holders of the parent		10,799	14,015
EARNINGS PER ORDINARY SHARE Basic	8	43.9p	82.4p
Diluted		43.9p	82.0p

All activities derive from continuing operations of the Group. The Notes form an integral part of these financial statements.

Palace Capital plc

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Company Registration Number: 05332938
As at 31 March 2016

	Note	2016	2015
		£000	£000
Non-current assets
Goodwill	11	-	6
Investment properties	13	174,542	102,988
Property, plant and equipment	14	37	52
Deferred tax	7	334	500
Trade and other receivables	15	825	924
		175,738	104,470
Current assets
Trade and other receivables	15	3,327	3,375
Cash at bank and in hand	16	8,576	12,278
		11,903	15,653
Total assets		187,641	120,123
Current liabilities
Trade and other payables	17	(6,815)	(3,087)
Borrowings	18	(2,233)	(400)
Creditors: amounts falling due within one year		(9,048)	(3,487)
Net current assets		2,855	12,166
Non-current liabilities
Borrowings	18	(69,711)	(35,406)
Obligations under finance leases	20	(2,067)	(1,214)
Net assets		106,815	80,016
Equity
Called up share capital	21	2,862	2,307
Share premium account		59,408	40,852
Merger reserve		3,503	3,503
Capital redemption reserve		65	65
Retained earnings		40,977	33,289
Equity - attributable to the owners of the parent		106,815	80,016
Basic NAV per ordinary share	9	414p	396p
Diluted NAV per ordinary share		414p	396p

These financial statements were approved by the Board of Directors and authorised for issue on 3 June 2016 and are signed on its behalf by:

Stanley Davis
Director

Palace Capital plc

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2016

	Share Capital	Share Premium	Merger Reserve	Capital redemption reserve	Convertible loan notes  equity	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31 March 2014	1,529	21,856	-	65	28	20,898	44,376
Total comprehensive income for the year	-	-	-	-	-	14,015	14,015
Issue of ordinary share capital net of expenses	778	18,996	3,503	-	-	-	23,277
Share based payments	-	-	-	-	-	114	114
Dividends	-	-	-	-	-	(1,766)	(1,766)
Transfer on repayment of loan	-	-	-	-	(28)	28	-
At 31 March 2015	2,307	40,852	3,503	65	-	33,289	80,016
Total comprehensive income for the year	-	-	-	-	-	10,799	10,799
Issue of ordinary share capital net of expenses	555	18,556	-	-	-	-	19,111
Share based payments	-	-	-	-	-	110	110
Dividends	-	-	-	-	-	(3,221)	(3,221)
At 31 March 2016	2,862	59,408	3,503	65	-	40,977	106,815

For the purpose of preparing the consolidated financial statement of the Group, the share capital represents the nominal value of the issued share capital of Palace Capital plc.

Share premium represents the excess over nominal value of the fair value consideration received for equity shares net of expenses of the share issue amounting to £888,383 (2015 £795,684)

The merger reserve represents the excess over nominal value of the fair value consideration for the acquisition of subsidiaries satisfied by the issue of shares in accordance with S612 of the Companies Act 2006.

The convertible loan note equity reserve represents the difference between the proceeds from issuing the convertible loan notes and the fair value assigned to the liability component at the date of issue.

The capital redemption reserve represents the nominal value of preference shares capital redeemed.

Palace Capital plc

CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2016

	Note		2016	2015
			£'000	£'000
OPERATING ACTIVITIES Net cash generated in operations	2		12,287	4,388
Interest received			34	18
Interest and other finance charges paid			(3,455)	(1,611)
Corporation tax paid in respect of operating activities			(158)	(14)
Net cash flows from operating activities			8,708	2,781
INVESTING ACTIVITIES
Purchase of investment property			(21,689)	(305)
Payments to acquire subsidiary undertakings	12		(29,095)	-
Capital expenditure on refurbishment of investment property	13		(1,182)	(2,508)
Deposit paid on purchase of investment property			-	(1,000)
Proceeds from disposal of investment property			1,957	952
Purchases of property, plant and equipment	14		(3)	(61)
Net cash flow (used in)/from investing activities			(50,012)	(2,922)
FINANCING ACTIVITIES
Other loans repaid			-	(300)
Bank loans repaid			(17,010)	(28,800)
Proceeds from new bank loans			38,282	18,500
Issue of new share capital			19,114	19,664
Dividends paid	10		(3,221)	(1,766)
Capital element of finance lease rental payments			(2)	(2)
Net cash flow from financing activities			37,163	7,296
NET INCREASE IN CASH AND CASH EQUIVALENTS			(4,141)	7,155
Cash and cash equivalents at beginning of the year			12,278	5,123
Cash acquired			439	-
Cash and cash equivalents at the end of the year			8,576	12,278

Palace Capital plc

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2016

BASIS OF ACCOUNTING

The financial information does not constitute the Group's statutory accounts for the year ended 31 March 2016 and 31 March 2015 but is derived from those accounts. Statutory accounts for the year ended 31 March 2015 have been delivered to the Registrar of Companies and those for the year ended 31 March 2016 will be delivered following the Company's Annual General Meeting. The Auditor has reported on the 2016 and 2015 accounts; the reports were unqualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498 of the Companies Act 2006. 

BASIS OF PREPARATION

The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006.  These financial statements are for the year ended 31 March 2016 and are presented in pounds sterling ("GBP").

1       SEGMENTAL REPORTING

For the purpose of IFRS 8, the chief operating decision maker ("CODM") takes the form of the three executive Directors (the Group's Executive Committee). The Group's Executive Committee are of the opinion that the business of the Group is as follows.

The principal activity of the Group was to invest in commercial real estate in the UK.

IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal financial reports about components of the Group that are regularly reviewed by the chief operating decision maker (which in the Group's case is its Group's Executive Committee).

The internal financial reports received by the Group's Executive Committee contain financial information at a Group level as a whole and there are no reconciling items between the results contained in these reports and the amounts reported in the financial statements.  Additionally, information is provided to the Group's Executive Committee showing gross property income and property valuation by individual property. Therefore, for the purposes of IFRS 8, each individual property is considered to be a separate operating segment in that its performance is monitored individually.

The Group's property portfolio includes investment properties located throughout England, predominantly regional investments outside London and comprises a diverse portfolio of commercial buildings. The Directors consider that these properties have similar economic characteristics. Therefore, these individual properties have been aggregated into a single operating segment.  In the view of the Directors, there is one reportable segment under the provisions of IFRS 8.

All of the Group's properties are based in the UK. No geographical grouping is contained in any of the internal financial reports provided to the Group's Executive Committee and, therefore, no geographical segmental analysis is required by IFRS 8.

Revenue - type					2016	2015
					£'000	£'000
Rents received from investment properties					11,375	8,181
Management fees & other income					46	456
Surrender premium					3,172	-
Total Revenue					14,593	8,637

No single tenant accounts for more than 10% of the Groups total rents received from investment properties. 

The surrender premium resulted from the surrender of a lease by Gala (part of the Gala Coral Group) who held a lease until March 2028 on 28,000 sq ft at Sol Central, Northampton at a rental payable of £312,852 per annum.  Gala paid to Palace Capital a cash sum of £3 million plus a proportion of a rates refund due to them to be relieved of any further liability for rent, service charge and rates.

2       Reconciliation of OPERATING PROFIT

Reconciliation of operating profit to cash utilised in operations

	2016		2015
		£'000	£'000
Profit before taxation		11,752	13,908
Finance income		(34)	(18)
Finance costs		2,298	1,416
Gains on revaluation of investment property portfolio		(3,620)	(9,769)
Profit on disposal of investment properties		(290)	(178)
Goodwill write off		6	-
Depreciation		18	10
Share based payments		110	114
Increase in receivables		(399)	(281)
Increase/(decrease) in payables		2,446	(814)
Net cash generated in operations		12,287	4,388

3       OTHER INTEREST RECEIVABLE AND SIMILAR INCOME

	2016	2015
	£'000	£'000
Bank interest received	34	18
	34	18

4       Interest payable AND SIMILAR CHARGES

	2016	2015
	£'000	£'000
Interest on bank loans	1,652	1,117
Loan arrangement fees	502	167
Interest on other loans	-	12
Interest on finance leases	144	120
	2,298	1,416

5       PROFIT FOR THE PERIOD

a)   The Group's profit for the period is stated after charging the following:

	2016	2015
	£'000	£'000
Depreciation of tangible fixed assets:	18	10
Auditor's remuneration:
Fees payable to the auditor for the audit of the Group's annual accounts	42	28
Fees payable to the auditor for the audit of the subsidiary annual accounts	15	10
Fees payable to the auditor and its related entities for other services: Corporate advisory services	98	50
Audit related assurance services	17	-
Tax services	13	-
	185	88

Amounts payable to BDO LLP in respect of audit and non-audit services are disclosed in the table above.

b)   The Group's property costs comprise the following:

	2016	2015
	£'000	£'000
Void property costs	1,511	614
Repairs and maintenance expenses	90	404
Legal and consultancy	23	45
Service charge expenses	-	137
	1,624	1,200

c)   The Group's administrative expenses comprise the following:

	2016	2015
	£'000	£'000
Staff costs	803	508
Legal & professional fees	269	177
PR and marketing costs	201	113
Other overheads	135	82
Accounting and audit fees	133	86
Property management fees	122	163
Share based payments	110	114
Stock exchange costs	88	91
Consultancy and recruitment fees	84	8
Rent, rates and other office costs	79	87
Depreciation	18	10
Amortisation of goodwill	6	-
	2,048	1,439

6       EMPLOYEES AND DIRECTORS' REMUNERATION

Staff costs during the period were as follows:

	2016	2015
	£'000	£'000
Non-Executive Directors' fees	80	68
Wages and salaries	640	368
Pensions	14	24
Social security costs	69	48
Share based payments	110	114
	913	622

The average number of employees of the company during the period was:

	2016	2015
	Number	Number
Directors and management	7	6
Administration	2	-
	9	6

Key management are the Group's directors.  Remuneration in respect of key management was as follows:

	2016	2015
	£'000	£'000
Short-term employee benefits:
Emoluments for qualifying services	610	342
Social security costs	76	41
Pension	13	-
Share based payments	99	102
	798	485

The amounts set out above include remuneration in respect of the highest paid director as follows:

	2016	2015
	£'000	£'000
Short-term employee benefits:
Emoluments for qualifying services	299	194
Share based payments	64	68
	363	262

7       TAXATION

	2016	2015
	£'000	£'000
Current income tax charge	726	20
Tax underprovided in prior year	6	-
Deferred tax	221	(127)
Tax charge/(credit)	953	(107)

	2016		2015
	£'000		£'000
Profit on ordinary activities before tax	11,752		13,908
Based on profit for the period:
Tax at 20.0% (2015: 21%)		2,350	2,921
Effect of:
Expenses not deductible for tax purposes		163	134
Capital losses and indexation used in the period		(1,416)	(2,090)
Capital allowances in excess of depreciation		(77)	(253)
Other adjustments		47	40
Deferred tax not previously recognised		(76)	(127)
Utilisation of losses brought forward		297	-
Tax under provided in prior years		6	-
Trading losses used in the period		(341)	(732)
Tax charge/(credit) for the period		953	(107)

Deferred taxes at 31 March relates to the following:

	2016	2015
	£'000	£'000
Deferred tax assets
Losses available to carry forward	334	500
Deferred tax asset	334	500

	2016	2015
	£'000	£'000
Deferred tax asset - brought forward	500	100
Deferred tax (charge)/credit for the period	(221)	127
Deferred tax recognised on acquisition	55	273
Deferred tax asset - carried forward	334	500

At 31 March 2016, the Group had tax losses of £1,681,228 (2015: £3,110,762) available to carry forward to future periods. A deferred tax asset of £334,000 (2015: £500,000) has been recognised as it is expected to be utilised in the foreseeable future.

Capital allowances have been claimed on improvements to investments properties amounting to £13,846,721 (2015: £8,676,012).  A deferred tax liability amounting to £1,872,057 (2015: £1,735,202) has not been recognised in the financial statements as it is expected that they will not reverse when the properties are disposed of.

A deferred tax liability on the revaluation of investment properties to fair value has not been provided as once the availability of capital losses, indexation allowances and the 1982 valuations for certain properties have been taken into account it is anticipated that no capital gains tax would be payable if the properties were disposed of at their fair value as the potential capital gains after indexation of approximately £9,700,000 are offset by potential losses of £13,500,000.  As at 31 March 2016 the Group also had approximately £7,400,000 (2015: £6,900,000) of realised capital losses to carry forward.

8       EARNINGS PER SHARE

Basic earnings per share

Basic earnings per share has been calculated on profit after tax attributable to ordinary shareholders for the period (as shown on the Consolidated Statement of Comprehensive Income) and the weighted average number of ordinary shares in issue during the period (see below table).

Diluted earnings per share

Diluted earnings per share has been calculated on profit after tax attributable to ordinary shareholders for the period (as shown on the Consolidated Income Statement) and the diluted weighted average number of ordinary shares in issue during the period (see below table):

	2016	2015
	£'000	£'000
Profit after tax attributable to ordinary shareholders for the period	10,799	14,015

	2016 No of shares	2015 No of shares
Weighted average number of shares for basic earnings per share	24,597,258	17,010,762
Dilutive effect of share options	20,730	80,082
Weighted average number of shares for diluted earnings per share	24,617,988	17,090,844
EARNINGS PER ORDINARY SHARE; Basic	43.9p	82.4p
Diluted	43.9p	82.0p

EPRA and adjusted diluted earnings per share

The European Public Real Estate Association (EPRA) has issued Best Practices Recommendations, the latest update of which was issued in December 2014, which gives guidelines for performance measures.

EPRA earnings are calculated taking the profit after tax excluding investment property revaluations and gains and losses on disposals, changes in fair value of financial instruments, associated close-out costs and share based-payments and 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 and therefore it is more appropriate to use the basic number of shares. The EPRA diluted earnings per share also takes into account the dilution of share options and warrants if exercised.

Palace Capital also report on an adjusted earnings measure which is based on recurring earnings after tax and on the basis of the basic number of shares.

The EPRA and adjusted earnings per share for the period are calculated based upon the following information:

	2016	2015
	£'000	£'000
Profit after tax attributable to ordinary shareholders for the period	10,799	14,015
Costs of acquisition	815	639
Gains on revaluation of investment property portfolio	(3,620)	(9,769)
Profit on disposal of investment properties	(290)	(178)
EPRA earnings for the period	7,704	4,707
Surrender premium	(3,172)	-
Share based payment	110	114
Adjusted earnings after tax for the period	4,642	4,821
EPRA AND ADJUSTED EARNINGS PER ORDINARY SHARE; EPRA Basic	31.3p	27.7p
EPRA Diluted	31.3p	27.5p
Adjusted EPS Basic	18.9p	28.3p

9       NET ASSETS VALUE PER SHARE

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

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

Net asset value is calculated using the following information:

	2016	2015
	£'000	£'000
Net assets at the end of the period	106,815	80,016
Effect of exercise of share options	109	109
Diluted net assets at end of the period	106,924	80,125
Exclude fair value of financial instruments & exclude deferred tax on latent capital gains	-	-
EPRA NAV	106,924	80,125
Include fair value of financial instruments & include deferred tax on latent capital gains	-	-
EPRA NNNAV	106,924	80,125

	2016 No of shares	2015 No of shares
Number of ordinary issued shares issued at the end of the period	25,781,229	20,225,673
Dilutive effect of share options	20,730	16,308
Number of ordinary issued shares for diluted net assets per share	25,801,959	20,241,981
NET ASSETS PER ORDINARY SHARE Basic	414p	396p
Diluted	414p	396p
EPRA NAV	414p	396p
EPRA NNNAV	414p	396p

10     DIVIDENDS

	Payment date	Dividend per share			2016 £'000		2015  £'000
2016
Final dividend proposed	29 July 2016	9.00			-		-
Interim dividend	30 December 2015	7.00			1,805		-
Distribution of current year profit		16.00			1,805		-
2015
Final dividend	31 July 2015	7.00			1,416		-
Interim dividend	30 December 2014	6.00			-		1,204
Distribution of prior year profit		13.00			1,416		1,204
2014
Final dividend	31 July 2014	2.50			-		313
Interim dividend	7 May 2014	2.00			-		249
		4.50			-		562
Dividends reported in the Group statement of changes in equity					3,221		1,766

Proposed Dividends

					2016 £'000		2015  £'000
2016 final dividend: 9p  (2015: 7p)					2,320		1,416

Proposed dividends on ordinary shares are subject to approval at the Annual General Meeting and are not recognised as a liability as at 31 March 2016.

11     INTANGIBLE FIXED ASSETS

					Goodwill £'000
Cost
At 1 March 2014 and 31 March 2015					6
Additions					-
At 31 March 2016					6

					Goodwill £
Provision for diminution in value
At 1 March 2014 and 31 March 2015					-
Provided in the year					6
At 31 March 2016					6
Carrying value at 31 March 2016					-
Carrying value at 31 March 2015					6

12     BUSINESS COMBINATIONS

Acquisition in year ended 31 March 2016

O&H Northampton Limited

On 17 June 2015 the Group acquired 100% of the share capital of O&H Northampton Limited (O&H) for a consideration of £1.  O&H is a property investment company owning Sol Central, a leisure complex in Northampton, which was acquired to expand the Group's property portfolio.  Following the acquisition O&H changed its name to Palace Capital (Northampton) Limited.

		Carrying value at acquisition date			Adjustments		Fair value at acquisition date
		£'000			£'000		£'000
Investment properties		20,700			-		20,700
Receivables and prepayment		389			-		389
Deferred tax asset		55			-		55
Cash at bank and in hand		228			-		228
Payables and other creditors		(344)			-		(344)
Corporation tax		(128)			-		(128)
Accrued interest		(822)			-		(822)
Other loans		(3,441)			-		(3,441)
Bank loans		(16,637)			-		(16,637)
Net assets		-			-		-
Consideration							20,078
Payments of other loans and bank loans on acquisition							(20,078)
Net consideration							-
Goodwill on acquisition							-

The acquired subsidiary contributed £1,597,000 to the profit before tax of the Group.

The deferred tax asset represents tax losses incurred in the period prior to our acquisition.  No deferred tax has been recognised on the adjustments to fair value as a result of the historical cost of the investment properties exceeding their fair value.

The fair value of the investment properties at acquisition was based on a valuation performed at the time of the acquisition amounting to £20,700,000 obtained from DTZ Debenham Tie Leung Limited.

Acquisition related costs

The Group incurred acquisition related costs in respect of this transaction amounting to £413,115 related to professional fees paid for due diligence, general professional fees and legal related costs.  These costs have been included in administrative expenses in the Group's consolidated income statement.

Gregory Projects (Halifax) Limited

On 11 March 2016 the Group acquired 100% of the share capital of Gregory Projects (Halifax) Limited (GPH) for a consideration of £1.  GPH is a property investment company owning Broad Street Plaza, a leisure complex in Halifax, which was acquired to expand the Group's property portfolio.  Following the acquisition GPH changed its name to Palace Capital (Halifax) Limited.

		Carrying value at acquisition date			Adjustments		Fair value at acquisition date
		£'000			£'000		£'000
Investment properties		-			24,180		24,180
Receivables and prepayment		144			-		144
Work in progress		24,180			(24,180)		-
Cash at bank and in hand		213			-		213
Payables and other creditors		(231)			-		(231)
Accrued interest		(84)			-		(84)
Other loans		(9,017)			-		(9,017)
Bank loans		(15,201)			-		(15,201)
Net assets		-			-		-
Consideration							9,017
Payments of other loans and bank loans on acquisition							(9,071)
Net consideration							-
Goodwill on acquisition							-

The acquired subsidiary contributed a loss of £121,000 to the profit before tax of the Group.  The fair value of the investment properties at acquisition was based on the purchase price of the property as a result of the valuers having no clear comparable alternatives.  The valuation performed at the year-end amounted to £24,000,000 and was obtained from Knight Frank.  The fall in the value of the property in this period related to the increased stamp duty rates introduced by the government in its budget on 16 March 2016.

The fair value adjustment reclassifies the property as an investment property rather than a property held for resale following the change in management of the property.

Acquisition related costs

The Group incurred acquisition related costs of £401,491 related to professional fees paid for due diligence, general professional fees and legal related costs.  These costs have been included in administrative expenses in the Group's consolidated income statement.

Effect on Group results of the acquisitions

If both these acquisitions had occurred on 1 April 2015, Group revenue would have been an estimated £16.7m and Group profit before tax would have been an estimated £13.0m. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 April 2015.

Dering Properties (Sutton) Limited

The acquisition of Dering Properties (Sutton) Limited was made on 17 August 2015.  The directors have taken the view that this acquisition had similar attributes to that of an asset purchase rather than a business combination and therefore the value of the asset at the acquisition date amounting to £3,925,000 has been added to the additions within investment properties together with the costs of the acquisition amounting to £104,684.

Acquisition in year ended 31 March 2015

On 26 August 2014 the Group acquired 100% of the share capital of Property Investment Holdings Limited (PIH) for a consideration of £3,613,828.  The consideration was satisfied by issuing 1,103,459 ordinary 10p shares at a fair value price of £3.275.  PIH is a property investment company which was acquired to expand the Group's property portfolio.

		Carrying value at acquisition date			Adjustments		Fair value at acquisition date
		£'000			£'000		£'000
Investment properties		29,385			2,356		31,741
Tangible fixed assets		-			-		-
Deferred tax asset		-			273		273
Receivables and prepayment		26			279		305
Cash at bank and in hand		-			-		-
Payables and other creditors		(732)			-		(732)
Bank loans and overdraft		(27,973)			-		(27,973)
Deferred tax		(401)			401		-
Net assets		305			3,309		3,614
Consideration							3,614
Goodwill on acquisition							-

The acquired subsidiary contributed £4,102,851 to the profit before tax of the Group. If this acquisition had occurred on 1 April 2014, Group revenue would have been an estimated £9.7m and Group profit before tax would have been an estimated £14.4m. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 April 2014.

Deferred tax asset amounting to £273,029 was recognised as a fair value adjustment at the acquisition date being management's estimate, based on budgets and forecasts, of the future utilisation of tax losses of approximately £9m that were available to carry forward following the refinancing of the bank loans of the PIH which took place at acquisition.  The deferred tax asset was increased to £500,000 at 31 March 2015 as a result of the restructuring of PIH and the repayment of £10m of intra group loans which has resulted in increasing the anticipated future annual profits of PIH.

No deferred tax has been recognised on the adjustments to fair value as a result of the historical cost of the investment properties exceeding their fair value.

The fair value of the investment properties at acquisition was based on a valuation performed at the time of the acquisition amounting to £32,020,000 obtained from DTZ Debenham Tie Leung Limited less a lease incentive balance which has been included in prepayments amounting to £278,901.

A fair value adjustment to prepayments amounting to £278,901 was made to bring the revenue recognition policy of PIH into line with that of the Group so that the rental income from investment properties leased out under operating leases is recognised in the Income Statement on a straight-line basis over the term of the lease.

Acquisition related costs

The Group incurred acquisition related costs of £638,668 related to professional fees paid for due diligence, general professional fees and legal related costs.  These costs have been included in administrative expenses in the Group's consolidated income statement.

13     Investment Properties

			Freehold Investment properties	Leasehold Investment properties	Total
			£'000	£'000	£'000
At 1 April 2014			41,620	17,820	59,440
Arising on acquisition of subsidiary undertaking			31,741	-	31,741
Additions - refurbishment			2,497	11	2,508
Additions - new properties			305	-	305
Gains on revaluation of investment property			9,180	589	9,769
Disposals			(775)	-	(775)
At 1 April 2015			84,568	18,420	102,988
Arising on acquisition of subsidiary undertakings			44,880	-	44,880
Additions - refurbishment			1,149	33	1,182
Additions - new properties			18,653	4,886	23,539
Gains on revaluation of investment properties			1,840	1,780	3,620
Disposals			(1,667)	-	(1,667)
At 31 March 2016			149,423	25,119	174,542

Investment properties are stated at fair value as determined by the Directors.  The fair value of the Group's property portfolio is 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, in accordance with International Financial Reporting Standard 13.  The fair value of each of the properties has been assessed by the directors.  In determining the fair value of investment properties, the directors make use of historical and current market data as well as existing lease agreements

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 given property may differ from the valuations shown in the statement of financial position.

In addition to the gain on revaluation of investment properties included in the table above, realised gains of £290,525 (2015: £177,698) relating to investment properties disposed of during the year were recognised in profit or loss.

A reconciliation of the valuations carried out by the external valuers to the carrying values shown in the balance sheet was as follows:

			2016	2015
			£	£'000
Scanlans Consultant Surveyors LLP			2,017	2,260
Cushman & Wakefield LLP			147,174	65,215
DTZ Debenham Tie Leung Limited			-	35,280
Knight Frank			24,000	-
Directors valuation			250	-
Fair value			173,441	102,755
Adjustment in respect of minimum payment under head leases separately included as a liability in the balance sheet			2,076	1,220
Less lease incentive balance included in prepayments			(975)	(987)
Carrying value			174,542	102,988

Investment properties with a carrying value of £151,065,990 (2015: £101,768,108) are subject to a first charge to secure the Group's bank loans amounting to £72,678,233 (2015: £36,205,461).

The valuations of all investment property held by the Group is classified as Level 3 in the IFRS 13 fair value hierarchy as they are based on unobservable inputs.  There have been no transfers between levels of the fair value hierarchy during the year.

Valuation process

The valuation reports produced by the 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 year 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.

31 March 2016	Significant unobservable inputs
	Cushman & Wakefield	Knight Frank	Scanlans
Value of investment properties	£147,174,000	£24,000,000	£2,017,000
Area (sq ft)	1,710,355	114,274	22,820
Gross Estimated Rental Value	£12,559,734	£1,775,104	£196,910
Net Initial Yield Minimum Maximum Weighted average	-6.9% 13.4% 6.1%	6.3% 31.0% 7.0%	8.3% 10.5% 9.8%
Reversionary Yield Minimum Maximum Weighted average	5.5% 15.8% 6.7%	6.9% 6.9%  6.9%	8.3% 10.5% 9.8%
Equivalent Yield Minimum Maximum Weighted average	3.2% 12.1% 8.0%	6.3% 17.5%  7.5%	8.3% 10.5% 9.8%

Negative Net Initial Yields arise where properties are vacant or partially vacant and void costs exceed rental income

31 March 2015	Significant unobservable inputs
	Cushman & Wakefield	DTZ	Scanlans
Value of investment properties	£65,215,000	£35,280,000	£2,260,000
Area (sq ft)	1,095,327	301,392	22,820
Gross Estimated Rental Value	£6,703,332	£2,740,900	£195,653
Net Initial Yield Minimum Maximum Weighted average	-6.4% 13.8% 7.6%	3.2% 10.8% 6.5%	7.5% 10.0% 8.5%
Reversionary Yield Minimum Maximum Weighted average	6.0% 16.3% 6.4%	5.9% 9.6%  7.0%	7.5% 10.0% 8.5%
Equivalent Yield Minimum Maximum Weighted average	0.9% 13.5% 9.0%	6.0% 9.0%  7.2%	7.5% 10.0% 8.5%

Sensitivity of measurement to variations in the significant unobservable inputs

Unobservable input	Impact on fair value measurement of significant increase in input	Impact on fair value measurement of significant decrease in input
Gross Estimated Rental Value	Increase	Decrease
Net Initial Yield	Decrease	Increase
Reversionary Yield	Decrease	Increase
Equivalent Yield	Decrease	Increase

The relationship between the unobservable inputs and their impact on the fair value measurement is not certain. Changes to the tenancies and/or income profile of an investment asset may also impact the fair value outside one or more of the above inter-relationships according to individual circumstances.

14     PROPERTY, PLANT AND EQUIPMENT

						IT,fixtures and fittings £000
At 1 April 2014						1
Assets acquired						-
Additions						62
At 1 April 2015						63
Assets acquired						-
Additions						3
At 31 March 2016						66
Depreciation
At 1 April 2014						-
Provided during the year						11
At 1 April 2015					11
Provided during the year						18
At 31 March 2016						29
Net book value at 31 March 2016						37
Net book value at 31 March 2015						52

15     TRADE AND OTHER RECEIVABLES

			2016	2015
			£000	£000
Current
Gross amounts receivable from tenants			2,727	1,938
Less: provision for impairment			(243)	(90)
Net amount receivable from tenants			2,484	1,848
Other taxes			68	5
Deposit on purchase of investment property			-	1,000
Other debtors			37	27
Accrued income			150	63
Prepayments			588	432
			3,327	3,375

			2016	2015
			£000	£000
Non-Current
Accrued income			825	924
			825	924

Accrued income amounting to £975,000 (2015: £986,892) relates to rents recognised in advance as a result of spreading the effect of rent free and reduced rent periods, capital contributions in lieu of rent free periods and contracted rent uplifts over the expected terms of their respective leases. 

Movements in the provision for impairment of trade receivables were as follows:

			2016	2015
			£'000	£'000
Brought forward			90	89
Arising on acquisition			-	10
Utilised in the period			(11)	(33)
Provisions increased			164	24
			243	90

As at 31 March, the analysis of trade receivables that were past due but not impaired is as follows:

			2016	2015
			£'000	£'000
0-30 days			2,106	1,599
31-60 days			95	(34)
61-90 days			66	52
91 - 120 days			46	204
More than 120 days			171	27
			2,484	1,848

16     CASH AND CASH EQUIVALENTS

All of the Group's cash and cash equivalents at 31 March 2016 and 31 March 2015 are in sterling and held at floating interest rates.

	2016	2015
	£'000	£'000
Cash and cash equivalents	8,576	12,278

The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.

17     TRADE AND OTHER PAYABLES

			2016	2015
			£'000	£'000
Trade payables			638	242
Corporation tax			662	-
Other taxes			1,036	587
Other payables			67	21
Deferred rental income			2,605	1,843
Accruals			1,807	394
			6,815	3,087

18     BORROWINGS

			2016	2015
			£'000	£'000
Current
Bank loans			2,233	400
Non-current liabilities
Bank loans			69,711	35,406
Total borrowings			71,944	35,806
			2016	2015
			£'000	£'000
Non-current liabilities
Secured Bank loans drawn			70,445	35,806
Unamortised lending costs			(734)	(400)
			69,711	35,406

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

			2016	2015
			£'000	£'000
Within one year			2,233	400
From one to two years			17,068	20,003
From two to five years			53,377	15,803
			72,678	36,206

Facility and arrangement fees

  As at 31 March 2016

Secured Borrowings	Margin over LIBOR %	Maturity date		Loan Balance £'000	Unamortised facility fees £'000	Facility drawn £'000
Santander Bank Plc Lloyds Bank Plc National Westminster Bank plc	2.25% 2.10% 2.50%	Jun 2020 May 2019 Mar 2021	9,815 4,246 21,734		(150) (66) (266)	9,965 4,312 22,000
Nationwide Building Society Close Brothers Group plc	2.45% 4.00%	Nov 2020 Sep 2017	19,796 1,193		(204) (7)	20,000 1,200
Barclays Bank plc	2.75%	Jul 2017	15,160		(41)	15,201
			71,944		(734)	72,678

As detailed in note 13 the bank borrowings are secured on investment properties with a carrying value of £151,065,990.The Group has an unused loan facility amounting to £8,000,000 (2015: £nil).  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

The Group has chosen not to enter into any hedging to date as a result of the historically low interest rates and constantly monitors this approach to manage interest rate risk.

The Group has been in compliance with all financial covenants of the above facilities applicable throughout the year.

19     GEARING and loan to value RATIO

The calculation of gearing is based on the following calculations of net assets and net debt:

	2016		2015
		£'000	£'000
Net asset value		106,815	80,016

Borrowings		71,944	35,806
Obligations under finance leases		2,067	1,214
Cash and cash equivalents		(8,576)	(12,278)
Net Debt		65,435	24,742
NAV Gearing	61.3%		30.9%

The calculation of bank loan to property value is calculated as follows:

	2016		2015
		£'000	£'000
Fair value of Property portfolio		173,441	102,755

Borrowings - Bank loans		72,678	36,205
Cash at bank		(8,576)	(12,278)
Net bank borrowings		64,102	23,927
Loan to value ratio	41.9%		35.2%
Net Loan to value ratio	37.0%		23.3%

20     LEASES

Operating lease receipts in respect of rents on investment properties are receivable as follows:

	2016	2015
	£'000	£'000
Within one year	12,165	8,269
From one to two years	10,734	6,984
From two to five years	24,987	12,999
From five to 25 years	44,204	12,139
After 25 years	685	693
	92,775	41,084

Operating lease payments in respect of rents on leasehold properties occupied by the Group are payable as follows:

	2016	2015
	£'000	£'000
Within one year	45	45
From one to two years	12	45
From two to five years	-	12
	57	102

Finance lease obligations in respect of rents payable on leasehold properties were payable as follows:

			2016				2015
		Minimum lease payments		Interest	Present value of minimum lease payments	Present value of minimum lease payments
		£'000		£'000	£'000	£'000
Within one year		130		(128)	2	2
From one to two years		130		(128)	2	2
From two to five years		386		(380)	6	6
From five to 25 years		2,515		(2,447)	68	64
After 25 years		10,316		(8,327)	1,989	1,140
		13,477		(11,410)	2,067	1,214

The net carrying amount of the leasehold properties is shown in note 13.

The Group has over 200 leases granted to its tenants. These vary dependent on the individual tenant and the respective property and demise and vary considerably from short term leases of less than 1 year to longer term leases of over 10 years. A number of these leases contain rent free periods. Standard lease provisions include service charge payments and recovery of other direct costs. All investment properties in the Group's portfolio generated rental income during the both the current and prior periods except for one property, with an investment value of £1.5m, which was vacant throughout the current year but had some rental income in the prior year.  The direct operating costs for this property during the year ended 31 March 2016 amounted to £163,000.

21     Share capital

	2016	2015
Authorised, issued and fully paid share capital is as follows:	£'000	£'000
25,781,229 Ordinary Shares of 10p each (2015: 20,225,673)	2,578	2,023
315,937 Deferred Shares of 90p each (2015: 315,937)	284	284
	2,862	2,307

	2016	2015
Reconciliation of movement in ordinary share capital	£'000	£'000
At start of year	2,023	1,244
Issued in the year	555	779
At end of year	2,578	2,023

Year ending 31 March 2016

On 17 June 2015 the company issued 5,555,556 ordinary 10p shares at a price of £3.60. Issue costs amounting to £885,383 were incurred and have been deducted from the share premium account.

Year ending 31 March 2015

On 23 June 2014 79,665 warrants were exercised and as a result the company issued 79,665 ordinary 10p shares at a price of £2.00.

On 26 August 2014 the company issued 6,451,612 ordinary 10p shares at a price of £3.10. Issue costs amounting to £795,684 were incurred and have been deducted from the share premium account.

In addition, on the same day the company issued 1,103,459 ordinary 10p shares in exchange for 100% of the share capital of Property Investment Holdings Limited.  The fair value of these shares was £3.275 per share.

On 18 February 2015 150,000 warrants were exercised and as a result the company issued 150,000 ordinary 10p shares at a price of £2.00.

The Deferred Shares have the following rights and restrictions.  As regards income the Deferred Shares shall not entitle the holders thereof to receive any dividend or other distribution unless and until the holders of the Ordinary Shares shall have received in aggregate amongst them the sum of £100,000,000 in respect of such dividend or distribution.  As regards voting the Deferred Shares shall not entitle the holders thereof to receive notice of or to attend or vote at any General Meeting of the Company.  As regards capital on a return of capital on a winding up the holders of Deferred Shares shall only be entitled to receive the amount paid up on such shares after the holders of the Ordinary Shares have received the sum of £1,000,000 for each Ordinary Share held by them and shall have no other right to participate in the assets of the Company.

Share options:

	2016	2015
Reconciliation of movement in outstanding share options	No of options	No of options
At start of year	448,754	811,752
Issued in the year	120,268	-
Exercised in the year	-	(229,665)
Lapsed in the year	-	(133,333)
At end of year	569,022	448,754

As at 31 March 2016, the Company had the following outstanding unexpired options. 

Description of unexpired share options	2016		2015
	No of options	Weighted average Option price	No of options	Weighted average Option price
Senior executive plan (note 22)	549,972	13p	429,704	17p
Warrants issued to Nominated Advisors and Broker	19,050	200p	19,050	200p
Total	569,022	20p	448,754	25p
Exercisable	50,643	216p	19,050	200p
Not exercisable	518,379	0p	429,704	17p

Warrants issued to the Groups Nominated advisors and Broker

No new share options were issued to the Group's Nominated advisor or Broker during the year.  The Group's Nominated advisor and Broker received 248,715 options in 2014 in exchange for part of the fee charged by the brokers for the share issue that occurred during that year and the directors considered the fair value of the service to be £50,000.  These options were exercisable at a price of £2.00 per share.

No new share options were issued to the Group's Broker and none were exercised during the year (2015: issued none and exercised 229,665).  The average share price at the date of exercise was £3.48 per share.

The weighted average remaining contractual life of the options outstanding at 31 March 2016 was 2 years (2015: 2).

22     Share bASED PAYMENTS

Senior executive plan

The following table illustrates the number and weighted average exercise prices of, and movements in, share options during the year:

		Number of options	Exercise price	Date from which exercisable	Expiry date
Outstanding at 31 March 2014 and 2015		429,704	17p
Issued during the period (LTIP 2015)		120,268	0p	8 Dec 2018	8 Dec 2018
Outstanding at 31 March 2016		549,972	13p

LTIP 2014

The options are awarded to management on achievements against target on two separate measures over the three financial years ending 31 March 2017.  Half the options will be awarded based on the first target and half based on the achievement of the second.

Earnings per share (EPS) growth: is based on a proforma profit after tax excluding property revaluations and disposal profits/losses for the financial year.  This target will measure the compound growth in EPS over the three year period ending 31 March 2017.

Total shareholder return (TSR) measures the total shareholder return (price rise plus dividends) over the period from 21 October 2013 to 31 March 2017.  The base price being £2.00 per share which was the placing price on that day.

Average annual TSR (compounded) over the TSR performance period	Vesting %	Average annual EPS growth (compounded) over the EPS performance period	Vesting %
<20%	0	<15%	0
Equal to 20%	33.33	Equal to 15%	50
Equal to 25%	66.66	Equal to 30%	100
Equal to 30%	100

For the TSR measure, the achievement of between 25 per cent and 30 per cent compound growth will result in the number of Ordinary shares vesting to be calculated on a straight line basis between 66.66 per cent and 100 per cent.  A similar rule will apply between 20% and 25% and for the EPS condition between 15% and 30%.

LTIP 2015

The options are awarded to management on achievements against target on two separate measures over the three financial years ending 30 September 2018.  Half the options will be awarded based on the first target and half based on the achievement of the second.

Net asset value per share (NAV) growth: is based on the Company's EPRA NAV value per share as at 30 September 2018 adding back dividends per share paid during the period.  This target will measure the compound growth in NAV over the three-year period ending 30 September 2018.  The base price being £4.04 per share which was the value at the 30 September 2015.

Total shareholder return (TSR) measures the total shareholder return (price rise plus dividends) over the period from 1 October 2015 to 30 September 2018.  The base price being £3.70 per share which was the market price at the grant date.

Average annual TSR (compounded) over the TSR performance period	Vesting %	Average annual NAV growth (compounded) over the EPS performance period	Vesting %
<8%	0	<8%	0
Equal to 8%	33.33	Equal to 8%	33.33
Equal to 13%	100.00	Equal to 13%	100

For the TSR measure, the achievement of between 8 per cent and 13 per cent compound growth will result in the number of Ordinary shares vesting to be calculated on a straight line basis between 33.33 per cent and 100 per cent.  A similar rule will apply for the NAV condition between 8% and 13%.

The fair value of grants was measured at the grant date using a Black-Scholes pricing model, taking into account the terms and conditions upon which the instruments were granted. The services received and a liability to pay for those services are recognised over the expected vesting period. The main assumptions of the Black-Scholes pricing model are as follows:

Grant date				8.12.15
Exercise price				0p
Term				3 years
Expected volatility				25%
Expected dividend yield				4%
Risk free rate				1%
Expected forfeiture p.a.				0%

For the portion of the options subject to market conditions (TSR measure), it has been assessed that there was a likelihood of 50% the options vesting.

The fair value of the options granted was £1.65 for the TSR tranche and £3.30 for the NAV tranche.

The expense recognised for employee services received during the period is shown in the following table:

	2016	2015
	£'000	£'000
Palace Capital No 1 share option scheme	-	5
LTIP 2014	77	109
LTIP 2015	33	-
Total expense arising from share-based payment transactions	110	114

23     RELATED PARTY TRANSACTIONS

Accounting services amounting to £75,633 (2015: £56,057) have been provided to the Group by Stanley Davis Group Limited, a company where Stanley Davis is a director.

24     CAPITAL COMMITMENTS

The obligation for capital expenditure relating to the construction, development or enhancement of investment properties entered into by the Group at 31 March 2016 amounted to £1,435,985 (2015 £nil).

25     POST BALANCE SHEET EVENT

There have been no post balance sheet events that would require disclosure or adjustment to these financial statements.

26     Financial RISK MANAGEMENT

The Group's principal financial liabilities are loans and borrowings. The main purpose of the Group's loans and borrowings is to finance the acquisition and development of the Group's property portfolio.  The Group has rent and other receivables, trade and other payables and cash and short-term deposits that arise directly from its operations.

All financial assets are classified as loans and receivables and all financial liabilities are measured at amortised cost.

The Group is exposed to market risk (including interest rate risk and real estate risk), credit risk and liquidity risk.

The Group's senior management oversee the management of these risks, and the Board of Directors has overall responsibility for the determination of the Group's risk management objectives and policies and it sets policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below:

Capital risk management

The Group considers its capital to comprise its share capital, share premium, other reserves and retained earnings which amounted to £106,815,113 at 31 March 2016 (2015: £80,015,514). The Group's capital management objectives are to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to provide an adequate return to shareholders by pricing its services commensurately with the level of risk.

Within the subsidiaries of the Group, the business has covenanted to maintain a specified leverage ratio and a net interest expense coverage ratio, all the terms of which have been adhered to during the year.

The Group manages its capital structure, and makes adjustments to it, in the light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

Significant Accounting Policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed at the beginning of the notes to these financial statements.

Foreign currency risk

The Group has minimal exposure to the differing types of foreign currency risk. It has no foreign currency denominated monetary assets or liabilities and does not make sales or purchases from overseas countries.

Interest rate risk

The interest rate exposure profile of the Group's financial assets and liabilities as at 31 March 2016 and 31 March 2015 were:

	Nil rate assets and liabilities	Floating rate assets	Fixed rate liability	Floating rate liability	Total
	£'000	£'000	£ '000	£'000	£'000
As at 31 March 2016
Trade and other receivables	2,521	-	-	-	2,521
Cash and cash equivalents	-	8,576	-	-	8,576
Trade and other payables	(2,512)	-	-	-	(2,512)
Bank borrowings	-	-	-	(71,944)	(71,944)
Obligation under finance leases	-	-	(2,067)	-	(2,067)
	9	8,576	(2,067)	(71,944)	(65,426)
	Nil rate assets and liabilities	Floating rate assets	Fixed rate liability	Floating rate liability	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 March 2015
Trade and other receivables	2,875	-	-	-	2,875
Cash and cash equivalents	-	12,278	-	-	12,278
Trade and other payables	(658)	-	-	-	(658)
Bank borrowings	-	-	-	(35,806)	(35,806)
Obligation under finance leases	-	-	(1,214)	-	(1,214)
	2,217	12,278	(1,214)	(35,806)	(22,525)

The Group is exposed to changes in interest rates as a result of the cash balances that it holds.  The cash balances of the Group at the year end were around £8m (2015: £12m). The income statement would be affected by £80,000 (2015: £120,000) by a reasonably possible one percentage point change in floating interest rates on a full year basis.

The Group has loans amounting to £72,678,000 (2015: £36,205,461) which have interest payable at rates linked to the 3 month Libor interest rates or bank base rates.  A 1% increase in the Libor or base rate will have the effect of increasing interest payable by £726,780 (2015: £362,055).

The Group is therefore relatively sensitive to changes in interest rates.  The directors regularly review its position with regard to interest rates in order to minimise the Group's risk.

Credit risk management

Credit risk refers to the risk that a counter-party will default on its contractual obligations resulting in financial loss to the Group.

The Group has its cash held on deposit with four large banks in the United Kingdom. At 31 March 2016 the concentration of credit risk held with Barclays Bank plc, the largest of these banks, was £7,138,979 (2015: £12,075,426).  Credit risk on liquid funds is limited because the counterparty is a UK bank with a high credit rating assigned by international credit rating agencies. 

Credit risk also results from the possibility of a tenant in the Group's property portfolio defaulting on a lease.  The largest lease amounts to 4.2% (2015: 7.0%) of the Group's anticipated income.  The directors assess a tenants' credit worthiness prior to granting leases and employ professional firms of property management consultants to manage the portfolio to ensure that tenants debts are collected promptly and the directors in conjunction with the property managers take appropriate actions when payment is not made on time.

The carrying amount of financial assets (excluding cash balances) recorded in the financial statements, net of any allowances for losses, represents the Group's maximum exposure to credit risk without taking account of the value of any collateral obtained.  The carrying amount of these assets at 31 March 2016 was £2,521,000 (2015: £2,874,983).  The details of the provision for impairment are shown in note 15.

Liquidity risk management

The Group's policy is to hold cash and obtain loan facilities at a level sufficient to ensure that the Group has available funds to meet its medium term capital and funding obligations, including organic growth and acquisition activities, and to meet certain unforeseen obligations and opportunities. The Group holds cash to enable the Group to manage its liquidity risk.

The Group monitors its risk to a shortage of funds using a monthly cash management process. This process considers the maturity of both the Group's financial investments and financial assets (e.g. accounts receivable, other financial assets) and projected cash flows from operations.

The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of multiple sources of funding including bank loans, term loans, loan notes, overdrafts and finance leases.

The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:

	On demand	0 - 1 years	1 to 2 years	2 to 5 years	> 5 years	Total
	£'000	£'000	£ '000	£ '000	£'000	£'000
As at 31 March 2016
Interest bearing loans	-	4,529	19,967	57,234	-	80,730
Finance leases	-	130	130	386	12,831	13,477
Trade and other payables	2,521	-	-	-	-	2,521
	2,521	4,659	20,097	57,620	12,831	96,728
	On demand	0 - 1 years	1 to 2 years	2 to 5 years	> 5 years	Total
	£'000	£'000	£'000	£'000	£'000	£'000
As at 31 March 2015
Interest bearing loans	-	1,696	20,961	16,974	-	39,631
Finance leases	-	87	87	261	8,023	8,458
Trade and other payables	658	-	-	-	-	658
	658	1,783	21,048	17,235	8,023	48,747

Derivative financial instruments

The Group does not currently use derivative financial instruments as hedging is not considered necessary. Should the Group identify a requirement for the future use of such financial instruments, a comprehensive set of policies and systems, as approved by the Directors, will be implemented.

In accordance with IAS 39, "Financial instruments: recognition and measurement", the Group has reviewed all contracts for embedded derivatives that are required to be separately accounted for if they do not meet specific requirements set out in the standard. No material embedded derivatives have been identified.

Fair value measurements

Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial instruments that are carried in the financial statements:

	Carrying amount		Fair value
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Financial assets
Trade and other receivables	2,521	2,875	2,521	2,875
Cash and cash equivalents	8,576	12,278	8,576	12,278
	11,097	15,153	11,097	15,153
Current financial liabilities
Trade payables	638	242	638	242
Other payables	67	21	67	21
Accruals	1,807	394	1,807	394
Borrowings - bank loans	71,944	35,806	71,944	35,806
Obligations under finance leases	2,067	1,214	2,067	1,214
	76,523	37,677	76,523	37,677

The directors consider that the fair value of the Group's financial instruments are not materially different to their carrying value.  This view was formed on the basis that, as indicated in note 18 of the financial statements, the bank loans and the loan notes attracted a variable rate of interest and that the cash deposits, and trade payables and receivables, are short term in nature.    Consequently, in accordance with paragraph 29(a) of IFRS 7, no fair value information has been disclosed and the information in paragraph 97 of IFRS 13 is not required.

 

END

 

 

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