Results for the year ended 31 March 2022

RNS Number : 7210O

Palace Capital PLC

14 June 2022

PALACE CAPITAL PLC

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

Preliminary Results for the year ended 31 March 2022

A STRONG PERFORMANCE UNDERPINNED BY ACTIVE ASSET MANAGEMENT

Palace Capital (LSE: PCA), the Main Market 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 & industrial sectors, announces its preliminary results for the year ended 31 March 2022.

Steven Owen, Interim Executive Chairman, commented:

"The Group has delivered a robust set of results driven by a combination of active operational and financial activity, property revaluation gains and profits arising from the disposal strategy resulting in a total accounting return of 14.8%.

"The Board announced in the Trading Update on 6 April 2022 that, in consultation with shareholders, it was considering a range of strategic options, including a return of capital, to unlock further value in the business. We expect to update the market on the strategic options that we will pursue before the Annual General Meeting in July 2022. The Board remains committed to maximising value for shareholders and closing the current share price discount to NAV."

Income statement metrics	Year ended 31 March 2022	Year ended 31 March 2021	Change
Net property income	£19.0m	£14.9m	+27.5%
Adjusted profit before tax	£7.8m	£7.5m	+4.0%
Adjusted earnings per share	16.9p	16.4p	+3.0%
IFRS profit/(loss) before tax	£24.6m	(£5.5m)	+£30.1m
Basic earnings per share	53.1p	(12.0p)	+65.1p
Dividends
Dividend per share	13.25p	10.5p	+26.2%
Dividend cover	128%	156%
Balance Sheet and operational metrics	Year ended 31 March 2022	Year ended 31 March 2021	Change
EPRA NTA per share	390p	350p	+11.4%
Net asset value	£177.2m	£157.8m	+12.3%
Like-for-like portfolio valuation increase/(decrease)	3.9%	(4.0%)
Total property return	12.5%	1.0%
Total accounting return	14.8%	(1.2%)
EPRA vacancy rate	11.5%	13.6%
Debt
Loan to value	28%	42%
Total drawn debt	£101.8m	£128.3m	-20.7%
Total fixed debt	£61.4m	£62.6m	-1.9%
Average cost of debt	3.2%	3.0%	+20 bps
Average debt maturity	1.9 years	2.6 years
Net interest cover	3.9x	3.7x

Financial highlights

· Adjusted profit before tax increased by 4.0% to £7.8 million (2021: £7.5 million), largely due to asset management lease activity and reversal of the ECL provision

· IFRS profit before tax of £24.6 million (2021: £5.5million loss), driven by disposal strategy, revaluation gain and trading profit

· Like-for-like portfolio valuation increase of 3.9% (2021: 4.0% decrease)

· Total Property Return of 12.5% for the year (2021: 1.0%), driven by increased earnings and capital growth

· EPRA NTA per share increased by 11.4% to 390p (2021 : 350p), driven by portfolio valuation gains and profits from the disposal strategy

· Total Accounting Return of 14.8% (2021: minus 1.2%)

· LTV reduced to 28% (2021: 42%) as a result of £45.3 million reduction in net debt

· Total dividends paid or declared for the year increased by 26.2% to 13.25 pence per share (2021: 10.50 pence per share) and total dividends paid increased by 56.7% to 11.75 pence per share (2021: 7.50 pence per share)

Operational highlights

· Disposal strategy ahead of target with £31.5 million of gross proceeds achieved which is 19% above March 2021 book value, 12% ahead of purchase prices and capital expenditure, delivering an ungeared IRR of 11%. 55 lease events completed in the period totalling 319,000 sq ft at an average of 11% premium to ERV

· An additional £1.9 million of annualised net rental income gained in the year through asset management lease activity, acquisitions, and reduction in non-recoverable property costs. This takes into account income lost through disposals, lease expiries and lease breaks

· Portfolio repositioning in the year has delivered a higher quality portfolio consisting of 37 properties, improved EPC ratings (which support future rental uplifts), higher occupancy and weighting to core assets

· 98% rent collection for the 12 months to 31 March 2022

· Overall EPRA occupancy of 88.5% (2021: 86.4%), with majority of remaining vacancy having been recently refurbished or identified for strategic refurbishment or redevelopment

· WAULT of 4.7 years to break, 6.5 years to expiry, reflecting flexible lease terms

· Increased prioritisation of ESG initiatives and incorporated energy efficiency measures into our capital expenditure projects

Delivering strong total returns

	Year ended 31 March 2022	Year ended 31 March 2021
Total accounting return	14.8%	(1.2%)
Income return	6.5%	7.0%
Capital return	6.0%	(6.0%)
Total property return	12.5%	1.0%

Audio Webcast

The Company will hold an audio webcast for analysts and investors at 9.00 am today which will be available via the link below. An on demand recording will also be available from this link following the meeting and via the Company's website www.palacecapitalplc.com

https://pcawebcast

PALACE CAPITAL PLC

Steven Owen, Interim Executive Chairman / Matthew Simpson, Chief Financial Officer
Tel. +44 (0)20 3301 8330

Broker

Numis Securities

Heraclis Economides / Oliver Hardy

Tel: +44 (0)20 7260 1000

Broker

Arden Partners plc

Corporate Finance: John Llewellyn-Lloyd/ Elliot Mustoe

Corporate Broking: James Reed-Daunter

Tel: +44 (0)207 614 5900

Financial PR

FTI Consulting

Dido Laurimore/ Giles Barrie

Tel: +44 (0)20 3727 1000

palacecapital@fticonsulting.com

About Palace Capital plc

Palace Capital plc (LSE: PCA) is a UK REIT that has a £259.0 million portfolio of UK regional commercial property with a focus on the office and industrial sectors. 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

The Annual Reports and Accounts together with the Notice convening the 2022 Annual General Meeting will be posted to Shareholders in June 2022.

Cautionary Statement

This announcement does not constitute an offer of securities by the Company. Nothing in this announcement is intended to be, or intended to be construed as, a profit forecast or a guide as to the performance, financial or otherwise, of the Company or the Group whether in the current or any future financial year. This announcement may include statements that are, or may be deemed to be, ''forward-looking statements''. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ''believes'', ''estimates'', ''anticipates'', ''expects'', ''intends'', ''plans'', ''target'', ''aim'', ''may'', ''will'', ''would'', ''could'' or ''should'' or, in each case, their negative or other variations or comparable terminology. They may appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of the directors, the Company or the Group concerning, amongst other things, the operating results, financial condition, prospects, growth, strategies and dividend policy of the Group or the industry in which it operates. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond the Company's ability to control or predict. Forward-looking statements are not guarantees of future performance. The Group's actual operating results, financial condition, dividend policy or the development of the industry in which it operates may differ materially from the impression created by the forward-looking statements contained in this announcement. In addition, even if the operating results, financial condition and dividend policy of the Group, or the development of the industry in which it operates, are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause these differences include, but are not limited to, general economic and business conditions, industry trends, competition, changes in government and other regulation, changes in political and economic stability and changes in business strategy or development plans and other risks.

Other than in accordance with its legal or regulatory obligations, the Company does not accept any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

Chairman's Statement

I am pleased to present my first Chairman's Statement on the results for the year ended 31 March 2022, following my appointment to the Board on 1 January this year.

Despite the uncertainty and volatility in the economic environment over the last two years, the Group has performed strongly with many of the key metrics showing a marked improvement in these results. The UK's success in rolling out its Covid-19 vaccination programme and thereby providing protection for the public has translated into improved confidence, which in turn has had a positive impact on the portfolio. This has been evidenced by strong letting activity and rental collections returning to their pre-pandemic levels, as people learn to live with the virus, get back to their offices and enjoy leisure activities once again. Furthermore, with a portfolio comprising assets in towns and cities across the regions, the Group is well placed to capitalise on the government's Levelling Up agenda.

The Group has navigated the unprecedented challenges that faced the economy and its business with the support of its tenants, banks and its employees. On behalf of the Board, I would like to thank all of them and other stakeholders for their support during the last year.

Overview of results

The Group has delivered a robust set of results over the last year driven by a combination of active operational and financial activity, property revaluation gains and profits arising from the disposal strategy resulting in a total accounting return of 14.8% (2021: minus 1.2%).

The Group's adjusted profit before tax increased marginally to £7.8m notwithstanding the dilution to earnings caused by property sales totalling £31.5m which realised a profit of £5.0m. Trading profits from the sale of residential units realised £3.8m.

The Group's portfolio has demonstrated resilience throughout the past year and combined with asset management activity and yield compression, generated a revaluation surplus of £8.2m, equivalent to 17.7 pence per share.

The aggregation of the profits described in the preceding paragraphs account for the significant increase in profit before tax reported under IFRS of £24.6m (2021: £5.5m loss).

Principally as a result of the revaluation surplus and profits arising from the disposal strategy, EPRA NTA per share increased by 11.4% to 390 pence per share (2021: 350 pence per share).

The Group's balance sheet has been significantly strengthened following the disposal of properties and the revaluation surplus resulting in a loan to value ratio of 28% (2021: 42%). As at 31 March 2022 the Group had cash and cash equivalents of £28.1m and as at 10 June it was £22.7m, excluding the £5.0m available to immediately draw from the NatWest revolving credit facility, which was repaid post year end.

Dividend

The Group increased its paid or declared dividends by 26.2% to 13.25 pence per share (2021: 10.50 pence per share) in relation to the year ended 31 March 2022, including a proposed final fourth quarter dividend of 3.75 pence per share. The total dividend of 13.25 pence per share is covered 128% by Adjusted earnings per share.

Total shareholder returns

The Company's share price increased from 236 pence per share on 31 March 2021 to 274p on 31 March 2022 which together with dividends distributed produced a Total Shareholder Return of 21.1% (2021: 38.5%)

Environmental, Social and Governance ("ESG")

The Company is committed to responsible business and ESG matters which are at the forefront of the Board's considerations. Further details on the approach to responsible business can be found in the Annual Report and on the website.

Board changes

Prior to the publication of these results, the Board announced that Neil Sinclair, Chief Executive and Co-founder would be stepping down from the Board with immediate effect. Neil considered this to be the right time to step down following the strong trading update announced on 6 April 2022 and the material increase in NAV and dividend. Neil, with Stanley Davis and Andrew Perloff, cofounded the Company and was instrumental in growing the business through a combination of corporate and property transactions including moving from AIM to the main market and conversion to a REIT. The Board would like to thank him for his dedication, commitment and contribution to Palace Capital since 2010. The Board and staff of Palace Capital wish him well.

It was also announced then that I, previously non-executive Chairman, will assume the role of Interim Executive Chairman with immediate effect.

In December 2021, it was announced that Stanley Davis, Chairman and Co-founder of the Group in 2010, would retire from the Board on 31 December 2021. The Board would also like to thank Stanley for his considerable service to the Company.

Outlook

The year ahead is likely to be further affected by continuing macroeconomic and geo-political uncertainty, particularly arising from the continuing war in Ukraine. The inflationary headwinds and the consequential impact on consumer and investor confidence are likely to constrain UK economic growth in the short term. The consequential risks to real estate owners of such factors are understood and the Board will continue to monitor the situation regarding any impact on its business.

The Board announced in the Trading Update on 6 April that, in consultation with shareholders, it was considering a range of strategic options to unlock further value in the business. We expect to update the market on the strategic options that we will pursue before the Annual General Meeting in July 2022. The Board remains committed to maximising value for shareholders and closing the current share price discount to NAV.

Steven Owen

Chairman

13 June 2022

OPERATIONAL REVIEW

SUMMARY OF THE YEAR

The Covid-19 pandemic dominated the period with the asset management team working tirelessly to maintain personal contact with most tenants. Where needed we provided financial support to deal with the drawn-out implications of lockdown and then readjustment as occupiers dealt with unforeseen circumstances.

The strategy for the year was threefold; to ensure we maintained our rent collection achieving 98% for the 12 months to 31 March 2022 (2021: 95%), secondly, to sell non-core assets which generated £31.5m at an average of 19% above the March 2021 book value and finally to reinvest in higher quality assets which aligned with our growing focus on ESG. Collectively, these actions have rebalanced the portfolio towards a more equal weighting of Core and Value-Add buildings.

ASSET MANAGEMENT

The pandemic placed a lot of focus on rent collection. We are proud of how we interacted with our tenants working with them to maintain income whilst supporting them where needed. More detail on this is provided in the financial review.

Despite the various restrictions during the period, we completed 55 lease events (2021: 31) totalling 319,000 sq ft (2021: 230,000 sq ft). This generated an additional £1.9 million of annualised net rental income. Lease activity and the associated reduction in non-recoverable property costs generated £3.0m of net income, along with income generated from acquisitions of £0.7m. These increases were offset by income lost through breaks and expiries of £0.6m and income lost through disposals of £1.2m. We are particularly pleased with three new lettings we achieved at our two leisure schemes (Sol, Northampton and Broad Street Plaza, Halifax) taking occupancy levels to 95% and 91% respectively. Overall, the portfolio EPRA occupancy has increased to 88.5% (2021: 86.4%).

We report in detail on our Disposal Strategy later in this report. The objective was to improve the portfolio's performance, recognise the importance of ESG criteria and at the same time rebalance the assets. The portfolio weightings are now 50% Core (2021: 28%) with the remainder focused on value-add strategies which have the potential to generate greater returns.

PORTFOLIO OVERVIEW

Following the recent disposal programme of carefully selected non-core assets, the portfolio now comprises 35 buildings, compared with 37 as at 31 March 2022 (2021: 48) with 164 occupiers (2021: 182), which is now higher quality, with improved EPC ratings, occupancy and increased weighting to Core assets.

Our diversified portfolio has had a focus on the office and industrial sectors, which make up 64% of the total holdings (increasing to 70% once the remaining Hudson Quarter residential apartments have been sold). The remainder comprises residential at 9% (HQ York), leisure at 14% and retail and retail warehousing at 13%.

Cushman and Wakefield independently valued the portfolio as at 31 March 2022 at £259.0m, which is 3.9% higher than 31 March 2021 on a like-for-like basis. The industrial sector performed the best, increasing by 20.8%, whilst our offices showed a small decline of 0.9%. The retail, retail warehousing and leisure properties increased in value by 2.8%.

	FY22	FY21
Portfolio value	£259.0m	£282.8m
Net initial yield	5.6%	5.6%
Reversionary yield	7.5%	7.3%
Contractual rental income	£15.9m	£16.4m
Estimated rental value	£19.4m	£20.6m
WAULT to break	4.7 years	4.8 years
EPRA vacancy rate	11.5%	13.6%

INVESTMENT STRATEGY

We identified (as part of an ongoing strategic review of all assets) a number of our buildings where business plans had been completed or income maximised. We anticipated that a number of these buildings would not meet our increasing ESG criteria without significant capital expenditure, which would not meet our return hurdles. We therefore embarked on a disposal strategy which would improve the portfolio's overall quality.

14 properties were sold for £31.5m at an average 19% premium to March 2021 book value, producing an 11% ungeared IRR from purchase, including any capital expenditure during the hold period. We continue to strategically review our portfolio and individual properties on an ongoing basis and anticipate further sales in the coming year. Having prioritised our cash during Covid-19, our disciplined acquisition strategy is focused on properties with good ESG credentials (or viable potential), in regional university towns and city centres, that are well positioned for future growth. In January 2022 we completed on the acquisition of 22 Market Street, an office building in the centre of Maidenhead at £10.25m reflecting a net initial yield of 6.83%. Newly refurbished with an EPC B rating, the building added £0.75m per annum with excellent potential for future rental growth. We continue to selectively identify new investment opportunities as we look to recycle further capital from the disposal programme and continuing residential sales at Hudson Quarter.

HUDSON QUARTER, YORK

Our flagship development in York was completed on 20 April 2021. It comprises 127 residential units and 39,000 sq ft of Grade A, BREEAM Excellent office space.

We sold 80 apartments (63%) during the year for a total of £27.4m, enabling full repayment of £26.5m development loan facility, eight months ahead of schedule. There remains strong interest from investors and occupiers with four further completions, seven under offer to the value of £2.9m and 36 remaining as at 13 June 2022. We expect this interest to continue as we target being fully sold by 31 March 2023.

The HQ office is the only newly speculatively developed office building within the historic city walls of York delivered this century. As anticipated, we have capitalised on the lack of competing stock with the letting success proving corporate tenants will pay the market rent for buildings which are high quality. We have let a total of 18,000 sq ft to Great Rail Journeys and Redcentric Solutions at an average rent of £26 per sq ft on ten year leases, surpassing the previously set record rent of £25 per sq ft with the letting to Knights Solicitors.

It is testament to the quality of the development, and those involved with its delivery, that Hudson Quarter has been recognised an exemplar development whilst it has also had a major positive impact in regenerating a key site within a sensitive and historic setting. It has been shortlisted in ten prestigious regional and national property awards, in both commercial and residential categories, winning three so far. The scheme was recognised as a "Gamechanger" at the Yorkshire Property Awards and by the RICS for Regional Development of the Year. We are also shortlisted for the Property Week residential awards.

The long term growth in York is positive with the redevelopment of York Station, known as York Central with plans for over 1m sq ft of office, retail and leisure properties and 2,500 homes. This is purported to be one of the largest regeneration projects in Europe covering 111 acres. With our property only two minutes' walk away from York Station, we expect this regeneration to be directly beneficial.

TOP 20 OCCUPIERS

Maintaining a close working relationship with all our tenants has been fundamental to our asset management strategy since inception. This groundwork meant we were able to engage with all our occupiers easily during the pandemic which ultimately protected our income.

Our top 20 tenants contribute 41% of our total passing rent and over the period we collected 100% of their rent.

Tenant	Location	Industry	Contracted Rent pa (£'000)
Vue Entertainment	Halifax & Northampton	Leisure	913
Techtronic Industries	Maidenhead	Power Tools	718^*
Rockwell Automation	Milton Keynes	Auto	544
Accor Hotels	Northampton	Hotel	510
National Lottery	Newcastle	Charity	487
Brose	Coventry	Auto	432
Exela Technologies	Harlow	Technology	424^**
Somerset Bridge	Newcastle	Insurance	409
Wickes	East Grinstead	Retail	401
Apcoa Parking	Halifax	Car Parking	345
Bravissimo	Leamington Spa	Retail	294
Great Rail Journeys	York	Tour Operator	293^***
Aldi	Gosport	Retail	291
Sutton Housing Partnership	Sutton	Local Authority	283
Quadrant Systems	Burgess Hill	Aviation	280
Calderdale and Huddersfield NHS Foundation Trust	Halifax	Health	262
Booker	Burgess Hill	Retail	246
BMI UK & Ireland	Milton Keynes	Construction	240
Bank of England	Leeds	Central Bank	232
Fedcap Employment	Brighton	Charity	219^***
		TOTAL:	7,823

^* Headline rent payable from March 2023

^** Headline rent payable from February 2025

^*** Headline rent payable from December 2022

ESG

The UK real estate market is increasingly conscious of the need for buildings and occupiers to fulfil sustainable criteria to reflect the Paris Accord net zero targets. We are embracing the issue and putting it at the centre of our business strategy and we have engaged with an external advisor to ensure we provide full transparency of the risks within our portfolio relating to achieving a net zero target.

Central to our strategy of building a sustainable and future proofed portfolio with asset and portfolio management strategies aligned, is improving our EPC ratings. Following implementation of this policy the minimum rating within the portfolio is E (with the exception of one listed property at F, 0.7% of portfolio). 88.8% of our EPC's are rated A - D (2021: 75.7%).

All asset management initiatives and capital expenditure are heavily focused on ESG benefits which as an example should reduce utility costs for occupiers.

New acquisitions undergo rigorous independent assessment of existing ratings to verify that they meet our ESG criteria.

ACQUISITIONS

In January 2022 we completed the acquisition of 22 Market Street, an office building in the centre of Maidenhead for £10.25m reflecting a net initial yield of 6.83%. Newly refurbished with an EPC B rating, the building added £0.75m per annum with excellent potential for future rental growth. The tenant, Techtronic Industries EMEA Ltd, a subsidiary of Hong Kong listed Techtronic Industries, completed the lease in April 2021 with this becoming their European HQ. With Maidenhead being located on the newly opened Elizabeth Line (Crossrail), new major town centre residential schemes have already been delivered and regeneration is continuing apace with the £500 million mixed use Nicholson Quarter scheme set to complete by 2025.

Richard Starr

Executive Property Director

13 June 2022

FINANCIAL REVIEW

FINANCIAL OVERVIEW

The Group increased adjusted profit before tax by 4.0% to £7.8m, and EPRA NTA per share by 11.4% to 390p. The successful execution of the business strategy over the past 12 months has seen the Group also grow the dividend, reduce LTV and increase cash reserves, whilst delivering a total accounting return (TAR) of 14.8%.

The increase in adjusted profit before tax to £7.8m is largely due to asset management lease activity and the reversal of the expected credit loss provision.

Adjusted earnings per share, which is used as the basis to distribute dividends, increased to 16.9p (2021: 16.4p), an increase of 3.0%. The dividend paid or declared increased by 26.2% to 13.25p (2021: 10.50p), which was 128% cash covered by earnings (2021: 156%).

The £5.0m (2021: £0.9m) profit on disposal of 14 commercial properties sold, the £3.8m realised profit on the sale of 80 residential units at Hudson Quarter and the fair value commercial property valuation gain of £8.2m (2021: £14.8m loss), contributed to the IFRS profit before tax of £24.6m (2021: £5.5m loss).

The fair value revaluation gain has been a result of the success of asset management initiatives driving rental growth and yield compression, as confidence returned to the market.

FINANCIAL HIGHLIGHTS

	2022	2021
Income growth
IFRS profit/(loss) before tax	£24.6m	(£5.5m)
Adjusted profit before tax	£7.8m	£7.5m
EPRA earnings	£7.4m	£7.2m
Basic EPS	53.1p	(12.0p)
EPRA EPS	16.0p	15.7p
Adjusted EPS	16.9p	16.4p
Dividend per share paid or declared	13.25p	10.5p
Dividend cover	128%	156%
Capital growth
Portfolio like-for-like value	3.9%	(4.0%)
Net Asset Value	£177.2m	£157.8m
Basic NAV per share	383p	343p
EPRA NTA per share	390p	350p
Total accounting return	14.8%	(1.2%)
Total property return	12.5%	1.0%
Total shareholder return	21.1%	38.5%

The summary of the Group financial results are as follows:

INCOME STATEMENT SUMMARY

	Current year £m	Prior year £m
Net property income	19.0	14.9
Trading profit	(3.8)	-
Net rental income	15.2	14.9
Administrative expenses (excl. SBP)	(4.4)	(4.1)
Net finance costs	(3.0)	(3.3)
Adjusted profit before tax	7.8	7.5
Gain/(loss) on revaluation of investment property portfolio	8.2	(14.8)
Profit on disposal of investment properties	5.0	1.0
Trading profit	3.8	-
Fair value gain/(loss) on interest rate derivatives	0.3	(0.3)
Corporation tax	(0.1)	-
Development loan interest	(0.2)	-
Share based payments	(0.1)	(0.3)
Loss on disposal of equity investments	(0.1)	-
Debt termination costs	(0.1)	(0.1)
Impairment of trading properties	-	0.8
Gain on listed equity investments	-	0.7
IFRS earnings	24.5	(5.5)

Net property income in the year increased by 27.5% to £19.0m (2021: £14.9m). This was driven by the £3.8m trading profit from the sale of residential units at Hudson Quarter. Increased rental income generated from significant lease activity and the acquisition of Maidenhead was offset by income lost due to the timing of disposals in the year.

Non-recoverable property costs increased to £2.6m in the year (2021: £1.5m), driven largely by the introduction of vacancy costs on the completion of Hudson Quarter offices. The Group's EPRA cost ratio (excluding non-recoverable property costs) reduced to 24.4% (2021: 30.6%) but including non-recoverable property costs marginally increased to 39.4% (2021: 39.2%). The total expense ratio was 1.6% (2021: 1.4%). Administrative costs (excluding share-based payments) increased to £4.4m (2021: £4.1m). The increase was due to the recruitment of a new chairman, appointment of an ESG consultant and an increase in compliance, regulatory, advisory and payroll costs. Finance costs reduced by 3.0% to £3.2m (2021: £3.3m), which was driven by the reduction in Group debt repaid throughout the year.

In accordance with IFRS 9, in relation to the expected credit loss, we have assessed the risk of recoverability of our rental arrears. We reversed £0.4m of rental arrears from trade receivables to the income statement in the financial period. This was due to an improved assessment of risks, as rent collection returned to pre-pandemic levels and tenant financial covenant health improved as the economy recovered.

	Quarter starting Mar 21 £m	Quarter starting Jun 21 £m	Quarter starting Sep 21 £m	Quarter starting Dec 21 m	Year ended 31 Mar 22 m
Total demanded	4.1	4.2	4.2	3.9	16.4
Total collected	3.9	4.2	4.1	3.8	16.0
Concessions/deferrals	0.1	-	-	-	0.1
Outstanding excluding payment plans	0.1	-	0.1	0.1	0.3
Current collection rates	98%	99%	98%	98%	98%

The March 2022 quarter rent collection rates remain robust at 98%, displaying a continuation of the strong rent collection seen throughout the year.

SHAREHOLDER VALUE

EPRA NTA increased by 40 pence per share or 11.4% to 390p (2021: 350p) during the year. This was driven largely due to the revaluation surplus of £8.2m, or 17.7 pence per share, the profit on disposal of non-core assets of £5.0m, or 10.7 pence per share and the £3.8m profit on completion of the 80 Hudson Quarter residential units in the year, or 8.2 pence per share. Net adjusted earnings, after dividends paid contributed an additional 5.2 pence per share.

The EPRA NTA return for the year, including dividends paid in the year, was 51.7 pence per share or 14.8% (2021: minus 1.2%). It remains a key focus of the Company to reduce the share price discount to EPRA NAV.

EPRA NTA Movement

	£m	Pence per share
EPRA NAV AT 31 MARCH 2021	161.3	350
Adjusted earnings before tax	7.8	16.9
Property revaluation movements	8.2	17.7
Disposal of non-core assets	5.0	10.7
Trading property profit	3.8	8.2
Fair value adj. of trading properties	1.0	2.0
Shares issued	0.1	(1.0)
Cash dividends paid	(5.4)	(11.7)
Derivative costs	(0.7)	(1.5)
Taxation	(0.1)	(0.3)
Development loan interest	(0.2)	(0.4)
Sale of listed equity investment	(0.1)	(0.3)
Debt termination costs	(0.1)	(0.3)
EPRA NAV AT 31 MARCH 2022	180.6	390

FINANCING

It has been a core discipline, since the start of the pandemic, that the Group maintains an appropriate capital structure. The support from our banks has ensured that we have remained covenant compliant on all facilities over the past 12 months, with only a waiver obtained in April 2021 for the Scottish Widows facility.

The Group's drawn debt reduced by £26.5m to £101.8m at year end (2021: £128.3m). There were two facilities due to mature within one year. Post year end, the Group refinanced the facility with Santander, reducing the margin from 2.5% to 2.2% on a new five year facility, whilst also extending the current debt facility with Lloyds for a further year until March 2024. The average debt maturity decreased to 1.9 years (2021: 2.6 years), though this has extended post year end to 2.9 years as at 13 June 2022 on the refinancing of the two facilities stated above.

Since November, all disposal proceeds from the Hudson Quarter residential scheme have enhanced cash reserves. At 31 March 2022 the Group's cash and cash equivalents was £28.1m (2021: £9.4m). This included £5.0m drawn from the NatWest revolving credit facility. As at 10 June 2022, the cash balance was £22.7m, excluding the £5.0m available to immediately draw from the NatWest revolving credit facility, which was repaid post year end.

Net debt at 31 March 2022 was £73.6m (2021: £118.9m) which resulted in a significant reduction in the loan to value (LTV) ratio to 28% at the year-end (2021: 42%). The main driver was the repayment of the outstanding development loan facility of £20.6m with Barclays, which was paid eight months ahead of schedule in November 2021, and the repayment of £15.7m of debt from the proceeds of the disposal program announced at the beginning of the FY22 financial year. The total cost of debt increased slightly to 3.2% (2021: 3.0%).

Set out below is a table showing the movement in gross debt during the year:

	2022 £m
Drawn debt at 31 March 2021	128.3
Repayment of development loan	(20.6)¹
Repayment of debt through disposals	(15.7)
Amortisation of loans	(1.7)
Debt drawdown	11.5
Drawn debt at 31 March 2022	101.8

1. At 31 March 2022 the development loan balance was £20.4m and during the year a further £0.2m of loan interest was capitalised.

There have been no new debt facilities in the year. Given the economic climate of increasing inflation, with interest rates expected to rise, we continue to monitor swap rates. At the 31 March 2022 we held £61.4m of fixed or hedged debt (2021: £62.6m), which was 60% of overall drawn debt (2021: 49%), as shown in the table below:

DEBT

	Fixed £m	Floating £m	Total drawn £m	Years to maturity
Barclays	33.8	(4.6)	29.2	2.2
NatWest	-	32.0	32.0	2.4
Santander	18.6	6.2	24.8	0.3
Lloyds	-	6.8	6.8	0.9
Scottish Widows	9.0	-	9.0	4.3
	61.4	40.4	101.8	1.9

The Group's key debt metrics are summarised in the table below:

DEBT METRICS

	31 March 2022	31 March 2021
Net loan to value ratio	28%	42%
Debt drawn	£101.8m	£128.3m
Total fixed debt	£61.4m	£62.6m
Average cost of debt	3.2%	3.0%
Average debt maturity (yrs)	1.9yrs	2.6yrs
Post year end average debt maturity (yrs)	2.9yrs	-
Net interest cover	3.9x	3.7x
NAV gearing	41%	74%

Matthew Simpson

Chief Financial Officer

13 June 2022

RISK MANAGEMENT

RISK FRAMEWORK

The Board has overall responsibility for ensuring that an effective system of risk management and internal control exists within the business and confirms that it has undertaken a robust assessment of the Group's emerging and principal risks and uncertainties.

Risk management is an inherent part of the Board's decision making process. This is then embedded into the business and its systems and processes. The Board reviews its overall risk appetite and regularly considers, via the Audit and Risk Committee, the principal risks facing the company, managements plans for mitigating these and emerging risks. The Committee also considers, at least annually, the effectiveness of the Company's system of risk management and internal control. Further information on the work of the Committee in this area is available in the Audit and Risk Committee report in the Report and Accounts.

Our approach to risk identification and our open and supportive culture means that asset managers and key individuals in the finance team are able to report directly and at an early stage on issues, allowing management to take appropriate mitigating action.

COVID-19

A number of risks were heightened as a result of the Covid-19 pandemic. Although these have thankfully reduced over time, we kept matters under regular consideration by the Board and management on, for example, rent collection, compliance with banking covenants and the overall approach to tenant engagement.

EMERGING RISKS INCLUDING CLIMATE CHANGE

A prolonged bout of Covid-19, new variants or further pandemics may lead to further imposition of controls on the movement of people and interruption of large parts of the economy for a significant period. This could result in further economic disruption with continued uncertainty, reduced market confidence, volatile market valuations and pressure on our rental income.

Cyber threats, technological advancements and the potential impact on operations are increasing for all businesses and were further heightened as working from home became vital in the fight against Covid-19. We took steps to increase our security measures and continue to review ways in which we can further mitigate the risk to our network and data.

Climate change is a local and global issue which presents both risks and opportunities to the commercial real estate market, with the potential to adversely impact the macroeconomic environment as well as our own operations and those of our supply chain. Demand for sustainable buildings is increasing across all stakeholder groups with evolving regulation in the built environment. Like many other companies, we have determined that Climate Change is now a Principal Risk. The Board's ESG Committee is tasked with overseeing the Group's response to climate change and further information can be found in the Report and Accounts.

GOING CONCERN STATEMENT

The Directors regularly assess the Group's ability to continue as a going concern. The Strategic Report sets out in detail the Group's financial position, cash flows, liquidity position, borrowing facilities and the factors which will affect future performance. Given the ongoing economic disruption and uncertainty caused by rising inflation and rising interest rates, the assessment of the Group's ability to continue in operation has been undertaken, with due consideration given to the Group's cash resources, borrowing facilities, rental income, acquisitions and disposals of investment properties, committed capital expenditure, Hudson Quarter sales and dividend distributions.

DOWNSIDE SCENARIO

The Directors have considered various downside scenarios in assessing the Groups' ability to continue as a going concern. Sensitivity analysis and reverse stress testing were undertaken on all these scenarios, to assess the impact on the business and in particular the loan covenants.

The downside scenario assumptions used in the assessment included:

• 15% reduction in rent collection from our two leisure assets

• 2% increase in SONIA interest rate from current levels

• Sales progression at Hudson Quarter, York is significantly reduced

• Cash reserves are used to repay debt/cure bank facility covenants in the event of covenant breaches

LIQUIDITY

At 31 March 2022 the Group had £28.1m of cash and cash equivalents. The fair value of our property portfolio is £259.0m, with £101.8m debt drawn at 31 March 2022 with net assets of £177.2m. The Group increased its total annual dividend paid or declared for the year by 26.2% to 13.25p, fully covered from rental income. The Group has conservative gearing and reduced its gearing from 42% to 28% during the year as a result of its disposal strategy and strong Hudson Quarter residential apartment sales. The outstanding development facility of £20.6m at the start of the year was repaid in full, eight months ahead of schedule. There is a clear sales strategy at Hudson Quarter, York for the remaining residential apartments, which is expected to deliver significant cash into the Group over the next 12 months.

RENT COLLECTION

Rent collection has been resilient throughout the pandemic, and this has continued to be resilient as we return to normality. We have collected 98% of all rents demanded for the year ending 31 March 2022. On a quarterly basis, we have increased the cash collected compared to each prior period comparative quarter through the year. The high collection rate has continued into the new financial year with 98% collected for the March 2022 rent demands, which we expect to climb higher as the quarter progresses.

During the financial year we have given £0.1m of rent concessions to tenants who have struggled to satisfy their rents. This is down from £1.1m in the prior year, underpinning the strength of our tenant base. We also released £0.4m of ECL provision as a result of collecting a high proportion of our rents.

A fundamental area of our business is to collect our rents, and having gone through a global pandemic where the economy effectively shut down, we are buoyed by our strong rent collection statistics over the past two years and we are positive that we will continue this high rent collection in the future.

BANK FACILITIES EXPIRING WITHIN THE GOING CONCERN PERIOD

The following facilities were due to expire within the going concern period and thus are classified as current liabilities on the Balance Sheet:

Santander facility

The Santander facility is cross collateralized across three assets in Newcastle, Manchester and Northampton. The current loan balance is £24.8m and the carrying value of the asset is £48.3m. This loan was due to mature on 3 August 2022. On 27 May 2022, the Group refinanced this loan facility in full for a further five years, therefore this falls outside the going concern period and the three year viability period. The margin on this new facility has decreased from 2.5% to 2.2%, providing increased headroom on the ICR covenants.

Lloyd's facility

The Lloyds facility is secured by an office and retail asset at One Derby Square in Liverpool. The current loan balance is £6.8m and the carrying value of the asset is £13.2m. This loan was due to mature on 7 March 2023. On 13 April 2022, the Group took the option to extend the loan by one year, therefore maturing on 7 March 2024. This falls outside the going concern period but falls within the three year viability assessment.

DEBT COVENANTS / STRESS TESTING

Our lenders have remained supportive as the economic climate has improved as the economy learns to live with the pandemic. We continually assess our rent receipts and outstanding arrears. We engage with our lenders ahead of potential breaches in covenants based on our continuous review of our covenant headroom.

All covenants were compliant during the year or waivers obtained. A waiver was obtained in April 2021 for the Scottish Widows facility which came under pressure as rent concessions or deferrals were still in the process of being agreed. Due to the high rent collection during the year, there was considerable headroom on all other banking covenants. This is expected to continue as we collect a high proportion of rents.

The going concern assessment of debt covenants considered the prospect of the downside scenarios stated above. The Directors undertook reverse stress testing to confirm the resilience of the covenants, including a 15% reduction in rental collection from our two leisure assets, 75% of tenants vacating on break clauses and 75% vacating on lease expiry on all assets, as well as an increase in the SONIA interest rate. Given the current inflationary pressures, this has created uncertainty in interest rate increases. A 2% increase in SONIA interest rates from current levels was modelled as part of the downside assessment. The current SONIA rate is just below 1% therefore a 3% SONIA interest rate was applied throughout the whole period of the assessment. As the current SONIA interest rate is just below 1%, the rate would need to increase to roughly 5% in order to average 3% for the assessment period. The downside was modelled to assess the impact on the covenants, especially interest cover rations (ICR), debt service cover ratios (DSC) and loan to value ratios (LTV). We considered the credit rating and financial position of key tenants as part of the exercise and the potential impact they could have on the loan covenants. The downside scenario only placed pressure on one loan facility. If in the unlikely event this would happen, the Directors have the option to sell assets and repay part of the proceeds to the debt facilities and mitigate this risk by increasing the headroom on ICR covenants.

In addition, another downside scenario was considered using the same assumptions as above, except for assuming the largest five tenants within our portfolio only pay half of their rents over the next 12 months. This would place even further pressure on the covenants, however, this can be mitigated with a similar cure as indicated in the previous assessment.

We have significant headroom on our LTV covenants tests, meaning if values fell 20% we would only need £3.6m to cure any breaches across the debt portfolio. During the year the Group repaid £15.7m of bank debt, excluding the development facility in which £20.6m was repaid. This has provided us further headroom on our LTV covenants. The Scottish Widows facility of £9.0m, which is the smallest loan facility within the Group, has the lowest headroom of 8.1%, which means the value would need to fall by £1.4m before a potential covenant breach.

Should we breach any of our loan covenants, our working capital model provides evidence that the Group has sufficient capital to cure any loan breach without lender support through covenant waivers. The Group can also access additional capital through liquidating various assets which are not secured to lenders though this remedy is not required in the stress test sensitivities undertaken. In addition, the debt across the Group is secured on a bilateral basis between SPV and bank, therefore the liability is contained within the SPV and the Group has alternative options to generate liquidity to settle its debt obligations as they fall due and therefore continue as a going concern.

GOING CONCERN STATEMENT

Based on the analysis undertaken of the reasonable downside scenarios and the subsequent sensitivity analysis and stress testing, the Group has sufficient liquidity to meet its ongoing liabilities that fall due over the assessment period. Great consideration has been given to the impact on our liquidity, loan covenants and the mitigating actions available to the Group to ensure that the Company has adequate resources to continue in operational existence for a period of at least 12 months. Given the market information available, the Directors are not aware of any material uncertainty that exists that may cast doubt upon the Group's ability to continue as a going concern. As a result, the Directors consider it appropriate to continue to prepare the financial statements on a going concern basis.

VIABILITY STATEMENT

In accordance with provision 31 of the UK Corporate Governance Code and taking into consideration the current economic uncertainty, the Directors have assessed the prospects of the Group and future viability over a three-year period from the year end, being longer than the 12 months required by the "Going Concern" provision.

The Board's assessment of the Group's viability for the next three years has been made with reference to:

• The impact of the current economic uncertainties and resulting impact on the Group and our tenants' ability to operate and meet their rental obligations.

• The key principal risks of the business and its risk appetite.

• The Group's long-term strategy.

• The impact on business operations, mainly rent collection, rising interest rates and progress on residential sales at Hudson Quarter, in the event of a downturn in the economy.

• The Group's current position and its ability to meet future financial obligations to remain covenant compliant.

ASSESSMENT OF REVIEW PERIOD

The Board considers a period of three years to be appropriate over which to assess the long-term viability of the Company for the following reasons:

• The Group's working capital model, detailed budgets and cash flows consist of a rolling three-year forecast.

• It reflects the short cycle nature of the Group's developments and asset management initiatives.

• This is the period in which the investment team assesses individual asset performance.

• Office refurbishments completed to date have taken less than 12 months.

• The Group's weighted average debt maturity at 31 March 2022 was 1.9 years - this has increased to 2.9 years post year end following the refinancing of the Santander facility and the extension of the Lloyds facility.

• The Group's WAULT at 31 March 2022 was 4.7 years.

STRESS TESTS & DOWNSIDE

The Directors have undertaken a robust scenario assessment of the principal risks which could threaten the viability or the operational existence of the Group. As part of the downside modelling, we reverse stress-tested our working capital model and cash flows to understand the impact of our principal risks including rising inflation and interest rates, the impact of the increased cost of living on our tenants, the ability to meet our debt covenants, execute our sales strategy at our completed development and refinance our debt facilities.

The Group's downside forecasts and projections took into consideration a) reasonable potential reduction in rent collection from tenants with increased number of tenants vacating at lease break and expiry; b) a reduction in forecasted residential sales at our completed development; c) increased SONIA rates; d) reverse stress testing of the Group's debt facilities and liquidity headroom; and e) our ability to refinance our Lloyds, NatWest, and Barclays facilities during the viability period.

The debt covenants were reverse stress-tested beyond the 12-month going concern period to allow for changes to banking covenants over the three-year viability period based on the scenarios above. If there was an economic downturn, ICR, DSC and LTV covenants could come under pressure. If covenant waivers were not obtained for a covenant breach, we would utilise cure rights and use additional liquidity if available. The Directors have considered further actions that could be taken to mitigate any negative cash flow impact and ensure additional liquidity. The Directors have assumed the Barclays, NatWest and Lloyds facilities due to mature within the viability period will be refinanced as positive discussions with the banks have already taken place. In the event that one or more of the loan facilities could not be refinanced, the Directors would dispose of the assets at a discount and repay the bank debt which would release substantial capital into the Group to help mitigate against other downside scenario impacts. As a result, the Company will continue to operate in accordance with its existing bank covenants with a smaller property portfolio.

CONFIRMATION OF VIABILITY

Having assessed the current position of the Group, its prospects and principal risks and taking into consideration the assumptions stated above, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the next three years.




STRATEGIC RISKS		FINANCIAL RISKS
01 MARKET CYCLE	02 ECONOMIC AND POLITICAL	03 CAPITAL STRUCTURE
Risk description Failure to react appropriately to changing market conditions and adapt our corporate strategy could negatively impact shareholder returns. Failure to close the NAV gap could lead to increased shareholder activism and make the Company a target for a hostile takeover.	Risk description Uncertainty from Covid-19 and other world events (including Brexit, rising inflation, rising interest rates, cost of living crisis) could impact economic growth, weakening demand for our tenants and the profitability of their businesses. Decisions made by Government and local councils can have a significant impact on our ability to extract value from our properties.	Risk description An inappropriate level of gearing or failure to comply with debt covenants or manage re-financing events could put pressure on cash resources and lead to a funding shortfall for operational activities.
Mitigation The Board monitors market indicators and reviews the Group's strategy and business objectives on a regular basis. It will tailor the delivery of the Company's strategy in light of current and forecast market conditions. Management continues to take action to close the NAV gap including corporate and property activities.	Mitigation Underlying Government support for the regions and levelling up bodes well for the markets in which we operate outside London. Further, through the use of consultants and experts we can anticipate key planning and development policies and consider how these may impact our activities. Management continues to build on strong relationships with key stakeholders such as our tenants and banks, so in the event of an economic downturn, we can ensure any adverse impact is minimised.	Mitigation The Board regularly reviews its capital risk management policy, gearing strategy and debt maturity profile. Gearing is maintained at an appropriate level and hedging is utilised to reduce exposure to interest rate volatility. Management maintain close relationships with key lenders. Assets are purchased that generate surplus cash and significant headroom on all loan covenants.
Current position The Board regularly reviews market indicators and the Group's strategy and business objectives. It will tailor the delivery of the Company's strategy in light of current and forecast market conditions. Management continues to take action to close the NAV gap.	Current position Our budgets reflect current trading conditions. The markets in which we operate, including government actions and economic activity are regularly reviewed.	Current position The Group's weighted average debt maturity is currently 1.9 years, rising to 2.9 years following the refinancing post year end. The Group's LTV has decreased from 42% to 28% with a downward trajectory. The Board's target LTV is <40%.
Likelihood after mitigation Score 1 (low) - 10 (high) 5	Likelihood after mitigation Score 1 (low) - 10 (high) 5	Likelihood after mitigation Score 1 (low) - 10 (high) 5
Impact after mitigation Score 1 (low) - 10 (high) 7	Impact after mitigation Score 1 (low) - 10 (high) 7	Impact after mitigation Score 1 (low) - 10 (high) 5
Overall Risk Rating Score 1 (low) - 20 (high) 12	Overall Risk Rating Score 1 (low) - 20 (high) 12	Overall Risk Rating Score 1 (low) - 20 (high) 10

LIQUIDITY

PORTFOLIO STRATEGY

ASSET MANAGEMENT

Risk description

Increasing costs of borrowing and increasing interest rates could affect the Group's ability to borrow or reduce its ability to repay its debts

Risk description

An inappropriate investment and development strategy that is not aligned to overall corporate purpose objectives, economic conditions, or tenant demand may result in lower investment returns

Risk description

Failure to implement asset business plans and elevated risks associated with major development or refurbishment could lead to longer void periods, higher arrears and overall investment performance, adversely impacting returns and cashflows.

Mitigation

Undrawn bank facilities are in place to ensure sufficient funds are available to cover potential liabilities arising against projected cashflows. The Board reviews financial forecasts on a regular basis, including sensitivity against financial covenants. The Audit and Risk Committee considers the going concern status of the Group bi-annually.

Mitigation

The Board regularly reviews the Group's investment strategy and asset allocation to ensure this is aligned to the overall corporate strategy. Every proposed corporate or property acquisition requires Investment Committee approval, before final approval from the Board. Our regional model ensures no exposure to London. Property returns are benchmarked against the MSCI IPD index and performance against the benchmark is reviewed formally at the half year end and year end.

Mitigation

The process for reviewing asset business plans is embedded in the annual budget process. The Group's Capital Risk Management Policy limits development expenditure to <25% of Gross Asset Value and the core portfolio generates sustainable cash flows. Our experienced management team with vast networks and use of advisors and property managers supports the execution of asset management strategies. Our active management approach and new investment modelling system ensures we can monitor and analyse our cash flows, income streams and monitor the impact of vacant space on returns.

Current position

The Barclays development facility has been repaid. The Santander facility has been refinanced after year end on a new five year term at a reduced margin. There is a threat of rising interest rates and inflation.

Current position

Rebalancing of the portfolio towards a core weighting with a focus on office and industrial assets. No single asset comprises more than 10% of the portfolio's value.

Current position

Our development and refurbishment pipeline is continuously assessed to ensure the right projects are being brought forward at appropriate times ensuring exposure at any one time is limited.

Likelihood after mitigation
Score 1 (low) - 10 (high)

Impact after mitigation
Score 1 (low) - 10 (high)

Overall Risk Rating
Score 1 (low) - 20 (high)

PORTFOLIO RISKS OPERATIONAL RISKS

VALUATION

TENANT DEMAND
AND DEFAULT

BUSINESS CONTINUITY AND CYBER SECURITY

Risk description

Decreasing capital and rental values could impact the Group's portfolio valuation leading to lower returns.

Risk description

Failure to adapt to changing occupier demands and/or poor tenant covenants may result in us losing significant tenants, which could materially impact income, capital values and profit.

Risk description

Business disruption as a result of physical damage to buildings, Government policy and social distancing measures implemented in response to pandemics, cyber attacks or other operational or IT failures or unforeseen events may impact income and profits.

Mitigation

Independent valuations are undertaken for all assets at the half year end and year end. These are reviewed by management and the Board. Members of the Audit and Risk Committee meet with the valuers at least once a year to discuss valuations and the valuation process. Management actively review leases, tenant covenants and asset management initiatives to grow capital and rental values.

Mitigation

The Board regularly reviews the portfolio's overall tenant profile and sector diversification. Tenant diversification is high with no tenant making up more than 10% of total rental income. Management maintain close relationships with tenants, understanding their needs and supporting them throughout their business cycle. Managing agents support rent collection on a regular basis. Tenant due diligence and credit checks are undertaken on an ongoing basis to review covenant strength of existing and prospective tenants. Our ESG strategy focuses on our stakeholder needs and ensuring sufficient Board oversight and time is spent responding to tenant interests.

Mitigation

Our governance structure and internal control systems ensure sufficient Board oversight, with delegated responsibilities, segregation of duties and clear authorisation processes. A comprehensive programme of insurance is in place which covers buildings, loss of rent, cyber risks, Directors' and Officers liability and public liability. Antivirus software and firewalls protect IT systems and data is regularly backed up.

Current position

Valuations are up on a like-for-like basis and the market is showing signs of correction following the pandemic impact. The ongoing disposal programme has improved the overall performance of the portfolio by removing those that are low performers or where asset management initiatives have been completed.

Current position

Loss of income from tenant administrations and CVAs is less than 1% of portfolio contracted income. Rent concessions have been honoured and collection rates remain in excess of 98% per quarter. The biennial Tenant survey was reported to the board at the December 2021 meeting. Major refurbishments at Newcastle and Northampton during the year have incorporated ESG considerations.

Current position

Our business interruption processes were well tested following the move to working from home in response to the Covid-19 pandemic. The Board continues to review the internal control environment and ensure good governance practices are adopted throughout the business. Cyber security arrangements have been kept under regular review to ensure we are deploying the most up to date technologies.

Likelihood after mitigation Score
1 (low) - 10 (high)

Impact after mitigation
Score 1 (low) - 10 (high)

Overall Risk Rating
Score 1 (low) - 20 (high)

ENVIRONMENTAL, SOCIAL AND GOVERNANCE RISKS

PEOPLE

CLIMATE CHANGE

REGULATORY AND TAX

Risk description

An inability to attract or retain staff and Directors with the right skills and experience or failure to implement appropriate succession plans may result in significant underperformance or impact the overall effectiveness of our operations.

Risk description

Failure to anticipate and prepare for transition and physical risks associated with climate change including increasing policy and compliance risks associated with existing and emerging environmental legislation could lead to increased costs and the Group's assets becoming obsolete or unable to attract occupiers.

Risk description

Non-compliance with the legal and regulatory requirements of a public real estate company, including the REIT regime could result in convictions or fines and negatively impact reputation.

Mitigation

We engage with staff regularly and encourage a positive working environment. We maintain an attractive reward and benefits package and undertake regular performance reviews for each employee. The Workforce Advisory Panel provides a forum that allows direct feedback to the Board on employee related matters. Succession planning is a regular agenda item for the Nominations Committee.

Mitigation

The Group's ESG Committee oversees the execution of ESG related matters and ensures these are integrated into our business model and corporate strategy. Climate related risks are considered as part of our overall corporate risk assessment and ongoing environmental management of our buildings. Major refurbishment projects include environmental considerations to ensure buildings are maintained to current standards.

Mitigation

The Company employs experienced staff and external advisers to provide guidance on key regulatory, accounting and tax issues. Compliance with the REIT regime is regularly monitored by the Board and the Executive team will consider the impact on the regime as part of their decision making.

Current position

A competitive employment market and inflationary pressures are driving increased pay and a review of benefits to ensure attraction and retention of individuals with the skills, knowledge and experience required. The Group's headcount is stable with sufficient cover if any key personnel are unavailable. The Workforce Advisory Panel continues to enhance employee engagement and ensure the Board understands the views of the whole workforce. A flexible working model continues following the pandemic.

Current position

There has been an increased focus on environmental management and climate change is now considered to be a principal risk. A TCFD working Group was established during the year whose work will support the identification of climate-related risks and potential financial impacts. An initial warming scenario has already been analysed. Major refurbishments at Newcastle and Northampton during the year have incorporated ESG considerations.

Current position

Emerging corporate governance and audit reforms may lead to considerable changes to the financial reporting process, requiring additional processes and procedures to be put in place and additional reporting on the Company's resilience. The Audit and Risk Committee and Board are monitoring these changes.

Likelihood after mitigation Score
1 (low) - 10 (high)

Impact after mitigation
Score 1 (low) - 10 (high)

Overall Risk Rating
Score 1 (low) - 20 (high)

Statement of

Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law, the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted pursuant to Regulation (EC) No 1606/2002 as it applies to the European Union, and have elected to prepare the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and the Company for the period. In preparing each of the Group and Company financial statements the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• for the Group financial statements, state whether they
have been prepared in accordance with international accounting standards in conformity with the requirements
of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies to the European Union, subject to any material departures disclosed and explained in the financial statements;

• for the Company financial statements, state whether they have been prepared in accordance with UK GAAP, subject to any material departure disclosed and explained in the parent company financial statements;

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent Company will continue in business; and

• under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulations.

They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

DIRECTORS' RESPONSIBILITIES STATEMENT

The Directors confirm to the best of their knowledge:

• the financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and Article 4 of the IAS Regulation, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation as a whole;

• the Strategic Report includes a fair review of the development and performance of the business and the financial position of the Company and the undertakings included in the consolidation as a whole, together with a description of the principal risks and uncertainties that they face; and

• the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group's and Company's performance, business model and strategy.

On behalf of the Board

Phil Higgins

Company Secretary

FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2022

	Note	2022 £'000	Restated* 2021 £'000
Revenue	1	49,064	22,242
Cost of sales	3b	(30,408)	(6,426)
Movement in expected credit loss	13	360	(949)
Net property income		19,016	14,867
Dividend income from listed equity investments		64	72
Administrative expenses	3c	(4,623)	(4,347)
Operating profit before gains and losses on property assets, listed equity investments and cost of acquisitions		14,457	10,592
Profit on disposal of investment properties		4,946	905
Gain/(loss) on revaluation of investment property portfolio	9	8,222	(14,750)
Reversal of impairment	10	-	763
Loss on disposal of listed equity investments		(80)	-
Gain on revaluation of listed equity investments	11	-	709
Operating profit/(loss)		27,545	(1,781)
Finance income		-	1
Finance expense	2	(3,196)	(3,347)
Debt termination costs		(63)	(140)
Changes in fair value of interest rate derivatives		329	(265)
Profit/(loss) before taxation		24,615	(5,532)
Taxation	5	(67)	(1)
Profit/(loss) after taxation for the year and total comprehensive income attributable to owners of the Parent		24,548	(5,533)
Earnings per ordinary share
Basic	6	53.1p	(12.0p)
Diluted	6	53.0p	(12.0p)

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

Consolidated Statement of Financial Position

as at 31 March 2022

	Note	2022 £'000	2021 £'000
Non-current assets
Investment properties	9	232,717	235,854
Listed equity investments at fair value	11	-	3,249
Right of use asset	12	17	165
Property, plant and equipment	12	45	71
		232,779	239,339
Current assets
Trading property	10	20,287	42,719
Trade and other receivables	13	7,412	9,764
Cash and cash equivalents	14	28,143	9,417
		55,842	61,900
Total assets		288,621	301,239
Current liabilities
Trade and other payables	15	(8,912)	(12,908)
Borrowings	17	(32,749)	(21,853)
Lease liabilities for right of use asset	20	-	(154)
Derivative financial instruments	16	(47)	-
Creditors: amounts falling due within one year		(41,708)	(34,915)
Net current assets		14,134	26,985
Non-current liabilities
Borrowings	17	(68,488)	(105,432)
Deferred tax liability	5	(143)	(228)
Lease liabilities for investment properties	20	(1,078)	(1,804)
Derivative financial instruments	16	-	(1,029)
Net assets		177,204	157,831
Equity
Called up share capital	21	4,639	4,639
Treasury shares		(717)	(1,288)
Merger reserve		3,503	3,503
Capital redemption reserve		340	340
Capital reduction reserve		125,019	125,019
Retained earnings		44,420	25,618
Equity - attributable to the owners of the Parent		177,204	157,831
Basic NAV per ordinary share	7	383p	343p
Diluted NAV per ordinary share	7	383p	342p

These financial statements were approved by the Board of Directors and authorised for issue on 13 June 2022 and are signed on its
behalf by:

MATTHEW SIMPSON

Chief Financial Officer

Consolidated Statement of Changes in Equity

for the year ended 31 March 2022

	Note	Share Capital £'000	Share Premium £'000	Treasury Share Reserve £'000	Other Reserves £'000	Capital Reduction Reserve £'000	Retained Earnings £'000	Total Equity £'000
At 31 March 2020		4,639	125,019	(1,349)	3,843	-	34,196	166,348
Total comprehensive income for the year		-	-	-	-	-	(5,533)	(5,533)
Share-based payments	22	-	-	-	-	-	300	300
Exercise of share options		-	-	61	-	-	(61)	-
Issue of deferred bonus share options		-	-	-	-	-	171	171
Dividends paid	8	-	-	-	-	-	(3,455)	(3,455)
Transfer to capital reduction reserve account		-	(125,019)	-	-	125,019	-	-
At 31 March 2021		4,639	-	(1,288)	3,843	125,019	25,618	157,831
Total comprehensive income for the year		-	-	-	-	-	24,548	24,548
Share-based payments	22	-	-	-	-	-	162	162
Exercise of share options		-	-	571	-	-	(571)	-
Issue of deferred bonus share options		-	-	-	-	-	90	90
Dividends paid	8	-	-	-	-	-	(5,427)	(5,427)
At 31 March 2022		4,639	-	(717)	3,843	125,019	44,420	177,204

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.

Treasury shares represents the consideration paid for shares bought back from the market.

Other reserves comprise the merger reserve and the capital redemption reserve.

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 capital redemption reserve represents the nominal value of cancelled preference share capital redeemed.

The capital reduction reserve represents distributable profits generated as a result of the share premium reduction.

Consolidated Statement of Cash Flows

for the year ended 31 March 2022

	Note	2022 £'000	Restated* 2021 £'000
Operating activities
Profit/(loss) before taxation		24,615	(5,532)
Finance income		-	(1)
Finance expense	2	3,196	3,347
Changes in fair value of interest rate derivatives		(329)	265
(Gain)/loss on revaluation of investment property portfolio	9	(8,222)	14,750
Profit on disposal of investment properties		(4,946)	(905)
Reversal of impairment of trading properties	10	-	(763)
Loss on disposal of listed equity investments		80	-
Gain on revaluation of listed equity investments	11	-	(709)
Debt termination costs		63	140
Depreciation of tangible fixed assets	12	48	46
Amortisation of right of use asset	12	148	148
Share-based payments	22	162	300
Decrease in receivables		2,289	491
Decrease in payables		(2,929)	(291)
Decrease/(increase) in trading property		21,972	(14,646)
Net cash generated from operations		36,147	(3,360)
Interest received		-	1
Interest and other finance charges paid		(3,417)	(3,575)
Corporation tax paid in respect of operating activities		(48)	(1,174)
Net cash flows from operating activities		32,682	(8,108)
Investing activities
Purchase of investment properties		(9,870)	-
Capital expenditure on refurbishment of investment property		(6,519)	(2,425)
Capital expenditure on developments		-	(4,131)
Proceeds from disposal of investment property		31,221	5,290
Amounts transferred from restricted cash deposits	14	-	1,020
Disposal of non-current asset - equity investment		3,169	-
Dividends from listed equity investments		64	72
Purchase of property, plant and equipment	12	(22)	(16)
Net cash flow used in investing activities		18,043	(190)
Financing activities
Bank loans repaid	19	(38,033)	(11,363)
Proceeds from new bank loans	19	11,472	18,916
Loan issue costs paid	19	(11)	(282)
Dividends paid	8	(5,427)	(3,455)
Net cash flow from financing activities		(31,999)	3,816
Net increase/(decrease) in cash and cash equivalents		18,726	(4,482)
Cash and cash equivalents at beginning of the year		9,417	13,899
Cash and cash equivalents at the end of the year	14	28,143	9,417

Notes to the Consolidated Financial Statements

BASIS OF ACCOUNTING

Basis of preparation

These preliminary results have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the UK Financial Conduct Authority and in accordance with International Accounting Standards, in conformity with the requirements of the Companies Act 2006, and International Financial Reporting Standards, adopted pursuant to regulation (ED) 1606/2000 as it applies in the European Union.

The financial information contained in this announcement does not constitute the Company's statutory accounts as at and for the year ended 31 March 2022, but is derived from those statutory accounts. The Company's statutory accounts as at and for the year ended 31 March 2022 will be delivered to the Registrar or Companies following the Company's Annual General Meeting on 29 July 2022.

The Directors continue to adopt the going concern basis in preparing the Group's financial statements. The consolidated financial statements of the Group comprise the results of Palace Capital plc ("the Company") and its subsidiary undertakings.

The Company is quoted on the Main Market of the London Stock Exchange and is domiciled and registered in England and Wales and incorporated under the Companies Act. The address of its registered office is 4th Floor, 25 Bury Street, St James's, London, United Kingdom, SW1Y 6AL.

BASIS OF PREPARATION

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 January 2021. This change constitutes a change in accounting framework, however, there is no impact on recognition, measurement or disclosure.

The Group financial statements have been prepared in accordance with UK-adopted International Accounting Standards, (the 'applicable framework'), and have been prepared in accordance with the provisions of the Companies Act 2006 (the 'applicable legal requirements'). The Group financial statements have been prepared under the historical cost convention as modified by the revaluation of investment properties, the revaluation of property, plant and equipment, pension scheme, and financial assets and liabilities held at fair value.

RESTATEMENTS

The Consolidated Statement of Cash Flows for the comparative period has 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 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 and a corresponding net decrease in the cash inflows from operating activities in the Consolidated Statement of Cash Flows. These cash flows 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.

The Consolidated Statement of Comprehensive Income for the comparative period has been corrected to present service charge income in revenue and recoverable service charge costs in cost of sales. The Group has control over the services being provided, and ultimately the risk of paying and recovering these costs sit with the Group. Therefore, these receipts and recoverable expenses are presented gross in the Statement of Comprehensive Income. This has resulted in the Group recognising £4,926,000 as service charge income within revenue and a corresponding £4,926,000 in recoverable service charge costs in the cost of sales line. There was no impact on profit or net assets for any periods presented. The revenue and cost of sales for the year ended 31 March 2021 were therefore restated to £22,242,000 and £6,426,000 respectively, from £17,316,000 and £1,500,000.

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 Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in these financial statements. In addition, note 26 to the financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and its exposures to credit risk and liquidity risk.

As at 31 March 2022 the Group had £28.1m of unrestricted cash and cash equivalents, a low gearing level of 28% and a property portfolio with a fair value of £259.0m. 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. See Going Concern and Viability Statement of the Annual Report for further details.

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 financial statements.

NEW STANDARDS ADOPTED DURING THE YEAR

New standards effective for the year ended 31 March 2022 did not have a material impact on the financial statements and were
not adopted.

New standards issued but not yet effective

There are no other standards that are not yet effective that would be expected to have a material impact on the Group in the current or future reporting periods and on the foreseeable future transactions.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of Palace Capital plc and its subsidiaries as at the year-end date.

Subsidiaries are all entities (including special purpose entities) over which the Company has control. The Company controls an entity when the following three elements are present: power to direct the activities of the entity; exposure to variable returns from the entity; and the ability of the Company to use its power to affect those variable returns. Where necessary, adjustments have been made to the financial statements of subsidiaries and associates to bring the accounting policies used and accounting periods into line with those of the Group. Intra-group balances and any unrealised gains and losses arising from intra-group transactions are eliminated in preparing the Consolidated Financial Statements.

The results of subsidiaries acquired during the year are included from the effective date of acquisition, being the date on which the Group obtains control until the date that control ceases.

The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. This fair value includes any contingent consideration. Acquisition-related costs are expensed as incurred.

If the consideration is less than the fair value of the assets and liabilities acquired, the difference is recognised directly in the Statement of Comprehensive Income.

Where an acquired subsidiary does not meet the definition of a business, it is accounted for as an asset acquisition rather than a business combination. A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities.

Revenue

Revenue is primarily derived from property income and represents the value of accrued charges under operating leases for rental of
the Group's investment properties. Revenue is measured at the fair value of the consideration received. All income is derived in the United Kingdom.

Rental income from investment properties leased out under operating leases is recognised in the Statement of Comprehensive Income on a straight-line basis over the term of the lease. Contingent rent reviews are recognised when such reviews have been agreed with tenants. Lease incentives, rent concessions and guaranteed rent review amounts are recognised as an integral part of the net consideration for use of the property and amortised on a straight-line basis over the term of lease. Judgement is exercised when determining the term over which the lease incentives should be recognised.

Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the Group Statement of Comprehensive Income when the right to receive them arises. Surrender premium income are payments received from tenants to surrender their lease obligations and are recognised immediately in the Group's Consolidated Statement of Comprehensive Income.

Insurance commissions are recognised as performance obligations are fulfilled in terms of the individual performance obligations within the contract with the insurance provider. Revenue is determined by the transaction price in the contract and is measured at the fair value of the consideration received. Revenue is recognised once the underlying contract between insured and insurer has been signed.

Revenue from the sale of trading properties is recognised when control of the trading property, along with the significant risks and rewards, have transferred from the Group, which is usually on completion of contracts and transfer of property title.

Service charge income relates to expenditure that is directly recoverable from tenants. Service charge income is recognised as revenue in the period to which it relates as required by IFRS 15 Revenue from Contracts with Customers. Dividend income comprises dividends from the Group's listed equity investments and is recognised when the Shareholder's right to receive payment is established. Revenue is measured at the fair value of the consideration received. All income is derived in the United Kingdom.

The disposal of investment properties is recognised when significant risks and rewards attached to the property have transferred from the Group. This will ordinarily occur on completion of contract, with such transactions being recognised when this condition is satisfied. The profit or loss on disposal of investment property is recognised separately in the Consolidated Statement of Comprehensive Income and is the difference between the net sales proceeds and the opening fair value asset plus any capital expenditure during the period to disposal.

Deferred income

Where invoices to customers have been raised which relate to a period after the Group year end, being 31 March 2022, the Group will recognise deferred income for the difference between revenue recognised and amounts billed for that contract.

Cost of sales

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.

Service charges and other such receipts arising from expenses recharged to tenants are as stated in note 3b. Notwithstanding that the funds are held on behalf of the occupiers, the ultimate risk for paying and recovering these costs rests with the Group.

Borrowing costs

Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. After initial recognition, loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in profit or loss in the Consolidated Statement of Comprehensive Income when the liabilities are derecognised, as well as through the amortisation process.

Borrowing costs directly attributable to development properties are capitalised and not recognised in profit or loss in the Consolidated Statement of Comprehensive Income. The capitalisation of borrowing costs is suspended if there are prolonged periods when development activity is interrupted and cease at the completion of the development. Interest is also capitalised on the purchase cost of a site of property acquired specifically for redevelopment, but only where activities necessary to prepare the asset for redevelopment are in progress.

Interest associated with trading properties is capitalised. Interest is capitalised from the start of the development work until the date of practical completion. The rate used is the rate on specific associated borrowings. Interest is then expensed through the income statement post completion of the development.

When the Group refinances a loan facility, the Group considers whether the new terms are substantially different from a quantitative and a qualitative perspective. From a quantitative perspective, the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability. Modifications that would be considered substantial from a qualitative perspective are those that result in a significant value transfer and/or a new underwriting/pricing assessment of the financial instrument.

If it is deemed to be a substantial modification of terms, this is accounted for as an extinguishment, and any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability.

Where the modification is not considered to be substantial, the loan continues to be measured at amortised cost using the original effective interest rate. Where the modification is substantial, the new effective interest rate is used.

Financial assets

The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Group's accounting policy for each category is as follows:

Fair value through profit or loss

This category comprises in-the-money derivatives (see "Financial liabilities" section for out-of-the-money derivatives classified as liabilities). They are carried in the Consolidated Statement of Financial Position at fair value with changes in fair value recognised in the Consolidated Statement of Comprehensive Income in the finance income or expense line.

Amortised cost

Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the Consolidated Statement of Comprehensive Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

The Group's financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents in the Consolidated Statement of Financial Position.

Listed equity investments

Listed equity investments are classified at fair value through profit and loss. Listed equity investments are subsequently measured using Level 1 inputs, the quoted market price, and all fair value gains or losses in respect of those assets are recognised in profit or loss in the Consolidated Statement of Comprehensive Income.

Fair value hierarchy

• Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

• Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

• Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less.

Financial liabilities

The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired. The Group's accounting policy for each category is as follows:

Fair value through profit or loss

This category comprises out-of-the-money derivatives (see "Financial assets" for in-the-money derivatives where the time value offsets the negative intrinsic value). They are carried in the Consolidated Statement of Financial Position at fair value with changes in fair value recognised in the Consolidated Statement of Comprehensive Income.

Amortised cost

Trade payables and accruals are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.

Other financial liabilities

Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the Consolidated Statement of Financial Position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payment while the liability is outstanding.

Contributions to pension schemes

The Company operates a defined contribution pension scheme. The pension costs charged against profits are the contributions payable to the scheme in respect of the accounting period.

Investment properties

Investment properties are those properties that are held either to earn rental income or for capital appreciation or both.

Investment properties are measured initially at cost including transaction costs and thereafter are stated at fair value, which reflects market conditions at the balance sheet date. Surpluses and deficits arising from changes in the fair value of investment properties are recognised in the Consolidated Statement of Comprehensive Income in the year in which they arise.

Investment properties are stated at fair value as determined by the independent external valuers. The fair value of the Group's property portfolio is based upon independent 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 arm's length transaction at the date of valuation, in accordance with Global Valuation Standards. In determining the fair value of investment properties, the independent valuers make use of historical and current market data as well as existing lease agreements.

The Group recognises investment property as an asset when it is probable that the economic benefits that are associated with the investment property will flow to the Group and it can measure the cost of the investment reliably. This is usually the date of completion of acquisition or completion of construction if the development is a mixed-use scheme.

Investment properties cease to be recognised on completion of the disposal or when the property is withdrawn permanently from use and no future economic benefit is expected from disposal.

The Group evaluates all its investment property costs at the time they are incurred. These costs include costs incurred initially to acquire an investment property and costs incurred subsequently to add to, replace part of, or service a property. Any costs deemed as repairs and maintenance or any costs associated with the day-to-day running of the property are recognised in the Consolidated Statement of Comprehensive Income as they are incurred.

Investment properties under construction are initially recognised at cost (including any associated costs), which reflects the Group's investment in the assets. The Group undertakes certain works including demolition, remediation and other site preparatory works to bring a site to the condition ready for construction of an asset. Subsequently, the assets are remeasured to fair value at each reporting date. The fair value of investment properties under construction is estimated as the fair value of the completed asset less any costs still payable in order to complete, and an appropriate developer's margin.

Trading properties

Trading property is developed for sale or held for sale after development is complete, and is carried at the lower of cost and net realisable value. Trading properties are derecognised on completion of sales contracts. Costs includes direct expenditure and capitalised interest. Cost of sales, including costs associated with off-plan residential sales, are expensed to the Consolidated Statement of Comprehensive Income as incurred.

Right of use asset

Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

• lease payments made at or before commencement of the lease;

• initial direct costs incurred; and

• the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset.

Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right of use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term. Lease liabilities are remeasured when there is a change in future lease payments arising from a change in an index or rate or when there is a change in the assessment of the term of any lease.

The rate of amortisation for right of use assets is over the period of the lease.

Lease liabilities

Lease obligations include lease obligations relating to investment properties and lease obligations relating to right of use assets.

Lease obligations relating to investment properties are capitalised at the lease's commencement and are measured at the present value of the remaining lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in liabilities. The finance charges are charged to the Consolidated Statement of Comprehensive Income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Investment properties classified as held under lease liabilities are subsequently carried at their fair value.

Lease obligations relating to right of use assets are measured at the present value of the contractual payments due to the lessor over the lease term, discounted at the Group's incremental borrowing rate. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

On initial recognition, the carrying value of the lease liability also includes:

• amounts expected to be payable under any residual value guarantee;

• the exercise price of any purchase option granted in favour of the Group if it is reasonable certain to assess that option;

• any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option,
being exercised.

Property, plant and equipment and depreciation

Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment. Depreciation is calculated to write down the cost less estimated residual value of all tangible fixed assets by equal annual instalments over their expected useful economic lives. The rates generally applicable are:

Fixtures, fittings and equipment 25% - 33% straight-line

Current taxation

Current tax assets and liabilities for the period not under UK REIT regulations are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and the tax laws used to compute the amount are those that are enacted or substantively enacted, by the balance sheet date.

Deferred taxation

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in profit or loss, except when it relates to items charged or credited directly to other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

The Government announced a proposal in March 2021 for an increase in the corporation tax rate from 19% main rate in the tax year 2021 to 25% with effect from 1 April 2023. This was enacted by the Finance Bill 2021 on 10 June 2021.

Dividends to equity holders of the parent

Interim ordinary dividends are recognised when paid and final ordinary dividends are recognised as a liability in the period in which they are approved by the Shareholders.

Share-based payments

The fair value of the share options are determined at the grant date and are expensed on a straight-line basis over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that ultimately the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair values of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

Commitments and contingencies

Commitments and contingent liabilities are disclosed in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable. A contingent asset is recognised when the realisation of the income is virtually certain.

Equity

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.

Treasury share reserve represents the consideration paid for shares bought back from the market.

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

The capital reduction reserve represents distributable profits generated as a result of the share premium reduction.

Critical accounting judgements and key sources of estimation and uncertainty

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Information about such judgements and estimation is contained in the accounting policies or the notes to the accounts, and the key areas are summarised below.

Estimates

Properties

The key source of estimation uncertainty rests in the values of property assets, which significantly affects the value of investment properties in the Consolidated Statement of Financial Position. The investment property portfolio and assets held for sale are carried at fair value, which requires a number of estimates in assessing the Group's assets relative to market transactions. The approach to this valuation and the amounts affected are set out in the accounting policies and note 9.

Trading properties are held at the lower of cost and net realisable value. Net realisable value is the value of an asset that can be realised upon the sale of the asset, less a reasonable estimate of the costs associated with the eventual sale or disposal of the asset.

The Group has valued the investment properties at fair value. To the extent that any future valuation affects the fair value of the investment properties and assets held for sale, this will impact on the Group's results in the period in which this determination is made.

Expected credit loss model

The Group applies the IFRS 9 simplified approach to the expected credit loss model, using 12 months of historic rental payment information for tenants, and adjusting risk profile rates based on forward-looking information. Despite the unlocking of the UK economy during 2021, we remain cautious as global supply chain issues and rising inflation continue to create economic uncertainty.

With the relaxation of restrictions from the Covid-19 pandemic the risk of certain tenants defaulting on their rents has reduced, although challenges remain in the leisure and retail sectors. This has resulted in the ECL provisions calculated at 31 March 2022 being lower than in previous periods (refer to note 13).

In arriving at our estimates, we have considered the tenants at higher risk, particularly in the leisure and retail sectors, those in administration or CVA, and those tenants who have been impacted financially by the pandemic who are not necessarily in high-risk sectors.

Estimates and Judgements

Share-based payments

Equity-settled share awards are recognised as an expense based on their fair value at date of grant. The fair value of equity-settled share options is estimated through the use of option valuation models, which require inputs such as the risk-free interest rate, expected dividends, expected volatility and the expected option life, and is expensed over the vesting period. Some of the inputs used are not market observable and are based on estimates derived from available data. The models utilised are intended to value options traded in active markets. The share options issued by the Group, however, have a number of features that make them incomparable to such traded options (see note 22 on page • for further details). The variables used to measure the fair value of share-based payments could have a significant impact on that valuation, and the determination of these variables requires a significant amount of professional judgement. A minor change in a variable which requires professional judgement, such as volatility or expected life of an instrument, could have a quantitatively material impact on the fair value of the share-based payments granted, and therefore will also result in the recognition of a higher or lower expense in the Consolidated Statement of Comprehensive Income.

Judgement is also exercised in assessing the number of options subject to non-market vesting conditions that will vest.

1. RENTAL AND OTHER INCOME

The chief operating decision maker ("CODM") takes the form of the Executive Directors (the Group's Executive Committee). The Group's Executive Committee are of the opinion that the principal activity of the Group is to invest in commercial real estate in the UK.

Operating segments are identified on the basis of internal financial reports about components of the Group that are regularly reviewed by the CODM.

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, each individual property is considered to be a separate operating segment in that its performance is monitored individually.

The Directors have considered the requirements of IFRS 8 as to aggregation of operating segments into reporting segments. All of the Group's revenue is generated from investment and trading properties located outside of London. The properties are managed as a single portfolio by an asset management team whose responsibilities are not segregated by location or type but are managed on an asset-by-asset basis.

The route to market is determined by reference to the current economic circumstances that fluctuate through the life cycle of the portfolio. The Group holds a diversified portfolio across different sectors including office, industrial, retail, leisure, retail warehouse and residential. The Group does from time to time engage in development projects. The Directors view the Group's development activities as an integral part of the life cycle of each of its assets rather than a separate business or division.

The Directors therefore consider that the individual properties have similar economic characteristics and therefore have been aggregated into a single reportable segment under the provision 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.

Revenue - type	2022 £'000	Restated 2021 £'000
Gross rental income	16,670	17,150
Dilapidations and other property related income	732	56
Insurance commission	92	110
Gross property income	17,494	17,316
Service charge income	4,155	4,926
Trading property income	27,415	-
Total revenue	49,064	22,242

No single tenant accounts for more than 10% of the Group's total rents received from investment properties. Similarly, there was no individual or corporate that accounts for more than 10% of the trading property income.

2. INTEREST PAYABLE AND SIMILAR CHARGES

	2022 £'000	2021 £'000
Interest on bank loans	2,748	2,898
Amortisation of loan arrangement fees	305	300
Interest on lease liabilities	-	105
Other finance charges	143	44
	3,196	3,347

3. PROFIT FOR THE YEAR

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

	2022 £'000	2021 £'000
Depreciation of tangible fixed assets and amortisation of right of use assets:	196	194
Auditor's remuneration:
Fees payable to the Auditor for the audit of the Group's annual accounts	165	143
Fees payable to the Auditor for the audit of the subsidiaries' annual accounts	29	27
Additional fees payable to the Auditor in respect of the 2020 audit	-	23
Fees payable to the Auditor and its related entities for other services:
Audit related assurance services in respect of the interim results	11	10
	205	203

b) The Group's cost of sales comprise the following:

	2022 £'000	2021 £'000
Void, investment and development property costs	2,310	1,275
Legal, lettings and consultancy costs	328	225
Property operating expenses	2,638	1,500
Service charge expenses	4,155	4,926
Trading property cost of sales	23,615	-
	30,408	6,426

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

	2022 £'000	2021 £'000
Staff costs	2,895	2,642
Accounting and audit fees	269	297
Other overheads	260	244
Consultancy and recruitment fees	254	110
Stock Exchange costs	235	208
Share-based payments	162	300
PR and marketing costs	150	118
Amortisation of right of use asset	148	148
Rent, rates and other office costs	140	125
Legal and professional fees	62	109
Depreciation of tangible fixed assets	48	46
	4,623	4,347

d) EPRA cost ratios are calculated as follows:

	2022 £'000	2021 £'000
Gross property income	17,494	17,316

Administrative expenses	4,623	4,347
Property operating expenses	2,638	1,500
Movement in expected credit loss	(360)	949
EPRA costs (including property operating expenses)	6,901	6,796
EPRA cost ratio (including property operating expenses)	39.4%	39.2%

Less property operating expenses	(2,638)	(1,500)
EPRA costs (excluding property operating expenses)	4,263	5,296
EPRA cost ratio (excluding property operating expenses)	24.4%	30.6%
Total expense ratio	1.6%	1.4%

4. EMPLOYEES AND DIRECTORS' REMUNERATION

Staff costs during the period were as follows:

	2022 £'000	2021 £'000
Non-Executive Directors' fees	195	196
Wages and salaries	2,357	2,119
Pensions	116	102
Social security costs	227	225
	2,895	2,642
Share-based payments	162	300
	3,057	2,942

The average number of employees of the Group and the Company during the period was:

	2022 Number	2021 Number
Directors	7	7
Senior management and other employees	9	9
	16	16

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

	2022 £'000	2021 £'000
Emoluments for qualifying services	1,423	1,218
Social security costs	185	167
Pension	25	36
	1,633	1,421
Share-based payments	116	241
	1,749	1,662

5. TAXATION

	2022 £'000	2021 £'000
Tax underprovided in prior year	-	1
Current income tax charge	152	-
Deferred tax	(85)	-
Tax charge	67	1

	2022 £'000	2021 £'000
Profit/(loss) on ordinary activities before tax	24,615	(5,532)
Based on profit/(loss) for the period: Theoretical Tax at 19% (2021: 19%)	4,677	(1,051)
Effect of:
Net expenses not deductible for tax purposes	51	(32)
Tax underprovided in prior years	-	1
Movement on sale and revaluation not recognised through deferred tax	-	(145)
Deferred tax released to profit and loss on REIT conversion	(85)	-
Residual losses not recognised for deferred tax	(345)	-
Gain on appropriation for Hudson Quarter	119	-

REIT exempt income	(1,985)	(1,622)
Non-taxable items	(2,365)	2,850
Tax charge for the period	67	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.

Deferred taxes relate to the following:

	2022 £'000	2021 £'000
Deferred tax liability - brought forward	(228)	(228)
Tax rate increase from 19% to 25%	(34)	-
Deferred tax release on sale of trading property	119	-
Deferred tax liability - carried forward	(143)	(228)

2022

£'000

2021

£'000

Investment property unrealised valuation gains

(143)

(228)

Deferred tax liability - carried forward

(143)

(228)

A deferred tax liability on the revaluation of investment properties to fair value has been provided totalling £143,000 (2021: £228,000) 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 capital gains tax would be payable if the properties were disposed of at their fair value. The deferred tax liability relates to investment properties transferred into trading stock, prior to the Group becoming a REIT. As at 31 March 2022 the Group had approximately £5,915,000 (2021: £9,694,000) of realised capital losses to carry forward. There has been no deferred tax asset recognised as the Directors do not consider it probable that future taxable profits will be available to utilise these losses.

Finance Act 2021 sets the main rate of UK corporation tax at 19%, with an increase in the main rate to 25% with effect from 1 April 2023. The deferred tax liability relates to trading properties and has been calculated on the basis of 19% due to the expectation that all properties are sold ahead of April 2023.

6. EARNINGS PER SHARE

Basic earnings per share

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

2022

£'000

2021

£'000

Profit/(loss) after tax attributable to ordinary Shareholders for the year

24,548

(5,533)

	2022 No. of shares	2021 No. of shares
Weighted average number of shares for basic earnings per share	46,257,514	46,061,417
Dilutive effect of share options	36,766	-
Weighted average number of shares for diluted earnings per share	46,294,280	46,061,417
Earnings per ordinary share
Basic	53.1p	(12.0p)
Diluted	53.0p	(12.0p)

Key Performance Measures

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 reporting framework the latest update of which was issued in November 2019. The Group reports a number of these measures (detailed in the glossary of terms) 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 EPS and EPRA Diluted EPS

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 close-out 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.

Adjusted profit before tax and Adjusted EPS

The Group 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. This includes share-based payments being a non-cash expense. The corporation tax charge (excluding deferred tax movements, being a non-cash expense) is deducted in order to calculate the adjusted earnings per share, if the charge is in relation to recurring earnings.

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

	2022 £'000	2021 £'000
Profit/(loss) for the year	24,548	(5,533)
Adjustments:
(Gain)/loss on revaluation of investment property portfolio	(8,222)	14,750
Reversal of impairment of trading properties	-	(763)
Profit on disposal of investment properties	(4,946)	(905)
Trading property revenue and cost of sales	(3,800)	-
Loss on disposal of listed equity investments	80	-
Gain on revaluation of listed equity investments	-	(709)
Debt termination costs	63	140
Fair value (gain)/loss on derivatives	(329)	265
EPRA earnings for the year	7,394	7,245
Share-based payments	162	300
Hudson Quarter development loan interest	189	-
Adjusted profit after tax for the year	7,745	7,545
Tax excluding deferred tax on EPRA adjustments and capital gain charged	67	1
Adjusted profit before tax for the year	7,812	7,546
EPRA and adjusted earnings per ordinary share
EPRA Basic	16.0p	15.7p
EPRA Diluted	16.0p	15.7p
Adjusted EPS	16.9p	16.4p

7. 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 31 March 2022 Annual 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.

As at 31 March 2022

	EPRA NTA £'000	EPRA NRV £'000	ERPA NDV £'000
Net assets attributable to Shareholders	177,204	177,204	177,204
Include:
Fair value adjustment of trading properties	3,188	3,188	3,188
Real estate transfer tax	-	17,049	-
Fair value of fixed interest rate debt	-	-	413
Exclude:
Fair value of derivatives value	47	47	-
Deferred tax on latent capital gains and capital allowances	143	143	-
EPRA NAV	180,582	197,631	180,805
Number of ordinary shares issued for diluted and EPRA net assets per share	46,325,236	46,325,236	46,325,236
EPRA NAV per share	390p	427p	390p

The adjustments made to get to the EPRA NAV measures above are as follows:

• Fair value adjustment of trading properties: Difference between development property held on the balance sheet at cost and fair value of that development property.

• Real estate transfer tax: Gross value of property portfolio as provided in the Valuation Certificate (i.e. the value prior to any deduction of purchasers' costs).

• Fair value of fixed interest rate debt: Difference between any financial liability and asset held on the balance sheet of the Group and the fair value of that financial liability or asset.

• Fair value of derivatives: Exclude fair value financial instruments that are used for hedging purposes where the company has the intention of keeping the hedge position until the end of the contractual duration.

• Deferred tax on latent capital gains and capital allowances: Exclude the deferred tax as per IFRS balance sheet in respect of the difference between the fair value and the tax book value of investment property, development property held for investment, intangible assets, or other non-current investments as this would only become payable if the assets were sold.

As at 31 March 2021

	EPRA NTA £'000	EPRA NRV £'000	EPRA NDV £'000
Net assets attributable to Shareholders	157,831	157,831	157,831
Include:
Fair value adjustment of trading properties	2,247	2,247	2,247
Real estate transfer tax	-	18,365	-
Fair value of fixed interest rate debt	-	-	(59)
Exclude:
Fair value of derivatives value	1,029	1,029	-
Deferred tax on latent capital gains and capital allowances	228	228	-
EPRA NAV	161,335	179,700	160,019
Number of ordinary shares issued for diluted and EPRA net assets per share	46,154,624	46,154,624	46,154,624
EPRA NAV per share	350p	389p	347p

	2022 No of shares	2021 No of shares
Number of ordinary shares issued at the end of the year (excluding treasury shares)	46,288,470	46,069,690
Dilutive effect of share options	36,766	84,934
Number of ordinary shares issued for diluted and EPRA net assets per share	46,325,236	46,154,624
Net assets per ordinary share
Basic	383p	343p
Diluted	383p	342p
EPRA NTA	390p	350p

8. DIVIDENDS

	Payment date	Dividend per share	2022 £'000	2021 £'000
2022
Interim dividend	31 December 2021	3.25	1,504	-
Interim dividend	15 October 2021	3.00	1,389	-
		6.25	2,893	-
2021
Final dividend	05 August 2021	3.00	1,382	-
Interim dividend	09 April 2021	2.50	1,152	-
Interim dividend	31 December 2020	2.50	-	1,152
Interim dividend	16 October 2020	2.50	-	1,152
		10.50	2,534	2,304
2020
Final dividend	14 August 2020	2.50	-	1,151
Interim dividend	27 December 2019	4.75	-	-
Interim dividend	18 October 2019	4.75	-	-
		12.00	-	1,151
Dividends reported in the Group Statement of Changes in Equity			5,427	3,455

Proposed Dividends

	2022 £'000	2021 £'000
July 2022 final dividend in respect of year end 31 March 2022: 3.75p (2021 final dividend: 3.00p)	1,736	1,382
April 2022 interim dividend in respect of year end 31 March 2022: 3.25p (2021 interim dividend: 2.50p)	1,504	1,152
	3,240	2,534

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 2022.

9. PROPERTY PORTFOLIO

	Freehold investment properties £'000	Leasehold investment properties £'000	Total investment properties £'000
At 1 April 2020	230,396	18,303	248,699
Additions - refurbishments	2,273	(44)	2,229
Capital expenditure on assets under construction	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	2,351	2,543	4,894
Additions - new properties	10,022	-	10,022
Gain on revaluation of investment properties	6,886	1,336	8,222
Disposals	(22,290)	(3,985)	(26,275)
At 31 March 2022	216,110	16,607	232,717

	Standing investment properties £'000	Investment properties under construction £'000	Total investment properties £'000	Trading properties £'000	Total property portfolio £'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 property	-	-	-	14,399	14,399
(Loss)/gain on revaluation of 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	4,894	-	4,894	-	4,894
Additions - new properties	10,022	-	10,022	-	10,022
Additions - trading property	-	-	-	1,182	1,182
Transfer from investment property under construction	11,950	(11,950)	-	-	-
Gain on revaluation of properties	8,222	-	8,222	-	8,222
Disposals	(26,275)	-	(26,275)	(23,614)	(49,889)
At 31 March 2022	232,717	-	232,717	20,287	253,004

The property portfolio 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.

In addition to the loss on revaluation of investment properties included in the table above, realised gains of £4,946,000 (2021: £905,000) relating to investment properties disposed of during the year were recognised in profit or loss.

The Group has developed a large mixed-use scheme at Hudson Quarter, York. Part of the approved scheme consists of commercial
units which the Group holds for leasing. During the development the commercial element of the scheme was classified as investment properties under construction. As a result of achieving practical completion in April 2021, the commercial element of the scheme is now classified as investment properties.

For investment properties under construction and trading properties, £51,674 (2021: £859,543) of borrowing costs have been capitalised in the year including 100% of the interest due on the development loan.

A reconciliation of the valuations carried out by the independent valuers to the carrying values shown in the Statement of Financial Position was as follows:

	2022 £'000	2021 £'000
Cushman & Wakefield LLP (property portfolio)	259,040	282,820
Adjustment in respect of minimum payment under head leases	1,078	1,804
Less trading properties at lower of cost and net realisable value	(20,287)	(42,719)
Less lease incentive balance included in accrued income	(3,926)	(3,804)
Less fair value uplift on trading properties	(3,188)	(2,247)
Carrying value of investment properties	232,717	235,854

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 - 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 judgement 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 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 2022	Office	Industrial	Significant unobservable inputs
31 March 2022	Office	Industrial	Leisure	Other	Total
Fair value of property portfolio	£122,125,000	£43,345,000	£36,990,000	£56,580,000	£259,040,000
Area (sq ft)	633,591	345,586	303,993	169,762	1,452,932
Gross Estimated Rental Value	£10,952,762	£2,608,500	£3,270,645	£2,586,276	£19,418,183
Net Initial Yield
Minimum	(5.1%)	3.5%	7.8%	3.5%	(5.1%)
Maximum	9.6%	5.6%	9.2%	11.1%	11.1%
Weighted average	4.7%	4.5%	8.4%	7.2%	5.6%
Reversionary Yield
Minimum	4.5%	4.6%	7.3%	3.4%	3.4%
Maximum	11.3%	6.3%	9.1%	10.4%	11.3%
Weighted average	8.0%	5.5%	8.2%	7.2%	7.5%
Equivalent Yield
Minimum	4.5%	4.5%	8.4%	3.4%	3.4%
Maximum	8.8%	5.9%	9.8%	9.9%	9.9%
Weighted average	7.6%	5.4%	9.6%	7.2%	7.4%

The "other" sector includes Residential, Retail and Retail Warehousing sectors.

Negative net initial yields arise where properties are vacant or partially vacant and void costs exceed rental income.

31 March 2021			Significant unobservable inputs
31 March 2021	Office	Industrial	Leisure	Other	Total
Fair value of property portfolio	£116,280,000	£40,740,000	£35,455,000	£90,345,000	£282,820,000
Area (sq ft)	669,711	409,593	306,970	217,520	1,603,794
Gross Estimated Rental Value	£10,813,496	£2,881,140	£3,226,035	£3,642,711	£20,563,382
Net Initial Yield
Minimum	(5.1%)	1.4%	7.4%	4.4%	(5.1%)
Maximum	10.0%	7.9%	8.3%	18.5%	18.5%
Weighted average	5.4%	5.4%	7.8%	7.0%	5.6%
Reversionary Yield
Minimum	6.5%	5.1%	7.4%	4.5%	4.5%
Maximum	10.8%	7.9%	8.6%	24.3%	24.3%
Weighted average	8.1%	4.7%	7.9%	6.5%	7.3%
Equivalent Yield
Minimum	6.1%	5.2%	8.3%	5.0%	5.0%
Maximum	8.1%	7.4%	9.5%	14.1%	14.1%
Weighted average	7.8%	6.3%	9.2%	6.5%	7.6%

The following descriptions and definitions relate to valuation techniques and key unobservable inputs made in determining fair values:

Market comparable method

Under the market comparable method (or market comparable approach), a property's fair value is estimated based on comparable transactions in the market.

Unobservable input: estimated rental value

The rent at which space could be let in the market conditions prevailing at the date of valuation (range: £23,640-£1,874,413 per annum).

Rental values are dependent on a number of variables in relation to the Group's property. These include: size, location, tenant, covenant strength and terms of the lease.

Unobservable input: net initial yield

The net initial yield is defined as the initial gross income as a percentage of the market value (or purchase price as appropriate) plus standard costs of purchase.

Sensitivities of measurement of significant unobservable inputs

As set out within significant accounting estimates and judgements above, the Group's property Portfolio Valuation is open to judgements inherently subjective by nature.

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

-5% in passing

rent (£m)

+5% in passing

rent (£m)

+0.25% in net

initial yield (£m)

-0.25% in net

initial yield (£m)

(Decrease)/increase in the fair value of investment properties as at 31 March 2022

(10.76)

10.76

(9.74)

12.36

(Decrease)/increase in the fair value of investment properties as at 31 March 2021

(10.87)

10.87

(11.29)

12.35

Valuation technique: properties under construction

Development assets are valued using the gross development value of the asset less any costs still payable in order to complete, and an appropriate developer's margin.

10. TRADING PROPERTY

	Total £'000
At 1 April 2020	27,557
Costs capitalised	14,399
Reversal of impairment of trading properties	763
At 1 April 2021	42,719
Costs capitalised	1,182
Disposal of trading properties	(23,614)
At 31 March 2022	20,287

The Group developed a large mixed-use scheme at Hudson Quarter, York. Part of the approved scheme consists of residential units which the Group is in the process of selling. As a result, the residential element of the scheme is classified as trading property.

11. LISTED EQUITY INVESTMENTS

	Total £'000
At 1 April 2020	2,540
Gain on revaluation of equity investment shown in Consolidated Statement of Comprehensive Income	709
At 1 April 2021	3,249
Disposal of equity investment	(3,249)
At 31 March 2022	-

12. PROPERTY, PLANT AND EQUIPMENT

	IT, fixtures and fittings £'000	Right of use asset £'000
At 1 April 2020	258	461
Additions	16	-
At 1 April 2021	274	461
Additions	22	-
At 31 March 2022	296	461
Depreciation
At 1 April 2020	157	148
Provided during the year	46	148
At 1 April 2021	203	296
Provided during the year	48	148
At 31 March 2022	251	444

Net book value at 31 March 2022	45	17
Net book value at 31 March 2021	71	165

13. TRADE AND OTHER RECEIVABLES

	2022 £'000	2021 £'000
Current
Gross amounts receivable from tenants	2,624	4,115
Less: expected credit loss provision	(980)	(1,340)
Net amount receivable from tenants	1,644	2,775
Other taxes	156	143
Other debtors	1,022	2,461
Accrued income	3,926	3,804
Prepayments	664	581
	7,412	9,764

Accrued income amounting to £3,926,000 (2021: £3,804,000) relates to rents recognised in advance of receipt 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.

The carrying value of trade and other receivables classified at amortised cost approximates fair value.

As at 31 March 2022 the lifetime expected credit loss provision for trade receivables and contract assets is as follows:

	Current £'000	More than 30 days past due £'000	More than 60 days past due £'000	More than 90 days past due £'000	Total £'000
Expected loss rate	7%	82%	0%	90%
Gross carrying amount	1,668	12	-	944	2,624
Loss provision	124	10	-	846	980

Changes to credit risk management

The impact of Covid-19 has given rise to higher estimated probabilities of default for some of the Group's tenants. As a result, impairment calculations have been carried out on trade receivables using the IFRS 9 simplified approach, using 12 months of historic rental payment information, and adjusting risk profiles based on forward-looking information. In addition, the Group has reviewed its register of tenants at higher risk, particularly in the leisure and retail sectors, those in administration or CVA and the top 50 tenants by size with the remaining tenants considered on a sector by sector basis.

Concentration of credit risk

The credit risk in respect of trade receivables is not concentrated as the Group operates in many different sectors and locations around the UK, and has a wide range of tenants from a broad spectrum of business sectors. The Group predominantly operates in the office and industrial sectors, which has largely remained unaffected by Covid-19. 48% of the ECL provision relates to tenants in the leisure and retail sectors, and 3% of the ECL provision relates to tenants in administration or CVA.

How forward looking information was incorporated

In calculating the ECL provision, the Group used forward looking information when assessing the risk profiles of each tenant, most notably around the assessment over the likelihood of tenants having the ability to pay rent as demanded, as well as the likelihood of rent deferrals and rent frees being offered to tenants. The Group considered factors such as the vaccine success on the economy, whilst remaining cautious of potential new economic headwinds.

Key sources of estimation uncertainty

The Group's risk profile rates form a key part when calculating the ECL provision. Default rates were applied to each tenant based on the ageing of the outstanding receivable. Tenants were classified as either low (default range of 0.5% - 8%), medium (default range of 20% - 50%), high (default range of 65% - 80%), or extremely high risk (set default range of 100%), with default rates applied to each risk profile. These rates have been calculated by using historic and forward-looking information and is inherently subjective.

A sensitivity analysis performed to determine the impact on the Group Statement of Comprehensive Income from a 10% increase in each of the risk profile rates would result in a decrease in profit by £305,084.

The Group does not hold any material collateral as security.

As at 31 March 2021 the lifetime expected credit loss provision for trade receivables and contract assets is as follows:

	Current £'000	More than 30 days past due £'000	More than 60 days past due £'000	More than 90 days past due £'000	Total £'000
Expected loss rate	12%	3%	7%	69%
Gross carrying amount	2,364	168	45	1,538	4,115
Loss provision	278	5	3	1,054	1,340

Movement in the expected credit loss provision was as follows:

	2022 £'000	2021 £'000
Brought forward	1,340	391
Receivables written off during the year as uncollectable	(158)	-
Provisions released	(276)	-
Provisions increased	74	949
	980	1,340

14. CASH AND CASH EQUIVALENTS

All of the Group's cash and cash equivalents at 31 March 2022 and 31 March 2021 are in sterling and held at floating interest rates.

2022

£'000

2021

£'000

Cash and cash equivalents - unrestricted

28,143

9,417

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

15. TRADE AND OTHER PAYABLES

	2022 £'000	2021 £'000
Trade payables	604	1,143
Other taxes	1,167	2,100
Other payables	1,136	2,607
Deferred rental income	3,368	3,347
Accruals	2,637	3,711
	8,912	12,908

The Directors consider that the carrying amount of trade and other payables measured at amortised cost approximates to their
fair value.

Included within other payables are deposits on pre sales of apartments at Hudson Quarter, York totalling £Nil (2021: £924k). These amounts will be recognised as revenue when the title is transferred to the buyer.

16. DERIVATIVES

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 is paying for its interest rate swaps.

The valuation rate is the variable SONIA 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.

Further details on interest rate risks are included in note 26.

Bank	Notional principal	Expiry date	Contract rate %	Valuation rate %	2022 Fair value £'000	2021 Fair value £'000
Barclays Bank plc	33,847,900	25/01/2023	1.3420	0.1862	(50)	(717)
Santander plc	18,591,549	03/08/2022	1.3730	0.1326	3	(312)
	52,439,449				(47)	(1,029)

17. BORROWINGS

	2022 £'000	2021 £'000
Current liabilities
Bank loans	32,813	22,075
Unamortised lending costs	(64)	(222)
	32,749	21,853
Non-current liabilities
Bank loans	68,940	106,238
Unamortised lending costs	(452)	(806)
	68,488	105,432
Total borrowings
Bank loans	101,753	128,313
Unamortised lending costs	(516)	(1,028)
	101,237	127,285

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

	2022 £'000	2021 £'000
Within one year	32,813	22,075
From one to two years	1,218	32,813
From two to five years	67,722	65,750
After five years	-	7,675
	101,753	128,313

Facility and arrangement fees

As at 31 March 2022

Secured Borrowings	All in cost	Maturity date	Total Facility £'000	Unused loan facilities £'000	Facility drawn £'000	Unamortised facility fees £'000	Loan Balance £'000
Santander Bank plc	3.71%	August 2022	24,750	-	24,750	(29)	24,721
Lloyds Bank plc	2.64%	March 2023	6,845	-	6,845	(35)	6,810
National Westminster Bank plc	2.79%	August 2024	40,000	(7,957)	32,043	(230)	31,813
Barclays	3.41%	June 2024	29,168	-	29,168	(128)	29,040
Scottish Widows	2.90%	July 2026	8,947	-	8,947	(94)	8,853
			109,710	(7,957)	101,753	(516)	101,237

As at 31 March 2021

Secured Borrowings	All in cost	Maturity date	Total Facility £'000	Unused loan facilities £'000	Facility drawn £'000	Unamortised facility fees £'000	Loan Balance £'000
Santander Bank plc	3.55%	August 2022	25,250	-	25,250	(108)	25,142
Lloyds Bank plc	2.04%	March 2023	6,845	-	6,845	(63)	6,782
National Westminster Bank plc	2.19%	August 2024	40,000	(11,380)	28,620	(329)	28,291
Barclays	3.17%	June 2024	37,976	-	37,976	(191)	37,785
Barclays	3.34%	January 2022	22,298	(1,940)	20,358	(222)	20,136
Scottish Widows	2.90%	July 2026	9,264	-	9,264	(115)	9,149
			141,633	(13,320)	128,313	(1,028)	127,285

Investment properties with a carrying value of £218,780,000 (2021: £234,613,000) are subject to a first charge to secure the Group's bank loans amounting to £101,753,000 (2021: £128,313,000). Trading properties with a carrying value of £20,286,000 (2021: £42,719,000) are no longer subject to a first charge to secure the Group's bank loans following the repayment of the Barclays loan in November 2021.

The Group has unused loan facilities amounting to £7,957,000 (2021: £13,320,000). A facility fee is charged on this balance 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 as part of the NatWest loan.

The Group constantly monitors its approach to managing interest rate risk. The Group has fixed £61,386,000 (2021: £62,580,000) of its debt in order to provide surety of its interest cost and to mitigate interest rate risk. The remaining debt in place at year end is subject to floating rate in order to take advantage of the historically low interest rate environment.

The Group has a loan with Scottish Widows for £8,947,000 (2021: £9,264,000) which is fully fixed at a rate of 2.9%.

The Group has a loan with Barclays Bank plc for £29,168,000 (2021: £37,976,000), of which £33,848,000 (2021: £34,348,000) is fixed using an interest rate swap (see note 16). The floating rate portion of the loan is charged at a margin of 1.95% plus SONIA.

The Group has a loan with Santander plc for £24,750,000 (2021: £25,250,000), of which £18,592,000 (2021: £18,967,000) is fixed using an interest rate swap (see note 16). The floating rate portion of the loan is charged at a margin of 2.5% plus SONIA.

The Group has a loan with Lloyds Bank plc for £6,845,000 (2021: £6,845,000) which is fully charged at a floating rate margin of 1.95% plus SONIA.

The Group has a loan with National Westminster Bank plc for £32,043,000 (2021: £28,620,000) which is fully charged at a floating rate margin of 2.1% plus SONIA.

The fair value of borrowings held at amortised cost at 31 March 2022 was £101,650,000 (2021: £127,342,000).

The Group's bank loans are subject to various covenants including Loan to Value, Interest Cover and Debt Service Cover requirements. During the year, the Group met all of its covenants, with a waiver obtained in April 2021 for the Scottish Widows facility.

18. GEARING AND LOAN TO VALUE RATIO

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

	2022 £'000	2021 £'000
EPRA net asset value (note 7)	180,582	161,335
Borrowings (net of unamortised issue costs)	101,237	127,285
Lease liabilities for investment properties	1,078	1,804
Cash and cash equivalents	(28,143)	(9,417)
Net debt	74,172	119,672
NAV gearing	41%	74%

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

	2022 £'000	2021 £'000
Fair value of investment properties	235,565	240,101
Fair value of trading properties	23,475	42,719
Fair value of property portfolio	259,040	282,820
Borrowings	101,753	128,313
Cash at bank	(28,143)	(9,417)
Net bank borrowings	73,610	118,896
Loan to value ratio	28%	42%

19. RECONCILIATION OF LIABILITIES TO CASH FLOWS FROM
FINANCING ACTIVITIES

	Bank borrowings £'000	Total £'000
Balance at 1 April 2020	119,356	119,356
Cash flows from financing activities:
Bank borrowings drawn	18,916	18,916
Bank borrowings repaid	(11,363)	(11,363)
Loan arrangement fees paid	(282)	(282)
Non-cash movements:
Amortisation of loan arrangement fees	300	300
Capitalised loan arrangement fees	218	218
Debt termination costs	140	140
Balance at 1 April 2021	127,285	127,285
Cash flows from financing activities:
Bank borrowings drawn	11,472	11,472
Bank borrowings repaid	(38,033)	(38,033)
Loan arrangement fees paid	(11)	(11)
Non-cash movements:
Amortisation of loan arrangement fees	305	305
Capitalised loan arrangement fees	219	219
Balance at 31 March 2022	101,237	101,237

20. LEASES

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

	2022 £'000	2021 £'000
Within one year	15,765	16,170
From one to two years	15,109	14,730
From two to three years	13,000	12,637
From three to four years	12,357	10,502
From four to five years	10,787	9,535
From five to 25 years	49,821	47,005
	116,839	110,579

Lease liabilities are classified as follows:

	2022 £'000	2021 £'000
Lease liabilities for investment properties	1,078	1,804
Lease liabilities for right of use asset	-	154
	1,078	1,958

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

	2022			2021 Present value of lease payments £'000
	Lease payments £'000	Interest £'000	Present value of lease payments £'000	2021 Present value of lease payments £'000
Within one year	54	(54)	-	2
From one to two years	54	(54)	-	3
From two to five years	162	(162)	-	10
From five to 25 years	1,081	(1,073)	8	47
After 25 years	4,813	(3,743)	1,070	1,742
	6,164	(5,086)	1,078	1,804

Lease obligations in respect of rents payable on right of use assets were payable as follows:

2022

2021

Present value

of lease

payments

£'000

Lease

payments

£'000

Interest

£'000

Present value of lease

payments

£'000

Within one year

154

The net carrying amount of the leasehold properties is shown in note 9.

The Group has over 180 leases granted to its tenants. These vary depending on the individual tenant and the respective property and demise and vary considerably from short-term leases of less than one 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 both the current and prior periods, with the exception of Hudson Quarter, York held in Palace Capital (Developments) Limited which commenced development in February 2018 and was completed in April 2021. Direct operating costs of £Nil (2021: £Nil) were incurred on the property.

21. SHARE CAPITAL

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

2022

£'000

2021

£'000

46,388,515 ordinary shares of 10p each (2021: 46,388,515)

4,639

Reconciliation of movement in ordinary share capital	2022 £'000	2021 £'000
At start of year	4,639	4,639
Issued in the year	-	-
At end of year	4,639	4,639

Movement in ordinary authorised share capital		Price per share pence	Number of ordinary shares issued	Total number of shares
As at 31 March 2020, 31 March 2021 and 31 March 2022		-	-	46,388,515

Movement in treasury shares		Number of ordinary shares issued	Total number of shares
As at 31 March 2020 and 31 March 2021			299,587
Shares transferred to EBT	14 July 2021	(200,000)
As at 31 March 2022			99,587
Total number of shares excluding the number held in treasury at 31 March 2022			46,288,928

Year ended 31 March 2022

On 14 July 2021, 200,000 shares were transferred into the employee benefit trust.

Prior year figures included shares and transfers in the employee benefit trust.

Shares held in Employee Benefit Trust

Authorised, issued and fully paid share capital is as follows:	2022 No. of options	2021 No. of options
Brought forward	19,238	52,420
Transferred under scheme of arrangement	200,000	-
Shares exercised under deferred bonus share scheme	(90,049)	(33,182)
Shares exercised under employee LTIP scheme	(134,814)	-
Shares purchased by EBT	6,083	-
At end of year	458	19,238

Share options:

Reconciliation of movement in outstanding share options	2022 No. of options	2021 No. of options
At start of year	1,193,984	770,223
Issued in the year	402,717	573,456
Exercised in the year	(134,814)	-
Lapsed in the year	(329,778)	(201,447)
Deferred bonus share options issued	36,766	84,934
Deferred bonus share options exercised	(90,049)	(33,182)
At end of year	1,078,826	1,193,984

As at 31 March 2022, the Company had the following outstanding unexpired options:

Description of unexpired share options	2022		2021
Description of unexpired share options	No. of options	Weighted average option price	No. of options	Weighted average option price
Employee benefit plan	1,042,060	0p	1,114,232	0p
Deferred bonus share scheme issued	36,766	0p	84,934	0p
Total	1,078,826	0p	1,199,166	0p
Exercisable	-	0p	-	0p
Not exercisable	1,078,826	0p	1,199,166	0p

The weighted average remaining contractual life of share options at 31 March 2022 is 1.7 years (2021: 1.7 years).

22. SHARE-BASED PAYMENTS

Employee benefit plan

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

	Number of options	Exercise price	Average share price at date of exercise	Grant date	Vesting date
Outstanding at 31 March 2020	770,223	0p
Issued during the year (LTIP 2020)	573,456	0p		14 October 2020	14 October 2023
Deferred bonus share options issued	84,934	0p		14 July 2020	14 July 2021
Deferred bonus share options exercised	(33,182)	0p	184p	25 June 2019	25 June 2020
Lapsed during year (LTIP 2017)	(187,956)	0p
Lapsed during year (LTIP 2019)	(13,491)	0p
Outstanding at 31 March 2021	1,193,984	0p
Exercised during the year (LTIP 2018)	(134,814)	0p	254p	13 July 2018	13 July 2021
Issued during the year (LTIP 2021)	402,717	0p	247p	16 November 2021	16 November 2024
Deferred bonus share options issued	36,766	0p	253p	15 June 2021	15 June 2022
Deferred bonus share options exercised	(90,049)	0p	254p	14 July 2020	14 July 2021
Lapsed during year (LTIP 2018)	(114,405)	0p
Lapsed during year (LTIP 2019)	(70,826)	0p
Lapsed during year (LTIP 2020)	(144,547)	0p
Outstanding at 31 March 2022	1,078,826	0p

LTIP 2019

The options are awarded to employees on achievements against targets on two separate measures over the three-year period. The options are subject to a two-year holding period following vesting. Half the options will be awarded based on the first target and half based on the achievement of the second.

Total property return growth is based on the increase in the total property return of the Company compared with an increase in the MSCI IPD UK Quarterly Index (PV growth) as at 31 March 2019. This target will measure the annualised growth in total property return over the three-year period ending 31 March 2022 (PV performance period), and comparing this with the annualised total property return growth of the MSCI IPD UK Quarterly Index.

Total Shareholder return (TSR) measures the total Shareholder return (price rise plus dividends) over the period from 25 June 2019 to
24 June 2022. The base price is £2.85 per share which was the market price at the grant date.

Annualised TSR over the TSR performance period	Vesting %	PV growth over the PV performance period	Vesting %
<5%	0	<0.5%	0
Equal to 5%	20	Equal to 0.5%	20
Between 5% and 9%	20-100	Between 0.5% and 2.5%	20-100
Equal to 9%	100	Equal to 2.5%	100

LTIP 2020

Total property return growth is based on the increase in the total property return of the Company compared with an increase in the MSCI IPD UK Quarterly Index (PV growth) as at 31 March 2020. This target will measure the annualised growth in total property return over the three-year period ending 31 March 2023 (PV performance period), and comparing this with the annualised total property return growth of the MSCI IPD UK Quarterly Index.

Total Shareholder return (TSR) measures the total Shareholder return (price rise plus dividends) over the period from 14 October 2020 to 13 October 2023. The base price is £1.88 per share which was the market price at the grant date.

Annualised TSR over the TSR performance period	Vesting %	PV growth over the PV performance period	Vesting %
<5%	0	<0.5%	0
Equal to 5%	20	Equal to 0.5%	20
Between 5% and 9%	20-100	Between 0.5% and 2.5%	20-100
Equal to 9%	100	Equal to 2.5%	100

LTIP 2021

The options are awarded to employees on achievements against targets on two separate measures over the three-year period. For directors, the options are subject to a two-year holding period following vesting. Half the options will be awarded based on the first target and half based on the achievement of the second.

Total property return growth is calculated as Total Property Return of the Company over the Performance Period beginning on 31 March 2021 and ending on 31 March 2024, using the Total Property Return ("TPR") as calculated by MSCI for the Group as compared with the TPR for the MSCI IPD Index (the "Comparator") over the same period. The TPR for the Group and the Comparator will be its percentage increase over the three-year Performance Period.

Total Shareholder return (TSR) measures the total Shareholder return (price rise plus dividends) over the period from 16 November 2021 to 15 November 2024. The percentage of the TSR metric will be adjusted downwards according to the Company's share price discount to net asset value at the time of vesting. Share Price Discount will be calculated with reference to the closing share price on 15 November 2024 and EPRA Net Tangible Assets as at 30 September 2024. The base price is £2.44 per share which was the market price at the grant date.

Annualised TSR over the TSR performance period	Vesting %	TPR equivalent total over performance period	Vesting %
<5%	0	<0.5%	0
Equal to 5%	20	Equal to 0.5%	20
Between 5% and 9%	20-100	Between 0.5% and 2.5%	20-100
Equal to 9%	100	Equal to 2.5%	100

The fair value of grants was measured at the grant date using a Black−Scholes pricing model for the TPR tranche and using a Monte Carlo pricing model for the TSR tranche, 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 both the Black−Scholes and Monte Carlo pricing models are as follows:

	Monte Carlo TSR Tranche	Black-Scholes PV Tranche
Grant date	16 November 2021	16 November 2021
Share price	£2.44	£2.44
Exercise price	0p	0p
Term	5 years	5 years
Expected volatility	38.03%	38.03%
Expected dividend yield	0.00%	0.00%
Risk free rate	0.59%	0.59%
Time to vest (years)	3.0	3.0
Expected forfeiture p.a.	0%	0%
Fair value per option	£1.28	£2.44

The expense recognised for employee share-based payment received during the period is shown in the following table:

	2022 £'000	2021 £'000
LTIP 2017	-	13
LTIP 2018	42	86
LTIP 2019	9	135
LTIP 2020	72	66
LTIP 2021	39	-
Total expense arising from share-based payment transactions	162	300

23. RELATED PARTY TRANSACTIONS

Accounting services amounting to £Nil (2021: £3,062) have been provided to the Group by Stanley Davis Group Limited, a company where Stanley Davis is a Director and Shareholder.

Charitable donations amounting to £Nil (2021: £4,000) have been made by the Group to Variety, the Children's Charity, a charity where Neil Sinclair is a Trustee.

Dividend payments made to Directors amounted to £262,265 (2021: £163,511) during the year. See note 4 for further details of key management remuneration.

24. CAPITAL COMMITMENTS

The obligation for capital expenditure relating to the construction, development or enhancement of investment properties entered into by the Group amounted to £395,952 (2021: £5,575,818).

25. POST BALANCE SHEET EVENTS

On 1 April 2022, the Group completed the disposal of Warren House, Thame for a total consideration of £1.63 million. The property was charged against the loan facility with Barclays Bank plc and as a result, £506,758 of the total consideration was used to repay the Barclays loan on 4 April 2022.

On 13 April 2022, the Group signed a 12 month extension with Lloyds in respect of the Liverpool facility to extend the termination date to 7 March 2023.

On 14 April 2022, the Group completed the disposal of 2-4 High Road, Ickenham, for a total consideration of £875,000. The property was charged against the loan facility with Barclays Bank plc and as a result, £432,234 of the total consideration was used to repay the Barclays loan facility on 21 April 2022.

On 19 May 2022, the Group exchanged on the disposal of Winchester Street, Salisbury, for a total consideration of £2.01m. The property is charged against the loan facility with NatWest plc, with £1.24m of the total consideration being used to repay the facility. Completion of the sale is due to take place by 28 June 2022.

On 27 May 2022, the Group signed an amend and restate for the Santander UK facility. The amend and restate replaces the existing Santander UK facility that was due to expire on 3 August 2022. The facility is charged at a margin of 2.2% plus SONIA.

Post year end, the Group have completed on a further four residential unit sales at Hudson Quarter for a total consideration of £1.7m.

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.

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:

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.

Capital risk management

The Group considers its capital to comprise its share capital, share premium, other reserves and retained earnings which amounted to £177,204,000 at 31 March 2022 (2021: £157,831,000). 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.

Market risk

Market risk arises from the Group's use of interest bearing, and tradable instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk) or other market factors.

Interest rate risk

The interest rate exposure profile of the Group's financial assets and liabilities as at 31 March 2022 and 31 March 2021 were:

	Nil rate assets and liabilities £'000	Floating rate assets £'000	Fixed rate liability £'000	Floating rate liability £'000	Total £'000
As at 31 March 2022
Trade and other receivables	2,666	-	-	-	2,666
Cash and cash equivalents	-	28,143	-	-	28,143
Trade and other payables	(4,377)	-	-	-	(4,377)
Interest rate swaps	-	-	(47)	-	(47)
Bank borrowings	-	-	(61,386)	(39,851)	(101,237)
Lease liabilities	-	-	(1,078)	-	(1,078)
	(1,711)	28,143	(62,511)	(39,851)	(75,930)

	Nil rate assets and liabilities £'000	Floating rate assets £'000	Fixed rate liability £'000	Floating rate liability £'000	Total £'000
As at 31 March 2021
Trade and other receivables	5,236	-	-	-	5,236
Cash and cash equivalents	-	9,417	-	-	9,417
Trade and other payables	(7,461)	-	-	-	(7,461)
Equity investments	3,249	-	-	-	3,249
Interest rate swaps	-	-	(1,029)	-	(1,029)
Bank borrowings	-	-	(62,579)	(64,706)	(127,285)
Lease liabilities	-	-	(1,958)	-	(1,958)
	1,024	9,417	(65,566)	(64,706)	(119,831)

The Group's interest rate risk arises from borrowings issued at floating interest rates. The Group's interest rate risk is reviewed throughout the year by the Directors. The Group manages its exposure to interest rate risk on borrowings through the use of interest rate derivatives (see note 16). Interest rate swaps are used to mitigate the risk of an increase in interest rates but also to allow the Group to benefit from a fall in interest rates. 60% of the Group's interest rate exposure is fixed and the remainder held on a floating rate. The Group has employed an external adviser when contracting hedging to advise on the structure of the hedging.

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 £28,143,000 (2021: £9,417,000). Interest receivable in the income statement would be affected by £281,000 (2021: £94,000) by a one percentage point change in floating interest rates on a full year basis.

The Group's borrowings with Lloyds, Barclays, NatWest, Scottish Widows and Santander UK have all transitioned from the London Interbank Offer Rate (LIBOR) benchmark to Sterling Overnight Index Average (SONIA) benchmark. There has been and is expected to be negligible cost involved in the borrowing facility transition and the respective hedge instrument amendments.

The Group has loans amounting to £39,851,000 (2021: £64,706,000) which have interest payable at rates linked to the three-month SONIA interest rates or bank base rates. A 1% increase in the SONIA or base rate will have the effect of increasing interest payable by £399,000 (2021: £647,000).

The Group has interest rate swaps with a nominal value of £52,939,449 (2021: £53,315,036). If the SONIA or base rate was to increase above the fixed contract rate then the Group will benefit from a fair value increase of the interest rate swap. If, however, the SONIA or base rate was to decrease, then the Group would incur a decrease in the fair value of the interest rate swap.

Change in interest rate

-1%

£'000

+1%

£'000

(Decrease)/increase in fair value of interest rates swaps as at 31 March 2022

(326)

321

(Decrease)/increase in fair value of interest rates swaps as at 31 March 2021

(859)

840

Upward movements in medium and long-term interest rates, associated with higher interest rate expectations, increase the value of the Group's interest rate swaps that provide protection against such moves. The converse is true for downward movements in the yield curve.

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

Credit risk management

Credit risk refers to the risk that a counterparty 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 2022 the cash balances of the Group were £28,143,000 (2021: £9,417,000). The concentration of credit risk held with Barclays Bank plc, the largest of these banks, was £20,281,000 (2021: £6,773,000). 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 tenant by contractual income amounts to 5.7% (2021: 5.6%) of the Group's anticipated income. The Directors assess a tenant's creditworthiness 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 2022 was £2,666,000 (2021: £5,236,000). The details of the provision for expected credit loss are shown in note 13.

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 lease liabilities.

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

	On demand £'000	0-1 years £'000	1-2 years £'000	2-5 years £'000	> 5 years £'000	Total £'000
As at 31 March 2022
Interest bearing loans	-	35,044	3,409	70,257	-	108,710
Lease liabilities	-	54	54	162	5,894	6,164
Derivative financial instruments	-	-	(3)	50	-	47
Trade and other payables	4,377	-	-	-	-	4,377
	4,377	35,098	3,460	70,469	5,894	119,298

	On demand £'000	0-1 years £'000	1-2 years £'000	2-5 years £,000	> 5 years £'000	Total £'000
As at 31 March 2021
Interest bearing loans	-	25,678	35,268	68,244	7,735	136,925
Lease liabilities	-	107	108	323	10,799	11,337
Derivative financial instruments	-	-	312	717	-	1,029
Trade and other payables	7,461	-	-	-	-	7,461
	7,461	25,785	35,688	69,284	18,534	156,752

Company Statement of Financial Position

as at 31 March 2022

	Note	2022 £'000	2021 £'000
Fixed assets
Investments in subsidiaries	2	122,864	125,567
Listed equity investments	3	-	3,249
Property, plant and equipment	4	43	68
		122,907	128,884
Current assets
Trade and other receivables	5	42,576	33,899
Cash at bank and in hand		479	266
		43,055	34,165
Total assets		165,962	163,049
Current liabilities
Creditors: amounts falling due within one year	6	(28,953)	(19,159)
Net current assets		14,102	15,006

Total assets less current liabilities		137,009	143,890
Equity
Called up share capital	7	4,639	4,639
Treasury shares		(717)	(1,288)
Merger reserve		3,503	3,503
Capital redemption reserve		340	340
Capital reduction reserve		125,019	125,019
Retained earnings		4,225	11,677
Equity - attributable to the owners of the Parent		137,009	143,890

The Company's loss after tax for the year was £1,706,000 (2021: £2,826,000).

The financial statements were approved by the Board of Directors and authorised for issue on 13 June 2022 and are signed on its behalf by:

MATTHEW SIMPSON

Chief Financial Officer

Company Statement of Changes in Equity

as at 31 March 2022

	Share Capital £'000	Share Premium £'000	Treasury Share Reserve £'000	Other Reserves £'000	Capital Reduction Reserve £'000	Retained Earnings £'000	Total Equity £'000
At 31 March 2020	4,639	125,019	(1,349)	3,843	-	17,548	149,700
Total comprehensive income for the year	-	-	-	-	-	(2,826)	(2,826)
Transactions with Equity Holders
Share-based payments	-	-	-	-	-	300	300
Exercise of share options	-	-	61	-	-	(61)	-
Issue of deferred bonus share options	-	-	-	-	-	171	171
Dividends	-	-	-	-	-	(3,455)	(3,455)
Transfer to capital reduction reserve account	-	(125,019)	-	-	125,019	-	-
At 31 March 2021	4,639	-	(1,288)	3,843	125,019	11,677	143,890
Total comprehensive income for the year	-	-	-	-	-	(1,706)	(1,706)
Transactions with Equity Holders
Share-based payments	-	-	-	-	-	162	162
Exercise of share options	-	-	571	-	-	(571)	-
Issue of deferred bonus share options	-	-	-	-	-	90	90
Dividends	-	-	-	-	-	(5,427)	(5,427)
At 31 March 2022	4,639	-	(717)	3,843	125,019	4,225	137,009

Share premium represents the excess over nominal value of the fair value consideration received for equity shares net of expenses of the share issue.

Treasury shares represents the consideration paid for shares bought back from the market.

Other reserves comprise the merger reserve and the capital redemption reserve.

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

The capital reduction reserve represents distributable profits generated as a result of the share premium reduction.

Notes to the Company Financial Statements

Accounting policies

Palace Capital plc is a company incorporated in England and Wales under the Companies Act. The address of the registered office is given on the contents page and the nature of the Group's operations and its principal activities are set out in the Strategic Report. The financial statements of the Company have been prepared in accordance with FRS 102, the Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland.

The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires Company's management to exercise judgement in applying the Company's accounting policies (as detailed below). The Statement of Financial Position heading relating to the Company's investments and property, plant and equipment has been amended to "Fixed assets" from "Non-current assets" to be consistent with the Company's presentation of its Statement of Financial Position in accordance with the balance sheet formats of the Companies Act 2006. Assets are classified in accordance with the definitions of fixed and current assets in the Companies Act instead of the presentation requirements of IAS 1 Presentation of Financial Statements

Dividends revenue

Revenue is recognised when the Company's right to receive payment is established, which is generally when Shareholders of the paying company approve the payment of the dividend.

Valuation of investments

Investments in subsidiaries are measured at cost less accumulated impairment. Where merger relief is applicable, the cost of the investment in a subsidiary undertaking is measured at the nominal value of the shares issued together with the fair value of any additional consideration paid.

Listed equity investments

Listed equity investments have been classified as being at fair value through profit and loss. Listed equity investments are subsequently measured using Level 1 inputs, the quoted market price, and all fair value gains or losses in respect of those assets are recognised in the profit and loss.

Current taxation

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and the tax laws used to compute the amount are those that are enacted or substantively enacted, by the balance sheet date.

Deferred taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax balances are recognised in respect of timing differences that have originated but not reversed on the balance sheet date. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Deferred tax balances are not recognised in respect of permanent differences between the fair value of assets acquired and the future
tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Trade and other receivables

Trade and other receivables and intercompany receivables are recognised and carried at the original transaction value. A provision for impairment is established where there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables concerned.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liabilities and equity

Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below:

Trade payables

Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the fair value of proceeds received, net of direct issue costs.

Parent company disclosure exemptions

In preparing the separate financial statements of the Parent Company, advantage has been taken of the following disclosure exemptions available in FRS 102:

• no cash flow statement has been presented for the Parent Company;

• disclosures in respect of the Parent Company's financial instruments have not been presented as equivalent disclosures have been provided in respect of the Group as a whole;

• disclosures in respect of the Parent Company's share-based payment arrangements have not been presented as equivalent disclosures have been provided in respect of the Group as a whole; and

• disclosure has been given for the aggregate remuneration of the key management personnel of the Parent Company as their remuneration is included in the totals for the Group as a whole.

Judgements in applying accounting policies and key sources of estimation uncertainty

Investments and loans to subsidiary undertakings (see note 3)

The most critical estimates, assumptions and judgements relate to the determination of carrying value of unlisted investments in the Company's subsidiary undertakings and the carrying value of the loans that the Company has made to them. The nature, facts and circumstance of the investment or loan are taken into account in assessing whether there are any indications of impairment.

Provisions provided in the year reflect the reduction in net asset value of subsidiaries for the year ended 31 March 2022. Write-down of investments reflect the winding up of subsidiaries within the year.

1. PROFIT FOR THE FINANCIAL PERIOD

The Company has taken advantage of section 408 of the Companies Act 2006 and consequently a profit and loss account for the Company alone has not been presented.

2. INVESTMENTS IN SUBSIDIARIES

Cost:	Investments in subsidiaries £'000	Loans to subsidiaries £'000	Total £'000
At 1 April 2020	183,614	40	183,654
Settlement of loans	-	(40)	(40)
At 1 April 2021	183,614	-	183,614
Write-down of investments	(2,658)	-	(2,658)
At 31 March 2021	180,956	-	180,956
Provision for impairment:
At 1 April 2020	56,197	-	56,197
Provided during the year	1,850	-	1,850
At 1 April 2021	58,047	-	58,047
Provided during the year	45	-	45
At 31 March 2022	58,092	-	58,092

Net book value at 31 March 2022	122,864	-	122,864
Net book value at 31 March 2021	125,567	-	125,567

The Group comprises a number of companies; all subsidiaries included within these financial statements are noted below:

Subsidiary undertaking:	Class of share held	% shareholding	Principal activity
Palace Capital (Leeds) Limited	Ordinary	100	Property Investments
Palace Capital (Northampton) Limited	Ordinary	100	Property Investments
Palace Capital (Properties) Limited	Ordinary	100	Property Investments
Palace Capital (Developments) Limited	Ordinary	100	Property Investments
Palace Capital (Halifax) Limited	Ordinary	100	Property Investments
Palace Capital (Manchester) Limited	Ordinary	100	Property Investments
Palace Capital (Liverpool) Limited	Ordinary	100	Property Investments
Palace Capital (Signal) Limited	Ordinary	100	Property Investments
Property Investment Holdings Limited	Ordinary	100	Property Investments
Palace Capital (Dartford) Limited	Ordinary	100	Property Management
Palace Capital (Newcastle) Limited	Ordinary	100	Property Investments
Palace Capital (York) Limited	Ordinary	100	Property Management
Associate Company:
HBP Services Limited*	Ordinary	21.4	Property Management
Clubcourt Limited*	Ordinary	40	Property Management

* Held indirectly

The results of the associates are immaterial to the Group.

The registered addresses for the subsidiaries across the Group are consistent based on their country of incorporation and are as follows:

UK entities: 4th Floor, 25 Bury Street, St James's, London, SW1Y 6AL

On 22 March 2022 R.T. Warren (Investments) Limited was dissolved.

3. LISTED EQUITY INVESTMENTS

	Total £'000
At 31 March 2020	2,540
Gain on revaluation of listed equity investment shown in statement of comprehensive income	709
At 31 March 2021	3,249
Disposal of listed equity investment	(3,249)
At 31 March 2022	-

4. PROPERTY, PLANT AND EQUIPMENT

	IT, fixtures and fittings £'000
At 31 March 2020	253
Additions	16
At 31 March 2021	269
Additions	2 22
At 31 March 2022	291
Depreciation
At 31 March 2020	157
Provided during the period	44
At 31 March 2021	201
Provided during the period	47
At 31 March 2022	248

Net book value at 31 March 2022	43
Net book value at 31 March 2021	68

5. TRADE AND OTHER RECEIVABLES

	2022 £'000	2021 £'000
Amounts owed by subsidiary undertakings	36,374	30,063
Trade debtors	5,607	2,454
Other debtors	44	1,096
Accrued interest on amounts owed by subsidiary undertakings	309	65
Prepayments	242	221
	42,576	33,899

Trade debtors represent amounts owed from subsidiary undertakings in relation to management charges.

All amounts that fall due for repayment within one year and are presented within current assets as required by the Companies Act. The amounts owed by subsidiary undertakings are repayable on demand with no fixed repayment date, although it is noted that a significant proportion of the amounts may not be sought for repayment within one year depending on activity in the subsidiary undertakings.

A loan amounting to £28,888,501 remains outstanding at 31 March 2022 (2021: £26,375,362) from Palace Capital (Developments) Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £519,534 remains outstanding at 31 March 2022 (2021: £396,034) from Palace Capital (Leeds) Limited. Interest on this loan is charged at a fixed rate of 5% per year. This loan is repayable on demand.

A loan amounting to £2,781,417 remains outstanding at 31 March 2022 (2021: £3,291,417) from Palace Capital (Halifax) Limited. Interest on this loan is charged at a fixed rate of 5% per year. This loan is repayable on demand.

A loan amounting to £4,034,646 remains outstanding at 31 March 2022 (2021: £743,583 creditor) from Palace Capital (Properties) Limited. Interest on this loan is charged at a fixed rate of 5% per year. This loan is repayable on demand.

A loan amounting to £150,000 remains outstanding at 31 March 2022 (2021: £Nil) from Palace Capital (Northampton) Limited. Interest on this loan is charged at a fixed rate of 5% per year. This loan is repayable on demand.

6. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

	2022 £'000	2021 £'000
Trade creditors	168	206
Amount owed to subsidiary undertaking	27,528	17,776
Other taxes	278	269
Other creditors	5	66
Accruals and deferred income	974	842
	28,953	19,159

A loan amounting to £10,113,143 remains outstanding at 31 March 2022 (2021: £9,373,143) to Palace Capital (Signal) Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £Nil remains outstanding at 31 March 2022 (2021: £2,662,519) to R.T. Warren Investments Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £16,314,718 remains outstanding at 31 March 2022 (2021: £4,996,489) to Property Investment Holdings Limited. No interest is charged on this loan. This loan is repayable on demand.

A loan amounting to £1,100,000 remains outstanding at 31 March 2022 (2021: £Nil) to Palace Capital (Liverpool) Limited. No interest is charged on this loan. This loan is repayable on demand.

7. SHARE CAPITAL

The details of the Company's share capital are provided in note 21 of the notes to the Consolidated Financial Statements.

8. LEASES

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

	2022 £'000	2021 £'000
Within one year	19	178
From one to two years	-	19
	19	197

9. POST BALANCE SHEET EVENTs

There are no post balance sheet events.Officers and Professional Advisors

Directors

Steven Owen Interim Executive Chairman

Matthew Simpson Chief Financial Officer

Richard Starr Executive Property Director

Kim Taylor-Smith Non-Executive Director

Mickola Wilson Non-Executive Director

Paula Dillon Non-Executive Director

Secretary

Phil Higgins

Registered office

25 Bury Street
London
SW1Y 6AL

Registered number

05332938 (England and Wales)

Auditor

BDO LLP

55 Baker Street
London
W1U 7EU

Registrar

Link Group

10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL

Joint broker

Arden Partners plc

125 Old Broad Street
London
EC2N 1AR

Joint broker

Numis Securities Limited

45 Gresham Street
London
EC2V 7BF

Glossary

Adjusted EPS: Is adjusted profit before tax less corporation tax charge on recurring earnings (excluding deferred tax movements) divided by the average basic number of shares in the period.

Adjusted profit before tax: Is the IFRS profit before taxation excluding investment property revaluations, gains/losses on disposals, acquisition costs, fair value movement in derivatives, share-based payments and exceptional items.

Assets Under Management (AUM): Is a measure of the total market value of all properties owned and managed by the Group.

Balance sheet gearing: Is the balance sheet net debt divided by IFRS net assets.

Building Research Establishment Environmental Assessment Methodology (BREEAM) rating: A set of assessment methods and tools designed to help construction professionals understand and mitigate the environmental impacts of the developments they design and build. Performance is measured across a series of ratings: Good, Very Good, Excellent and Outstanding.

Core: Is a property investment management style which adopts a certain risk appetite growth strategy. Core is typically associated with a low to moderate risk profile. Core property owners would have the ability to increase cash flows through light refurbishment and asset management strategies. These properties tend to be high quality and well occupied.

Dividend cover: Is the Adjusted EPS divided by dividend per share declared in the period.

EPRA: Is the European Public Real Estate Association.

EPRA cost ratio (including direct vacancy costs): Is a proportionally consolidated measure of the ratio of net overheads and operating expenses against gross rental income (with both amounts excluding ground rents payable). Net overheads and operating expenses relate to all administrative and operating expenses, net of any service fees, recharges or other income specifically intended to cover overhead and property expenses.

EPRA cost ratio (excluding direct vacancy costs): Is the ratio calculated above, but with direct vacancy costs removed from the net overheads and operating expenses balance.

EPRA diluted EPS: Is EPRA earnings divided by the average diluted number of shares in the period.

EPRA earnings: Is the IFRS profit after taxation excluding investment property revaluations, gains/losses on disposals and changes in fair value of financial derivatives.

EPRA EPS: Is EPRA earnings divided by the average basic number of shares in the period.

EPRA net assets (EPRA NAV): Are the balance sheet net assets according to the definitions of the various NAV measures defined in the EPRA Best Practice Recommendations that came into effect for accounting periods starting 1 January 2020.

EPRA NAV per share: Is EPRA NAV divided by the diluted number of shares at the period end.

EPRA net tangible assets (EPRA NTA): Is the NAV adjusted to reflect the fair value of trading properties and derivatives and to exclude deferred taxation on revaluations.

EPRA occupancy rate: Is the ERV of occupied space divided by ERV of the whole portfolio, excluding developments and residential property.

EPRA topped-up net initial yield: Is the current annualised rent, net of costs, topped up for contracted uplifts, where these are not in lieu of rental growth, expressed as a percentage of capital value.

EPRA vacancy rate: Is the ERV of vacant space divided by ERV of the whole portfolio, excluding developments and residential property.

Equivalent yield: Is the net weighted average income return a property will produce based upon the timing of the income received. In accordance with usual practice, the equivalent yields (as determined by the external valuers) assume rent received annually in arrears and on values before deducting prospective purchaser's costs.

Estimated rental value (ERV): Is the external valuers' opinion as to the open market rent which, on the date of valuation, could reasonably be expected to be obtained on a new letting or rent review of a property.

IAS/IFRS: Is the International Financial Reporting Standards issued by the International Accounting Standards Board and adopted by the UK.

Interest cover ratio (ICR): Is the number of times net interest payable is covered by underlying profit before net interest payable and taxation.

Investment Property Databank (IPD): A wholly-owned subsidiary of MSCI producing an independent benchmark of property returns and the Group's portfolio returns.

Key Performance Indicators (KPIs): Are the most critical metrics that measure the success of specific activities used to meet business goals - measured against a specific target or benchmark, adding context to each activity being measured.

LIBOR: Is the London Interbank Offered Rate, a formerly used interest rate charged by one bank to another for lending money.

Like-for-like net rental income: Is the change in net rental income on properties owned throughout the current and previous periods under review. This growth rate includes revenue recognition and lease accounting adjustments but excludes properties held for development in either period, properties with guaranteed rent reviews, asset management determinations and surrender premiums.

Like-for-like valuation: Is the change in the carrying value of properties owned throughout the entire year.

This excludes properties acquired during the year, disposed of during the year and capital expenditure

Loan to value (LTV): Is the ratio of principal value of gross debt less cash, short-term deposits and liquid investments to the aggregate fair value of properties and investments.

MSCI Inc. (MSCI IPD): Is a company that produces independent benchmarks of property returns. The Group measures its performance against both the Central London Offices Index and the UK All Property Index.

Net asset value (NAV) per share: Is the equity attributable to owners of the Group divided by the number of ordinary shares in issue at the period end.

Net equivalent yield (NEY): Is the weighted average income return (after adding notional purchaser's costs) a property will produce based upon the timing of the income received. In accordance with usual practice, the equivalent yields (as determined by the external valuers) assume rent is received annually in arrears.

Net initial yield (NIY): Is the current annualised rent, net of costs, expressed as a percentage of capital value, after adding notional purchaser's costs.

Net rental income: Is the rental income receivable in the period after payment of net property outgoings. Net rental income will differ from annualised net rents and passing rent due to the effects of income from rent reviews, net property outgoings and accounting adjustments for fixed and minimum contracted rent reviews and lease incentives.

Net reversionary yield (NRY): Is the anticipated yield, which the initial yield will rise to once the rent reaches the estimated rental value.

Passing rent: Is the gross rent, less any ground rent payable under head leases.

Peer Group: A selection of small/medium sized property companies within the listed real estate sector with a diversified portfolio.

Portfolio Valuation: The value of the Company's property portfolio, including all investment and trading properties as valued by our independent valuers, Cushman & Wakefield, and assets held for sale.

Portfolio Value (PV): The value of the investment properties within the Palace Capital property portfolio as measured by Cushman & Wakefield. It is referenced in relation the 2018 LTIP's awarded to employees in 2018.

Property Income Distribution (PID): A dividend received by a Shareholder of the principal company in respect of profits and gains of the Property Rental Business of the UK resident members of the REIT Group or in respect of the profits or gains of a non-UK resident member of the REIT Group.

Real Estate Investment Trust (REIT): A UK Real Estate Investment Trust must be a company listed on a recognised stock exchange with at least three-quarters of its profits and assets derived from a qualifying property rental business. Income and capital gains from the property rental business are exempt from tax but the REIT is required to distribute at least 90% of those profits to Shareholders. Tax is payable on profits from non-qualifying activities of the residual business.

SONIA: Is the Sterling Overnight Index Average, the interest rate charged by one bank to another for lending money.

Special Purpose Vehicle (SPV): Is a separate legal entity created by an organisation. The SPV is a distinct company with its own assets and liabilities, as well as its own legal status. Usually, they are created for a specific objective, often which is to isolate financial risk. As it is a separate legal entity, if the Parent Company goes bankrupt, the special purpose vehicle can carry its obligations.

Tenant (or lease) incentives: Are any incentives offered to occupiers to enter into a lease. Typically the incentive will be an initial rent free period, or a cash contribution to fit-out or similar costs. Under accounting rules the value of lease incentives given to tenants is amortised through the Income Statement on a straight-line basis to the lease expiry.

Total Accounting Return (TAR): Is the increase or decrease in EPRA NAV per share plus dividends paid, and this can be expressed as a percentage of EPRA NAV per share at the beginning of the period.

Total Expense Ratio: Is calculated as total administrative costs for the year divided by total asset value in the year.

Total Property Return (TPR): Total property return is a performance measure calculated by the MSCI IPD and defined in the MSCI Global Methodology Standards for Real Estate Investment as "the percentage value change plus net income accrual, relative to the capital employed".

Total Shareholder Return (TSR): Is calculated as the movement in the share price for the period plus dividends paid in the year, divided by opening share price

Value-add: Is a risk appetite growth strategy. Typically associated with a moderate to high-risk profile. Value-add properties tend to have low cash flows at acquisition but have the potential to produce future cash flow uplifts once value has been added. This could be by taking on larger capital refurbishment projects to improve the layout and look of the property to ensure rental increases and capital value enhancement.

Weighted average debt maturity: Is measured in years when each tranche of Group debt is multiplied by the remaining period to its maturity and the result is divided by total Group debt in issue at the period end.

Weighted average interest rate: Is the loan interest per annum at the period end, divided by total debt in issue at the period end.

Weighted average unexpired lease term (WAULT): Is the average lease term remaining to first break, or expiry, across the portfolio weighted by rental income. This is also disclosed assuming all break clauses are exercised at the earliest date,
as stated.

WiredScore: Wired Certification is a commercial real estate
rating system that empowers landlords to understand, improve, and promote their buildings' digital infrastructure. Connectivity
is measured across a series of ratings: Platinum, Gold, Silver
and Certified.

Solicitors

Hamlins LLP

1 Kingsway
London
WC2B 6AN

CMS Cameron McKenna
Nabarro Olswang LLP

1 South Quay
Victoria Quays
Sheffield
S2 5SY

Walker Morris LLP

33 Wellington Street
Leeds
LS1 4DL

Edwin coe LLP

Lincoln's Inn
2, Stone Buildings
London
WC2A 3TH

Investor & public relations

FTI Consulting

200 Aldersgate
Aldersgate Street
London
EC1A 4HD

Bankers

Barclays Bank plc

69 Albion Street
Leeds
LS1 5AA

Lloyds Bank plc

25 Gresham Street
London
EC2V 7HN

National Westminster Bank plc

16 The Boulevard
Crawley
West Sussex
RH10 1XU

Santander UK plc

Bridle Road
Merseyside
L30 4GB

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Companies

Palace Capital (PCA)

Thursday, 21st November 2024

COMPANIES COVERED:

HLMA JD. ITH

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