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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 : 0692A
Circle Property PLC
25 September 2020
25 September 2020
Circle Property Plc
("Circle" or the "Company")
Final Results for the year ended 31 March 2020
SELECTIVE ASSET MANAGEMENT EXPERTISE DELIVERS RESILIENT PERFORMANCE AND STRONG SHAREHOLDER RETURNS
Circle Property Plc (AIM: CRC), which invests in, develops and actively manages well-located regional office assets, is pleased to announce final results for the year ended 31 March 2020.
John Arnold, Chief Executive of Circle Property Plc, said:
"Our regional office assets have been individually selected by virtue of their strength of location and letting prospects which, alongside our active management expertise, has enabled Circle to deliver a very resilient performance during the year.
"Our approach in providing flexible regional commercial work places means that we are cautiously optimistic about our future performance."
Financial Highlights: Resilient Performance
Hot Features
Premium
-- Further 3% growth in Net Asset Value ("NAV") per share to GBP2.85 (31 March 2019: GBP2.77)
o Fourth successive year of delivering Net Asset Value ("NAV") growth
o NAV up 91% since IPO in February 2016 to GBP80.7m
o NAV Compound Average Growth Rate ("CAGR") of 15.5% since IPO; total return CAGR of 17.6%
-- 11.92% increase in the independent valuation of the Group's portfolio of 14 commercial property investment and development assets in the UK to GBP139.45m (31 March 2019: 124.6m) demonstrating continued growth
-- 14.16% increase in contracted a nnual rental income to GBP8.71m (31 March 2019: GBP7.61m)
-- Increase in operating profit to GBP4.3m (31 March 2019: GBP3.67m) due to an increase in rental and other income, excluding service charge income, to GBP7.9m (31 March 2019: GBP7.1m )
-- Profit before tax of GBP5.2m (31 March 2019: GBP15.25m) -- Earnings per share of 12p (31 March 2019: 53p) -- Year-end LTV of 44 % and year-end LTV net of cash of 42%, in target range
-- Proposed final dividend of 2p per share for the year ended 31 March 2020, which together with the interim dividend of 3.3p per share (paid in January 2020) brings the total annual dividend to 5.3p per share
Operational Highlights: Generating Strong Returns and Capital Growth
-- Rent collection for both March and June 2020 quarters was 91% and 87% respectively -- 88.42% of total portfolio is let and incoming producing -- 100% of the Company's portfolio is within the regional office sector
-- 88.35% located in Milton Keynes, Bristol, Birmingham and Maidenhead and the majority is flexible in terms of 1000-5,000sq.ft. space with the ability to be sub-divided if required
-- Successful GBP14.2m acquisition of 71,500 sq ft. Concorde Park, Maidenhead - now 61% let
Market Overview
-- The regional letting market up to the YE March 2020 had continued to remain stable for affordable good quality well-located offices, as companies sought to relocate to save costs, being attracted by lower employment costs, business rates and rent, coupled with the demand from local professional occupiers and SMEs
-- Post YE March 2020, both the investment and letting markets have been affected by the COVID-19 pandemic with much quieter activity in both markets being reported. The current economic uncertainty and likely prospect of recession during 2020 has reduced both investor and tenant confidence for commercial property more generally, putting rental levels and valuations under threat, albeit predominantly in the retail and leisure sectors where the Group has little to no exposure
Outlook
-- Confidence in outlook based on flexibility of regional commercial property portfolio and the team's expertise in extracting both income and capital value
Sell-side analyst briefing
A Zoom briefing for sell-side analysts will take place at 09.30 am on 25 September 2020. If you would like to register for the meeting, please contact Camarco on 0203 757 4992 or email circleproperty@camarco.co.uk .
The annual report and accounts for the year ended 31 March 2020 and the Notice of AGM will be posted to shareholders, and will be available on the Company's website: www.circleproperty.co.uk , shortly.
This announcement is inside information for the purposes of Article 7 of EU Regulation 596/2014.
+44 (0)207 930
Circle Property Plc 8503
John Arnold, CEO
Edward Olins, COO
+44 (0) 207 397
Cenkos Securities 8900
Katy Birkin
Mark Connelly
+44 (0) 203 897
Radnor Capital 1830
Joshua Cryer
Iain Daly
+44 (0) 203 757
Camarco 4992
Ginny Pulbrook
Tom Huddart
About Circle Property Plc
Circle is one of the best performing quoted UK real estate companies by NAV total return (NAV growth and dividend) having delivered consistent returns, with 91% 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 GBP10.92m per annum, compared to contracted rent of GBP8.70m at 31 March 2020. The Company has a portfolio of 14 regional commercial property investment and development assets in the UK valued at GBP139.45m.
CHAIRMAN'S STATEMENT
Since admission to AIM in February 2016, the Group has almost doubled its NAV and sold all of its retail assets at or above valuation.
I am pleased to report our fourth consecutive year of asset and income growth, with revenues of GBP7.9 million, excluding service charge income, and a profit before tax of GBP5.2m.
The backdrop of Brexit resulted in considerable uncertainty in the lettings market particularly during 2019, and more recently the COVID-19 pandemic has impacted upon the investment market. Our regional office assets have been individually selected by virtue of their strength of location and letting prospects. Our letting strategy has been to minimise letting voids by leasing at economic rents with minimal incentives and if necessary pricing below the prevailing market rate in order to let our buildings ahead of the competition. We take the view that the creation of a strongly reversionary portfolio is a more sustainable business model than seeking to maximise the initial income to feed an ambitious dividend yield. The business strategy is focused on delivering total returns to shareholders rather than dividends alone, meaning even in times of crisis, the Group should not find itself in a position of over-distributing income. Given all of this, our portfolio has remained under-rented with significant reversionary value attached, which in turn means that tenants are less likely to break leases whenever there is a downturn and will be the first to let in a recovery.
Due to the swift actions of the team, we were able to divest our non-core retail assets at or above book value. The Group is now almost exclusively focused on offices (other than a conference centre, two public houses and one restaurant in Birmingham), particularly in the regions, where we continue to see long-term market opportunity.
Until the full effects of COVID-19 and lockdown have been realised and the impact on confidence in the economy has been assessed, it would be unwise to formulate any other strategy than one of prudence and caution.
Our priority is to maintain income levels providing support to those businesses where their need is greatest.
We are aware of the current disconnect between our share price and the performance of the Company. Our focus over the coming year will be to reduce the discount to NAV.
Ian Henderson
Chairman
CHIEF EXECUTIVE'S STATEMENT
Having always actively targeted assets with the potential for added value, at the end of this financial year, investors have seen a further 3% growth in NAV per share to GBP2.85 (31 March 2019: GBP2.77) resulting in a 91% increase in NAV since admission to AIM in February 2016.
Operating profit has increased to GBP4.3m (31 March 2019: GBP3.67m) due to an increase in rental and other income, excluding service charge income, to GBP7.9m (31 March 2019: GBP7.1m).
We have made considerable progress in letting our completed redevelopments and asset management projects throughout the year. For instance, Concorde Business Park in Maidenhead was acquired with only one third of its space let and is now two thirds let following a successful refurbishment and leasing programme. At Kents Hill Business Park in Milton Keynes, Buildings K1 and K2 are now fully let, we have commenced the redevelopment of K3 and we are in negotiations on a potential pre-let.
At Aztec West, Bristol we are expecting to take back possession of Building 135 from the tenants in January 2021 after they opted to remain in occupation for longer during COVID-19 and are in discussion with a potential new occupier.
The disposal of our sole remaining industrial property resulted in a gain of GBP0.28m over the September 2019 valuation of GBP1.3m, with the gains on revaluation of investment properties contributing GBP2.51m to an operating profit after revaluation of investment properties of GBP7m (31 March 2019: GBP16.75m). Further to this and the divestment of our limited retail assets, Circle's portfolio is almost exclusively office assets in attractive locations.
Rental collection has become an important metric during COVID-19 and one which we are very proud of. As at the time of writing, rent collection for both March and June quarters is 91% and 87% respectively, which reflects both the lack of exposure to retail and the strength of our covenants. We expect this to increase further and remain in dialogue with all tenants adopting a flexible approach to the payment of arrears according to need.
There has been much speculation as to whether the COVID-19 restrictions will precipitate a fundamental shift in office working practices, with office workers wishing to continue working from home and employers happy to see the benefits in reduced fixed overheads. Whilst this may be more likely in central London or major conurbations with a large commuter workforce, most regional offices with adequate car parking are already seeing a return to the workplace as the novelty of home working subsides.
With all of the challenges arising from the lockdown, and the likely implications for the economy, it is considered prudent now to reduce gearing from the current level. We have a number of assets that have benefited from our active management approach and where we have added considerable value following redevelopment, lease restructures or renewals. These investments, with secure tenants and long-term income, will be highly sought after as investors lead the flight to secure income in an uncertain world and low yielding macroeconomic environment.
For instance, our largest asset, Kents Hill Business Park in Milton Keynes is a prime candidate owing to its long lease term to a strong covenant. The asset has been actively managed over the period of ownership (+5 years) with the lease having been re-geared and increased from GBP875,000 per annum upon purchase to over GBP1.6m per annum currently. The break clauses at years 15 and 20 have been removed and annual RPI increases have been incorporated making this property highly attractive to an institutional investor.
Further to the announcements made on 14 April and 14 July 2020, the Board is proposing to pay a final dividend of 2p per share for the year ended 31 March 2020 which together with the interim dividend of 3.3p per share (paid in January 2020) brings the total annual dividend to 5.3p per share. The Board recognises the importance of dividends to shareholders and has navigated the COVID-19 crisis adeptly leading to this position and believes this remains an attractive yield to shareholders. The final dividend of 2p per share, subject to shareholder approval, will be paid on 6 November 2020 to shareholders on the register on 2 October 2020 which gives an ex-dividend date of 1 October 2020.
John Arnold
Chief Executive Officer
Consolidated statement of comprehensive
income
for the year ended 31 March 2020
1 April 1 April
2019 to 2018 to
31 March 31 March
Note 2020 2019
GBP GBP
Rental income 4 7,497,212 6,878,912
Other income 4 2,116,400 1,429,681
------------ ------------
9,613,612 8,308,593
Property expenses 5 (2,374,556) (1,844,798)
7,239,056 6,463,795
Administrative expenses 6 (2,944,109) (2,794,124)
Operating profit 4,294,947 3,669,671
Gain on disposal of investment properties 235,729 471,177
Gains on revaluation of investment properties 12 2,514,049 12,609,968
Operating profit after revaluation of
investment properties and goodwill 7,044,725 16,750,816
Finance income 8 1,531 2,717
Finance costs 9 (1,885,340) (1,507,471)
Net finance costs (1,883,809) (1,504,754)
Profit for the year before taxation 5,160,916 15,246,062
Taxation 10 (1,641,410) (291,142)
Total comprehensive income and profit
for the year 3,519,506 14,954,920
------------ ------------
Earnings per share 0.12 0.53
------------ ------------
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.
Consolidated statement of financial
position
As at 31 March 2020
Note 31 March 31 March
2020 2019
GBP GBP
Non-current assets
Investment properties 12 129,340,408 115,320,178
Right of use assets 13 108,043 -
Property, plant and equipment 62,263 59,865
Lease incentives 14 9,562,066 8,310,903
Deferred tax asset 10 1,078,007 1,603,918
------------ ------------
140,150,787 125,294,864
Current assets
Trade and other receivables 14 2,398,119 1,553,699
Cash and cash equivalents 15 2,980,329 3,650,372
------------ ------------
5,378,448 5,204,071
Total assets 145,529,235 130,498,935
============ ============
Equity
Stated capital 18 42,542,179 42,542,179
Treasury share reserve 516,048 (79,344)
Retained earnings 37,623,126 35,971,206
------------ ------------
Total equity 80,681,353 78,434,041
Non-current liabilities
Loan borrowings 16 60,721,840 49,039,681
Lease liabilities for right of
use assets 13 69,327 -
Deferred tax liability 10 877,401 -
------------ ------------
61,668,568 49,039,681
Current liabilities
Trade and other payables 17 3,134,816 3,025,213
Lease liabilities for right of
use assets 13 44,498 -
------------ ------------
3,179,314 3,025,213
Total liabilities 64,847,882 52,064,894
------------ ------------
Total liabilities and equity 145,529,235 130,498,935
============ ============
The consolidated financial statements were approved and
authorised for issue by the Board of Directors on 24 September
2020 and signed on its behalf by:
Michael Farrow
Director
Consolidated statement of changes
in equity
for the year ended 31
March 2020
Share Treasury Share Retained Total
capital share based earnings
capital payment
reserve
GBP GBP GBP GBP GBP
As at 1 April
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
Profit for the
year - - - 3,519,506 3,519,506
Share-based payments - - 595,392 - 595,392
Dividends - - - (1,867,586) (1,867,586)
As at 31 March
2020 42,162,178 380,001 516,048 37,623,126 80,681,353
----------- --------- ---------- ------------ ------------
Consolidated statement of cash flows
for the year ended 31 March 2020
1 April 1 April
2019 to 2018 to
31 March 31 March
2020 2019
GBP GBP
Cash flows from operating activities
Profit for the year before taxation 5,160,916 15,246,062
Adjustments for:
Finance income (1,531) (2,717)
Finance costs 1,885,340 1,507,471
Depreciation 11,744 13,296
Amortisation of right of use assets 47,005 -
Gains on revaluation of investment properties (2,466,035) (12,609,968)
Gains on disposal of investment properties (235,729) (471,177)
Share based payments 595,392 178,143
Increase in receivables (2,095,583) (1,521,566)
Increase in payables (179,700) 961,902
Cash generated from operating activities 2,721,819 3,301,446
Interest paid (1,510,806) (1,459,030)
Interest received 1,531 2,717
Taxation paid (189,154) -
Net cash from operating activities 1,023,390 1,845,133
------------- -------------
Cash flows from investing activities
Net proceeds from disposal of investment
properties 6,135,729 2,228,749
Cost of refurbishment of investment properties (1,977,597) (1,006,634)
Cost of acquisition of investment property (15,412,420) -
Cost of additions of property, plant and
equipment (14,143) (16,874)
Net cash from investing activities (11,268,431) 1,205,241
------------- -------------
Cash flows from financing activities
Repayment of borrowings (2,530,000) (49,358,932)
Drawdown of borrowings 14,023,944 49,016,953
Payment of lease liabilities (51,360) -
Dividends paid (1,867,586) (1,697,806)
Net cash used in financing activities 9,574,998 (2,039,785)
------------- -------------
Net (decrease) / increase in cash and
cash equivalents (670,043) 1,010,589
Cash and cash equivalents at the beginning
of the year 3,650,372 2,639,783
Cash and cash equivalents at the end of
the year 2,980,329 3,650,372
------------- -------------
Notes to the consolidated financial
statements
for the year ended 31
March 2020
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 23.
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 commercial 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.
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 on pages 6 and 7 of the 2020
Annual Report & Accounts. The financial position of the Group, its
cash flows, liquidity position and borrowing facilities are described
in these financial statements. In addition note 22 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 20.
The Directors have assessed the Group's ability to continue as a
going concern, including an assessment of the potential impact of
Covid-19. In making their assessment the Directors have modelled
the Group's cash forecasts based on the circumstances of each tenant
on an individual basis. Rental collections have been monitored on
a weekly basis with ongoing communication with tenants in respect
of the collection of rental arrears. Loan covenants have been stress
tested taking into consideration a potential reduction in the valuation
of the Group's property portfolio. In addition the Group's progressive
dividend policy has been reviewed in order to maintain liquidity
within the Group and the declaration of a final dividend for the
year has been reduced accordingly.
Based on these considerations 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
The financial statements incorporate the financial statements of
the Company and its subsidiaries, as outlined in note 23.
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 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 2019. These changes have not had a significant
impact on the preparation of these financial statements.
The Group adopted for the first time the
following standard during the year:
IFRS 16 Leases was issued in January 2016, and was endorsed by the
EU in 2017. IFRS 16 introduces a single on-balance sheet lease accounting
model for lessees. A lessee recognises a right-of-use asset representing
its right to use the underlying asset and a corresponding lease liability
representing its obligation to make lease payments. There are optional
exemptions for short-term leases and leases of low value items.
Transition
The Group has applied IFRS16 using the modified retrospective approach
and therefore the comparative information has not been restated and
continues to be reported under IAS 17 and IFRIC 4. of adoption for
IFRS 16 with no material impact on the Group results.
On initial application, the Group has elected to record right of
use assets based on the corresponding lease liability. Right of use
assets and lease obligations of GBP155,047 were recorded as of 1
April 2019, with no net impact on retained earnings. When measuring
lease liabilities, the Group discounted lease payments using its
incremental borrowing rate at 1 April 2019. The weighted-average
rate applied is 2.852%.
Right of
use assets
Right of use assets are the Group's right to use an asset over the
life of asset lease. The asset is calculated as the initial amount
of the lease liability, plus any lease payments made to the lessor
before the lease commencement date, plus any initial direct costs
incurred, minus any lease incentives received. Depreciation of a
right-of-use asset is on a straight line basis over the term useful
life of the asset lease.
Lease liabilities
The lease liability is initially measured at the present value of
outstanding lease payments, discounted using the Group's incremental
borrowing rate.
The lease liability is measured at amortised cost using the effective
interest method and is remeasured when there is a change in future
lease payments arising from a change in an index or rate or if the
Group changes its assessment of whether it will exercise a purchase,
extension or termination option. A corresponding adjustment is made
to the carrying amount of the right-of use asset with any excess
over the carrying amount of the asset being recognised in profit
or loss. The Group recognises the lease payments associated with
these leases as an expense on a straight-line basis over the lease
term.
New Accounting Requirements
not yet adopted
At the date of authorisation of these financial statements, the Group
has not applied the following new and revised IFRS that have been
issued but are not yet effective:
- Amendments to IFRS 3 (Business Combinations) is effective for financial
years commencing on or after 1 January 2020. The amendment relates
to changes in the criteria for determining whether an acquisition
is a business combination or an asset acquisition.
- Amendments to IFRS 9 (Financial Instruments) is effective for financial
years commencing on or after 1 January 2020. The amendments offer
relief in meeting the criteria for hedge accounting on the transition
from LIBOR to IBOR.
- Amendments to References to the Conceptual Framework are effect
for financial years commencing on or after 1 January 2020.
- Amendments to IAS 8 (Accounting Policies, Changes in Accounting
Estimates and Errors) are also effective for financial years commencing
on or after 1 January 2020.
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 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
("Savills") to perform valuations of the investment property using
Royal Institute of Chartered Surveyors ("RICS") valuation standards
as at 31 March 2020. 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.
Due to COVID-19 the 31 March 2020 valuation prepared by Savills is
subject to the following material uncertainty disclosure:
Our valuation is reported on the basis of 'material valuation uncertainty'
as per VPS 3 and VPGA 10 of the RICS RedBook Global. Consequently,
less certainty, and a higher degree of caution, should be attached
to our valuation than would normally be the case. Given the unknown
future impact that COVID-19 might have on the real estate market
we recommend that the valuation of the properties are kept under
frequent review.
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 with the lease incentive recognised as a receivable
at the year end.
Deferred
income
Where tenant invoices relate to a period after the Group's year-end
deferred income is recognised for the difference between revenue
recognised and amounts billed for that contract.
Property service
charges
Service charges and other such receipts arising from expenses recharged
to tenants are as stated in Notes 4 and 5. Notwithstanding that the
funds are held on behalf of the occupiers, the ultimate risk for
paying and recovering these costs rests with the Group.
In the prior year the Group had considered that it was acting in
the capacity of an agent in respect of service charge collection
and therefore service charges receivable from tenants and the related
costs were not recognised by the Group. Following a reassessment
in the year, the Group now considers itself to be acting as principal
and the amounts recharged to tenants and the related costs have been
represented for the prior year in Notes 4 and 5. This change has
no net impact on the 2019 total comprehensive income and profit for
the year or the Group's total and net assets as at the 31 March 2019.
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 predominantly
comprises of 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 the consolidated
statement of comprehensive income. The fair value is based on valuations
provided by Savills 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 the 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 2020 and 31 March 2019 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 2020 and 31 March 2019 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.
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
Trade and other 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, trade and other
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 and other payables are not interest bearing and are recognised
initially at fair value. Subsequent to initial recognition trade
and other payables are measured at amortised cost 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 statement of comprehensive income 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.
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 came
into effect in 2019 and 2020. Capital gains arising on the disposal
of UK commercial property held in non-UK resident structures were
previously exempt from tax. Following the implementation of the Finance
(No 3) Bill UK corporation tax is applicable to all gains arising
on UK commercial property from 6 April 2019 and from April 2020 non-resident
corporate landlords are subject to UK corporation tax rather than
income tax. On 24 March 2020 CPUT made a transparency election under
paragraph 8 of Schedule 5AAA TCGA with the effect of property disposals
being taxed on the Company and chargeable to UK corporation tax by
reference to the higher of the April 2019 valuation or historic cost.
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
statement of comprehensive income 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.
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 financial information
used for decision making purposes is based on the Group's financial
statements.
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
2019 2018 to
to 31 31 March
March 2019
2020
GBP GBP
Rental income 6,715,456 6,390,514
Lease incentives
adjustment 781,756 488,398
------------ --------------
7,497,212 6,878,912
Service charge
income 1,697,533 1,205,358
Insurance recovery 144,874 130,323
Other income 273,993 94,000
9,613,612 8,308,593
------------ --------------
5 Property expenses 1 April 1 April
2019 2018 to
to 31 31 March
March 2019
2020
GBP GBP
Void property service
charges 246,737 271,493
Void property rates 175,700 118,037
Other void property
costs 28,331 76,229
Property repairs and maintenance
costs 59,260 24,788
Property insurance 166,995 148,893
Recoverable service charge
costs 1,697,533 1,205,358
2,374,556 1,844,798
------------ --------------
6 Administrative 1 April 1 April
expenses 2019 2018 to
to 31 31 March
March 2019
2020
Note GBP GBP
Staff costs 7 1,593,790 1,403,844
Administration and accountancy
fees 305,250 321,013
Legal and professional
fees 749,233 788,994
Audit fees 62,673 57,084
Accountancy
fees 7,778 7,164
Rent, rates and
other office costs 26,334 68,521
Other overheads 140,302 134,208
Depreciation of tangible
fixed assets 11,744 13,296
Amortisation of right 47,005 -
of use assets
2,944,109 2,794,124
------------ --------------
7 Employees and Directors' 1 April 1 April
Remuneration 2019 2018 to
to 31 31 March
March 2019
2020
GBP GBP
Staff costs during the
year were as follows:
Non-executive directors'
fees 166,563 180,000
Wages and salaries 648,090 838,475
Share-based payments 595,392 178,143
National insurance
costs 104,435 131,580
Pension contributions 37,911 36,850
Other employment
costs 41,399 38,796
1,593,790 1,403,844
------------ --------------
8 Finance 1 April 1 April
income 2019 2018 to
to 31 31 March
March 2019
2020
GBP GBP
Bank interest 1,531 2,717
1,531 2,717
------------ --------------
9 Finance 1 April 1 April
costs 2019 2018 to
to 31 31 March
March 2019
2020
GBP GBP
Loan interest 1,592,948 1,347,779
Loan commitment
fees 49,039 51,219
Amortisation of
lending costs 188,215 108,473
Annual agency 45,000 -
fee
Interest on lease 10,138 -
liabilities
1,885,340 1,507,471
------------ --------------
10 Taxation 1 April 1 April
2019 2018 to
to 31 31 March
March 2019
2020
GBP GBP
Current tax 238,098 167,101
Deferred
tax 1,403,312 124,041
1,641,410 291,142
------------ --------------
A reconciliation of the current tax charge applicable to the results
at the statutory income tax rate to the charge for the year is as
follows:
Current taxation 1 April 1 April
2019 2018 to
to 31 31 March
March 2019
2020
GBP GBP
Profit for the
year before tax 5,160,916 15,246,062
------------ --------------
UK income tax at a rate
of 20% (2019: 20%) 1,032,183 3,049,212
Effects of:
Non-taxable gains on investment
properties (496,233) (2,593,287)
Non-taxable income (55,105) (19,343)
Expenses not deductible
for tax purposes 47,917 37,118
Capital expenditure deductible
for tax purposes 491 (22,797)
Utilisation of capital
allowances (250,156) (191,444)
Utilisation of losses
brought forward - (92,358)
Overprovision of (40,999) -
2019 taxation
Current taxation 238,098 167,101
------------ --------------
Deferred 1 April 1 April
taxation 2019 2018 to
to 31 31 March
March 2019
2020
GBP GBP
Deferred tax asset at 31 March
relates to the following:
Capital allowances available
to carry forward 741,595 1,603,918
Unrealised losses on investment 336,412 -
properties
1,078,007 1,603,918
------------ --------------
Deferred tax asset brought
forward 1,603,918 1,727,959
Deferred tax charge
for the year (525,911) (124,041)
Deferred tax asset carried
forward 1,078,007 1,603,918
------------ --------------
At 31 March 2020, the Group had capital allowances available to carry
forward against future profits and had recognised unrealised losses
on the revaluation of certain investment properties. Having assessed
the potential impact of future tax charges, the Group has recognised
a deferred tax asset of GBP741,595 in respect of the capital allowances
and GBP336,412 in respect of the revaluation losses, as these are
expected to be able to be utilised against future profits.
1 April 1 April
2019 2018 to
to 31 31 March
March 2019
2020
GBP GBP
Deferred tax liability at 31 March
relates to the following:
Chargeable gains on investment 877,401 -
properties
------------ --------------
Deferred tax liability - -
brought forward
Deferred tax charge 877,401 -
for the year
Deferred tax liability 877,401 -
carried forward
------------ --------------
The Directors have assessed the potential deferred tax liability of
the Group as at 31 March 2020, with relation to the chargeable gains
which will arise on the disposal of investment properties. Based on
the unrealised chargeable gains of GBP4,617,900, if the properties
were disposed of at fair value, a deferred tax liability of GBP877,401
has been recognised.
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
2019 to 2018 to
31 March 31 March
2020 2019
GBP GBP
Profit
for the
year 3,519,506 14,954,920
------------- ---------------
Weighted average number of shares
(excluding treasury shares) 28,296,762 28,296,762
------------- ---------------
Earnings per ordinary
share: 0.12 0.53
------------- ---------------
In the opinion of the Board, the dilutive effect of the treasury shares
held to satisfy share awards to management, as disclosed in note 21,
is not material and therefore no diluted earnings per share has been
presented.
12 Investment properties 31 March 31 March
2020 2019
GBP GBP
Opening fair value per
valuation report 124,600,000 114,075,000
Cost of refurbishment of
investment properties 2,041,775 826,634
Cost of acquisition of 15,412,420 -
investment property
Disposal of investment
properties (5,900,000) (4,300,000)
Gain on revaluation of
investment properties 2,514,049 12,609,968
Lease incentive
amortisation 781,756 1,388,398
Fair value of investment properties
per valuation report 139,450,000 124,600,000
------------- ---------------
Unamortised lease incentives recorded
within trade and other receivables (10,109,592) (9,279,822)
Carrying
value 129,340,408 115,320,178
------------- ---------------
No properties were classified as held for sale
at 31 March 2020 and 31 March 2019.
As at 31 March 2020 the fair value of investment properties under
development included in the above amount was nil (2019; nil).
GBP136,250,000 (2019; GBP121,000,000) of the above properties' value,
estimated by the valuer, relate to property held on a freehold basis
and GBP3,200,000 (2019: GBP3,600,000) on a long leasehold basis, for
a peppercorn rent.
The fair value of the Group's investment properties per the Valuation
Report amounted to GBP139,450,000 (2019; GBP124,600,000). The difference
between the fair value of the investment properties per the Valuation
Report and the fair value per the balance sheet of GBP10,109,592 (2019;
GBP9,279,822) 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 16.
The fair value of the Group's investment properties at 31 March 2020
has been estimated on the basis of valuation carried out by Savills.
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.
Sensitivity
analysis
As disclosed in the significant estimates accounting policy, the property
valuations prepared by Savills are subject to a material uncertainty
disclosure and are open to judgements which are inherently subjective.
An increase/decrease in ERV will increase/decrease valuation, while
an increase/decrease to yield decreases/increases valuations. The
table below assess the impact of the sensitivity of the valuation
to changes in ERV and yield.
Movement 31 March
2020
GBP
Increase in ERV
by 5% 5,592,814
Decrease in ERV
by 5% (4,657,477)
Increase in yield
by 0.25% (5,585,000)
Decrease in yield
by 0.25% 5,975,000
---------------------------------- ---------- --- ------------------ --------- ------------- ---------------
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 between
GBP technique unobservable key unobservable inputs and
inputs fair value measurement
-------------------- ------------ ---------- --- ------------------ -------------------------------------------
Office All Risks Estimated void The estimated fair value would
(including Yield periods range increase / (decrease) if:
Conference from 6 months
Centre to 24 months
2020: GBP35,250,000 after the end
2019: of each lease.
GBP35,250,000) (2019: no change)
2019 118,700,000
2020 139,450,000
Retail void periods were shorter
/ (longer);
Warehousing Market rents
have been based
on the specific
circumstances
of each property.
2019 4,600,000 market rents were higher /
(lower);
2020 -
rent free periods were shorter
/ (longer);
Industrial
2019 1,300,000 - Estimated rent letting fees were lower /
free periods (higher);
range from
6 to 12 months
on new leases.
(2019: no change)
2020 -
rent per square foot were
higher / (lower);
Total
2019 124,600,000 - Letting fees equivalent yields were lower
have been / (higher); or
estimated
on vacant units.
2020 139,450,000
market conditions were to
improve / (decline).
- Rent per square
foot ranges
from GBP4 to
GBP40. (2019:
no change)
- Net equivalent
yields range
from 4.45%
to 8.54%. (2019:
5.50% to 8.39%)
- Market conditions
are considered
based on the
property's
location.
------------------
13 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
2020
GBP
Less than
one year 6,605,924
One to
two years 6,863,487
Two to
three years 6,826,035
Three to
four years 6,122,824
Four to
five years 5,771,912
Over five
years 53,335,378
Total 85,525,560
---------------
31 March
2019
GBP
Less than
one year 6,128,074
Between two and
five years 20,881,970
Over five
years 51,993,629
Total 79,003,673
---------------
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 due. The largest single
tenant at the year end accounted for 24.87% (2019; 20.86%) of the
current annual rental income.
The Group has leased office space at 15 Duke Street and 12 St James'
Place in London, which is not part of the investment portfolio stated
in Note 12, and has been accounted for in accordance with IFRS 16.
Right of use assets have been recognised and measured at an amount
equal to the lease liability.
Right of 15 Duke 12 St Total
use assets Street James'
Place
GBP GBP GBP
Balance at 1 April
2019 71,802 83,245 155,047
Amortisation for
the year (27,794) (19,210) (47,004)
Balance at 31 March
2020 44,008 64,035 108,043
--------- ------------- ---------------
Lease Liabilities 15 Duke 12 St Total
Street James'
Place
GBP GBP GBP
Balance at 1 April
2019 71,802 83,245 155,047
Interest
expense 4,479 5,659 10,138
Lease payments (28,860) (22,500) (51,360)
Balance at 31 March
2020 47,421 66,404 113,825
--------- ------------- ---------------
Maturity analysis - contractual 15 Duke 12 St Total
undiscounted cash flows Street James'
Place
GBP GBP GBP
Less than
one year 28,860 22,500 51,360
One to
five years 21,645 52,500 74,145
More than five years - - -
--------- ------------- ---------------
Total undiscounted lease liabilities
at 31 March 2020 50,505 75,000 125,505
Future finance charges
at 31 March 2020 (3,084) (8,596) (11,680)
Lease liabilities at 31
March 2020 47,421 66,404 113,825
--------- ------------- ---------------
Non-Current 21,102 48,225 69,327
--------- ------------- ---------------
Current 26,319 18,179 44,498
--------- ------------- ---------------
14 Lease incentives and 31 March 31 March
receivables 2020 2019
GBP GBP
Non-current
Lease incentives 9,562,066 8,310,903
------------- ---------------
Current
Lease incentives 547,526 968,919
Amounts due from property
agents 405,794 20,034
Tenant
deposits 293,334 88,152
Amounts due from
tenants 888,529 275,540
Other receivables 262,936 201,054
2,398,119 1,553,699
------------- ---------------
Lease incentives consist of GBP5,403,770 (2019; GBP4,354,622) being
the prepayments for rent-free periods and stepped increases in rental
income recognised over the life of the lease and GBP4,705,822 (2019;
GBP4,925,200) relating to incentives paid to tenants.
15 Cash and cash 31 March 31 March
equivalents 2020 2019
GBP GBP
Royal Bank of Scotland
International 2,980,329 3,650,332
National Westminster
Bank plc - 40
2,980,329 3,650,372
------------- ---------------
16 Loan borrowings 31 March 31 March
2020 2019
GBP GBP
Brought
forward 49,039,681 51,815,616
Loan repayments (2,530,000) (51,901,360)
Loan drawdowns 14,091,148 49,738,852
Lending
costs (67,204) (721,900)
Amortisation of
lending costs 188,215 108,473
60,721,840 49,039,681
------------- ---------------
The Group is party to a revolving facility, with NatWest and HSBC.
The facility is a GBP60,000,000 revolving facility with an accordion
option of up to GBP40,000,000, of which GBP5,000,000 had been committed
at the year end. The facility has a four year term, repayable on 13
February 2023. The rate of interest is the aggregate of the margin
2.05% and LIBOR and is payable quarterly. A commitment fee is payable
at a rate of 0.82% on the undrawn facility and in relation to the
accordion facility.
The group paid an arrangement fee of 0.875% for the facility, which
along with other costs of arranging the facility including legal costs
have been amortised and will be written off over the 4 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.
At 31 March 2020 GBP61,300,000 of the total facility had been drawndown.
the undrawn facility was GBP3,700,000 (2019; GBP10,261,148).
17 Reconciliation of movements of liabilities 31 March 31 March
to cash flows from financing activities 2020 2019
GBP GBP
Balance brought forward 49,039,681 51,815,616
Cash flows from financing activities:
Repayment of borrowings (2,530,000) (49,358,932)
Drawdown of borrowings 14,023,944 49,016,953
Payment of lease (51,360) -
liabilities
Non-cash movements:
Amortisation of arrangement
fees 188,215 108,473
Non-cash movement on loan
repayments - (2,542,429)
Recognition of lease 155,047 -
liability
Recognition of interest 10,138 -
expense
Balance carried forward 60,835,665 49,039,681
------------- -----------------
18 Trade and other 31 March 31 March
payables 2020 2019
GBP GBP
Trade payables 79,009 65,997
Property improvement 64,178 -
costs
VAT 186,444 267,442
Wages and salaries 235,408 454,333
Deferred
income 1,603,989 1,638,217
Rental deposit accounts 295,787 92,545
Finance
costs 364,520 188,339
Valuation
Fee 28,000 30,000
Audit fee 60,745 55,080
Administration fees 691 66,159
Current
taxation 216,045 167,101
3,134,816 3,025,213
------------- ---------------
Deferred income relates to deferred rental income of GBP1,489,265
(2019; GBP1,535,383) and deferred insurance recharges of GBP114,724
(2019; GBP102,834).
19 Stated
capital
Issued and fully paid share capital
is as follows:
31 March 31 March
2020 2019
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 21. While held in treasury, these shares
are not entitled to dividends and have no voting rights.
20 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 16.
The Group's debt and capital structure
comprises the following:
31 March 31 March
2020 2019
GBP GBP
Total liabilities 64,847,882 52,064,894
Less: cash and cash
equivalents (2,980,329) (3,650,372)
------------- ---------------
Net debt 61,867,553 48,414,522
Total equity 80,681,353 78,434,041
Net debt to equity
ratio 0.77 0.62
------------- ---------------
21 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 Group
must satisfy the targets in order that the awards will vest at the
end of that period.
The awards vested with reference to two performance conditions, the
Group's Total Shareholder Return ("TSR") and a fixed hurdle rate
for NAV ("NAV"), each accounting for 50% of the award. TSR was a
comparison of share price plus dividends paid with a bespoke basket
of peer companies and REITs. The NAV target was non-vesting if under
8% and if the NAV return was 14% or above then the shares vested
in full. Where the NAV return fell between 8% and 14% the number
of shares that vested were calculated on a straight line basis between
30% and 100%.
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 grants are 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 2016
date
Award 255,034
Share GBP1.49
price
Exercise
price 0p
Term 3 years
Expected
volatility 5%
Expected dividend
yield 3.36%
Risk free
rate 0.36%
Fair value GBP1.35
per option
------------------------------ ----------- ---------- ----------- -------------- ---------------- ---------------
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
award
The options were granted to the executive directors and will vest
at the end of a three-year period ending 31 March 2020. The award
is subject to targets which measure the performance of the Group.
50% of the award will vest with reference to total shareholder return
measured by reference to members of a bespoke comparator group. The
remaining 50% of the award vested with reference to the growth in
net asset value of the Group, taking into account dividends paid
during the relevant period.
Grant 2017
date
Award 261,410
Share GBP1.49
price
Exercise
price 0p
Term 3 years
Expected
volatility 28%
Expected dividend
yield 3.36%
Risk free
rate 0.80%
Fair value GBP1.35
per option
------------------------------ ----------- ---------- ----------- -------------- ---------------- ---------------
At 31 March 2020 87.50% of the 2017 shares vested (228,733) at a
fair value of GBP308,105. The Directors have not yet exercised their
options to acquire.
2018 LTIP
award
The options were granted to the executive directors and will vest
at the end of a three-year period ending 31 March 2021. The award
is subject to targets which measure the performance of the Group.
50% of the award will vest with reference to total shareholder return
measured by reference to members of a bespoke comparator group. The
remaining 50% of the award vested with reference to the growth in
net asset value of the Group, taking into account dividends paid
during the relevant period.
Grant 2018
date
Award 267,944
Share GBP1.49
price
Exercise
price 0p
Term 3 years
Expected
volatility 28%
Expected dividend
yield 3.36%
Risk free
rate 0.80%
Fair value GBP1.35
per option
------------------------------ ----------- ---------- ----------- -------------- ---------------- ---------------
Based on current performance it is estimated that 87.50% of the 2018
shares will vest.
2019 LTIP
award
The options were granted to the executive directors and will vest
at the end of a three-year period ending 31 March 2022. The award
is subject to targets which measure the performance of the Group.
50% of the award will vest with reference to total shareholder return
measured by reference to members of a bespoke comparator group. The
remaining 50% of the award vested with reference to the growth in
net asset value of the Group, taking into account dividends paid
during the relevant period.
Grant 2019
date
Award 444,803
Share GBP1.84
price
Exercise
price 0p
Term 3 years
Expected
volatility 28%
Expected dividend
yield 3.50%
Risk free
rate 0.73%
Fair value GBP1.66
per option
------------------------------ ----------- ---------- ----------- -------------- ---------------- ---------------
Based on current performance it is estimated that 31.25% of the 2019
shares will vest.
The share-based payments expense recognised 31 March 31 March
during the year is as follows: 2020 2019
GBP GBP
LTIP 2016 - 178,143
LTIP 2017 308,104 -
LTIP 2018 210,539 -
LTIP 2019 76,749 -
595,392 178,143
---------------- ---------------
22 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.
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
minimal foreign currency risk as all transactions, assets and liabilities
are 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 Board 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 one has its lease guaranteed by its
parent company and the other operates serviced offices of which the
Group would take over the lettings in the case of a tenant default.
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 2020 was GBP4,537,588 (2019; GBP4,235,152). There were
no financial assets which were past due or considered impaired at
31 March 2020 and 31 March 2019.
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. The properties
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
2020
Financial
assets
Trade and
other receivables 1,557,259 1,557,259 - - - 1,557,259
Cash and cash
equivalents 2,980,329 2,980,329 - - - 2,980,329
----------- ---------- ----------- -------------- ---------------- ---------------
4,537,588 4,537,588 - - - 4,537,588
Financial
liabilities
Trade and
other payables 1,530,827 1,530,827 - - - 1,530,827
Loan
borrowings 60,721,840 1,621,385 1,621,385 62,717,046 - 65,959,816
----------- ---------- ----------- -------------- ---------------- ---------------
62,252,667 3,152,212 1,621,385 62,717,046 - 67,490,643
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 1,386,995 1,386,995 - - - 1,386,995
Loan
borrowings 49,039,681 1,410,285 1,236,415 52,563,287 - 55,209,987
----------- ---------- ----------- -------------- ---------------- ---------------
50,426,676 2,797,280 1,236,415 52,563,287 - 56,596,982
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
16. 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
2020
Financial
assets
Trade and
other receivables - - 1,557,259 1,557,259
Cash and cash
equivalents 2,980,329 - - 2,980,329
----------- -------------- ---------------- ---------------
Financial
liabilities
Trade and
other payables - - 1,530,827 1,530,827
Loan
borrowings 61,300,000 - - 61,300,000
----------- -------------- ---------------- ---------------
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 - - 1,386,995 1,386,995
Loan
borrowings 49,738,852 - - 49,738,852
----------- -------------- ---------------- ---------------
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 0.1% as at 31 March 2020 (2019; 0.75%).
The Group's policy is to hold cash on variable rate bank accounts.
The Group has borrowings amounting to GBP61,300,000 (2019: GBP49,738,852)
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 GBP613,000 (2019; GBP497,389). 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
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.
Any changes in market conditions will directly affect the profit
or loss reported through the Consolidated Statement of Comprehensive
Income. 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.
23 Investment Principal Activity Country Ownership interest
in of
subsidiaries incorporation
31 March 31 March
2020 2019
Circle Property
Unit Trust Property holding Jersey 100% 100%
Circle Property (Milton
Keynes) Limited Property holding Jersey 100% 100%
24 Capital expenditure
commitments
As at 31 March 2020 the Group had contracted capital expenditure
on existing properties of GBP448,741 (2019; GBP198,154). This was
committed but not yet provided for in the financial statements.
25 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.
26 Related
party
disclosures
Oak Group (Jersey) Limited ("OG(J)L") and Oak Trustees (Jersey) Limited
("OT(J)L") are joint Trustees of CPUT and provide administration
and accounting services to the Group. Michael Farrow was a Director
of OG(J)L and OT(J)L until his resignation on 31 May 2019. During
the year OG(J)L and OT(J)L charged a total of GBP305,250 (2019: GBP321,013)
for administration and accountancy services, at the year end nil
was outstanding (2019: GBP66,159).
Directors' interests in the shares of the Company,
including relevant family interests:
Ordinary
shares
John Arnold 1,005,122
Edward
Olins 138,933
The Estate of The
Duke of Roxburghe 2,483,069
James
Hambro 3,217,321
Michael
Farrow 12,900
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 on pages 33 to 34 of the 2020 Annual Report &
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
2019 2018 to
to 31 31 March
March 2019
2020
GBP GBP
Directors
remuneration 1,453,426 1,352,776
---------------- ---------------
A bonus was awarded to the executive directors ("Executives") of
the Company for the year ended 31 March 2020. The Key Performance
Indicators (KPIs") comprise the Net Asset Value, Earnings (EBITDA)
and dividend policy that aims to be progressive in that it either
maintains or increases the annual distribution, each evenly weighted.
Such bonus awards, against KPIs, will always take regard of the individual
performance of the Executive and of the business as a whole but remain
at the absolute discretion of the Board. The COVID-19 pandemic is
considered of such significance that the Directors were unable to
recommend a progressive dividend. This meant that the third KPI was
not achieved. Further to which, the post year-end impact of COVID-19
on the NAV cannot yet be fully determined and so the remuneration
committee, being prudent, recommended that only 50% of that KPI be
awarded. The total bonus award, therefore, is 50% of the prevailing
salary.
The options granted under the LTIP to the directors are as follows
:
granted vested
John Arnold 31-Mar-16 134,228 87.50%
31-Mar-17 137,584 87.50%
31-Mar-18 141,023 0.00%
31-Mar-19 234,107 0.00%
Edward
Olins 31-Mar-16 120,805 87.50%
31-Mar-17 123,826 87.50%
31-Mar-18 126,921 0.00%
31-Mar-19 210,697 0.00%
27 Subsequent
events
There are no material subsequent events requiring adjustment
or disclosure in the financial statements.
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END
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