Palace Capital plc
25 Bury Street, St James's, London, SW1Y 6AL
palacecapitalplc.com
T: +44 (0)20 3301 8330
E: info@palacecapitalplc.com
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THE REGIONAL PROPERTY INVESTMENT COMPANY
Annual Report and Accounts 2017
Uniquely positioned
Sector-leading returns
Stock Code: PCA
www.palacecapitalplc.com
PALACE CAPITAL plc
Palace Capital is a UK-listed property
investment company that focuses on
commercial real estate outside London.
Our strategy is to build a diversified portfolio with sector leading
income and capital returns, through opportunistic corporate and direct
property acquisitions and innovative asset management initiatives.
Identified as one of the top
25 property growth companies
CONTENTS
OVERVIEW
01 Highlights
02 At a glance
04 Investment case
STRATEGIC REPORT
08 Market Overview
10 Business Model
& Strategy
12 Chief Executive's
review
14
18
Property review
Financial review
22 Risk management
GOVERNANCE
FINANCIAL STATEMENTS
COMPANY INFORMATION
26
Statement of
Corporate Governance
40 Consolidated Statement
of Comprehensive Income
80 Notice of Annual
General Meeting
28 Board of Directors
30 Directors' report
32
Statement of
Directors'
responsibilities
33 Directors’
remuneration
37
Independent
Auditor’s report
41 Consolidated Statement
of Financial Position
84 Officers and
Professional Advisors
85 Glossary
42 Consolidated Statement
of Changes in Equity
43 Consolidated Statement
of Cash Flows
44 Notes to the Consolidated
Financial Statements
72 Company Statement
of Financial Position
73 Company Statement
of Changes in Equity
74 Notes to the Company
Financial Statements
01 Highlights
Our uniquely positioned regional portfolio continues to
outperform the sector, delivering sustainable income and capital
returns reflected in EPRA NAV per share up 7% to 443p and
enabling us to increase dividends by 16% to 18.5p for the year.
FINANCIAL HIGHLIGHTS
ASSETS UNDER MANAGEMENT
EPRA NAV* £M
EPRA NAV PER SHARE*
£183.2m
+6%
£111.8m
+5%
443p
+7%
2017
2016
2015
2017
2016
2015
183.2
173.4
2017
2016
2015
102.8
£111.8m
£106.9m
£80.1m
2017
2016
2015
443p
414p
393p
ADJUSTED PBT £M
£6.7m
+20%
TOTAL ACCOUNTING RETURN %
DIVIDEND PER SHARE PENCE
11.4%
+41%
18.5p
+16.%
£6.7m
£5.6m
£4.7m
2017
2016
2015
11.4%
8.1%
13.9%
2017
2016
2015
18.5p
16.0p
13.0p
FINANCIAL HIGHLIGHTS
OPERATIONAL HIGHLIGHTS
• IFRS Profit before tax: increased
by 7% to £12.6m (31 March 2016:
£11.8m) reflecting a combination of
trading profit, revaluation gains and
profit on disposals
• Acquisition: Boulton House,
Central Manchester office building
for £10.6m at a NIY 5.5% and
reversionary yield of 8.5%
• 13 sales, totalling £12.6m, generating
• Portfolio valuation at 31 March
£3.2m profit
• Total ownership as at 31 March 2017
of 44 properties across 1.6m sq ft
with over 165 leases
• Overall occupancy of investment
portfolio up to 91%** (2016: 89%)
2017: increased by 6% to £183.2m
(31 March 2016: £173.4m)
• EPRA NAV per share*: increased
by 7% to 443p at 31 March 2017
(31 March 2016: 414p)
• Adjusted profit before tax*:
increased by 20% to £6.7m (2016:
£5.6m)
• Adjusted EPS*: increased by 17%
to 22.2p (31 March 2016: 18.9p)
• Final dividend: 9.5p proposed,
making a total for the year of 18.5p, a
16% increase (31 March 2016: 16.0p)
ASSET MANAGEMENT
HIGHLIGHTS
• Application for planning permission
at Hudson House, Central York
submitted in March 2017 to include 127
apartments, 34,000 sq ft offices, 5,000
sq ft commercial space and car parking
• £2.1m conversion of the vacant first
floor offices at Dartford into
13 self-contained flats was
successfully let for 10 years to
Dartford Borough Council at a rental
of £146,500 per annum
• Rent roll of £12.7m at 31 March 2017
(reduced from £13.5m at 31 March
2016 as a result of recent disposals)
• Weighted average unexpired lease
term to break of 5.8 years (31 March
2016: 6.3 years)
* We report a number of Alternative Performance Measures ('APMs') including EPRA and Adjusted earnings measures detailed
in the glossary of terms to improve the transparency and comparability with other listed European real estate companies
** Overall occupancy is adjusted to exclude Hudson House, York, which is currently held for development
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017OVERVIEW 02 At a Glance
Our objective is to out-perform both the income-focused REITs and
capital focused developers. As a result of our uniquely positioned
regional portfolio and experienced management team, we actively
manage our assets to generate sustainable income and capital growth.
Diversified
regional portfolio
SECTOR OVERVIEW
OFFICE
LEISURE
INDUSTRIAL
RETAIL
RETAIL
WAREHOUSE
At 31 March 2017 our portfolio consisted of 44 properties comprising over 1.6m sq ft of lettable space,
balanced sensibly across multiple sectors and locations throughout the UK. 165 tenants occupy
our properties with a weighted sector split as follows:
TOP TEN TENANTS
Tenant
Industry
Leisure
Legal
Hotels
Auto
Retail
Auto
Retail
Health
The Forensic
Science Service
Research &
Development
APCOA
Car Parking
Contracted
Rent
£'000
Percentage
of total
rent roll
865
578
510
399
355
325
284
262
260
250
6.7%
4.4%
3.9%
3.1%
2.7%
2.5%
2.2%
2.0%
2.0%
2.0%
STRATEGY AND INVESTMENT PHILOSOPHYOur uniquely positioned regional portfolio enables us to capitalise on the supply-demand imbalance in the regions outside London as well as providing attractive space for tenants at affordable rents. We generate profits on disposals by recycling capital out of non-core assets.We target acquisitions that will benefit from our innovative asset management initiatives in order to grow sustainable cash returns.Our core portfolio benefits from high occupancy, generating secure and sustainable income returns. We invest in refurbishment and capital development programmes within the existing portfolio to unlock capital growth.View our strategyon pages 10 to 11PALACE CAPITAL plc – Annual Report and Accounts 2017OVERVIEW Diversified
regional portfolio
03
Our unique approach to managing a growing regional portfolio has resulted
in sector-leading income and capital growth. In the past 3.5 years the underlying
net asset value per share of the business has increased 103% and growing
sustainable income has fuelled our progressive dividend policy, increasing
dividends to 18.5p for the current financial year.
TOTAL ASSETS
UNDER MANAGEMENT
£183.2m
NUMBER OF
PROPERTIES
44
NUMBER OF
TENANTS
165
York
Leeds
Manchester
A PROPERTY PORTFOLIO
OUTSIDE LONDON
Our property portfolio is diversified by
sector and location, providing enhanced
returns to our investors whilst mitigating
sector specific risk.
Birmingham
Northampton
Milton Keynes
Bristol
London
Exeter
Southampton
Brighton
ANNUAL RENT ROLL
£12.7m
SECTOR
42% £76.1m
24% £51.8m
20% £30.9m
10% £13.5m
4%
£10.9m
OFFICE
LEISURE
INDUSTRIAL
RETAIL
RETAIL
WAREHOUSE
View our property review
on pages 14 to 17
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017OVERVIEW
04 Investment Case
Palace Capital has a track record of out-performing the UK real estate sector,
growing shareholder value measured on a net asset value per share basis.
What makes us different?
01
02
03
Direct Corporate
Acquisitions
Entrepreneurial
Approach
The team specialises in off-market
corporate acquisitions which are tax-
efficient and have minimal purchase
costs to absorb.
In this way the company has grown
its portfolio to £183.2m having raised
£64.5m equity.
We are opportunistic in our
approach to stock selection. We
are not restricted to one sector,
therefore we are able to evaluate
each opportunity on its own merits
resulting in a diversified portfolio. We
apply innovative asset management
strategies in order to unlock potential
and grow sustainable cash returns.
Diversified
Investment Strategy
Outside London
The portfolio is diversified by
location, sector and tenants.
We believe the regional economic
and business fundamentals provide
an attractive risk-return basis for
property investment. The yield
differential between London and the
Regions remains above average, with
limited development taking place
creating upward pressure on rents
in growth locations.
Growth Story
+£183.2m
in 5 years
£7.2m
£3.9m
£20.7m
£10m
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Peer Group Performance
Comparison
103%
Diverse Sectors
£10.6m
£24.2m
Increase in NAV since Oct 2013
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OFFICE
LEISURE
INDUSTRIAL
RETAIL
RETAIL
WAREHOUSE
View our Business Model
on pages 10 to 11
View our Property Review
on pages 14 to 17
View our Market Overview
on page 8 to 9
PALACE CAPITAL plc – Annual Report and Accounts 2017OVERVIEW
05
04
05
06
Active Asset
Management
Experienced
Management Team
Income
and Growth
We know every asset and meet our
tenants so our detailed understanding
of each property and its immediate
location provide us with the
information to identify, create and
exploit opportunities to add value.
We have a business plan for each
asset that is focused on enhancing
income and reducing void costs.
Capital investment, refurbishments
and change of use are undertaken in
order to generate sustainable income
and capital growth.
The Palace Capital management team
has a wealth of experience within the
property industry. It is our extensive
network of contacts that makes
us uniquely positioned to source
off-market transactions, manage
investment properties effectively
and deliver capital development
programmes.
We have established a core portfolio
of sustainable income producing
assets which has enabled us to reward
investors with a progressive dividend.
Furthermore, we also have the flexibility
to re-invest surplus cash to refurbish,
reposition and recycle property to grow
the underlying capital values of the
existing portfolio.
"The conversion of the
vacant office space to
residential & subsequent
letting to Dartford Borough
Council created a long term
investment from a liability."
Richard Starr
"In the past year we have
spent £4.6m on capital and
development programmes
across the portfolio
providing excellent
refurbished space for
businesses and tenants
across the country."
Stephen Silvester
Dividend
NAV per share
18.5p
+16%
p
5
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.
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443p
+7%
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View our Dartford case study
on page 38
View our Board of Directors
on pages 28 to 29
View our Financial Review
on pages 18 to 21
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017OVERVIEW 06
PROPERTY FOCUS
KILN FARM, 2—4 PITFIELD,
MILTON KEYNES
Units 3 and 4 were refurbished to a Grade A specification in
2014. They are let to Rockwell Automation on a lease expiring
25 December 2026, at a rent of £10.50 per sq ft (£398,916 per
annum). Importantly, both leases contain 4 yearly upwards only
rent reviews, with the next review date being 25 December 2018.
Solaris House - Unit 2 (14,500 sq ft) was occupied by Northgate
Public Services until March 2016. Refurbishing the vacant unit to the
same ‘Rockwell specification’ and establishing a direct comparable
sets the rent review tone. Achieving a letting on Unit 2 at a higher
rent is key to generating the greatest valuation returns.
We secured a dilapidations settlement on 16th August 2016 and the
building refurbishment completed on 5th December 2016, at a net
cost of £845,000. It is being marketed as high quality cost-effective
space, at a quoting rent of £16.50 per sq ft.
There is relatively limited Grade A office accommodation available
in Milton Keynes. Comparable Grade A rents elsewhere in Central
Milton Keynes range from £20.00—£23.50 per sq ft.
Acquired | October 2013
ANNUAL INCOME
£0.4m
TOTAL SPACE
53,000 sq ft
More info on page 16
PALACE CAPITAL plc – Annual Report and Accounts 2017 07
Strategic report
OVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSCOMPANY INFORMATIONPALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT 08 Market Overview
Regional economic and business fundamentals provide an attractive context for
commercial property investment.
The Palace Portfolio is uniquely positioned in many of the major towns and cities in the UK
outside London, which are less sensitive to the political uncertainties around the impact of
Brexit as they are less dependent on the financial sector based predominantly in London.
Regional focus
CHARACTERISTICS OF THE
REGIONAL COMMERCIAL
REAL ESTATE MARKET
— Supply-demand imbalance
— Less volatile
— Less exposed to several
macro factors
— Less competition for assets
— Regional economic growth
FAVOURABLE
ECONOMIC BACKDROP
The property market is cyclical, with
occupier demand influenced by
economic growth. UK economic growth
since the financial crisis in 2008 has
exceeded the expectations of many
commentators, particularly since the EU
referendum in June 2016. Employment
is close to its highest level since records
began. In November 2016, the Bank of
England raised its GDP growth forecast
for 2017 from 0.8% to 1.4%. Both the
Bank of England and the Office for
Budget Responsibility forecast growth
every year to 2021. Interest rates remain
at historically low levels.
Supply of new developments has been
inhibited by economic and political
uncertainty, and has not yet recovered
to pre-2008 levels.
ATTRACTIVE CHARACTERISTICS
OF THE REGIONAL COMMERCIAL
REAL ESTATE MARKET
The regional commercial property
market has all the ingredients to
continue providing rental growth
across the major cities, even though
uncertainty persists over Brexit:
• There is a supply-demand imbalance
for regional commercial property,
leading to higher income returns on
investment and potentially greater
scope for capital growth. Regional
cities continue to attract occupiers
moving from London, particularly
the back office divisions of large
organisations. Combined with
limited new supply and the broad
UK economic recovery, tenant
demand has been rising and driving
up rents for regional offices and
industrial sites.
• Regional yield movements tend to
lag the London market and to be
less volatile.
• The yield differential between the
regions and London remain above
average, continuing capital inflows
to the regions.
PALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT 09
Regional vs London equivalent yields
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
Spreads
(RHS)
London
Regional
Source: Edison
• The regional market is less
• In the long-term, devolution of
— The December 2016
powers to city mayors and investment
in national infrastructure projects
such as HS2 are likely to support
regional economic growth.
— Regional vs London equivalent
yields (see above)
manufacturing PMI measure
reported by Markit/CIPS was
at its highest level for over two
years and constant reports of
lack of sufficient industrial space,
indicates that industrial space
(which is mainly regional), will
remain buoyant.
PROPERTY FOCUS
HARNHAM BUSINESS PARK
| SALISBURY
ACQUIRED | Aug 2014
ANNUAL INCOME
TOTAL SPACE
£0.2m
29,000sq ft
exposed to several macro factors:
— Business rate changes
Business rate changes which took
effect in April 2017, are likely to
raise costs significantly for tenants
in parts of London and South-East
England. In contrast, other areas
are likely to see business rates
remain flat or decline.
— Brexit
The UK’s regional commercial
real estate market is less
sensitive to the direct effects of
Brexit, being less dependent
than London on international
financial services, tourism and
international investment.
• There is less competition for
certain assets:
— Individual assets, especially in
secondary locations, typically
attract less attention from
institutions and international
investors, meaning that there
is less competition for assets
that require intensive asset
management.
OVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSCOMPANY INFORMATIONPALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT 10
Business Model & Strategy
Our uniquely positioned portfolio and innovative approach to asset
management enables us to deliver growing and sustainable income
and capital returns to our shareholders.
BUSINESS MODEL
INPUTS
HOW WE CREATE VALUE: Our Strategy
STRATEGY
2016/17 PROGRESS
2017/18 FOCUS
TARGETS
Opportunistic
Acquisitions
We are opportunistic in our
approach to stock selection
Active Asset
Management
We enhance income
returns and reduce vacant
costs through active asset
management
Recycle Capital
We identify non-core assets
for capital recycling into
new opportunities
• £10.6m Boulton House, Central
Manchester, Aug 2016
• Valuation uplift to £12.1m
incorporating the £0.7m
refurbishment programme
completed during the year
• Portfolio is generating £12.7m
per annum, passing rent at
March 2017
• Like for like property valuations
are up 4.5% as a result of
our active approach to asset
management
• Occupancy up to 91%
(2016: 89%)
• Sales of our vacant property
in Stockport and Stoke have a
double impact of realising cash
profits to reinvest as well as
eliminating the holding costs,
particularly empty rates
• 13 property sales during the year
generated £3.2m profits
Strategic Capex
and Development
We aim to outperform the
market through our focus on
income and capital growth
Refurbishment programs carried
out across the portfolio;
• Bank House, Leeds: 17,000 sq ft
Boulton House, Manchester:
18,500 sq ft on 3 floors.
• Solaris House, Milton Keynes:
14,500 sq ft in a self contained
building
• Copperfields, Dartford: 10,000 sq ft
• Regional office building
under offer for £20m
• Pipeline of potential
acquisitions being monitored
PROGRESSIVE
DIVIDEND POLICY
• Let recently refurbished
vacant space
• Improve occupancy to drive
income growth
INCREASE VALUE
OF PROPERTY
PORTFOLIO
• Dispose of smaller assets
where opportunity exists to
sell at above book value
• Increase average lot sizes
INCREASE GROSS
PROPERTY INCOME
• Progress development
opportunities across the
portfolio
OUT-PERFORM
SECTOR ON NAV
PER SHARE BASIS
Palace Capital Management
Expertise Supported by
Long-term Capital Partners
• Shareholder Equity
• Debt Finance conservatively
geared
WHAT
WE DO
Diversified Portfolio
We have established a regional
commercial real estate portfolio
of sustainable income producing
assets outside London.
£183.2m
VALUED
42%
OFFICE
LEISURE
24%
INDUSTRIAL 20%
RETAIL
10%
RETAIL
WAREHOUSE 4%
ASSETS UNDER MANAGEMENT BY SECTOR
Reinvestment
PALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT
11
STRATEGY
2016/17 PROGRESS
2017/18 FOCUS
TARGETS
Opportunistic
Acquisitions
We are opportunistic in our
approach to stock selection
Active Asset
Management
We enhance income
returns and reduce vacant
costs through active asset
management
Recycle Capital
We identify non-core assets
for capital recycling into
new opportunities
Strategic Capex
and Development
We aim to outperform the
market through our focus on
income and capital growth
• £10.6m Boulton House, Central
Manchester, Aug 2016
• Valuation uplift to £12.1m
incorporating the £0.7m
refurbishment programme
completed during the year
• Portfolio is generating £12.7m
per annum, passing rent at
March 2017
• Like for like property valuations
are up 4.5% as a result of
our active approach to asset
management
• Occupancy up to 91%
(2016: 89%)
• Sales of our vacant property
in Stockport and Stoke have a
double impact of realising cash
profits to reinvest as well as
eliminating the holding costs,
particularly empty rates
• 13 property sales during the year
generated £3.2m profits
Refurbishment programs carried
out across the portfolio;
• Bank House, Leeds: 17,000 sq ft
Boulton House, Manchester:
18,500 sq ft on 3 floors.
• Solaris House, Milton Keynes:
14,500 sq ft in a self contained
building
• Copperfields, Dartford: 10,000 sq ft
• Regional office building
under offer for £20m
• Pipeline of potential
acquisitions being monitored
PROGRESSIVE
DIVIDEND POLICY
• Let recently refurbished
vacant space
• Improve occupancy to drive
income growth
INCREASE VALUE
OF PROPERTY
PORTFOLIO
• Dispose of smaller assets
where opportunity exists to
sell at above book value
• Increase average lot sizes
INCREASE GROSS
PROPERTY INCOME
• Progress development
opportunities across the
portfolio
OUT-PERFORM
SECTOR ON NAV
PER SHARE BASIS
OUTCOMES
Income & capital growth
• Progressive dividend policy
18.5p
+16%
DIVIDEND PER SHARE
2017
2016
2015
18.5p
16.0p
13.0p
• Maximise shareholder value
443p
+7%
EPRA NAV PER SHARE
2017
2016
2015
443p
414p
393p
Reinvestment
OVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSCOMPANY INFORMATIONPALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT 12 Chief Executive's Review
"We are delighted to report the Company’s results for the year ended
31 March 2017 which show an IFRS profit before tax of £12.6m and
a net asset value of £109.6m."
Neil Sinclair FRICS
Chief Executive
Our strategy continues to focus on
growing both income and capital
returns for our shareholders. The
year to March has been extremely
successful on both fronts. Reflecting
this success, the Board proposes a final
dividend of 9.5p which, if approved,
takes total dividends for the year to
18.5p, more than 1.2x covered by
recurring earnings.
EPRA Net Asset Value (NAV) per share
increased by 7% from 414p as at 31
March 2016 to 443p as at 31 March
2017. We made our first significant
acquisition, which was the Signal
portfolio, in October 2013 when our
reported NAV was 218p. More than
doubling this key indicator in just
41 months supports our view that
a regional focus, active portfolio
management and an innovative
acquisition strategy will create value.
Following further acquisitions, the
carrying value of the Company’s
portfolio is now at £183.2m compared
to £173.4m twelve months prior. This
takes into account the acquisition of
Boulton House, Manchester in August
2016 and a number of disposals made
during the year at or above book value.
Our contracted rent roll is now
£12.7m per annum with a net income of
£11.0m per annum, allowing for head
rents, service charge shortfall and
empty rates.
The contracted rent roll has been
reduced by the number of successful
disposals. However, as our trading
and portfolio update on 2 May
2017 highlighted, we have agreed
a corporate acquisition for £20.0m
which, if concluded, will more than
compensate for any loss of income.
One of our significant assets at Hudson
House, York, a 103,000 sq ft office
building on a two acre site close to York
Station is now predominantly empty
pending redevelopment. This has
increased the empty rates and service
charge shortfall issue in the short term.
We remain conservatively geared, by
design. Our bank borrowings are at
£78.7m, net of cash, representing a net
loan to value (LTV) of 37% (31 March
2016: £72.7m and 37% respectively).
In our initial Admission Document in
October 2013 we stated that we would
adopt a progressive dividend policy
and pay 12p for the year ended 31
March 2015. In the current year, we paid
an interim dividend of 9p per share on
30 December 2016 and we now intend
to pay a final dividend of 9.5p per share
on 28 July 2017 to those shareholders
on the register as at 7 July 2017, making
a total dividend for the year of 18.5p.
We are making excellent progress,
notwithstanding difficult market
conditions. We are cautious but very
opportunistic and last June took
advantage of market conditions
to acquire a 75,300 sq ft office
building within a few minutes walk
of Manchester Piccadilly Station. We
had been trying to buy in the centre
of Manchester for nearly three years
which wasn't without its challenges. The
announcement of the EU Referendum
resulted in most property investors
withdrawing from the market pending
the result. This allowed us to buy
Boulton House at what we consider to
be a very satisfactory price.
Boulton House was the only acquisition
made during our last financial year. We
considered a number of opportunities
but they were either not of sufficient
quality or we could not achieve the
desired return.
My colleagues and I continue to travel
the country meeting owners, agents,
lawyers and accountants in order to
source off market acquisitions. At the
same time we take the opportunity
to meet Regional Wealth Managers &
Brokers as well as private investors.
Government policy is to encourage
investment in the Regions. Our focus
is to invest not just in the right cities
and towns but in the right places in
the right cities and towns. This has
had the desired effect of growing the
NAV well ahead of our peer group. We
will not deviate from our strict buying
policy criteria as we continue to source
acquisitions which will provide us with
the desired return.
PALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT 13
PROFIT BEFORE TAX
EPRA NAV PER SHARE
£12.6m
+7%
443p
+7%
An update on our portfolio is contained
in our Property Review. We consider
our current portfolio to have a number
of assets with exceptional potential in
the short to medium-term. Part of our
planning application for Hudson House,
York includes 127 apartments and the
sales market in the York/Harrogate area
is particularly buoyant as buyers move
from the outskirts to the town centres.
We have refurbished vacant space
in Manchester, Leeds and Milton
Keynes. There is interest from potential
tenants and once let, this will have
a material effect on values. I stated
last year that public transport and in
particular access to railway hubs will
play an increasing part for an office
development/refurbishment to be
successful. This bodes very well for our
properties in Manchester, Leeds, Milton
Keynes, York, Sutton, Leamington Spa,
Brighton and Staines. Although not
imminent, the HS2 will cut the journey
time from York to London to 80 minutes
and from Manchester to London to
95 minutes.
At the moment, buying opportunities
are somewhat limited but we continue
to focus on properties that require
our brand of active management. Our
aspiration remains to join the Official
List of the London Stock Exchange
so we continue to look at portfolios
of a particular size that fit our criteria
and where we can achieve the
desired return.
The Strategic Report has been
approved by the Board and signed
on its behalf by
Neil Sinclair
Chief Executive
We are grateful for the support of our
shareholders and I know that we have
the management team to grow the
Company significantly.
We believe we are one of the most
exciting companies in the sector,
continuing to outperform most of our
peers and we are proud to have been
recognised recently by the London
Stock Exchange's '1000 Companies
to Inspire Britain' as one of the top 25
property growth companies.
PROPERTY FOCUS
HUDSON HOUSE | YORK
PURCHASE VALUE
CURRENT BOOK VALUE
£3.8m
£14.9M
OVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSCOMPANY INFORMATIONPALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT
14 Property Review
"We regularly undertake active management initiatives on all our properties
to maximise returns. Regular inspections of our properties and engaging with
tenants enables us to adapt to economic changes, as well as to what is required
on the ground."
Richard Starr MRICS
Executive Director —
Head of Property
TENANTS
165
During the year we have been able
to buy in Manchester in an improving
location close to Manchester
Piccadilly station.
• Diversity of sectors including offices,
industrial, leisure and retail, which
is complemented by a residential
conversion in Dartford, Kent.
The purchase provides us with the
opportunity to grow the modest rental
value whilst also being a medium-
term development/refurbishment
opportunity. The general investment
market during 2016 and especially
since the turn of the year has been
starved of stock so we have taken this
opportunity to sell assets which we
believed offered little opportunity for
growth or were vacant. These sales
created a profit above book values
of £3.2m.
We now have a property portfolio
independently valued at £183.2m which
we consider still has considerable
opportunity for growth in capital value.
STATISTICS
• 44 (2016: 54) properties comprising
1.6m sq ft (2016: 1.8m sq ft)
• 165 tenants providing a contractual
rent roll of £12.7m per annum
(2016: £13.5m per annum) as
at 31 March 2017
• WAULT of 5.8 years (2016: 6.3
years) — a reflection of our active
asset management initiatives to
maintain this through the sales
and acquisitions
ACQUISITIONS
Boulton House, Manchester
As referred to in the Chief Executive’s
Review, we completed the purchase
of Boulton House, Chorlton Street in
Manchester for £10.6m in August 2016.
The property comprises 75,300 sq ft of
multi-let offices with a WAULT of 1.59
years. The net initial yield was 5.5% and
equated to a capital value of £145 per
sq ft overall. This yield was predicted
to rise to 6.9% based on conservative
rental values of £12 per sq ft.
Located within close proximity to
Manchester Piccadilly Station and
the proposed HS2 interchange, this
location will improve in the medium-
term. We have sought a purchase in
Manchester for several years but were
priced out by competitors. However,
because of the EU Referendum, the
opportunity arose for us and we
consider the prospects for this building
as very encouraging.
Since the purchase, we have
refurbished the vacant space as well
as the ground floor reception and
entrance hall at a cost of £700,000.
Terms are being negotiated with
potential tenants at rentals ahead of
expectations at the time of purchase.
EXISTING HOLDINGS
The Signal portfolio purchase
in October 2013 has performed
exceptionally well where values have
more than doubled since acquisition.
We continue to visit all the properties
and meet our tenants regularly. This
gives us immediate knowledge of
occupational requirements so that
we can ensure maximum occupation
where possible and adapt our asset
management plan accordingly.
Hudson House, York
The property comprises a 1960’s
office building of 103,000 sq ft
opposite York Railway Station and
within the city wall. Transport links
are excellent with a direct service to
London in under two hours.
We have been granted planning
permission to convert the property
to a residential and commercial use.
In September 2014, an application
was made to convert the property
into 82 residential units as well as
create 37,000 sq ft of grade A
office space.
This consent was approved in April
2016, subject to a section 106
agreement. Previously consent had
been granted to convert the building
into 139 residential units through
Permitted Development Rights in
February 2016.
PALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT
15
NO. OF PROPERTIES
WAULT
44
5.8 years
This mixed-use retail and office
property in a South East commuter
town is situated directly opposite
the Priory Shopping Centre and
within walking distance of the railway
station. The offices became vacant
and due to a lack of demand we
sought consent for the conversion
of the offices to 13 residential units.
We went ahead with the conversion
which completed within budget in
September 2016. During the works,
we were negotiating directly with
Dartford Borough Council about
an overriding lease for all the flats.
A 10 year term was concluded with
the benefit of annual increases
based on 2.5%. These works have
transformed a tertiary shopping
scheme into a vibrant mixed use
investment.
Point Four Industrial Estate,
Avonmouth
Over the year we managed two lease
renewals and two rent reviews during
which we negotiated to remove
forthcoming break clauses. One unit
remains vacant and is undergoing a
refurbishment. Significantly, rental
values in this estate have risen by 10%
over the year.
PROPERTY FOCUS
249 MIDSUMMER BOULEVARD
| MILTON KEYNES
ACQUIRED | February 2016
.
ANNUAL INCOME
TOTAL SPACE
£0.4m
50,000sq ft
Obtaining planning consent for the best
scheme is not straightforward. After
consulting with our technical team, we
began the process of seeking consent
for a new building, similar to the previous
consent granted. In March 2017, we
submitted plans for 127 residential
apartments, 34,000 sq ft of offices and
5,000 sq ft of ground floor commercial.
Discussions continue with City of York
Council on this exciting opportunity.
Broad Street Plaza, Halifax
This significant leisure scheme was
acquired in March 2016 for £24.18m,
providing a net initial yield of 7.25%.
Significantly, 40% of the leases benefit
from minimum uplifts which will
increase this yield to more than 8% by
August 2017. The scheme provides an
excellent WAULT of 13 years to break.
Whilst the scheme is trading well,
we continue to work on increasing
footfall, ensuring the scheme reaches
its full potential through implementing
various marketing initiatives as well as
new branding.
Copperfields, Dartford, Kent
In 2013 the Government introduced
Legislation known as Permitted
Development Rights (PDR) which grants
permission, in certain circumstances,
to allow the conversion of office space
to residential use.
OVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSCOMPANY INFORMATIONPALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT
16 Property Review continued
"The refurbishment of the vacant office space at The Copperfields,
Dartford, is testament to our ability to obtain a change of use to
residential, complete a £2.1m project and subsequently let 13 flats
to Dartford Borough Council."
SALES
Thirteen properties were sold during the
financial year, totalling £12.6m, compared to an
aggregated book value of £9.2m. The decision to
sell was based on our consideration that further
added value would be difficult to achieve and that
our efforts were better directed to other holdings.
These other holdings include:
Allen House, Stockport
Victoria Road, Stoke On Trent
Argent Court, Tolworth
3 buildings in the Hockenhull Portfolio
Warwick House, Leeds
ICS, 4 and 5 Hall Road, Maldon
Land and roads in West Molesey Unit C, Meadowcourt, Sheffield
Bank House, Leeds
Purchased in April 2015 and recently
valued at £10.68m (2016: £10m),
this Grade II listed city centre office
property was built in 1970 and
comprises 88,000 sq ft around a large
central atrium. The property is home
to The Bank of England, who have
occupied it since it was built, as well
as Walker Morris who are the largest
independent firm of solicitors in Leeds.
Since the purchase, we have extended
the Bank of England lease until July 2023
with a minimum increase in the annual
rent from the passing level of £117,300
per annum to £232,000 per annum at the
March 2020 rent review. This will reflect a
modest £7.50 per sq ft overall.
The vacant first floor has been fully
refurbished at a cost of £350,000
to provide a single floor plate of
approximately 17,000 sq ft which is one
of the largest second-hand refurbished
office floors available in Leeds city centre.
We are seeking to attract occupiers who
are looking for a discount to the prime
rents being paid of £28 per sq ft.
We are investigating the medium-
term redevelopment/refurbishment
prospects for this property.
Marsh Barton Trading Estate, Exeter
In our results for the year ending
31 March 2016, we announced that
administrators had been appointed to
our tenant occupying this building.
We subsequently announced last
November that we had secured a letting
to a new company that had purchased
the assets. We took the decision at that
time to instruct architects and planning
consultants to draw up plans for the
redevelopment of the site, irrespective
of the letting. The new tenant has
recently gone into administration but
fortunately we are very advanced
with our plans and we hope to be
in a position to submit a planning
application for a new building of circa
100,000 sq ft by September 2017.
Kiln Farm, 2-4 Pitfield, Milton Keynes
The tenant at unit 2 exercised its option
to terminate the lease in March 2016.
We negotiated a dilapidation settlement
and then undertook a refurbishment to
the same specification as the adjacent
units we own. We are seeking to let this
14,500 sq ft unit at a significantly higher
rental tone than was achieved next door,
thereby creating the evidence to support
an uplift in December 2018.
Sol Central, Northampton
In May 2015, we acquired the holding
company which owned a prominent
city centre leisure scheme, Sol Central,
in Northampton for £20.7m, reflecting
a net initial yield of 8.86%. Comprising
a 10 screen cinema, casino, 151 room
hotel, gym and 375 space car park, this
200,000 sq ft development has not
been trading at its optimum level for a
number of years and significantly, the
scheme lacks restaurants.
Our specialist leisure architect has
designed a scheme to transform
this dominant and iconic city centre
building, offering to take advantage of
the number of Council led initiatives
for Northampton city centre. The
space formerly occupied by Gala
Casino who vacated in 2011 has been
stripped out ready for occupation
following a surrender premium of
£3.2m in 2016.
The occupational market has been
slow during the financial year and
before we commit the funds required
for a full transformation, we will
require a significant new pre-let.
In the short-term, repairs to the external
lighting and roof are required and a
contract is being placed shortly.
249 Midsummer Boulevard,
Milton Keynes
Purchased in February 2016 for £7.2m,
reflecting a net initial yield of 7.25%, the
property comprises multi let offices of
50,000 sq ft with the tenants including DHL
& Crawford’s. The average rental equates
to £12 per sq ft. When the 2nd floor
lease expires in June 2017 and the tenant
vacates, we will upgrade this space as well
as the common parts and reception area,
estimated to cost £450,000.
Milton Keynes is one of the fastest
growing towns in the UK and directly
opposite our holding the Council
is proposing to develop a mixed
use 20 storey tower.
PALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT 17
THE FUTURE
We remain committed to our brand
of active asset management and we
are confident that there are still many
opportunities for us to continue to grow
the income, supporting our progressive
dividend policy and grow capital values
through our refurbishment plans.
Richard Starr MRICS
Executive Director
SECTORS
OFFICE
LEISURE
INDUSTRIAL
RETAIL
RETAIL WAREHOUSE
We have undertaken a full review of our
portfolio and are delighted to say that
only a few minor works are required at
this stage to comply with the proposed
new guidelines. We have a specialist
consultant advising us to ensure that
none of our holdings are affected.
Rating Revaluation
In April 2017, the Chancellor of the
Exchequer brought in new rates
assessments based on values as at April
2015, which had a significant impact
on London real estate. In contrast,
across our regional portfolio, rates have
been reduced on aggregate, ensuring
continuing affordability for our tenants.
PROPERTY FOCUS
SANDRINGHAM HOUSE
| HARLOW
ACQUIRED | Sep 2013
ANNUAL INCOME
TOTAL SPACE
£0.4m
33,000sq ft
Milton Keynes continues to see
steady rental growth beyond £20
per sq ft. Our ownership is situated
on a large site and has the potential
for significant development in the
medium-term.
Maldon
This property was bought in October
2013 and formed part of the Signal
portfolio acquisition. With a lease
expiring within three and a half years,
we investigated the potential for an
alternative use in case the tenant vacated.
After consultation with the local authority,
it became apparent that the local plan
would resist a loss of employment use.
We therefore negotiated with the tenant,
who wanted maximum flexibility, for a
10 year lease extension, incorporating
minimum increases in rent and mutual
break options. Subsequently marketed
& sold for £3.9m.
MINIMUM ENERGY EFFICIENCY
STANDARDS (MEES)
As of April 2018, it will be unlawful for
commercial and residential landlords of
properties with an Energy Performance
Certificate (EPC) rating of less than “E”
to grant new leases or renew tenant
leases (except for some exemptions).
Landlords will need to carry out works
to improve the energy performance of
their buildings to achieve the minimum
standards or face civil penalties.
OVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSCOMPANY INFORMATIONPALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT
18 Financial Review
"The Company has had an outstanding year, generating income
and capital profits that have resulted in sector-leading returns."
Stephen Silvester ACA, BSC
Finance Director
FINANCIAL HIGHLIGHTS
+ / —
2017
2016
CAPITAL GROWTH
Accounting return
Total shareholder return
Net Asset Value
Basic NAV per share
EPRA NAV per share
INCOME GROWTH
IFRS profit before tax
Adjusted profit before tax
EPRA earnings (excluding
one-off surrender premiums)
Basic EPS
EPRA EPS
Adjusted EPS
Dividend per share
DEBT FINANCE
Debt balance
Average cost of debt
Average debt maturity
Net Loan to Value Ratio
NAV gearing
11.4%
7.4%
8.1%
-2.3%
£109.6m
£106.8m
436p
443p
414p
414p
£12.6m
£11.8m
£6.7m
£5.6m
£5.4m
£4.5m
36.6p
21.2p
22.2p
18.5p
43.9p
31.3p
18.9p
16.0p
£77.8m
£71.9m
2.9%
3.1%
4.6 yrs
3.9 yrs
37%
61%
37%
61%
EPRA NAV PER SHARE
443p
+7%
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 included in the
Highlights for the year and throughout
this document. These include a
number of European Public Real
Estate Association ('EPRA') measures,
prepared in accordance with the
EPRA Best Practice Recommendations
(BPR) reporting framework. We
report a number of these measures
(detailed in the glossary of terms)
because management considers
them to improve the transparency and
relevance of our published results as
well as the comparability with other
listed European real estate companies.
OVERVIEW AND
HEADLINE RESULTS
This review summarises the financial
performance for the year and provides
a number of key metrics illustrating that
the Company continues to deliver on its
objective to drive income and capital
growth and generate attractive, sector-
leading returns for our investors.
This year we delivered an IFRS profit
before tax of £12.6m, which reflects
a basic earning per share of 36.6p.
PALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT
19
ACCOUNTING RETURN
11.4%
+41%
DIVIDEND PER SHARE
18.5p
+16%
EPRA earnings is the industry measure
of underlying profit stripping out
revaluation gains, profits on disposals
and one-off costs. EPRA earnings
for the year ended 31 March 2017
increased by 20% to £5.4m compared
to £4.5m last year (excluding a
significant £3.2m one-off surrender
premium in 2016).
Management also report an adjusted
profit before tax in order to track
recurring earnings and to form a basis
for the progressive dividend. This
totalled £6.7m for the year ended
31 March 2017 (2016: £5.6m), up 20%,
and as a result adjusted earnings
per share improved to 22.2p from
18.9p. The Board has proposed a
final dividend of 9.5p which ensures a
dividend of 18.5p on aggregate across
the year up 16%, covered by adjusted
earnings 1.2x.
On the capital side net asset value
has grown to £109.6m up 3% from the
previous year-end of £106.8m and this
translates into EPRA net asset value
per share of 443p, up 7% from 414p.
This 29p increase, together with the
total dividends of 18p paid during
the year, represents an 11.4% total
accounting return.
RECURRING EARNINGS
Rental income totalled £14.3m in the
year ended 31 March 2017 (2016:
£11.4m excluding one-off surrender
premiums) driven by the improving
portfolio, with fully annualised income
from the acquisitions in the prior year
and also benefiting from the acquisition
of the office building Boulton House,
Central Manchester in August 2016.
Net rental income similarly was up
to £12.2m (2016: £9.8m, adjusted to
exclude surrender premium) and this
included £1.0m of non-recoverable
costs in the current year from
properties held for development which
should reduce as projects progress.
Administrative expenses increased to
£2.9m (2016: £2.0m) largely as a result
of increasing resources and building a
team capable of delivering results on a
far larger scale. The team, including the
Board, totalled eleven at the balance
sheet date up from nine the prior year.
Finance costs increased to £3.0m from
£2.3m as a result of the rise in debt
finance and £0.2m termination costs as
a result of refinancing during the year.
Despite increasing the base costs of
the business, adjusted profit before
tax grew 20% to £6.7m from £5.6m
reflecting the increasing profitability
of the business as a result of both scale
and reliable stock selection.
PROPERTY FOCUS
BROAD STREET PLAZA
| HALIFAX
ACQUIRED | March 2016
ANNUAL INCOME
TOTAL SPACE
£1.8m
118,000sq ft
OVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSCOMPANY INFORMATIONPALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT 20 Financial Review continued
"The Company is very well placed to provide our shareholders with an
increased dividend yield due to the growth in the portfolio and the core
assets producing stable, long-term income."
ADJUSTED PROFIT
BEFORE TAX £M
TOTAL ACCOUNTING
RETURN %
DIVIDEND PER
SHARE PENCE
2017
2016
2015
£6.7m
£5.6m
£4.7m
2017
2016
2015
11.4%
8.1%
13.9%
2017
2016
2015
18.5p
16.0p
13.0p
Looking forward, the business is now
capable of scalability, with the team and
systems in place to support significant
growth in the portfolio. The Company
recently announced the planned
redeployment of capital from recent
disposals into a £20.0m corporate
acquisition which will more than replace
the lost income from those disposals
and continue the process of improving
the assets and reliability of income
across the portfolio. The Group has a
gross rent roll of £12.7m per annum and
this is set to increase further once the
acquisition completes later in the year.
VALUATION GAINS &
PROFITS ON DISPOSAL
The movement in the values of our
investment properties can make a
significant impact on profit before tax,
and is determined by independent
valuers' assessment of what a willing
purchaser would pay for the property
on the basis of an arms' length
transaction. During the financial year
the UK property market was impacted
by the result of the Brexit Vote on
23 June 2016 and valuers had to
consider property values in light of
the Referendum. Consequently, there
was significant downward pressure on
property values. Despite the recent
headwinds we have been extremely
pleased with how our properties have
performed as a result of our regional
strategy. This year £3.1m of gains were
achieved, with property values on a like
for like basis up 4.5%.
In addition, we have continued to
recycle capital out of smaller, time-
consuming properties with little
growth prospects into properties
core to the business strategy. Thirteen
properties were sold in the year for
a total consideration of £12.6m, all
at or above book value, resulting in
profits on disposal of £3.2m. The
combination of revaluation gains and
profits on disposal have a significant
impact on the underlying value of
the business, reflecting 22p uplift in
net asset value per share. One of the
key advantages of the Company’s
relatively small size compared to its
peer group is its ability to ‘shift the
dial’ and grow the underlying value of
the business on a per share basis.
The combination of careful stock
selection, buying at the right price and
the impact of our asset management
and capex initiatives, particularly at our
strategic properties such as Hudson
House, York, where we currently have
a planning application lodged with
the Council to redevelop the property,
are having a significant income and
capital impact on the business. We
continue to recycle capital through
disposals of individual units and small
properties where we can realise profit
that reflects good value from our
investment and reinvest funds into
growth opportunities.
EPS
Basic earnings per share (EPS) was
36.6p compared to 43.9p last year.
Similar to the adjustments we make
to profit before tax, which remove
unrealised capital profits and one-off
items such as profits on disposal and
costs on acquisition, we report EPRA
earnings per share. This reduced to
21.2p from 31.3p last year, however,
stripping out the significant one-off
impact of the Gala surrender premium,
last year’s EPRA EPS would have
been 18.3p. Finally, we also report an
adjusted earnings per share to provide
a basis for dividend cover and this was
22.2p for the year up from 18.9p.
DIVIDENDS
The Board is recommending a final
dividend of 9.5p per share to be paid on
28 July 2017 to shareholders registered
at the close of business on 7 July 2017.
Taken with the interim dividend of 9.0p,
our full year dividend will be up 16% to
18.5p. The Company is very well placed
to provide our shareholders with an
increased dividend payment due to the
growth in the portfolio and the core
assets producing sustainable, long-
term income. However, we continue to
reinvest surplus funds into our strategic
assets to provide investors with a two-
pronged return through both income
and capital growth.
PALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT 21
AVERAGE COST OF DEBT
2.9%
LTV
37%
NET ASSETS
At 31 March 2017, our net assets
were £109.6m, equating to basic net
asset per share of 436p an increase
of 22p since 31 March 2016. The
increase in our net assets was driven
largely by the increase in value of
our investment properties, profits
on disposal of investment properties
and surplus profits after dividends
paid. We calculate an EPRA NAV
consistent with standard practice in
the property industry to adjust for any
dilution of outstanding share options
and fair value adjustments of financial
instruments and deferred tax which we
believe better reflects the underlying
net assets attributable to shareholders.
Our EPRA NAV was 443p at 31 March
2017, up from 414p at 31 March 2016.
DEBT FINANCING
During the year our debt profile
improved as we refinanced one facility
and repaid two others. In June 2016,
we refinanced the £15.2m Barclays
facility which we inherited as part of
the acquisition of Broad Street Plaza,
Halifax with a 10-year fixed rate loan
through Scottish Widows. We were able
to lock in at an all-time low swap rate
as a result of the Brexit Vote impacting
swap markets and consequently we
have secured a cost of debt of 2.9% for
the term of the loan.
We extended the Santander facility
during the year in order to part-fund the
Boulton House, Manchester acquisition
and prior to year-end we also repaid the
£1.2m Close Brothers facility as a result
of a number of small disposals from the
Hockenhull portfolio.
The Group debt facilities total £82.3m,
with £78.7m drawn at the year-end.
Our lenders include the majority of
the UK clearing banks at an average
margin of 2.35%. We have fixed just
over 30% of our debt and continue to
take the decision to keep the majority
of our debt floating as a result of the
historically low interest rates and
therefore enjoy an all in average cost
of debt of 2.9%, currently one of the
lowest in the sector. The average debt
maturity is 4.6 years which gives us
security over income streams net of
interest costs for a number of years
before the need to refinance.
NET DEBT AND GEARING
Each debt facility is secured at an
SPV level and we assess the gearing
mainly through interest cover ratios
(ICR) and loan to value ratios (LTV).
In normal market conditions we gear
our assets within a range of 40—60%
LTV. At a group level we measure both
the debt to net asset value ratio (NAV
gearing) and loan to value net of cash.
NAV gearing at 31 March 2017 was
61% and the net LTV ratio was 37%
at 31 March 2017 similar to last year.
The Group remains conservatively
geared and at year-end had £11.2m of
cash and £3.6m of unutilised facilities
available, along with over £15.0m of
properties uncharged.
TAXATION
The Group has a tax charge of £3.2m
for the year ended 31 March 2017.
This includes a corporation tax charge
of £0.7m to reflect the tax payable
on taxable profit in the year and
deferred tax charge of £2.5m to reflect
capital allowances claimed in excess
of depreciation and losses utilised
in the year. The effective tax rate for
the year for tax payable on IFRS profit
remains low at 5.4% due largely to
utilisation of brought forward losses
and capital allowances.
OUTLOOK
From a financial point of view, the
Company has had an outstanding
year, generating income and capital
profits that have enabled us to grow
the dividends and improve the EPRA
NAV per share. We expect to add to
the portfolio shortly on completion
of the recently announced potential
acquisition. In addition, some of
the non-recoverable costs incurred
in the short-term on development
projects will diminish as we progress
these improving income returns.
We are well positioned to continue
to grow the business on the basis
of both income and capital growth,
rewarding our shareholders as this
improvement emerges.
Stephen Silvester ACA
Finance Director
OVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSCOMPANY INFORMATIONPALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT 22 Risk Management
The Board continually assesses the key risks to the business to ensure
mitigation is in place to reduce exposure to these risks and provide
greater security to investors on the future income and capital return.
RESPONSIBILITIES OF THE RISK COMMITTEE
The Executive Team is responsible for risk management on a day-to-day basis.
The current principal risks facing the Company are described in the table below.
Risk rating key
High
Medium
Low
Risk impact key
H High
L Low
RISK
MITIGATION
PROGRESS 2016/17
RATING
Development
Over exposure to
development could put
pressure on cash flow
and debt finance.
• Core portfolio generates sustainable cash flows.
• Conservative gearing used to take advantage
of the gap between yield and cost of borrowing.
• Clear strategy on each property to create
and deliver value.
• All developments require Board approval
based on merits of strategy for assets.
• Developments are modelled and financed
appropriately to minimise risk and
maximise return.
Tenant
Exposure to tenant
administration and poor
tenant covenants could
result in lower income.
• Our strategy to invest across different sectors
reduces our exposure to an individual sector
or tenant.
• We maintain close relationships with our tenants
and support them throughout their business cycle.
Change of use from vacant
office space to 13 residential
units at The Copperfields,
Dartford successfully
completed during the year.
Lease signed with Dartford
Borough Council for all
13 units on a 10 year term.
Planning application
submitted in March 2017
to redevelop Hudson
House, York.
Portfolio weighted average
lease length is 5.8 years.
Occupancy across the
portfolio has improved to
91%. (2016: 89%)
• Management meet with managing agents
to review rent collection and arrears on a
regular basis.
• We actively manage our properties to improve
security of income and limit exposure to voids.
• Tenant diversification is high with no tenant making
up more than 7% of total rental income.
Financing & Cash flow
Breach of debt covenants
could trigger loan defaults and
repayment of facilities putting
pressure on surplus cash
resources. Bank of England
monetary policy may result in
interest rate rises and increased
cost of borrowing. Financial
regulatory changes under
Basel III may increase the
cost to borrowers.
• The Group actively engages in close relationships
with its key lenders, ensuring transparency when
it comes to monitoring the properties secured
by debt.
• Assets are purchased that generate surplus
cash and significant headroom on ICR & LTV
Loan Covenants.
• Gearing is maintained at a conservative level
and hedging minimal in the current interest rate
market to ensure we benefit from historically low
finance costs.
The Group's average maturity
of debt has improved to 4.6
years from 3.9 years.
The Group has reduced its
average cost of debt to 2.9%
from 3.1%. There is plenty
of headroom on all debt
covenants currently.
H
L
H
PALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT
23
OCCUPANCY
91%
AVERAGE DEBT MATURITY
4.6yrs
WEIGHTED AVERAGE UNEXPIRED
LEASE LENGTH
5.8yrs
RISK
MITIGATION
PROGRESS 2016/17
RATING
Economical
and Political
Uncertainty from Brexit and
world events could impact 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.
Accounting, tax,
legal and regulatory
Non-compliance as a result
of changes to accounting
standards, regulatory
requirements for a public real
estate company and incorrect
application of new tax rules.
• Monitoring of Economic and Property
Industry Research by Executive Team and
review at Board Meetings.
• Use of consultants and experts when considering
planning and development work.
• Review tenant profile and sector diversification.
• Member of various Bodies including British
Property Federation (BPF) in order to monitor
the impact of all relevant current issues.
The majority of England
outside of London voted for
Brexit in June 2016 and the
regional economies remain
resilient despite the political
uncertainty.
Government support for
regional development
initiatives bodes well for the
markets in which we operate.
• Key advisors including Auditors, Solicitors
and Nomad are engaged on key regulatory,
accounting and tax issues.
• Engagement with BPF on regulatory
changes that impact the real estate industry.
Operational
Business disruption. Without
adequate systems and
controls, our exposure to
operational risk and business
disruption is increased.
• Insurance cover for loss of rent up to three years.
• Tight-knit team with systems in place to ensure
Executive Team have shared responsibility across
all major decisions.
• General policy of retaining incumbent managing
agents on new property acquisitions to avoid
awkward transitions and potential loss of income.
• Segregation of duties applied to payments
processing and bank authorisations.
H
L
L
FRS102 new accounting
standard was applied to
Subsidiary Statutory Accounts
for the first time with the
transition overseen by the
Auditors.
Business forecasts and
strategy allows for changes
to corporation tax rates and
interest deductibility rules
from 1 April 2017.
Leasing activity processes
streamlined across the entire
business.
Insurance reinstatement
valuations being carried out
in 2017.
EPC assessment carried out
on all assets during the year in
light of new regulations.
Business Strategy Review
by Board during the year to
ensure plans in place to deal
with disruption risks.
OVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSCOMPANY INFORMATIONPALACE CAPITAL plc – Annual Report and Accounts 2017STRATEGIC REPORT 24
PROPERTY FOCUS
BOULTON HOUSE
| CENTRAL MANCHESTER
Boulton House was bought in August 2016 for
£10.6m. It is a 75,000 sq ft grade B office building
close to Manchester Piccadilly Station. At acquisition
the property generated £0.6m of rent, a yield of
5.5%, rising to £0.8m after rent-free periods come to
an end, but with around 25% of the space vacant.
This vacant space and the reception area have been
refurbished and the company has been encouraged
by interest in the space which, when fully let, would
take the rent to £0.9m increasing returns to c. 8.5%.
Given the excellent location, management believes
there is scope for further rental growth towards
£17.25 per sq ft available in Manchester from the
current level of £13–15/sq ft.
ACQUIRED | August 2016
ANNUAL INCOME
TOTAL SPACE
£0.6m
75,000sq ft
More info on page 14
PALACE CAPITAL plc – Annual Report and Accounts 2017 25
Governance
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017GOVERNANCE 26 Statement of Corporate Governance
"My role as Chairman is to oversee the Board and ensure
we succeed as we implement our business strategy through
our commitment to excellence in corporate governance."
Stanley Davis
Non-Executive Chairman
No individual or group of individuals
dominates the Board’s decision-making.
CHAIRMAN AND
CHIEF EXECUTIVE
The Non-Executive Directors’ interests
in the shares of the Company are set
out on page 31 and they receive a
fixed fee for their services.
Profiles of the Board members appear
on pages 28 to 29 of this report. These
indicate the high level and range of
business experience which enables
the Group to be managed effectively.
The Board meets at least nine times
a year and more frequently where
business needs require. The Board
has a schedule of matters reserved
for its decision which includes
material capital commitments,
business acquisitions and disposals
and Board appointments. Directors
are given appropriate information
for each Board meeting, including
reports on the current financial and
trading position.
Any Director appointed is required
to retire and seek election by
shareholders at the next Annual
General Meeting following their
appointment. Additionally, one-third
of the Directors retire by rotation
each year and seek re-election
at the Annual General Meeting.
The Directors required to retire
are those in office longest since
their previous re-election.
There is a clear division of responsibilities
between the roles of the Chairman and
of the Chief Executive.
The role of the Chairman is to conduct
Board meetings and to ensure that all
the Directors are properly briefed in
order to take a full and constructive
part in Board discussions. They
are responsible for evaluating the
performance of the Board and of the
Executive Management and of the
other Non-Executive Directors and has
active involvement in all key strategic
decisions taken by the Group.
The role of the Chief Executive is to
oversee the day-to-day running of
the Group’s business including the
development of business strategies
and processes to enable the Group
to meet shareholder requirements.
The role involves leading the executive
team and evaluating the performance
of the Executive Management.
Together with the Group Finance
Director, he is also responsible for
dealing with investor and public
relations, external communications
and corporate.
There is a commitment to high
standards of corporate governance
throughout the Group. The Board
is accountable to the Group’s
shareholders for good governance.
As an AIM listed company we are not
required to comply with the Corporate
Governance Code however this
report, together with the Directors’
Remuneration Report on pages 33 to
36 explains how the Directors seek to
apply good corporate governance to
procedures within the Group.
DIRECTORS
During the year, the Board consisted
of a Non-Executive Chairman, Chief
Executive, Group Finance Director,
Executive Director — Head of Property
and two further Non-Executive
Directors. The Chairman, Stanley
Davis, has a significant shareholding
detailed in the Directors’ Report
starting on page 30.
The Board has reviewed the roles
of Anthony Dove and Kim Taylor-
Smith and concluded that each is
independent in character and free
from any relationship that could
affect exercise of their independent
judgement. It is felt that their
knowledge and understanding
are fundamental to the Board’s
deliberations.
Anthony Dove is the Senior
Independent Director.
PALACE CAPITAL plc – Annual Report and Accounts 2017GOVERNANCE 27
BOARD EVALUATION
A formal evaluation of the
performance and effectiveness
of the Board, its Committees and
individual Directors was carried
out during the year.
BOARD COMMITTEES
The Board has delegated authority
to the following committees and
there are written terms of reference
for each committee outlining its
authority and duties.
(i) Audit Committee
The Audit Committee members
throughout the year were Kim
Taylor-Smith (Chairman), a Chartered
Accountant, Stanley Davis and
Anthony Dove. Stephen Silvester, the
Finance Director additionally attended
all meetings. The committee meets
when appropriate to consider the
Company’s accounting policies and in
particular with the Company’s auditors
to review the financial statements.
(ii) Remuneration Committee
Details of the composition of the
Remuneration Committee and its
activities during the year are given in
the Directors’ Remuneration Report
on page 33.
(iii) Nominations Committee
The Nominations Committee
members throughout the year were
Stanley Davis (Chairman), Neil Sinclair,
Anthony Dove and Kim Taylor-
Smith. The committee meets when
appropriate to consider appointments
to the Board of both Executive and
Non-Executive Directors. Where
necessary, external search consultants
are used to ensure that a wide range
of candidates is considered.
INTERNAL CONTROLS
The Board is responsible for the
Group's system of internal controls
and for reviewing their effectiveness.
The internal controls are designed
to ensure the reliability of financial
information for both internal and
external purposes. The Directors are
satisfied that the current controls are
effective with regard to the size of the
Group. Any internal control system
can only provide reasonable, but not
absolute assurance against material
misstatement or loss.
Given the size of the Group, in the
opinion of the Board, there is currently
no need for an internal audit function.
Stanley Davis
Non-Executive Chairman
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017GOVERNANCE 28 Board of Directors
Palace Capital has an experienced team of Board members, Directors
and managerial staff. The Company focuses on recruiting some of
the best individuals from the property and corporate sectors, with
specialist interest in new ideas and innovation.
STANLEY DAVIS
Non-Executive Chairman
NEIL SINCLAIR
Chief Executive
STEPHEN SILVESTER
Finance Director
Stanley is a successful serial
entrepreneur who has been involved
in the City of London since 1977.
His founding company was company
registration agents Stanley Davis
Company Services Limited which
he sold in 1988. In 1990 he became
Chief Executive of a small share
registration company which became
known as IRG plc and acquired a
number of businesses including
Barclays Bank Registrars and was sold
for a substantial sum to The Capita
Group plc. He is Chairman of Stanley
Davis Group Limited specialising in
company formations, property and
company searches.
Neil has over 50 years’ experience in
the property sector. He was a founder
of Sinclair Goldsmith Chartered
Surveyors which was admitted to the
Official List in 1987 and subsequently
merged with Conrad Ritblat in 1993,
when he became Executive Deputy
Chairman. Neil was appointed Non-
Executive Chairman of Baker Lorenz,
surveyors in 1999, which was sold
to Hercules Property Services plc
in 2001. He was appointed a Non-
Executive Director of Tops Estates
plc, a fully listed company, in 2003
and remained so until it was sold to
Land Securities plc in 2005.
Stephen Silvester, a Chartered
Accountant, joined Palace Capital
in 2015 and brings over 10 years’
experience as a finance professional,
with a background across a range of
markets, including real estate. Prior
to joining Palace Capital he served
for three years as Group Financial
Controller at NewRiver REIT plc. He
was involved in debt restructuring,
numerous property portfolio
acquisitions across the UK, capital
raising and securing credit facilities
from major institutions.
AC RC NC
AC
"Palace Capital is without
a doubt one of the most
exciting businesses I have
put my name to in the last
20 years."
"We continue to find excellent
opportunities to acquire
commercial properties in
the regions where we can
apply our brand of asset
management to grow
income and build value."
"Scaling up the business and
ensuring we deliver on our
financial goals is at the
very top of my agenda."
PALACE CAPITAL plc – Annual Report and Accounts 2017GOVERNANCE 29
AC Audit Committee member
NC Nomination Committee member
RC Remuneration Committee member
RICHARD STARR
Executive Director
ANTHONY DOVE
Non-Executive Director
KIM TAYLOR-SMITH
Non-Executive Director
Richard has extensive experience of
sourcing and managing commercial
investments throughout the UK.
After qualifying as a Chartered
Surveyor in 2000, he developed his
experience working as a fundamental
team member of four Central
London property firms including
the corporate real estate division of
what is now CBRE Global Investors.
In 2011, he established his own
boutique property consultancy,
successfully negotiating sales and
acquisitions on behalf of a wide
variety of institutional and private
clients before joining the board of
Palace Capital in October 2013.
Anthony has over 30 years
experience in the corporate sector.
He was a partner at the international
law firm Simmons & Simmons from
1977 until 1999. In 1998 he joined
the board of Tops Estates plc, a fully
listed company, and remained so
until 2005 when the company was
acquired by Land Securities plc.
From 2004 to 2013 as a Managing
Director of Locate Continental
Properties Kft a private Hungarian
company, he undertook a number
of property renovations in Budapest
for investment purposes and was a
trustee of the Gynaecology Cancer
Research Fund from 2002 to 2009.
Kim, a Chartered Accountant,
brings to Palace Capital over 30
years’ experience as a company
director for a range of businesses,
with a particular background in
property management, investment
and development. He was Finance
Director and latterly Chief Executive
of Birkby plc, a manager of serviced
workspace (IMEX) and indoor
markets (Inshops), between 1983
and 1999 and continued as Chief
Executive of the enlarged Group
after the agreed takeover by
Mentmore plc, at that time Europe’s
leading records management and
self storage company where he
remained until 2001.
AC RC NC
AC RC NC
"We maintain regular contact
with our tenants and can
adapt our asset management
initiatives quickly."
"With my City background and
professional view on both
corporate law and strategic
matters, I believe we can
move the business forward
with the experience and
depth the team has."
"We focus on UK towns with
sustainable tenant demand
and a supply and demand
imbalance as they offer
more attractive returns."
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017GOVERNANCE 30 Directors’ Report
The Directors present their Annual Report and the audited
consolidated financial statements of Palace Capital plc for
the year ended 31 March 2017.
STRATEGIC REPORT
The principal activity of the Group is property investment,
predominately in key regional towns and cities within the
UK. A review of the Group’s business strategy, operations,
future prospects and key performance indicators are
included in the Strategic Report.
RESULTS AND DIVIDENDS
The results for the year are set out in the Financial Reports.
The Directors paid an interim dividend of 9p (2016:
7p) per ordinary share on 30 December 2016 and the
directors recommend the payment of a final dividend is
respect of the year ending 31 March 2017 of 9.5p (2016:
9p) per ordinary share to be paid on 28 July 2017 to the
shareholders on the register on 7 July 2017.
POST BALANCE SHEET EVENTS
The Company announced on 2 May 2017 that it had
agreed terms to acquire an office building for £20m,
subject to contract and is expected to complete in the
summer of 2017.
SHARE CAPITAL
The present capital structure of the Company is set out in
note 19 to the Company financial statements.
PURCHASE OF OWN SHARES BY THE COMPANY
At the Annual General Meeting of the Company held on
6 July 2016, authority was granted to the Directors to
purchase, in the market, the Company’s own shares, up to
the limit of 10% of the issued share capital. The authority
was expressed to run until the conclusion of the next Annual
General Meeting of the Company. Purchases of 681,180
shares were made pursuant to this authority during the
year. Renewal of this authority will be proposed at the
forthcoming Annual General Meeting.
FINANCIAL RISK MANAGEMENT
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 in note 24.
DIRECTORS
The following Directors have held office during the year.
Stanley Davis
Neil Sinclair
Stephen Silvester
Richard Starr
Anthony Dove
Kim Taylor-Smith
The biographies of Directors serving at 31 March 2017 are
set out on pages 28 to 29.
In accordance with the Articles of Association, Mr Kim
Taylor-Smith and Mr Richard Starr retire by rotation at the
forthcoming Annual General Meeting and, being eligible,
offer themselves for re-election.
QUALIFYING THIRD PARTY INDEMNITY
PROVISIONS
The Company provides Directors and Officers Liability
insurance cover in the sum of £1m in respect of Executive
Directors and £250,000 in respect of Non-Executive
Directors. The cover currently in place is for the period
6th July 2016 to 5th July 2017. The cover is provided by a
consortium of underwriters led by Liberty Mutual Insurance
Group Limited.
CONFLICTS OF INTEREST
Under the articles of association of the Company and in
accordance with the provisions of the Companies Act
2006, a Director must avoid a situation where he has,
or can have, a direct or indirect interest that conflicts,
or possibly may conflict with the Company’s interests.
However, the Directors may authorise conflicts and
potential conflicts, as they deem appropriate. As a
safeguard, only Directors who have no interest in the
matter being considered will be able to take the relevant
decision, and the Directors will be able to impose limits
or conditions when giving authorisation if they think this
is appropriate. During the financial year ended 31 March
2017, the Directors have authorised no such conflicts or
potential conflicts.
PALACE CAPITAL plc – Annual Report and Accounts 2017GOVERNANCE 31
DIRECTORS’ INTERESTS IN SHARES
Directors’ interests in the shares of the Company, including family interests, were as follows:
Stanley Davis
Neil Sinclair
Stephen Silvester
Richard Starr
Anthony Dove
Kim Taylor-Smith
Ordinary shares
of 10p each
31 March 2017
1,565,287
173,767
2,148
82,258
80,000
—
Ordinary shares
of 10p each
31 March 2016
Outstanding
Ordinary share
options of 10p each
31 March 2017
Outstanding
Ordinary share
options of 10p each
31 March 2016
1,565,287
173,767
2,148
82,258
78.000
—
—
379,679
57,205
180,398
—
—
8,668
321,106
26,351
137,676
—
—
Since the year end Mr Neil Sinclair has acquired an interest in a further 10,000 shares.
SUBSTANTIAL SHAREHOLDINGS
As at 31 May 2017, being the latest practicable date before the issue of these financial statements, the Company had been
notified of the following shareholdings which constitute 3% or more of the total issued shares of the Company.
Polar Capital European Forager Fund Ltd
Henderson Global Investors
Quantum Partners LP
Miton Group Plc
Schroders Plc
Stanley Davis
Unicorn Asset Management Limited
AXA Investment Managers SA
Hargreave Hale Ltd
CREDITOR PAYMENT POLICY
Ordinary 10p shares
No.
Shareholding
%
2,981,137
2,555,000
2,553,355
2,436,765
1,691,723
1,565,287
1,299,240
1,242,006
1,043,870
11.85
9.91
9.90
9.69
6.73
6.22
5.04
4.82
4.15
It is the Company’s policy to settle the terms and conditions of payment with suppliers when agreeing each transaction.
The Group’s average number of creditor days as at 31 March 2017 was 30 (2016: 30 days).
AUDITORS
The auditor, BDO LLP, has indicated their willingness to continue in office and a resolution that they be re-appointed will
be proposed at the Annual General Meeting.
This report was approved by the Board and signed on its behalf.
David Kaye
Company Secretary
5 June 2017
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017GOVERNANCE
32 Statement of Directors’ Responsibilities
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 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.
Provision of information to auditors
Each of the persons who are Directors at the time when
the Directors’ Report is approved has confirmed that:
• so far as that Director is aware, there is no relevant
audit information of which the Group’s auditors are
unaware; and
• that Director has taken all the steps that ought to
have been taken as a Director in order to be aware
of any information needed by the Group’s auditors in
connection with preparing their report and to establish
that the Group’s auditors are aware of the information.
On behalf of the Board
David Kaye
Company Secretary
5 June 2017
The Directors are responsible for preparing the
Annual Report and the Group and parent company
financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare Group
and parent financial statements for each financial year.
Under that law the Directors have elected to prepare the
group financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the
European Union and 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
parent company and of the profit or loss of the group for
that period. The Directors are also required to prepare
financial statements in accordance with the rules of the
London Stock Exchange for companies trading securities
on the Alternative Investment Market. In preparing each
of the Group and parent 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 IFRSs
as adopted by the European Union, subject to any
material departures disclosed and explained in the
financial statements;
• for the parent 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; and
• 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.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the parent company’s transactions and disclose with
reasonable accuracy at any time the financial position of
the parent company and enable them to ensure that the
financial statements comply with the requirements of
the Companies Act 2006. 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.
PALACE CAPITAL plc – Annual Report and Accounts 2017GOVERNANCE
33 Directors’ Remuneration
This report was prepared by the Remuneration Committee
(The Committee) and approved by the Board for the
financial year to 31 March 2017. Unless otherwise stated,
the information within this report is unaudited.
The Remuneration Committee members throughout the
year were Anthony Dove (Chairman), Stanley Davis and
Kim Taylor-Smith. The Committee meets when necessary
to review the remuneration of the Executive Directors. It is
also responsible for determining the fees of the Chairman.
The Group Finance Director generally attends meetings of
the Committee but takes no part in deliberations relating
to his own position. The views of the Chief Executive are
sought in respect of the other Executive Directors.
The Executive Directors abstain from any discussion or
voting at full Board Meetings on Remuneration Committee
recommendations where the recommendations have a
direct bearing on their own remuneration package.
The Remuneration Committee’s overall approach is
focused on ensuring the Group’s remuneration policy is
aligned with shareholders’ interests while also enabling
the Group to attract, retain and motivate high quality
executive management.
In making remuneration decisions, the Committee
considers the Group’s overall performance against its
long-term objectives. For the year to 31 March 2017, the
Group has delivered a positive performance as set out in
the Strategic Report.
In setting the remuneration policy for the Executive
Directors, the Committee takes into account the following:
• The need to attract, retain and motivate Executive
Directors and senior management;
• Periodic external comparisons to examine current
market trends and practices and equivalent roles in
similar companies.
The key elements of the remuneration package
for Executive Directors are as follows:
• Base salary
Base salary for each Executive Director is reviewed
annually by the Committee, taking account of the
Director’s performance, experience and responsibilities.
The Committee has regard to salary levels paid by
UK listed companies of a similar size and nature. This
approach ensures that the appropriate benchmark data
is used. When determining Executive Directors’ base
salaries, the Committee also considers wider economic
factors and the performance of the Group as a whole.
• Annual bonus
The Committee’s general policy is that Executive
Directors should receive a bonus in relation to the
achievement of stretching performance targets
which reflect how well the Group has performed
against set criteria in line with the Company Strategy.
The Committee wishes to retain the flexibility to set
bonus targets which reward outperformance against
predetermined performance objectives and which
reflect the needs of the business.
• Long-term incentives
The Group operates a Long-Term Incentive Plan
(the “Plan”). The purpose of the Plan is to motivate
key individuals and to reward them for exceptional
performance. Under the Plan each participant is allocated
a number of shares. The vesting of shares under the Plan
is subject to the achievement of performance targets
and typically over a three-year period.
• Pension provision
The Company makes pension contributions into a
defined contribution scheme on behalf of Directors
and currently match Director contributions up to 5%
of basic salary.
• Benefits
The Group operates a policy whereby Executive
Directors are provided with health insurance, life
assurance and cash alternatives to company cars.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017GOVERNANCE 34 Directors’ Remuneration continued
SERVICE CONTRACTS
The Committee’s policy on service contracts for Executive Directors is that they should provide for termination of
employment by giving 12 months’ notice.
Name
Neil Sinclair
Stephen Silvester
Richard Starr
Contract date
8 September 2011
2 April 2015
24 September 2013
Notice period
12 months
12 months
12 months
Chairman and Non-Executive Directors
The Non-Executive Directors are engaged for fixed terms. These appointments are subject to the retirement by rotation
provisions in the Company’s Articles of Association.
The effective dates of the letters of appointment for the current Non-Executive Directors are as follows:
Name
S Davis
A Dove
K Taylor-Smith
Date of letter for current appointment
Date term due to expire
1 July 2016
8 September 2014
6 October 2014
30 June 2019
7 September 2017
5 October 2017
Annual Report on Remuneration
The following sections show how the policy described above was applied in 2016/2017.
Salary
Salaries for Executive Directors at 31 March 2017 were as follows:
• Neil Sinclair
Chief Executive
• Stephen Silvester
Group Finance Director
• Richard Starr
Executive Director
£247,000
£145,000
£185,000
The Chief Executive’s salary was increased by £7,000 with effect from 1 January 2017.
The Group Finance Director’s salary was increased by £15,000 with effect from 1 January 2017.
The Group Property Director’s salary was raised to £180,000 with effect from 4th July 2016 on his becoming a full-time
Executive and by a further £5,000 with effect from 1 January 2017.
Non-Executive Directors
The remuneration of the Non-Executive Directors is set by the Executive Directors. The policy of the Board is that the
remuneration of the Non-Executive Directors should be consistent with the levels of remuneration paid by companies of a
similar size. Non-Executive Directors receive an annual fee. They do not receive any performance related remuneration or
pension contributions. Current fee levels are as follows:
Name
S Davis
A Dove
Role
Chairman
Senior Independent Director
Remuneration
Nomination
K Taylor-Smith
Non-Executive Director
Audit
The fee for Mr Davis was raised by £5,000 to £35,000 on 1st January 2017.
£31,250
£26,250
£26,250
Committee Chairman Role
Fee to 31 March 2017
The fees for Mr Dove and Mr Taylor-Smith were raised by £5,000 to £30,000 on 1st January 2017.
PALACE CAPITAL plc – Annual Report and Accounts 2017GOVERNANCE
35
Palace Capital No.1 Share Option Scheme
The Executives entitled to participate in this scheme exercised their options on 10th March 2017 and there are no
remaining options under this scheme. 31,593 ordinary shares of 10p each were issued at a price of £2.25 and were sold
for £3.40. The options held by the Directors are shown in the table below.
Neil Sinclair
Stanley Davis
As at
As at
1 April 2016
Exercised
31 March 2017
Share price
at date of grant
17,376
8,688
17,376
8,688
—
—
£2.25
£2.25
Long-Term Incentive Plans (LTIP 2014, LTIP 2015 and LTIP 2016)
Executives have been able to participate in the Group’s LTIP. These schemes are designed to encourage the matching of
interests between management and shareholders. Further details are provided in note 20 of the Group financial statements.
A break-down of the Directors’ interests in the awards under the Long-Term Incentive Plans is as follows:
Neil Sinclair
At
1 April
2016
238,866
64,864
Stephen Silvester
26,351
Richard Starr
119,433
18,243
Granted
Vested
Exercised
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
75,949
30,854
42,722
Totals
467,757
149,525
As at
31 March
2017
Share price
at date of
award
Grant
date
Vesting
date
238,866
£2.00
24.07.2014
30.06.2017
64,864
75,949
379,679
26,351
30,854
57,205
£3.70
08.12.2015
08.12.2018
£3.16
04.07.2016
04.07.2019
£3.70
08.12.2015
08.12.2018
£3.16
04.07.2016
04.07.2019
119,433
£2.00
24.07.2014
30.06.2017
£3.70
08.12.2015
08.12.2018
£3.16
04.07.2016
04.07.2019
18,243
42,722
180,398
617,282
LTIP Performance Criteria
The level of benefit will be dependent on meeting certain defined criteria and with the following allocations:
LTIP 2014
50% based on Total Shareholder Return and 50% based on Earnings per Share.
LTIP 2015
50% based on Total Shareholder Return and 50% based on Net Asset Growth.
LTIP 2016
50% based on Total Shareholder Return and 50% based on Net Asset Growth and comparing this with the Net Asset Value
Growth of a group of comparable companies.
The maximum award under the LTIPs is 100% of salary.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017GOVERNANCE
36
Directors’ Remuneration continued
SERVICE CONTRACTS CONTINUED
Bonus
The Group’s remuneration policy for the year ended 31 March 2017 caps bonus payments to the Executive Directors at
100% of salary. In determining the bonuses, the Executive Directors are measured against specific criteria. Bonuses are
awarded at levels of 20/60/80/100% of the maximum depending on whether performance achieves threshold, target,
stretch and super stretch of the relevant criterion.
The Palace Capital Deferred Bonus Plan provides that 35% of any bonuses awarded may be deferred for a year and
shares to the value of the deferred bonus amount allocated. The Executives will have a further year from the vesting
date to exercise their options. In respect of the year ended 31 March 2017, 35% has been deferred in accordance with
the terms of the Plan.
Summary of Directors’ Total Remuneration (audited)
Executive Directors
Neil Sinclair
Stephen Silvester
Richard Starr
TOTAL
Executive Directors
Neil Sinclair
Stephen Silvester
Richard Starr
TOTAL
Salary
2017
Bonus
2017 Cash
Bonus
2017 shares
Pension
2017
Taxable
benefits 2017
£241,750
£120,375
£151,938
£514,063
£101,676
£59,689
£76,154
£54,749
£32,140
£41,006
£237,519
£127,895
—
£14,800
£8,360
£6,110
£21,908
£14,565
£36,473
Total
2017
£412,975
£242,472
£289,773
£29,270
£945,220
Salary
2016
£230,000
£84,000
£86,667
Bonus
2016
£54,000
£32,500
£20,250
Pension
2016
Taxable
benefits 2016
Total
2016
—
£14,800
£298,800
£12,788
£7,916
£137,204
—
—
£106,917
£400,667
£106,750
£12,788
£22,716
£542,921
Mr Silvester and Mr Starr participate in a salary sacrifice scheme reducing their salaries and increasing their pensions.
Non-Executive Directors
S Davis
A Dove
K Taylor-Smith
Fees 2017
Fees 2016
£31,250
£26,250
£26,250
£30,000
£25,000
£25,000
PALACE CAPITAL plc – Annual Report and Accounts 2017GOVERNANCE 37
Independent Auditor’s Report to the Members of Palace Capital plc
We have audited the financial statements of Palace Capital
plc for the year ended 31 March 2017 which comprise the
Consolidated Statement of Comprehensive Income, the
Consolidated and the Company Statement of Financial
Position, the Consolidated and the Company Statement
of Changes in Equity, the Consolidated Statement of Cash
Flows and the related notes.
The financial reporting framework that has been applied
in the preparation of the group financial statements is
applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
The financial reporting framework that has been applied
in preparation of the parent company financial statements
is applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted
Accounting Practice).
This report is made solely to the company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the company’s members
those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the
company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS
AND AUDITORS
As explained more fully in the statement of directors’
responsibilities, the directors are responsible for the
preparation of the financial statements and for being
satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Financial
Reporting Council’s (FRC’s) Ethical Standards for Auditors.
SCOPE OF THE AUDIT OF THE FINANCIAL
STATEMENTS
A description of the scope of an audit of financial
statements is provided on the FRC’s website at
www.frc.org.uk/auditscopeukprivate.
OPINION ON FINANCIAL STATEMENTS
In our opinion:
• the financial statements give a true and fair view of the
state of the Group’s and the parent company’s affairs as
at 31 March 2017 and of the Group’s profit for the year
then ended;
• the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
• the parent company’s financial statements have been
properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
OPINION ON OTHER MATTERS PRESCRIBED
BY THE COMPANIES ACT 2006
In our opinion, based on the work undertaken in the
course of the audit:
• the information given in the strategic report and
Directors’ report for the financial year for which the
financial statements are prepared is consistent with
the financial statements; and
• the strategic report and Directors’ report have
been prepared in accordance with applicable
legal requirements.
MATTERS ON WHICH WE ARE REQUIRED TO
REPORT BY EXCEPTION
In the light of the knowledge and understanding of the
group and the parent company and its environment
obtained in the course of the audit, we have not identified
material misstatements in the strategic report or the
directors’ report.
We have nothing to report in respect of the following
matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent company financial statements are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified
by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Richard Levy (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London
United Kingdom
5 June 2017
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 38
PROPERTY FOCUS
THE COPPERFIELDS | DARTFORD
This was acquired as part of the Signal portfolio,
a mixed-use retail and office property and is in the
centre of a major commuter town in Kent, within
walking distance of the station and opposite the Priory
Shopping Centre. Following the office tenant vacating,
Palace obtained permission to convert the office
space to 13 residential flats in a £2.1m scheme which
was completed in December 2016.
Dartford Council subsequently signed a 10-year lease
without break at an initial annual rent of £146,500
rising at a fixed rate of 2.5% a year. The value of the
asset had grown from £750k as a tertiary retail/office
property to £4.5m as of March 2017.
COMPLETED | December 2016
VALUATION
£4.5m
+58%
ON COST
TOTAL SPACE
24,000sq ft
More info on page 15
PALACE CAPITAL plc – Annual Report and Accounts 2017 39
Financial statements
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 40
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2017
Rental and other income
Non recoverable property costs
Net rental income
Note
1
5b
2017
£’000
14,266
(2,055)
12,211
2016
£’000
14,593
(1,624)
12,969
Administrative expenses
5c
(2,915)
(2,048)
Operating profit before gains and losses on property assets
and cost of acquisitions
9,296
10,921
Gains on revaluation of investment property portfolios
Profit on disposal of investment properties
Cost of acquisitions
Operating profit
Finance income
Finance expense
Profit before taxation
Taxation
Profit after taxation for the year attributable to owners of the parent
Other comprehensive income for the year
Total comprehensive income for the year
Attributable to: Equity holders of the parent
EARNINGS PER ORDINARY SHARE
Basic
Diluted
3,101
3,191
—
15,588
3
(3,014)
12,577
(3,191)
9,386
—
9,386
9,386
36.6p
36.5p
3,620
290
(815)
14,016
34
(2,298)
11,752
(953)
10,799
—
10,799
10,799
43.9p
43.9p
3
4
7
8
All activities derive from continuing operations of the Group. The Notes form an integral part of these financial statements.
PALACE CAPITAL plc – Annual Report and Accounts 2017 41
Consolidated Statement of Financial Position
As at 31 March 2017
Non-current assets
Investment properties
Property, plant and equipment
Deferred tax
Trade and other receivables
Current assets
Trade and other receivables
Cash at bank and in hand
Total assets
Current liabilities
Trade and other payables
Borrowings
Creditors: amounts falling due within one year
Net current assets
Non-current liabilities
Borrowings
Deferred tax
Obligations under finance leases
Net assets
Equity
Called up share capital
Share premium account
Treasury shares
Merger reserve
Capital redemption reserve
Retained earnings
Equity — attributable to the owners of the parent
Basic NAV per ordinary share
Diluted NAV per ordinary share
Note
2017
£’000
2016
£’000
11
12
7
13
13
14
15
16
16
7
18
19
9
183,916
174,542
43
—
—
37
334
825
183,959
175,738
2,511
11,181
13,692
197,651
(6,161)
(2,036)
(8,197)
5,495
3,327
8,576
11,903
187,641
(6,815)
(2,233)
(9,048)
2,855
(75,758)
(69,711)
(2,187)
(1,950)
109,559
2,580
59,444
(2,250)
3,503
340
45,942
109,559
436p
434p
—
(2,067)
106,815
2,862
59,408
—
3,503
65
40,977
106,815
414p
414p
These financial statements were approved by the Board of Directors and authorised for issue on 5 June 2017 and are signed
on its behalf by:
Stephen Silvester
Finance Director
Neil Sinclair
Chief Executive
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017
42 Consolidated Statement of Changes in Equity
For the year ended 31 March 2017
At 31 March 2015
Total comprehensive income
for the year
Issue of ordinary share capital
net of expenses
Share-based payments
Dividends
At 31 March 2016
Share
Capital
£’000
Share
Premium
£’000
2,307
40,852
—
—
555
18,556
—
—
—
—
2,862
59,408
Total comprehensive income
for the year
Redemption of shares
Issue of ordinary share capital net
of expenses
—
—
2
Redemption of deferred shares
(284)
Share-based payments
Exercise of share options
Dividends
—
—
—
—
—
36
107
—
—
—
—
—
—
—
—
Treasury
Share
Reserve
£’000
—
—
—
—
—
—
—
(2,357)
Merger
Reserve
£’000
3,503
Capital
Redemption
Reserve
£’000
Retained
Earnings
£’000
Total
Equity
£’000
65
33,289
80,016
—
—
—
—
—
—
—
—
10,799
10,799
—
110
19,111
110
(3,221)
(3,221)
3,503
65
40,977
106,815
—
—
—
—
—
—
—
—
—
—
275
—
—
—
9,386
—
—
—
237
(41)
9,386
(2,357)
145
(9)
237
(41)
(4,617)
(4,617)
At 31 March 2017
2,580
59,444
(2,250)
3,503
340
45,942
109,559
For the purpose of preparing the consolidated financial statement of the Group, the share capital represents the nominal
value of the issued share capital of Palace Capital plc.
Share premium represents the excess over nominal value of the fair value consideration received for equity shares net of
expenses of the share issue.
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.
Treasury shares 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.
PALACE CAPITAL plc – Annual Report and Accounts 2017 43 Consolidated Statement of Cash Flows
For the year ended 31 March 2017
Operating activities
Net cash generated in operations
Interest received
Interest and other finance charges paid
Corporation tax paid in respect of operating activities
Net cash flows from operating activities
Investing activities
Purchase of investment property
Payments to acquire subsidiary undertakings
Capital expenditure on refurbishment of investment property
Proceeds from disposal of investment property
Purchases of property, plant and equipment
Net cash flow (used in)/from investing activities
Financing activities
Bank loans repaid
Proceeds from new bank loans
Issue of new share capital
Dividends paid
Purchase of treasury shares
Capital element of finance lease rental payments
Payment of share options exercised
Net cash flow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at the end of the year
Note
2017
£’000
2
10,294
—
(2,516)
(1,047)
6,731
(10,950)
—
(4,579)
12,447
(26)
(3,108)
(19,952)
25,813
29
(4,617)
(2,250)
—
(41)
11
11
12
10
2016
£’000
12,287
34
(3,455)
(158)
8,708
(21,689)
(28,656)
(1,182)
1,957
(3)
(49,573)
(17,010)
38,282
19,114
(3,221)
—
(2)
—
(1,018)
37,163
2,605
8,576
11,181
(3,702)
12,278
8,576
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 44 Notes to the Consolidated Financial Statements
BASIS OF ACCOUNTING
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 AIM market of the London Stock Exchange and is domiciled and registered in England and
Wales and incorporated under the Companies Act 1985. The address of its registered office is Lower Ground Floor, One
George Yard, London, United Kingdom, EC3V 9DF.
The nature of the Company’s operations and its principal activities are set out in the Strategic Report.
BASIS OF PREPARATION
The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and
interpretations adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006.
These financial statements are for the year ended 31 March 2017 and have been prepared on a historical cost basis, except
for investment properties which have been measured at fair value. The consolidated financial statements are presented in
pounds sterling (“GBP”) which is also the Company and the Group’s functional currency.
The principal accounting policies adopted are set out below.
GOING CONCERN
The Group’s business activities, together with the factors likely to affect its future development, performance and position are
set out in the 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 24 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.
The Group has reasonable financial resources together with long-term contracts with a wide range of tenants. As a
consequence, the Directors believe that the Group is well placed to manage its business risk successfully.
After making enquiries, and in accordance with the FRC’s Going Concern and Liquidity Risk: Guidance for Directors of UK
Companies 2009, the Directors have a reasonable expectation that the Company and the Group have adequate resources to
continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in
preparing the annual report and accounts.
NEW STANDARDS ADOPTED DURING THE YEAR
At the date of authorisation of these financial statements, the following accounting standards had been issued which are not
yet applicable to the Group:
Mandatory for accounting periods beginning on or after 1 January 2018:
• IFRS 9 Financial Instruments
• IFRS 15 Revenue from Contracts with Customers
Mandatory for accounting periods beginning on or after 1 January 2019:
• FRS 16 ‘Leases’
The Group has carried out an initial assessment of the impact of the adoption of the standards above. Based on this, the
Directors do not anticipate that these will have a material impact on the financial statements of the Group in future periods,
although it is noted that additional disclosures may be required. A detailed review of the impact of these standards will be
undertaken in advance of their mandatory adoption.
Additionally, amendments to existing standards have been issued by the IASB, including:
• IFRS 2 (amendments) ‘Classification and Measurement of Share-based Payment Transactions’
• IAS 7 (amendments) ‘Disclosure Initiative’
• IAS 12 (amendments) ‘Recognition of Deferred Tax Assets for Unrealised Losses’
The Directors do not consider that these amendments will materially impact the financial statements.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Consolidated Financial Statements
45
SIGNIFICANT ACCOUNTING POLICIES
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 Group is exposed to, or has variable returns from, its involvement with the entity and has the ability to affect
those returns through its power over the entity. Where necessary, adjustments have been made to the financial statements of
subsidiaries, associates and joint ventures 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. They are de-consolidated on the date that control ceases.
Business combinations are accounted for under the acquisition method. Any excess of the consideration paid for the business
combination over the fair value of the identifiable assets and liabilities acquired is recognised as goodwill.
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.
Revenue
Revenue is 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 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 Income Statement 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 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.
Other income comprises insurance commission, property management fees and miscellaneous income and is accounted for
on an accruals basis.
OPERATING PROFIT
Operating profit is stated before interest and tax.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group has become a party to
the contractual provision of the instrument.
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.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 46 Notes to the Consolidated Financial Statements
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 Statement of Comprehensive Income in the year in which they arise.
Investment properties are stated at fair value as determined by the independent 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
arms-length transaction at the date of valuation, in accordance with International 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.
Additions and disposals of investment properties are recognised in the accounts when contracts are completed.
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 company and the Group can measure the cost of the investment reliably.
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 will be recognised in
the profit and loss account as they are incurred.
OBLIGATIONS UNDER FINANCE LEASES
Leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases.
Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the property and the present
value of the minimum 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 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 finance leases are subsequently carried at their fair value.
OPERATING LEASES
Amounts payable under operating leases are charged directly to the Statement of Comprehensive Income on a straight line
basis over the period of the lease. The aggregate costs of operating lease incentives provided by the Group are recognised as
a reduction in rental income on a straight line basis over the lease term.
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
TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognised and carried at the original transaction value. A provision for impairment is
established where there is objective evidence that the Group 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 Group 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 Group after deducting all of its liabilities. The accounting
policies adopted for specific financial liabilities and equity instruments are set out below.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements
47
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.
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 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.
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.
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 in the summer 2015 budget the reduction in the corporation tax rate from the current 20% main
rate in the tax year 2016 to 19% with effect from 1st April 2017 and to 17% from 1st April 2020.
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 Group has applied the requirements of IFRS 2 Share-based payment to share options. 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.
EVENTS AFTER THE BALANCE SHEET DATE
Post year-end events that provide additional information about a company’s position at the balance sheet date and are
adjusting events are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in
the notes when material.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 48 Notes to the Consolidated Financial Statements
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.
Investment properties
The key source of estimation uncertainty rests in the values of property assets, which significantly affects the value of
investment properties in the Statement of Financial Position. The investment property portfolio is carried at fair value,
which requires a number of judgements and estimates in assessing the qualities of 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 11.
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, this will impact on the Group’s results in the period in which this determination is made.
Deferred tax
In determining the quantum of deferred tax assets to be recognised, judgement is required in assessing the extent to which
it is probable that future taxable profit will arise in the companies concerned. Management use forecasts of future taxable
profits and make assumptions on growth rates for each entity in assessing the recoverability of assets recognised.
Business combinations
In determining whether to account for a property acquisition in a special purpose vehicle as a business combination or as
an acquisition of an investment property, management make an assessment based on the application of the IFRS 3 Business
Combinations standard. Management make a professional judgement on the inputs, processes and outputs of the property
prior to acquisition and whether these elements represent an acquisition of a fully functioning business or whether these are
limited and represent solely an asset purchase.
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. Using different input estimates or models could
produce different option values, which would result in the recognition of a higher or lower expense. Judgement is also
exercised in assessing the number of options subject to non market vesting conditions that will vest.
1. SEGMENTAL REPORTING
For the purpose of IFRS 8, the chief operating decision maker (“CODM”) takes the form of the three executive Directors
(the Group’s Executive Committee). The Group’s Executive Committee are of the opinion that the business of the Group
is as follows.
The principal activity of the Group was to invest in commercial real estate in the UK.
IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal financial reports about
components of the Group that are regularly reviewed by the chief operating decision maker (which in the Group’s case is
its Group’s Executive Committee).
The internal financial reports received by the Group’s Executive Committee contain financial information at a Group level
as a whole and there are no reconciling items between the results contained in these reports and the amounts reported in
the financial statements. Additionally, information is provided to the Group’s Executive Committee showing gross property
income and property valuation by individual property. Therefore, for the purposes of IFRS 8, each individual property is
considered to be a separate operating segment in that its performance is monitored individually.
The Group’s property portfolio includes investment properties located throughout England, predominantly regional
investments outside London and comprises a diverse portfolio of commercial buildings. The Directors consider that these
properties have similar economic characteristics. Therefore, these individual properties have been aggregated into a single
operating segment. In the view of the Directors, there is one reportable segment under the provisions of IFRS 8.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Consolidated Financial Statements
49
All of the Group’s properties are based in the UK. No geographical grouping is contained in any of the internal financial reports
provided to the Group’s Executive Committee and, therefore, no geographical segmental analysis is required by IFRS 8.
Revenue — type
Rents received from investment properties
Management fees & other income
Surrender premium
Total Revenue
2017
£’000
13,809
457
—
14,266
2016
£’000
11,375
46
3,172
14,593
No single tenant accounts for more than 10% of the Groups total rents received from investment properties.
The surrender premium in the prior year resulted from the surrender of a lease by Gala (part of the Gala Coral Group) who
held a lease until March 2028 on 28,000 sq ft at Sol Central, Northampton at a rental payable of £312,852 per annum. Gala
paid to Palace Capital a cash sum of £3.0 million plus a proportion of a rates refund due to them to be relieved of any further
liability for rent, service charge and rates.
2. RECONCILIATION OF OPERATING PROFIT
Reconciliation of operating profit to cash utilised in operations
Profit before taxation
Finance income
Finance costs
Gains on revaluation of investment property portfolio
Profit on disposal of investment properties
Goodwill write off
Depreciation
Share-based payments
Decrease/(Increase) in receivables
(Decrease)/Increase in payables
Net cash generated in operations
3. OTHER INTEREST RECEIVABLE AND SIMILAR INCOME
Bank interest received
4. INTEREST PAYABLE AND SIMILAR CHARGES
Interest on bank loans
Loan arrangement fees
Debt termination cost
Interest on finance leases
2017
£’000
12,577
(3)
3,014
(3,101)
(3,191)
—
20
237
1,681
(940)
10,294
2017
£’000
3
3
2017
£’000
2,452
249
155
158
2016
£’000
11,752
(34)
2,298
(3,620)
(290)
6
18
110
(399)
2,446
12,287
2016
£’000
34
34
2016
£’000
1,652
502
—
144
3,014
2,298
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 50 Notes to the Consolidated Financial Statements
5. PROFIT FOR THE PERIOD
a) The Group’s profit for the period is stated after charging the following:
Depreciation of tangible fixed assets:
Auditor’s remuneration:
Fees payable to the auditor for the audit of the Group's annual accounts
Fees payable to the auditor for the audit of the subsidiaries annual accounts
Fees payable to the auditor and its related entities for other services:
Corporate advisory services
Audit related assurance services
Tax services
2017
£’000
20
50
21
—
8
18
97
Amounts payable to BDO LLP in respect of audit and non-audit services are disclosed in the table above.
b) The Group’s property costs comprise the following:
Void investment property costs
Void development property costs
Repairs and maintenance expenses
Legal and consultancy
c) The Group’s administrative expenses comprise the following:
Staff costs
Legal & professional fees
Share-based payments
PR and marketing costs
Property management fees
Accounting and audit fees
Consultancy and recruitment fees
Stock Exchange costs
Rent, rates and other office costs
Other overheads
Depreciation
Write-off of goodwill
2017
£’000
1,010
1,045
—
—
2,055
2017
£’000
1,413
393
237
197
178
141
93
86
80
77
20
—
2016
£’000
18
42
15
98
17
13
185
2016
£’000
1,236
275
90
23
1,624
2016
£’000
803
269
110
201
122
133
84
88
79
135
18
6
2,915
2,048
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Consolidated Financial Statements
51
6. EMPLOYEES AND DIRECTORS’ REMUNERATION
Staff costs during the period were as follows:
Non-Executive Directors’ fees
Wages and salaries
Pensions
Social security costs
Share-based payments
The average number of employees of the Group and the Company during the period was:
2017
£’000
84
1,150
55
124
237
1,650
2016
£’000
80
640
14
69
110
913
2017
Number
2016
Number
Directors and management
Administration
6
5
11
Key management are the Group’s Directors. Remuneration in respect of key management was as follows:
Short-term employee benefits:
Emoluments for qualifying services
Social security costs
Pension
Share-based payments
Gain on share options exercised
2017
£’000
992
132
37
1,161
198
30
1,389
7
2
9
2016
£’000
610
76
13
699
99
—
798
The amounts set out above include remuneration in respect of the highest paid Director as follows:
Short-term employee benefits:
Emoluments for qualifying services
Share-based payments
Gain on share options exercised
2017
£’000
2016
£’000
413
413
120
20
553
299
299
64
—
363
Full details of the Directors' individual remuneration can be found in the Corporate Governance section on pages 35 and 36.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 52 Notes to the Consolidated Financial Statements
7. TAXATION
Current income tax charge
Tax (over)/underprovided in prior year
Deferred tax
Tax charge
Profit on ordinary activities before tax
Based on profit for the period:
Tax at 20.0% (2016: 20%)
Effect of:
Expenses not deductible for tax purposes
Capital losses and indexation used in the period
Capital allowances in excess of depreciation
Other adjustments
Tax under/over provided in prior years
Deferred tax not previously recognised
Tax charge for the period
Deferred taxes at 31 March relates to the following:
Deferred tax asset — brought forward
Losses used in the year
Deferred tax liability on accelerated capital allowances
Deferred tax on fair value of investment property
Deferred tax recognised on acquisition
Deferred tax (liability)/asset — carried forward
Accelerated capital allowances
Investment property unrealised valuation gains
Losses carried forward
Deferred tax (liability)/asset
2017
£’000
683
(13)
2,521
3,191
2017
£’000
12,577
2016
£’000
726
6
221
953
2016
£’000
11,752
2,515
2,350
—
(1,260)
—
52
(13)
1,897
3,191
2017
£’000
334
(321)
(2,142)
(58)
—
(2,187)
2017
£’000
(2,142)
(58)
13
(2,187)
163
(1,416)
(89)
59
6
(120)
953
2016
£’000
500
(221)
—
—
55
334
2016
£’000
—
—
334
334
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Consolidated Financial Statements
53
Capital allowances have been claimed on improvements to investments properties amounting to £12,908,312 (2016:
£13,846,721). A deferred tax liability amounting to £2,141,760 has been recognised in the financial statements, although
it is expected that they will not reverse when the properties are disposed of.
A deferred tax liability on the revaluation of investment properties to fair value has been provided totalling £58,000 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. As at
31 March 2017 the Group had approximately £6,500,000 (2016: £1,872,057) of realised capital losses to carry forward.
Finance Act 2015 sets the main rate of UK corporation tax at 20 per cent with effect on 1 April 2015. The enactment of Finance
(No. 2) Act 2015 and Finance Act 2016 reduces the main rate of corporation tax to 19 per cent from April 2017 and 17 per
cent from April 2020. The deferred tax liability has been calculated on the basis of 17 percent due to the expectation that all
properties are retained through April 2020.
8. 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 period (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 below table) and for Diluted weighted
average number of ordinary shares in issue during the period (see below table).
Profit after tax attributable to ordinary shareholders for the period
Weighted average number of shares for basic earnings per share
Dilutive effect of share options
Weighted average number of shares for diluted earnings per share
Earnings per ordinary share;
Basic
Diluted
2017
£’000
9,386
2016
£’000
10,799
2017
No of shares
2016
No of shares
25,650,141
24,597,258
87,584
20,730
25,737,725
24,617,988
36.6p
36.5p
43.9p
43.9p
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 (BPR) reporting
framework the latest update of which was issued in November 2016. We report a number of these measures (detailed in the
glossary of terms) because Management considers them to improve the transparency and relevance of our published results
as well as the comparability with other listed European real estate companies.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 54 Notes to the Consolidated Financial Statements
8. EARNINGS PER SHARE CONTINUED
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, share-based payments and other one-off exceptional items. EPRA earnings is calculated
on the basis of the basic number of shares in line with IFRS earnings as the dividends to which they give rise accrue to current
shareholders and therefore it is more appropriate to use the basic number of shares. The EPRA diluted earnings per share
also takes into account the dilution of share options and warrants if exercised.
Adjusted profit before tax and Adjusted EPS
Palace Capital also report an adjusted earnings measure which is based on recurring earnings before tax and on the basis
of the basic number of shares. This takes EPRA earnings as the starting point and then adds back tax and any other fair value
movements or one-off items that were included in EPRA earnings. For Palace Capital this includes share-based payments
being a fair value measure and also one-off surrender premiums received. This provides the underlying income performance
of the company and therefore the basis for the dividend policy. The corporation tax charge (excluding deferred tax
movements) is deducted in order to calculate the adjusted earnings per share and dividend cover is based on this calculation.
The EPRA and adjusted earnings per share for the period are calculated based upon the following information:
Profit before tax
Adjustments:
Costs of acquisition
Gains on revaluation of investment property portfolio
Profit on disposal of investment properties
Debt termination cost
Surrender Premium
Share-based payment
Adjusted profit before tax for the period
Tax charge for the year
Deferred tax charge on revaluation gains and capital allowances reversed
Adjusted profit after tax for the period
Share-based payment
Surrender premium
EPRA earnings for the period
EPRA AND ADJUSTED EARNINGS PER ORDINARY SHARE;
EPRA Basic
EPRA Diluted
Adjusted EPS
2017
£’000
12,577
—
(3,101)
(3,191)
155
—
237
6,677
(3,191)
2,200
5,686
(237)
—
5,449
21.2p
21.2p
22.2p
2016
£’000
11,752
815
(3,620)
(290)
—
(3,172)
110
5,595
(953)
—
4,642
(110)
3,172
7,704
31.3p
31.3p
18.9p
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Consolidated Financial Statements
55
9. NET ASSETS VALUE PER SHARE
EPRA NAV calculation makes adjustments to IFRS NAV to provide stakeholders with the most relevant information on the fair
value of the assets and liabilities within a true real estate investment company with a long-term investment strategy. EPRA NAV
is adjusted to take effect of the exercise options, convertibles and other equity interests and excludes the fair value of financial
instruments and deferred tax on latent gains. EPRA NNNAV measure is to report net asset value including fair values of financial
instruments and deferred tax on latent gains.
The diluted net assets and the number of diluted ordinary issued shares at the end of the period assumes that all the
outstanding options that are exercisable at the period end are exercised at the option price.
Net asset value is calculated using the following information:
Net assets at the end of the period
Effect of exercise of share options
Diluted net assets at end of the period
Exclude fair value of financial instruments & exclude deferred tax on latent capital gains
EPRA NAV
Include fair value of financial instruments & include deferred tax on latent capital gains
EPRA NNNAV
2017
£’000
109,559
—
109,559
2,200
111,759
(2,200)
109,559
2016
£’000
106,815
109
106,924
—
106,924
—
106,924
2017
No of shares
2016
No of shares
Number of ordinary shares issued at the end of the period (excluding treasury shares)
25,150,692
25,781,229
Dilutive effect of share options
87,584
20,730
Number of ordinary shares issued for diluted and EPRA net assets per share
25,238,276
25,801,959
Net assets per ordinary share
Basic
Diluted
EPRA NAV
EPRA NNNAV
436p
434p
443p
434p
414p
414p
414p
414p
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 56 Notes to the Consolidated Financial Statements
10. DIVIDENDS
2017
Final dividend proposed
Interim dividend
Distribution of current year profit
2016
Final dividend
Interim dividend
Distribution of prior year profit
2015
Final dividend
Interim dividend
Payment date
Dividend
per share
28 July 2017
30 December 2016
29 July 2016
30 December 2015
31 July 2015
30 December 2014
9.50
9.00
18.50
9.00
7.00
16.00
7.00
6.00
13.00
Dividends reported in the Group statement of changes in equity
Proposed Dividends
2017 final dividend: 9.50p (2016: 9.00p)
2017
£’000
—
2,309
2,309
2,308
—
2,308
—
—
—
4,617
2017
£’000
2,389
2016
£’000
—
—
—
—
1,805
1,805
1,416
—
1,416
3,221
2016
£‘000
2,320
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 2017.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Consolidated Financial Statements
57
11. INVESTMENT PROPERTIES
At 1 April 2015
Arising on acquisition of subsidiary undertakings
Additions — refurbishment
Additions — new properties
Gains on revaluation of investment properties
Disposals
At 1 April 2016
Additions — refurbishment
Additions — new properties
Gains on revaluation of investment properties
Disposals
At 31 March 2017
Freehold
Investment
properties
£’000
84,568
44,880
1,149
18,653
1,840
(1,667)
149,423
4,505
10,950
3,090
(7,740)
160,228
Leasehold
Investment
properties
£’000
18,420
—
33
4,886
1,780
—
Total
£’000
102,988
44,880
1,182
23,539
3,620
(1,667)
25,119
174,542
74
—
11
(1,516)
23,688
4,579
10,950
3,101
(9,256)
183,916
Investment properties are stated at fair value as determined by independent valuers who make use of historical and current
market data as well as existing lease agreements. 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 arms-length transaction at the date of valuation, in
accordance with International Financial Reporting Standard 13. The fair value of each of the properties has been assessed by
the independent valuers.
As a result of the level of judgement used in arriving at the market valuations, the amounts which may ultimately be realised in
respect of any given property may differ from the valuations shown in the Statement of Financial Position.
In addition to the gain on revaluation of investment properties included in the table above, realised gains of £3,191,417
(2016: £290,525) relating to investment properties disposed of during the year were recognised in profit or loss.
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:
Scanlans Consultant Surveyors LLP
Cushman & Wakefield LLP
Knight Frank
Directors' valuation
Fair value
Adjustment in respect of minimum payment under head leases
Less lease incentive balance included in prepayments
2017
£’000
—
183,175
—
—
183,175
1,959
(1,218)
2016
£’000
2,017
147,174
24,000
250
173,441
2,076
(975)
Carrying value
183,916
174,542
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.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 58 Notes to the Consolidated Financial Statements
11. INVESTMENT PROPERTIES CONTINUED
Valuation process
The valuation reports produced by the independent valuers are based on information provided by the Group such as current
rents, terms and conditions of lease agreements, service charges and capital expenditure. This information is derived from
the Group’s financial and property management systems and is subject to the Group’s overall control environment.
In addition, the valuation reports are based on assumptions and valuation models used by the independent valuers.
The assumptions are typically market related, such as yields and discount rates, and are based on their professional judgment
and market observations. Each property is considered a separate asset, based on its unique nature, characteristics and the
risks of the property.
The Executive Director responsible for the valuation process verifies all major inputs to the external valuation reports,
assesses the individual property valuation changes from the prior year valuation report and holds discussions with the
external valuers. When this process is complete, the valuation report is recommended to the Audit Committee, which
considers it as part of its overall responsibilities.
The key assumptions made in the valuation of the Group’s investment properties are:
— The amount and timing of future income streams;
— Anticipated maintenance costs and other landlord’s liabilities; and
— An appropriate yield.
Valuation technique
The valuations reflect the tenancy data supplied by the Group along with associated revenue costs and capital expenditure.
The fair value of the commercial investment portfolio has been derived from capitalising the future estimated net income
receipts at capitalisation rates reflected by recent arm’s length sales transactions.
31 March 2017
Value of investment properties
Area (sq ft)
Gross Estimated Rental Value
Net Initial Yield
Minimum
Maximum
Weighted average
Reversionary Yield
Minimum
Maximum
Weighted average
Equivalent Yield
Minimum
Maximum
Weighted average
Significant
unobservable inputs
Cushman & Wakefield
£183,175,000
1,576,206
£15,892,432
0.9%
9.2%
5.9%
5.5%
18.7%
6.9%
3.2%
11.7%
7.6%
Negative Net Initial Yields arise where properties are vacant or partially vacant and void costs exceed rental income.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Consolidated Financial Statements
59
31 March 2016
Value of investment properties
Area (sq ft)
Gross Estimated Rental Value
Net Initial Yield
Minimum
Maximum
Weighted average
Reversionary Yield
Minimum
Maximum
Weighted average
Equivalent Yield
Minimum
Maximum
Weighted average
Significant unobservable inputs
Cushman &
Wakefield
Knight Frank
Scanlans
£147,174,000
£24,000,000
£2,017,000
1,710,355
114,274
£12,559,734
£1,775,104
22,820
£196,910
-6.9%
13.4%
6.1%
5.5%
15.8%
6.7%
3.2%
12.1%
8.0%
6.3%
31.0%
7.0%
6.9%
6.9%
6.9%
6.3%
17.5%
7.5%
8.3%
10.5%
9.8%
8.3%
10.5%
9.8%
8.3%
10.5%
9.8%
Sensitivity of measurement to variations in the significant unobservable inputs.
Unobservable input
Gross Estimated Rental Value
Net Initial Yield
Reversionary Yield
Equivalent Yield
Impact on fair value
measurement of significant
increase in input
Impact on fair value
measurement of significant
decrease in input
Increase
Decrease
Increase
Decrease
Decrease
Increase
Decrease
Increase
The relationship between the unobservable inputs and their impact on the fair value measurement is not certain. Changes to
the tenancies and/or income profile of an investment asset may also impact the fair value outside one or more of the above
inter-relationships according to individual circumstances.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 60 Notes to the Consolidated Financial Statements
12. PROPERTY, PLANT AND EQUIPMENT
At 1 April 2015
Assets acquired
Additions
At 1 April 2016
Assets acquired
Additions
At 31 March 2017
Depreciation
At 1 April 2015
Provided during the year
At 1 April 2016
Provided during the year
At 31 March 2017
Net book value at 31 March 2017
Net book value at 31 March 2016
13. TRADE AND OTHER RECEIVABLES
Current
Gross amounts receivable from tenants
Less: provision for impairment
Net amount receivable from tenants
Other taxes
Other debtors
Accrued income
Prepayments
Non-Current
Accrued income
IT, fixtures
and fittings
£000
63
—
3
66
—
26
92
11
18
29
20
49
43
37
2016
£000
2,727
(243)
2,484
68
37
150
588
3,327
2016
£000
825
825
2017
£000
1,090
(139)
951
—
61
1,218
281
2,511
2017
£000
—
—
Accrued income amounting to £1,218,000 (2016: £975,000) relates to rents recognised in advance as a result of spreading the
effect of rent free and reduced rent periods, capital contributions in lieu of rent free periods and contracted rent uplifts over
the expected terms of their respective leases.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Consolidated Financial Statements
61
Movements in the provision for impairment of trade receivables were as follows:
Brought forward
Utilised in the period
Provisions increased
As at 31 March, the analysis of trade receivables that were past due but not impaired is as follows:
0 — 30 days
31 — 60 days
61 — 90 days
91 — 120 days
More than 120 days
2017
£’000
243
(182)
78
139
2017
£’000
630
92
21
78
130
951
14. CASH AND CASH EQUIVALENTS
All of the Group’s cash and cash equivalents at 31 March 2017 and 31 March 2016 are in Sterling and held at floating
interest rates.
Cash and cash equivalents
2017
£’000
11,181
The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.
15. TRADE AND OTHER PAYABLES
Trade payables
Corporation tax
Other taxes
Other payables
Deferred rental income
Accruals
2017
£’000
570
564
844
6
2,860
1,317
6,161
2016
£’000
90
(11)
164
243
2016
£’000
2,106
95
66
46
171
2,484
2016
£’000
8,576
2016
£’000
638
662
1,036
67
2,605
1,807
6,815
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 62 Notes to the Consolidated Financial Statements
2017
£’000
2016
£’000
2,036
2,233
75,758
77,794
2017
£’000
76,694
(936)
75,758
2017
£’000
2,036
2,036
61,806
12,852
78,730
69,711
71,944
2016
£’000
70,445
(734)
69,711
2016
£’000
2,233
17,068
53,377
—
72,678
16. BORROWINGS
Current
Bank loans
Non-current liabilities
Bank loans
Total borrowings
Non-current liabilities
Secured Bank loans drawn
Unamortised lending costs
The maturity profile of the Group’s debt was as follows:
Within one year
From one to two years
From two to five years
After 5 years
Facility and arrangement fees
As at 31 March 2017
Secured Borrowings
Santander Bank PLC
Lloyds Bank PLC
National Westminster Bank PLC
Nationwide Building Society
Scottish Widows
All in cost
Maturity date
Loan Balance
£’000
Unamortised
facility fees
£’000
Facility drawn
£’000
2.59%
2.44%
2.84%
3.12%
2.90%
2.90%
Jun 2020
May 2019
Mar 2021
Nov 2020
Jul 2026
15,512
4,018
25,360
18,096
14,808
77,794
(200)
(45)
(308)
(159)
(224)
(936)
15,712
4,063
25,668
18,255
15,032
78,730
Investment properties with a carrying value of £162,320,000 (2016: £151,065,990) are subject to a first charge to secure the
Group’s bank loans amounting to £78,730,000 (2016: £72,678,233).
The Group has an unused loan facility amounting to £3,582,000 (2016: £8,000,000). Interest is charged on this facility at a rate
of 1.25% and is payable quarterly. This facility is secured on the investment properties held by Property Investment Holdings
Limited and Palace Capital (Properties) Limited.
The Group constantly monitors its approach to managing interest rate risk. The Group has fixed £25,032,000 (2016: £nil) 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 been in compliance with all financial covenants of the above facilities applicable throughout the year.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Consolidated Financial Statements
63
17. GEARING AND LOAN TO VALUE RATIO
The calculation of gearing is based on the following calculations of net assets and net debt:
EPRA Net asset value
Borrowings net of issue cost
Obligations under finance leases
Cash and cash equivalents
Net Debt
EPRA NAV Gearing
The calculation of bank loan to property value is calculated as follows:
Fair value of Property portfolio
Borrowings
Cash at bank
Net bank borrowings
Loan to value ratio
Net Loan to value ratio
18. LEASES
Operating lease receipts in respect of rents on investment properties are receivable as follows:
Within one year
From one to two years
From two to five years
From five to 25 years
After 25 years
2017
£’000
2016
£’000
111,759
106,815
77,794
1,950
(11,181)
68,563
61%
71,944
2,067
(8,576)
65,435
61%
2017
£’000
2016
£’000
183,175
173,441
78,730
(11,181)
67,549
43%
37%
2017
£’000
13,204
10,882
22,810
41,001
—
87,897
72,678
(8,576)
64,102
42%
37%
2016
£’000
12,165
10,734
24,987
44,204
685
92,775
Operating lease payments in respect of rents on leasehold properties occupied by the Group are payable as follows:
Within one year
From one to two years
From two to five years
2017
£’000
2016
£’000
13
—
—
13
45
12
—
57
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 64 Notes to the Consolidated Financial Statements
18. LEASES CONTINUED
Finance lease obligations in respect of rents payable on leasehold properties were payable as follows:
Within one year
From one to two years
From two to five years
From five to 25 years
After 25 years
Minimum lease
payments
£’000
122
122
366
2,392
9,739
12,741
2017
2016
Present value of
minimum lease
payments
£’000
Present value of
minimum lease
payments
£’000
2
2
8
63
1,875
1,950
2
2
6
68
1,989
2,067
Interest
£’000
(120)
(120)
(358)
(2,329)
(7,864)
(10,791)
The net carrying amount of the leasehold properties is shown in note 11.
The Group has over 150 leases granted to its tenants. These vary dependent on the individual tenant and the respective
property and demise and vary considerably from short-term leases of less than 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 the both the current
and prior periods.
19. SHARE CAPITAL
Authorised, issued and fully paid share capital is as follows:
25,800,279 Ordinary Shares of 10p each (2016: 25,781,229)
Nil Deferred Shares of 90p each (2016: 315,937)
Reconciliation of movement in ordinary share capital
At start of year
Issued in the year
At end of year
Movement in ordinary authorised share capital
As at 1 Apr 2015
Equity issue
As at 31 Mar 2016
Exercise of warrants
Share buy-back by company
Share buy-back by company
Share options issued from Treasury
Share buy-back by company
2017
£’000
2,580
—
2,580
2017
£’000
2,578
2
2,580
Price per
share pence
Number
of ordinary
shares issued
000s
17 June 2015
360
5,555,556
15 June 2016
17 June 2016
20 June 2016
10 March 2017
10 March 2017
200
360
360
340
340
19,050
(91,587)
(58,000)
31,593
(531,593)
2016
£’000
2,578
284
2,862
2016
£’000
2,023
555
2,578
Total number
of shares
000s
20,225,673
25,781,229
Total number of shares excluding the number held in treasury
25,150,692
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Consolidated Financial Statements
65
Year ending 31 March 2017
On 15 June 2016 the Company issued 19,050 ordinary 10p shares. The issue costs amounting to £36,195 have been deducted
from the share premium account.
On 17 June 2016 the Company purchased 91,587 ordinary 10p shares at a price of £3.60. All these purchased shares are to
be held as treasury shares.
On 20 June 2016 the Company purchased 58,000 ordinary 10p shares at a price of £3.60. All these purchased shares are to
be held as treasury shares.
On 10 March 2017 the Company issued 31,593 ordinary 10p shares from treasury at a price of £3.40.
On 10 March 2017 the Company purchased 531,593 ordinary 10p shares at a price of £3.40. All these purchased shares are
to be held as treasury shares.
A reduction of the Company's share capital by way of cancellation of the Deferred Shares was carried out and completed on
31 August 2016. The Company's issued share capital included 315,938 Deferred Shares as at 31 March 2016. The nominal
value of the Deferred Shares was part of the capital of the Company and therefore not distributable. The Deferred Shares
were created as a result of the reorganisation of the Company's share capital on 18 October 2013 when each issued ordinary
share of £0.01 was consolidated and converted into one new Ordinary Share of £0.10 and one Deferred Share of £0.90. The
Deferred Shares carried no voting or dividend rights and only very limited rights to participate in the capital of the Company
upon a winding-up. These rights are such as to make the Deferred Shares virtually worthless in the hands of the holder.
In the Company's books the capital paid up on the Deferred Shares represented £284,244, being the aggregate nominal
value of all the Deferred Shares. Cancelling the Deferred Shares with the prior approval of Shareholders by way of a special
resolution and the subsequent approval of the Court has resulted in the removal of them from the Company's balance sheet
and permitted an amount of £284,244 to be released to the Capital Redemption Reserve, which may be used to reduce or
eliminate losses (if any) arising on the profit and loss account, and will also be retained for the protection of the Company's
creditors that are in existence as at the date of the Capital Reduction. Additional fees of £8,786 were incurred as a result of
the cancellation of the Deferred Shares and have been recognised as a debit against the Capital Redemption Reserve.
Year ending 31 March 2016
On 17 June 2015 the Company issued 5,555,556 ordinary 10p shares at a price of £3.60. Issue costs amounting to £885,383
were incurred and have been deducted from the share premium account.
Share options:
Reconciliation of movement in outstanding share options
At start of year
Issued in the year
Exercised in the year
Lapsed in the year
At end of year
2017
No of options
2016
No of options
569,022
171,281
(50,643)
—
448,754
120,268
—
—
689,660
569,022
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 66 Notes to the Consolidated Financial Statements
19. SHARE CAPITAL CONTINUED
As at 31 March 2017, the Company had the following outstanding unexpired options.
Description of unexpired share options
No of options
Weighted
average option
price
No of options
Weighted
average Option
price
2017
2016
Employee benefit plan (note 20)
Warrants issued to Nominated Adviser and Broker
Total
Exercisable
Not exercisable
689,660
—
689,660
—
689,660
0p
0p
0p
0p
0p
549,972
19,050
569,022
50,643
518,379
13p
200p
20p
216p
0p
Warrants issued to the Group's Nominated Adviser and Broker
The Group’s Nominated Adviser and Broker received 248,715 options in 2014 in exchange for part of the fee charged by
the brokers for the share issue that occurred during that year and the Directors considered the fair value of the service to be
£50,000. All options had been exercised by the balance sheet date and there were none remaining at 31 March 2017.
20. 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 year:
Outstanding at 31 March 2015
Issued during the year (LTIP 2015)
Outstanding at 31 March 2016
Issued during the year (LTIP 2016)
Exercised during the year
Outstanding at 31 March 2017
Number of
options
Exercise
price
Grant
date
Vesting
date
429,704
120,268
549,972
171,281
(31,593)
689,660
17p
0p
13p
0p
225p
0p
8 Dec 2015
8 Dec 2018
4 July 2016
4 July 2019
LTIP 2014
The options are awarded to employees on achievements against target on two separate measures over the three financial
years ending 31 March 2017. Half the options will be awarded based on the first target and half based on the achievement of
the second.
Earnings per share (EPS) growth: is based on an adjusted profit after tax excluding property revaluations and disposal
profits/losses for the financial year. This target will measure the compound growth in EPS over the three year period ending
31 March 2017.
Total shareholder return (TSR) measures the total shareholder return (share price rise plus dividends) over the period from
21 October 2013 to 31 March 2017. The base price being £2.00 per share which was the placing price on that day.
Average annual TSR (compounded)
over the TSR performance period
Vesting %
Average annual EPS growth
(compounded) over the EPS
performance period
<20%
Equal to 20%
Equal to 25%
Equal to 30%
0
<15%
Equal to 15%
Equal to 30%
33.33
66.66
100
Vesting %
0
50
100
For the TSR measure, the achievement of between 25% and 30% compound growth will result in the number of Ordinary
shares vesting to be calculated on a straight line basis between 66.66% and 100%. A similar rule will apply between 20% and
25% and for the EPS condition between 15% and 30%.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Consolidated Financial Statements
67
LTIP 2015
The options are awarded to management on achievements against target on two separate measures over the three-
year period ending 30 September 2018. Half the options will be awarded based on the first target and half based on the
achievement of the second.
Net asset value per share (NAV) growth: is based on the Company’s EPRA NAV per share as at 30 September 2018 adding
back dividends per share paid during the period. This target will measure the compound growth in NAV over the three-
year period ending 30 September 2018. The base level being £4.04 per share which was the EPRA NAV per share as at
30 September 2015.
Total shareholder return (TSR) measures the total shareholder return (price rise plus dividends) over the period from
1 October 2015 to 30 September 2018. The base price being £3.70 per share which was the market price at the grant date.
Average annual TSR (compounded)
over the TSR performance period
<8%
Equal to 8%
Equal to 13%
Vesting %
Average annual NAV growth
(compounded) over the TSR
performance period
0
<8%
33.33
Equal to 8%
100
Equal to 13%
Vesting %
0
33.33
100
For the TSR measure, the achievement of between 8% and 13% compound growth will result in the number of Ordinary shares
vesting to be calculated on a straight line basis between 33.33% and 100%. A similar rule will apply for the NAV condition
between 8% and 13%.
LTIP 2016
The options are awarded to employees on achievements against targets on two separate measures over the three financial
years ending 31 March 2019. Half the options will be awarded based on the first target and half based on the achievement of
the second.
Net asset value per share (NAV) growth is based on the Company’s EPRA NAV value per share as at 31 March 2016. This target
will measure the compound growth in NAV over the three-year period ending 31 March 2019, and comparing this with the Net
Asset Value Growth of a group of comparable companies. The base NAV per share being £4.14.
Total shareholder return (TSR) measures the total shareholder return (price rise plus dividends) over the period from
1 April 2016 to 31 March 2019. The base price being £3.16 per share which was the market price at the grant date.
Average annual TSR (compounded)
over the TSR performance period
<8%
Equal to 8%
Equal to 13%
Vesting %
Average annual NAV growth
(compounded) over the TSR
performance period
0
At median
33.33
Between median and upper quartile
100
Upper quartile and above
Vesting %
20
20—100
100
For the TSR measure, the achievement of between 8% and 13% compound growth will result in the number of Ordinary shares
vesting to be calculated on a straight line basis between 33.33% and 100%. A similar rule will apply for the NAV condition
between median and upper quartile.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 68 Notes to the Consolidated Financial Statements
20. SHARE-BASED PAYMENTS CONTINUED
The fair value of grants was measured at the grant date using a Black-Scholes pricing model for the NAV 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:
Grant date
Share price
Exercise price
Term
Expected volatility
Expected dividend yield
Risk free rate
Time to vest (years)
Expected forfeiture p.a.
Fair value per option
Monte Carlo TSR
Tranche
Black-Scholes
NAV Tranche
04.07.16
04.07.16
£3.16
0p
3 years
20.80%
4.41%
0.17%
3.0
0%
£3.16
0p
3 years
20.80%
4.41%
0.17%
3.0
0%
£0.79
£2.77
The expense recognised for employee share-based payment received during the period is shown in the following table:
Palace Capital No 1 share option scheme
LTIP 2014
LTIP 2015
LTIP 2016
Total expense arising from share-based payments
2017
£’000
—
108
82
47
237
2016
£’000
—
77
33
110
21. RELATED PARTY TRANSACTIONS
Accounting services amounting to £85,863 (2016: £75,633) have been provided to the Group by Stanley Davis Group Limited,
a company where Stanley Davis is a Director.
22. CAPITAL COMMITMENTS
The obligation for capital expenditure relating to the construction, development or enhancement of investment properties
entered into by the Group at 31 March 2017 amounted to £78,363 (2016: £1,435,985).
23. POST BALANCE SHEET EVENT
The Company announced on the 2 May 2017 that it had entered into an agreement to acquire an office building for £20m
subject to contract and is expected to complete in the Summer 2017.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Consolidated Financial Statements
69
24. FINANCIAL RISK MANAGEMENT
The Group’s principal financial liabilities are loans and borrowings. The main purpose of the Group’s loans and borrowings
is to finance the acquisition and development of the Group’s property portfolio. The Group has rent and other receivables,
trade and other payables and cash and short-term deposits that arise directly from its operations. All financial assets are
classified as loans and receivables and all financial liabilities are measured at amortised cost.
The Group is exposed to market risk (including interest rate risk and real estate risk), credit risk and liquidity risk.
The Group’s senior management oversee the management of these risks, and the Board of Directors has overall responsibility
for the determination of the Group’s risk management objectives and policies and it sets policies that seek to reduce risk as far
as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are
set out below:
Capital risk management
The Group considers its capital to comprise its share capital, share premium, other reserves and retained earnings which
amounted to £109,559,765 at 31 March 2017 (2016: £106,815,113). The Group’s capital management objectives are to
safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and
benefits for other stakeholders and to provide an adequate return to shareholders by pricing its services commensurately
with the level of risk.
Within the subsidiaries of the Group, the business has covenanted to maintain a specified leverage ratio and a net interest
expense coverage ratio, all the terms of which have been adhered to during the year.
The Group manages its capital structure, and makes adjustments to it, in the light of changes in economic conditions.
To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to
shareholders or issue new shares.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset,
financial liability and equity instrument are disclosed on pages 45 to 48 to these financial statements.
Market risk
Market risk arises from the Group's use of interest bearing, tradable and foreign currency financial 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), foreign exchange rates (foreign currency risk) or other market factors.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 70 Notes to the Consolidated Financial Statements
24. FINANCIAL RISK MANAGEMENT CONTINUED
Interest rate risk
The interest rate exposure profile of the Group’s financial assets and liabilities as at 31 March 2017 and 31 March 2016 were:
As at 31 March 2017
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Bank borrowings
Obligation under finance leases
As at 31 March 2016
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Bank borrowings
Obligation under finance leases
Nil rate assets
and liabilities
£’000
Floating rate
assets
£’000
Fixed rate
liability
£’000
Floating rate
liability
£’000
1,012
—
(1,894)
—
—
—
11,181
—
—
—
(882)
11,181
—
—
—
(25,032)
(1,950)
(26,982)
—
—
—
(52,762)
—
(52,762)
Nil rate assets
and liabilities
£’000
Floating rate
assets
£’000
Fixed rate
liability
£’000
Floating rate
liability
£’000
2,521
—
(2,512)
—
—
9
—
8,576
—
—
—
8,576
—
—
—
—
(2,067)
(2,067)
—
—
—
(71,944)
—
(71,944)
Total
£’000
1,012
11,181
(1,894)
(77,794)
(1,950)
(69,445)
Total
£’000
2,521
8,576
(2,512)
(71,944)
(2,067)
(65,426)
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 £11,181,000 (2016: £8,576,000). The income statement would be affected by £112,000
(2016: £80,000) by a one percentage point change in floating interest rates on a full year basis.
The Group has loans amounting to £53,684,000 (2016: £72,678,000) which have interest payable at rates linked to the
three month Libor interest rates or bank base rates. A 1% increase in the Libor or base rate will have the effect of increasing
interest payable by £536,840 (2016: £726,780).
The Group is therefore relatively sensitive to changes in interest rates. The Directors regularly review its position with regard
to interest rates in order to minimise the Group’s risk.
Credit risk management
Credit risk refers to the risk that a counter-party will default on its contractual obligations resulting in financial loss to
the Group.
The Group has its cash held on deposit with four large banks in the United Kingdom. At 31 March 2017 the concentration
of credit risk held with Barclays Bank plc, the largest of these banks, was £7,770,015 (2016: £7,138,979). 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 6.7% (2016: 6.2%) of the Group’s anticipated income. The Directors assess a tenants’
credit worthiness prior to granting leases and employ professional firms of property management consultants to manage the
portfolio to ensure that tenants debts are collected promptly and the directors in conjunction with the property managers
take appropriate actions when payment is not made on time.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements
71
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 2017 was £951,000 (2016: £2,521,000). The details of the provision
for impairment 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 finance leases.
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted
payments:
On demand
£’000
0—1 years
£’000
1 to 2 years
£’000
2 to 5 years
£’000
> 5 years
£’000
Total
£’000
As at 31 March 2017
Interest bearing loans
Finance leases
Trade and other payables
As at 31 March 2016
Interest bearing loans
Finance leases
Trade and other payables
—
—
1,894
1,894
4,190
122
—
4,312
4,293
65,678
122
—
366
—
14,325
12,131
—
88,486
12,741
1,894
4,415
66,044
26,456
103,121
On demand
£’000
0—1 years
£’000
1 to 2 years
£’000
2 to 5 years
£’000
> 5 years
£’000
Total
£’000
—
—
2,521
2,521
4,529
130
—
4,659
19,967
57,234
130
—
386
—
—
12,831
—
20,097
57,620
12,831
81,730
13,477
2,521
97,728
Derivative financial instruments
The Group does not currently use derivative financial instruments as hedging is not considered necessary. Should the
Group identify a requirement for the future use of such financial instruments, a comprehensive set of policies and systems,
as approved by the Directors, will be implemented.
In accordance with IAS 39, “Financial instruments: recognition and measurement”, the Group has reviewed all contracts for
embedded derivatives that are required to be separately accounted for if they do not meet specific requirements set out in
the standard. No material embedded derivatives have been identified.
The Directors consider that the fair value of the Group’s financial instruments are not materially different to their carrying
value. This view was formed on the basis that, as indicated in note 16 of the financial statements, the majority of bank loans
and the loan notes attracted a variable rate of interest and that the cash deposits, and trade payables and receivables, are
short-term in nature. Consequently, in accordance with paragraph 29(a) of IFRS 7, no fair value information has been disclosed
and the information in paragraph 97 of IFRS 13 is not required.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017
72 Company Statement of Financial Position
Non-current assets
Property, plant and equipment
Investments
Loans to subsidiary undertakings
Current assets
Trade and other receivables
Cash at bank and in hand
Total assets
Current liabilities
Creditors: amounts falling due within one year
Net current assets
Net assets
Equity
Called up share capital
Share premium account
Treasury shares
Merger reserve
Capital redemption reserve
Retained earnings
Equity — attributable to the owners of the parent
The Company’s profit after tax for the year was £4,462,394 (2016: £21,845,313).
Note
4
3
3
5
6
7
2017
£’000
27
42,683
38,682
81,392
9,928
98
10,026
91,418
(6,594)
3,432
84,824
2,580
59,444
(2,250)
3,503
340
21,207
84,824
2016
£’000
37
39,483
35,650
75,170
11,402
1,290
12,692
87,862
(858)
11,834
87,004
2,862
59,408
3,503
65
21,166
87,004
The financial statements were approved by the Board of Directors and authorised for issue on 5 June 2017 and are signed on
its behalf by:
Stephen Silvester
Finance Director
Neil Sinclair
Chief Executive
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017
73 Company Statement of Changes in Equity
At 31 March 2015
2,307
40,852
Share
Capital
£’000
Share
Premium
£’000
Treasury
shares
£’000
Total comprehensive income
for the year
Issue of ordinary share capital
net of expenses
Share-based payments
Dividends
At 31 March 2016
Total comprehensive income
for the year
Redemption shares
Issue of ordinary share capital
net of expenses
Redemption of deferred shares
(284)
Share-based payments
Dividends
—
—
—
—
555
18,556
—
—
—
—
2,862
59,408
—
—
2
—
—
36
—
—
—
Merger
Reserve
£’000
3,503
Capital
redemption
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
65
2,431
49,158
—
—
—
—
—
—
—
—
3,503
65
—
—
—
—
—
—
—
—
—
275
—
—
21,846
21,846
—
110
(3,221)
21,166
4,462
—
—
—
196
19,111
110
(3,221)
87,004
4,462
(2,357)
145
(9)
196
(4,617)
(4,617)
—
—
—
—
—
—
—
(2,357)
107
—
—
—
At 31 March 2017
2,580
59,444
(2,250)
3,503
340
21,207
84,824
Share premium represents the excess over nominal value of the fair value consideration received for equity shares net of
expenses of the share issue.
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.
Treasury shares represents the consideration paid for shares bought back from the market.
The capital redemption reserve represents the value of preference shares capital redeemed.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 74 Notes to the Company Financial Statements
ACCOUNTING POLICIES
Palace Capital plc is a company incorporated in England & 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).
DIVIDENDS REVENUE
Revenue is recognised when the Company’s right to receive payment is established, which is generally when shareholders
approve 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.
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 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.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Company Financial Statements
75
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.
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 in the Summer 2015 budget the reduction in the corporation tax rate from the current 20% main
rate in the tax year 2016 to 19% with effect from 1st April 2017 and to 17% from 1st April 2020.
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
• do 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 on assessing whether there are any
indications of impairment.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 76 Notes to the Company Financial Statements
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.
The Company’s profit for the financial year has been arrived at after charging auditor’s remuneration payable to BDO LLP for
audit services to the Company of £50,000 (2016: £42,500). Fees payable to the auditor for the audit of subsidiary undertakings
amounted to £21,000 (2016: £15,000) and for other services amounted to £26,000 (2016: £128,000).
2. TAXATION
Current corporation tax charge
Deferred tax charge
Tax charge
3. INVESTMENTS
Cost:
At 1 April 2015
Acquisitions
Additions
Issue of new share capital
At 1 April 2016
Acquisitions
Additions
At 31 March 2017
Provision for diminution in value:
At 1 April 2015
Provided during the year
At 1 April 2016
Provided during the year
At 31 March 2017
Net book value at 31 March 2017
Net book value at 31 March 2016
2017
£’000
99
—
99
Investments in
subsidiaries
£’000
Loans to
subsidiaries
£’000
15,775
1,822
916
22,500
41,013
—
3,200
44,213
1,005
525
1,530
—
1,530
42,683
39,483
23,014
—
35,136
(22,500)
35,650
—
3,032
38,682
—
—
—
—
—
38,682
35,650
2016
£’000
193
—
193
Total
£’000
38,789
1,822
36,052
—
76,663
—
6,232
82,895
1,005
525
1,530
—
1,530
81,365
75,133
Loans to Subsidiaries
A loan amounting to £3,515,165 remains outstanding at 31 March 2017 (2016: £2,860,164) from Palace Capital (Leeds) Limited.
Interest on this loan is charged at a fixed rate of 5% per year. This loan is repayable on 8 May 2019.
A loan amounting to £3,112,000 remains outstanding at 31 March 2017 (2016: £2,950,000) from Palace Capital (Northampton)
Limited. Interest on this loan is charged at a fixed rate of 5% per year. This loan is repayable on 14 June 2020.
A loan amounting to £12,232,194 remains outstanding at 31 March 2017 (2016: £13,539,432) from Palace Capital
(Developments) Limited. Interest on this loan is charged at a fixed rate of 5% per year. This loan is repayable on
31 March 2018.
A loan amounting to £15,195,335 remains outstanding at 31 March 2017 (2016: £13,808,464) from Palace Capital (Properties)
Limited. Interest on this loan is charged at a fixed rate of 5% per year. This loan is repayable on 11 March 2021.
A loan amounting to £1,739,025 remains outstanding at 31 March 2017 (2016: £2,491,765) from Palace Capital (Halifax)
Limited. Interest on this loan is charged at a fixed rate of 5% per year. This loan is repayable on 11 March 2021.
A loan amounting to £2,889,473 remains outstanding at 31 March 2017 (2016: Nil) from Palace Capital (Manchester) Limited.
Interest on this loan is charged at a fixed rate of 5% per year. This loan is repayable on December 2020.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Company Financial Statements
77
Investment in Subsidiaries
Year ending 31 March 2017
On 19 August 2016 the Company acquired Boulton House, Manchester. Following the acquisition, the name of Palace Capital
(Milton Keynes) Limited was changed to Palace Capital (Manchester) Limited. The Company purchased £3,200,000 ordinary
£1 share at Palace Capital (Manchester) Limited.
The Company owns 100% of Palace Capital (Properties) Limited which acquired 100% of shares in Palace Capital
(Dartford) Limited.
Year ending 31 March 2016
On 17 June 2015 the Company acquired 100% of the share capital of O&H Northampton Limited for a cash consideration of
£1. Following the acquisition the subsidiary changed its name to Palace Capital (Northampton) Limited.
On 17 August 2015 the Company acquired 100% of the share capital of Dering Properties (Sutton) Limited for a cash
consideration of £902,619. Following the acquisition the subsidiary changed its name to Palace Capital (Sutton) Limited.
On 26 January 2016 the subsidiary changed its name to Palace Capital (Properties) Limited.
On 11 March 2016 the Company acquired 100% of the share capital of Gregory Projects (Halifax) Limited for a cash
consideration of £1. Following the acquisition the subsidiary changed its name to Palace Capital (Halifax) Limited.
Costs associated with this acquisition amounting to £401,491 were capitalised.
On 31 March 2016 the Company purchased an additional 3,000,000 ordinary £1 shares at par in Palace Capital (Leeds)
Limited in order to refinance the subsidiary.
On 31 March 2016 the Company purchased an additional 4,000,000 ordinary £1 shares at par in Palace Capital
(Northampton) Limited in order to refinance the subsidiary.
On 31 March 2016 the Company purchased an additional 4,000,000 ordinary £1 shares at par in Palace Capital (Properties)
Limited in order to refinance the subsidiary.
On 31 March 2016 the Company purchased an additional 6,500,000 ordinary £1 shares at par in Palace Capital (Halifax)
Limited in order to refinance the subsidiary.
On 31 March 2016 the Company purchased an additional 5,000,000 ordinary £1 shares at par in Palace Capital
(Developments) Limited in order to refinance the subsidiary.
The Company owns more than 20% of the following undertakings, all of which are incorporated in the United Kingdom,
with registered address, Lower Ground Floor, One George Yard, London, EC3V 9DF, unless shown otherwise:
Class of share held % shareholding
Principal activity
Subsidiary undertaking:
Palace Capital (Leeds) Limited
Palace Capital (Northampton) Limited
Palace Capital (Properties) Limited
Palace Capital (Developments) Limited
Palace Capital (Halifax) Limited
Palace Capital (Manchester) Limited
Hockenhull Estates Limited **
Quintain (Signal) Member A Limited
Quintain (Signal) Member B Limited*
Signal Property Investments LLP*
Signal Investments LLP*
Property Investment Holdings Limited
Meadowcourt Management (Meadowhall) Limited*
Palace Capital (Dartford) Limited*
Associate Company
HBP Services Limited*
* held indirectly
** Incorporated in Isle of Man - registered address: 68 Athol Street, Douglas, Isle of Man, IM1 1JE.
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Member
Member
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
100
100
Property Investments
Property Investments
Property Investments
Property Investments
Property Investments
Property Investments
Property Investments
Holding
Holding
Property Investments
Holding
Property Investments
50 Property Management
100 Property Management
Ordinary
21.4 Property Management
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 78 Notes to the Company Financial Statements
4. PROPERTY, PLANT AND EQUIPMENT
At 1 April 2015
Additions
At 1 April 2016
Additions
At 31 March 2017
Depreciation
At 1 April 2015
Provided during the period
At 1 April 2016
Provided during the period
At 31 March 2017
Net book value at 31 March 2017
Net book value at 31 March 2016
5. TRADE AND OTHER RECEIVABLES
IT, fixtures and fittings
£’000
62
3
65
11
76
11
17
28
21
49
27
37
Current
Amounts owed by subsidiary undertakings
7,059
10,377
2017
£’000
2016
£’000
Trade debtors
Corporation tax recoverable
Other debtors
Other taxes and social security
Accrued interest on amounts owed by subsidiary undertakings
Prepayments
42
9
27
—
2,753
38
9,928
—
—
28
68
865
64
11,402
A loan amounting to £285,000 remains outstanding at 31 March 2017 (2016: £70,000) from Hockenhull Investments Limited.
No interest is charged on this loan. This loan is repayable on demand.
A loan amounting to £6,774,583 remains outstanding at 31 March 2017 (2016: £6,183,515) from Quintain (Signal)
Member A Limited. No interest is charged on this loan. This loan is repayable on demand.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notes to the Company Financial Statements
79
6. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade creditors
Amount owed to subsidiary undertaking
Other taxes
Corporation tax
Accruals and deferred income
2017
£’000
56
6,005
59
—
474
6,594
2016
£’000
437
—
28
193
200
858
A loan amounting to £5,448,850 remains outstanding at 31 March 2017 (2016: £10,754 debtor) to Property Investment
Holdings limited. This loan is repayable on demand.
A loan amounting to £556,180 remains outstanding at 31 March 2017 (2016: £4,112,766 debtor) to Signal Property Investment
LLP. This loan is repayable on demand.
7. SHARE CAPITAL
The details of the Company’s share capital are provided in note 19 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:
Within one year
From one to two years
From two to five years
2017
£’000
13
—
—
13
2016
£’000
45
12
—
57
9. POST BALANCE SHEET EVENT
The Company announced on the 2 May 2017 that it had entered into an agreement to acquire an office building for £20m
subject to contract and is expected to complete in the Summer 2017.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 80
Notice of Annual General Meeting
FINANCIAL STATEMENTS
Palace Capital plc (the "Company")
(Incorporated and registered in England and Wales under the Companies Act 1985 with registered number 05332938)
Notice is hereby given that the Annual General Meeting
(Meeting) of the Company will be held at the offices of
Hamlins LLP, Roxburghe House, 273—287 Regent Street,
London W1B 2AD at 10.00 a.m. on 11 July 2017.
You will be asked to consider and vote on the resolutions below.
Resolutions 1 to 6 will be proposed as ordinary resolutions and
resolutions 7 to 9 will be proposed as special resolutions.
ORDINARY RESOLUTIONS
1 To receive the accounts and reports for the financial
period ended 31 March 2017.
2 To re-appoint Mr Richard Starr as an Executive Director.
3 To re-appoint Mr Kim Taylor-Smith as a Non-Executive
Director.
4 To re-appoint BDO LLP as auditors of the Company and to
authorise the Directors to fix their remuneration.
5 To declare a final dividend of 9.5p per ordinary share in
respect of the year ended 31 March 2017. This dividend
will be paid on 28 July 2017 to the holders of ordinary
shares at close of business on 7 July 2017.
6 That, in accordance with section 551, Companies
Act 2006 (CA 2006), the Directors of the Company
are generally and unconditionally authorised, and in
substitution for any previous authority to allot Relevant
Securities (as defined in this resolution) comprising
equity securities (as defined in section 560, CA 2006) up
to an aggregate nominal amount of £859,374.30, such
authority, unless previously renewed, revoked or varied
by the Company in general meeting, to expire at the
close of the Company's next Annual General Meeting,
except that the Directors of the Company may allot
Relevant Securities pursuant to an offer or agreement
made before the expiry of the authority not withstanding
that the authority conferred by this resolution has
expired. In this notice, Relevant Securities means any
shares in the capital of the Company and the grant of any
right to subscribe for, or convert any security into, shares
in the capital of the Company.
Authority to Allot
Section 551, CA 2006 provides that the Directors of a
company cannot issue new shares in its capital without the
approval of the shareholders. Accordingly, the purpose of this
resolution is to give the Directors of the Company authority
to issue new shares in the capital of the Company up to a
maximum nominal amount of £859,374.30 (representing
approximately one third of the issued ordinary share capital of
the Company as at the date of this notice). This resolution will
allow the Directors of the Company flexibility to act in the best
interests of the Company and its shareholders by issuing new
shares in appropriate circumstances.
SPECIAL RESOLUTIONS
7 That, subject to and conditional on the passing of
resolution 6, the Board be authorised to allot equity
securities (as defined in CA 2006) for cash under the
authority given by that resolution and/or to sell ordinary
shares of 10 pence each in the capital of the Company
(Ordinary Shares) held by the Company as treasury shares
for cash as if section 561, CA 2006 did not apply to any
such allotment or sale, such authority to be limited:
7.1 to the allotment of equity securities for rights issues
and other pre-emptive issues in favour of ordinary
shareholders where their holdings are proportionate,
as nearly as possible to the respective number of shares
held, or deemed to be held by them, but subject to any
exclusions or arrangements the Directors think necessary
or expedient for dealing with fractional entitlements or
legal or practical problems under the laws of any territory
or the requirements of any recognised regulatory body
or stock exchange in any territory; and
7.2 to the allotment of equity securities or sale of
treasury shares (otherwise than under paragraph
7.1 of this resolution above) up to a nominal value of
£129,001.40.
such authority to expire at the end of the next Annual
General Meeting of the Company but, in each case, prior
to its expiry the Company may make offers, and enter
into agreements, which would, or might, require equity
securities to be allotted (and/or treasury shares to be sold)
after the authority expires and the Board may allot equity
securities (and sell treasury shares) under any such offer or
agreement as if the authority had not expired.
Disapplication of Pre-Emption Rights
If shares are to be allotted by the Company, Section 561 of
the Companies Act 2006 requires that except to the extent
dis-applied by shareholders, those shares be offered first to
existing shareholders in proportion to their shareholdings.
However, it may sometimes be in the interests of the Company
for the Directors to have greater flexibility.
The Directors have elected to follow the approach
recommended as good practice by the Pre-Emption Group in
proposing resolutions to disapply pre-emption rights, which
consists of two resolutions as follows:
Resolution 7 — to disapply pre-emption rights on up to five
percent of the issued share capital; and
Resolution 8 — to disapply pre-emption rights for an additional
five percent for transactions which the Board determines to be
an acquisition or other specified capital investment. Acquisition
and specified capital investments are defined by the Statement
of Principles as one or more specific capital investment related
uses for the proceeds of an issuance of equity securities, in
respect of which sufficient information regarding the effect of
the transaction on the listed company, the assets the subject of
the transaction and (where appropriate) the profits attributable
to them is made available to shareholders to enable them
to reach an assessment of the potential return. Items that
are regarded as operating expenditure rather than capital
expenditure will not typically be regarded as falling within
the term “specified capital investment”. This greater freedom
to execute non-pre-emptive issues of equity securities in
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Notice of Annual General Meeting
81
connection with an acquisition or specified capital investment
is intended to allow companies the opportunity to finance
expansion opportunities as and when they arise.
The Company is seeking to follow this recommended
approach by proposing these resolutions in the prescribed
form. When an additional five percent disapplication authority
is used, the Company will disclose in the relevant placing
announcement the circumstances that have led to its use and
detail the consultation process undertaken by the Company.
The Directors have no present intention to exercise the
authority conferred by resolutions 7 or 8.
8 That, subject to and conditional on the passing of resolution
6, the Board be authorised in addition to any authority
granted under resolution 7 to allot equity securities (as
defined in CA 2006) for cash under the authority given
by that resolution and/or to sell Ordinary Shares held by
the Company as treasury shares for cash as if section 561,
CA 2006 did not apply to any such allotment or sale, such
authority to be:
8.1 limited to the allotment of equity securities or
sale of treasury shares up to a nominal amount of
£129,001.40; and
8.2 used only for the purposes of financing (or refinancing,
if the authority is to be used within six months after
the original transaction) a transaction which the Board
of the Company determines to be an acquisition or
other capital investment of a kind contemplated by the
Statement of Principles on Disapplying Pre-Emption
Rights most recently published by the Pre-Emption
Group prior to the date of this notice,
such authority to expire at the end of the next Annual
General Meeting but prior to its expiry the Company may
make offers, and enter into agreements, which would, or
might, require equity securities to be allotted (and treasury
shares to be sold) after the authority expires and the Board
may allot securities (and sell treasury shares) under any
such offer or agreement as if the authority had not expired.
9 THAT the Company be, and it is hereby, generally and
unconditionally authorised for the purpose of sections
693 and 701 of the Companies Act 2006 (Act) to make one
or more market purchases (within the meaning of section
693(4) of the Act) of Ordinary Shares upon such terms
and in such manner as the Directors of the Company shall
determine, provided that:
a. The maximum aggregate number of Ordinary Shares
authorised to be purchased is 2,580,028 (representing
approximately 10 percent of the Company’s total
issued ordinary share capital);
i. 105 percent of the average of the closing middle
market price for an Ordinary Share as derived from the
AIM Appendix to the London Stock Exchange Daily
Official List for the five business days immediately
prior to the day the purchase is made; and
ii. the price stipulated by Article 5(1) of Commission
Regulation (EC) No 2273/2003 (the Buy-back and
Stabilisation Regulation);
d. unless previously renewed, varied or revoked, the
authority hereby conferred shall expire at the conclusion
of the next annual general meeting of the Company or, if
earlier, the expiry of a period of 15 months from the date
of the passing of this resolution; and
e. the Company may make a contract to purchase
Ordinary Shares under this authority prior to its expiry
which will or may be executed wholly or partly after
such expiry and may make a purchase of Ordinary
Shares in pursuance of any such contract.
Authority to make market purchases of own shares
This resolution seeks authority for the Company to make
market purchases of its own Ordinary Shares and is proposed
to Special Resolution. If passed, the resolution gives authority
to give the Company to purchase up to 2,580,028 Ordinary
Shares, representing just under 10% of the Company’s issued
ordinary share capital (excluding treasury shares) as at the
date of this notice. The resolution specifies the minimum and
maximum prices, which may be paid for any Ordinary Shares
purchased under this authority. The authority will expire
on the earlier of the conclusion of the next Annual General
Meeting of the Company or the expiry of a period of fifteen
months from the date of the passing of the resolution.
The Directors do not currently have any intention of
exercising the authority granted by this resolution. The
Directors will only exercise the authority to purchase
Ordinary Shares where they consider such purchases will
be in the best interest of shareholders generally and will
result in an increase in earnings per Ordinary Share.
The Company may either cancel any shares of purchases under
this authority or transfer them into treasury (and subsequently
sell or transfer them out of treasury or cancel them).
The explanatory notes in italics do not form part of the
resolution to which they respectively refer.
By order of the Board
David M Kaye
Company Secretary
Registered office
Lower Ground Floor
One George Yard
London
EC3V 9DF
b. The minimum price (exclusive of expenses) which may
be paid for each such Ordinary share is 10 pence;
5 June 2017
c. The maximum price (exclusive of expenses) which may
be paid for each such Ordinary Share is an amount
equal to the higher of:
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017
82
Notice of Annual General Meeting
FINANCIAL STATEMENTS
NOTES TO THE NOTICE OF
ANNUAL GENERAL MEETING
Entitlement to attend and vote
1 Only those members registered on the Company's
register of members at:
• 10.00 a.m. on 7 July 2017; or,
• if this Meeting is adjourned, at 48 hours (excluding any
part of a day that is not a working day) prior to the
adjourned Meeting, shall be entitled to attend and
vote at the Meeting.
Attending in person
2 If you wish to attend the Meeting in person, please
arrive at the offices of Hamlins LLP, Roxburghe House,
273-287 Regent Street, London W1B 2AD (the nearest
underground station is Oxford Circus) at 09.30 a.m.
on 11th July 2017 (commencement of registration);
the Meeting will commence at 10.00 a.m. Please bring
this notice with you. Representatives of corporate
shareholders will have to produce evidence of their
proper appointment when attending the Meeting.
Please contact the Company’s Registrar, Capita Asset
Services, PXS, 34 Beckenham Road, Beckenham, Kent,
BR3 4TU, if you require further guidance on this.
Appointment of proxies
3 If you are a member of the Company at the time set out
in note 1 above, you are entitled to appoint a proxy to
exercise all or any of your rights to attend, speak and vote
at the Meeting and you should have received a proxy form
with this notice of Meeting. You can only appoint a proxy
using the procedures set out in these notes and the notes
to the proxy form.
4 If you are not a member of the Company but you have
been nominated by a member of the Company to enjoy
information rights, you do not have a right to appoint any
proxies under the procedures set out in this "Appointment
of proxies" section. Please read the section "Nominated
persons" below.
5 A proxy does not need to be a member of the Company
but must attend the Meeting to represent you. Details of
how to appoint the Chairman of the Meeting or another
person as your proxy using the proxy form are set out
in the notes to the proxy form. If you wish your proxy to
speak on your behalf at the Meeting you will need to
appoint your own choice of proxy (not the Chairman) and
give your instructions directly to them.
6 You may appoint more than one proxy provided each
proxy is appointed to exercise rights attached to different
shares. You may not appoint more than one proxy to
exercise rights attached to any one share. To appoint
more than one proxy, please contact the Company’s
Registrar, Capita Asset Services, PXS, 34 Beckenham
Road, Beckenham, Kent, BR3 4TU.
7 A vote withheld is not a vote in law, which means that the
vote will not be counted in the calculation of votes for
or against the resolution. If no voting indication is given,
your proxy will vote or abstain from voting at his or her
discretion. Your proxy will vote (or abstain from voting) as
he or she thinks fit in relation to any other matter which is
put before the Meeting.
Appointment of proxy using hard copy proxy form
8 The notes to the proxy form explain how to direct your proxy
how to vote on each resolution or withhold their vote.
To appoint a proxy using the proxy form, the form must be:
• completed and signed;
• sent or delivered to Company’s Registrar, Capita Asset
Services, PXS, 34 Beckenham Road, Beckenham, Kent,
BR3 4TU; and
• received by Capita Asset Services no later than 10.00
a.m. on 7th July 2017.
In the case of a member which is a company, the proxy
form must be executed under its common seal or signed
on its behalf by an officer of the company or an attorney
for the company.
Any power of attorney or any other authority under which
the proxy form is signed (or a duly certified copy of such
power or authority) must be included with the proxy form.
Appointment of proxies through CREST
9 CREST members who wish to appoint a proxy or proxies by
utilising the CREST electronic proxy appointment service
may do so for the Meeting and any adjournment(s) of it
by using the procedures described in the CREST Manual
(available from https://www.euroclear.com/site/public/EUI).
CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed
a voting service provider(s), should refer to their CREST
sponsor or voting service provider(s), who will be able to
take the appropriate action on their behalf.
In order for a proxy appointment made by means of
CREST to be valid, the appropriate CREST message (a
CREST Proxy Instruction) must be properly authenticated
in accordance with Euroclear UK & Ireland Limited's (EUI)
specifications and must contain the information required
for such instructions, as described in the CREST Manual.
The message must be transmitted so as to be received by
the issuer's agent (IDRA10) by 10.00 a.m. on 7 July 2017.
For this purpose, the time of receipt will be taken to be
the time (as determined by the timestamp applied to the
message by the CREST Applications Host) from which the
issuer's agent is able to retrieve the message by enquiry
to CREST in the manner prescribed by CREST.
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017
Notice of Annual General Meeting
83
Termination of proxy appointments
12 In order to revoke a proxy instruction you will need to
inform the Company by sending a signed hard copy
notice clearly stating your intention to revoke your
proxy appointment to Capita Asset Services, PXS, 34
Beckenham Road, Beckenham, Kent, BR3 4TU. In the case
of a member which is a company, the revocation notice
must be executed under its common seal or signed on
its behalf by an officer of the company or an attorney
for the company. Any power of attorney or any other
authority under which the revocation notice is signed (or
a duly certified copy of such power or authority) must be
included with the revocation notice.
The revocation notice must be received by Capita Asset
Services no later than 10.00 a.m. on 7th July 2017.
If you attempt to revoke your proxy appointment but the
revocation is received after the time specified then, subject
to the paragraph directly below, your proxy appointment
will remain valid.
Appointment of a proxy does not preclude you from
attending the Meeting and voting in person. If you have
appointed a proxy and attend the Meeting in person, your
proxy appointment will automatically be terminated.
Corporate representatives
13 A corporation which is a member can appoint one or
more corporate representatives who may exercise, on its
behalf, all its powers as a member provided that no more
than one corporate representative exercises powers over
the same share.
CREST members and, where applicable, their CREST
sponsors or voting service providers should note that EUI
does not make available special procedures in CREST
for any particular messages. Normal system timings and
limitations will therefore apply in relation to the input
of CREST Proxy Instructions. It is the responsibility of
the CREST member concerned to take (or, if the CREST
member is a CREST personal member or sponsored
member or has appointed a voting service provider(s),
to procure that his CREST sponsor or voting service
provider(s) take(s)) such action as shall be necessary to
ensure that a message is transmitted by means of the
CREST system by any particular time. In this connection,
CREST members and, where applicable, their CREST
sponsors or voting service providers are referred,
in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system
and timings.
The Company may treat as invalid a CREST Proxy
Instruction in the circumstances set out in Regulation
35(5)(a) of the Uncertificated Securities Regulations 2001.
Appointment of proxy by joint members
10 In the case of joint holders, where more than one of the joint
holders purports to appoint a proxy, only the appointment
submitted by the most senior holder will be accepted.
Seniority is determined by the order in which the names
of the joint holders appear in the Company's register of
members in respect of the joint holding (the first-named
being the most senior).
Changing proxy instructions
11 To change your proxy instructions simply submit a new
proxy appointment using the methods set out above.
Note that the cut-off time for receipt of proxy appointments
(see above) also apply in relation to amended instructions;
any amended proxy appointment received after the
relevant cut-off time will be disregarded.
Where you have appointed a proxy using the hard-copy
proxy form and would like to change the instructions
using another hard-copy proxy form, please contact
Capita Asset Services, PXS, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU.
If you submit more than one valid proxy appointment,
the appointment received last before the latest time for
the receipt of proxies will take precedence.
COMPANY INFORMATIONOVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 84
Officers and Professional Advisers
FINANCIAL STATEMENTS
DIRECTORS
Stanley Davis
Chairman
Neil Sinclair
Chief Executive
Stephen Silvester
Finance Director
Richard Starr
Executive Director
Anthony Dove
Non-Executive Director
Kim Taylor-Smith
Non-Executive Director
SECRETARY
David Kaye F.C.I.S.
REGISTERED OFFICE
One George Yard
London
EC3V 9DF
BUSINESS ADDRESS
25 Bury Street
London
SW1Y 6AL
REGISTERED NUMBER
05332938 (England and Wales)
AUDITOR
BDO LLP
55 Baker Street
London
W1U 7EU
REGISTRAR
Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham,
Kent
BR3 4TA
SOLICITORS
Hamlins LLP
Roxburghe House
273—287 Regent Street
London
W1B 2AD
CMS Nabarro Olswang LLP
1 South Quay
Victoria Quays
Sheffield
S2 5SY
Walker Morris LLP
Kings Court
12 King Street
Leeds
LS1 2HL
INVESTOR & PUBLIC RELATIONS
Capital Access Group
Sky Light City Tower
50 Basinghall Street
London
EC2V 5DE
BANKERS
Barclays Bank PLC
69 Albion Street
Leeds
LS1 5AA
Lloyds Bank plc
25 Gresham Street
London
EC2V 7HN
Santander UK plc
Bootle
Merseyside
L30 4GB
NOMINATED ADVISER AND BROKER
Allenby Capital Limited
3 St. Helen’s Place
London
EC3A 6AB
JOINT BROKER
Arden Partners plc
125 Old Broad Street
London
EC2N 1AR
Nationwide Building Society
Kings Park Road
Moulton Park
Northampton
NN3 6NW
National Westminster Bank Plc
16 The Boulevard
Crawley
West Sussex
RH10 1XU
FINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017 Officers and Professional Advisers
85
Glossary
Adjusted EPS: Is Adjusted profit
before tax less corporation tax charge
(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 share-based payments,
one-off finance termination costs and
one-off surrender premiums received.
Assets under Management (AUM):
Is a measure of the total market value
of all properties owned by the Group.
Balance sheet gearing: Is the
balance sheet net debt divided by
IFRS net assets.
Dividend cover: Adjusted Earnings
per share divided by dividend per
share declared in the period.
EPRA: Is the European Public Real
Estate Association.
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 and gains/
losses on disposals.
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 excluding the
mark to market on effective cash flow
hedges and related debt adjustments,
deferred taxation on revaluations and
diluting for the effect of those shares
potentially issuable under employee
share schemes.
EPRA NAV per share: Is EPRA NAV
divided by the diluted number of
shares at the period end.
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 EU.
Interest cover: Is the number of times
net interest payable is covered by
underlying profit before net interest
payable and taxation.
LIBOR: Is the London Interbank
Offered Rate, the 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 and disposed of during
the year.
Net Loan to Value (LTV): Is the ratio
of gross debt less cash, short-term
deposits and liquid investments to
the aggregate value of properties and
investments.
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: 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: 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.
Reversionary yield: Is the anticipated
yield, which the initial yield will rise to
once the rent reaches the estimated
rental value.
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 Shareholder Return (TSR): Is
calculated by the growth in capital from
purchasing a share in the Company
assuming that the dividends are
reinvested each time they are paid.
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 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.
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OVERVIEWGOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTSFINANCIAL STATEMENTSPALACE CAPITAL plc – Annual Report and Accounts 2017
Palace Capital plc
25 Bury Street, St James's, London, SW1Y 6AL
palacecapitalplc.com
T: +44 (0)20 3301 8330
E: info@palacecapitalplc.com
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THE REGIONAL PROPERTY INVESTMENT COMPANY
Annual Report and Accounts 2017
Uniquely positioned
Sector-leading returns
Stock Code: PCA
www.palacecapitalplc.com