Annual Report and Accounts 2024
Delivering on
our strategy
for shareholders
For reports and presentations, go to
www.palacecapitalplc.com/investors/
reports-and-presentations/
Visit our website at
www.palacecapitalplc.com
Our strategy
is to focus on maximising
cash returns to shareholders,
whilst continuing to remain
mindful of consolidation in
the Real Estate sector.
Welcome to
Palace Capital
Contents
Strategic report
Financial highlights 01
Executive Chairman’s Statement 02
Operational Review 04
Our strategy and business model 08
Financial review 10
Key performance indicators 14
Risk management 16
Section 172 statement 22
Environmental, Social and Governance 24
Governance
Letter from Chairman 28
Applying the Principles of the Code 30
Board of Directors 31
Executive Committee 32
Governance Framework 33
Board Composition and Division of
Responsibilities 34
Board Performance Review 36
Nomination Committee Report 38
ESG Committee Report 39
Audit and Risk Committee Report 40
Directors’ Remuneration Report 42
Our Remuneration Policy 44
Annual Remuneration Report 48
Directors’ Report and Additional
Disclosures 53
Statement of Directors’ Responsibilities 55
Independent Auditor’s Report 56
Financial Statements
Consolidated Statement
of Comprehensive Income 62
Consolidated Statement
of Financial Position 63
Consolidated Statement
of Changes in Equity 64
Consolidated Statement
of Cash Flows 65
Notes to the Consolidated
Financial Statement 66
Company Statement
of Financial Position 93
Company Statement
of Changes in Equity 94
Notes to the Company
Financial Statements 95
Officers and Professional Advisors 100
Glossary 101
Financial highlights
£97.8m
Net asset value
£5.4m
Adjusted profit before tax
13.7%
Total Shareholder return
£11.5m
Net cash
£88.7m
Property portfolio
(see note 9)
262p
EPRA net tangible
assets per share
£8.0m
Contractual rental income
82.0%
EPRA occupancy
5.4 years
Weighted average
lease length to break
15.0p
Dividend per share
£8.3m
Total gross debt
2.9%
Average cost of debt
(£9.3m)
IFRS loss before tax
(23.7p)
Basic EPS
13.8p
Adjusted EPS
Executive Chairman’s statement
Update on
delivery of
strategic
objectives
Steven Owen
Executive Chairman
During FY24, the Company proactively
reduced gross debt by £56.0 million to
£8.3 million and the significant de-
leveraging of the balance sheet resulted
in a net cash position of £11.5 million as
at the year end which has increased to
£19.7 million as at 5 June. Proforma cash
reserves, assuming that all exchanged
properties complete, are currently £30.1
million.
Since July 2022, cash returned to
shareholders from share buyback
programmes totals £21.9 million of
which £15.2 million was returned
during FY24. As part of its strategy of
returning cash to Shareholders, following
the announcement of these results
today, the Company will be consulting
with major Shareholders regarding
the terms of a tender offer to return
capital of approximately £22 million to
Shareholders. It is expected that a further
announcement will be made later this
month of a tender offer via a circular to
shareholders. Subject to shareholder
approval at a specially convened
General Meeting the Company expects
to complete the tender offer during
July 2024.
As mentioned above, disposal activity
has continued since the year end
and we have exchanged contracts or
completed the sales of three investment
properties totalling £18.5 million, and
also conditionally exchanged on an office
unit at St James’ Gate, Newcastle for £0.7
million. These sales were on aggregate
1.5% ahead of the 31 March 2024
book value.
Total investment properties sold since the
change of strategy in July 2022 amount to
£124.0 million or £135.9 million including
residential apartments.
Assuming that the properties currently
under offer are sold, the Company will
have six investment properties remaining,
each of which have their own asset
management initiatives that are required
to be completed in order to be ready
for sale. Additionally, conditions in the
investment market for certain types of
assets, particularly leisure assets, are
such that, in the Board’s view, the sale
of these assets should be deferred until
market demand and pricing improve,
particularly given the high income yield
and long unexpired lease terms. Market
conditions are continually assessed in
order to determine the optimum time to
sell a property assuming all appropriate
asset management initiatives have been
completed in relation to such properties.
Further commentary on each of the six
investment properties can be found in the
Operational Review.
Operationally, the business remains
robust. The team has been proactive in
implementing asset management plans
to increase income, reduce void costs and
improve our ESG performance, including
Update on delivery of
strategic objectives
Notwithstanding challenging property
and financial markets, the past year was
again transformational for the Group as
it continued to successfully deliver on
its disposal and debt reduction strategy
resulting in a significantly de-leveraged
balance sheet which has put the Company
into a substantial net cash position. Since
1 April 2023 to date the Company has
exchanged or completed on the sale
of 24 investment properties for £112.9
million and exchanged or completed on
£4.4 million of sales of unencumbered
residential units at Hudson Quarter, York.
During FY24 the Company completed the
sale of 21 investment properties for £93.7
million which is 4.4% ahead of the 31
March 2023 valuation and completed £3.2
million in sales of seven residential units at
Hudson Quarter, York, 5.3% ahead of the
31 March 2023 valuation.
Adjusted PBT
£5.4 million
Return of capital
£15.2m
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
02
EPCs, as set out in the Operational
Review. Rent collection remains high and
current occupancy levels resilient.
Palace Capital continues to reduce
its level of administrative expenses in
line with its strategy, with measures
implemented in the financial year saving
£0.9 million. This includes reducing
headcount and relocating its head office
to a smaller office in Victoria, London in
December 2023. Annual occupancy costs
of the Company’s premises are £0.25
million lower than those of its former
offices in Bury Street, SW1.
Annualised cost savings are now over
£2.3 million compared to 2022. These
cost savings represent 51% of FY22
administrative expenses and 31% of FY22
EPRA earnings. We now have a Board of
two members and an executive team of
six including myself focused on executing
the strategy.
Overview of results
The Group’s adjusted profit before tax
decreased to £5.4 million (2023: £7.6
million) as a result of income lost through
disposals. Investment property sales
during the year period realised a profit
of £2.3 million (2023: £0.8 million) whilst
trading profits from the sale of residential
units contributed £0.2 million (2023: £0.5
million).
The deficit on the revaluation of the
portfolio for the year of £15.4 million was
due principally to softening yields across
the whole portfolio but particularly during
the second half of the financial year in
relation to the two leisure assets which
accounted for approximately half of the
deficit. An analysis of the valuation deficit
is provided in the Operating Review.
Contractual payments to the former Chief
Financial Officer and staff of £0.6 million,
including associated costs, have been
treated as an exceptional item.
A provision of £0.6 million in relation to
the Short Term Incentive Plan (“STIP”),
which was introduced during FY24, has
been made although no payment will be
due until the Completion Date has been
determined in accordance with the rules
of the STIP.
Together with other items totalling £0.6
million, the aggregation of the profits
and losses described in the preceding
paragraphs account for the IFRS loss
before tax for the year of £9.3 million
(2023: £35.8 million loss).
Principally as a result of the revaluation
deficit on the portfolio equivalent to 39
pence per share, offset by the 8 pence
per share share-buyback accretion, EPRA
NTA per share decreased by 11.5% to 262
pence per share (2023: 296 pence per
share).
As noted above, the Group’s balance
sheet has been significantly strengthened
following the £56.0 million reduction
in gross debt during the year and the
Company being in a net cash position at
the year end of £11.5 million (2023: net
debt £58.8 million, LTV 31%).
Board changes and
Director Remuneration
I was appointed as Executive Chairman
from the AGM held on 26 July 2023,
having previously been (Non-executive)
Interim Executive Chairman. Due to
the reduced size of the Company and
repayment of bank debt, Matthew
Simpson stepped down from the Board as
Chief Financial Officer on 14 November
2023. Contractual payments to the former
Chief Financial Officer of £0.4 million,
including associated costs, have been
treated as an exceptional item. Details are
provided in the Directors’ Remuneration
Report in the Annual Report.
The performance of the STIP approved
by shareholders at the 2023 AGM and
predicated on the successful disposal of
assets in a timely manner is explained
in the Directors’ Remuneration Report.
Payments, in cash, were made under the
Rules of the STIP to good leavers and
these have been accounted for in the
period.
Dividend
The Group paid or declared dividends
of 15.0 pence per share in relation to
the year ended 31 March 2024 (2023: 15
pence per share), including a proposed
final fourth quarter dividend of 3.75
pence per share. The fourth quarter final
dividend of 3.75 pence per share will be
paid, subject to shareholder approval at
the AGM being held on 24 July 2024, on
23 August 2024 to Shareholders on the
register at 26 July 2024. The ex dividend
date will be 25 July 2024. Of this, 1.35
pence per ordinary share will be paid as
a Property Income Distribution (‘PID’) and
2.40 pence per ordinary share will be paid
as a Non-Property Income Distribution,
(‘Non-PID’).
Outlook
Commercial property and financial
markets remain challenging but there
are indications that UK interest rates will
reduce over the next year following the
sharp fall in inflation over recent months.
Until interest rates reduce and confidence
returns to some sectors of real estate
markets it is unlikely that there will be
a material upward re-pricing of assets.
Given the reduction in property values
seen since the peak of the last cycle in
the Spring of 2022 it is considered that
valuations may be close to the bottom of
this current cycle.
At an operational level, the Company
continues to make good progress with
its asset management activities despite
the difficult and uncertain conditions in
financial and property markets.
Given its strong cash position, the
Company remains well placed in terms
of flexibility and optionality regarding
the timing of its disposal programme and
other strategic initiatives, including the
tender offer referred to above.
Steven Owen
Executive Chairman
5 June 2024
We are well placed
regarding the timing of
the disposal programme
and other strategic
initiatives, including the
tender offer and the share
buyback programme.”
Steven Owen
STRATEGIC REPORT
03
Operational Review
Daniel Davies
Head of Asset Management
Thomas Hood
Head of Investment
Asset management
During FY24 there were 23 lease events
completed totalling 162,000 sq ft of
space, 5% above the 31 March 2023 ERV
(‘FY23 ERV’), generating £0.9 million of
additional annualised income, principally
from eight new lettings at 5% above ERV,
generating £0.8 million of additional
annualised income.
In addition, void savings from new lettings
was £0.4 million, resulting in a total of
£1.3 million of annualised net rental
income created.
Portfolio asset management activity and
disposals continue to improve the EPC
profile across the portfolio: 100% are now
rated A-D and 81.0% are rated A-C (2023:
96.2% and 72.2% respectively).
New lettings in the year included:
• 2 St James’ Gate, Newcastle,
where Orega, a premium, flexible,
serviced office workspace provider,
entered into a 15 year management
agreement to take the second and
third floors totalling 22,500 sq ft
of the seven storey, 82,500 sq ft
building. Following a comprehensive
refurbishment the operation opened
in January 2024, providing c.400
workstations. This letting significantly
increased the occupancy at the
property and, together with the
letting to Softcat plc in December
2022, were the first two major lettings
at St James’ Gate since the property
was acquired in 2017.
• Broad Street Plaza, Halifax, where
Calderdale and Huddersfield NHS
Foundation Trust entered into a new
15 year lease and took an additional
6,000 sq ft unit increasing their
occupation to over 27,000 sq ft. The
rent of £0.4 million per annum on the
combined space is over £14 psf and is
41% higher than the March 2023 ERV.
The NHS now accounts for 19% of the
net income from the property.
• Boulton House, Manchester and
King’s Park House, Southampton
where three lettings totalling £0.2
million rent per annum were achieved
at an average premium to the FY23
ERV of 4%.
Other initiatives during FY24 included the
following:
• East Grinstead - new 15 year
reversionary lease at Unit A (21,500
sq ft) from August 2027 to Wickes
Group plc at a rent of £0.4 million per
annum, in line with FY23 ERV.
• Salisbury - new 10 year reversionary
lease from September 2025 to Booker
Limited at a rent of £0.25 million per
annum, which was 22% above the
FY23 ERV.
Summary of the year
The business continues to perform
well operationally. The team has
been proactive in implementing asset
management plans to increase income,
reduce void costs and improve our ESG
performance, including EPCs. Rent
collection remains strong and occupancy
levels remain resilient. Total rent collection
for the 12 months to 31 March 2024 was
98% (2023: 99%).
During the year ended 31 March 2024,
the Company disposed of 21 investment
properties for £93.7 million, 4.4% ahead
of the 31 March 2023 book value.
Seven apartments at Hudson Quarter,
York were sold during the year for £3.2
million leaving 13 units remaining at the
year end.
£1.3m of
annualised net
rental income
created
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
04
• HQ York - GRJ occupy the 4th and
5th floors at rent of £0.32 million per
annum expiring November 2031 with
a tenant break in December 2027.
We successfully removed the tenant’s
break in December 2027, thereby
increasing the building’s WAULT from
4.9 to 6.5 years.
Since the year end, a key letting has been
achieved at Imperial Court, Leamington
Spa (20,419 sq ft) where we have
completed a 10 year lease with a mutual
break in year five to Lighthouse Games
Ltd at a rent of £0.38 million per annum,
which is in line with the ERV.
Other initiatives since the year end
include the agreement in principle with
Vue Cinemas at Sol, Northampton to
regear their lease which would bring their
total term to 20 years expiring in 2044,
with a material increase in rent and five
yearly upward only rent reviews linked
to RPI with a cap and collar structure.
In return the Company will make a
significant capital contribution towards
the comprehensive refurbishment of
the cinema, including recliner seating
upgrade, associated auditoria decorative
works and foyer refurbishment.
These asset management initiatives are
part of the process of creating value and
preparing assets for sale, the timing of
which is firmly within the control of the
Company.
Portfolio overview
As at 31 March 2024 the portfolio
comprised 12 properties (2023: 31)
comprising 62% office, 24% leisure, 4%
retail and 10% residential.
CBRE independently valued the portfolio
as at 31 March 2024 at £88.7 million,
resulting in a deficit of 15.5% on a like-
for-like basis compared with the valuation
as at 31 March 2023. The largest declines
were the two leisure assets at 27.2% and
offices at 12.5%.
The seven office assets fell 12.5%,
which was driven predominantly by a
significant softening of yields to reflect
the deterioration in the regional office
investment market. The largest falls
were at Hudson Quarter, York (24.0%),
Exeter (19.4%) and Milton Keynes
(15.5%) whereas gains were achieved
at Leamington Spa (+5.6%), Harlow
(+4.9%) and Fareham (+4.5%) as a result
of asset management initiatives. The
ERVs on individual office properties
remained broadly flat with the exception
of Milton Keynes where there was an
increase of 22.5% which resulted in an
overall increase of 3.0% across the office
portfolio.
The two leisure assets declined by
27.2% overall reflecting the severely
weakened leisure investment market.
Sol, Northampton fell 37.5% in value and
Broad Street Plaza, Halifax fell 18.1%. The
blended leisure NIY and Equivalent yields
both increased by c.250 bps to 13.4%
and 12.8% respectively. Leisure ERVs
increased by 1.3%.
The value of the one retail property
was virtually unchanged and residential
declined 2.2%.
FY24 FY23
Portfolio value £88.7m £192.4m
Net initial yield 8.0% 7.4%
Reversionary yield 13.0% 9.6%
Contractual rental
income £8.0m £15.7m
Estimated rental
value £10.6m £18.8m
WAULT to break 5.4 years 4.8 years
EPRA vacancy rate 18.0% 12.3%
2 St James’ Gate, Newcastle
STRATEGIC REPORT
05
Disposal and asset management strategy post FY24
Since 31 March 2024 we have exchanged
or completed on the sale of the following
three investment properties for £18.5
million, 0.1% ahead of the 31 March 2024
book value:
• Boulton House, Manchester for £8.8
million, completion due late July 2024
• Kiln Farm, Milton Keynes for £6.4 million
• Sandringham House, Harlow for £3.3
million
We have also conditionally exchanged on
a self-contained office unit at 3B St James’
Gate, Newcastle to an owner occupier for
£0.7 million, 69% above the value as at
31 March 2024 and are under offer to sell
Copperfields, Dartford in an off-market
transaction, and Admiral House and
Nicholson Gate, Fareham.
The portfolio as at 5 June 2024 consists
of nine properties being eight investment
properties and one residential property
in York.
Apartment sales at Hudson Quarter, York
have continued post 31 March 2024,
with a further two apartment sales having
exchanged to the value of £1.2 million.
There are 13 units remaining and two units
under offer. Sales of these will continue,
subject to market conditions which have
materially improved since the start of 2024.
Operational Review continued
HQ, York (Commercial)
We are under offer on the lower ground
vacant office suite (3,660 sq ft) and,
assuming the lease is completed, the
property will be 90% occupied with
only half a floor (2,932 sq ft) remaining
available. We have also removed
significant lease breaks on the 4th and 5th
floors thus extending the WAULT from 4.9
to 6.5 years. HQ York is an institutional
grade property and subject to market
conditions and the level of interest rates,
it is expected that it will be marketed in
Autumn 2024.
Imperial Court and House,
Leamington Spa
This property is now fully let following
the recent letting of Imperial Court
to Lighthouse Games. Other asset
management activities are under way
in order to achieve a vacant possession
block date in five years’ time which will
provide an opportunity for a potential
redevelopment of the entire site.
It is expected that this property will be
marketed in Autumn 2024.
The Forum, Exeter
We are actively exploring the principle
of a change of use for this 1970s office
building to one that we believe will
realise more value on sale. As part of
this strategy, we are looking to achieve a
vacant possession block date within the
next three years and are in the process of
preparing a pre-application submission to
Exeter City Council.
If these initiatives are successful, we will
then market the property for sale which is
likely to be in Q4 2024/Q1 2025 subject
to market conditions.
Remaining properties:
The strategy for the remaining six investment properties, which had a value of £54.4 million as at 31 March 2024, assuming the
completion of the sale of those properties currently exchanged and that the agreed sales of Dartford and Fareham complete is as follows:
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
06
Broad Street Plaza, Halifax
The investment market for leisure
assets is currently difficult with debt
finance being hard to obtain for such
assets, notwithstanding the diversity
and longevity of income from some of
these assets, including Halifax. The lack
of liquidity in this sector means that
valuations can be volatile. The current
income yield on a geared basis for Halifax
is 35% and the WAULT to expiry is 14.8
years (9.6 years to break).
There are also various ongoing asset
management initiatives that are targeted
to be completed prior to sale but the
key determinant in terms of timing for
disposal is an improvement in debt
markets and market sentiment for leisure
assets.
Sol, Northampton
As noted above, the agreement to regear
the Vue lease is transformational for this
property and extends the WAULT to 13.4
years on expiry and 13.1 years to break.
There are also other negotiations with
both existing and prospective tenants for
repositioning some of the units with the
potential to improve and diversify the
overall leisure offering at the property
which will contribute towards it being an
in-town destination centre.
On the investment side, as is the case with
Halifax, the leisure market is weak with
a limited pool of buyers and therefore,
the focus is on the asset management
activity to drive value and the timing
for the disposal of Sol will depend on
an improvement in debt and property
markets.
St James’ Gate, Newcastle
Active asset management initiatives
are underway and further lettings of
the vacant space are required in order
to increase the occupancy from its
current level of 77% and extend the
WAULT prior to the asset being ready
for sale. Additionally, a track record of
occupancy and operating income under
the management with Orega needs
to be established before a sale can be
contemplated as to sell otherwise will not,
in our view, realise full value. The lettings
to Softcat plc and Orega demonstrate the
potential of this property.
Post 31 March 2024, total residential and investment sales under offer, exchanged or completed currently stand at £20.4 million and as
a result, since the change of strategy announcement on 19 July 2022, investment property disposals (either completed or exchanged)
have generated proceeds of £124.0 million at a 17.0% reduction to the March 2022 valuation (which was the peak of the current
property cycle) or 3.7% ahead when compared with the relevant March valuation prior to sale.
Daniel Davies
Head of Asset Management
5 June 2024
Thomas Hood
Head of Investment
STRATEGIC REPORT
07
Our strategy and business model
Our Strategy:Key Resources:
Our people
• Property and financial
expertise
• Small Board and
Executive Committee
• Values of being: active,
astute and ambitious
• A culture of
demonstrable
commitment, resilience
and strong team
working supports the
delivery of the strategy
Our portfolio
• Resilient rent collection
and returns
• Value-added assets
with future growth
potential
• Potential development
or refurbishment
optionality for
the longer term /
new owners
Our funding
• Strong balance sheet
with minimal levels of
debt following bank
debt repayments.
• Portfolio cash
generation supporting
dividend
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Maximising shareholder returns
We actively asset manage and then sell assets at the right
time to return cash to shareholders via share buybacks or
other methods such as tender offers.
See pages 6 & 7
to read more on
Active asset
management
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
08
Value created:
Investors
Strong asset management and disposals enable early debt
repayment and the return of cash to shareholders via the
share buyback of £15.2m and dividends of 15p per share.
15p
Dividend per share
8p
Accretion per share
from buyback
Tenants
• Ongoing engagement with tenants
• We create space for modern requirements and are
forward looking for tenant’s needs
• We aim to ensure our refurbishments are
environmentally efficient
72
Tenants
98%
Rent collection
Our people
• Flexible, agile working with fair rewards for company
and individual successes
• Executive Chairman receives salary, benefits and STIP,
aligned with the strategy
• All employees below the Board eligible for STIP, annual
bonus and competitive overall remuneration packages
• Diverse backgrounds, age and experience
• Currently two directors and five other members of staff
of whom all are men (including senior managers)
10%
Average employee
pension contribution
100%
Full time employees
receiving a bonus
(excluding Executive Chairman)
The environment
Continuous focus on upgrading our portfolio and working
with tenants to improve environmental performance
100%
EPC of A–D
in portfolio
0%
EPC of E and
F in portfolio
0%
EPC of G
in portfolio
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See pages 6 & 7
to read more on
Timely asset
realisation
STRATEGIC REPORT
09
Financial Overview
The Group’s adjusted profit before tax decreased to £5.4 million (2023: £7.6 million) as a result of income lost through disposals.
Principally as a result of the revaluation deficit on the portfolio equivalent to 39 pence per share, offset by the 8 pence per share share-
buyback accretion, EPRA NTA per share decreased by 11.5% to 262 pence per share (2023: 296 pence per share).
Against a backdrop of economic uncertainty, the Group continued to deliver at an operational level, by significantly reducing gross
debt in a rising interest rate environment and making substantial progress in reducing administration costs, with £0.9 million of
annualised cost savings made in the year.
Investment property sales during the year period realised a profit of £2.3 million (2023: £0.8 million) whilst trading profits from the sale
of residential units contributed £0.2 million (2023: £0.5 million).
The deficit on the revaluation of the portfolio for the year of £15.4 million was due principally to softening yields across the whole
portfolio but particularly during the second half of the financial year in relation to the two leisure assets which accounted for
approximately half of the deficit.
Contractual payments to the former Chief Financial Officer and staff of £0.6 million, including associated costs, have been treated as
an exceptional item.
A provision of £0.6 million in relation to the Short Term Incentive Plan (“STIP”), which was introduced during FY24, has been made
although no payment will be due until the Completion Date has been determined in accordance with the rules of the STIP.
Together with other items totalling £0.6 million, the aggregation of the profits and losses described in the preceding paragraphs
account for the IFRS loss before tax for the year of £9.3 million (2023: £35.8 million loss).
Financial Highlights
2024
£’000
2023
£’000
Income growth
IFRS loss before tax (£9.3m) (£35.8m)
Adjusted profit before tax £5.4m £7.6m
EPRA earnings £4.0m £5.7m
Basic EPS (23.7p) (80.2p)
EPRA EPS 10.1p 12.7p
Adjusted EPS 13.8p 17.1p
Dividend per share paid or declared 15.0p 15.0p
Capital growth
Like-for-like portfolio valuation decrease (15.5%) (18.6%)
Net Asset Value £97.8m £128.5m
Basic NAV per share 260p 294p
EPRA NTA per share 262p 296p
Total accounting return (6.4%) (20.4%)
Total shareholder return 13.7% (15.9%)
Financial review
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
10
The summary of the Group financial results are as follows:
Income Statement
31 March
2024
£m
31 March
2023
£m
Gross property income 12.1 17.9
Property operating expenses (2.5) (2.6)
Expected Credit Loss provision – 0.3
Net rental income 9.6 15.6
Recurring administration expenditure (2.6) (4.1)
Finance income 0.3 –
Finance costs (1.9) (3.9)
Adjusted profit before tax 5.4 7.6
Tax – 0.1
Adjusted profit after tax 5.4 7.7
Payments to former Directors and staff (including associated costs) (0.6) (1.8)
Short term incentive plan provision (including associated costs) (0.6) –
Share based payments (0.2) (0.2)
EPRA earnings 4.0 5.7
Loss on revaluations (15.4) (42.9)
Trading profit 0.2 0.5
Profit on disposal of investment properties 2.3 0.8
Other income statement movements (0.5) 0.2
IFRS loss after tax (9.4) (35.7)
Net rental income reduced by £6.0 million or 38.5% to £9.6 million (2023: £15.6 million) largely due to net income lost from disposals
in the year of £5.0 million. Property operating expenses remained stable at £2.5 million, with void savings from disposals in the year
of £0.2 million being offset by a £0.1 million increase in void costs as a result of inflationary pressures on service charge and insurance
costs on our remaining vacant units.
The Company has continued to reduce its cost base, with annualised cost savings of £0.9 million in the year. As a result of cost savings
implemented in the prior year of £1.4 million, total savings for FY23 and FY24 to date are £2.3 million. Recurring administrative costs in
the year reduced by 36.6% to £2.6 million (March 2023: £4.1 million) for the period.
Finance costs reduced by £2.0 million or 51.3% to £1.9 million (2023: 3.9 million) as a direct result of repaying all of its floating rate
debt facilities in the year. The Group priorities keeping cash reserves in its instant access deposit account, and during the year, our
active cash management enabled us to receive £0.3 million in interest income.
Rent collection remained strong at 98% (2023: 99%) throughout the year as tenant financial covenant health remained robust through
the economic uncertainty.
Quarter
starting
Mar 23
£m
Quarter
starting
Jun 23
£m
Quarter
starting
Sep 23
£m
Quarter
starting
Dec 23
£m
Year
ended
31 Mar 24
£m
Total demanded 3.9 3.0 2.8 2.4 12.1
Total collected 3.9 3.0 2.7 2.3 11.9
Outstanding – – 0.1 0.1 0.2
Current collection rates 99% 99% 99% 96% 98%
STRATEGIC REPORT
11
Shareholder value
EPRA Net Tangible Assets (“NTA”) decreased by 34.0p per share or 11.5% to 262p (2023: 296 pence) during the year. This was largely
due to the revaluation deficit of £15.4m or 38.9p per share, or an 15.5% reduction in the portfolio on a like-for-like basis.
Other movements to note include the buyback of shares of £15.2m, increasing EPRA NTA by 8.0p per share, the profit on disposal of
assets and Hudson Quarter (HQ) trading profit of £2.5m, contributing 6.3p per share. These were offset by the fair value, downward
adjustment of trading properties (HQ York residential) of £0.3m, or 0.7p per share and the payments including associated costs
to former Directors and staff of £0.6m reducing EPRA NTA by 1.5p per share and the STIP provision of £0.6m or 1.6 pence per
share. Conversely, net adjusted earnings, after dividends paid, decreased EPRA NTA by a further 1.2p per share. Other movements
contributed to a further reduction of 4.4p per share.
EPRA NTA Movement
£m
No. of
shares
(diluted)
Pence
per share
EPRA NTA at 31 March 2023 129.3 43,728,212 296p
Share buyback (15.2) (6,160,000) 8.0p
EPRA NTA after buyback 114.1 37,568,212 304p
Adjusted earnings 5.4 – 13.6p
Disposal of assets 2.3 – 5.8p
Hudson Quarter trading profit 0.2 – 0.5p
Property portfolio revaluation deficit (15.4) – (38.9p)
Cash dividends paid (6.0) – (15.0p)
Fair value adj. of trading properties (0.3) – (0.7p)
Payments to former Directors including associated costs (0.6) – (1.6p)
Short term incentive plan including associated costs (0.6) – (1.5p)
Other movements
1
(0.8) (13,687) (4.2p)
EPRA NTA at 31 March 2024 98.3 37,554,525 262p
1 Other movements include debt termination costs, shares purchased by EBT, the denominator effect of the reduced number of shares at period end
compared with the average for the period and the effect of rounding.
Financing
The Group significantly reduced its gross debt in the year by 87.1% to £8.3 million (2023: £64.3 million) and at the year end only
one debt facility remained which is at a fixed interest rate of 2.9% until July 2026. The significant de-leveraging of the balance sheet
resulted in a net cash position of £11.5 million as at the year end (2023: Net debt £58.8 million, LTV 31%) which has increased to £19.7
million as at 5 June. Proforma cash reserves, assuming that all exchanged properties complete, are currently £30.1 million.
The average cost of debt in the year reduced to 2.9% (2023: 5.8%), as a result of repaying all the floating rate debt facilities. This
included full repayment of the Santander, Barclays, NatWest, and Lloyds debt facilities. The Group prioritised repayment of floating
rate facilities to minimise the exposure and impact of interest rate increases to the Group. At 31 March 2024, we held £8.3 million of
fixed debt (2023: £8.6 million), which was 100% of overall debt (2023: 13%).
Set out below is a table showing the movement in gross debt during the year:
2024
£m
Gross debt at 31 March 2023 64.3
Repayment of debt from disposals (54.6)
Amortisation of loans (1.4)
Gross debt at 31 March 2024 8.3
Amortisation of loans (0.1)
Gross debt at 5 June 2024 8.2
Financial review continued
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
12
The Group’s key debt metrics are summarised in the table below:
Debt metrics
31 March
2024
31 March
2023
Loan to value Nil 31%
Total gross debt £8.3m £64.3m
Total fixed debt £8.3m £8.6m
Average cost of debt 2.9% 5.8%
Average debt maturity (yrs) 2.3yrs 2.0yrs
NAV gearing Nil 46%
Andrew Wolfe
Financial Controller
5 June 2024
STRATEGIC REPORT
13
Key
performance
indicators
We measure our
performance using
KPIs linked to our
strategic priorities
of returning capital
to Shareholders.
Where possible, we link our
performance to EPRA best
practice recommendations,
recognised as industry standard
measures. These KPIs have
been updated to reflect the
Company’s strategy.
Strategic aims
1
Maximise capital returns to
shareholders
2
Manage our assets
effectively
3
Be a responsible company
Remuneration aims
1
Fixed remuneration
2
Short term variable
remuneration
Return
of Capital
Total shareholder
return
Adjusted
Profit Before Tax
Adjusted
Earnings per share
Rationale
Maximise property and capital returns to
shareholders.
Rationale
Actual market-based returns achieved by an
investor.
Rationale
Adjusted profit before tax strips out fair
value movements, share based payments
and one-off costs, to get recurring income
from the underlying performance of the
property portfolio.
Rationale
Adjusted earnings per share is an important
measure of the Company’s operational
performance as it excludes all fair value
movements and one-off items not relevant to
the underlying net income performance of the
portfolio.
Performance
The Company bought back 6.2 million
shares under the share buyback programme,
paying £15.2m with an additional £6.0m in
dividends paid.
Performance
The share price increased by 6.7% in the
year, and taking into account the 15.0p
dividend gave a TSR of 13.7%. It remains a
key objective to reduce discount between
NAV and share price.
Performance
Adjusted profit before tax was £5.4 million
(2023: £7.6 million), reflecting the reduction
in income following disposals, offset in part
by the reduction in associated interest costs
and recurring administrative expenses.
Performance
Adjusted EPS was 13.8 pence (2023: 17.1 pence)
reflecting the movement in adjusted profit
before tax but partly mitigated by the accretive
share buyback programmes.
Performance over the last 3 years Performance over the last 3 years Performance over the last 3 years Performance over the last 3 years
25
20
15
10
5
0
2022 2023 2024
£6.5m
(Div)
£6.7m
(Buyback)
£6.0m
(Div)
£15.2m
(Buyback)
£5.4m
13.7%
25
20
15
10
5
0
-5
-10
-15
-20
2022 2023 2024
-15.9%
21.1%
8
7
6
5
4
3
2
1
0
2022 2023 2024
£7.6m
£5.4m
£7.8m
13.8p
2022 2023 2024
17.1p
16.9p
20
15
10
5
0
Link to strategy
1
2
Link to strategy
1
2
Link to strategy
1
2
Link to strategy
1
2
Link to remuneration
1
2
Link to remuneration
1
2
Link to remuneration
1
2
Link to remuneration
1
Gross Debt LTV
of Group debt
Average EPC
rating
Rationale
The Board seek to maintain an appropriate
level of debt in order to enhance shareholder
returns. It is mindful of rising interest rates and
the impact this can have on the value creation
for shareholders.
Rationale
The Company seeks to maintain an
appropriate level of gearing to enhance
shareholder returns.
Rationale
We want to either refurbish and improve or
sell assets for redevelopment based on our
EPC criteria.
Performance
The Company has repaid £56.0m of debt
in the year, reducing the overall drawn debt
by 87.1%.
Performance
Disposals of assets and debt repayment,
have resulted in the company being in a net
cash position.
Performance
Through disposals, capex and re-
assessments, E,F and G ratings have
reduced to 0%.
Performance over the last 3 years Performance over the last 3 years Performance over the last 3 years
£8.3m
120
100
80
60
40
20
0
2022 2023 2024
£101.8m
£64.3m
50
40
30
20
10
0
2022 2023 2024
0%
28%
31%
0%
30
25
20
15
10
5
0
2022 2023 2024
3.8%
11.2%
Link to strategy
1
2
Link to strategy
1
2
Link to strategy
1
2
3
Link to remuneration
1
2
Link to remuneration
1
Link to remuneration
1
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
14
Return
of Capital
Total shareholder
return
Adjusted
Profit Before Tax
Adjusted
Earnings per share
Rationale
Maximise property and capital returns to
shareholders.
Rationale
Actual market-based returns achieved by an
investor.
Rationale
Adjusted profit before tax strips out fair
value movements, share based payments
and one-off costs, to get recurring income
from the underlying performance of the
property portfolio.
Rationale
Adjusted earnings per share is an important
measure of the Company’s operational
performance as it excludes all fair value
movements and one-off items not relevant to
the underlying net income performance of the
portfolio.
Performance
The Company bought back 6.2 million
shares under the share buyback programme,
paying £15.2m with an additional £6.0m in
dividends paid.
Performance
The share price increased by 6.7% in the
year, and taking into account the 15.0p
dividend gave a TSR of 13.7%. It remains a
key objective to reduce discount between
NAV and share price.
Performance
Adjusted profit before tax was £5.4 million
(2023: £7.6 million), reflecting the reduction
in income following disposals, offset in part
by the reduction in associated interest costs
and recurring administrative expenses.
Performance
Adjusted EPS was 13.8 pence (2023: 17.1 pence)
reflecting the movement in adjusted profit
before tax but partly mitigated by the accretive
share buyback programmes.
Performance over the last 3 years Performance over the last 3 years Performance over the last 3 years Performance over the last 3 years
25
20
15
10
5
0
2022 2023 2024
£6.5m
(Div)
£6.7m
(Buyback)
£6.0m
(Div)
£15.2m
(Buyback)
£5.4m
13.7%
25
20
15
10
5
0
-5
-10
-15
-20
2022 2023 2024
-15.9%
21.1%
8
7
6
5
4
3
2
1
0
2022 2023 2024
£7.6m
£5.4m
£7.8m
13.8p
2022 2023 2024
17.1p
16.9p
20
15
10
5
0
Link to strategy
1
2
Link to strategy
1
2
Link to strategy
1
2
Link to strategy
1
2
Link to remuneration
1
2
Link to remuneration
1
2
Link to remuneration
1
2
Link to remuneration
1
Gross Debt LTV
of Group debt
Average EPC
rating
Rationale
The Board seek to maintain an appropriate
level of debt in order to enhance shareholder
returns. It is mindful of rising interest rates and
the impact this can have on the value creation
for shareholders.
Rationale
The Company seeks to maintain an
appropriate level of gearing to enhance
shareholder returns.
Rationale
We want to either refurbish and improve or
sell assets for redevelopment based on our
EPC criteria.
Performance
The Company has repaid £56.0m of debt
in the year, reducing the overall drawn debt
by 87.1%.
Performance
Disposals of assets and debt repayment,
have resulted in the company being in a net
cash position.
Performance
Through disposals, capex and re-
assessments, E,F and G ratings have
reduced to 0%.
Performance over the last 3 years Performance over the last 3 years Performance over the last 3 years
£8.3m
120
100
80
60
40
20
0
2022 2023 2024
£101.8m
£64.3m
50
40
30
20
10
0
2022 2023 2024
0%
28%
31%
0%
30
25
20
15
10
5
0
2022 2023 2024
3.8%
11.2%
Link to strategy
1
2
Link to strategy
1
2
Link to strategy
1
2
3
Link to remuneration
1
2
Link to remuneration
1
Link to remuneration
1
STRATEGIC REPORT
15
Risk Management
Risk framework
Risk management is an inherent part of the Board’s decision
making process. This is then embedded into the business and its
systems and processes. The Board reviews its overall risk appetite
and regularly considers, via the Audit and Risk Committee,
the principal risks facing the company, managements plans
for mitigating these and emerging risks. The Committee also
considers, at least annually, the effectiveness of the Company’s
system of risk management and internal control. Further
information on the work of the Committee in this area is available
in the Audit and Risk Committee report on page 40.
Our approach to risk identification and our open and supportive
culture means that asset managers and key individuals in the
finance team are able to report directly and at an early stage on
issues, allowing management to take appropriate mitigating action.
Emerging risks
If economic and geo-political stability remains uncertain or
worsens, this could have an impact on the commercial property
market with reduced valuations and rental income. Further cost
of living issues may negatively impact consumer sentiment and
inflation could reduce spending further while direct and indirect
costs to the Group may increase further which may not be fully
recoverable. Further pandemics may lead to further interruption
of large parts of the economy for a significant period.
Going concern assessment
Introduction
In accordance with the 2018 UK Corporate Governance Code (the
Code), the Directors have assessed the Group’s position over the:
• Short-term (over the next 12 months to June 2025 as
required by the ‘Going concern’ provision) and;
• Medium-term (a 3 year period to June 2027 as required by
the ‘Viability statement’ provision)
Going concern
The Directors regularly assess the Group’s ability to continue as a
going concern. The Strategic report sets out in detail the Group’s
financial position, cash flows, liquidity position, borrowing
facilities and the factors which will affect future performance. In
assessing the going concern, the Directors considered:
• The Group’s current financial position including cash and
drawn debt
• The Group’s 12 month ‘base case scenario’ forecast to June
2025, which is management’s best estimate of market and
business changes, taking into account:
– Disposal of investment properties
– Residential sales
– Ability to satisfy bank covenants
– Committed capital expenditure
– Rent collection
• Downside scenario on the 12 month base case scenario
forecast to June 2025
The Group is in a strong financial position. At 31 March 2024 the
Group had £19.8m of cash and cash equivalents. The fair value
of our property portfolio is £88.7m with net assets of £97.8m.
During the year, the Group repaid £56.0m of floating rate debt,
funded by investment property and Hudson Quarter residential
sales, with drawn debt at 31 March 2024 of £8.3m (31 March
2023: £64.3m). The Group only has one debt facility remaining,
which is at a fixed interest rate of 2.9% and matures in July 2026.
The Group was in a net cash position of £11.5m at year end
(31 March 2023: Net debt of £58.8m, LTV of 31%). During the
year, the Group collected 98% of all rents and complied with
all ICR and LTV bank covenants, despite rising interest rates. At
the date of this assessment, there are no bank facilities expiring
within the going concern period. In addition to the strong
financial position of the Group at 31 March 2024, the Group
continued to strengthen its balance sheet post year end, with
three investment properties completed or exchanged for £18.5m,
0.1% ahead of the 31 March 2024 valuations. At the date of this
assessment, cash of £27.9m and drawn debt of £8.2m.
The Director’s conducted a detailed 12 month base case scenario
forecast to June 2025, making various assumptions over asset
sales, rent collection and committed capital expenditure. The
forecasts indicated that the Group:
• Has strong sustainable cash flows and would be able to meet
its liabilities as they fall due over the next 12 months and;
• Will comply with all ICR and LTV bank covenants
In addition to the detailed 12 month base case scenario forecast
to June 2025, the Directors have considered a downside scenario
in assessing the Group’s ability to continue as a going concern.
Sensitivity analyses were undertaken to assess the impact on the
business and in particular the bank covenants.
The downside scenario assumptions used in the assessment
included:
• 30% reduction in all property bank valuations
• 15% reduction in rent collection
• Slowdown in residential sales
Even on the downside scenario described above, the Group will
still be able to meet its liabilities as they fall due over the next
12 months and will still be compliant on all ICR and LTV bank
covenants. As the only debt facility remaining is at a fixed interest
rate of 2.9%, rising interest rates will not impact its ICR covenants.
Going concern statement
Based on the analysis undertaken on the base case and downside
scenario, the Group has sufficient liquidity to meet its ongoing
liabilities that fall due over the assessment period. Given the market
information available, the Directors are not aware of any material
uncertainty that exists that may cast doubt upon the Group’s or the
Company’s ability to continue as a going concern. As a result, the
Directors consider it appropriate to continue to prepare the financial
statements on a going concern basis. The board notes that it shall
take time to prepare assets for possible disposal in line with its
stated strategy.
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
16
Viability
In accordance with provision 31 of the UK Corporate Governance
Code and taking into consideration the current economic
uncertainty, the Directors have assessed the prospects of the
Group and future viability over a three-year period to June
2027, being longer than the 12 months required by the “Going
Concern” provision.
The Board’s assessment of the Group’s viability for the next three
years has been made with reference to:
• The impact of the current economic uncertainties and
resulting impact on the Group and our tenants’ ability to
operate and meet their rental obligations.
• The key principal risks of the business and its risk appetite.
• The impact on business operations, mainly rent collection,
and progress on residential sales at Hudson Quarter, in the
event of a downturn in the economy.
• The Group’s current position and its ability to meet future
financial obligations to remain covenant compliant.
Review period
The Board considers a period of three years to be appropriate
over which to assess the long-term viability of the Company for
the following reasons:
• It reflects the Group’s view on the length of time needed to
complete asset management initiatives
• The Group’s debt maturity at 31 March 2024 was 2.3 years
• The Group’s WAULT to break at 31 March 2024 was 5.4 years
Assessment
The Directors conducted a detailed 3-year viability assessment
which included a base case scenario forecast to June 2027,
making various assumptions over asset sales, rent collection and
committed capital expenditure.
In addition to the base case scenario, the Directors have
undertaken a robust scenario assessment of the risks which
could threaten the 3-year viability or the operational existence
of the Group. As part of the reasonable downside modelling,
the Directors have stress-tested working capital model and cash
flows using the same assumptions as stated above in the Going
Concern assessment.
The Group will likely be smaller resulting from asset sales, but
having assessed the current position of the Group, its prospects
and principal risks and taking into consideration the assumptions
stated above, the Board has a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities
as they fall due over the next three years.
Hudson Quarter, York
STRATEGIC REPORT
17
Statement of Principal Risks
The Audit and Risk Committee has considered that the following represent the Group’s
principal risks, divided into Strategic, Financial, Portfolio and Operational risks:
Strategic Risks
01
Market cycle, economic and political
Risk description
Failure to react appropriately to changing market conditions and adapt
our corporate strategy could negatively impact shareholder returns. A
downturn in the market could reduce the appetite in the investment
market, leading to lower valuations and affecting our disposal strategy and
ability to return capital to shareholders.
Uncertainty in the UK economic landscape, global supply chain issues,
inflation and interest rates, cost of energy crisis brings risks to the property
market, supply chains and to occupiers’ businesses. This can significantly
impact market sentiment and our ability to extract value from our
properties resulting in lower shareholder returns, reduced liquidity and
increased occupier failure.
Mitigation
The Board monitors macro economic issues, market indicators and reviews
the Group’s strategy and business objectives on a regular basis. It will
tailor the delivery of the Company’s strategy in light of current and forecast
market conditions. Disposal of other assets will continue if the market
conditions allow for value to be achieved, whilst active asset management
of the assets will continue to support in delivering returns to shareholders.
Third party agent’s advice is taken on all disposals. Exco regularly reviews
market conditions.
Current position
The Board is monitoring and considering the longer term impacts of the
cycle including the potential future of the office and the effects of the
enhanced ESG requirements.
Likelihood after mitigation
Score 1 (low) - 10 (high)
6
Impact after mitigation
Score 1 (low) - 10 (high)
6
Overall Risk Rating
Score 1 (low) - 20 (high)
12
Financial Risks
02
Capital structure and liquidity
Risk description
An inappropriate level of gearing or failure to comply with debt covenants
or manage re-financing events could put pressure on cash resources and
lead to a funding shortfall for operational activities.
Increasing costs of borrowing and increasing interest rates could affect the
Group’s ability to borrow or reduce its ability to repay its debts.
Mitigation
The Board regularly reviews its capital risk management policy, gearing
strategy and debt maturity profile. The Group’s LTV limit is 35%, and
capital has been used to repay debt to reduce exposure to interest rate
volatility and ensure debt compliance. Management maintains a close
relationship with its lender. The Board reviews financial forecasts on a
regular basis, including sensitivity against financial covenants. The Audit
and Risk Committee considers the going concern status of the Group
biannually. The Board considers the allocation of its capital in granular
detail to ensure the most efficient use. Sales of assets can be used to repay
debt, fund working capital requirements or return to shareholders.
Current position
The Group’s weighted average debt maturity is currently c2.3 years. The
Group’s LTV limit is 35% but current LTV is nil. The Company has repaid
£56.0 million of bank debt in the year to 31 March 2024.
Likelihood after mitigation
Score 1 (low) - 10 (high)
3
Impact after mitigation
Score 1 (low) - 10 (high)
2
Overall Risk Rating
Score 1 (low) - 20 (high)
5
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
18
03
Portfolio strategy
Risk description
An inappropriate investment strategy that is not aligned to overall
corporate purpose objectives, economic conditions, or tenant demand
may result in lower investment returns.
Mitigation
The Board regularly reviews the Group’s investment strategy and asset
allocation to ensure this is aligned to the overall corporate strategy.
Current position
The Company is selectively marketing certain assets, as the market
stabilisation and recovery continues. Asset management initiatives
utilised to maximise value. Appraisals for improving properties e.g. via
refurbishment are ongoing for certain assets.
Likelihood after mitigation
Score 1 (low) - 10 (high)
4
Impact after mitigation
Score 1 (low) - 10 (high)
6
Overall Risk Rating
Score 1 (low) - 20 (high)
10
05
Valuation
Risk description
Decreasing capital and rental values could impact the Group’s portfolio
valuation leading to lower returns. Higher cost of debt can lead to
property yields to be pushed out and valuations to fall as a result.
Increasing gilt yields, can leave property investment less attractive unless
the desired return can be achieved.
Mitigation
Independent valuations are undertaken for all assets at the half year and
year end. These are reviewed by management and the Board. Members of
the Audit and Risk Committee meet with the valuers at least once a year to
discuss valuations and the valuation process. Management actively review
leases, tenant covenants and asset management initiatives to grow capital
and rental values.
Current position
Valuations of the portfolio reflect the commercial property market in
general. The team continue to work to mitigate against falls in value
through active asset management including ESG improvements.
Likelihood after mitigation
Score 1 (low) - 10 (high)
7
Impact after mitigation
Score 1 (low) - 10 (high)
8
Overall Risk Rating
Score 1 (low) - 20 (high)
15
04
Asset management
Risk description
Failure to implement asset business plans and elevated risks associated
with refurbishment could lead to longer void periods, higher arrears
and overall investment performance, adversely impacting returns and
cashflows.
Mitigation
The process for reviewing asset business plans is embedded in the annual
budget process. Our experienced management team and use of advisors
and property managers supports the execution of asset management
strategies.
Current position
Our refurbishment pipeline is continuously assessed to ensure the right
projects are being brought forward at appropriate times ensuring exposure
at any one time is limited. The Executive Committee is reviewing the
Group’s Health and Safety systems and processes to ensure appropriate
oversight of assets.
Likelihood after mitigation
Score 1 (low) - 10 (high)
4
Impact after mitigation
Score 1 (low) - 10 (high)
4
Overall Risk Rating
Score 1 (low) - 20 (high)
8
06
Tenant demand and default
Risk description
Failure to adapt to changing occupier demands and/or poor tenant
covenants may result in us losing significant tenants, which could materially
impact income, capital values and profit. Rising inflation, interest rates and
living costs could impact tenant businesses, such as the leisure industry, as
demand falls for discretionary spending.
Mitigation
Management maintain close relationships with tenants understanding their
needs and supporting them throughout their business cycle. Managing
agents support rent collection and collection of arrears on a regular basis.
Tenant due diligence and credit checks are undertaken on an ongoing
basis to review covenant strength of existing and prospective tenants. The
finance and property teams monitor all current tenant covenants and all
future new tenants. All arrears are monitored on an ongoing basis.
Current position
Rent collection rates remain robust at 98%. The team are closely
monitoring tenant covenants in high risk sectors, ensuring we are aware of
any tenant distress which can impact the rental collection.
Likelihood after mitigation
Score 1 (low) - 10 (high)
4
Impact after mitigation
Score 1 (low) - 10 (high)
7
Overall Risk Rating
Score 1 (low) - 20 (high)
11
STRATEGIC REPORT
19
Statement of Principal Risks continued
07
Business continuity and cyber security
Risk description
Business disruption as a result of physical damage to buildings,
Government policy and measures implemented in response to pandemics,
cyber attacks or other operational or IT failures or unforeseen events may
impact income and profits.
Mitigation
Our governance structure and internal control systems ensure sufficient
Board oversight, with delegated responsibilities, segregation of duties and
clear authorisation processes. A comprehensive programme of insurance
is in place which covers buildings, loss of rent, cyber risks, Directors’ and
Officers liability and public liability. Antivirus software and firewalls protect
IT systems and data is regularly backed up.
Current position
The Board continues to review the internal control environment and ensure
good governance practices are adopted throughout the business. Cyber
security arrangements have been kept under regular review to ensure we
are deploying the most up to date technologies.
Likelihood after mitigation
Score 1 (low) - 10 (high)
2
Impact after mitigation
Score 1 (low) - 10 (high)
2
Overall Risk Rating
Score 1 (low) - 20 (high)
4
09
Climate change
Risk description
Longer term failure to anticipate and prepare for transition and physical
risks associated with climate change including increasing policy and
compliance risks associated with existing and emerging environmental
legislation could lead to increased costs and the Group’s assets becoming
obsolete or unable to attract occupiers.
Mitigation
The Group’s ESG Committee oversees the execution of ESG related
matters and ensures these are integrated into our business model
and corporate strategy. Climate related risks are considered as part
of our overall corporate risk assessment and ongoing environmental
management of our buildings.
Current position
There has been an increased focus on environmental management and
management have focused on asset management initiatives to increase
the EPC ratings of our assets, increasing the marketability of the assets in a
cost effective way.
Likelihood after mitigation
Score 1 (low) - 10 (high)
5
Impact after mitigation
Score 1 (low) - 10 (high)
5
Overall Risk Rating
Score 1 (low) - 20 (high)
10
08
People
Risk description
An inability to attract or retain staff with the right skills and experience or
failure to implement appropriate succession plans may result in significant
underperformance or impact the overall effectiveness of our operations.
Health and Safety of staff and others including tenants both physically and
mentally and providing a safe and healthy environment in our properties
is of utmost importance. Failure to do so could lead to staff and tenant
ill health, litigation and regulatory issues, negative media and market
sentiment against the Company.
Mitigation
We engage with staff regularly and encourage a positive working
environment. We maintain an attractive reward and benefits package
and undertake regular performance reviews for each employee.
Insurance cover is in place for Directors. Health and Safety is undertaken
both internally and via the tenants and a key issue for our property
managers.
Current position
A competitive employment market and inflationary pressures are driving
increased pay and benefits to ensure attraction and retention of individuals
with the skills, knowledge and experience required to implement the
strategy. The Group’s headcount is now stable with sufficient cover if any
key personnel are unavailable. Employee engagement is high with regular
meetings between employees and the Directors ensuring that the Board
understands the views of the whole workforce.
Likelihood after mitigation
Score 1 (low) - 10 (high)
5
Impact after mitigation
Score 1 (low) - 10 (high)
7
Overall Risk Rating
Score 1 (low) - 20 (high)
12
10
Regulatory and tax
Risk description
Non-compliance with the legal and regulatory requirements of a public
real estate company, including the REIT regime could result in convictions
or fines and negatively impact reputation.
Mitigation
The Company employs experienced staff and external advisers to provide
guidance on key regulatory, accounting and tax issues. Compliance with
the REIT regime is regularly monitored by the Board and the Executive
team consider the impact on the regime as part of their decision making.
Current position
Emerging corporate governance and audit reforms, require additional
processes and procedures to be put in place and additional reporting on
the company’s resilience. The Board is overseeing these changes.
Likelihood after mitigation
Score 1 (low) - 10 (high)
4
Impact after mitigation
Score 1 (low) - 10 (high)
2
Overall Risk Rating
Score 1 (low) - 20 (high)
6
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
20
Sol, Northampton
STRATEGIC REPORT
21
Section 172
statement
Stakeholder Why we engage How we engage and our actions Key interests How we have considered stakeholders in the year
Investors
Our investors expect the Company
to deliver attractive returns and
return cash.
• The Executive Chairman and Senior Independent Director
have held regular meetings with major investors
• Shareholders are able to attend General Meetings
including the AGM where they can question Directors and
vote on matters put to the meeting
• Regular trading updates and announcements are made to
the market
• We implemented the share buyback programme, the
proposed tender offer and paid quarterly dividends in the
year to Shareholders
Our investors are looking for financial performance that
generates a return on their investment incorporating
dividends, capital growth and maximising cash returns in line
with the strategy.
The Board and Committees have taken the views of investors
into account regularly including the repayment of debt, share
buybacks and tender offer.
Tenants
Our business is focused on our tenants
and responding to their needs.
We have a proactive asset management strategy and regularly
engage with our tenants including:
• Asset manager review meetings
• Visiting assets and listening to concerns
Our tenants want fit-for-purpose spaces at a fair price. Tenant requirements have been included in Board
deliberations for example in relation to capital expenditure.
The Board conducted several site visits and meetings with
advisors and tenants in the year.
Employees
Our small team of employees are key to
implementing the Group’s strategy.
• Weekly Executive Committee for which all team members
attend
• Meetings with Directors, both formally and informally.
• Social events to which all employees are invited
We have moved in the year into more appropriate office
space with improved access for people commuting, improved
infrastructure and better facilities but at significantly less cost
to the Company.
Employees regularly feature in Board discussions. This included
the strategy and the introduction of the STIP, for example.
Suppliers,
agents and
consultants
We rely on a number of key
partnerships to support our asset
management and the delivery of our
strategy.
We actively engage with our suppliers and work closely
with them:
• Weekly meetings with our managing agents and regular
contact by telephone and email
• Ensuring payments are made within agreed terms
Understanding of objectives and working together to achieve
these with good communication and liaison is key.
The asset management model of a small internal team
overseeing the activities and performance of agents is key to
how the Group does business.
Communities
and the
environment
We are mindful of the impact our
operations have on local communities
and the environment.
We aim to have a positive impact on local areas including
employment and the built environment.
We aim to provide our communities with attractive, safe and
environmentally friendly spaces, which enhance the local area.
The Board understands the long term nature of the built
environment and creating a sustainable legacy.
Lender
Our debt provider supplies us with
finance for our business purposes
including a previous acquisition.
We actively engage regularly with our bank. We have consistently met our covenant and repayment
obligations with our lender.
We have strong long standing relationship with our bank.
The following statement highlights our principal stakeholders and
how their interests have been considered and the actions taken by
the Group in the year in line with these.
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
22
Stakeholder Why we engage How we engage and our actions Key interests How we have considered stakeholders in the year
Investors
Our investors expect the Company
to deliver attractive returns and
return cash.
• The Executive Chairman and Senior Independent Director
have held regular meetings with major investors
• Shareholders are able to attend General Meetings
including the AGM where they can question Directors and
vote on matters put to the meeting
• Regular trading updates and announcements are made to
the market
• We implemented the share buyback programme, the
proposed tender offer and paid quarterly dividends in the
year to Shareholders
Our investors are looking for financial performance that
generates a return on their investment incorporating
dividends, capital growth and maximising cash returns in line
with the strategy.
The Board and Committees have taken the views of investors
into account regularly including the repayment of debt, share
buybacks and tender offer.
Tenants
Our business is focused on our tenants
and responding to their needs.
We have a proactive asset management strategy and regularly
engage with our tenants including:
• Asset manager review meetings
• Visiting assets and listening to concerns
Our tenants want fit-for-purpose spaces at a fair price. Tenant requirements have been included in Board
deliberations for example in relation to capital expenditure.
The Board conducted several site visits and meetings with
advisors and tenants in the year.
Employees
Our small team of employees are key to
implementing the Group’s strategy.
• Weekly Executive Committee for which all team members
attend
• Meetings with Directors, both formally and informally.
• Social events to which all employees are invited
We have moved in the year into more appropriate office
space with improved access for people commuting, improved
infrastructure and better facilities but at significantly less cost
to the Company.
Employees regularly feature in Board discussions. This included
the strategy and the introduction of the STIP, for example.
Suppliers,
agents and
consultants
We rely on a number of key
partnerships to support our asset
management and the delivery of our
strategy.
We actively engage with our suppliers and work closely
with them:
• Weekly meetings with our managing agents and regular
contact by telephone and email
• Ensuring payments are made within agreed terms
Understanding of objectives and working together to achieve
these with good communication and liaison is key.
The asset management model of a small internal team
overseeing the activities and performance of agents is key to
how the Group does business.
Communities
and the
environment
We are mindful of the impact our
operations have on local communities
and the environment.
We aim to have a positive impact on local areas including
employment and the built environment.
We aim to provide our communities with attractive, safe and
environmentally friendly spaces, which enhance the local area.
The Board understands the long term nature of the built
environment and creating a sustainable legacy.
Lender
Our debt provider supplies us with
finance for our business purposes
including a previous acquisition.
We actively engage regularly with our bank. We have consistently met our covenant and repayment
obligations with our lender.
We have strong long standing relationship with our bank.
STRATEGIC REPORT
23
ESG Introduction
Environmental, Social and Governance (‘ESG’)
Our ESG strategy aims to mitigate the risks and consider the opportunities in terms
of the impacts of our business on the environment, our communities, our tenants
and our people. The main pillars are:
Environmental
• Improving the portfolio – by understanding better the
environmental performance of our assets, we are actively
seeking to reduce energy use and greenhouse gas
emissions and improve energy efficiency of which our EPC
ratings continue to be a key metric.
Social
• Consideration of stakeholders’ interests particularly
employees – by promoting collaboration and input from all
team members.
Governance
• Being a responsible business – ensuring ethical business
practices and sound risk management are embedded in
business practices and culture.
ESG - Environmental
Greenhouse gas emissions
Our GHG calculation and reporting process follows the
Greenhouse Gas Protocol (“operational approach”) and the
DEFRA Environmental Reporting Guidelines (2019). Our
reporting includes emissions from sources under our control,
grouped under: Scope 1 (direct) GHG emissions from owned
assets; and Scope 2 (indirect) GHG emissions from landlord-
controlled electricity supplies and Scope 3 (indirect) GHG
emissions from our tenants. As a commercial property landlord
the bulk of our reporting is under Scope 3 in line with the GHG
Protocol’s Scope 3 category 13: Downstream Leased Assets.
We are pleased to have reduced our direct emissions under
Scope 1 from our own office usage. This reflects a smaller office
with reduced consumption at Thomas House. The Company
does not own any vehicles and emissions from sources such
as production processes and combustion sources are minimal,
therefore not deemed material. The Company has an electric
vehicle plan available for employees.
As we have a limited amount of energy use within our control
so we proactively engage with our tenants, encouraging them
to minimise their own energy consumption. We have seen a
further annual improvement in data collection from our agents
and tenants and we are grateful to them for the provision of data.
However, certain leases remain under the control of tenants for
energy use and control of data collection so we continue to work
with tenants to improve this.
As a result of better data collection, total emissions have increased
during the year as people continued to return to their workplaces.
Energy usage reduced, partly due to the cost of energy. We will
work with our tenants on the strategy for overall carbon reduction as
we continue to make a positive impact on reducing energy usage.
GHG emissions 2024 2023
Emissions type
(tonnes of CO
2
equivalents)
Scope 1 (estimate in 2023) – 1
Scope 2 3 2
Scope 3 545 879
Total 548 882
Average GHG Intensity
(tCO
2
e/sqft
2
)
Scope 1,2 and 3 combined 0.001 0.001
Total energy use (kWh)
Scopes 1,2,3 6,114,983 8,771,692
Climate Related Financial Disclosures (TCFD)
We published our findings from our consideration of the
Taskforce for Climate-related Financial Disclosures (TCFD)
methodology in our 2022 report, as updated in our 2023 report.
We considered the associated physical and transition risks with a
2 degrees warming scenario, referencing the models mapped out
by the Bank of England and the IMF’s World Economic Outlook.
Under a 2°C scenario, the Company’s strategy is considered
resilient, taking into account the physical locations of its assets
and the actions it is taking to manage transition risks.
The Company is continuing with its upgrading and retrofitting
programmes to meet more stringent building performance and
carbon emissions requirements: for example, to meet existing
Government minimum energy efficiency regulations (MEES),
and in anticipation of a further ratcheting up of regulatory
requirements for energy performance certificate (EPC) ratings
by 2030. The Company reviews this over the short, medium
and long term. The Board considers climate-related issues
when reviewing and guiding strategy, major plans of action, risk
management policies, annual budgets, and business plans. These
are considered in overseeing major capital expenditure, and sales
of assets, in line with the strategy.
Climate-related risks have been integrated within the Company’s
risk management framework and the investment and asset
management decision-making processes. The risk management
framework are considered by the Audit and Risk Committee and
the Board. We have identified and implemented opportunities
for the Company to enhance its EPC and environmental
performance its assets across our sectors leading to higher ERVs
and capital growth compared to less well performing assets. The
Company will adapt its strategy accordingly to take into account
the opportunities and risks from either market or regulatory
impacts such as for example, accelerated programmes for EPC
capital expenditure.
Net Zero Strategy
We aim for the portfolio as a whole to be in an appropriate position to
be net zero by 2050, in line with the UK Government’s ambition and
are actively taking steps to achieve this as explained in these sections.
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
24
ESG
Improving environmental performance
Current EPC/MEES requirements & compliance
Since 1 April 2020, landlords can no longer let or continue to let properties covered by the MEES Regulations if they have an EPC
rating below ‘E’. From 1 April 2023, this has been extended to include existing leases, making it unlawful for a landlord to continue to
let commercial property rated F or less unless they have a valid exemption in place.
Our current EPC split at 31 March 2024 compared to March 2023 is as follows:
Rating
31 March
2023
31 March
2024 Change
A 2.3% 3.4% +1.1%
B 28.6% 46.6% +18.0%
C 41.3% 31.0% -10.3%
D 24.0% 19.0% -5.0%
E 2.3% 0.0% -2.3%
F 1.5% 0.0% -1.5%
G 0.0% 0.0% 0.0%
100.0% 100.0% 0.0%
As shown above including disposals, the Company has made significant progress on reducing the lower performing assets in the
portfolio with the percentage with a B rating rising from 28.6% of the portfolio in March 2023 to 46.6% in March 2024 while we have
removed both E and F performance ratings from the portfolio completely.
During the year, we have continued to make good progress inimproving our EPC ratings. We have removed all G, F and E ratedEPCs
and significantly reduced D ratings, moving the portfoliotowards MEES compliance. This has been through a co-ordinated effort to
incorporate energy efficiency measures intoour refurbishment programmes and include ESG considerationsin our assetmanagement
plans for each property.
Hudson Quarter, York
STRATEGIC REPORT
25
TCFD
Being a responsible business
Overview
In this section, we provide an overview of our progress and
priorities against the requirements of Listing Rule 9.8.6R and the
TCFD recommendations and recommended disclosures, which
also reflects the Annex to the Recommendations of the TCFD
section C (Guidance for all sectors).
Governance
The Board assumes overall responsibility and accountability
for the management of climate-related risks and opportunities.
The remit of the ESG Committee is to oversee the Company’s
response to the evolving environmental, health and safety,
corporate social responsibility, corporate governance,
sustainability, and other public policy issues. The Executive
Committee reviews environmental performance including EPCs
at its meetings and the outputs are included in the Property
Board reports for each Board meeting.
Risk management
The ESG Committee supports the Audit & Risk Committee which
oversees the Group’s risk management framework, evaluating its
principal and emerging risks and setting the risk appetite.
Metrics and targets
The Group commenced measuring its greenhouse gas emissions
(GHG) in 2020. These GHG emissions cover Scope 1 direct
emissions from the usage of fuel in its operations and indirect
Scope 2 emissions from electricity consumption on site. We have
utilised Compare Your Footprint for data analysis including our
tenants usage as Scope 3. This includes for example aspects such
as purchased goods & services (water); fuel & energy related
activities; business travel; employee commuting; teleworking;
and downstream leased assets.
Compliance statement
We believe our climate related financial disclosures for the
year ended 31 March 2024 are consistent with the Task
Force on Climate-related Financial Disclosures (“TCFD”)
Recommendations and Recommended Disclosures (as defined
in Appendix 1 of the Financial Conduct Authority Listing Rules)
with the exception of our development of medium and long term
targets for managing climate related risks and opportunities and
its related impact due to the Group’s strategy to maximise cash
returns to shareholders through asset disposals (metrics and
targets disclosure c). We are therefore not fully compliant with
the TCFD requirements.
In relation to 4b (relating to our Scope 3 emissions), we have
assessed all 15 categories but only disclose our material
emissions, which are from downstream leased assets and
purchased goods and services.
Further details on our policies and approach to responsible
business are also available on our website. We believe that the
details of these climate related financial disclosures are conveyed
in a decision useful format to the users of this report. In line with
our strategy, we consider the short, medium and longer term
climate related issues as part of our asset management and risk
management strategies.
We take into account climate related issues for our tenants and
potential future purchasers in line with our strategy.
Disclosure Commentary
Governance
a) Describe the Board’s oversight of climate-
related risks and opportunities
The Corporate Social Responsibility Committee was established in 2019 which was reconstituted
as the ESG Committee in 2020, in recognition of the increasing importance of ESG. The Board,
supported by input from the ESG Committee, assumes overall responsibility and accountability.
Due to the current size of the Group and its current strategy, the Board is actively involved in all of
the key investment (including efficiency measures into our refurbishment programmes) and disposals
decisions to reduce the lower performing assets regularly.
b) Describe the management’s role in
assessing and managing climate-related risks
and opportunities
Climate-related issues have been integrated into the core risk management process for asset
management and investment. The Executive Committee meets weekly and includes climate issues
in discussions and consideration for escalating as appropriate under the Company’s Delegations of
Authority. The Executive Chairman chairs the Executive Committee and has delegated authority for day
to day risk management oversight and major matters are considered by the Board or its Committees.
Strategy
a) Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium, and long term
The horizons considered are short (0-2 years) medium (3-5 year) and longer term (5 years plus). Most
of the Company's assets as investment properties have a useful economic life in excess of 5 years so
the risks are considered as part of our ongoing asset management initiatives taking into account the
longer term risks to the buildings. This includes in particular risks of obsolescence of mechanical and
engineering equipment, including heating and cooling. Where appropriate we would look to refurbish
or replace these and consider the timeframes and costs for doing so, in order to achieve improved
environmental performance, particularly EPC ratings and improve the experience of tenants and
visitors, particularly in the leisure and office sectors. For certain assets, these may be more appropriate
for redevelopment in the short or medium term so the opportunity for replacement or refurbishment
is considered taking into account the costs to the Company of replacement and whether it is more
appropriate for another purchaser to develop the property. The strategy to return capital through sales
means that certain assets will be asset managed and others will be sold if the timing is appropriate to
maximise returns. The risks for tenants in the short and medium term include increased utility costs;
unattractiveness of buildings to potential occupiers or purchasers due to poor carbon performance and
related capex requirements; and increased regulatory and policy measures. Longer-term (over 5 years)
risk includes raised temperatures and impacts on the UK from decarbonising and the costs associated
with improving commercial property to achieve these targets. In line with our disposal strategy and
viability statement, the long term risks are not considered relevant to the Group. The most significant
financial impacts have been considered as part of the Risk Management process. The opportunities
identified include: the attractiveness of well performing assets to tenants and potential purchasers over
the short, medium and longer term.
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
26
Disclosure Commentary
Strategy continued
b) Describe the impact of climate-related
risks and opportunities the organisation’s
businesses, strategy and financial planning
Climate-related risks have been integrated within the Company’s risks. Climate and energy
performance have been fully integrated into both investment and asset management decision-
making process. The Company has not yet set itself targets due to the company’s strategy for
maximising cash returns to shareholders through the timely sale of assets. For the medium (3-5
years) and longer term (over 5 years) the Company considers the improvement of environmental
performance as part of its asset management activity which is reviewed weekly at the Executive
Committee but does not consider that targets are appropriate, with the exception of improved EPC
ratings as described on page 25.
c) Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-related
scenarios, including a +2°C or lower scenario
The average life-cycle of Palace Capital’s assets within its ownership is short (0-2 years) to medium
term (2-5 years) and the assets are located in well-connected regional transport hubs. Under a long
term +2°C scenario, the Company’s strategy is considered resilient, bearing in mind the physical
locations of its assets and the actions it is taking to manage transition risks. The Company reviewed
the risks of a +2C increase in workshops with SIFA strategy, an external advisor to the Company on
climate and environmental matters in 2023. The review concluded that specific risks such as flooding
were minor due to the location of the Company’s assets but the Company continued to monitor
developments.
Risk management
a) Describe the organisation’s processes
for identifying and assessing and managing
climate-related risks
The Executive Committee reviews issues weekly, particularly in relation to progress on EPC ratings
and escalates to the ESG Committee or Board as appropriate. Further information is contained in the
ESG Committee report on page 39.
b) Describe the organisation’s processes for
managing climate-related risks
The Executive Committee, ESG Committee and the Board manage these risks as part of the risk
management system. Risks are considered in the short term e.g. if equipment is considered for
imminent replacement, medium term costs for improvement and the longer term opportunities and
costs for improvements in asset performance. This is integrated into the overall risk management
process from a bottom up and top down approach through the asset managers oversight and
escalation to the Executive Committee and the Board and the top down approach of considering the
wider economic and regulatory issues affecting the real estate sector and Company.
c) Describe how processes for identifying,
assessing, and managing climate-related
risks are integrated into the organisation’s
overall risk management.
The Group identifies risk including climate related risks as part of its risk management processes.
The Board reviews this process including mitigations and risk ratings regularly as part of the Group’s
Principal Risks. This means that the issue is embedded into day to day operations for considering
matters that present a potential significant risk to the Group’s assets or finances. Assessments are
undertaken specifically in relation to climate change risk periodically, looking at the longer term risks
to the Group’s assets. Short term and medium term risks are considered weekly at the Executive
Committee. The Group utilises third party consultants to assist with assessing climate related risks and
the potential impacts on the Group, and for managing and mitigating climate-related risks.
Metrics and targets
a) Disclose the metrics used by the
organisation to assess climate-related risks
and opportunities in line with its strategy
and risk management processes
GHG emissions and energy consumption are disclosed including Scope 1, 2 & 3 and are aligned to
the Greenhouse Gas Protocol Corporate Standard and DEFRA Environmental Reporting Guidelines.
The Company uses the EPC ratings as a metric for risks and opportunities also. As the Company has
small staff numbers and a flexible office occupation Scope 1 emissions are negligible. The Company
acknowledges certain Scope 2 emissions but the main priority is Scope 3 which is the emissions
from tenants that utilise our buildings. We work with them on an ongoing asset management basis
to reduce their use of energy and we provide opportunities to improve the systems for provision of
electricity, gas and water to minimise costs to tenants, while improving environmental performance,
particularly in relation to EPC ratings.
b) Describe Scope 1, Scope 2 and if
appropriate, Scope 3 greenhouse gas (GHG)
emissions, and the related risk
GHG emissions are disclosed and are aligned to the Greenhouse Gas Protocol Corporate Standard.
The related potential risks can be viewed in the section above.
c) Describe the targets used by the
organisation to manage climate-related risks
and opportunities and performance against
targets
We have collected Scope 3 emissions utilising Compare Your Footprint as disclosed in the prior year
and are focused on working with tenants to improve Scope 3 in particular. As noted above we have
not set targets due to the strategy for the Company of returning capital to shareholders through the
timely disposal of assets. We continue to improve EPC performance and will continue to have this as
a priority over the coming short and medium terms.
STRATEGIC REPORT
27
Corporate Governance
Governance roles and support
The Board is mindful that the Code
recommends the splitting of the roles of
Chairman and Chief Executive but that
exceptionally an individual may hold
both. The Senior Independent Director
is satisfied that the regular engagement
with shareholders and the independent
oversight and challenge provided by him
as Senior Independent Director means
that having an Executive Chairman
is warranted in the circumstances.
Shareholders have supported me as
Executive Chairman in implementing the
strategy as indicated by the 91% vote in
favour of my re-election last year and I
hope to continue to have their support,
for which I am grateful.
In addition to the Senior Independent
Director’s oversight of management on
behalf of shareholders, the Company
Secretary’s role in assisting the Company’s
small Board includes advising the Board
on governance matters together with
shareholder, remuneration, HR, legal and
compliance matters. This includes the
listing and disclosure and transparency
rules and any whistleblowing or other
matters that should be brought to
the attention of the Board. He also
oversees ESG matters and chairs the ESG
Committee.
Dear Shareholder,
As a premium listed company, we report
on how we have applied the Principles and
complied with the Provisions of the UK
Corporate Governance Code (2018) (the
‘Code’). Where we were not compliant, we
provide an explanation under the ‘comply
or explain’ basis of reporting.
The successful implementation of the
Company’s strategy has meant that we do
not require a large Board of directors. I
am satisfied that with myself as Executive
Chairman and Mark Davies as Senior
Independent Director, we have sufficient
experience and oversight to lead the
Company. As we have sold multiple assets
since introducing the strategy in 2022,
our management team has also reduced
in size to reflect a reduced number of
assets under management. I would like to
thank Matthew Simpson (formerly Chief
Financial Officer), Chris Petrie (Senior
Asset Manager) and Jonathan Butcher,
(Asset Manager) who all left the Group in
the year.
We have continued with our engagement
with major shareholders, particularly
around last year’s Annual General Meeting
and the proposals for the Company’s
Remuneration Policy and Short Term
Incentive Plan and the General Meeting
held in December 2023 approving the
further buyback of shares. We have
continued to listen to their feedback and
are grateful for the engagement.
Governance structure and
compliance with the Code
Our governance structure consists of a
small Board with one Executive director
and one Independent Non-executive
director, supported in day to day
operational matters by the Executive
Committee, chaired by the Executive
Chairman. This structure means that the
Company is not compliant with the Code
in certain areas, as outlined later in this
report.
Mark Davies was appointed by the Board
on 1 August 2022 as an Independent
Non-executive Director. The Board from
September 2022 consisted of myself as
Interim Executive Chairman, Matthew
Simpson, CFO and Mark Davies, Senior
Independent Director and Chair of
the Audit & Risk and Remuneration
Committees. Following the 2023 AGM,
I became Executive Chairman and as
announced in the Half Year results, in
November 2023, with a smaller portfolio
and significantly reduced debt profile,
Matthew Simpson stood down from the
Board. On behalf of the Board, I’d like to
thank Matt for his help and assistance to
the new Board. The Board now consists of
myself as Executive Chairman and Mark
Davies as Senior Independent Director.
Letter from
the Chairman
Steven Owen
Executive Chairman
We have continued to
listen to shareholders
and are grateful for their
feedback.”
28
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
The Executive Committee meets weekly
to consider the implementation of the
strategy including asset management
and sales initiatives and progress. The
Executive Committee, which consists
of the Executive Chairman, the Head
of Asset Management, the Head of
Investment, the Financial Controller and
Company Secretary assists the Board
with significant decisions. The Executive
Committee oversees the operational
implementation of the strategy and
finance matters including budgets
and forecasts, financial reporting and
compliance.
I am satisfied that the appropriate
governance is in place for the Board and
its Committees and each Committee
provides appropriate oversight including
that the Audit and Risk Committee is
provided with impartial advice from the
external auditor, independent valuer
and the Financial Controller respectively
and that the Remuneration Committee
is very well advised by Korn Ferry who
are a leading remuneration consultant.
The Board is also supported by CMS on
corporate legal matters, Deutsche Bank
Numis on investor relations and broker
services including in relation to listing
and DTR matters and by FTI for corporate
communications and support. The
Company Secretary supports the Board
and all of its Committees.
Further information on the work of
the Committees can be found in this
report. Information on the Remuneration
Committee is contained in the Report
on pages 42 to 52. The Nomination
Committee report is on page 38. The
Audit and Risk Committee work in the
year is considered at pages 40 to 41. ESG
remains a key part of doing business as
a commercial property company and the
ESG Committee report is on page 39.
Stakeholders
Finally, I would like to thank our
shareholders for their feedback and
support for myself and the Board and
to thank our small team for the hard
work they have put in to implement the
strategy to return cash to shareholders.
We continue our active engagement with
shareholders who are invited to attend
our AGM in person this year which will be
at the offices of CMS, Cannon Place 78
Cannon Street, London EC4N 6AF on
24 July 2024 at 10.00 am.
Steven Owen
Executive Chairman
5 June 2024
29
GOVERNANCE
Governance
overview
Statement by the Directors on compliance with the UK Corporate Governance Code
The UK Corporate Governance Code 2018 (the Code) applied to the Group for the financial year ended 31 March 2024. The Board
considers that it applied the Principles of the Code but that certain Provisions were not complied with due to the Board’s governance
structure which it believes is appropriate for the Company and its strategy. The explanations for such non-compliance, in line with the
‘comply or explain’ basis of reporting, are provided below and in the following pages and are summarised in the Executive Chairman’s
introduction to the Governance report.
The Code is publicly available at www.frc.org.uk.
Non-compliance with the Provisions of the Code.
As outlined in this report, the Company did not comply with the following provisions:
Provision 9: in relation to the combined role of the Executive Chairman
Provisions 17, 24 and 32: as the Executive Chairman is not deemed independent, the Committees are not constituted solely or with a
majority of independent directors.
Applying the principles of the code
Section of the code How we have applied the Principles
Board leadership
and Company purpose
The Board is responsible for leading
the business in a way which promotes
the long-term sustainable success of
the Company, generating value for
Shareholders and contributing to wider
society.
• The Board establishes the Company’s purpose, values and strategy and reviews these
regularly
• The Board strategy is to return cash to shareholders and is diligent on providing
appropriate returns when the timing of sales is right to maximise value. Bank debt has
been repaid to reduce LTV and strengthen the balance sheet
• There is a regular programme of meetings for the Board and its Committees
• A formal schedule of matters reserved for Board and Delegations of Authority ensure
oversight and appropriate levels of approval for the size of the Company
• The Board has regular shareholder engagement
Division of responsibilities
The Board includes an appropriate
combination of executive and
independent Non-Executive Directors.
The chair leads the Board and is
responsible for its overall effectiveness
in directing the company.
• The Board contains an appropriate mix of Executive (one) and Non-Executive directors
(one). The Company recognises that it was therefore not compliant with the Code
• The Executive Chairman leads the Board and chairs the Executive Committee
• The Senior Independent Director chairs both the Remuneration and the Audit & Risk
Committees and engages with shareholders independently
• The Independent Non-Executive Director provides constructive challenge, strategic
guidance, offers specialist advice and holds executive management to account
Composition, succession
and evaluation
The Nomination Committee ensures
Board appointments are subject to a
formal, rigorous and transparent process
• All Directors submit themselves at each AGM for election or re-election to the Board
• The Nomination Committee leads the process for appointments, based on merit
• There is an annual evaluation of the performance of the Board and Committees
Audit, risk and internal control
The Audit & Risk Committee monitors
the integrity of the Financial Statements
and oversees the risk management
process and internal control
environment.
• We have two Directors, both chartered accountants, on the Audit & Risk Committee
providing appropriate experience and expertise. The Company recognises that the
Committee is not constituted with only independent Non-Executive Directors and was
therefore not compliant with the Code
• The Audit & Risk Committee supports the Board and advises on whether the Annual
Report and Accounts is fair, balanced and understandable
• There is regular assessment and consideration of the Company’s emerging and principal risks
• There are clear policies and processes to ensure the independence and effectiveness of
the external audit and consideration of whether an internal audit function is required
Remuneration
Our remuneration policies and practices
are designed to support the business
strategy and promote the success of the
Company.
• The Remuneration Committee determines the policy and implementation of the
remuneration of the Executive Chairman (without the Executive Chairman present)
Senior Executives and employee remuneration
• The Remuneration Committee engaged with Korn Ferry as remuneration advisors to
assist the Committee
30
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Board of Directors
Steven Owen
Executive Chairman
Mark Davies
Senior Independent Director
Date of appointment
Appointed Chairman 1 January 2022,
Interim Executive Chairman on
14June2022 and Executive Chairman
on26July 2023
Date of appointment
Joined the Group on 1 August 2022 as
Independent Non-executive Director
Expertise
Steven was, until April 2024, the Non-
Executive Chairman of Primary Health
Properties plc (“PHP”) having been
appointed Chairman in April 2018.
Hewas appointed to the PHP Board as an
independent Non-Executive Director in
January 2014. Steven has overseen PHP’s
significant corporate activity in the period
including its merger with MedicX Fund
Limited in 2019 and the internalisation
of its management structure in January
2021 with both transactions creating
significant shareholder value. Steven
began his earlier career with KPMG before
moving into property with Brixton plc
where he became Finance Director and
subsequently Deputy Chief Executive.
Expertise
Mark is a highly experienced FTSE250
executive, with extensive experience
as Chairman, CEO and CFO in listed
companies and private equity. He was a
Co-founder Director of New River REIT plc
and helped take the Company from IPO
to the FTSE250 in seven years. He was
CFO of New River for over twelve years
and, working alongside his role as CFO,
was also CEO/Chairman of Hawthorn
Leisure Limited for five years. Mark
stood down from the Board of New River
following the announcement of the sale
of Hawthorn in July 2021 but remained as
CEO of Hawthorn until its successful sale
to Admiral Taverns in August 2021. Mark
was appointed Chief Executive of Primary
Health Properties plc in April 2024.
Mark is chair of both the Audit & Risk and
the Remuneration Committees and is the
Senior Independent Director.
External appointments
None
External appointments
Chief Executive of PHP
Board composition
Matthew Simpson stepped down as Chief Financial Officer on 14 November 2023
Committee
membership
A
Audit and
Risk Committee
N
Nomination
Committee
R
Remuneration
Committee
E
ESG
Committee
Chair
A N R EA N R E
31
GOVERNANCE
Executive Committee
Steven Owen
Executive Chairman
Tom Hood
Head of Investment
Andrew Wolfe
Financial Controller
Date of appointment
Joined the Group on 1 January 2022
Date of appointment
Joined the Group in September 2019
Date of appointment
Joined the Group in June 2018
Expertise
See Board profile.
Expertise
Tom joined Palace Capital in September
2019 from Mansford LLP where he was
a Director in the Asset Management
and Investment Team, responsible for
the full life cycle across a diversified UK
portfolio. He previously held roles at GVA
and BNP Paribas in their Central London
Investment Teams.
Tom is a Chartered Surveyor with an
MSc in Real Estate from The University
of Reading and an LLB from Durham
University. He also holds the CFA UK IMC.
Expertise
Andrew Wolfe is a Chartered Accountant,
having joined the Company in June
2018 and becoming Financial Controller.
Following the departure of the CFO
in November 2023, Andrew has
undertaken a broader finance remit.
Andrew previously spent 3 years at
PricewaterhouseCoopers in the Financial
Services sector, having an array of
investment banking and private equity
clients, most notably Barclays Investment
Bank. Andrew also spent 2 years at
EasyHotel, a listed property company.
Daniel Davies
Head of Asset Management
Phil Higgins
Company Secretary
Tom Stimson*
FP&A Analyst
Date of appointment
Joined the Group in January 2018
Date of appointment
Joined the Group in December 2021
Date of appointment
Joined the company in September 2017
Expertise
Daniel is a Chartered Surveyor with over
20 years of real estate experience and
joined Palace Capital in 2018. Daniel
brings extensive experience of asset
management having spent 12 years at
Telereal Trillium, one of the UK’s largest
private property companies. Prior to
this position, he spent four years at
Nelson Bakewell, where his role included
investment, agency and management.
Expertise
Phil was previously acting Company
Secretary at Kier Group plc and has
significant experience in the listed property
sector having been Deputy Company
Secretary at Land Securities Group plc and
intu properties plc. Phil has wide ranging
senior level experience in FTSE100 and
FTSE250 companies and professional
services firms during his 25 years as a
governance professional. He holds an LLM
in Commercial Law and is a Fellow of the
Corporate Governance Institute.
Expertise
Tom has overseen the implication of a
number of financial systems with a focus on
appraising data analysis and output for the
company. He has a BSC in accounting and
finance and is a fellow of ACCA.
*Tom has a standing invite to Executive
Committee meetings to assist on finance
matters.
32
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Governance framework
Board and Committees
Board of Directors as at 31 March 2024
Executive Chairman: Steven Owen and Senior Independent Director: Mark Davies
Summary of its role under the UK Corporate Governance Code:
“Collectively responsible for devising the purpose, vision and long-term strategy and overseeing its implementation in order to
promote the long term sustainable success of the company, generating value for shareholders and contributing to wider society.”
Board Committees
Audit & Risk
Committee
Remuneration
Committee
Nomination
Committee
ESG
Committee
Chair:
Mark Davies
Chair:
Mark Davies
Chair:
Steven Owen
Chair:
Phil Higgins
Comprises:
Senior Independent
Director and Executive
Chairman
Comprises:
Senior Independent
Director and Executive
Chairman
Comprises:
Senior Independent
Director and Executive
Chairman
Comprises:
Company Secretary,
Executive Chairman and
Senior Independent
Director
Summary of Role:
• Monitor and
oversee financial
reporting
• Monitor risk
management and
internal controls
• Oversee external
auditors and the
audit process
Summary of Role:
• Set remuneration
policy and oversee
its implementation
• Review Executive
Chairman
and Executive
Committee
members and
attendees’
remuneration
packages and
incentives
• Approve incentives,
bonus and salaries
Summary of Role:
• Recommend Board
appointments
• Succession planning
• Board composition
skills and diversity
• Board
performance review
Summary of Role:
• Progress the
strategy for ESG
matters
• Oversee ESG
implementation
• Stakeholder
engagement
33
GOVERNANCE
Board composition and division
of responsibilities
Key responsibilities
Roles Responsibilities
Executive Chairman
• Leads the Board and chairs the Executive Committee
• Sets, with the Company Secretary, the Board and Executive Committee agenda
and meeting schedule
• Oversees the culture of the Board including diversity of opinion, ensures all the
Directors are properly briefed and are able to take a full and constructive part in
Board discussions
• Responsible for evaluating the performance of the Board, executive management
and of the Non-Executive Director
• Engages with advisors and meets with shareholders to understand their concerns
and views and consider implications for the strategy of the Company
• Has a prime role in appointing and removing Directors
• Line management of Head of Asset Management, Head of Investment, Financial
Controller and the Company Secretary
Senior Independent Director
• Provides a sounding board and as intermediary for the Executive Chairman
• Available to discuss concerns with Shareholders that cannot be resolved through
the normal channels of communication with the Executive Chairman
• Responsible for reviewing the Executive Chairman’s performance
• Brings a wide listed company and property sector perspective and experience to
provide independent judgement, suggestions, challenge and assistance to the
Board and Committees’ deliberations and decision making
• Scrutinises and holds to account the performance of management
Board composition at 31 March 2024
Gender diversity Men
2
Independence Independent
Executive Chairman
(independent on appointment)
1
1
Audit and risk
Finance and banking
Property
100%
Listed company leadership
100%
100%
100%
Board skills and experience
34
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
UK employee gender diversity at 31 March 2024
Number of employees Male Female Total
Board of Directors 2/100% –/– 2
Executive Committee
1
4/100% –/– 4
Other 1/100% –/– 1
Total 7/100% –/– 7
1
Executive Committee includes Executive Chairman (EC) included in Board of Directors
UK employee ethnicity at 31 March 2024
2024
Ethnic origin No. % ONS
2
White – British, English, Welsh, Irish, Other 6 100% 82%
Asian – Indian, Pakistani, Other – – 9%
Black – African, Caribbean, Other – – 4%
Mixed heritage – – 3%
Other – – 2%
Total 6 100% 100%
2
Office for National Statistics: Census 2021 data for England and Wales published June 2022.
Board gender identity or sex at 31 March 2024
Number
of Board
members
Percentage
of the Board
Number
of senior
positions on
the Board
(SID and
Chair)
Number in
executive
management
3
Percentage
of executive
management
Men 2 100% 2 4 100%
Women – – – – –
Not specified/prefer not to say – – – – –
3
Excluding Executive Chairman
Board ethnic background at 31 March 2024
Number
of Board
members
Percentage
of the Board
Number
of senior
positions on
the Board
(SID and
Chair)
Number in
executive
management
4
Percentage
of executive
management
White British or other White
(including minority-white groups) 2 100% 100% 4 100%
Mixed/multiple ethnic groups Asian/Asian British – – – – –
Black/African/Caribbean/Black British – – – – –
Other ethnic group, including Arab – – – – –
Not specified/prefer not to say – – – – –
4
Excluding Executive Chairman
35
GOVERNANCE
Board performance
review
During the year, the Board conducted an internal evaluation of
its performance. The last external evaluation was conducted by
ICSA Board Evaluation Services in 2019.
This year’s review process was led by the Executive Chairman
with support from the Company Secretary.
As part of the review, the Board
• reviewed the results of the board performance evaluation
process that relate to the composition of the board, its
diversity and how effectively the members of the board work
together to achieve objectives;
• reviewed the results of the performance evaluation of the
Committees; and
• reviewed the time required from Non-Executive Directors,
including the Executive Chairman and Senior Independent
Director.
Process
The evaluation was conducted in March and April 2024 via a
questionnaire sent to Board members to obtain their feedback.
This covered:
• Board responsibilities
• Oversight
• Board meetings
• Support for the Board
• Board composition and size
• Working together
• Outcomes and achievements
The process included a review of the effectiveness of the
Remuneration, Nomination and Audit & Risk Committees. The
findings were considered in May 2024.
The Board was considered to be of the right size for the
Company. This reflected the strategy, size and scale of the
Company, the reduced risk including reduced bank debt.
The Board was thought to have the appropriate property and
listed company experience to execute the strategy in line with
shareholder expectations, noting the alignment of remuneration
incentives including the Short Term Incentive Plan.
Decision making
It was felt that decision making was quicker and generally more
agile. A number of additional Board and Committee meetings
were held during the year to consider issues outside the
scheduled annual meeting schedule and the Executive Chairman
and Senior Independent Director both made themselves
available for such meetings.
Due to the small size of the Company, the Board is closely
involved in overseeing the implementation of the strategy. The
Head of Asset Management and Head of Investment attend
for the Property sections of meetings and the Board debates
proposals and ongoing asset management plans and disposals.
Approvals are based on appropriate preparation of information for
consideration including support by the Head of Asset Management
or Head of Investment and a member of Finance, as appropriate.
The Executive Committee meets weekly and determines the day to
day running of the business in line with the strategy.
Communication
The small team structure has meant that all employees are
members of the Executive Committee or attend the meetings.
Thus communication is simplified and everyone is aware of
strategic direction and its implementation requirements.
Administration
The Board and Committee agendas’ focus was appropriate for
the Company being focused on the key issues. Papers provided
the right information for the Board and Committees to consider
and make appropriate decisions, including those matters
reserved for the Board and escalated from management and the
Executive Committee. Papers were ordinarily provided a week
in advance of meetings via a secure Board portal. The Schedule
of Matters reserved to the Board was kept under review and
updated to reflect roles and appropriate levels of delegated
authorities were also agreed in the year with significant decisions
remaining to be considered by the Board after consideration by
the Executive Committee.
Looking forwards
The Board agreed that it will continue to monitor shareholder
views while implementing the strategy.
36
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Board activities and
Committee attendance
The Board has a culture of diligent preparation for meetings,
constructive discussion on matters and appropriate challenge.
The Non-Executive Director is considered to be independent,
noting that Mr Davies is Chief Executive of PHP post Mr Owen
retiring as Chairman of that company. Therefore, Mr Davies is
regarded as being free from a relationship that could affect the
exercise of their independent judgement. Both Directors have
developed an understanding of their roles and appropriate
delineation of these, whilst working well together. It is felt
that Mr Davies’ knowledge and understanding of the property
industry and listed companies are fundamental to the Board’s
deliberations. The Board is led by the Executive Chairman who
has many years experience of leading listed property companies
in both an executive and non-executive capacity. The profiles
of the Board members can be found on page 31 of this Report.
They demonstrate a complementary blend of knowledge, skills,
backgrounds, age and experience, which enables the Group to
be led effectively.
The Directors’ interests in the shares of the Company are set out
on page 49. The Board met six times during the financial year
in accordance with its usual meeting programme. A significant
number of further meetings were convened to deal with specific
strategic and corporate matters.
The Board has a schedule of matters reserved for its approval
which includes material capital commitments, acquisitions and
disposals and Board appointments. This was reviewed in the year
and updated for best practice matters, in line with the Code.
Directors are given information for each Board meeting, including
reports on the current financial and operational performance and
the papers are considered carefully. In the year, suggestions for
development of papers were incorporated, including the use of a
new Board portal for improved access and communication.
Board
1
Audit and Risk Remuneration Nomination ESG
Steven Owen (Chairman) 6/6 3/3 4/4 1/1 1/1
Mark Davies 6/6 3/3 4/4 1/1 1/1
Matthew Simpson
2
4/4 – – – 1/1
1
In addition to scheduled meetings noted above, the Board and Remuneration Committee held ad hoc meetings virtually and in person during the
year to discuss specific strategic and operational matters and the leaving arrangements for the Chief Financial Officer who left the Board on 14
November 2023.
2
Stepped down from the Board 14 November 2023.
Culture
The Board has overall responsibility for establishing the Company’s purpose and strategy and satisfying itself that these and the
Company’s culture, regarded as being ‘the way things are done’, are aligned.
The Executive Chairman and Senior Independent Director lead by example. The way that issues are approached and decisions
are taken, including an appreciation of risks and opportunities, good communication and behaviours are reflected throughout the
management team. This drives the embedding of the desired culture and ensures that the expected values and beliefs are sufficiently
understood and upheld.
37
GOVERNANCE
Nomination Committee
report
a smaller portfolio, the Company is
not intending to recruit or replace the
current staff and the need for retention
and motivation is discussed further in the
Directors’ Remuneration Report. However,
the Board would certainly look to take
into account diversity in its broadest sense
for any future appointments to the Board
or Executive Committee.
AGM
In accordance with the Code, each of
the Directors will submit themselves
for re-election at the 2024 AGM. The
Committee, on behalf of the Board, is
satisfied that all Board members put
forward for re-election have and continue
to commit the time required to discharge
their roles effectively.
The Committee believes that, despite
non-compliance with the Code, the
Board has the appropriate balance of
skills, experience, independence and
knowledge to oversee the particular
strategy of the Company. Shareholders
are requested to support the resolutions
proposed by the Board.
Steven Owen
Chair of Nomination Committee
5 June 2024
Dear Shareholder,
In accordance with the Code, at least a
majority of members of the Committee
should be Independent Non-Executive
Directors. While I was independent
on appointment, we have not been
compliant with this aspect of the Code.
The Nomination Committee leads the
process for appointments to the Board
and overseas the plans for orderly
succession to both the Board and senior
management positions.
The Committee has kept the structure
and composition of the Board and Senior
Management under regular review to
ensure it has the right balance of skills,
knowledge, experience and diversity to
carry out its duties and provide effective
leadership. Due to the reduced LTV and
number of banks with outstanding debt, a
smaller property portfolio and two other
financially experienced Directors on the
Board, it became clear that the Company
did not require a full time Chief Financial
Officer. Matthew Simpson stepped down
from the Board in November 2023 and his
role was not filled. The Financial Controller
and F&PA Analyst undertook some of
Mr Simpson’s duties. This left a Board
consisting of an Executive Chairman and
the Senior Independent Director.
In addition, a Senior Asset Manager,
an Asset Manager and the Executive
Assistant left the Company in the year
due to the smaller portfolio and their
roles were subsumed into those of the
Head of Asset Management and Head
of Investment and Company Secretary.
The increased duties and responsibilities
of the remaining staff members is
discussed and recognised in the Directors’
Remuneration Report on page 43.
Board performance review
A formal and rigorous internal review
of the Board’s performance was carried
out this year under the oversight of the
Committee. The process and findings are
set out on page 36.
The Committee is satisfied that the Board
and Committee structure, including the
Executive Committee, has a strong group
of people from different backgrounds and
experience which provides for effective
decision making and appropriate oversight
of management on behalf of shareholders.
Diversity
The Committee is very conscious that
the Board consists of two men and the
Executive Committee consists of five
men, albeit of different ages, experience
and backgrounds. Due to the strategy
of returning cash to shareholders and
Members
• Steven Owen (Chair)
• Mark Davies
Total meetings held
One
Key actions
• Considering Board and Executive
Committee composition
• Considering terms of reference
• Board Evaluation
Areas of focus
Succession plans
Director training and development
38
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Environmental Social and Governance Committee
report
responsibilities and these are considered
by the board and embedded into the
Executive Committee considerations.
Strategy and linkage to ESG
Palace Capital has made good progress
during the year including improved EPC
ratings and continued development of
its carbon footprint and scope 1, 2 and 3
reporting. Environmental factors are a key
part of our asset management planning as
described earlier in the Strategic Report.
ESG strategy
A key aspect of the ESG strategy
is centred on the environmental
performance of the Group’s assets and
improving the portfolio in a cost effective
manner to adapt to changing occupier
demands. The Committee believes that
management have made good progress
in the year to embed ESG considerations
into the business.
We have considered the pathway to net
zero as part of the Company’s asset plans.
We consider the appropriate timeframe
for our assets, taking into consideration
our strategy, to be in line with the
legislation which is 2050.
Phil Higgins
Chair of ESG Committee
5 June 2024
Dear Shareholder,
The Committee met formally once
during the year with discussions at an
operational level taking place regularly at
Executive Committee meetings. The ESG
Committee agenda includes updates from
management in relation to the progress
against the Board’s ESG strategy and
its three fundamental objectives, which
are to:
• Improve the portfolio’s EPC ratings
• Foster a culture of inclusivity and
consideration of stakeholders’
interests
• Be a responsible business with a focus
on integrity and trust
For more information on the Group’s
activities in this area, please see the ESG
section of the Strategic Report.
Committee role
The Committee’s terms of reference
set out its role and the authority
delegated to it by the Board. The primary
responsibilities of the Committee are to:
• Define the Group’s corporate and
social obligations, agree a strategy
for discharging these and oversee the
implementation of such strategy
• Ensure there is recognition of the
impact of the Group’s activities
on all stakeholders, monitor the
engagement with each stakeholder
group and support the Board in its
understanding of the interests of key
stakeholders
• In conjunction with management, the
Board and other Committees, identify
the material social and environmental
risks and ensure that appropriate
measures are taken to mitigate
such risks
Working with our tenants and
suppliers including prompt payment
In addition to our support for social and
charitable matters local to our assets and
the communities we engage with, we are
proud that, as a Company, we have for
many years, taken the approach of paying
our sub contractors as soon as possible
and in line with payment terms. Our
payments are typically made within 30
days of the invoice date which we believe
is important to help small businesses
with their cashflow and support us as a
responsible company based on integrity
and trust. We are also keen where there
may be issues for tenants to make rental
or service charge payments, that we work
with them to assist them and maximise
the levels which can be sustained, whilst
being mindful of our responsibilities to
our shareholders as ultimate owners
of the Company. Our day to day asset
management works closely with our
tenants to look forwards to maximise
their benefits from the properties we
own and the space they occupy. We are
very mindful of our Health and Safety
Members
• Matthew Simpson (Chair) until November 2023. Phil Higgins
(Chair) from November 2023
• Steven Owen
• Mark Davies
Total meetings held
One
Key actions
• Oversaw the overall governance of
ESG matters
• Reviewed the development of EPC
improvements and net zero pathway
Areas of focus
The remit of the Environmental, Social
and Governance (‘ESG’) Committee
is to oversee the Company’s response
to the evolving short and long term
environmental, health and safety,
corporate social responsibility, corporate
governance, sustainability, and other
public policy issues relevant to the
Company.
39
GOVERNANCE
Audit and Risk Committee
report
Financial reporting and significant
matters
As part of its role, the Committee has
considered a number of significant issues
relating to the financial statements. This
includes the suitability of accounting
policies and the appropriateness of
management’s judgements and estimates.
The Group’s accounting policies can be
found in the notes to the consolidated
financial statements and further information
on the significant issues considered by the
Committee is set out below.
Property valuations
The valuation of the Group’s properties
and the determination of their fair value
is one of the most critical elements of the
annual and half-year financial results. The
Committee reviews the valuations and the
underlying assumptions and judgements
applied by management and CBRE.
The Committee receives information
on the valuation process and reviews
updates from management in relation to
current market trends and key valuation
movements compared to previous
periods. The Committee provides robust
challenge and satisfies itself that sufficient
oversight and controls are in place and
that the financial reporting is supported.
Dear Shareholder,
The Committee assists the Board in its
oversight and assurance roles, ensuring
that the annual report and accounts are
fair balanced and understandable and
provides the information necessary for
shareholders to assess the Company’s
position, performance, business model
and strategy.
The Committee has supported the
Board by monitoring the integrity of
the Company’s financial and narrative
reporting and the robustness of the
Group’s risk management and internal
control framework, taking into account
that the Company does not have an
internal audit function. Due to the size and
relative lack of complexity of the business,
the Committee recommended to the
Board that no internal audit function was
required. We have however, worked closely
with the external auditors, reviewing key
accounting judgements and policies,
and ensuring an effective external audit
process.
Overall, we are pleased with the
Company’s robust reporting processes
and its approach to considering and
mitigating its Principal Risks, as described
more fully on pages 18 to 20.
Composition
Due to the size of the Board, the
Committee is not constituted in
accordance with the Code as the
Executive Chairman is a member of the
Committee. The Code requirement is
that all members are Independent Non-
Executive Directors. The CFO previously
attended Committee meetings by
invitation and the Financial Controller now
usually attends meetings. The Committee
is satisfied that its composition is
appropriate, that I bring recent and
relevant financial experience as a
Chartered Accountant and many years as
a FTSE250 Director, and considers that all
members have the necessary competence
relevant to the sector in which the
Company operates, as required by the
Code, since the Executive Chairman and
I have many years’ experience in the real
estate sector.
Members
• Mark Davies (Chair)
• Steven Owen
Total meetings held
Three
Key actions
• Reviewed and approved the annual
and half-yearly financial statements
• Ensured that the Annual Report was
fair, balanced and understandable
• Scrutinised potential transactions and
property valuations
• Full and mid-year risk reviews
• Considered the appointment of the
external Auditor, their reports to the
Committee and their independence
Areas of focus
The Committee will continue to meet with
the valuers to discuss their independent
valuations for the full year and half year.
The Committee will review the possible
capital costs of ESG matters and the
Company’s provision of these.
40
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Going concern
The Committee reviewed whether it
was appropriate to adopt the going
concern basis in the preparation of the
financial statements. In considering this,
the Committee reviewed the Group’s
12-month cashflow forecasts, reduced LTV
and reduced borrowing requirements of
the Group and the financial covenants in
our debt arrangements, for which, at year
end, only the loan (fixed at 2.90%) with
Scottish Widows was outstanding. With
this knowledge, and following the review,
the Committee recommended to the
Board that it was appropriate to adopt the
going concern basis of preparation.
Viability statement
The Committee reviewed the viability
statement and the period for which the
Board should assess the prospects of
the Group. Following the review, the
Committee concluded that a three year
period was appropriate, in line with the
Company’s internal forecasting horizon.
Further details are provided on page 17.
Fair, balanced and understandable
The Committee has considered whether
the Annual Report is fair, balanced
and understandable and provides the
information necessary for Shareholders
to assess the Company’s position and
performance. In forming its opinion,
the Committee considered whether the
Annual Report provided a comprehensive
review of matters in the year, both
positive and negative, included all
relevant financial transactions and
balances, was consistent throughout
and had been written in straightforward
language without unnecessary repetition.
The Committee was satisfied that, taken
as a whole, the Annual Report is fair,
balanced and understandable.
External auditor
BDO LLP was first appointed as external
Auditor in respect of the year ended
31March 2015.
The Committee has assessed BDO’s
performance, independence, objectivity
and fees, as well as the effectiveness
of the audit process. In making its
assessment, the Committee considered
the qualifications, expertise and
resources, the quality and timeliness
of the delivery of the audit and the
provision of non-audit related services.
The Committee made their assessment
based on feedback from management,
their own interaction with the audit team
and assurances provided by the Auditor in
relation to their independence.
In the year ended 31 March 2024 no non-
audit services were provided to the Group.
The Committee will only authorise non-
audit services on the basis that they are
permissible under regulations relating to
a Public Interest Entity and the Company
has a formal non-audit services Policy.
Audit fees
Fees payable to the Group’s Auditors for
audit and previously for non-audit services
are set out in note 3 on page 72 and 73.
Risk management and internal
controls
The Board is responsible for the Group’s
risk management and internal control
systems. To support the Board, the
Committee oversees and at least annually
reviews the effectiveness of the Group’s
internal controls and risk management
systems and reviews / approves the
related statements in the Annual Report.
During the year the Committee received
updates from management and the
external Auditor regarding the operation
of key controls. As part of their review the
Committee also considered the process
of risk identification, mitigation and
evaluation of the potential impact on the
Group’s strategic objectives. The Directors
are satisfied that the current controls
are effective with regard to the size of
the Group.
The internal controls are designed
to ensure the reliability of financial
information for both internal and external
purposes. However, they can only provide
reasonable, but not absolute assurance
against material misstatement or loss.
Internal audit
Given the size of the Group, in the
opinion of the Committee, there is
currently no requirement for an internal
audit function. The work of the external
Auditor provides an element of comfort
that controls are operating as intended
and the management team regularly
review the operation of the Group’s
policies and procedures.
Whistleblowing procedures
The Audit and Risk Committee reviews
arrangements whereby employees may
in confidence raise concerns. During the
year no concerns were raised.
Mark Davies
Chair of Audit and Risk Committee
5 June 2024
41
GOVERNANCE
Committee of PHP on 31December
2022 and therefore the Committee was
satisfied that there were no issues of
independence of Korn Ferry or their
provision of advice to the Committee.
Otherwise, Korn Ferry do not have any
other connection with the Company or
Directors personally. The Committee is
satisfied that the advice is objective and
independent and thanks Korn Ferry for
their assistance.
Remuneration Policy
When setting the Remuneration Policy,
the Committee considers the need to
attract, retain and motivate management
whilst ensuring the overall approach
to remuneration supports the Group’s
strategy and is aligned with the interests
of Shareholders.
The Directors’ Remuneration Policy
wasapproved at the Company’s AGM
held in July 2023. A summary of the
policy can also be found on the website
at palacecapitalplc.com. Remuneration
arrangements in the year were made under
the new Policy in line with thestrategy.
Dear Shareholder,
The Committee’s primary objective is to
ensure that the Group’s remuneration
policies and practices support the
successful delivery of the strategy.
This report provides details of how the
Committee has taken action in the year
toachieve this.
Committee membership and
meetings
In the year, the Committee consisted of
myself, an Independent Non-Executive
Director, as Chair, and the Executive
Chairman. Although we were not
compliant with the Code, which requires
that members of the Committee are
Independent Non-Executive Directors,
we believe that the Committee has
sufficient independence and experience
to oversee management remuneration.
The Executive Chairman is not involved in
determining his own remuneration which
is determined by myself, with external
input from Korn Ferry, independent
remuneration consultants, as appropriate.
The Chief Financial Officer attended
certain Committee meetings by invitation
but was not involved in deliberations
relating to his own remuneration, in
particular his leaving arrangements.
Korn Ferry were invited to attend
certain meetings where their input
was considered to be helpful to the
Committee’s deliberations.
The Committee met four times during the
year (details of attendance are set out on
page 37). In addition, ad hoc meetings were
held to consider the leaving arrangements
of Mr Simpson and other leavers.
Advisors
Korn Ferry were paid £87,344 (2023:
£22,210) for advice and attendance
at Committee meetings and the AGM
including a new Remuneration Policy and
STIP plan rules and leavers. Korn Ferry
are also remuneration advisors to the
Remuneration Committee of PHP where
the Executive Chairman was Chairman
in the year (leaving in April 2024). Mr
Owen retired from the Remuneration
Members
• Mark Davies (Chair)
• Steven Owen
Total meetings held
Four
Directors’ remuneration
report
Key actions
• Reviewed the Remuneration Policy
and STIP approved by shareholders
at the 2023 AGM to motivate and
retain management to implement
the updated strategy and deliver
alignment with shareholders
• Considered the leaving arrangements
for the former Chief Financial Officer
• Considered the malus and clawback
arrangements under the Company’s
share plans for the awards made
to the former Chief Executive and
Executive Property Director
• Applied malus under the Rules of the
LTIP to the 2020 and 2021 LTIP awards
• Reviewed Executive Director and
Senior Management Remuneration
• Determined that no awards would be
made in FY24 under the Long Term
Incentive Plan
• Reviewed wider workforce
remuneration arrangements including
overall levels of salary, bonus,
pensions and benefits
• Engaged with Shareholders on
remuneration including possible
changes to the Remuneration Policy
and new Short Term Incentive Plan
(STIP)
• Engaged with the workforce on how
executive remuneration aligns with
wider company pay policy
42
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Performance outcomes for FY24
The 12 months to 31 March 2024 were
challenging for the sector with a difficult
economic backdrop. Despite this, the
Group achieved 98% rent collection, a
resilient adjusted profit before tax, as
well as reducing our net debt levels and
returning cash to shareholders via the
share buyback.
The Long Term Incentive awards that were
granted in 2020 had a normal vesting
date of 23 June 2023. The performance
conditions were met for 50% of the
awards and were released to participants.
The remainder lapsed. In relation to the
bonus, the Executive Chairman was not
eligible and the Chief Financial Officer,
who left the Board in the year, did not
receive a bonus.
Malus and clawback
For awards made to the former Chief
Executive and Executive Property
Director for the 2020 LTIP, these were
determined by the Committee, after taking
legal advice, that malus would apply in
accordance with the LTIP rules. This was
due to the significant reduction in value of
Bank House, Leeds and the specific role
that the two Directors were determined
by the Committee to have had in this. Full
details can be found on page 49. Awards
made to them in 2021 under the LTIP,
which are due to vest in November 2024
will also have malus applied.
Implementation of the STIP in FY24
Following Shareholder approval of the
Short Term Incentive Plan and new
Remuneration Policy at the 2023 AGM,
awards were made to full time members
of staff in July 2023. Under the terms of
the plan, no individual may receive more
than 400 units out of the total 1,000 units
available. In addition, in line with the plan
rules, Good Leavers in the year received
50% of their award in cash on leaving. This
was calculated based on the realised gains
to that date, less anticipated losses. The
units that lapsed were re-issued to senior
management to reflect their performance,
the need to retain them to implement the
strategy and for taking on the additional
responsibilities following the departures.
The Committee will continue to monitor
progress against objectives and pricing
in particular, in order that management
remains incentivised and cash returns to
shareholders are maximised.
Salary and bonus
The salary increases for Directors and staff
for the period commencing 1 April 2024
was agreed by the Committee at 5% to
reflect inflation and in accordance with
the Remuneration Policy. For the bonus,
noting that the Executive Chairman
is not eligible, for employees the
maximum potential opportunity under the
Remuneration Policy will be 50% of their
prior bonus opportunity. The Committee
ensures that discretion will be applied
to reflect performance being aligned to
the business strategy and reflective of a
strong performance by the individual.
Concluding remarks
With the implementation of the strategy
to return cash shareholders, it is important
to retain and motivate management
for the benefit of shareholders and
stakeholders. I am pleased to report
the success of this whilst reducing
administrative costs – overall recurring
employee costs are down 34% for the
year and like-for-like Director costs are
down 42% and no bonuses were paid
in the year to Directors. In the year,
distributions to shareholders were £6.0m
in dividends and £15.2m in the share
buybacks.
The Committee will take into
consideration a range of stakeholders’
interests especially those of our
Shareholders when making remuneration
decisions. Accordingly, on behalf of
the Committee, I would like to thank
Shareholders for their engagement and
continued support.
Mark Davies
Chair of Remuneration Committee
5 June 2024
43
GOVERNANCE
Remuneration
Policy
This part of the Directors’ Remuneration report sets out a summary of the
Remuneration Policy approved at the Company’s AGM on 29 July 2023. That
Policy is effective for a period of up to three years. Until a new Policy is approved,
the existing Policy will remain in effect. The full Policy is set out in the 2023 notice
of the Annual General Meeting on the Company’s website.
In line with the UK Corporate Governance Code, the policy was tested against the factors listed in Provision 40:
• Clarity – the Remuneration Policy is transparent, and the implementation of the Policy is disclosed in straightforward, concise terms
to shareholders.
• Simplicity – remuneration structures incorporate the necessary structural features to ensure a strong alignment to performance,
strategy and minimising the risk of rewarding failure whilst being sufficiently simple enough for key stakeholders to understand.
• Risk – the Remuneration Policy has been shaped to discourage inappropriate risk taking. Awards under the Remuneration Policy
are subject to malus and clawback provisions. The performance conditions are reviewed annually to ensure that they remain
suitable and do not incentivise risk taking. To avoid conflicts of interest, Committee members are required to disclose any conflicts
or potential conflicts ahead of Committee meetings.
• Proportionality – the link between each element of policy and Company strategy is noted in the table below.
• Alignment to culture – Where possible, in support of our performance culture, we align remuneration across the Group.
A summary of the Policy is set out below.
Element and
link with strategy
Operation and
maximum potential value
Performance
framework
Salary
Fixed amount at a level
appropriate to the skills
and experience needed
to fulfil the role.
Salaries are generally reviewed annually with effect from
1 April each year. Any increases are made having regard
to inflation, personal performance, and the need to retain
and motivate.
Salary is not linked to specific financial or
non-financial performance measures.
Annual bonus
To incentivise
performance which is
measured against targets
normally set at the
beginning of the financial
year.
The maximum bonus opportunity is capped at 50% of
salary. The Executive Chairman is not eligible for a bonus.
The bonus is paid as to 65% in cash and 35% by way of
an option over shares pursuant to the Deferred Bonus
Plan. The ability to exercise the option granted under the
Deferred Bonus Plan is deferred for a year and there is a
period of a further year during which the options may be
exercised. The Committee has discretion for 100% to be
paid in cash.
The Committee may, in exceptional circumstances, use its
discretion to amend the bonus outcome if it believes that
it does not properly reflect overall underlying business
performance, an individual’s contribution or some other
factor.
Malus and clawback applies at the discretion of the
Committee.
Performance is assessed against a range
of financial, non-financial and/or strategic
targets which may vary each year.
Legacy Long Term
Incentive Plan
Outstanding legacy LTIP
awards will continue to
vest on their terms
No further awards will be made under the legacy LTIP.
Awards previously made are subject to the terms of the
2021 Policy.
Performance measures were aligned to the
key objectives of the Company and the
creation of shareholder value.
44
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Element and
link with strategy
Operation and
maximum potential value
Performance
framework
Short Term Incentive
Plan
To support the disposal
strategy and the return of
cash to shareholders.
A one-off award that grants Executive Directors the
opportunity to share in the value created for shareholders.
Executive Directors will be eligible to receive a proportion
of the Pool generated by the sale of assets. An individual
may be awarded no more than 40% of the total 1,000
units available in the pool.
Awards under the STIP will pay out in cash.
The Plan will pay out as soon as reasonably practicable
after the earlier of (i) the sale of all assets, (ii) a takeover of
the Company or (iii) when the Remuneration Committee
determines that the plan has achieved its original
purpose.
Participants will be granted an Award over
units in a Realisation Pool. The size of the
Realisation Pool is determined by a share
(12.6%) of the value created from the sale
of assets from 1 April 2023. Value created
is defined as the difference between the
net sale proceeds of assets less their share
of the Company’s enterprise value. The
Company’s enterprise value is the average
market capitalisation over March and April
2023 of £94.3m plus the total net debt and
net current liabilities as at 31 March 2023 of
£63.1m. This is split across the Company’s
assets by reference to their valuation on 31
March 2023 (£192.4m).
To ensure the timely disposal of assets, the
gain attributable to the Pool will reduce over
time. For assets sold after 31 March 2024, a
12% p.a. discount will be applied to the gain
when calculating the total value of the Pool.
No further value will accrue in the Pool if total
net sale proceeds reach an NAV that would
have been 350p per share on 31 March 2023.
Pension
As part of their overall
package Executive
Directors are provided
with retirement benefits.
Executive Directors receive a contribution in line with the
rate available to the majority of the workforce paid into a
pension scheme. The Executive Chairman is not eligible
for a pension.
None
Other Benefits
As part of their overall
package Executive
Directors are provided
with a competitive
level of benefits that
encourage well-being and
engagement.
Benefits include (but are not limited to): travel or car
allowance, private medical cover, life assurance and
critical illness cover.
The Executive Chairman may also be eligible to receive
the benefits set out above.
None
Shareholding
Requirements
Encourages commitment
and alignment with
shareholder interests.
Executive Directors are expected to build up and retain a
minimum shareholding of 100% of basic salary.
The shareholding will be built up over time, with a
requirement to retain 25% of any shares vesting under the
Deferred Bonus Plan or the legacy Long-Term Incentive
Plan (after tax/NI has been settled) until the guideline is
met.
Post-employment requirements - Any shares that are still
subject to the holding period as defined in the respective
award will need to be retained, and in all other regards
the Executive will be encouraged to engage with the
Company regarding the timing of any sales for a period of
two years following the termination of their employment
to ensure an orderly market is preserved. The Committee
may, in exceptional circumstances, exercise its discretion
to adjust or disapply the holding requirement.
None
45
GOVERNANCE
Dividend equivalents for share-based awards
Awards granted under the Deferred Bonus Plan and Long Term Incentive Plan incorporated the right to receive amounts equivalent
to any dividends or shareholder distributions which would have been paid between the date of grant and the date of the delivery of
shares in respect of which an option has been exercised.
Malus and clawback
The Committee may, determine that malus or clawback provisions may apply in the following circumstances: (i)material financial
misstatement; (ii) significant reputational damage; (iii) negligence or gross misconduct by a participant; (iv) fraud effected by or with
the knowledge of a participant; (v) material corporate failure; or (vi) where awards were granted or vested based on erroneous or
misleading data. For the STIP, malus and clawback provisions apply until the Company is sold, or in the opinion of the Board, all value
has been returned to shareholders.
How the Committee will use its discretion
The Remuneration Committee can exercise discretion in a number of areas when operating the Company’s incentive schemes, in line
with the relevant rules of the schemes. These include (but are not limited to):
• the choice of participants;
• the size of awards in any year (subject to the limits set out in the Directors’ Remuneration Policy table);
• amending or substituting any performance condition(s) if one or more events occur which cause it to determine that an amended
or substituted performance condition would be more appropriate, provided that any such amended or substituted performance
condition would not be materially less difficult to satisfy than the original condition;
• adjust the calculation of performance targets and vesting outcomes (for instance for material acquisitions, disposals or investments
and events not foreseen at the time the targets were set) to ensure they remain a fair reflection of performance over the relevant
period;
• the determination of good or bad leavers and the treatment of outstanding awards (subject to the provisions of the scheme rules
and the Remuneration Policy provisions); and
• the treatment of outstanding awards in the event of a change of control.
The Committee also retains discretion to make downward or upward adjustments resulting from the application of the performance
measures if it considers that the outcomes are not a fair and accurate reflection of business performance. In the event that the
Committee was to make an adjustment of this sort, a full explanation would be provided in the next Remuneration Report.
Non-Executive Director policy table
Element and
link with strategy
Operation and
maximum potential value
Performance
framework
Fees and benefits
To provide competitive
fees to attract the right
Non-Executives.
Fees are normally reviewed every two years.
Additional fees may be payable for the chairing of Board Committees.
In exceptional circumstances, if there is a temporary yet material increase
in the time commitments for Non-Executive Directors, the Board may pay
extra fees on a pro-rata basis to recognise the additional workload.
The aggregate of all fees to the Directors will not exceed the maximum
set out in the Articles of Association, currently £500,000. The Company
currently does not intend to exceed the previous maximum of £300,000.
Private medical cover may be provided at a level which the Committee
determines is fair and reasonable.
The Company may reimburse expenses reasonably incurred in the fulfilment
of the Company’s business, together with any taxes thereon.
Not applicable.
Remuneration continued
Policy
46
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Service contracts and policy on payments for loss of office
The Committee’s policy on service contracts for Executive Directors is that they should provide for termination of employment by
giving 12 months’ notice.
Element Operation
Salary
Service contracts may be terminated immediately by making a payment in lieu of notice. An immediate payment of
50% of salary will be made followed by monthly payments after six months in the event that alternative employment
has not been secured.
Annual
Bonus
In the event of termination for a reason other than resignation or gross misconduct for material performance or
conduct concerns, a Director may be eligible, at the discretion of the Remuneration Committee to receive an
award based on the achievement of the performance targets. If the Director has not been employed throughout
the year a reduced pro-rata amount may be paid in specific circumstances or at the discretion of the Remuneration
Committee. The Executive Chairman is not eligible for a bonus.
Deferred
Bonus
Plan
In relation to Deferred Bonus awards, individuals would be defined as good or bad leavers, with good leavers being
those leaving under pre-determined circumstances such as retirement, redundancy, ill-health, death or disability
(proved to the satisfaction of the Committee), or those deemed by the Committee in its absolute discretion to be
good leavers given the circumstances surrounding termination. All other leavers would be bad leavers.
If an individual is categorised as a good leaver the award will vest on the normal vesting date unless the Committee
determines the award should vest following cessation of employment or a change of control. If an individual is
considered by the Committee to be a bad leaver, their awards will lapse in full.
LTIP
Individuals would be defined as good or bad leavers, with good leavers being those leaving under pre-determined
circumstances such as retirement, redundancy, ill-health, death or disability (proved to the satisfaction of the
Board), or those deemed by the Committee in its absolute discretion to be good leavers given the circumstances
surrounding termination. All other leavers would be bad leavers. If an individual is categorised as a good leaver
then, other than in exceptional circumstances, the award will vest on the normal vesting date reflecting the extent
to which performance targets have been met and the number of shares would normally be pro rated to reflect the
reduced service period. The post vesting holding period would also apply, other than in exceptional circumstances.
If an individual is determined to be a bad leaver, their awards will lapse in full.
STIP
Individuals would be defined as good or bad leavers, with good leavers being those leaving under pre-determined
circumstances such as retirement, redundancy, ill-health, death or disability, or those deemed by the Committee
in its absolute discretion to be good leavers given the circumstances surrounding termination. All other leavers
would be bad leavers. If an individual is categorised as a good leaver then, other than in exceptional circumstances,
the award will vest on the leaving date reflecting the extent to which performance has been met and taking into
account anticipated future gains or losses on the sales of assets. For leavers prior to 31 March 2024, 50% of the
original number of units awards vests with the remaining 50% of units available to be reallocated, subject that no
individual may obtain more than 400 units out of the total 1,000 units. If an individual is determined to be a bad
leaver, their awards will lapse in full.
47
GOVERNANCE
Annual remuneration
report
This report was prepared by the Remuneration Committee and approved by the Board for the financial year ended 31 March 2024.
The statements within the remuneration report subject to audit have been specified. The remaining statements remain unaudited.
Directors’ total remuneration (audited)
The table below sets out the total remuneration receivable by each of the Directors who held office during the year to 31 March 2024,
with a comparison to the previous financial year.
Executive
Directors Year
Salary
£
Taxable
benefits
£
Bonus
Cash
£
Bonus
Shares
£
Long
term
incentive
plan
£
Pension
£
Total fixed
pay
£
Total
variable
pay
£
Total
pay
£
Steven Owen
1
2024 133,095 9,061 – – – – 142,156 – 142,156
2023 – – – – – – – – –
Matthew Simpson
2
2024 163,334 6,440 – – 39,952 16,333 186,107 39,952 226,059
2023 238,000 9,150 80,800 – – 11,900 259,050 80,800 339,850
Total 2024 296,429 15,501 – – 39,952 16,333 328,263 39,952 368,215
2023 238,000 9,150 80,800 – – 11,900 259,050 80,800 339,850
1
Steven Owen was appointed as Executive Chairman on 26 July 2023.
2
Matthew Simpson stepped down from the Board on 14 November 2023. After leaving Mr Simpson received £287,641 in lieu of his notice period
(£144,763 paid on leaving and £142,878 payable in six monthly instalments after six months, subject to mitigation), £24,500 representing his pension
(£12,250 paid on leaving and £12,250 payable in six monthly instalments after six months, subject to mitigation), £124,700 representing his short term
incentive plan and £36,589 as compensation for loss of office. He received salary from 14 November 2023 to 30 November 2023 as an employee to
assist with handover of responsibilities.
Non-Executive Directors
Fees to 31
March 2024
£
Fees to 31
March 2023
£
Steven Owen
1
80,571 221,500
Mark Davies
2
70,000 40,000
Total 150,571 261,500
1
Steven Owen was appointed Chairman on 1 January 2022 and became Interim Executive Chairman on 14 June 2022 at a fee of £130,000 per annum
plus additional fees of £10,000 per month for the extra responsibilities and time commitment of the role. On 26 July 2023 Steven Owen was appointed
as Executive Chairman in an executive role on a salary of £195,000 per annum.
2
Mark Davies was appointed as Senior Independent Director on 1 August 2022
Annual bonus (audited)
The Group’s remuneration policy for the year ended 31 March 2024 meant that the Executive Chairman did not receive, nor is eligible,
for a bonus. The CFO also did not receive a bonus.
Long-Term Incentive Plan (audited)
Executives have historically been able to participate in the Group’s Long Term Incentive Plan. The LTIP awards that were granted in
October 2020 had a normal vesting date in October 2023. Performance was measured against total shareholder return and return of
the property portfolio as calculated by IPD measured over a three-year period.
At
31 March
2024 Granted
Vested
and
exercised
1
Lapsed
As at
31 March
2023
Share price
at date of
award
Grant
date
Vesting
date
Matthew Simpson – – 17,639 15,112 30,223 £1.90 14/10/2020 14/10/2023
20,770 – – 44,086 64,856 £2.47 16/11/2021 16/11/2024
Total 20,770 95,079
1
Includes accrued dividends
Awards under the LTIP made in 2020 were subject to the Performance Conditions of those awards being:
Vesting of 50% of the Award was determined by the Total Shareholder Return (“TSR”) of the Company over the Performance Period
beginning on 14 October 2020 and ending on 13 October 2023; Vesting of the remaining 50% of the Award was determined by
the growth in the Portfolio Value (“PV”) of the Company over the Performance Period beginning on 31 March 2020 and ending on
31March 2023, using the Total Property Return (“TPR”) as calculated by MSCI for the Group as compared with the TPR for the MSCI
IPD Index (the “Comparator”) over the same period.
48
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Vesting of Shares awarded under the 2021 LTIP is subject to Total Shareholder Return (“TSR”) and Total Property Return (“TPR”)
as calculated by MSCI measured over a three-year period. The TSR aspect of the award will be subject to a downward adjustment
according to the Company’s share price discount to Net Asset Value at the time of vesting.
Further details of the LTIP awards and performance criteria are contained in the 2021 and 2022 Annual Reports.
In line with the strategy announced in July 2022, no awards of LTIPs were made in FY23 or FY24.
The number of shares released includes dividends in line with the Rules of the LTIP and prior awards.
Short Term Incentive Plan
The Palace Capital Short Term Incentive Plan provided that Executive Directors be eligible to receive a proportion of the Realisation
Pool generated by the sale of assets. An individual may be awarded no more than 40% of the units in the pool. Awards under the STIP
will pay out in cash. The Plan will pay out as soon as reasonably practicable after the earlier of (i) the sale of all assets, (ii) a takeover of
the Company or (iii) when the Remuneration Committee determines that the plan has achieved its original purpose. The Remuneration
Policy on page 45 and the Notice of Annual General Meeting 2023 including the Rules of the STIP provide further information on
the Plan.
During the year awards were made to the Executive Directors as follows. As Mr Simpson left in the year, 50% of his award lapsed on
leaving and he received £124,700 in cash as payment under the Rules of the Plan, taking into account the value of realised gains on
sales of properties, less anticipated losses at that time, as determined by the Remuneration Committee. His and other leavers’ units
that lapsed were re-issued to senior management to reflect their performance, the need to retain them to implement the strategy
and for taking on the additional responsibilities following the departures. The Committee will continue to monitor progress against
objectives and pricing in particular, in order that management remains incentivised and cash returns to shareholders are maximised.
At
31 March
2023
Granted
in July
2023
Granted
in January
2024
Vested and
exercised Lapsed
At
31 March
2024
Steven Owen – 325 65 – – 390
Matthew Simpson – 171 - 85 86 –
Deferred bonus plan (audited)
The Palace Capital Deferred Bonus Plan provided that 35% of any bonuses awarded may be deferred for a year and options over
shares to the value of the deferred bonus amount allocated plus dividends accruing at the discretion of the Remuneration Committee.
The Executive Director will have a further year from the vesting date to exercise their options. The Deferred Bonus Plan awards do not
have any performance criteria attached to them. In respect of the year ended 31 March 2023, 35% of the bonuses due to the Chief
Financial Officer was deferred and released as follows (including dividends, in line with the rules of the Plan and prior years):
At
31 March
2024 Granted
Vested
and
exercised* Lapsed
As at
31 March
2023
Share price
at date of
award
Grant
date
Vesting
date
Matthew Simpson – – 10,479 – 9,831 £2.85 18/08/2022 18/08/2023
* Includes accrued dividends of 648 shares.
Total pension entitlements (audited)
The Company made pension contributions into a defined contribution scheme on behalf of the Chief Financial Officer. For the year
ending 31 March 2023, in line with the Remuneration Policy, contributions were paid at a rate of 5% of basic salary. Following the new
Remuneration Policy, from July 2023 until his leaving, the contribution rate, in line with other members of staff, was 10%.
Payments to past directors – application of malus (audited)
Payments to past Directors in the year ended 31 March 2023 are as disclosed below for Mr Simpson. Mr Richard Starr, previously
Executive Property Director, received 15,033 Deferred Bonus Shares arising out of his 2022 award which were granted on 18 August
2022 and vested on 18 August 2023. In the 2023 Annual Report, payments to Mr Neil Sinclair, previously Chief Executive and Mr
Richard Starr were reported. Following the significant diminution in value of Bank House, Leeds that was investigated and considered
by the Remuneration Committee with external legal advice having been obtained, it was determined by the Committee, taking all
relevant matters into account under the LTIP Rules, that the 2020 and 2021 LTIP awards would have malus applied to them, in line with
the Rules. This meant that the awards for the 2020 LTIP were not released to them in October 2023 and lapsed.
Payments for loss of office (audited)
Mr Simpson stepped down as Chief Financial Officer on 14 November 2023. He received the following in line with his service agreement:
he received a payment representing the first six months of his 12 month notice period, contractual benefits and holiday that would have
accrued during the notice period together with a payment of accrued but outstanding holiday, together representing an aggregate
amount of £318,598. This also included £124,700 in relation to the STIP under the rules of the plan and £36,589 as payment for loss of
49
GOVERNANCE
Annual remuneration continued
report
office. A further £142,878 is payable in lieu of notice in six monthly instalments after six months and £12,250 is payable in six monthly
instalments after six months. Both are subject to mitigation.
Statement of directors’ shareholding and share interests (audited)
Directors’ interests in the shares of the Company, including family interests, were as follows. Directors are encouraged to acquire shares
in the Company up to 100% of salary over time. Shares vesting under share plans may be required by the Remuneration Committee to
be retained for this purpose.
Ordinary shares of
10p each
31 March 2024
*
Ordinary shares of
10p each
31 March 2023
*
Outstanding
Ordinary share
options of 10p each
31 March 2024
Outstanding
Ordinary share
options of 10p each
31 March 2023
Steven Owen – – – –
Mark Davies – – – –
Matthew Simpson* 30,433 15,531 20,770 104,910
* As at date of stepping down.
As at 5 June 2024 there were no changes in Directors’ shareholdings.
Historical Chief Executive’s remuneration
Year to 31 March
Total
remuneration
£
Annual bonus
(as a % of
the maximum
payout)
LTIP vesting
(as a % of
the maximum
possible)
2024 – – –
2023 68,447 – –
2022 590,675 50 50.00
2021 424,996 35.2 –
2020 598,406 62 50.00
2019 479,432 40 32.75
2018 683,379 95 16.66
2017 412,975 63 –
2016 362,629
2
–
2015 262,007
2
–
2014
1
125,467
2
–
1
Fourteen month period ended 31 March 2024
2
No policy for annual bonuses in place
Relative importance of spend on pay
The table below shows the expenditure and percentage change in employee remuneration as compared with dividends paid to
Shareholders (see note 4 to the financial statements):
2024
£
2023
£
%
change
Recurring employee costs
1
1,674,723 2,536,630 -34%
Dividends 6,045,207 6,542,274 -8%
Share buybacks 15,178,802 6,697,892 127%
1
Includes leavers in the year
Percentage change in Directors’ Remuneration in the year
Salary Benefits Bonus
Steven Owen -4% N/A N/A
Mark Davies 17% N/A N/A
Matthew Simpson
1
-31% -14% -100%
Total Directors change (%) -14% -14% -100%
Average change for employees (%)
2
-2% 0% -49%
1
Mr Simpson stepped down in the year
2
Includes leavers in the year
50
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Percentage change in Directors’ Remuneration in prior years
FY23 Salary Benefits Bonus
Total Directors change (%) (37%) (52%) (28%)
Average change for employees (%) 16% 0% (79%)
FY22 Salary Benefits Bonus
Total Directors change (%) 0% 15% 42%
Average change for employees (%) 4% 0% 40%
FY21 Salary Benefits Bonus
Total Directors change (%) 4% 26% 41%
Average change for employees (%) 10% 0% 9%
Service contracts and letters of appointment
The Committee’s policy on service contracts for Executive Directors is that they should provide for termination of employment by
giving no more than 12 months’ notice.
Name
Date of
appointment
Original
contract date
Current
contract date
Notice
period
Termination
arrangements
Steven Owen 26 July
2023
1 January
2022
26 July
2023
12 months An immediate payment of 50% of salary followed by
monthly payments after six months in the event that
alternative employment has not been secured
Non-Executive Directors
Non-Executive Directors are usually engaged for fixed terms, typically three years, which may be extended for subsequent periods.
Theeffective dates of the letters of appointment for the current Non-Executive Director is as follows:
Name
Date of letter
for current
appointment
Date term
due to expire
Mark Davies 1 August 2022 31 July 2025
Implementation of remuneration policy in 2024/25
In respect of the year ending 31 March 2025, the Committee intends to implement the Executive and Non-Executive Director
remuneration policy including under the STIP.
Salary
Executive Directors
The average salary increase across the workforce from 1 April 2024 was 5%.
Name Role Salary Change
Steven Owen Executive Chairman £204,750 5%
Non-Executive Directors
Non-Executive Director fees for the year are as follows. The Board determined to increase the fee for Mr Davies by 5% in line with the
workforce and to reflect his additional time commitment.
Name Role 2025 fee Change
Mark Davies Non-Executive Director
Chair of Audit and Risk Committee
Chair of Remuneration Committee
Senior Independent Director
£73,500 5%
51
GOVERNANCE
Annual remuneration continued
report
Review of past performance
The following graph shows the Group’s Total Shareholder Return (TSR) for the ten year period to 31 March 2024 as compared with the
FTSE All Share Index as the Company’s shares are a constituent of this index. TSR measures share price growth with dividends deemed
to be reinvested on the ex-dividend date.
200p
Palace Capital PLC FTSE All Share Index
31/03/14 31/03/15 31/03/16 31/03/17 31/03/18 31/03/19 31/03/20 31/03/21 31/03/22 31/03/23 31/03/24
0
50p
100p
150p
Pension and benefits (audited)
The Executive Chairman does not receive a pension.
Annual bonus (audited)
The Executive Chairman is not eligible for a bonus.
Long-term incentive plan
No awards will be made under the Long-Term Incentive Plan.
Statement of voting at annual general meeting
The table below sets out the results of the voting in respect of the Directors’ Remuneration Report at the 2023 AGM.
Percentage of votes cast Number of votes cast
For and
discretion Against
For and
discretion Against Withheld
1
Remuneration Report 90.38% 9.62% 25,106,757 2,673,815 6,811
New Remuneration Policy 97.74% 2.26% 27,155,962 629,303 4,166
1
A vote withheld is not a vote in law and is not included in the calculation of the number or the percentage of votes For or Against the resolution
Approval
This report was approved by the Board of Directors on 5 June 2024 and signed on its behalf by:
Mark Davies
Chair of Remuneration Committee
52
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Directors’ report and
additional disclosures
The Directors present their report and the audited consolidated
financial statements of Palace Capital plc for the year ended 31
March 2024.
Statutory information contained elsewhere in
the Annual Report
Information required to be part of this Directors’ Report can be
found elsewhere in the Annual Report and is incorporated into
this report by reference, as indicated in the relevant section.
In accordance with the UK Financial Conduct Authority’s Listing
Rules, the information to be included within the Annual Report,
where applicable, is set out in the Directors’ Report on the
following pages:
• The Corporate Governance Statement page 30
• Going Concern & Viability page 16 to 17
• Remuneration Report pages 42 to 52
• Related party transactions page 90
Results and dividends
The results for the year are set out in the financial statements. The
Company paid interim dividends of 3.75p per Ordinary share in
October 2023, December 2023 and April 2024. The Directors
recommend the payment of a final dividend in respect of the year
ended 31 March 2024 of 3.75p per Ordinary share to be paid on 23
August 2024 to the Shareholders on the register on 26 July 2024.
Share capital
The present capital structure of the Company is set out in note
19 to the financial statements.
Purchase of own shares by the company
At the Annual General Meeting of the Company, held on 26 July
2023, 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, to include 4,280,000 shares bought back in
the year. The authority was expressed to run until the conclusion
of the next Annual General Meeting of the Company. £15.2m
of share purchases were made pursuant to this authority during
the year ended 31 March 2024. At a General Meeting held on 4
December 2023, shareholders approved an increase in the limit
to 15%. Renewal of this authority will be proposed at the Annual
General Meeting to be held on 24 July 2024.
Directors
The Directors’ powers, including the rules relating to the
appointment and replacement of Directors, are conferred
on them by UK legislation and by the Company’s Articles of
Association. Changes to the Articles of Association are only
permitted in accordance with legislation and must be approved
by a special resolution of Shareholders.
Details of the Directors of the Company who served during the
year ended 31 March 2024 and up to the date of the financial
statements, are set out on page 31, and their interests in the
Ordinary share capital of the Company and details of options
granted under the Group’s share schemes are set out in the
Annual Remuneration Report on page 49. The interests of
the Directors in the shares in the Company have not changed
since the end of the financial year to 3 June 2024, the latest
practicable date. No member of the Board had a material interest
in any contract of significance with the Company, or any of its
subsidiaries, at any time during the year.
In accordance with the UK Code, all Directors offer themselves
for re-election at the 2024 Annual General Meeting on 24 July
2024. The Directors’ service contract terms are set out in the
Annual Remuneration Report on page 51.
Political donations
During the year, no donations were made to political parties and
none are proposed for the current year.
Post balance sheet events
Details of post balance sheet events are provided in note 23 on
page 90 of the financial statements.
Future developments
Details of future developments are provided in the Strategic
Report.
Going concern
The Directors confirm they have a reasonable expectation
that the Company and the Group have adequate resources to
continue in operation for at least 12 months from the date of
approval of the financial statements.
Substantial shareholdings
The table below is provided by our brokers under the requests
made to shareholders under section 793 of the Companies Act
2006 and information provided to the Company. As such this
information is regarded by the Company as providing an up to
date representation of our major shareholders’ interests.
As at 31 March 2024 and 3 June 2024
Ordinary 10p
shares
% at
31 March
2024
Ordinary 10p
shares
% at
3 June
2024
Peter Gyllenhammar 4,892,242 13.03 4,892,242 13.03
JO Hambro Capital Management 3,771,886 10.04 3,771,886 10.04
Winton Capital Management 3,700,000 9.85 3,700,000 9.85
Premier Miton Investors 2,736,983 7.29 2,736,983 7.29
Harwood Capital 2,555,000 6.80 2,555,000 6.80
Hargreaves Lansdown, stockbrokers (EO) 1,584,787 4.25 1,584,787 4.25
Charles Stanley 1,576,851 4.21 1,576,851 4.21
Slater Investments 1,525,000 4.06 1,525,000 4.06
Janus Henderson Investors 1,413,292 3.76 1,413,292 3.76
Interactive Investor (EO) 1,135,218 2.87 1,135,218 2.87
53
GOVERNANCE
Directors’ indemnities and Directors’ and
Officers’ liability insurance
The Company’s agreement to indemnify each Director against
any liability incurred in the course of their office to the extent
permitted by law remains in force. The Group maintains
Directors’ and Officers’ Liability Insurance.
Financial risk management
The Group is exposed to market risk (including interest rate risk
and real estate market 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 and the Risk Management section of the Annual
Report and Accounts.
Authorisation of 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 they have, 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 make
the relevant decision, and the Directors will be able to impose
limits or conditions when giving authorisation if they think this is
appropriate.
Audit exemption for subsidiaries
The Group has taken advantage of the S479A Companies Act
exemption from audit for all subsidiaries with the exception
of Palace Capital (Halifax) Limited which is required to have
its accounts audited under the terms of the loan with Scottish
Widows Plc.
Change of control
The Group has in place an agreement with its lending bank,
which contain certain termination rights. In addition, the Group’s
share schemes contain provisions that, in the event of a change
of control, would result in outstanding options and awards
becoming exercisable, subject to the rules of the relevant
schemes. The Directors service contracts contain a provision for
the payment of compensation for loss of office or employment
that occurs directly as a result of a takeover bid.
Greenhouse gas emissions
The Group’s GHG emission report can be found in the ESG
Report.
Auditor
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are each aware,
there is no relevant Audit information of which the Company’s
Auditor is unaware; and each Director has taken all the steps
that they ought to have taken as a Director to make themselves
aware of any relevant audit information and to establish that the
Company’s Auditor is aware of that information. The Auditor,
BDO LLP, has indicated their willingness to continue in office.
The Board, on the advice of the Audit and Risk Committee,
recommends their re-appointment at the Annual General
Meeting.
2024 Annual General Meeting (AGM)
The 2024 AGM will be held on 24 July 2024 at 10.00 a.m. The
resolutions are set out in the Notice of Meeting, together with
explanatory notes. This report was approved by the Board and
signed on its behalf.
Phil Higgins
Company Secretary
5 June 2024
Palace Capital plc. Incorporated, registered and domiciled in
England and Wales company number 5332938
Thomas House, 84 Eccleston Square London SW1V 1PX
Directors’ report and
additional disclosures continued
54
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Statement of Directors’
responsibilities
The Directors are responsible for preparing the Annual Report
and the Group and Company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and
Company financial statements for each financial year. Under that
law, the Directors have prepared the Group financial statements
in accordance with UK adopted international accounting
standards (‘IFRS-UK’) and applicable law, and have elected to
prepare the Company financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and the Company
and of the profit or loss of the Group and the Company for the
period. In preparing each of the Group and Company financial
statements the Directors are required to:
• confirm that the financial statements have been prepared in
accordance with the applicable set of accounting standards,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Group and the Company;
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• for the Group financial statements, state whether they have
been prepared in accordance with international accounting
standards in conformity with the requirements of the
Companies Act 2006, IFRS-UK and applicable law, subject
to any material departures disclosed and explained in the
financial statements;
• for the Company financial statements, state whether they
have been prepared in accordance with UK GAAP, subject to
any material departure disclosed and explained in the parent
company financial statements;
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
parent Company will continue in business; and
• under applicable law and regulations, the Directors are
also responsible for preparing a Strategic Report, Directors’
Report, Directors’ Remuneration Report and Corporate
Governance Statement that complies with that law and those
regulations.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to ensure
that the financial statements comply with the requirements of the
Companies Act 2006.
They are also responsible for safeguarding the assets of the
Group and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for ensuring the Annual Report
and the financial statements are made available on a website.
Financial statements are published on the Company’s website
in accordance with legislation in the United Kingdom governing
the preparation and dissemination of financial statements, which
may vary from legislation in other jurisdictions. The maintenance
and integrity of the Company’s website is the responsibility of
the Directors. The Directors’ responsibility also extends to the
ongoing integrity of the financial statements contained therein.
Directors’ responsibilities statement
The Directors confirm to the best of their knowledge:
• The financial statements have been prepared in accordance
with the applicable set of accounting standards, give a true
and fair view of the assets, liabilities, financial position and
profit and loss of the Group and Company;
• the Strategic Report includes a fair review of the
development and performance of the business and the
financial position of the Company and the undertakings
included in the consolidation as a whole, together with a
description of the principal risks and uncertainties that they
face; and
• the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information
necessary for Shareholders to assess the Group’s and
Company’s performance, business model and strategy.
On behalf of the Board
Phil Higgins
Company Secretary
5 June 2024
55
GOVERNANCE
Independent Auditor’s report
to the members of Palace Capital plc
Opinion on the financial statements
In our opinion:
• the financial statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at 31
March 2024 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared
in accordance with UK adopted international accounting
standards;
• the Parent Company 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.
We have audited the financial statements of Palace Capital plc
(the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the
year ended 31 March 2024 which comprise the Consolidated
Statement of Comprehensive Income, the Consolidated
Statement of Financial Position, the Consolidated Statement of
Changes in Equity, the Consolidated Statement of Cash Flows,
the Company Statement of Financial Position, the Company
Statement of Changes in Equity and notes to the financial
statements, including a summary of material accounting policy
information. The financial reporting framework that has been
applied in the preparation of the Group financial statements
is applicable law and UK adopted international accounting
standards. The financial reporting framework that has been
applied in the preparation of the Parent Company financial
statements is United Kingdom Accounting Standards, including
Financial Reporting Standard 102 The Financial Reporting
Standard applicable in the UK and Republic of Ireland (United
Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion. Our audit opinion is consistent with the additional report
to the audit committee.
Independence
Following the recommendation of the Audit and Risk committee,
we were appointed by the Board of Directors on 1 April
2015 to audit the financial statements for the year ended 31
March 2015 and subsequent financial periods. The period
of total uninterrupted engagement including retenders and
reappointments is ten years, covering the years ended 31
March 2015 to 31 March 2024. We remain independent of the
Group and the Parent Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as
applied to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. The non-audit services prohibited by that standard
were not provided to the Group or the Parent Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the Directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate. Our
evaluation of the Directors’ assessment of the Group’s and the
Parent Company’s ability to continue to adopt the going concern
basis of accounting included:
• Using our knowledge of the Group and its relevant market
sector together with current general economic environment
to assess the Directors’ identification of the inherent risks
to the Group’s and the Parent Company’s business and how
these might impact the Group’s and the Parent Company’s
ability to remain a going concern during the going concern
period which is at least 12 months from when the financial
statements are authorised for issue.
• Obtaining the going concern model from the Directors, and
challenging the assumptions used by the Directors in the
going concern forecast. This included assumptions around
expected movements in the Group’s level of borrowings
and the associated interest including the repayment or
refinancing of the single remaining loan, movements in rental
income and the level of cash collections. It also included
assumptions around expected property disposals and
residential sales. We obtained evidence, where available, to
support inputs into the model.
• Testing the arithmetical accuracy of the going
concern model.
• Challenging the sensitivities applied by the Directors to the
model through assessing assumptions made on these stress-
tested models, specifically with regards to:
• The expected impact on investment property valuations;
• The expected impact on rental income;
• The impact on the Group’s covenant compliance; and
• The reasonableness of the assumptions used in the
stress test.
• Reviewing the disclosures to check that they are in line with
the detailed assessment undertaken by the Board, including
that it is accurate and complete.
• Assessing the intercompany debtors in the Parent Company’s
balance sheet for recoverability by reviewing the financial
position of each subsidiary. We also assessed the Parent
Company’s ability to pay the intercompany creditors by
reviewing its liquidity as at the year end.
• Enquiring of Directors and those charged with governance as
to any future events or conditions that may affect the Group’s
ability to continue as a going concern.
• Considering board minutes, and evidence obtained through
the audit and challenging the Directors on the identification
of any contradictory information in the forecasts and the
resultant impact to the going concern assessment.
• Considering the Directors’ intentions for the Group going
forward and its impact on the Group’s ability to continue as a
going concern
• Reviewing the post year end rent receipts for trade debtors
as at 31 March 2024 to assess the financial position of
tenants.
56
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group’s and the Parent Company’s ability to continue as a going
concern for a period of at least twelve months from when the
financial statements are authorised for issue.
In relation to the Parent Company’s reporting on how it has
applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the Directors’
statement in the financial statements about whether the Directors
considered it appropriate to adopt the going concern basis of
accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this
report.
Overview
Coverage 100% (2023: 100%) of Group revenue
100% (2023: 99.9%) of Group total assets
100% (2023: 99.9%) of Group profit before tax
Key audit matters 2024 2023
KAM 1
Valuation of investment
properties
Valuation of investment and
trading properties
KAM 2 –
1
Revenue recognition – accuracy
and existence of rental income
and residential sales
Materiality Group financial statements as a whole
£1.1m (2023: £2.01m) based on 1% (2023: 1%) of total assets.
1
KAM 2 is no longer considered to be a key audit matter because revenue is no longer considered to be a significant audit risk in light of the Group’s
strategy having a focus on maximising cash returns to shareholders.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of
the Group and its environment, including the Group’s system of
internal control, and assessing the risks of material misstatement
in the financial statements. We also addressed the risk of
management override of internal controls, including assessing
whether there was evidence of bias by the Directors that may
have represented a risk of material misstatement.
The Group operates solely in the United Kingdom, and all audit
procedures were performed by the Group audit team. The
Group operates in one segment, investment property, structured
through a number of subsidiary entities and therefore we treated
the Group as one significant component. The Group audit
engagement team performed all the work necessary to issue the
Group and Parent Company audit opinion, including undertaking
all of the audit work on the risks of material misstatement
identified in the key audit matters section below.
Climate change
Our work on the assessment of potential impacts on climate-
related risks on the Group’s operations and financial statements
included:
• Enquiries and challenge of management to understand
the actions they have taken to identify climate-related risks
and their potential impacts on the financial statements and
adequately disclose climate-related risks within the annual
report;
• Our own qualitative risk assessment taking into consideration
the sector in which the Group operates and how climate
change affects this particular sector; and
• Review of the minutes of Board and Audit and Risk
Committee meeting and other papers related to climate
change and performed a risk assessment as to how the
impact of the Group’s commitment as set out in Strategic
Report may affect the financial statements and our audit.
We challenged the extent to which climate-related
considerations, including the expected cash flows from the
initiatives and commitments have been reflected, where
appropriate, in management’s going concern assessment and
viability assessment.
We also assessed the consistency of management’s disclosures
included as Statutory Other Information with the financial
statements and with our knowledge obtained from the audit.
Based on our risk assessment procedures, we did not identify
there to be any Key Audit Matters materially impacted by
climate-related risks and related commitments.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of resources
in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
57
GOVERNANCE
Key audit matter How the scope of our audit addressed the key audit matter
Valuation of
investment
properties
Refer to
accounting
policies on
investment
properties on page
69.
Refer to note 9
in relation to the
property portfolio.
The Group has opted to carry its
investment properties at fair value
rather than cost.
The valuation of each property
requires consideration of the
individual nature of the asset,
its location, cash flows and
comparable market transactions.
Determination of the fair value
of investment properties is
considered a significant audit
risk due to the subjective nature
of assumptions inherent in
each valuation. Thus, fraud risk
could arise given the level of
subjectivity.
The Group engages independent
external experts, CBRE to value
these properties at each reporting
period. The valuation uses a cash
flow methodology with key inputs
including detailed data on the
underlying assets and the market
environment for each asset.
The valuation models applied
are complex and require
consideration of the existing
market conditions including
yields and estimates regarding
current and future rental income,
occupancy and property
management costs.
There is a risk that the observable
inputs to the valuation are
not complete or accurate.
Furthermore, these inputs could
be subject to manipulation by
management giving rise to fraud
risk.
For these reasons, the valuation
of investment properties was
considered to be a key audit
matter.
We obtained the valuation report prepared by management’s independent
external valuer and discussed the basis of the valuations with them, confirming
that the approach was consistent with the requirements of accounting standards.
We held discussions with the external valuer to understand the assumptions and
methodologies used in valuing these properties. We have also corroborated
these assumptions to market evidence. We also checked how rent concessions
impacted the valuation assumptions.
Using our own internal auditor expert, we challenged the valuation assumptions,
methodologies and the unobservable inputs used by establishing our own range
of expectations for the changes in valuation of investment property based on
externally available metrics, comparable organisations and wider economic
and commercial factors. We considered whether the overall movement in the
investment property valuation indicates potential Management bias to either
overstate or understate the valuation. We also compared the values of properties
from prior year. We obtained an explanation from CBRE to understand the
reason behind material movements and corroborated their explanation to
supporting documentations.
We assessed the competency, independence and objectivity of the valuer which
included making enquiries regarding interests and relationships that may create a
threat to the valuer’s objectivity.
We considered whether the sales during the year and those that have been
agreed or are being negotiated after the year end support or contradict the
valuations being reported for those properties.
We also checked the ownership of each property to the title deeds and checked
for any new charges against these properties.
Review of key inputs to the valuation schedule
We agreed the key observable valuation inputs used by the external valuer back
to source documentation, which includes title deeds and lease agreements that
are tested as part of our revenue audit procedures.
We selected a number of capital expenditure samples and agreed to supporting
documentation.
We compared the purchaser costs to generally accepted market percentages.
We compared the Estimated Rental Value (‘ERV’) on void units with similar other
units as well as assumptions as regards the time to occupancy with the valuer
and compared the ERV to the income as per the tenancy schedule.
Key observations:
The results of our audit procedures indicated that the estimates and assumptions
used in the property valuations were appropriate and therefore, the investment
properties are appropriately valued.
Independent Auditor’s report continued
to the members of Palace Capital plc
58
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We
consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of
reasonable users that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality
level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will
not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality
as follows:
Group financial statements Parent company financial statements
2024
£m
2023
£m
2024
£m
2023
£m
Materiality 1.10 2.01 0.99 1.34
Basis for determining
materiality 1% of total assets
Rationale for the
benchmark applied
We determined that total assets would be the most appropriate basis for determining overall materiality as
we consider it to be one of the principal considerations for the users of the financial statements in assessing
the financial performance of the Group and Parent Company.
Performance materiality 0.83 1.51 0.74 1.01
Basis for determining
performance materiality
On the basis of our risk assessment, together with our assessment of the Group’s and Parent Company’s
overall control environment, our judgement was that performance materiality should be 75% (2023: 75%) of
materiality.
Rationale for the
percentage applied for
performance materiality
We determined performance materiality based on our risk assessment, together with our assessment of
the Group’s and Parent Company’s overall control environment, the small number of components and the
limited number of audit adjustments identified in previous audits.
Specific materiality
Previously, we set specific materiality (2023: £280,000) for the items that specifically impact the measurement of European Public Real
Estate Association (“EPRA”) earnings at 5% of EPRA earnings. Following the shift of the group’s focus from the trading performance
to the maximisation of cash returns to shareholders, we considered that the use of specific materiality was no longer appropriate and
therefore, the audit procedures were performed on all the Financial Statements areas using solely a single materiality as seen in the
table above.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £55,000 (2023:
£100,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information included in the Annual Report
and Accounts other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Corporate governance statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Parent Company’s compliance with the provisions of the UK Corporate Governance
Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit.
59
GOVERNANCE
Going concern and longer-term viability • The Directors’ statement with regards to the appropriateness of adopting the going
concern basis of accounting and any material uncertainties identified set out on page
16 to 17; and
• The Directors’ explanation as to their assessment of the Group’s prospects, the period
this assessment covers and why the period is appropriate set out on page 17.
Other Code provisions • Directors’ statement on fair, balanced and understandable set out on page 41;
• Board’s confirmation that it has carried out a robust assessment of the emerging and
principal risks set out on page 16;
• The section of the annual report that describes the review of effectiveness of risk
management and internal control systems set out on page 16; and
• The section describing the work of the Audit and Risk Committee set out on pages
40 to 41.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic report and Directors’ report In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic report and the Directors’ report for the financial
year for which the financial statements are prepared is consistent with the financial
statements; and
• the Strategic report and the Directors’ report have been prepared in accordance with
applicable legal requirements.
In the light of the knowledge and understanding of the Group and 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.
Directors’ remuneration In our opinion, the part of the Directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006.
Matters on which we are required to
report by exception
We have nothing to report in respect of the following matters in relation to which 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 and the part of the Directors’ remuneration
report to be audited 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.
Responsibilities of Directors
As explained more fully in the Statement of Directors’ responsibilities statement, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Independent Auditor’s report continued
to the members of Palace Capital plc
60
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Extent to which the audit was capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
Non-compliance with laws and regulations
Based on:
• Our understanding of the Group and the industry in which it
operates;
• Discussion with management and those charged with
governance; and
• Obtaining and understanding of the Group’s policies and
procedures regarding compliance with laws and regulations.
We considered the significant laws and regulations to be UK
company law, UK tax legislation (including the REIT regime
requirements) and the UK Listing Rules, and we considered the
extent to which non-compliance might have a material effect on
the Group financial statements.
Our procedures in respect of the above included:
• Review of minutes of meeting of those charged with
governance for any instances of non-compliance with laws
and regulations;
• Review of correspondence with regulatory and tax
authorities for any instances of non-compliance with laws and
regulations;
• Review of financial statement disclosures and agreeing to
supporting documentation;
• Involvement of tax experts in the audit; and
• Review of legal expenditure accounts to understand the
nature of expenditure incurred.
Fraud
We assessed the susceptibility of the financial statements to
material misstatement, including fraud. Our risk assessment
procedures included:
• Enquiry with management and those charged with
governance regarding any known or suspected instances
of fraud;
• Obtaining an understanding of the Group’s policies and
procedures relating to:
• Detecting and responding to the risks of fraud; and
• Internal controls established to mitigate risks related to
fraud.
• Review of minutes of meeting of those charged with
governance for any known or suspected instances of fraud;
• Discussion amongst the engagement team as to how and
where fraud might occur in the financial statements;
• Performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud; and
• Considering remuneration incentive schemes and
performance targets and the related financial statement areas
impacted by these.
Based on our risk assessment, we considered the areas most
susceptible to fraud to be investment property valuations and
management override of controls.
Our procedures in respect of the above included:
• Testing a sample of journal entries throughout the year,
which met a defined risk criteria, by agreeing to supporting
documentation; and
• Assessing significant estimates made by management for
bias (refer to key audit matters section of this report).
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members
who were all deemed to have appropriate competence and
capabilities and remained alert to any indications of fraud or
non-compliance with laws and regulations throughout the audit.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising
that the risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery, misrepresentations or through collusion. There
are inherent limitations in the audit procedures performed and
the further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial
statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the
Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent Company and the Parent Company’s members as a
body, for our audit work, for this report, or for the opinions we
have formed.
Charles Ellis
Senior Statutory Auditor
For and on behalf of BDO LLP, Statutory Auditor
London, United Kingdom
5 June 2024
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
61
GOVERNANCE
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2024
Note
2024
£’000
2023
£’000
Revenue 1 19,599 32,973
Cost of sales 3b (9,776 ) (17,147 )
Movement in expected credit loss 12 – 327
Net property income 9,823 16,153
Administrative expenses 3c (3,998 ) (6,094 )
Operating profit before gains and losses on property assets 5,825 10,059
Profit on disposal of investment properties 2,298 819
Loss on revaluation of investment property portfolio 9 (15,383 ) (42,900 )
Operating loss (7,260 ) (32,022 )
Finance income 312 26
Finance expense 2 (1,909 ) (3,970 )
Debt termination costs (459 ) (15 )
Changes in fair value of interest rate derivatives – 210
Loss before taxation (9,316 ) (35,771 )
Taxation 5 (46 ) 67
Loss after taxation for the year and total comprehensive loss
attributable to owners of the Parent (9,362 ) (35,704 )
Earnings per ordinary share
Basic 6 (23.7 p) (80.2 p)
Diluted 6 (23.7 p) (80.2 p)
All activities derive from continuing operations of the Group. The notes form an integral part of these financial statements.
62
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Consolidated Statement of Financial Position
as at 31 March 2024
Note
2024
£’000
2023
£’000
Non-current assets
Investment properties 9 73,845 176,504
Right of use asset 11 38 132
Trade and other receivables 12 5,625 4,360
Property, plant and equipment 11 – 23
Current assets
Trading property 10 8,126 11,055
Trade and other receivables 12 3,352 4,190
Cash and cash equivalents 13 19,766 5,509
Total assets 110,752 201,773
Current liabilities
Trade and other payables 14 (4,066 ) (8,339 )
Borrowings 15 (318 ) (8,545 )
Lease liabilities for right of use asset 18 (39 ) (132 )
Creditors: amounts falling due within one year (4,423 ) (17,016 )
Net current assets 26,821 3,738
Non-current liabilities
Borrowings 15 (7,933 ) (55,129 )
Short term incentive plan provision (565 ) –
Deferred tax liability 5 (57 ) (76 )
Lease liabilities for investment properties 18 – (1,077 )
Net assets 97,774 128,475
Equity
Called up share capital 19 3,756 4,639
Treasury shares – (7,343 )
Merger reserve 3,503 3,503
Capital redemption reserve 1,223 340
Capital reduction reserve 89,931 118,477
(Accumulated losses)/retained earnings (639 ) 8,859
Equity – attributable to the owners of the Parent 97,774 128,475
Basic NAV per ordinary share 7 260 p 294 p
Diluted NAV per ordinary share 7 260 p 294 p
These financial statements were approved by the Board of Directors and authorised for issue on 5 June 2024 and are signed on its
behalf by:
STEVEN OWEN
Executive Chairman
63
FINANCIAL REPORT
Consolidated Statement of Changes in Equity
for the year ended 31 March 2024
Note
Share
Capital
£’000
Treasury
Share
Reserve
£’000
Other
Reserves
£’000
Capital
Reduction
Reserve
£’000
Retained
Earnings/
(Accumulated
Losses)
£’000
Total
Equity
£’000
At 31 March 2022 4,639 (717 ) 3,843 125,019 44,420 177,204
Total comprehensive loss for
the year – – – – (35,704 ) (35,704 )
Share-based payments 20 – – – – 177 177
Exercise of share options – 71 – – (71 ) –
Issue of deferred bonus share
options – – – – 37 37
Dividends paid 8 – – – (6,542 ) – (6,542 )
Share buyback – (6,697 ) – – – (6,697 )
At 31 March 2023 4,639 (7,343 ) 3,843 118,477 8,859 128,475
Total comprehensive loss for
the year – – – – (9,362 ) (9,362 )
Share-based payments 20 – – – – 137 137
Exercise of share options – 161 – – (273 ) (112 )
Dividends paid 8 – – – (6,045 ) – (6,045 )
Share buyback – (15,179 ) – – – (15,179 )
Shares purchased by employee
benefits trust – (140 ) – – – (140 )
Cancellation of treasury shares (883 ) 22,501 883 (22,501 ) – –
At 31 March 2024 3,756 – 4,726 89,931 (639 ) 97,774
The share capital represents the nominal value of the issued share capital of Palace Capital plc.
Treasury shares represents the consideration paid for shares bought back from the market. On 27 March 2024 all shares held in
Treasury were cancelled.
Other reserves comprise the merger reserve and the capital redemption reserve.
The merger reserve represents the excess over nominal value of the fair value consideration for the acquisition of subsidiaries satisfied
by the issue of shares in accordance with S612 of the Companies Act 2006.
The capital redemption reserve represents the nominal value of cancelled preference share capital redeemed.
The capital reduction reserve represents distributable profits generated as a result of the share premium reduction and cancellation
of shares.
64
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Consolidated Statement of Cash Flows
for the year ended 31 March 2024
Note
2024
£’000
2023
£’000
Operating activities
Loss before taxation (9,316 ) (35,771 )
Finance income (312 ) (26 )
Finance expense 2 1,909 3,970
Changes in fair value of interest rate derivatives – (210 )
Loss on revaluation of investment property portfolio 9 15,383 42,900
Profit on disposal of investment properties (2,298 ) (819 )
Debt termination costs 459 15
Depreciation of tangible fixed assets 11 23 30
Amortisation of right of use asset 11 119 82
Share-based payments 20 137 177
Increase in receivables (2,536 ) (1,140 )
Decrease in payables (3,369 ) (415 )
Decrease in trading property 2,929 9,233
Net cash generated from operations 3,128 18,026
Interest received 312 26
Interest and other finance charges paid (2,339 ) (3,427 )
Corporation tax paid in respect of operating activities – (171 )
Net cash flows from operating activities 1,101 14,454
Investing activities
Capital expenditure on refurbishment of investment property (1,544 ) (1,371 )
Proceeds from disposal of investment property 92,217 15,410
Purchase of property, plant and equipment 11 – (8 )
Net cash flow generated from investing activities 90,673 14,031
Financing activities
Bank loans repaid 17 (56,022 ) (37,419 )
Loan issue costs paid 17 – (461 )
Dividends paid 8 (6,045 ) (6,542 )
Share buyback (15,179 ) (6,697 )
Payment of share options exercised (271 ) –
Net cash flow used in financing activities (77,517 ) (51,119 )
Net increase/(decrease) in cash and cash equivalents 14,257 (22,634 )
Cash and cash equivalents at beginning of the year 5,509 28,143
Cash and cash equivalents at the end of the year 13 19,766 5,509
65
FINANCIAL REPORT
66
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
67
FINANCIAL REPORT
Notes to the Consolidated Financial Statements
continued
68
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
69
FINANCIAL REPORT
Notes to the Consolidated Financial Statements
continued
70
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
71
FINANCIAL REPORT
Notes to the Consolidated Financial Statements
continued
72
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
3. Profit for the year continued
73
FINANCIAL REPORT
Notes to the Consolidated Financial Statements
continued
74
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
75
FINANCIAL REPORT
6. Earnings per share continued
Notes to the Consolidated Financial Statements
continued
76
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
7. Net asset value per share continued
77
FINANCIAL REPORT
Notes to the Consolidated Financial Statements
continued
78
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
9. Property portfolio continued
79
FINANCIAL REPORT
9. Property portfolio continued
Notes to the Consolidated Financial Statements
continued
80
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
81
FINANCIAL REPORT
12. Trade and other receivables continued
Notes to the Consolidated Financial Statements
continued
82
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
12. Trade and other receivables continued
83
FINANCIAL REPORT
15. Borrowings continued
Notes to the Consolidated Financial Statements
continued
84
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
85
FINANCIAL REPORT
18. Leases continued
Notes to the Consolidated Financial Statements
continued
86
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
19. Share capital continued
87
FINANCIAL REPORT
19. Share capital continued
Notes to the Consolidated Financial Statements
continued
88
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
89
FINANCIAL REPORT
20. Share-based payments continued
Notes to the Consolidated Financial Statements
continued
90
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
91
FINANCIAL REPORT
24. Financial risk management continued
Notes to the Consolidated Financial Statements
continued
92
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Company Statement of Financial Position
as at 31 March 2024
Note
2024
£000
2023
£’000
Fixed assets
Investments in subsidiaries 2 94,382 104,730
Property, plant and equipment 3 – 22
94,382 104,752
Current assets
Trade and other receivables 4 30,602 30,155
Cash at bank and in hand 11,483 1,049
42,085 31,204
Total assets 136,467 135,956
Current liabilities
Creditors: amounts falling due within one year 5 (63,616) (33,660)
Net current liabilities (21,531) (2,456)
Non-current liabilities
Short term incentive plan provision (565) –
Total assets less current liabilities 72,286 102,296
Equity
Called up share capital 6 3,756 4,639
Treasury shares – (7,343)
Merger reserve 3,503 3,503
Capital redemption reserve 1,223 340
Capital reduction reserve 89,931 118,477
Accumulated losses (26,127) (17,320)
Equity – attributable to the owners of the Parent 72,286 102,296
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented
its own Statement of Comprehensive Income in these financial statements. The Company’s loss after tax for the year was £8,671,000
(2023: £21,688,000).
The financial statements were approved by the Board of Directors and authorised for issue on 5 June 2024 and are signed on its
behalf by:
STEVEN OWEN
Executive Chairman
93
FINANCIAL REPORT
Company Statement of Changes in Equity
as at 31 March 2024
Share
Capital
£’000
Treasury
Share
Reserve
£’000
Other
Reserves
£’000
Capital
Reduction
Reserve
£’000
(Accumulated
Losses)
£’000
Total
Equity
£’000
At 31 March 2022 4,639 (717) 3,843 125,019 4,225 137,009
Total comprehensive loss for the year – – – – (21,688) (21,688)
Transactions with Equity Holders
Share-based payments – – – – 177 177
Exercise of share options – 71 – – (71) –
Issue of deferred bonus share options – – – – 37 37
Dividends – – – (6,542) – (6,542)
Share buyback – (6,697) – – – (6,697)
At 31 March 2023 4,639 (7,343) 3,843 118,477 (17,320) 102,296
Total comprehensive loss for the year – – – – (8,671) (8,671)
Transactions with Equity Holders
Share-based payments – – – – 137 137
Exercise of share options – 161 – – (273) (112)
Dividends – – – (6,045) – (6,045)
Share buyback – (15,179) – – – (15,179)
Shares purchased by employee
benefits trust – (140) – – – (140)
Cancellation of treasury shares (883) 22,501 883 (22,501) – –
At 31 March 2024 3,756 – 4,726 89,931 (26,127) 72,286
Treasury shares represents the consideration paid for shares bought back on the open market. On 27 March 2024 all shares held in
Treasury were cancelled.
Other reserves comprise the merger reserve and the capital redemption reserve.
The merger reserve represents the excess over nominal value of the fair value consideration for the acquisition of subsidiaries satisfied
by the issue of shares in accordance with S612 of the Companies Act 2006.
The capital redemption reserve represents the nominal value of cancelled preference share capital redeemed.
The capital reduction reserve represents distributable profits generated as a result of the share premium reduction.
94
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Notes to the Company Financial Statements
Accounting policies
Palace Capital plc is a company incorporated in England and Wales under the Companies Act. The address of the registered office is
given on the contents page and the nature of the Group’s operations and its principal activities are set out in the Strategic Report. The
financial statements of the Company have been prepared in accordance with FRS 102, the Financial Reporting Standard applicable in
the United Kingdom and the Republic of Ireland.
The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also
requires Company’s management to exercise judgement in applying the Company’s accounting policies (as detailed below). The
Statement of Financial Position heading relating to the Company’s investments and property, plant and equipment is in accordance
with the balance sheet formats of the Companies Act 2006. Assets are classified in accordance with the definitions of fixed and current
assets in the Companies Act instead of the presentation requirements of IAS 1 Presentation of Financial Statements
Dividends revenue
Revenue is recognised when the Company’s right to receive payment is established, which is generally when Shareholders of the
paying company approve the payment of the dividend.
Valuation of investments
Investments in subsidiaries are measured at cost less accumulated impairment. Where merger relief is applicable, the cost of the
investment in a subsidiary undertaking is measured at the nominal value of the shares issued together with the fair value of any
additional consideration paid.
Current taxation
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid
to the tax authorities. The tax rates and the tax laws used to compute the amount are those that are enacted or substantively enacted,
by the balance sheet date.
Deferred taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax balances are recognised in respect of timing differences that have originated but not reversed on the balance sheet date.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax balances are not recognised in respect of permanent differences between the fair value of assets acquired and the future
tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be
assessed for tax.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
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.
95
FINANCIAL REPORT
Trade and other receivables
Trade and other receivables and intercompany receivables are recognised and carried at the original transaction value. A provision for
impairment is established where there is objective evidence that the Company will not be able to collect all amounts due according to
the original terms of the receivables concerned.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract
that evidences a residual interest in the assets of the Company after deducting all of its liabilities. The accounting policies adopted for
specific financial liabilities and equity instruments are set out below:
Trade payables
Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate
method.
Equity instruments
Equity instruments issued by the Company are recorded at the fair value of proceeds received, net of direct issue costs.
Parent company disclosure exemptions
In preparing the separate financial statements of the Parent Company, advantage has been taken of the following disclosure
exemptions available in FRS 102:
• no cash flow statement has been presented for the Parent Company;
• disclosures in respect of the Parent Company’s financial instruments have not been presented as equivalent disclosures have been
provided in respect of the Group as a whole;
• disclosures in respect of the Parent Company’s share-based payment arrangements have not been presented as equivalent
disclosures have been provided in respect of the Group as a whole; and
• disclosure has been given for the aggregate remuneration of the key management personnel of the Parent Company as their
remuneration is included in the totals for the Group as a whole.
Judgements in applying accounting policies and key sources of estimation
uncertainty
Investments and loans to subsidiary undertakings (see note 2)
The most critical estimates, assumptions and judgements relate to the determination of carrying value of unlisted investments in the
Company’s subsidiary undertakings and the carrying value of the loans that the Company has made to them. The nature, facts and
circumstance of the investment or loan are taken into account in assessing whether there are any indications of impairment.
Provisions provided in the year reflect the reduction in net asset value of subsidiaries for the year ended 31 March 2024. The carrying
value of the subsidiaries represents the net asset value (NAV) of the subsidiary as at 31 March 2024. The NAV of the subsidiaries are
affected by the fair value of the Group’s investment property.
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.
Notes to the Company Financial Statements
continued
96
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
2. Investments in subsidiaries
Cost:
Investments
in
subsidiaries
£’000
At 1 April 2022 180,956
Write-down of investments –
At 1 April 2023 180,956
Additions 8,851
Disposals (12,521)
At 31 March 2024 177,286
Provision for impairment:
At 1 April 2022 58,092
Provided during the year 18,134
At 1 April 2023 76,226
Provided during the year 8,341
Disposals (1,663)
At 31 March 2024 82,904
Net book value at 31 March 2024 94,382
Net book value at 31 March 2023 104,730
During the year, Palace Capital plc waived loans to subsidiaries to the value of £8,851,000. The waived loans were capitalised to
the investment in subsidiaries, subsequently an impairment of £8,341,000 was recognised to reflect the reduction in net asset value
of subsidiaries for the year ended 31 March 2024. The carrying value of the subsidiaries represents the net asset value (NAV) of the
subsidiary as at 31 March 2024.
During the year a subsidiary, Palace Capital (Liverpool) Limited, was disposed of which resulted in a reversal of an impairment
previously recognised of £1,663,000.
The Group comprises a number of companies; all subsidiaries included within these financial statements are noted below:
Subsidiary undertaking: Class of share held % shareholding Principal activity
Palace Capital (Leeds) Limited Ordinary 100 Property Investments
Palace Capital (Northampton) Limited Ordinary 100 Property Investments
Palace Capital (Properties) Limited Ordinary 100 Property Investments
Palace Capital (Developments) Limited Ordinary 100 Property Investments
Palace Capital (Halifax) Limited Ordinary 100 Property Investments
Palace Capital (Manchester) Limited Ordinary 100 Property Investments
Palace Capital (Signal) Limited Ordinary 100 Property Investments
Property Investment Holdings Limited Ordinary 100 Property Investments
Palace Capital (Dartford) Limited Ordinary 100 Property Management
Palace Capital (Newcastle) Limited Ordinary 100 Property Investments
Palace Capital (York) Limited Ordinary 100 Property Investments
Associated Company:
HBP Services Limited* Ordinary 21.4 Property Management
Clubcourt Limited* Ordinary 40 Property Management
* Held indirectly
The results of the associated companies are immaterial to the Group.
The registered addresses for the subsidiaries across the Group are consistent based on their country of incorporation and are as
follows: Thomas House, 84 Eccleston Square, London, SW1V 1PX
On 10 July 2023 the 100% holding in Palace Capital (Liverpool) Limited was disposed of.
On 29 April 2024, contacts were exchanged for the sale of Palace Capital (Manchester) Limited with completion expected in July 2024.
97
FINANCIAL REPORT
3. Property, plant and equipment
IT, fixtures
and fittings
£’000
At 31 March 2022 291
Additions 8
At 31 March 2023 299
Additions –
At 31 March 2024 299
Depreciation
At 31 March 2022 248
Provided during the period 29
At 31 March 2023 277
Provided during the period 22
At 31 March 2024 299
Net book value at 31 March 2024 –
Net book value at 31 March 2023 22
4. Trade And Other Receivables
2024
£,000
2023
£’000
Amounts owed by subsidiary undertakings 28,581 28,034
Trade debtors 1,582 1,703
Other debtors 39 47
Accrued interest on amounts owed by subsidiary undertakings 309 309
Prepayments 91 62
30,602 30,155
Trade debtors represent amounts owed from subsidiary undertakings in relation to management charges.
All amounts that fall due for repayment within one year and are presented within current assets as required by the Companies Act.
The amounts owed by subsidiary undertakings are repayable on demand with no fixed repayment date, although it is noted that
a significant proportion of the amounts may not be sought for repayment within one year depending on activity in the subsidiary
undertakings.
A loan amounting to £8,761,009 remains outstanding at 31 March 2024 (2023: £14,023,501) from Palace Capital (Developments)
Limited. No interest is charged on this loan. This loan is repayable on demand.
A loan amounting to £142,417 remains outstanding at 31 March 2024 (2023: £1,079,417) from Palace Capital (Halifax) Limited. No
interest is charged on this loan. This loan is repayable on demand.
A loan amounting to £7,363,467 remains outstanding at 31 March 2024 (2023: £4,945,582) from Palace Capital (Northampton) Limited.
No interest is charged on this loan. This loan is repayable on demand.
A loan amounting to £Nil remains outstanding at 31 March 2024 (2023: £3,084,996) from Palace Capital (Manchester) Limited. No
interest is charged on this loan. This loan is repayable on demand.
A loan amounting to £12,313,905 remains outstanding at 31 March 2024 (2023: £3,101,452) from Palace Capital (Newcastle) Limited.
No interest is charged on this loan. This loan is repayable on demand.
5. Creditors: amounts falling due within one year
2024
£,000
2023
£’000
Trade creditors 123 124
Amount owed to subsidiary undertaking 62,824 32,143
Other taxes 246 268
Other creditors – 15
Accruals and deferred income 423 1,110
63,616 33,660
Notes to the Company Financial Statements
continued
98
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
A loan amounting to £30,280,243 remains outstanding at 31 March 2024 (2023: £19,264,032) to Palace Capital (Signal) Limited. No
interest is charged on this loan. This loan is repayable on demand.
A loan amounting to £11,280,188 remains outstanding at 31 March 2024 (2023: £10,612,686) to Property Investment Holdings Limited.
No interest is charged on this loan. This loan is repayable on demand.
A loan amounting to £Nil remains outstanding at 31 March 2024 (2023: £2,146,000) to Palace Capital (Liverpool) Limited. No interest is
charged on this loan. This loan was repaid as part of the disposal of the holding in Palace Capital (Liverpool) Limited.
A loan amounting to £76,508 remains outstanding at 31 March 2024 (2023: £120,000) to Palace Capital (York) Limited. No interest is
charged on this loan. This loan is repayable on demand.
A loan amounting to £2,601,593 remains outstanding at 31 March 2024 (2023: £153,534 debtor) to Palace Capital (Leeds) Limited. No
interest is charged on this loan. This loan is repayable on demand.
A loan amounting to £18,585,423 remains outstanding at 31 March 2024 (2022: £1,645,430 debtor) to Palace Capital (Properties)
Limited. No interest is charged on this loan. This loan is repayable on demand.
6. Share capital
The details of the Company’s share capital are provided in note 19 of the notes to the Consolidated Financial Statements.
7. Leases
Operating lease payments in respect of rents on leasehold properties occupied by the Company are payable as follows:
2024
£’000
2023
£’000
Within one year 40 134
40 134
8. Post balance sheet events
There are no post balance sheet events.
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FINANCIAL REPORT
Officers and Professional Advisors
Directors
Steven Owen Executive Chairman
Mark Davies Independent Non-Executive Director
Secretary
Phil Higgins
Registered office
Thomas House
84 Eccleston Square
London
SW1V 1PX
Registered number
05332938 (England and Wales)
Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
Registrar
Equiniti Limited
Aspect House
Spencer Road
West Sussex
BN99 6DA
Broker
Numis Securities Limited
45 Gresham Street
London
EC2V 7BF
100
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
Glossary
Adjusted EPS: Is adjusted profit before tax less corporation tax
charge on recurring earnings (excluding deferred tax movements)
divided by the average basic number of shares in the period.
Adjusted profit before tax: Is the IFRS profit before taxation
excluding investment property revaluations, gains/losses on
disposals, acquisition costs, fair value movement in derivatives,
share-based payments and exceptional items.
Balance sheet gearing: Is the balance sheet net debt divided by
IFRS net assets.
Dividend cover: Is the Adjusted profit before tax plus trading
profit divided by dividends paid in the period, expressed as a
percentage.
Employee Benefit Trust (EBT): the Employee Benefit Trust,
administrator of the Company’s share plans.
Expected credit loss (ECL): In accordance with IFRS 9, the risk
of recoverability of our rental arrears are assessed. This is done
using a probability weighted estimate of credit losses, being the
difference between the cash flows that are due in accordance
with the contract and the cash flows that the Group expects
to receive.
EPRA: Is the European Public Real Estate Association.
EPRA cost ratio (including direct vacancy costs): Is a
proportionally consolidated measure of the ratio of net
overheads and operating expenses against gross rental income
(with both amounts excluding ground rents payable). Net
overheads and operating expenses relate to all administrative
and operating expenses, net of any service fees, recharges
or other income specifically intended to cover overhead and
property expenses.
EPRA cost ratio (excluding direct vacancy costs): Is the ratio
calculated above, but with direct vacancy costs removed from the
net overheads and operating expenses balance.
EPRA diluted EPS: Is EPRA earnings divided by the average
diluted number of shares in the period.
EPRA earnings: Is the IFRS profit after taxation excluding
investment property revaluations, gains/losses on disposals and
changes in fair value of financial derivatives.
EPRA EPS: Is EPRA earnings divided by the average basic
number of shares in the period.
EPRA net assets (EPRA NAV): Are the balance sheet net assets
according to the definitions of the various NAV measures defined
in the EPRA Best Practice Recommendations that came into
effect for accounting periods starting 1 January 2020.
EPRA net tangible assets (EPRA NTA): Is the NAV adjusted
to reflect the fair value of trading properties and to exclude
deferred taxation and derivatives.
EPRA NTA per share: Is EPRA NTA divided by the diluted
number of shares at the period end.
EPRA occupancy rate: Is the ERV of occupied space divided
by ERV of the whole portfolio, excluding developments and
residential property.
EPRA topped-up net initial yield: Is the current annualised
rent, net of costs, topped up for contracted uplifts, where these
are not in lieu of rental growth, expressed as a percentage of
capital value.
EPRA vacancy rate: Is the ERV of vacant space divided by ERV
of the whole portfolio, excluding developments and residential
property.
Equivalent yield: Is the net weighted average 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.
Estimated rental value (ERV): Is the external valuers’ opinion as
to the open market rent which, on the date of valuation, could
reasonably be expected to be obtained on a new letting or rent
review of a property.
IAS/IFRS: Is the International Financial Reporting Standards
issued by the International Accounting Standards Board and
adopted by the UK.
Interest cover ratio (ICR): Is the number of times net interest
payable is covered by underlying profit before net interest
payable and taxation.
Investment Property Databank (IPD): A wholly-owned
subsidiary of MSCI producing an independent benchmark of
property returns and the Group’s portfolio returns.
Key Performance Indicators (KPIs): Are the most critical
metrics that measure the success of specific activities used to
meet business goals – measured against a specific target or
benchmark, adding context to each activity being measured.
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 fair value of
properties owned throughout the entire year.
This excludes properties acquired during the year and disposed
of during the year, but includes capital expenditure spent on the
properties.
101
FINANCIAL REPORT
Loan to value (LTV): Is the ratio of principal value of gross debt
less cash, short-term deposits and liquid investments to the
aggregate fair value of properties and investments.
MSCI Inc. (MSCI IPD): Is a company that produces independent
benchmarks of property returns. The Group measures its
performance against both the Central London Offices Index and
the UK All Property Index.
Net asset value (NAV) per share: Is the equity attributable to
owners of the Group divided by the number of ordinary shares in
issue at the period end.
Net initial yield (NIY): Is the current annualised rent, net of costs,
expressed as a percentage of capital value, after adding notional
purchaser’s costs.
Net rental income: Is the rental income receivable in the period
after payment of net property outgoings. Net rental income
will differ from annualised net rents and passing rent due to the
effects of income from rent reviews, net property outgoings and
accounting adjustments for fixed and minimum contracted rent
reviews and lease incentives.
Net reversionary yield (NRY): Is the anticipated yield, which
the initial yield will rise to once the rent reaches the estimated
rental value.
Passing rent: Is the gross rent, less any ground rent payable
under head leases.
Peer Group: A selection of small/medium sized property
companies within the listed real estate sector with a diversified
portfolio.
Proforma: A method of calculating financial results using certain
projections or presumptions.
Property Portfolio: The total fair value of all investment
properties and trading properties as determined by the
independent valuer, CBRE.
Portfolio Valuation: The value of the Company’s property
portfolio, including all investment and trading properties as
valued by our independent valuer, CBRE.
Property Income Distribution (PID): A dividend received by
a Shareholder of the principal company in respect of profits
and gains of the Property Rental Business of the UK resident
members of the REIT Group or in respect of the profits or gains
of a non-UK resident member of the REIT Group.
Real Estate Investment Trust (REIT): A UK Real Estate
Investment Trust must be a company listed on a recognised stock
exchange with at least three-quarters of its profits and assets
derived from a qualifying property rental business. Income and
capital gains from the property rental business are exempt from
tax but the REIT is required to distribute at least 90% of those
profits to Shareholders. Tax is payable on profits from non-
qualifying activities of the residual business.
SONIA: Is the Sterling Overnight Index Average, the interest rate
charged by one bank to another for lending money.
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 in the year, and this
can be expressed as a percentage of EPRA NAV per share at the
beginning of the period.
Total Expense Ratio: Is calculated as total administrative costs
for the year divided by total asset value in the year.
Total Property Return (TPR): Total property return is a
performance measure calculated by the MSCI IPD and defined
in the MSCI Global Methodology Standards for Real Estate
Investment as “the percentage value change plus net income
accrual, relative to the capital employed”.
Total Shareholder Return (TSR): Is calculated as the movement
in the share price for the period plus dividends paid in the year,
divided by opening share price
Weighted average debt maturity: Is measured in years when
each tranche of Group debt is multiplied by the remaining period
to its maturity and the result is divided by total Group debt in
issue at the period end.
Weighted average interest rate: Is the loan interest per
annum at the period end, divided by total debt in issue at the
period end.
Weighted average unexpired lease term (WAULT): Is the
average lease term remaining to first break, or expiry, across
the portfolio weighted by rental income. This is also disclosed
assuming all break clauses are exercised at the earliest date,
as stated.
Glossary
continued
102
PALACE CAPITAL PLC ANNUAL REPORT AND ACCOUNTS 2024
The production of this report supports the work of the
Woodland Trust, the UK’s leading woodland conservation
charity. Each tree planted will grow into a vital carbon stor
e,
helping to reduce environmental impact as well as cr
eating
natural havens for wildlife and people.
103
FINANCIAL REPORT
Dartford
Fareham
Exeter
Newcastle
York
Halifax
Leamington Spa
Northampton
CONTACT
Palace Capital plc,
Thomas House,
84 Eccleston Square,
London, SW1V 1PX
palacecapitalplc.com
E: info@palacecapitalplc.com