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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Circle Property Plc | LSE:CRC | London | Ordinary Share | JE00BYP0CK63 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 3.50 | 3.00 | 4.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMCRC
RNS Number : 0050F
Circle Property PLC
10 July 2019
10 July 2019
Circle Property Plc
("Circle" or the "Company")
Final Results for the year ended 31 March 2019
FOCUS ON REGIONAL OFFICE ASSETS DELIVERS FURTHER GROWTH AND STRONG SHAREHOLDER RETURNS
Circle Property Plc (AIM: CRC), which invests in, develops and actively manages well-located regional office assets, announces record results for the year ended 31 March 2019.
John Arnold, Chief Executive of Circle Property Plc, said:
"These results endorse Circle's strong business model, our expertise in identifying well located regional office assets and actively managing the portfolio to deliver consistent income and maximum returns to shareholders.
This year we have continued to outperform the sector having delivered a 20% increase in NAV, a 12% increase in contracted rental income and have in place the firepower to undertake value accretive acquisitions.
In recognition of our confidence in the outlook and in our ability to deliver consistently strong returns, we are proposing a 12.5% increase in the full year dividend to 6.3p per share."
Financial Highlights: delivering on key KPIs
-- Third successive year of delivering Net Asset Value ("NAV") growth - average increase in excess of 20% per annum
-- NAV per share of GBP2.77, up 20.43% (2018: GBP2.30):
o NAV up 86% since IPO in February 2016 to GBP78.4m
o NAV Compound Average Growth Rate ("CAGR") of 23% since IPO; total return CAGR of 26%
-- 9.23% increase in independent valuation of the Group's portfolio of 15 commercial property investment and development assets in the UK to GBP124.6m (31 March 2018: GBP114.1m) demonstrating continued growth in the Group's asset management program
-- 11.71% increase in contracted annual rental income to GBP7.61m (2018: GBP6.8m), post successful disposal of non-core assets and a further GBP0.34m of contracted rent signed post year end
-- 16.20% increase in operating profit before gains on investment properties to GBP3.66m (2018: GBP3.15m)
-- Profit before tax up 8.97% to GBP15.25m (2018: GBP13.99m) and earnings per share of 53p (2018: 51p) reflecting a combination of operational profit and revaluation gains
-- Year-end LTV of 39.92% -- 12.50% increase in proposed total annual dividend of 6.3p (2018: 5.6p per share)
Operational Highlights:
-- Increased focus on well-located office assets with potential, following successful disposal of non-core retail and roadside assets at above or equal to valuation
-- Continued resilience and strength of the total portfolio with 94% let and income producing
-- 95.3% of the Company's portfolio is within the office sector and 82.91% located in Milton Keynes, Bristol and Birmingham
-- Proposed commencement of work in refurbishing Building K3 at Kents Hill Business Park in November 2019 to complete in Summer 2020. The building will be marketed at a rent of GBP235,000 per annum
-- GBP100m new financing facility provides firepower for targeted value accretive acquisitions
Sell-side analyst briefing
A briefing for sell-side analysts will take place at Camarco, 107 Cheapside, London EC2V 6DN at 10.00am on 10 July 2019. If you would like to register for the meeting, please contact Camarco on 0203 757 4991 or email circleproperty@camarco.co.uk.
This announcement is inside information for the purposes of Article 7 of EU Regulation 596/2014.
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About Circle Property Plc
Circle is the best performing quoted UK real estate company by NAV total return (NAV growth and dividend)(1) having delivered consistent returns with 86% NAV growth since IPO in 2016 in absolute terms.
Circle focusses on acquiring assets in regional cities, many of which have significant office supply constraints, and on office assets with active management potential (refurbishment opportunities, under-rented or vacant properties or short leases), rather than just maximising initial rental yields.
Circle is not a Real Estate Investment Trust (REIT) and can actively recycle proceeds from asset sales into its refurbishment and redevelopment pipeline, as well as future investment opportunities, therefore targeting a broader range of returns for shareholders, which are primarily driven by NAV growth.
As well as already delivering substantial increases in NAV, the Company's portfolio has significant reversionary potential with current total estimated rental values of GBP9.72m per annum, compared to contracted rent of GBP7.61m at 31 March 2019. The Company has a portfolio of 15 regional commercial property investment and development assets in the UK valued at GBP124.6m.
(1) Source: Radnor Capital research, 31 March 2019
CHAIRMAN'S STATEMENT
Continued outperformance and strong returns
Our strategic focus combined with the demand for regional office space and our proven expertise in the regional office market, makes us confident of continuing to deliver strong returns for our shareholders.
The strong performance of the business set out in these results represents a third successive year of Circle delivering an average increase in NAV of over 20%. In absolute terms NAV has increased 86% since IPO in February 2016 to GBP78.4m, delivering a NAV CAGR of 23%; and a total return CAGR of 26%.
NAV total returns, combining both NAV growth and dividend payments, since IPO have been 33%. It is by this measure that Circle is the best performing quoted UK real estate company over the last two years.
A successful regional model driven by careful asset management
The ability to deliver such strong returns lies in our business model which focuses on the regional office market, and in particular, well-located but under-utilised office space where we can actively manage the asset to add value, rather than just maximising initial yields.
Our focus on regional offices is proving well founded as rental values move upward, largely as a result of the supply constraint as the trend to convert secondary offices into residential units continues. We remain confident that occupational demand in the regions will continue to improve where well-specified offices in good locations remain attractive. This view is supported by the market where investment yields in the regions are firming as investors see the upward trend in rental values and the reduction in vacancy levels.
We will continue to remain focused on this business model, which has had an excellent track record since our admission to AIM, and we are unlikely to increase risk exposure and gearing materially until there is an improvement in the political and economic outlook surrounding Brexit.
Circle continues to offer a value opportunity from its latent income and capital growth potential
Despite consistently delivering market leading returns and offering attractive future earnings potential, we are aware that our share price remains at a significant discount to NAV, with NAV of GBP2.77 per share compared to a closing price on 9 July 2019 of 192p, a discount of 30.1%.
Our strategy is to continue to deliver attractive total return to investors through further NAV growth and to realise the income growth potential within our portfolio and beyond. The Board remains confident that we are well positioned to do this. This confidence is demonstrated by our decision to advance our progressive dividend policy, which will see our annual dividend increase to 6.3p per share, a rise of 12.5% (2018: 5.6p per share).
I would like to thank shareholders for their support and we remain committed to following our twin objectives of actively managing our existing portfolio to maximise total returns, and undertaking corporate acquisition or portfolio purchase opportunities to add value.
Ian Henderson
Chairman
CHIEF EXECUTIVE'S STATEMENT
The combination of our development stock and our ability to add value through asset management has enabled us to once again achieve an increase in NAV of over 20% for the year.
Following the recent strategic disposals of our two shops in Maidstone and a retail warehouse park in Shipley, both of which were achieved at marginally above valuation, our portfolio has no retail exposure. This leaves us well placed to focus on delivering further strong gains in the regional office sector, as we continue to complete lettings and undertake further asset management initiatives to improve performance.
Record results for 2019 - NAV, rental income, progressive dividend
NAV has increased 86% since IPO to a record level of GBP78.4m, an increase of 20.7% since 31 March 2018. This equates to a NAV per share of GBP2.77 (2018: GBP2.30), which remains at a 30.1% discount to the closing share price on 9 July 2019.
Contracted annual rental income has risen 12% to GBP7.6m (2018: GBP6.48m) despite the reduction of almost GBP0.35m in income from the retail properties sold during the period. The successful continuation of rental income growth can be attributed to the additional lettings and maintenance of high occupancy across the Company's portfolio, which is currently at 92%, excluding buildings recently refurbished or currently undergoing refurbishment. Operating profit has increased by 16.2% to GBP3.66m for the year ended 31 March 2019.
Given NAV growth and the dynamic earnings stream created by successfully letting our existing development pipeline, the Board is confident to propose to shareholders a final dividend of 3.3p per share in line with our progressive dividend policy. This will bring the total annual dividend to 6.3p per share, a 12.5% increase on the previous year (2018: 5.6p per share). The final dividend of 3.3p per share, subject to shareholder approval, will be paid on 21 August 2019 to shareholders on the register on 19 July 2019, which gives an ex-dividend date of 18 July 2019.
Future growth prospects - growing lettings and reversion uplift
Whilst we have delivered strong returns to shareholders to date, we continue to explore opportunities to grow the Company and to maximise total future returns. We remain confident that there is a clear prospect of further growth as we capture the reversion in the portfolio and lease the remaining space across our pipeline of newly refurbished assets. Post period end, we have already generated a further GBP0.35m of contracted rent, further details of which are provided in the Portfolio Review within the report and accounts. Overall our portfolio Estimated Rental Values increased by GBP145,023 per annum (like-for-like), representing a 1.51% increase, underlining strong potential future income growth as this reversion is captured and recently refurbished vacant space is leased.
Future growth prospects - acquisition opportunities
In addition, we have the opportunity to explore attractive buying opportunities having completed a GBP100m new financing facility agreement with RBS and HSBC, replacing the previous GBP55m facility with RBS. This new financing facility provides us with the ability to target value accretive acquisitions, as we continue to focus on developing our portfolio of good quality, well-located but under-utilised offices in key regional centres.
We believe that there are opportunities where vendors are seeking a rapid sale to a reliable purchaser, and particularly with properties that are too small to appeal to institutional buyers, but are too large for private investors. Equally because we are not a REIT, and therefore we do not have to distribute a set level of income, we have the flexibility to target refurbishment opportunities, where we can invest to create future value. This would be a less accessible option to a business with a traditional REIT structure.
The focus of each potential acquisition will be the creation of value by utilising the management team's proven asset management skills and ensuring that they contribute to the strong returns that we are already delivering using our successful model.
Outlook
We continue to outperform with our focus on the regional office market which continues to yield higher total returns despite current market uncertainty. We are confident of our ability to offer investors impressive NAV growth, increasing dividends and income growth potential, as well as generating attractive market leading returns to our investors.
John Arnold
Chief Executive Officer
Circle Property Plc
Consolidated statement of comprehensive
income
for the year ended 31 March 2019
1 April 1 April
2018 to 2017 to
31 March 31 March
Note 2019 2018
GBP GBP
Rental income 4 6,878,912 6,211,820
Other income 4 224,323 142,585
------------ ------------
7,103,235 6,354,405
Property expenses 5 (639,440) (831,189)
6,463,795 5,523,216
Administrative expenses 6 (2,794,124) (2,368,220)
Operating profit 3,669,671 3,154,996
Gain on disposal of investment properties 471,177 1,497
Gains on revaluation of investment properties 12 12,609,968 11,980,810
Operating profit after revaluation of investment
properties and goodwill 16,750,816 15,137,303
Finance income 8 2,717 3,620
Finance costs 9 (1,507,471) (1,149,720)
Net finance costs (1,504,754) (1,146,100)
Profit for the year before taxation 15,246,062 13,991,203
Taxation 10 (291,142) 534,864
Total comprehensive income and profit for
the year 14,954,920 14,526,067
------------ ------------
Earnings per share 0.53 0.51
------------ ------------
There is no comprehensive income other than that included in the
profit for the year. All of the profit for the year is attributable
to the owners of the Company.
All items in the above statement derive
from continuing operations.
The Company's loss for the year (non-consolidated) was
GBP1,774,702 (2018: loss GBP646,617).
Circle Property Plc
Consolidated statement of financial position
As at 31 March 2019
Note 31 March 31 March
2019 2018
GBP GBP
Non-current assets
Investment properties 12 115,320,178 106,372,636
Property, plant and equipment 59,865 56,287
Trade and other receivables 13 8,310,903 7,201,845
Deferred tax 10 1,603,918 1,727,959
------------ ------------
125,294,864 115,358,727
Current assets
Trade and other receivables 13 1,553,699 1,141,191
Cash and cash equivalents 14 3,650,372 2,639,783
------------ ------------
5,204,071 3,780,974
Total assets 130,498,935 119,139,701
============ ============
Equity
Stated capital 17 42,542,179 42,542,179
Treasury share reserve (79,344) (257,487)
Retained earnings 35,971,206 22,714,092
------------ ------------
Total equity 78,434,041 64,998,784
Non-current liabilities
Loan borrowings 15 49,039,681 51,815,616
------------ ------------
49,039,681 51,815,616
Current liabilities
Trade and other payables 16 3,025,213 2,325,301
------------ ------------
3,025,213 2,325,301
Total liabilities 52,064,894 54,140,917
------------ ------------
Total liabilities and equity 130,498,935 119,139,701
============ ============
The consolidated financial statements were approved and authorised
for issue by the Board of Directors on 9 July 2019 and signed on
its behalf by:
Michael Farrow
Director
Circle Property
Plc
Consolidated statement of changes in
equity
for the year ended 31 March
2019
Share capital Treasury Treasury Retained Total
share capital shares earnings
reserve
GBP GBP GBP GBP GBP
As at 1 April
2017 42,162,178 380,001 (380,001) 9,659,457 51,821,635
Profit for the
year - - - 14,526,067 14,526,067
Share-based payments - - 122,514 - 122,514
Dividends - - - (1,471,432) (1,471,432)
As at 31 March
2018 42,162,178 380,001 (257,487) 22,714,092 64,998,784
Profit for the
year - - 14,954,920 14,954,920
Share-based payments - 178,143 - 178,143
Dividends - - (1,697,806) (1,697,806)
As at 31 March
2019 42,162,178 380,001 (79,344) 35,971,206 78,434,041
-------------- --------------- ---------- ------------ ------------
Circle Property Plc
Consolidated statement of cash flows
for the year ended 31 March 2019
1 April 1 April
2018 to 2017 to
31 March 31 March
2019 2018
GBP GBP
Cash flows from operating activities
Profit for the year before taxation 15,246,062 13,991,203
Adjustments for:
Finance income (2,717) (3,620)
Finance costs 1,507,471 1,149,720
Depreciation 13,296 7,405
Gains on revaluation of investment properties (12,609,968) (11,980,810)
Gains on disposal of investment properties (471,177) (1,497)
Share based payments 178,143 122,514
Fair value movement on interest rate swaps - 710
Increase in trade and other receivables (1,521,566) (293,097)
Increase in trade and other payables 961,902 141,050
Cash generated from operating activities 3,301,446 3,133,578
Interest paid (1,459,030) (1,072,403)
Interest received 2,717 3,620
Net cash from operating activities 1,845,133 2,064,795
------------- -------------
Cash flows from investing activities
Net proceeds from disposal of investment
properties 2,228,749 1,497
Cost of refurbishment of investment properties (1,006,634) (4,528,703)
Cost of acquisition of investment property - (4,466,652)
Cost of additions of property, plant and
equipment (16,874) (34,534)
Net cash from investing activities 1,205,241 (9,028,392)
------------- -------------
Cash flows from financing activities
Repayment of borrowings (49,358,932) -
Drawdown of borrowings 49,016,953 6,181,005
Dividends paid (1,697,806) (1,471,432)
Net cash used in financing activities (2,039,785) 4,709,573
------------- -------------
Net increase / (decrease) in cash and cash
equivalents 1,010,589 (2,254,024)
Cash and cash equivalents at the beginning
of the year 2,639,783 4,893,807
Cash and cash equivalents at the end of
the year 3,650,372 2,639,783
------------- -------------
Circle Property Plc
Notes to the consolidated financial
statements
for the year ended 31 March
2019
1 General information
These financial statements are for Circle Property Plc ("the Company")
and its subsidiary undertakings (together referred to as the "Group").
Notes in respect of the Company's subsidiary undertakings are
outlined in note 21.
The Company's shares are admitted to trading on AIM, a market
operated by the London Stock Exchange plc. The Company is domiciled
and registered in Jersey, Channel Islands. The address of its
registered office is 3rd Floor, Standard Bank House, 47-49 La
Motte Street, St Helier, Jersey, JE2 4SZ.
The nature of the Company's operations and its principal activities
are that of property investment in the UK.
2 Principal accounting
policies
The Group financial statements show a true and fair view and have
been prepared on a going concern basis and in accordance with
International Financial Reporting Standards as adopted by the
EU (IFRS) and the Companies (Jersey) Law 1991. The financial statements
have been prepared in pound sterling, which is the Group's functional
currency, and under the historic cost convention as modified by
the revaluation of investment property and derivative financial
instruments which are measured at fair value.
Going concern
The Group's business activities, together with the factors likely
to affect its future development, performance and position are
set out in the Chief Executive's Statement. The financial position
of the Group, its cash flows, liquidity position and borrowing
facilities are described in these financial statements. In addition,
note 20 to the financial statements includes the Group's financial
management objectives, details of its financial instruments and
its exposures to credit, liquidity and market risk. The Group's
policy for managing capital is included in note 18.
The Group has adequate financial resources together with long
term rental contracts with a wide range of tenants. As a consequence,
the Directors believe that the Group is well placed to manage
its business risks.
The Directors have a reasonable expectation that the Company and
the Group have adequate resources to continue in operational existence
for the foreseeable future. Accordingly, they have adopted the
going concern basis in preparing the financial statements.
Basis of consolidation and business
combinations
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries, as outlined in
note 21.
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group is exposed to, or
has variable returns from, its involvement with the entity and
has the ability to affect those returns through its power over
the entity. Intragroup balances and any unrealised gains and losses
arising from intragroup transactions are eliminated in preparing
the Consolidated Financial Statements.
The results of subsidiaries acquired during the year are included
from the effective date of acquisition, being the date on which
the Group obtains control. They are deconsolidated on the date
that control ceases.
If the consideration transferred for the acquisition of a subsidiary
is more than the fair value of the assets and liabilities acquired,
the difference is recognised as goodwill and is written off directly
in the Consolidated Statement of Comprehensive Income if there
is no future economic benefit associated with the goodwill.
If the consideration transferred for the acquisition of a subsidiary
is less than the fair value of the assets and liabilities acquired,
the difference is recognised as negative goodwill and is reflected
directly in the Consolidated Statement of Comprehensive Income.
Acquisition-related costs are expensed as incurred.
Adoption of new and revised IFRSs
New and amended standards and interpretations
The Group has adopted all new standards, amendments to standards
and interpretations which came in to effect for the Group's accounting
period starting on 1 April 2018. These changes have not had a
significant impact on the preparation of these financial statements.
The Group adopted for the first time
the following standards during the year:
IFRS 9, 'Financial instruments', addresses the classification,
measurement and recognition of financial assets and financial
liabilities and replaces most of the guidance in IAS 39.
IFRS 9 requires financial assets to be classified into the following
measurement categories: (i) those measured at fair value through
profit or loss; (ii) those measured at fair value through other
comprehensive income; and, (iii) those measured at amortised cost.
The determination is made at initial recognition. Unless the option
to designate a financial asset as measured at fair value through
profit or loss is applicable, the classification depends on the
entity's business model for managing its financial instruments
and the contractual cash flow characteristics of the instrument.
IFRS 9 also replaces the "incurred loss" model in IAS 39 with
an "expected credit loss" model for the measurement of impairment
loss. The new model applies to financial assets that are not measured
at fair value through profit or loss.
For financial liabilities, the standard retains most of the IAS
39 requirements. The main change is that, in cases where the fair
value option is taken for financial liabilities, the part of a
fair value change due to an entity's own credit risk is recorded
in other comprehensive income rather than the income statement,
unless this creates an accounting mismatch.
In the Directors' opinion IFRS 9 does not have material impact
on the recognition, measurement or disclosures relating to its
financial instruments.
IFRS 15, 'Revenue from contracts with customers'
IFRS 15 is a new standard that introduces
the following requirements:
-- A five-step model is applied to determine
when to recognise revenue, and at what amount.
-- Revenue is recognised when (or as) a company transfers control
of goods or services to a customer at the amount to which the
company expects to be entitled.
-- Depending on whether certain criteria are met, revenue is recognised
either over time, in a manner that best reflects the company's
performance, or at a point in time, when control of the goods
or services is transferred to the customer.
In the Directors' opinion, adoption of IFRS 15 had no material
impact on the recognition, measurement or disclosures relating
to its financial statements, as the only contracts are leases
with tenants, which are out of scope of the new standard.
New Accounting Requirements
not yet adopted
A number of new standards and amendments to standards and interpretations
will become effective for future accounting periods and have not
been applied in preparing these consolidated financial statements.
The most significant changes are noted below. Other changes are
not expected to have a significant impact on the Group.
IFRS 16, 'Leases' was issued in January 2016. For lessees, it
will result in almost all leases being recognised on the statement
of financial position, as the distinction between operating and
finance leases will be removed. Under the new standard, an asset
(the right to use the leased item) and a financial liability to
pay rentals are recognised. The only exceptions are short-term
and low value leases. The accounting for lessors will not significantly
change. The standard is effective for annual periods beginning
on or after 1 January 2019 and earlier application is permitted.
In the Directors' opinion, IFRS 16 will have no material impact
on the recognition, measurement or disclosures in the Group's
financial statements.
IFRIC 23 "Uncertainty over income tax treatments" clarifies application
and measurement requirements in IAS 12 Income taxes when there
is uncertainty over income tax treatments. IRFIC 23 will be effective
for annual periods beginning on or after 1 January 2019 and may
be applicable to the Group.
The Directors anticipate that the adoption of these Standards
and Interpretations in future periods will have no material impact
on the financial statements of the Group. The Group does not intend
to apply any of these pronouncements early.
Estimates and judgements
The preparation of the consolidated financial statements in conformity
with IFRS requires management to make estimates and assumptions
that affect the amounts reported for assets and liabilities as
at the balance sheet date and the amounts reported for revenue
and expenses during the period. The nature of the estimation means
that actual outcomes could differ from those estimates. Estimates
and judgements are continually evaluated and are based on experience
and other factors, including expectations of future events that
are believed to be reasonable under the circumstances. Revisions
to accounting estimates are recognised prospectively.
Significant estimates
Fair value of investment property
Investments in property and property-related assets are inherently
difficult to value due to the individual nature of each property.
As a result, valuations are subject to substantial uncertainty.
There is no assurance that the estimates resulting from the valuation
process will reflect the actual sales price even where such sales
occur shortly after the valuation date. The Directors employed
professional valuers Savills (UK) Limited to perform valuations
of the investment property using Royal Institute of Chartered
Surveyors ("RICS") valuation standards as at 31 March 2019. In
arriving at their estimate of market value the valuers used their
market knowledge and professional judgement and did not rely solely
on comparable historical transactions. There is an inherent degree
of uncertainty when using professional judgement in estimating
the market values of investment property.
The significant methods and assumptions used by the valuers in
estimating the fair value of investment property are set out in
note 12.
Significant judgements
Operating lease commitments - Group
as lessor
The Group has entered into commercial property leases on its investment
property portfolio. The Group has determined that it retains all
the significant risks and rewards of ownership of these properties
and therefore accounts for them as operating leases.
Revenue recognition
Rental income from operating leases is recognised in profit or
loss on a straight-line basis over the term of the lease. The
term of the lease is the full lease period where there is a reasonable
expectation at the inception of the lease that the tenant will
not utilise the lease break clause. Lease incentives granted are
spread evenly over the term of the lease.
Property service charges
The properties' tenants bear the service charge costs under the
terms of their lease and therefore the Group considers that it
is acting in the capacity of an agent. Service charges receivable
from tenants and related costs are not recognised by the Group.
Service charge costs in relation to void areas are recognised
within property expenses on an accruals basis.
Administrative fees, listing costs
and other expenses
Administrative and other expenses are recognised in profit or
loss in the period in which they are incurred.
Finance income and finance
costs
Finance income comprises bank interest income. Finance costs comprise
interest expense on borrowings. Finance income and finance costs
are recognised on an effective interest rate basis.
Investment property
Property that is held for long-term rental yields or for capital
appreciation or both, is classified as investment property in
accordance with IAS 40 'Investment Property'.
Investment properties, including properties under development,
are initially recognised at cost, being the fair value of consideration
given, including associated transaction costs. Any subsequent
qualifying capital expenditure incurred in improving investment
properties is capitalised in the period in which the expenditure
is incurred and included in the book cost of the properties.
After initial recognition, investment properties are measured
at fair value, with unrealised gains and losses recognised in
profit or loss in the consolidated statement of comprehensive
income. The fair value is based on valuations provided by Savills
(UK) Limited at the balance sheet date using recognised valuation
techniques.
An investment property shall be derecognised on disposal or at
a time that no benefit is expected from future use or disposal.
Any gain or loss is determined as the difference between the net
disposal proceeds and the carrying amount and is recognised in
profit or loss in the consolidated statement of comprehensive
income.
Recognition and derecognition occurs on the completion of a sale
between a willing buyer and a willing seller. Any investment properties
on which contracts for sale have been exchanged but which had
not completed at the year end are disclosed as properties held
for sale and stated at fair value. At 31 March 2019 and 31 March
2018 there were no properties classified as held for sale.
In accordance with IAS 40 'Investment Property' property that
is being constructed or developed for future use as investment
property is classified as investment property during its construction
or development. At 31 March 2019 and 31 March 2018 there were
no properties under construction or development.
Technique used for valuing investment
properties
The traditional method converts anticipated future cash flow benefits
in the form of rental income into present value. This approach
requires careful estimation of future benefits and application
of investor yield or return requirements. One approach to value
the property on this basis is to capitalise net rental income
on the basis of an Initial Yield, generally referred to as the
'All Risks Yield' approach or 'Net Initial Yield' approach.
These fair values are based on comparable market prices where
possible, adjusted if necessary, for any difference in the nature,
location or condition of the specific assets and factors not included
in net rental income such as vacancies and lease incentives.
The fair value of investment properties is measured based on each
property's highest and best use from a market participant's perspective
and considers the potential uses of the property that are physically
possible, legally permissible and financially feasible.
The 'Brexit' process initiated in 2017 consequent to the 2016
referendum, by which the United Kingdom is due to leave the European
Union, continues to create economic and other uncertainties about
both the process and its consequences which are risks that affect
the real estate industry, particularly market values of investment
property which are reliant on a pool of investors and availability
of financing. Although there is no evidence to 31 March 2019 that
Brexit has adversely affected the Group's activities, as the exit
date approaches, and the lack of a "Brexit deal" to date, the
uncertainty in relation to the impact on the UK and EU economies
as a result of a no deal Brexit increases and this may impact
the valuation of the Group's investment.
Brexit is one of a number of market factors which the independent
valuers have taken into consideration in determining their valuations.
The valuations are not qualified with regard to Brexit. The Company
has 54 tenants with varying degrees of exposure to Brexit. The
Board has considered reasonable sensitivities, including potential
falls in property valuations arising from, inter alia, Brexit,
including that it will remain a going concern for a period of
not less than twelve months from the date of the approval of the
financial statements.
Operating
leases
Properties leased out under operating leases, where the Group
is the lessor, are included in investment property in the consolidated
statement of financial position. Please refer to revenue recognition
for the discussion of recognition of rental income.
Financial instruments
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits
with original maturities of 3 months or less. These are carried
at cost, which in the opinion of the Directors is a reasonable
approximation of fair value.
Trade and other receivables
Loans and receivables are financial assets with fixed or determinable
payments that are not quoted in an active market. Such assets
are recognised initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, loans and
receivables are measured at amortised cost using the effective
interest method, less any impairment losses. Trade and other receivables
are derecognised where the rights to receive cash flows have expired
and substantially all risks and rewards of the asset have been
transferred.
Trade and other payables
Trade payables are not interest bearing and are recognised initially
at fair value. Subsequent to initial recognition trade and other
payables are measured at amortised costs which approximates their
fair value.
Loan borrowings
Loan borrowings are recorded initially at fair value, net of direct
issue costs incurred. Loan borrowings are subsequently stated
at amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised, within
finance costs, in the income statement over the term of the borrowings
using the effective interest rate method.
The Group derecognises a financial liability when the obligation
under the liability is discharged, cancelled or expired.
Derivative financial
instruments
The Group uses derivative financial instruments to hedge its risk
associated with interest rate fluctuations. The Group's policy
is not to trade in derivative instruments. The Group does not
apply hedge accounting.
Recognition of the derivative financial instruments takes place
on the date at which a derivative contract is entered into. Such
derivative financial instruments are measured initially and subsequently
at fair value; transaction costs are included as incurred in the
statement of comprehensive income under finance costs. Gains or
losses on derivatives are recognised in the statement of comprehensive
income in net gain or loss from financial instruments at fair
value through profit or loss. Interest expenses on derivative
financial liabilities are included as incurred in the statement
of comprehensive income in finance costs.
Impairment
The Group recognises expected credit loss (ECL) on financial assets
measured at amortised cost. The Group measures loss allowance
as an amount equal to the lifetime ECL, except for bank balances
for which credit risk (i.e. risk of default occurring over the
expected life of the financial instrument) has not increased significantly
since initial recognition.
An impairment loss is calculated as the difference between an
asset's carrying amount and the present value of the estimated
future cash flows discounted at the asset's original effective
interest rate. Losses are recognised in profit or loss and reflected
in an allowance account. When the Group considers that there are
no realistic prospects of recovery of the asset, the relevant
amounts are written off. If the amount of impairment loss subsequently
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, then the previously
recognised impairment loss is reversed through profit or loss.
Taxation
The Company, Circle Property Unit Trust ("CPUT") and Circle Property
(Milton Keynes) Limited ("CPMK") are registered in Jersey, Channel
Islands. The Company and CPMK are taxed at the Jersey company
standard rate of 0%. CPUT is not subject to tax in Jersey.
The Company is registered under the Non-Resident Landlord Scheme
and is liable to United Kingdom taxation at a rate of 20% on net
rental income from its investment properties.
The Finance (No 3) Bill published in November 2018 set out a number
of significant changes to the taxation of UK real estate which
are due to come into effect in 2019 and 2020 respectively. Capital
gains arising on the disposal of UK commercial property held in
non-UK resident structures are currently exempt from tax. Going
forward UK corporation tax will be applicable to all gains arising
on UK commercial property from 6 April 2019 and after April 2020
non-resident corporate landlords will be subject to UK corporation
tax rather than income tax. There are a number of exemptions that
may be applied and elections to consider based on the investor's
composition and status. It is not possible at this stage to determine
precisely the impact of these changes on the position of the Company
but it is expected that the new rules will result, inter alia,
in changes to applicable taxation rates, restrictions on allowable
interest and changes in the way losses can be relieved either
at the Company and or the tax group or the investor level. The
elections made by the investors could have a direct impact on
the way the Group is taxed.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable
on differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used
in the computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable
that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities
are not recognised if the temporary difference arises from goodwill
or from the initial recognition (other than in a business combination)
of other assets and liabilities in a transaction that affects
neither the tax profit nor the accounting profit.
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.
Share capital
Ordinary share capital is classified as equity. Dividends are
recognised as a liability in the year in which they are approved.
Treasury shares
Treasury shares are ordinary shares of the Company held for the
purpose of awarding shares in the Circle Property 2016 Long Term
Incentive Plan ("LTIP"). The shares are recorded at cost and are
deducted from equity.
Share based payments
The Group has applied the requirements of IFRS 2 Share-Based Payment
to share options granted under the LTIP. The fair value of the
share options are determined at the grant date and are expensed
on a straight line basis over the vesting period, based on the
Group's estimate of shares that will eventually vest and adjusted
for the effect of non-market based vesting conditions.
Provisions
Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event and it is
probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate
can be made of the amount of the obligation. Where the Group expects
some or all of a provision to be reimbursed, the reimbursement
is recognised as a separate asset but only when the reimbursement
is virtually certain. The expense relating to any provision is
presented in the income statement net of any reimbursement. If
the effect of the time value of money is material, provisions
are discounted using a current pre-tax rate that reflects, where
appropriate, the risks specific to the liability. Where discounting
is used, the increase in the provision due to the passage of time
is recognised as a borrowing cost.
Goodwill
Goodwill represents the excess of the cost of an acquisition over
the fair value of the Group's share of the net identifiable assets
of the acquired subsidiary at the date of acquisition. Goodwill
on acquisitions of subsidiaries is included within intangible
assets. Goodwill is tested annually for impairment and carried
at cost less accumulated impairment losses. Impairment losses
on goodwill are not reversed. Gains and losses on the disposal
of an entity include the carrying amount of goodwill relating
to the entity sold.
3 Operating segments
The Group has adopted IFRS 8 "Operating segments" which requires
operating segments to be identified on the basis of internal reports
about components of the Group that are regularly reviewed by the
Chief Operating Decision Maker ("CODM") to allocate resources
to the segments and to assess their performance. For the purposes
of IFRS 8 the CODM takes the form of the two executive Directors
of the Company.
The CODM considers that there is only one geographical segment,
which is the United Kingdom, and one reporting segment, which
is investment in commercial property. Therefore, no segmental
reporting is required.
4 Revenue 1 April 1 April
2018 to 2017 to
31 March 31 March
2019 2018
GBP GBP
Rental income 6,390,514 5,816,610
SIC 15 adjustment (spreading
of lease incentives) 488,398 395,210
--------------------- ---------------
6,878,912 6,211,820
Insurance recovery 130,323 99,398
Other income 94,000 43,187
7,103,235 6,354,405
--------------------- ---------------
5 Property expenses 1 April 1 April
2018 to 2017 to
31 March 31 March
2019 2018
GBP GBP
Other void property
costs 76,229 318,002
Void property service
charges 271,493 259,588
Property repairs and maintenance
costs 24,788 29,532
Property insurance 148,893 130,328
Void property rates 118,037 68,739
Lease variation costs - 25,000
639,440 831,189
--------------------- ---------------
6 Administrative expenses 1 April 1 April
2018 to 2017 to
31 March 31 March
2019 2018
Note GBP GBP
Staff costs 7 1,403,844 1,321,982
Administration fees 321,013 250,309
Legal and professional
fees 788,994 504,856
Audit fees 57,084 51,875
Accountancy fees 7,164 7,648
Rent, rates and other
office costs 68,521 63,909
Other overheads 134,208 160,236
Depreciation of tangible
fixed assets 13,296 7,405
2,794,124 2,368,220
--------------------- ---------------
7 Employees and Directors' 1 April 1 April
Remuneration 2018 to 2017 to
31 March 31 March
2019 2018
GBP GBP
Staff costs during the year
were as follows:
Non-executive directors'
fees 180,000 133,000
Wages and salaries 838,475 817,500
Share-based payments 178,143 122,514
National insurance
costs 131,580 174,918
Pension contributions 36,850 32,856
Other employment costs 38,796 41,194
1,403,844 1,321,982
--------------------- ---------------
8 Finance income 1 April 1 April
2018 to 2017 to
31 March 31 March
2019 2018
GBP GBP
Bank interest 2,717 3,620
2,717 3,620
--------------------- ---------------
9 Finance costs 1 April 1 April
2018 to 2017 to
31 March 31 March
2019 2018
GBP GBP
Loan interest 1,347,779 1,073,998
Loan commitment fees 51,219 15,824
Loan arrangement fees 108,473 59,188
Fair value movement on interest
rate contracts - 710
1,507,471 1,149,720
--------------------- ---------------
10 Taxation 1 April 1 April
2018 to 2017 to
31 March 31 March
2019 2018
GBP GBP
Current tax 167,101 (77,031)
Deferred tax 124,041 (457,833)
291,142 (534,864)
--------------------- ---------------
A reconciliation of the current tax charge applicable to the results
at the statutory income tax rate to the (credit) / charge for
the year is as follows:
Current taxation 1 April 1 April
2018 to 2017 to
31 March 31 March
2019 2018
GBP GBP
Profit for the year
before tax 15,246,062 13,991,203
--------------------- ---------------
UK income tax at a
rate of 20% 3,049,212 2,798,241
Effects of:
Non-taxable gains on investment
properties (2,593,287) (2,396,461)
Non-taxable income (19,343) (9,361)
Expenses not deductible
for tax purposes 37,118 68,261
Capital expenditure deductible
for tax purposes (22,797) (152,831)
Utilisation of capital
allowances (191,444) (307,849)
Utilisation of losses brought (92,358) -
forward
Over provision of current
tax in prior year - (77,031)
167,101 (77,031)
--------------------- ---------------
Deferred taxation 1 April 1 April
2018 to 2017 to
31 March 31 March
2019 2018
GBP GBP
Deferred taxes at 31 March relates
to the following:
Deferred tax asset
Capital allowances available
to carry forward 1,603,918 1,727,959
--------------------- ---------------
Deferred tax asset brought
forward 1,727,959 1,270,126
Under provision of deferred tax credit
in prior year - 373,101
Deferred tax charge (124,041) -
for the year
Deferred tax credit
for the year - 84,732
Deferred tax asset carried
forward 1,603,918 1,727,959
--------------------- ---------------
At 31 March 2019, the Group had capital allowances of GBP8,019,591
(2018: GBP8,639,375) available to carry forward against future
profits. A deferred tax asset of GBP1,603,918 (2018: GBP1,727,959)
has been recognised as it is expected to be utilised in the foreseeable
future.
11 Earnings per share
Basic earnings per share has been calculated on profit after tax
attributable to ordinary shareholders for the year (as shown on
the Consolidated Statement of Comprehensive Income) and the weighted
average number of ordinary shares in issue during the year.
1 April 1 April
2018 to 2017 to
31 March 31 March
2019 2018
GBP GBP
Profit for the year 14,954,920 14,526,067
--------------------- ---------------
Weighted average number of shares
(excluding treasury shares) 28,296,762 28,296,762
--------------------- ---------------
Earnings per ordinary
share: 0.53 0.51
--------------------- ---------------
In the opinion of the Board, treasury shares held to satisfy share
awards to management, as disclosed in note 19, currently do not
have any material value and hence do not have any dilutive effect.
Therefore, no diluted earnings per share has been presented.
12 Investment properties 31 March 31 March
2019 2018
GBP GBP
Opening fair value per
valuation report 114,075,000 93,025,000
Cost of refurbishment of
investment properties 826,634 4,207,328
Cost of acquisition of
investment property - 4,466,652
Disposal of investment (4,300,000) -
properties
Gain on revaluation of investment
properties 12,609,968 11,980,810
Lease incentive amortisation 1,388,398 395,210
Fair value of investment properties
per valuation report 124,600,000 114,075,000
--------------------- ---------------
Unamortised lease incentives recorded
within trade and other receivables (9,279,822) (7,702,364)
Carrying value 115,320,178 106,372,636
--------------------- ---------------
No properties were classified as held for sale
at 31 March 2019 and 31 March 2018.
As at 31 March 2019 the fair value of investment properties under
development included in the above amount was nil (2018: nil).
GBP121,000,000 (2018: GBP110,325,000) of the above properties'
value, estimated by the valuer, relate to property held on a freehold
basis and GBP3,600,000 (2018: GBP3,750,000) on a long leasehold
basis, for a peppercorn rent.
The fair value of the Group's investment properties per the Valuation
Report amounted to GBP124,600,000 (2018; GBP114,075,000). The
difference between the fair value of the investment properties
per the Valuation Report and the fair value per the balance sheet
of GBP9,279,822 (2018: GBP7,702,364) relates to unamortised lease
incentives which are recorded in the financial statements within
non-current and current assets.
The Group has pledged all of its investment properties to secure
banking facilities granted to the Group as detailed in note 15.
The fair value of the Group's investment properties at 31 March
2019 has been estimated on the basis of valuation carried out
by Savills (UK) Limited. The valuation was carried out in accordance
with the Practice Statements contained in the Appraisal and Valuation
Standards as published by the RICS. In forming their opinion of
the fair value, the independent valuers had regard to the current
best use of the property, its investment attributes and recent
comparable transactions. The valuation was carried out using the
"All Risks Yield" method taking into consideration both sales
and rental evidence and formulating the opinion of market value
taking into account the properties' locations, specifications
and specific characteristics.
All investment properties are categorised as Level 3 fair values
as they use significant unobservable inputs. There were no transfers
between Levels during the year.
The following table shows the valuation technique used in measuring
the fair value of investment properties, as well as the significant
unobservable inputs used.
Sector Valuation Valuation Significant Inter-relationship
GBP technique unobservable between key unobservable
inputs inputs and fair value
measurement
------------------ --------- -------------- --- --------------------------------- ----------------------------------------
Office All Risks Estimated void The estimated fair
Yield periods range value would increase
from 6 months / (decrease) if:
to 24 months
after the end
of each lease.
(2018: no change)
2018 103,325,000
2019 118,700,000
Retail void periods were shorter
/ (longer);
Warehousing Market rents
have been based
on the specific
circumstances
of each property.
2018 4,800,000 market rents were higher
/ (lower);
2019 4,600,000
rent free periods were
shorter / (longer);
Retail
2018 1,700,000 - Estimated rent letting fees were lower
free periods / (higher);
range from 6
to 12 months
on new leases.
(2018: no change)
2019 -
rent per square foot
were higher / (lower);
Industrial
2018 1,300,000 - Letting fees equivalent yields were
have been estimated lower / (higher); or
on vacant units.
2019 1,300,000
market conditions were
to improve / (decline).
- Rent per square
foot ranges
from GBP4 to
GBP40. (2018:
GBP3 to GBP46)
Other
2018 2,950,000
2019 - - Net equivalent
yields range
from 5.50% to
8.39%. (2018:
5.97% to 8.74%)
Total
2018 114,075,000 - Market conditions
are considered
based on the
property's location.
---------------------------------
2019 124,600,000
--- --- --- --- ----
The ranges are based on averages per property. Individual tenancies
within properties may fall outside these ranges. The relationship
between the unobservable inputs and their impact on the fair value
measurement is not certain. Changes to the tenancies may impact
the fair value outside one or more of the above inter-relationships
according to individual circumstances.
13 Trade and other receivables 31 March 31 March
2019 2018
GBP GBP
Non-current
Lease incentives 8,310,903 7,201,845
----------------- ---------------
Current
Lease incentives 968,919 500,519
Amounts due from property
agents 20,034 147,689
Amounts due from tenants 275,540 127,930
VAT - 167,227
Other receivables 289,206 197,826
1,553,699 1,141,191
----------------- ---------------
Lease incentives consist of GBP4,354,622 (2018: GBP3,477,667)
being the prepayments for rent-free periods recognised over the
life of the lease and GBP4,925,200 (2018: GBP4,224,697) relating
to incentives paid to tenants.
14 Cash and cash equivalents 31 March 31 March
2019 2018
GBP GBP
Royal Bank of Scotland
International 3,650,332 2,387,889
National Westminster
Bank plc 40 251,894
3,650,372 2,639,783
----------------- ---------------
As at 31 March 2019 GBPnil (2018: GBP377,209) was held on blocked
accounts. Of this, GBPnil (2018: GBP125,315) relates to deposits
received from tenants and GBPnil (2018: GBP251,894) was held on
an interest deposit account in relation to the loan borrowings
disclosed in note 15.
15 Loan borrowings 31 March 31 March
2019 2018
GBP GBP
Brought forward 51,815,616 45,590,423
Loan repayments (51,901,360) -
Loan drawdowns 49,738,852 6,181,005
Lending costs (721,900) -
Amortisation of lending
costs 108,473 44,188
49,039,681 51,815,616
----------------- ---------------
On 13 February 2019 the Group entered into a new revolving facility
agreement with National Westminster Bank Plc ("NatWest") and HSBC
UK Bank Plc ("HSBC") and repaid the old facility.
The Group is party to a revolving facility, with NatWest and HSBC.
The facility is a GBP60,000,000 revolving facility with accordion
option of up to GBP40,000,000 and has a four year term. The rate
of interest is the aggregate of the margin 2.05% and LIBOR and
is payable quarterly. There is also a commitment fee payable at
0.82% on the undrawn facility and in relation to the accordion
facility.
The Group paid an arrangement fee of 0.875% of the facility, which
along with the and other cost of arranging the facility including
legal costs have been amortised and will be written of over the
four year term.
The facility is secured by a first and only legal charge over
the Group's investment properties, an assignment of rental income,
charges over specified bank accounts of the Group and a floating
charge granted over all assets of the Group.
The facility's financial covenants are 60% loan to value, 2.00:1
interest cover looking both forward and backward, the Group shall
ensure that the total market value of the charged properties does
not fall below GBP50,000,000 at any time and that no single tenant
represents more than 25% of the total contracted rents.
The undrawn facility as at 31 March 2019 was GBP10,261,148 (2018:
GBP3,098,640).
16 Trade and other payables 31 March 31 March
2019 2018
GBP GBP
Trade payables 65,997 430,276
Property improvement
costs - 180,000
VAT 267,442 -
Wages and salaries 454,333 443,960
Deferred income 1,638,217 810,288
Rental deposit accounts 92,545 129,703
Finance costs 188,339 248,371
Valuation Fee 30,000 37,428
Audit fee 55,080 45,275
Administration fees 66,159 -
Current taxation 167,101 -
3,025,213 2,325,301
----------------- ---------------
Deferred income relates to deferred rental income of GBP1,535,383
(2018: GBP730,744) and deferred insurance recharges of GBP102,834
(2018: GBP79,544).
17 Stated capital
Issued and fully paid share
capital is as follows:
31 March 31 March
2019 2018
GBP GBP
Issued and fully paid shares
of no par value 42,542,179 42,542,179
----------------- ---------------
Number of shares in
issue
Brought forward (at GBP1.49
per share) 28,551,796 28,551,796
Issued in the year - -
Carried forward 28,551,796 28,551,796
----------------- ---------------
The Company has one class of Ordinary Share which carry no rights
to fixed income. Holders of these shares are entitled to dividends
as declared from time to time and are entitled to one vote per
share at general meetings of the Company.
On admission to AIM, the Company issued 255,034 Ordinary Shares
at a price of GBP1.49 each to be held in treasury subject to award
under the LTIP described in note 20. While held in treasury, these
shares are not entitled to dividends and have no voting rights.
18 Capital management
The Group's policy is to maintain a strong capital base so as
to maintain investor, creditor and market confidence and to sustain
future development of the business. The objective is to ensure
that it will continue as a going concern and to maximise return
to its equity shareholders through appropriate levels of gearing.
The Group is not subject to any externally imposed capital requirements
with the exception of the loan covenant requirements as disclosed
in note 15.
The Group's debt and capital structure
comprises the following:
31 March 31 March
2019 2018
GBP GBP
Total liabilities 52,064,894 54,140,917
Less: cash and cash
equivalents (3,650,372) (2,639,783)
----------------- ---------------
Net debt 48,414,522 51,501,134
Total equity 78,434,041 64,998,784
Net debt to equity
ratio 0.62 0.79
----------------- ---------------
19 Share based payments
Circle Property 2016 Long Term Incentive
Plan ("LTIP")
By a resolution of the Board dated 29 January 2016, the Company
adopted the LTIP for the purpose of properly motivating and rewarding
key employees of the Group in a manner that aligns their interests
with that of the Shareholders by measuring performance against
shareholder returns over the three financial years ended 31 March
2019.
On admission to AIM, the Company issued 255,034 Ordinary Shares
at a price of GBP1.49 each to be held in treasury subject to award
under the LTIP.
A key employee of the Company may be invited to join the LTIP
scheme, the purpose of which is to align the long longer term
objectives of shareholders and management. Awards will take the
form of a conditional right or nil cost option to acquire Ordinary
shares. There will follow a three year vesting period over which
the performance of the Company must satisfy the targets in order
that the awards will vest at the end of that period.
The awards currently vest with reference to the Group's Total
Shareholder Return ("TSR"). TSR is a comparison of share price
plus dividends paid with a bespoke basket of peer companies and
REITs.
There are standard good and bad leaver provisions included in
the LTIP terms. Where awards vest the beneficiary will be entitled
to the notional dividends accrued over the three year period.
Standard "claw back" provisions are included as is the absolute
discretion of the Board to deal with unvested shares.
The fair value of the grant was measured at the grant date using
a Black-Scholes pricing model, taking into account the terms and
conditions upon which the instruments were granted. The services
received and a liability to pay for those services are recognised
over the expected vesting period.
Grant date 2016
Award 255,034
Share price GBP1.49
Exercise price 0p
Term 3 years
Expected volatility 5%
Expected dividend
yield 3.36%
Risk free rate 0.36%
Fair value per option GBP1.35
----------------------------------------- ---------- --- -------- --- ------------ ----------------- ---------------
During the year only 87.50% of the 2016 shares vested (223,154)
at a fair value of GBP300,657. The Directors have not yet exercised
their options to acquire.
2017 LTIP and 2018
LTIP awards
The awards for 2017 and 2018 have been held in abeyance, subject
to review and are to be placed before the forthcoming annual general
meeting for approval by shareholders. It is anticipated that a
further performance condition will be introduced to account for
50% of the award being a fixed hurdle rate for NAV. This target
will be non-vesting if under 8% and if the NAV return is 14% or
above then the share will vest in fill. Where the NAV return falls
between 8% and 14% the number of share that vest will be calculated
on a straight-line basis between 30% and 100%
Other amendments to the rules of the LTIP are proposed to be made,
subject to shareholder approval as the Annual General Meeting,
including amending the individual threshold applicable to the
value of the awards granted in a financial year from 100% to 200%
of basic salary. Further details of the proposed changes to the
rules of the LTIP will be set out in the Notice of Annual General
Meeting.
Based on current performance of the 2017 and 2018 awards the following
estimates have been made but not provided for in these financial
statements:
% vesting Number fair value
of shares
expected
to vest
31 March 2017 100.00% 261,410 GBP370,485
31 March 2018 100.00% 267,944 GBP189,873
20 Financial risk management
The strategy of the Group is to invest in United Kingdom commercial
property with a view to holding it for capital appreciation whilst
enhancing rental and capital growth opportunities.
Consistent with that objective, the Group holds UK commercial
property investments. In addition, the Group's financial instruments
during the year comprised interest bearing payable loans, cash
and cash equivalents and trade receivables and payables that arise
directly from its operations. The Group does not have any exposure
to any derivative instruments other than the interest rate cap
entered into to hedge the interest paid on the interest bearing
bank loans.
The Group is exposed to various types of risks that are associated
with financial instruments. The most important types are credit
risk, liquidity risk, interest rate risk and market price risk.
There is no foreign currency risk as all assets and liabilities
of the Group are maintained in pounds sterling.
The Directors review and agree policies for managing its risk
exposure. These policies are summarised below.
These disclosures include, where appropriate, consideration of
the Group's investment properties which, whilst not constituting
financial instruments as defined by IFRS, are considered by the
Board to be integral to the Group's overall risk exposure.
Credit risk
Credit risk is the risk that an issuer or counterparty to an asset
will be unable or unwilling to meet a commitment that it has entered
into with the Group.
In the event of default by an occupational tenant, the Group will
suffer a rental shortfall and incur additional costs including:
legal expenses; and in maintaining, insuring, and re-letting the
property. The Board produces regular reports on any tenant arrears
which are monitored by the Directors in order to anticipate, and
minimise the impact of, defaults by occupational tenants.
The Group notes that in excess of 30% of its contracted rents
are from 2 major tenants, however on has its lease guaranteed
by its parent company and the other operates serviced offices
of which the Group would take over the letting of.
The carrying amount of financial assets, including cash balances,
amounts due from property agents, amounts due from tenants and
other receivables recorded in the financial statements represents
the Group's maximum exposure to credit risk. The carrying amount
of these assets at 31 March 2019 was GBP4,235,152 (2018; GBP3,113,228).
There were no financial assets which were past due or considered
impaired at 31 March 2019 and 31 March 2018.
All of the Group's cash is placed with financial institutions
with a Moody's long-term credit rating of Baa2 or better. Bankruptcy
or insolvency of such financial institutions may cause the Group's
ability to access cash placed on deposit to be delayed or limited.
Should the credit quality or the financial position of the banks
currently employed significantly deteriorate, cash holdings would
be moved to another bank.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in realising
assets or otherwise raising funds to meet financial commitments.
The Group's investments comprise UK commercial property. Property
and property-related assets in which the Group invests are not
traded in an organised public market and may be illiquid. As a
result, the Group may not be able to liquidate quickly its investments
in these properties at an amount close to their fair value in
order to meet its liquidity requirements.
The Group's liquidity risk is managed on an ongoing basis by the
Directors. In order to mitigate liquidity risk the Group aims
to have sufficient cash balances (including the expected proceeds
of any property sales) to ensure that the Group is able to meet
its obligations for a period of at least twelve months.
At the reporting date, the maturity profile of the Group's financial
assets and financial liabilities were (on a contractual basis):
Contractual Value
---------------------------------------------------------------
Carrying Within 1-2 years 2-5 years More Total
Amount one year than
5
years
GBP GBP GBP GBP GBP GBP
31 March
2019
Financial
assets
Trade and other
receivables 584,780 584,780 - - - 584,780
Cash and cash
equivalents 3,650,372 3,650,372 - - - 3,650,372
----------- ---------- ----------- ----------- ------- ------------
4,235,152 4,235,152 - - - 4,235,152
Financial liabilities
Trade and other
payables 1,386,996 1,386,996 - - - 1,386,996
Loan borrowings 49,039,681 1,410,285 1,236,415 52,563,287 - 55,209,987
----------- ---------- ----------- ----------- ------- ------------
50,426,677 2,797,281 1,236,415 52,563,287 - 56,596,983
Contractual Value
---------------------------------------------------------------
Carrying Within 1-2 years 2-5 years More Total
Amount one year than
5
years
GBP GBP GBP GBP GBP GBP
31 March 2018
Financial assets
Trade and other
receivables 473,445 473,445 - - - 473,445
Cash and cash
equivalents 2,639,783 2,639,783 - - - 2,639,783
----------- ---------- ----------- ----------- ------- ------------
3,113,228 3,113,228 - - - 3,113,228
Financial liabilities
Trade and other
payables 1,515,013 1,515,013 - - - 1,515,013
Loan borrowings 51,815,616 1,329,713 52,200,090 - - 53,529,803
----------- ---------- ----------- ----------- ------- ------------
53,330,629 2,844,726 52,200,090 - - 55,044,816
Interest rate risk
Some of the Group's financial instruments are interest bearing. They
are variable rate instruments with differing maturities. As a consequence,
the Group is exposed to interest rate risk due to fluctuations in
the prevailing market rate.
The Group's exposure to interest rate risk relates
primarily to the Group's bank borrowings.
As a result the Group is exposed to changes in prevailing interest
rates on the remaining balance of its borrowing detailed in note 15.
Having assessed the level of risk the Directors have concluded that
it is within acceptable limits.
The interest profile of the Group's financial assets and financial
liabilities after the impact of the interest rate contracts held at
the year end are as follows:
Floating Fixed Interest Total
rate rate free
GBP GBP GBP GBP
31 March
2019
Financial
assets
Trade and other
receivables - - 584,780 584,780
Cash and cash
equivalents 3,650,372 - - 3,650,372
----------- ------ ------- ---------- -----------
Financial
liabilities
Trade and other
payables - - 1,386,996 1,386,996
Loan borrowings 49,738,852 - - 49,738,852
----------- ------ ------- ---------- -----------
Floating Fixed Interest Total
rate rate free
GBP GBP GBP GBP
31 March
2018
Financial
assets
Trade and other
receivables - - 473,445 473,445
Cash and cash
equivalents 2,639,783 - - 2,639,783
----------- ------ ------- ---------- -----------
Financial
liabilities
Trade and other
payables - - 1,515,013 1,515,013
Loan borrowings 51,901,360 - - 51,901,360
----------- ------ ------- ---------- -----------
When the Group retains cash balances, they are ordinarily held on
interest bearing deposit accounts. The benchmark which determines
the interest income received on interest bearing cash balances is
the bank base rate which was 0.75% as at 31 March 2019 (2018: 0.5%).
The Group's policy is to hold cash on variable rate bank accounts.
The Group has borrowings amounting to GBP49,738,852 (2018: GBP51,901,360)
which have interest rates linked to the 3 month LIBOR interest rates.
A 1% increase in the LIBOR rate will have the effect of increasing
interest payable by GBP497,389 (2018: GBP519,013). A decrease of 1%
would have an equal but opposite effect.
Market price risk
The Group holds a portfolio of UK commercial properties. The Group
invests in properties which the Directors believe will generate a
combination of long-term growth in income and capital for shareholders.
Investment decisions are based on analysis of, amongst other things,
prospects for future income and capital growth, sector and geographic
prospects, tenant covenant strength, lease length and initial and
equivalent yields.
Investment risks are spread through letting properties to low risk
tenants. The management of market price risk is part of the investment
management process and is typical of commercial property investment.
The portfolio is managed with an awareness of the effects of adverse
valuation movements through detailed analysis, with an objective of
maximising overall returns to shareholders. Investments in property
and property-related assets are inherently difficult to value due
to the individual nature of each property. As a result, valuations
are subject to substantial uncertainty. There is no assurance that
the estimates resulting from the valuation process will reflect the
actual sales price even where such sales occur shortly after the valuation
date. Such risk is managed through the appointment of independent
external property valuers, Savills (UK) Limited.
Any changes in market conditions will directly affect the profit or
loss reported through the Consolidated Statement of Comprehensive
Income. In respect of market risk the Directors have also considered
Brexit, the impact of which is considered in note 2. Details of the
Group's investment portfolio held at the balance sheet date are disclosed
in note 12.
Fair
values
Accounting standards recognise a hierarchy of fair value measurements
for financial instruments which gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3).
The classification of fair value measurements depends on the lowest
significant applicable input, as follows:
- Level 1: Unadjusted, fully accessible and current quoted prices
in active markets for identical assets or liabilities.
- Level 2: Quoted prices for similar assets and or liabilities,
or other directly or indirectly observable inputs which exist
for the duration of the period of investment.
- Level 3: External inputs are unobservable. Value is the Directors'
best estimate, based on advice from relevant knowledgeable
experts, use of recognised valuation techniques and on assumptions
as to what inputs other market participants would apply in
pricing the same or similar instruments. All investments in
property would be included in level 3.
All of the Group's investment properties are classified as level 3.
There have been no transfers of investment properties in or out of
level 3 during the year. The Group determines transfers between levels
at the end of each accounting period. A table reconciling opening
and closing balances of level 3 properties is included in note 12
of the financial statements.
The fair values of the Group's financial instruments are
not materially different from their carrying values.
21 Investment in Principal Activity Country Ownership interest
subsidiaries of incorporation
31 March 31 March
2018 2017
Circle Property Unit
Trust Property holding Jersey 100% 100%
Circle Property (Milton
Keynes) Limited Property holding Jersey 100% 100%
The Group has no connection to the company Circle Property Management
Limited which was incorporated on 25 October 2017 under UK company
number 11032234.
22 Capital expenditure commitments
As at 31 March 2019 the Group had contracted capital expenditure on
existing properties of GBP198,154 (2018; GBP33,182). This was committed
but not yet provided for in the financial statements.
23 Operating leases
The Group leases out its investment properties
under operating leases.
As at the reporting date, the future minimum lease payments under
non-cancellable leases are receivable as follows (based on annual
rentals):
31 March 31 March
2019 2018
GBP GBP
Less than one year 6,128,074 6,021,899
Between two and five
years 20,881,970 18,686,590
Over five
years 51,993,629 29,155,902
Total 79,003,673 53,864,391
----------- -----------
The amounts disclosed above represent total rental income receivable
up to the next lease break point on each lease. If a tenant wishes
to end a lease prior to the break point a surrender premium will be
charged to cover the shortfall in rental income received. The largest
single tenant at the year end accounted for 20.86% (2018; 26.2%) of
the current annual rental income.
Operating lease payments in respect of rents payable on
leasehold properties were payable as follows:
31 March 31 March
2019 2018
GBP GBP
Less than one year 51,360 28,860
Between two and five
years 125,607 79,385
Total 176,967 108,245
----------- -----------
24 Ultimate controlling
party
In the opinion of the Directors there is no ultimate controlling party
as no one individual is deemed to satisfy this definition.
25 Related party disclosures
Oak Group (Jersey) Limited ("OG(J)L") and Oak Trustees (Jersey) Limited
("OT(J)") are joint Trustees of CPUT and provide administration and
accounting services to the Group. Michael Farrow is a Director of
OG(J)L and OT(J)L. During the year OG(J)L and OT(J)L charged a total
of GBP321,013 (2018: GBP250,309) for administration and accountancy
services, at the year end GBP66,159 was outstanding (2018: GBPnil)
Directors' interests in the shares of the Company,
including relevant family interests:
Ordinary
shares
John Arnold 1,005,122
Edward Olins 138,933
The Duke of Roxburghe 2,483,069
James Hambro 3,217,321
There have been no changes in the Directors' shareholdings
since the year end.
The remuneration of the Directors who are key management personnel of
the group, is set out below in aggregate. Further information about the
remuneration of individual directors is provided in the Remuneration Report
in the report and accounts. Key personnel of the Group are those persons
who have responsibility for planning, directing and controlling the activities
of the Group either directly or indirectly, including any director, whether
executive or otherwise.
1 April 1 April
2018 to 2017 to
31 March 31
2019 March
2018
GBP GBP
Directors remuneration 1,352,778 982,271
-------------- --------
A bonus was awarded to the executive directors ("Executives") of the
Company for the year ended 31 March 2019. The Key Performance Indicators
(KPIs") comprise the Net Asset Value, Earnings (EBITDA) and maintenance
of a progressive dividend policy, each evenly weighted. The bonus awards,
against KPIs, takes regard of the individual performance of the Executives
and of the business as a whole but remain at the absolute discretion
of the Board. Due to the performance of the Group over the year the bonus
has achieved the capped amount of 100% of salary.
The options granted for 2018 under the LTIP and proposed to be granted
for 2017 and 2018 subject to approval by the shareholders, to the directors
are as follows:
granted vested
John Arnold 31-Mar-16 134,228 87.50%
31-Mar-17 137,584 0.00%
31-Mar-18 141,023 0.00%
Edward Olins 31-Mar-16 120,805 87.50%
31-Mar-17 123,826 0.00%
31-Mar-18 126,921 0.00%
26 Subsequent events
Subsequent to the year the Group disposed of the property at Baildon
Bridge for gross proceeds of GBP4,600,000.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR CKCDQABKDOOK
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July 10, 2019 02:00 ET (06:00 GMT)
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