Interim Results

RNS Number : 4533S

Palace Capital PLC

16 November 2021

 

16 November 2021

PALACE CAPITAL PLC

("Palace Capital" or the "Company")

Interim Results for the six months ended 30 September 2021

ACTIVE ASSET MANAGEMENT AND PORTFOLIO REPOSITIONING DRIVE PERFORMANCE  

Palace Capital (LSE: PCA), the Main Market listed property investment company that has a diversified portfolio of UK commercial real estate in carefully selected locations outside of London with a focus on the office and industrial sectors, announces its unaudited results for the six months ended 30 September 2021.

 Highlights

Active asset management and improved rent collection drive performance and increased dividend payment

· IFRS profit before tax for the period up 211% to £8.0 million (September 2020: £7.2 million loss) as a result of development profits, leasing activity, property valuation increases, and profits on disposals . 

· Basic EPS up 212% to 17.4p (September 2020: 15.5p loss).  

· Adjusted EPS of 8.7p, reflecting a 1.4x cover of the 6.25p dividend for the period. 

· EPRA NTA per share of 362p, up 3.6% (March 2021: 350p) and IFRS net assets of £163.6 million (March 2021: £157.8 million).  

· Increased EPRA earnings of £3.7 million (September 2020: £3.2 million).  

· 97% of rents collected for the June quarter and 90% of all rents due on and since the September quarter day collected to the date of this announcement, both higher than the equivalent quarter in 2020. This is expected to increase to 95% when the monthly payments for December are received.  

· 8.3% increase in minimum quarterly dividend to 3.25p per share, with the Q2 dividend at this level payable on 31 December 2021. 

· Group LTV reduced to 36% (March 2021: 42%) reflecting strong sales at Hudson Quarter, York and ongoing disposal programme, with all disposals above book value. 

· Solid balance sheet with cash reserves and immediately available facilities of £18.7 million as at 30 September 2021. 

· £26.5 million development facility from Barclays Bank now reduced to £1.6 million, which will be repaid in full by the end of this month. 

· Net Debt of £93.2 million (March 2021: £118.9 million).  

· Total accounting return of 5.2% (September 2020: -3.3%).

S trategic disposals and continuing Hudson Quarter sales providing capital for reinvestment

· 64 apartments completed or exchanged at Hudson Quarter for a total of £21.0 million with an additional 8 under offer to the value of £3.0 million. 

· £18.9 million of property sold or exchanged under the £30 million disposal strategy, of which £12.0 million was exchanged or completed by 30 September 2021, and a further £6.9 million exchanged or completed since 30 September 2021. All disposals were above book value. 

· 29 lease events in the period providing £0.6 million additional income per annum, 3% ahead of ERV.  

· ESG embedded in asset business plans as a priority focus, with an improving EPC profile. Portfolio 98% 2023 EPC compliant .

Balance Sheet	30 Sept 2021	31 March 2021
Investment property valuation	£231.5m	£237.7m
Trading property valuation	£30.5m	£45.1m
Total property portfolio valuation	£262.0m	£282.8m
Number of assets	45	48
Net assets	£163.6m	£157.8m
EPRA NTA per share	362p	350p

Income Statement	Six months to 30 Sept 2021	Six months to 30 Sept 2020
Profit/(loss) before tax	£8.0m	(£7.2m)
EPRA earnings	£3.7m	£3.2m
Earnings per share	17.4p	(15.5p)
Adjusted earnings per share	8.7p	7.3p
Total accounting return	5.2%	(3.3%)
Total shareholder return	5.1%	7.2%
Total dividend per share	6.25p	5.0p
Dividend cover	1.4x	1.5x

Stanley Davis, Chairman of Palace Capital said:

"We are making strong progress across the business and the focus we have been able to put towards implementing our strategy as we have emerged from the pandemic is clearly reflected in the numbers we are reporting today. Our rent collection levels are high, we are achieving strong sales at Hudson Quarter, including two, three bedroom apartments at £1.20 million and £1.05 million. Our £30 million disposal programme is on track and our balance sheet is in good health. This is enabling us to look at potential investments, both direct property and corporate opportunities, as we seek to recycle capital with one acquisition in legals.

"Since the end of the half year the letting market has further improved and we are seeing increased activity at our office holdings as the regions see a return to normal working activity. Avison Young in their Q3 update of regional activity in the Big Nine Regional Cities state that "Occupier confidence across the Big Nine office markets has reached its highest level since the pandemic started which is reflected in the strongest take up for two years. Increasing confidence has released pent up demand and requirements that have been on hold during the past 18 months. As such there has been a depth to the number and size of deals this quarter, including some exceptional lettings." We have holdings in the city centres of Leeds, Manchester, Liverpool and Newcastle, four of the Big Nine.

"Finally, I am due to stand down as Chairman at the end of this calendar year. It has been the most wonderful journey since Neil Sinclair and I started working together at Palace in 2010. I never expected to face a pandemic, but the Board and the Management Team have responded magnificently, and I see nothing other than an exciting future for Palace Capital."

  For further information please contact:

 PALACE CAPITAL PLC

Neil Sinclair, Chief Executive / Matthew Simpson, Chief Financial Officer
Tel. [phone]

 Broker

Numis Securities

Heraclis Economides / George Fry

Tel: [phone]

 Broker

Arden Partners plc

Corporate Finance: Paul Shackleton / Elliot Mustoe

Corporate Broking: James Reed-Daunter

Tel: [phone]

 Financial PR 

FTI Consulting

Claire Turvey / Katie Hughes

Tel: [phone]

[e-mail]

About Palace Capital plc

Palace Capital plc (LSE: PCA) is a UK REIT that has a £262.0 million diversified portfolio of UK regional commercial property. The Company maintains a disciplined investment strategy focused on towns and cities outside of London that are characterised by thriving local economies and strengthening fundamentals. Within those locations the highly experienced management team select assets that provide opportunities to drive both capital value and long-term rental income through tailored active asset management programmes ultimately delivering attractive shareholder returns.

www.palacecapitalplc.com

CHAIRMAN'S STATEMENT

Profit after tax increased by 211% to £8.0 million in the period (September 2020: £7.2 million loss). This reflects our development profits, new lease events resulting from our active asset management, increase in property valuations and profit on disposals. All indications show that we are recovering strongly from the effects of the pandemic, with our EPRA earnings, EPRA NTA, profit before tax and dividend all up, supporting a total accounting return of 5.2%.  Moreover, the ongoing portfolio repositioning is delivering a higher quality portfolio and strengthened balance sheet, positioning the Company well for any forthcoming investment opportunities. Rental income for the period reduced to £8.5 million (September 2020: £8.6 million), partly as a result of the timing of our disposals.

The portfolio has an annual contractual rent roll of £16.9 million per annum and a net income after property costs of £15.6 million per annum compared to an ERV of £20.0 million per annum. Adjusted earnings totalled £4.0 million translating to an adjusted EPS of 8.7p per share, reflecting a 1.4x cover of a dividend of 6.25p per share for the period. Our second quarterly dividend of 3.25p will be payable on 31 December 2021 to shareholders on the register on 10 December 2021. The entire dividend will be paid as a Property Income Distribution.

BALANCE SHEET:

Our balance sheet is in good shape and is getting stronger. Our IFRS net asset value is £163.6 million, a 3.6% increase on 31 March 2021, with £13.7 million in cash as at 30 September 2021. Our cash position is improving through our sales progress and was further enhanced by the divestment of our 5.58% stake in Circle Property plc for £3.2 million, reflecting an 8.6% total return. Our portfolio is resilient, comprising higher quality assets as the portfolio repositioning continues, and as at the half year end our properties were independently valued by Cushman & Wakefield at £262.0 million.

Our LTV reduced from 42% as at 31 March 2021 to 36% as at 30 September 2021, as a result of repaying £18.8 million of the Barclays development facility following strong sales of the apartments at Hudson Quarter. There is currently only £1.6 million of this facility remaining, which will be repaid in full by the end of this month.

The high rent collection figures illustrate the quality of our tenants and the success of our asset managers in proactively engaging with them.

PORTFOLIO OVERVIEW:

At the period end, the portfolio comprised 45 properties let to 186 tenants, providing a diversified occupier base.

Hudson Quarter, the award-winning mixed-use scheme in York, was completed in April this year. Investors, flat purchasers and indeed the media have complimented us on the quality of the scheme, which has been completed to a very high specification, further enhancing our profile and reputation across the regional markets.

We have sold or exchanged 64 apartments to the value of £21.0 million and have a further 8 under offer to the value of £3.0 million, which leaves 55 units remaining. York is one of those cities with little or no rental stock, whilst the Universities are short of residential accommodation. As part of our marketing strategy, we are now increasing our focus on long term investors as well as owner occupiers.

The letting of 11,280 sq ft in our stand-alone office building known as HQ is progressing, and we are hopeful that the lease will be signed early next month.

The two leisure assets in Halifax and Northampton, which represent 13.8% of the portfolio, are already seeing a significant recovery. The former is now virtually fully let, at 97% occupancy, whilst the latter is at 95% occupancy. We are seeing market evidence of investment values increasing and as stated last year, these properties will be sold when we feel the time is right.

At 127 Above Bar Street, Southampton we have acquired the freehold interest in this mixed-use property for £2.0 million. Until recently we only held a leasehold interest expiring in 2035. This property produces a gross rental income of £376,000 per annum, but with the asset reaching maturity we are earmarking it for sale in the next financial year.

At Sandringham House, Harlow we have a 32,800 sq ft office building, the majority of which was let to Exela, a NASDAQ quoted company, with the ground floor vacant. Since the end of the half year, we have negotiated a surrender of the existing lease and have relet the entire building to Exela until 2027 with an option to break in 2024 at a rental of £400,000 per annum. If the tenant does not break in 2024, then the rent increases to £424,000 per annum

ESG FOCUS:

The Company continues to progress its Environmental, Social and Governance ("ESG") strategy, which is becoming increasingly embedded into our day-to-day operations and informing our acquisition and disposal strategies. We are currently focused on enhancing the environmental performance of our assets, ensuring the portfolio remains efficient and keeps pace with the changing needs of our tenants. We are presently reviewing the output from the COP26 summit.

We support the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and having ensured we have the appropriate level of governance in place, we are currently considering scenarios to understand better the potential risks and opportunities associated with climate change for our business. We will report in accordance with the TCFD recommendations in our next Annual Report. The Board's ESG Committee continues to oversee our work in this area and more detail on our approach to ESG can be found on our website.

BOARD CHANGES:

Stephen Silvester stepped down from the Board on 29 October 2021 and Matthew Simpson was appointed Chief Financial Officer on 11 November 2021.

The process for identifying my successor is well underway and we expect to announce the details of the new Chair in the near future.

CONCLUSION & OUTLOOK:

We have one of the strongest rent collection statistics in the sector, modest gearing which is on a downward trajectory and sales of non-core assets all at above book value. However, at the moment our share price discount to NAV is precluding us from issuing shares to make meaningful corporate acquisitions, which we did successfully when acquiring a subsidiary of Quintain plc and Property Investment Holdings Ltd. Our continued operational focus is on creating value for shareholders and, ultimately, to work to close the discount. While it is not our favoured route, we have not disregarded a share buyback programme and may consider it further, particularly if we continue to have a surplus of capital without the right accretive investment opportunities into which we can redeploy the capital. However, we are well aware of the necessity for consolidation in the sector and this is an avenue we have under constant review. The increasing confidence in the regional markets, the Government's levelling up agenda and our much improved balance sheet, means that we are very well placed for our next period of growth.

The successful vaccination programme and the recovery in the economy is enabling us to focus more fully on the implementation of our regional strategy.

Some companies, in our portfolio and across our towns and cities, have had a full return to the office whilst others have adopted a hybrid working model. It is becoming increasingly clear that the office will remain a fundamental part of the economy, as a space in particular for collaboration, creativity and socializing. We are seeing more inspections of our vacant space, increasing interest in the office investment market and in future office development, and are therefore confident in office space continuing to be in demand.

Our industrial holdings are showing continuing growth in rentals, and this bodes very well for the future. We completed multiple lease events across our industrial assets, this is reflected in our 6.1% like for like increase in our industrial valuations.

Our strategic disposal programme is on track to achieve £30 million of non-core disposals by the end of the financial year, with seven sales already completed or exchanged to date, to the value of £18.9 million. This will further strengthen the quality of our portfolio and its income profile.

As I stated previously, I will serve as Chairman until the end of this calendar year leaving the company in great shape and well placed for its next period of growth. I will subsequently continue to promote the interests of this Company which I have been very proud to lead.

Stanley Davis, Chairman

15 November 2021

STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES

The recent COP 26 Summit continues to dominate headlines. We have been monitoring the potential impacts of climate change as an emerging risk and the Board is firmly of the view that the risks associated with climate change are increasing significantly as governments and world leaders seek to establish targets to keep global warming to 1.5 degrees. The Board will continue to monitor events and is taking appropriate action to prepare for the short, medium and long-term risks that could arise as a result of climate change.

We consider there to be no further material changes to the Group's principal risks, as set out on pages 41-43 of the Annual Report and Accounts for the year ended 31 March 2021.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors confirm that the condensed set of consolidated financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

· an indication of important events that have occurred during the first six months and their impact on the condensed interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

 

Palace Capital plc

Condensed consolidated statement of comprehensive income

For the six months ended 30 September 2021

			Notes		Unaudited 6 months to 30 September 2021 £000		Unaudited 6 months to 30 September 2020 £000	Audited Year to 31 March 2021 £000
Revenue			3		27,774		8,601	17,316
Cost of sales			4		(17,506)		(1,000)	(1,500)
Movement in expected credit loss					-		(338)	(949)
Net property income					10,268		7,263	14,867
Dividend income from listed equity investments					64		-	72
Administrative expenses					(2,176)		(2,260)	(4,347)
Operating profit before gains and losses on property assets and listed equity investments					8,156		5,003	10,592
Profit on disposal of investment properties			9		380		259	905
Gain/(loss) on revaluation of investment properties			9		1,265		(10,457)	(14,750)
Reversal of impairment of trading properties			10		-		414	763
Gain/(loss) on revaluation of listed equity investments					-		(167)	709
Loss on disposal of listed equity investments					(80)		-	-
Operating profit/(loss)					9,721		(4,948)	(1,781)
Finance income					-		1	1
Finance expense Debt termination costs					(1,618)		(1,796) -	(3,347) (140)
					(48)
Changes in fair value of interest rate derivatives					(10)		(409)	(265)
Profit/(loss) before taxation					8,045		(7,152)	(5,532)
Taxation			5		-		-	(1)
Profit/(loss) for the period and total comprehensive income					8,045		(7,152)	(5,533)
Earnings per ordinary share
Basic			7		17.4p	(15.5p)		(12.0p)
Diluted			7		17.4p	(15.5p)		(12.0p)

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

Palace Capital plc

Condensed consolidated statement of financial position

For the six months ended 30 September 2021

			Notes	Unaudited 30 September 2021 £000	Unaudited 30 September 2020 £000	Audited 31 March 2021 £000
Non-current assets
Investment properties			9	229,584	241,403	235,854
Listed equity investments at fair value				-	2,373	3,249
Right of use asset				90	238	165
Property, plant and equipment				48	93	71
				229,722	244,107	239,339
Current assets
Trading property			10	27,246	38,395	42,719
Trade and other receivables			11	11,080	10,014	9,764
Cash and cash equivalents			12	13,680	14,269	9,417
Total current assets				52,006	62,678	61,900
Total assets				281,728	306,785	301,239
Current liabilities
Trade and other payables			13	(9,109)	(13,170)	(12,908)
Borrowings			14	(30,835)	(1,836)	(21,853)
Lease liabilities for right of use asset				(67)	(172)	(154)
Total current liabilities				(40,011)	(15,178)	(34,915)
Net current assets				11,995	47,500	26,985
Non-current liabilities
Borrowings			14	(75,407)	(129,625)	(105,432)
Deferred tax liability				(228)	(228)	(228)
Lease liabilities for investment properties				(1,802)	(1,805)	(1,804)
Lease liabilities for right of use asset				-	(67)	-
Derivative financial instruments			15	(690)	(1,517)	(1,029)
Total non-current liabilities				(78,127)	(133,242)	(108,493)
Net Assets				163,590	158,365	157,831
Equity
Share capital			16	4,639	4,639	4,639
Merger reserve				3,503	3,503	3,503
Capital redemption reserve				340	340	340
Treasury share reserve				(715)	(1,287)	(1,288)
Capital reduction reserve				125,019	125,019	125,019
Retained earnings				30,804	26,151	25,618
Equity shareholders' funds				163,590	158,365	157,831
Basic NAV per ordinary share			8	353p	344p	343p
Diluted NAV per ordinary share			8	353p	343p	342p
EPRA NTA per ordinary share			8	362p	347p	350p

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 15 November 2021.

Palace Capital plc

Condensed consolidated statement of cash flows

For the six months ended 30 September 2021

			Restated	Restated
	Notes	Unaudited 6 months to 30 September 2021 £000	Unaudited 6 months to 30 September 2020 £000	Audited Year to 31 March 2021 £000
Operating activities
Profit/(loss) before tax		8,045	(7,152)	(5,532)
Adjustments for non-cash items:
(Gain)/loss on revaluation of properties	9	(1,265)	10,457	14,750
Reversal of (gain)/impairment of trading properties	10	-	(414)	(763)
Loss/(gain) on revaluation of investments		-	167	(709)
Loss on disposal of equity investments		80	-	-
Profit on sale of investment properties	9	(380)	(259)	(905)
Depreciation		24	23	46
Amortisation of right of use asset		74	74	148
Debt termination costs		48	-	140
Share-based payment		158	150	300
Net finance costs		1,628	2,204	3,611
Cash generated by operations		8,412	5,250	11,086
(Increase)/decrease in trade and other receivables		(1,428)	(692)	491
Decrease in trade and other payables		(2,366)	(282)	(291)
Decrease in trading property		14,753	(10,125)	(14,646)
Cash flows from operations		19,371	(5,849)	(3,360)
Interest received		-	1	1
Interest and other finance costs paid		(1,593)	(1,855)	(3,575)
Corporation tax paid		(24)	(1,128)	(1,174)
Cash flows from operating activities		17,754	(8,831)	(8,108)
Investing activities
Capital expenditure on refurbishments of property	9	(2,967)	(905)	(2,425)
Capital expenditure on developments	9	-	(2,856)	(4,131)
Proceeds from disposal of investment properties	9	10,230	1,219	5,290
Amounts transferred (into)/out of restricted cash deposits		(3,043)	181	1,020
Proceeds from disposal of listed equity investments		3,169	-	-
Dividends from listed equity investments		64	-	72
Purchase of property, plant and equipment		(1)	(14)	(16)
Cash flows from investing activities		7,452	(2,375)	(190)
Financing activities
Bank loan repaid		(21,408)	(1,071)	(11,363)
Proceeds from new bank loans		-	12,960	18,916
Loan issue costs		(44)	-	(282)
Dividends paid	6	(2,534)	(1,152)	(3,455)
Cash flows from financing activities		(23,986)	10,737	3,816
Net increase/(decrease) in cash		1,220	(469)	(4,482)
Opening cash and cash equivalents	12	9,417	13,899	13,899
Closing cash and cash equivalents	12	10,637	13,430	9,417

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 2021

	Share  Capital £000	Share  Premium £000	Treasury Shares Reserve £000	Other Reserves £000	Capital reduction reserve £000	Retained Earnings £000	Total  equity  000
As at 31 March 2020	4,639	125,019	(1,349)	3,843	-	34,196	166,348
Total comprehensive loss for the period	-	-	-	-	-	(7,152)	(7,152)
Share based payments	-	-	-	-	-	150	150
Exercise of share options	-	-	62	-	-	(62)	-
Issue of deferred bonus share options	-	-	-	-	-	171	171
Dividends	-	-	-	-	-	(1,152)	(1,152)
Transfer to capital reduction reserve account*	-	(125,019)	-	-	125,019	-	-
As at 30 September 2020	4,639	-	(1,287)	3,843	125,019	26,151	158,365
Total comprehensive profit for the period	-	-	-	-	-	1,619	1,619
Share based payments	-	-	-	-	-	150	150
Exercise of share options	-	-	(1)	-	-	1	-
Issue of deferred bonus share options	-	-	-	-	-	-	-
Dividends	-	-	-	-	-	(2,303)	(2,303)
As at 31 March 2021	4,639	-	(1,288)	3,843	125,019	25,618	157,831
	-	-	-	-	-	8,046	8,046
Share based payments	-	-	-	-	-	158	158
Exercise of share options	-	-	573	-	-	(573)	-
EBT share purchased	-	-	-	-	-	(16)	(16)
Issue of deferred bonus share options	-	-	-	-	-	105	105
Dividends	-	-	-	-	-	(2,534)	(2,534)
As at 30 September 2021	4,639	-	(715)	3,843	125,019	30,804	163,590

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

*During the year, the Group made an order to reduce the Group's share premium account and the crediting of the relevant sum to distributable profits. The Court order approving the Share Premium Reduction and a statement of capital were registered with the Registrar of Companies on 29 September 2020.  The Share Premium Reduction is now effective, and the amount that had been standing to the credit of the Company's share premium account (£125,018,886) has been credited to the Company's distributable profits.

Palace Capital plc

Notes to the condensed consolidated financial statements 

For the six months ended 30 September 2021

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 25 Bury Street, London, SW1Y 6AL.

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

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 2021 and are expected to be used in the Group's Annual Report for the year ended 31 March 2022.

Further to these accounting policies, as a result of the disposal of trading properties in the first six months, the Group would like to provide further clarity on the accounting policies for trading property revenue and trading property cost of sales.

Revenue from the sale of trading properties is recognised when the performance obligation associated with the sale is completed. The transaction price comprises the fair value of the consideration received or receivable, net of value added tax, rebates and discounts. Revenue is recognised in the income statement when control is transferred to the customer. This is deemed to be when title of the property passes to the customer on legal completion.

Trading property cost of sales includes direct expenditure relating to the construction of the trading properties, capitalised interest, and selling costs incurred as a result of residential sales. Selling costs includes agent and legal fees. Cost of sales is expensed to the income statement and is recognised on completion of each residential unit. The cost for each unit is calculated using the ratio of the unit selling price, over the total forecasted sales proceeds of all residential units. This ratio is then applied to the total forecasted development cost to get the cost of sale per unit.

The financial information for the year ended 31 March 2021 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 2021 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 2021 was unqualified and did not contain statements under s498(2) or (3) of the Companies Act 2006. The financial information for the periods ended 30 September 2020 and 30 September 2021 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 15 November 2021.

Copies of this statement are available to the public for collection at the Company's Registered Office at 25 Bury Street, London, SW1Y 6AL and on the Company's website, www.palacecapitalplc.com .

Restatement

The cash flow statement for the comparative periods have been corrected to present cash outflows from an increase in trading properties as operating activities for the year to 31 March 2021 of £14,646,000 (six months to 30 September 2020: £10,125,000) that were previously presented as investing activities. This has resulted in an increase in the net movement in investing activities for the year to 31 March 2021 of £14,646,000 (six months to 30 September 2020: £10,125,000) and a corresponding net decrease in the cash inflows from operating activities in the Consolidated Cash Flow Statement. These cashflows represent expenditure on trading properties that were expected to be sold in the normal course of the Group's business and are therefore operating in nature.  There was no impact on profit or net assets for any periods presented.

Going Concern

The Directors have made an assessment of the Group's ability to continue as a going concern which included the current uncertainties created by Covid-19, coupled with the Group's cash resources, borrowing facilities, rental income, acquisitions and disposals of investment properties, committed capital and other expenditure and dividend distributions. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in these financial statements.

As at 30 September 2021 the Group had £13.7m of cash and cash equivalents, of which £10.6m was unrestricted cash, a low gearing level of 36% and a fair value property portfolio of £262.0m. The Directors have reviewed the forecasts for the Group taking into account the impact of Covid-19 on trading over the 12 months from the date of signing this annual report. The forecasts have been assessed against a range of possible downside outcomes incorporating significantly lower levels of income in line with the possible ongoing effects of the pandemic.

The Directors have a reasonable expectation that the Group have adequate resources to continue in operation for at least 12 months from the date of approval of the financial statements.

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

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  Revenue

		Unaudited 6 months to 30 September 2021 £000	Unaudited 6 months to 30 September 2020 £000	Audited Year to 31 March 2021 £000
Rents received from investment properties		8,453	8,554	17,150
Dilapidations & other property related income		89	27	56
Trading property revenue		19,187	-	-
Insurance commission		45	20	110
Total revenue		27,774	8,601	17,316

4  Cost of sales

		Unaudited 6 months to 30 September 2021 £000	Unaudited 6 months to 30 September 2020 £000	Audited Year to 31 March 2021 £000
Void investment and development property costs		841	681	1,275
Legal, lettings and consultancy costs		326	319	225
Trading property costs of sales		16,339	-	-
Total cost of sales		17,506	1,000	1,500

5  Taxation

		Unaudited 6 months to 30 September 2021 £000	Unaudited 6 months to 30 September 2020 £000	Audited Year to 31 March 2021 £000
Tax underprovided in prior year		-	-	1
Tax charge		-	-	1

  As a result of the Company's conversion to a REIT on 1 August 2019, the Group is no longer required to pay UK corporation tax in respect of property rental income and capital gains relating to its property rental business.

6  Dividends

		Payment Date	Unaudited 6 months to 30 September 2021 £000	Unaudited 6 months to 30 September 2020 £000	Audited Year to 31 March 2021 £000
Ordinary dividends paid
2020 Final dividend: 2.50p per share		14 August 2020	-	1,151	1,151
2021 Interim dividend: 2.50p per share		16 October 2020	-	-	1,152
2021 Interim dividend: 2.50p per share		31 December 2020	-	-	1,152
2021 Interim dividend: 2.50p per share		9 April 2021	1,152	-	-
2021 Final dividend: 3.00p per share		5 August 2021	1,382	-	-
		2,534		1,151	3,455

Proposed dividend

2022 Q1 interim dividend: 3.00p per share paid on 15 October 2021.

2022 Q2 interim dividend: 3.25p per share payable on 31 December 2021.

7  Earnings per share

The Group financial statements are prepared under IFRS which incorporates non-realised fair value measures and non-recurring items. Alternative Performance Measures ('APMs'), being financial measures, which are not specified under IFRS, are also used by Management to assess the Group's performance. These include a number of European Public Real Estate Association ('EPRA') measures, prepared in accordance with the EPRA Best Practice Recommendations (BPR) reporting framework the latest update of which was issued in November 2016. We report a number of these measures because the Directors consider them to improve the transparency and relevance of our published results as well as the comparability with other listed European real estate companies.

EPRA 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, 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, one-off surrender premiums received, and non-recovery development loan interest. The corporation tax charge (excluding deferred tax movements, being a non-cash expense) is deducted in order to calculate the adjusted earnings per share. The earnings per ordinary share for the period is calculated based upon the following information:

		Unaudited 6 months to 30 September 2021 £000	Unaudited 6 months to 30 September 2020 £000	Audited Year to 31 March 2021 £000
	Profit/(loss) after tax attributable to ordinary shareholders for the period	8,045	(7,152)	(5,533)
	Adjustments:
	(Gain)/loss on revaluation of property portfolio	(1,265)	10,457	14,750
	Reversal of impairment of trading properties	-	(414)	(763)
	Profit on disposal of investment properties	(380)	(259)	(905)
	Trading property revenue and cost of sales	(2,848)	-	-
	Loss/(gain) on revaluation of listed equity investments	-	167	(709)
	Loss on disposal of listed equity investments	80	-	-
	Debt termination costs	48	-	140
	Fair value loss on derivatives	10	409	265
	EPRA earnings for the period	3,690	3,208	7,245
	Share-based payments	158	150	300
	Development loan interest	166	-	-
	Adjusted profit after tax for the period	4,014	3,358	7,545
	Tax excluding deferred tax on EPRA adjustments and capital gain charged	-	-	1
	Adjusted profit before tax for the period	4,014	3,358	7,546

		Unaudited 6 months to 30 September 2021	Unaudited 6 months to 30 September 2020	Audited Year to 31 March 2021
	Weighted average number of shares for basic earnings per share	46,226,727	46,053,190	46,061,417
	Dilutive effect of share options	36,766	-	-
	Weighted average number of shares for diluted earnings per share	46,263,493	46,053,190	46,061,417
	Earnings per ordinary share
	Basic	17.4p	(15.5p)	(12.0p)
	Diluted	17.4p	(15.5p)	(12.0p)
	EPRA and adjusted earnings per ordinary share
	EPRA basic	8.0p	7.0p	15.7p
	EPRA diluted	8.0p	7.0p	15.7p
	Adjusted EPS	8.7p	7.3p	16.4p

8  Net asset value per share

The Group has adopted the new EPRA NAV measures which came into effect for accounting periods starting 1 January 2020. EPRA issued new best practice recommendations (BPR) for financial guidelines on its definitions of NAV measures. The new NAV measures as outlined in the BPR are EPRA net tangible assets (NTA), EPRA net reinvestment value (NRV) and EPRA net disposal value (NDV). The Group has adopted these new guidelines and applies them in the 30 September 2021 Interim Report.

The Group considered EPRA Net Tangible Assets (NTA) to be the most relevant NAV measure for the Group and we are now reporting this as our primary NAV measure, replacing our previously reported EPRA NAV and EPRA NNNAV per share metrics. EPRA NTA excludes the intangible assets and the cumulative fair value adjustments for debt-related derivatives which are unlikely to be realised.

			30 September 2021 (unaudited)				30 September 2020 (unaudited)			30 March 2021 (audited)
			EPRA NTA (£000)	EPRA NRV (£000)	EPRA NDV (£000)		EPRA NTA (£000)	EPRA NRV (£000)	EPRA NDV (£000)	EPRA NTA (£000)	EPRA NRV (£000)	EPRA NDV (£000)
Net assets attributable to shareholders			163,590	163,590	163,590		158,365	158,365	158,365	157,831	157,831	157,831
Include:
Fair value adjustment of trading properties			3,279	3,279	3,279		-	-	-	2,247	2,247	2,247
Real estate transfer tax			-	17,148	-		-	14,935	-	-	18,365	-
Fair value of fixed interest rate debt			-	-	60		-	-	(426)	-	-	(59)
Exclude:
Fair value of derivatives			690	690	-		1,517	1,517	-	1,029	1,029	-
Deferred tax on latent capital gains and capital allowances			228	228	-		228	228	-	228	228	-
EPRA NAV			167,787	184,935	166,929		160,110	175,045	157,939	161,335	179,700	160,019
EPRA NAV per share			362p	399p	360p		347p	379p	342p	350p	389p	347p
					Unaudited  30 September 2021			Unaudited 30 September 2020		Audited 31 March 2021
	Number of ordinary shares issued at the end of the period				46,288,470			46,069,690		46,069,690
	Dilutive effect of share options				36,766			84,934		84,934
	Number of diluted ordinary shares for diluted and EPRA net assets per share				46,325,236			46,154,624		46,154,624
	Net assets per ordinary share
	Basic NAV				353p			344p		343p
	Diluted NAV				353p			343p		342p
	EPRA NTA				362p			347p		350p
	EPRA NRV				399p			379p		389p
	EPRA NDV				360p			342p		347p

9  Property Portfolio

	Freehold Investment properties	Leasehold Investment properties	Total investment properties
	£000	£000	£000
At 1 April 2020	230,396	18,303	248,699
Additions - refurbishments	2,273	(44)	2,229
Capital expenditure on developments	4,061	-	4,061
Loss on revaluation of investment properties	(13,614)	(1,136)	(14,750)
Disposals	(3,975)	(410)	(4,385)
At 31 March 2021	219,141	16,713	235,854
Additions - refurbishments	2,169	21	2,190
Capital expenditure on developments	125	-	125
Gain/(loss) on revaluation of investment properties	1,432	(167)	1,265
Disposals	(9,850)	-	(9,850)
At 30 September 2021	213,017	16,567	229,584

	Standing investment properties	Investment properties under construction	Total investment properties	Trading properties	Total property portfolio
	£000	£000	£000	£000	£000
At 1 April 2020	240,927	7,772	248,699	27,557	276,256
Additions - refurbishments	2,229	-	2,229	-	2,229
Capital expenditure on developments	-	4,061	4,061	-	4,061
Additions - trading properties	-	-	-	14,399	14,399
Gain/(loss) on revaluation of investment properties	(14,867)	117	(14,750)	763	(13,987)
Disposals	(4,385)	-	(4,385)	-	(4,385)
At 31 March 2021	223,904	11,950	235,854	42,719	278,573
Additions - refurbishments	2,190	-	2,190	-	2,190
Capital expenditure on developments	-	125	125	-	125
Additions - trading properties	-	-	-	866	866
Gain/(loss) on revaluation of properties	1,449	(184)	1,265	-	1,265
Disposals	(9,850)	-	(9,850)	(16,339)	(26,189)
At 30 September 2021	217,693	11,891	229,584	27,246	256,830

The property portfolio (other than assets held for sale) has been independently valued at fair value. The valuations have been prepared in accordance with the RICS Valuation - Global Standards July 2017 ("the Red Book") and incorporate the recommendations of the International Valuation Standards and the RICS valuation - Professional Standards UK January 2014 (Revised April 2015) which are consistent with the principles set out in IFRS 13.

The valuer in forming its opinion makes a series of assumptions, which are typically market related, such as net initial yields and expected rental values, and are based on the valuer's professional judgement. The valuer has sufficient current local and national knowledge of the particular property markets involved and has the skills and understanding to undertake the valuations competently.

At 30 September 2021, the Group's freehold and leasehold investment properties were externally valued by Royal Institution of Chartered Surveyors ("RICS") registered independent valuers. A reconciliation of the valuations carried out by the external valuers to the carrying values shown in the balance sheet was as follows:

		Unaudited  30 September 2021 £000	Unaudited 30 September 2020 £000	Audited 31 March 2021 £000
Cushman & Wakefield LLP (property portfolio)		262,005	281,595	282,820
Fair value of property portfolio		262,005	281,595	282,820
Adjustment in respect of minimum payment
under head leases included as a liability		1,802	1,805	1,804
Less trading properties at lower of cost and net realisable value		(27,246)	(38,395)	(42,719)
Less lease incentive balance in accrued income		(3,698)	(3,602)	(3,804)
Less fair value uplift on trading properties		(3,279)	-	(2,247)
Carrying value of investment properties		229,584	241,403	235,854

Investment properties with a carrying value of £229,520,000 (31 March 2021: £234,613,000) and trading properties with a carrying value of £27,246,000 (31 March 2021: £42,719,000) are subject to a first charge to secure the Group's bank loans amounting to £106,906,000 (31 March 2021: £128,313,000).

Valuation process - investment properties

The valuation reports produced by the independent valuers are based on information provided by the Group such as current rents, terms and conditions of lease agreements, service charges and capital expenditure. This information is derived from the Group's financial and property management systems and is subject to the Group's overall control environment.

In addition, the valuation reports are based on assumptions and valuation models used by the independent valuers. The assumptions are typically market related, such as yields and discount rates, and are based on their professional 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 independent valuers. When this process is complete, the valuation report is recommended to the Audit Committee, which considers it as part of its overall responsibilities.

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

• The amount and timing of future income streams;

• Anticipated maintenance costs and other landlord's liabilities;

• An appropriate yield; and

• For investment properties under construction: gross development value, estimated cost to complete and an appropriate developer's margin.

Valuation technique - standing investment properties

The valuations reflect the tenancy data supplied by the group along with associated revenue costs and capital expenditure. The fair value of the 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.

Reversal of impairment of trading properties

An impairment loss may only be reversed if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss had been recognised. If this is the case, then the carrying amount of the asset shall be increased to its recoverable amount. The increase will effectively be the reversal of an impairment loss.

10  Trading property

At 1 April 2020		27,557
Costs capitalised		14,399
Reversal of impairment of trading properties		763
At 31 March 2021		42,719
Costs capitalised		866
Disposal of trading properties		(16,339)
At 30 September 2021		27,246

The Group has developed a large mixed-use scheme at Hudson Quarter, York. Part of the approved scheme consisted of residential units which the Group held for sale. As a result, the residential element of the scheme was classified as trading property. During the six month period, residential units to the value of £ 19,225,000 were sold.

11  Trade and other receivables

		Unaudited  30 September 2021 £000		Unaudited 30 September 2020 £000	Audited 31 March 2021 £000
Current
Trade receivables		2,174		3,285	2,775
Prepayments and accrued income		4,294		4,080	4,385
Other taxes		248		820	143
Other debtors		4,364		1,829	2,461
		11,080		10,014	9,764

12  Cash and cash equivalents

		Unaudited  30 September 2021 £000	Unaudited 30 September 2020    000	Audited 31 March 2021 £000
Cash and cash equivalents - unrestricted		10,637	13,430	9,417
Restricted cash		3,043	839	-
		13,680	14,269	9,417

Restricted cash is cash where there is a legal restriction to specify its type of use. This is typically where the Group has agreed to deposit cash with a lender with regards to top-ups received from vendors on completion funds, to be realised over time consistent with the loss of income on vacant units, and where the Group has agreed to deposit cash with a lender to provide additional security over loan facilities, and proceeds from sale of trading properties which is used to repay the development facility.

13  Trade and other payables

		Unaudited  30 September 2021 £000	Unaudited 30 September 2020 £000	Audited 31 March 2021 £000
Current
Trade payables		554	2,702	1,143
Accruals		2,488	3,759	3,711
Deferred rental income		3,465	3,488	3,347
Taxes		1,225	1,862	2,100
Other payables		1,377	1,359	2,607
		9,109	13,170	12,908

14  Borrowings

		Unaudited  30 September 2021 £000	Unaudited 30 September 2020 £000	Audited 31 March 2021 £000
Current borrowings		30,835	1,836	21,853
Non-current borrowings		75,407	129,625	105,432
Total borrowings		106,242	131,461	127,285
Non-current borrowings
Secured bank loans drawn		76,071	130,815	106,238
Unamortised facility fees		(664)	(1,190)	(806)
		75,407	129,625	105,432

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

		Unaudited  30 September 2021 £000	Unaudited 30 September 2020 £000	Audited 31 March 2021 £000
Within one year		30,835	1,836	22,075
From one to two years		8,063	44,099	32,813
From two to five years		68,008	75,390	65,750
From five to ten years		-	11,326	7,675
Total borrowings		106,906	132,651	128,313

Facility and arrangement fees

As at 30 September 2021

Secured borrowings		All in cost %	Maturity date	Loan balance £000	Unamortised facility fees £000	Facility drawn £000
Scottish Widows		2.90%	July 2026	9,002	(105)	9,107
National Westminster Bank plc		2.18%	August 2024	23,532	(279)	23,811
Barclays		3.18%	June 2024	37,368	(158)	37,526
Barclays		3.33%	January 2022	4,617	-	4,617
Santander Bank plc		3.56%	August 2022	24,931	(69)	25,000
Lloyds Bank plc		2.03%	March 2023	6,792	(53)	6,845
				106,242	(664)	106,906

Facility and arrangement fees

As at 31 March 2021

Secured borrowings		All in cost %	Maturity date	Loan balance £000	Unamortised facility fees £000	Facility drawn £000
Scottish Widows		2.90%	July 2026	9,149	(115)	9,264
National Westminster Bank plc		2.19%	August 2024	28,291	(329)	28,620
Barclays		3.17%	June 2024	37,785	(191)	37,976
Barclays		3.34%	January 2022	20,136	(222)	20,358
Santander Bank plc		3.55%	August 2022	25,142	(108)	25,250
Lloyds Bank plc		2.04%	March 2023	6,782	(63)	6,845
				127,285	(1,028)	128,313

Facility and arrangement fees

As at 30 September 2020

Secured borrowings		All in cost %	Maturity date	Loan balance £000	Unamortised facility fees £000	Facility drawn £000
Scottish Widows		2.90%	July 2026	13,355	(151)	13,506
National Westminster Bank plc		2.16%	August 2024	28,242	(378)	28,620
Barclays		3.12%	June 2024	40,193	(223)	40,416
Barclays		3.30%	January 2022	17,553	(210)	17,763
Santander Bank plc		3.56%	August 2022	25,352	(148)	25,500
Lloyds Bank plc		2.01%	March 2023	6,766	(80)	6,846
				131,461	(1,190)	132,651

The Group has unused loan facilities amounting to £16,189,000 (31 March 2021: £13,320,000). A facility fee is charged on £16,189,000 with NatWest, at a rate of 1.05% p.a. and is payable quarterly. This facility is secured on the investment properties held by Property Investment Holdings Limited, Palace Capital (Properties) Limited and Palace Capital (Leeds) Limited.

A facility fee is charged on £1,497,182 at a rate of 1.30% p.a. and is payable quarterly. The £1,497,182 balance of the unused facilities relates to a Barclays loan secured on the Hudson Quarter, York development held by Palace Capital (Developments) Limited.

15  Derivatives financial instruments

The Group adopts a policy of entering into derivative financial instruments with banks to provide an economic hedge to its interest rate risks and ensure its exposure to interest rate fluctuations is mitigated.

The contract rate is the fixed rate the Group are paying for its interest rate swaps.

The valuation rate is the variable LIBOR and bank base rate the banks are paying for the interest rate swaps.

Details of the interest rate swaps the Group has entered can be found in the table below.

The valuations of all derivatives held by the Group are classified as Level 2 in the IFRS 13 fair value hierarchy as they are based on observable inputs. There have been no transfers between levels of the fair value hierarchy during the year.

Bank	Notional principal	Expiry date	Contract rate %	Valuation rate %	Unaudited 30 September 2021	Unaudited 30 September 2020	Audited 31 March 2021
Barclays Bank plc	35,722,900	25 January 2023	1.34%	0.41%	(475)	(1,048)	(717)
Santander plc	20,000,000	3 August 2022	1.37%	0.28%	(215)	(469)	(312)
	55,722,900				(690)	(1,517)	(1,029)

16  Share capital

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

		Unaudited  30 September 2021		Unaudited 30 September 2020	Audited 31 March 2021
Ordinary 10p shares		46,388,515		46,388,515	46,388,515
Share capital - number of shares in issue		46,388,515		46,388,515	46,388,515
Share capital - £		4,638,852		4,638,852	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 22 June 2021 the Company transferred 200,000 ordinary shares held in Treasury into The Palace Capital Employee Benefit Trust.

On 14 July 2021 the Company granted 90,049 shares, being the awards granted on 14 July 2020 under the Palace Capital Deferred Bonus Plan from The Palace Capital Employee Benefit Trust. On 13 and 19 August 2021, 134,814 share options were exercised under the 2018 employee LTIP scheme. As at 30 September 2021 there were 99,587 shares held in treasury.

The Company's issued share capital as at 30 September 2021 comprises 46,288,470 ordinary shares which is the denominator for the calculations of earnings per share and net asset value per share. This excludes the 100,045 ordinary shares held in treasury and the Employee Benefit Trust.

 

END

 

 

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