TIDMCRC
RNS Number : 7751S
Circle Property PLC
18 July 2022
18 July 2022
Circle Property Plc
("Circle", the "Company" or the "Group")
Final Results for the year ended 31 March 2022
Continued delivery of strategy to deliver 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 2022.
John Arnold, Chief Executive of Circle Property Plc, said:
"Good progress has been made with our disposal strategy during
the year. Four properties were sold for an aggregate price of GBP62
million, GBP3 million above the aggregate March 2021 valuation. We
have now successfully disposed of c.50% of our portfolio by
value.
This momentum has continued following the financial year end
with the sale of 720 Aztec West in May 2022, GBP0.32 million ahead
of its March 2022 valuation. The proceeds of these disposals were
predominantly used to reduce gearing and consequently we are now
debt free.
"We remain focused on actively managing our assets and returning
capital to shareholders in the most tax efficient manner. There
remains a shortage of high-quality, well-located regional offices
and we therefore remain confident that the appetite for our assets
is set to continue."
Financial Highlights: Strategy delivering strong returns
-- 5.54% increase in like for like growth in property portfolio value from 31 March 2021.
-- 2.60% increase in Net Asset Value ("NAV") per share to GBP2.81 (31 March 2021: GBP2.74).
-- Earnings per share of 15p (31 March 2021: loss of 9p).
-- Profit before tax of GBP5.8 million reflecting a combination
of operational profit and revaluation gains (31 March 2021: loss of
GBP2.7 million).
-- Proposed final dividend of 3.5p per share for the year ended
31 March 2022 (31 March 2021: 4p per share) which together with the
interim dividend of 3.5p per share, brings the total annual
dividend to 7p per share (31 March 2021: 6.5p per share).
Operational Highlights: Active portfolio management and disposal
programme to extract maximum value for our assets
-- Four properties sold during the year at an aggregate price of
GBP62 million (GBP3 million or 5% above the aggregate March 2021
valuation)
o Compass Conference Centre, Milton Keynes: GBP34.5 million
o 135 Aztec West, Bristol: GBP3.96 million
o 141 Moorgate, London: GBP3.56 million
o One Castle Park, Bristol: GBP20 million
-- 80.2% of total portfolio is let and income producing
-- High-spec, modern fit-outs undertaken at Concorde Park,
Maidenhead and 36 Great Charles Street, Birmingham to improve
sustainability attributes and letting attractiveness
-- Development project: Refurbishment of K3 Kents Hill, Milton
Keynes underway, with a pre-let agreed (ahead of completion of
works) with Kuehne + Nagel for the whole property
Post year-end
-- In May, the sale of 720 Aztec West for GBP2.52 million (14.5%
increase on the March 2022 valuation of GBP2.2 million)
-- In June, the Company repaid the amount outstanding under its
debt facility in full and is now debt free, with a net cash balance
of GBP5.8m
Outlook
-- Confident in continuing to deliver our strategy of divestment and maximising total returns
-- Anticipate disposing of the balance of the portfolio within
the next 18-24 months at aggregate prices expected to show a triple
net NAV of no less than GBP2.75 per share
-- The Board remains committed to maximising returns and
delivering value to Shareholders, and expects a minimum of two
returns of capital will be made to shareholders, the first of which
is expected to occur by March 2023.
The annual report and accounts for the year ended 31 March 2022
and the Notice of AGM are expected to be posted to shareholders on
20 July 2022 and will be available on the Company's website:
www.circleproperty.co.uk, shortly.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the UK version of the EU Market Abuse Regulation (2014/596) which
is part of UK law by virtue of the European Union (Withdrawal) Act
2018, as amended and supplemented from time to time.
Enquiries:
+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 Partners 1830
Joshua Cryer
Iain Daly
+44 (0) 203 757
Camarco 4992
Ginny Pulbrook
Rosie Driscoll
Toby Strong
Chairman's Statement
The Group's regional office portfolio continues to show its
resilience. Our assets are selected for their strong locations,
asset management potential and letting prospects. This strategy has
continued to serve us well, delivering significant returns for
shareholders since IPO.
Since the Board took the strategic decision to break up the
portfolio and return the capital proceeds to shareholders, the
Board is pleased to see the market recognise the underlying value
inherent in Circle's property portfolio as evidenced by the
material uplift in share price. This decision was not taken lightly
given the strong financial and operational performance of the
Company since IPO but was ultimately made in the best interests of
shareholders.
Notwithstanding this change in strategy, active management
continues unabated throughout the portfolio, with refurbishment and
lettings adding value prior to individual sales.
We continue to reduce arrears, through negotiations with our
tenants with whom we maintain close contact. The office continues
to play an essential role for businesses, evidenced by tenants
returning post the impacts of COVID-19.
Our de-gearing has been completed with the Group's loan facility
having been repaid in full on 22 June 2022. Based on the
performance during the year and the positive progress made by the
Company, the Board recommends a final dividend of 3.5p, bringing
the total dividend for the year to 7p, an increase of 8% on last
year.
I would like to thank the Circle Property team for their hard
work throughout the year. With our team's expertise in maximising
returns from our portfolio from within the regional commercial
market, we remain confident of continuing to deliver on our
strategy of divestment and total returns.
Chief Executive's Statement
Our regional office portfolio has performed well in the period,
with like-for like valuations up 5.54%. As increasing numbers of
workers have returned to the office, the importance of having a
place to meet and collaborate is clear. As an internally managed
company, we take pride in our tenant relationships and the benefits
of this model have been particularly apparent during the last few
years with the global pandemic.
Following the Board's decision to wind-down the portfolio and
return the proceeds to shareholders in an orderly manner, good
progress has been made with the disposals programme, extracting
maximum value for our assets.
At the start of the year in April 2021, we owned 15 properties
at a total value of GBP132.15 million and by the year end, four
properties had been sold at an aggregate price of GBP62 million
(GBP3 million above the aggregate March 2021 valuation). At the
current rate of sale, we anticipate selling the whole portfolio
within the next 18 to 24 months at aggregate prices which we expect
to show a triple net NAV of no less than GBP2.75 per share.
In many instances, sales prices (both achieved and projected)
continue to be enhanced by lettings and lease renewals. For
example, K3 Kents Hill in Milton Keynes, currently undergoing a
GBP2.2 million refurbishment where Kuehne + Nagel have signed an
agreement to lease the entire property of 13,200 sq ft at a rent of
GBP316,000 per annum on a ten-year lease without break. The rent
achieved creates a new benchmark at Kents Hill Business Park, which
will be reflected in the valuation of buildings K1 and K2. Formal
sales marketing of Kents Hill Park will commence in advance of
completion of the building works.
During the year we also sold One Castle Park, Bristol, for GBP20
million (a 3.9% increase on the 31 March 2021 valuation) and sold
135 Aztec West, Bristol for GBP3.961 million, a 62% increase (post
refurbishment cost) on the 31 March 2021 valuation of GBP1.55
million. The proceeds of these were largely used to reduce the
Company's gearing.
Following our financial year end, we also exchanged contracts on
the sale of 720 Aztec West for GBP2.52 million, an uplift on the 31
March 2022 valuation of GBP2.2 million.
As the disposal programme continues, the Board will be returning
capital to shareholders in the most tax efficient manner. It is
envisaged that this will be done in a minimum of two tranches.
Circle Property Plc
Consolidated statement of comprehensive
income
for the year ended 31 March 2022
1 April 1 April 2020
2021 to to 31 March
31 March 2021
Note 2022
GBP GBP
Rental income 4 7,458,236 7,657,830
Other income 4 1,581,773 2,233,842
------------ -------------
9,040,009 9,891,672
Property expenses 5 (2,082,925) (2,356,221)
6,957,084 7,535,451
Administrative expenses 6 (3,583,744) (2,615,926)
Operating profit 3,373,340 4,919,525
Gain on disposal of investment properties 2,070,908 263,446
Gain/ (loss) on revaluation of investment
properties 12 1,837,721 (6,224,003)
Operating profit / (loss) after revaluation
of investment properties 7,281,969 (1,041,032)
Finance income 8 192 2,094
Finance costs 9 (1,488,907) (1,696,110)
Net finance costs (1,488,715) (1,694,016)
Profit/(loss) for the year before taxation 5,793,254 (2,735,048)
Taxation 10 (1,425,337) 199,729
Total comprehensive profit / (loss)
for the year 4,367,917 (2,535,319)
------------ -------------
Earnings / (loss) per share 0.15 (0.09)
Diluted earnings / (loss) per share 0.15 (0.09)
------------ -------------
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.
Circle Property Plc
Consolidated statement of financial
position
As at 31 March 2022
Note 31 March 31 March
2022 2021
GBP GBP
Non-current assets
Investment properties 12 32,399,476 121,289,149
Right of use assets 14 75,728 61,039
Property, plant and equipment 49,025 54,410
Lease incentives 15 1,350,524 10,127,528
Deferred tax asset 10 406,612 1,291,615
------------ ------------
34,281,365 132,823,741
Current assets
Investment properties 12 39,994,194 -
Asset held-for-sale 13 2,200,000 -
Trade and other receivables 15 3,858,790 2,982,923
Cash and cash equivalents 16 25,303,400 7,522,804
------------ ------------
71,356,384 10,505,727
Total assets 105,637,749 143,329,468
============ ============
Equity
Stated capital 20 42,542,179 42,542,179
Share based payment reserve 1,047,684 1,047,684
Retained earnings 36,060,113 33,814,453
------------ ------------
Total equity 79,649,976 77,404,316
Non-current liabilities
Loan borrowings 17 - 61,922,684
Trade and other payables 19 1,055,871 -
Lease liabilities for right of
use assets 14 47,398 28,601
Deferred tax liability 10 923,046 482,171
------------ ------------
2,026,315 62,433,456
Current liabilities
Trade and other payables 19 2,631,128 3,450,969
Loan borrowings 17 21,305,537 -
Lease liabilities for right of
use assets 14 24,793 40,727
------------ ------------
23,961,458 3,491,696
Total liabilities 25,987,773 65,925,152
------------ ------------
Total liabilities and equity 105,637,749 143,329,468
============ ============
The consolidated financial statements were approved and authorised
for issue by the Board of Directors on and signed on its behalf
by:
Director
Circle Property
Plc
Consolidated statement of changes
in equity
for the year ended 31 March
2022
Stated Treasury Share Retained Total
capital share based payment earnings
capital reserve
(i)
GBP GBP GBP GBP GBP
As at 1 April
2020 42,162,178 380,001 516,048 37,623,126 80,681,353
Loss for the year - - - (2,535,319) (2,535,319)
Share-based payments - - 531,636 - 531,636
Dividends - - - (1,273,354) (1,273,354)
As at 31 March
2021 42,162,178 380,001 1,047,684 33,814,453 77,404,316
Profit for the
year - - - 4,367,917 4,367,917
Share-based payments - - 437,895 - 437,895
Reclassification - - (437,895) - (437,895)
Dividends - - - (2,122,257) (2,122,257)
As at 31 March
2022 42,162,178 380,001 1,047,684 36,060,113 79,649,976
----------- --------- --------------- ------------ ---------------
(i) Share
based payment
reserve
GBP
Issue of treasury
shares (380,001)
As at 31 March
2016 (380,001)
---------------
As at 31 March
2017 (380,001)
---------------
Share based payments 122,514
As at 31 March
2018 (257,487)
---------------
Share based payments 178,143
As at 31 March
2019 (79,344)
---------------
Share based payments 595,392
As at 31 March
2020 516,048
---------------
Share based payments 531,636
As at 31 March
2021 1,047,684
---------------
Share based payments 437,895
Reclassification of share-based payment to long-term
incentive payment (437,895)
As at 31 March
2022 1,047,684
---------------
Circle Property Plc
Consolidated statement of cash flows
for the year ended 31 March 2022
1 April 1 April 2020
2021 to 31 to 31 March
March 2022 2021
Note GBP GBP
Cash flows from operating activities
Profit/(loss) for the year before taxation 5,793,254 (2,735,048)
Adjustments for:
Finance income (192) (2,094)
Finance costs 1,488,907 1,696,110
Depreciation 16,715 14,167
Amortisation of right of use assets 30,196 47,005
(Gain)/loss on revaluation of investment
properties (1,837,721) 6,224,003
Gain on disposal of investment properties (2,070,908) (263,446)
Share based payments 437,895 531,636
Increase in trade and other receivables 15 (207,344) (1,150,266)
Increase in trade and other payables 17,065 185,615
Cash generated from operating activities 3,667,867 4,547,682
Interest paid (1,332,610) (1,578,755)
Interest received 192 2,094
Taxation paid (480,779) (151,475)
Net cash from operating activities 1,854,670 2,819,546
------------- -------------
Cash flows from investing activities
Net proceeds from disposal of investment
properties 61,009,583 3,513,446
Cost of refurbishment of investment properties (2,089,004) (1,459,489)
Cost of additions of property, plant
and equipment (11,330) (6,314)
Net cash from investing activities 58,909,249 2,047,643
------------- -------------
Cash flows from financing activities
Repayment of borrowings (40,819,344) -
Drawdown of borrowings - 1,000,000
Payment of lease liabilities (41,722) (51,360)
Dividends paid (2,122,257) (1,273,354)
Net cash used in financing activities (42,983,323) (324,714)
------------- -------------
Net increase in cash and cash equivalents 17,780,596 4,542,475
Cash and cash equivalents at the beginning
of the year 7,522,804 2,980,329
Cash and cash equivalents at the end
of the year 25,303,400 7,522,804
------------- -------------
Circle Property Plc
Notes to the consolidated financial statements
for the year ended 31 March 2022
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 24.
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. On 28 February 2022, the
address of its registered office was changed from 3rd Floor,
Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2
4SZ to Oak Group (Jersey) Limited, 3rd Floor, IFC5, Castle Street,
St Helier, Jersey, JE2 3BY.
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 in accordance with International Financial
Reporting Standards as adopted by the UK (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
On 14 February 2022 the Group announced the disposal of Kents
Hill Park Conference Centre and provided an update on its future
strategy whereby it would make targeted property sales, whilst
investing in and actively managing the remainder of the property
portfolio, over an extended period of two to three years. The
proceeds of the future disposals were to be utilised to continue to
reduce borrowings with the remaining proceeds to be returned to
shareholders in an orderly and efficient manner.
Due to the Group's intention to pursue this revised strategy,
the financial statements have been prepared on a basis other than
going concern.
In preparing the financial statements on an alternate basis, the
Board has continued to apply the requirements of IFRS taking into
account that the Group is not intended to continue as a going
concern in the foreseeable future.
This has resulted in a reclassification of investment properties
and associated lease incentive assets that are expected to be
disposed of in the year ending 31 March 2023 as current assets in
accordance with IAS 1. There has been no impact on the measurement
of assets and liabilities as at 31 March 2022. No additional
provisions have been recognised as at 31 March 2022 in relation to
the costs expected to be incurred in winding down the Group's
operations.
Notwithstanding the Board's intention that the Group will not
continue for the foreseeable future, at 31 March 2022, the Group's
financial statements disclosed a net current asset position with an
available cash balance of GBP25.3 million. The balance of the
Group's loan facility with NatWest and HSBC at that date was
GBP21.4m with a final repayment date of 13 February 2023.
Following the disposal of 720 Aztec West in May 2022 the
proceeds, net of costs, were fully utilised to partially repay the
loan facility resulting in an outstanding facility balance of GBP19
million.
Having considered the best use of the Group's available cash
balance the Directors resolved to fully repay the remaining balance
of the loan facility thus saving future interest costs, commitment
fees and compliance costs associated with the facility. On 22 June
the loan facility was repaid in full .
The remainder of the property portfolio continues to be actively
managed with strong rental collections and the timely recovery of
any arrears. In assessing the Group's ability to continue
operating, the Group's cash forecasts have been modelled based on
the circumstances of each tenant on an individual basis and all
envisaged development expenditure has been accounted for. Rental
collections continue to be monitored on a monthly basis with
payment plans agreed for the collection of overdue amounts.
Basis of consolidation
The financial statements incorporate the financial statements of
the Company and its subsidiaries, as outlined in note 24.
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 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 2021. These changes have not
had a significant impact on the preparation of these financial
statements.
New Accounting Requirements not yet adopted
A number of new standards, amendments to standards and
interpretations are effective for annual periods beginning after 1
January 2022 and have not been early adopted in preparing these
financial statements. None of these are expected to have a material
effect on the financial statements of the Group.
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 reporting 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 judgements
Going concern
In assessing the appropriate basis for the preparation of the
financial statements the Directors concluded that the Board's
commitment to the revised disposal strategy, following its approval
at the General Meeting in March 2022, means that the Group has no
realistic alternative but to pursue this strategy which will
ultimately result in the Group being wound up and therefore the
non-going concern basis of preparation has been adopted.
Determination of presentation of current and non-current
assets
When preparing the financial statements on a basis other than a
going concern the Directors have assessed the anticipated timing of
the disposal of the remainder of the property portfolio. The
assessment has been based on the level of continued active
management required in respect of each property and the stage of
the sale process for properties which are currently being marketed
for sale. Based on this assessment, investment properties which are
expected to be disposed of within 12 months of the year end have
been classified as current assets along with the lease incentives
recognised thereon.
Significant estimates
Long term employee benefit
As disclosed in note 27 to the financial statements the Group
has recognised a liability in respect of the incentive payment
payable to the Executive Directors on completion of the disposal
programme. In measuring the fair value of the liability the Board
has considered the anticipated timing of each disposal with the
expected gain/loss on each disposal being measured using a range
between 10% under and 10% over the 31 March 2022 independent
valuation. The weighted average of these measurements has been
adjusted to present value using a discount rate of 2.74%.
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 2022. 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.
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.
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.
Employee benefits
In accordance with IAS 19 'Employee Benefits' the cost of
providing employee benefits is recognised in the period in which
the benefit is earned by the employee, rather than when it is paid
or payable.
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. The fair value is based on valuations provided by Savills
at the reporting 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.
Recognition and derecognition occurs on the completion of a sale
between a willing buyer and a willing seller. Any investment
properties which meet the criteria of IFRS5 at the year end are
disclosed as properties held for sale and stated at fair value. At
31 March 2022, there was one property classified as held for sale
(2021: none).
At 31 March 2022, the property 720 Aztec West, met the IFRS 5
criteria stated below:
Management is committed to a plan to sell
The asset is available for immediate sale
An active programme to locate a buyer is initiated
The sale is highly probable, within 12 months of classification
as held for sale
The asset is being actively marketed for sale at a sales price
reasonable in relation to its fair value
Actions required to complete the plan indicate that it is
unlikely that plan will be significantly changed or
withdrawn
Assets held for sale are derecognised when significant risks and
rewards attached to the asset have transferred from the group which
is on completion of contracts.
None of the Group's other investment properties met all of the
above criteria at 31 March 2022 and accordingly continue to be
classified as investment properties.
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 2022 and 31 March 2021
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.
Leases
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.
Group as lessee
The Group leases office space under contracts made for fixed
periods.
These leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset is
available for use by the Group.
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.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease
period.
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 Group pays UK corporation tax on its net rental income and
realised chargeable gains at a rate of 19%. 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.
With effect from 6 April 2023, the current tax rate of 19% will
increased to 25%. Consideration was taken by management when
calculating the deferred tax on chargeable gains and losses as
disclosed in note 10.
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
reporting 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.
Stated 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 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 as disclosed in
note 22.
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
2021 to 2020 to
31 March 31 March
2022 2021
GBP GBP
Rental income 6,904,275 6,906,571
Lease incentives
adjustment 553,961 751,259
---------- ----------
7,458,236 7,657,830
Service charge income 1,324,494 1,633,071
Insurance recovery 125,279 142,762
Other income 132,000 458,009
1,581,773 2,233,842
---------- ----------
9,040,009 9,891,672
---------- ----------
5 Property expenses
1 April 1 April
2021 to 2020 to
31 March 31 March
2022 2021
GBP GBP
Void property service
charges 393,323 331,904
Void property rates 111,387 101,968
Other void property costs 78,485 26,392
Property repairs and maintenance
costs 28,753 94,556
Property insurance 146,483 168,330
Recoverable service charge
costs 1,324,494 1,633,071
2,082,925 2,356,221
---------- ----------
6 Administrative expenses
1 April 1 April
2021 to 2020 to
31 March 31 March
2022 2021
Note GBP GBP
Staff costs 7 2,167,519 1,657,273
Administration fees 308,302 305,540
Legal and professional
fees 589,238 415,687
Audit fees 75,630 67,000
Accountancy fees 6,424 8,016
Rent, rates and other
office costs 10,786 26,763
Other overheads 72,941 74,475
Depreciation of tangible
fixed assets 16,715 14,167
Amortisation of right of
use assets 30,196 47,005
Waiver of rental arrears 200,000 -
Provision for doubtful 105,993 -
debts
3,583,744 2,615,926
---------- ----------
7 Employees and Directors' Remuneration
1 April 1 April
2021 to 2020 to
31 March 31 March
2022 2021
GBP GBP
Staff costs during the year
were as follows:
Non-executive directors'
fees 153,750 168,750
Wages and salaries 754,421 762,400
Share-based payments (Note
22) 437,895 531,636
National insurance costs 119,547 112,118
Pension contributions 37,784 37,028
Long-term incentive payment 612,861 -
Other employment costs 51,261 45,341
2,167,519 1,657,273
---------- ----------
8 Finance income
1 April 1 April
2021 to 2020 to
31 March 31 March
2022 2021
GBP GBP
Bank interest 192 2,094
192 2,094
---------- ----------
9 Finance costs
1 April 1 April
2021 to 2020 to
31 March 31 March
2022 2021
GBP GBP
Loan interest 1,209,950 1,420,734
Loan commitment fees 71,949 22,670
Amortisation of lending
costs 202,197 200,844
Annual agency fee - 45,000
Interest on long-term incentive 5,111 -
payment
Interest on lease
liabilities (300) 6,862
1,488,907 1,696,110
---------- ----------
10 Taxation
1 April 1 April
2021 to 2020 to
31 March 31 March
2022 2021
GBP GBP
Current tax charge for the
year 99,459 409,109
Deferred tax charge/(credit)
for the year 433,958 (608,838)
Impairment of deferred 891,920 -
tax asset
Total charge/(credit)
for the year 1,425,337 (199,729)
---------- ----------
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 1 April 1 April
taxation 2021 to 2020 to
31 March 31 March
2022 2021
GBP GBP
Profit / (Loss) for the year
before tax 5,793,254 (2,735,048)
---------- ------------
UK corporation tax at a rate
of 19% 1,100,718 (519,659)
Effects
of:
Non-taxable (gain)/loss on investment
properties (349,167) 1,182,561
Offset of taxable gains on disposals
against taxable losses (393,473) (9,500)
Expenses not deductible for
tax purposes 215,677 105,049
Utilisation of capital (424,79
allowances 0 ) (284,772)
Overprovision of prior year
taxation (49,506) (64,570)
Current 99,45
taxation 9 409,109
---------- ------------
Deferred taxation 1 April 1 April
2021 to 2020 to
31 March 31 March
2022 2021
GBP GBP
Deferred tax asset at 31 March relates
to the following:
Capital allowances available
to carry forward 47,355 682,917
Unrealised losses on investment
properties 359,257 482,171
Share-based payments - 126,527
406,612 1,291,615
---------- ----------
Deferred tax asset brought
forward 1,291,615 1,078,007
Deferred tax credit
for the year 6,917 213,608
Impairment of tax (891,920) -
asset
Deferred tax asset carried
forward 406,612 1,291,615
---------- ----------
At 31 March 2022, the Group had capital allowances available to
carry forward against future profits. Having assessed the potential
impact of future tax charges, the Group has recognised a deferred
tax asset of GBP47,355 (2021: GBP682,917) being the maximum amount
of tax relief expected to be available to be utilised against
future profits.
The Group has recognised unrealised losses on the revaluation of
certain investment properties. A deferred tax asset of GBP359,257
(2021: GBP482,171) has been recognised in respect of the expected
future tax relief available on these losses. The quantum of the
deferred tax relief available has been measured with reference to
the future tax rate expected to be in effect at the date of the
anticipated disposal of each property.
The quantum of the deferred tax relief available has been
measured with reference to the future tax rate expected to be in
effect at the date of the anticipated disposal of each
property.
Having assessed the future taxable profits of the Group, the
deferred tax asset in respect of share-based payments has been
derecognised as it is not anticipated that the Group will have
sufficient taxable profits at the date the options are
exercised.
1 April 1 April
2021 to 2020 to
31 March 31 March
2022 2021
GBP GBP
Deferred tax liability at 31 March
relates to the following:
Chargeable gains on investment
properties 923,046 482,171
---------- ----------
Deferred tax liability brought
forward 482,171 877,401
Deferred tax charge/(credit)
for the year 440,875 (395,230)
Deferred tax liability carried
forward 923,046 482,171
---------- ----------
The Directors have assessed the potential deferred tax liability
of the Group as at 31 March 2022, with relation to the chargeable
gains which will arise on the disposal of investment properties.
Based on the unrealised chargeable gains of GBP4,619,383 (2021
GBP2,537,740), if the properties were disposed of at fair value, a
deferred tax liability of GBP923,046 (2021: GBP482,171) has been
recognised.
In the 3 March 2021 UK Budget it was announced that the UK
corporation tax rate will increase from 19% to 25% with effect from
1 April 2023. The Directors have estimated the expected timings of
investment property disposals in order to establish the appropriate
tax rate in which to measure the deferred tax asset and liability
on chargeable gains and losses on investment property
disposals.
11 Earnings per share
Basic earnings per share has been calculated on profit/(loss)
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
2021 to 2020 to
31 March 31 March
2022 2021
GBP GBP
Profit/(loss) for
the year 4,367,917 (2,535,319)
----------- ------------
Weighted average number of shares (excluding
treasury shares) 28,296,762 28,296,762
----------- ------------
Profit/(loss) per
ordinary share: 0.15 (0.09)
----------- ------------
Diluted earnings per share
1 April 1 April
2021 to 2020 to
31 March 31 March
2022 2021
GBP GBP
Profit/(loss) for
the year 4,367,917 (2,535,319)
----------- ------------
Weighted average number of
shares 29,183,396 29,322,398
----------- ------------
Profit/(loss) per
ordinary share: 0.15 (0.09)
----------- ------------
12 Investment properties
31-Mar-22 31-Mar-21
GBP GBP
Opening fair value per valuation
report 132,150,000 139,450,000
Cost of refurbishment of investment
properties 2,296,994 1,422,744
Disposal of investment properties (58,938,675) (3,250,000)
Gain/(loss) on revaluation of investment
properties 1,837,721 (6,224,003)
Lease incentive amortisation 553,960 751,259
Reclassification of asset (2,200,000) -
held for sale
Fair value of investment properties
per valuation report 75,700,000 132,150,000
------------- -------------
Unamortised lease incentives recorded within
trade and other receivables (3,306,330) (10,860,851)
Carrying
value 72,393,670 121,289,149
------------- -------------
Following the amendment of the basis of preparation of the
financial statements, investment properties and the unamortised
lease incentives thereon have been recognised as current and
non-current assets dependent on the anticipated disposal date. At
31 March 2022 GBP41,950,000 of the total value of the investment
property of GBP75,700,000 has been recognised as a current asset
and GBP33,750,000 has been recognised as a non-current asset.
At 31 March 2022, 720 Aztec West is being classified as held for
sale given that it meets IFRS 5 criteria (2021: None).
As at 31 March 2022 the fair value of investment properties
under development included in the above amount was nil (2021:
nil).
GBP75,700,000 (2021: GBP129,300,000) of the above properties'
value, estimated by the valuer, relate to property held on a
freehold basis and GBPnil (2021: GBP2,850,000) on a long leasehold
basis, for a peppercorn rent.
The fair value of the Group's investment properties per the
Valuation Report, excluding 720 Aztec West, amounted to
GBP75,700,000 (2021: GBP132,150,000). The difference between the
fair value of the investment properties per the Valuation Report
and the fair value per the balance sheet of GBP3,306,330 (2021:
GBP10,860,851) 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 17.
The fair value of the Group's investment properties at 31 March
2022 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 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-Mar-22 31-Mar-21
GBP GBP
Increase in ERV by
5% 3,695,000 4,886,156
Decrease in ERV by
5% (3,202,138) (4,922,933)
Increase in yield
by 0.25% (2,655,000) (5,332,137)
Decrease in yield
by 0.25% 3,035,000 5,799,355
---------------------- -------------- --------------
The following table shows the valuation technique used in
measuring the fair value of investment properties, as well as the
significant unobservable inputs used.
Inter-relationship
between key unobservable
Valuation Valuation Significant unobservable inputs and fair value
Sector GBP technique inputs measurement
-----------
Office All Risks Estimated void periods The estimated fair value
Yield range from 6 months would increase / (decrease)
to 24 months after if:
the end of each lease.
(2021: no change)
2021 96,800,000
void periods were shorter
2022 75,700,000 / (longer);
Conference Market rents have market rents were higher
been based on the / (lower);
specific circumstances
of each property.
Centre
2021 35,350,000 rent free periods were
shorter / (longer);
2022 -
Estimated rent free letting fees were lower
periods range from / (higher);
six to 15 months
on new leases. (2021:
six to 12 months)
rent per square foot
were higher / (lower);
Total
2021 132,150,000 Letting fees have equivalent yields were
been estimated on lower / (higher); or
vacant units.
2022 75,700,000
Net equivalent yields
range from 6.01%
to 9.15%. (2021:
4.45% to 8.63%)
Market conditions
are considered based
on the property's
location.
13 Assets held-for-sale
31-Mar-22 31-Mar-21
GBP GBP
Reclassification of 720 Aztec 2,200,000 -
West
Carrying 2,200,000 -
value
---------- ----------
As at year end, the Directors were satisfied that the property
met the relevant IFRS 5 criteria given that:
Management is committed to a plan to sell
The asset was available for immediate sale
The buyer had been found and an offer received
The sale was highly probable, within 12 months of classification
as held for sale
The asset is being actively marketed for sale at a sales price
reasonable in relation to its fair value
Actions required to complete the plan indicate that it is
unlikely that plan will be significantly changed or withdrawn
On 26 May 2022, the Group completed the sale of 720 Waterside
Drive, Aztec West, Almondsbury, Bristol, BS32 4UD, with Maybrook
Properties Limited for a total gross consideration of
GBP2,520,000.
14 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-Mar-22 31-Mar-21
GBP GBP
Less than one
year 5,071,892 7,024,942
One to two years 4,428,184 7,272,046
Two to three
years 4,008,711 6,503,502
Three to four
years 3,625,355 6,137,528
Four to five
years 3,357,348 5,328,743
Over five years 15,876,770 47,251,404
Total 36,368,260 79,518,164
----------- -----------
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 15.68%
(2021: 20.08%) of the current annual rental income.
The Group currently has leased office space at 15 Duke Street 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. During the year the Group terminated
the office space lease relating to 12 St James' Place.
Right of use 15 Duke 12 St Total
assets Street James'
Place
GBP GBP GBP
Balance at 1 April
2021 16,214 44,824 61,038
Additions 84,907 - 84,907
Termination of lease - (40,021) (40,021)
Amortisation for
the year (25,393) (4,803) (30,196)
Balance at 31 March
2022 75,728 - 75,728
--------- --------- ---------
Lease Liabilities 15 Duke 12 St Total
Street James'
Place
GBP GBP GBP
Balance at 1 April
2021 21,103 48,226 69,329
Additions 84,907 - 84,907
Interest
expense 2,256 859 3,115
Lease payments (36,075) (5,647) (41,722)
Termination of lease - (43,438) (43,438)
Balance at 31 March
2022 72,191 - 72,191
--------- --------- ---------
Maturity analysis - contractual 15 Duke 12 St Total
undiscounted cash flows Street James'
Place
GBP GBP GBP
Less than
one year 28,860 - 28,860
One to five
years 50,505 - 50,505
More than five years - - -
-------- --------- --------
Total undiscounted lease liabilities
at 31 March 2022 79,365 - 79,365
Future finance charges
at 31 March 2022 (7,174) - (7,174)
Lease liabilities at 31
March 2022 72,191 - 72,191
-------- --------- --------
Non-Current 47,398 - 47,398
-------- --------- --------
Current 24,793 - 24,793
-------- --------- --------
15 Lease incentives and receivables
31-Mar-22 31-Mar-21
GBP GBP
Non-current
Lease incentives
(1) 1,350,524 10,127,528
---------- -----------
Current
Lease incentives
(1) 1,955,807 733,323
Amounts held by agents 77,491 -
Tenant deposits 225,351 272,824
Amounts due from
tenants 1,426,867 1,695,925
Provision for doubtful (105,993) -
debts
Other receivables 279,267 280,851
3,858,790 2,982,923
---------- -----------
(1) - During the year the company disposed of a number of
investment properties. On disposal, the lease incentive receivable
recognised to the date of sale was reversed. Of the total lease
incentive movement of GBP7,554,520, reversal of lease incentives in
respect of properties sold was GBP7,159,464.
Lease incentives consist of GBP3,306,330 (2021: GBP6,373,806)
being the prepayments for rent-free periods and stepped increases
in rental income recognised over the life of the lease and GBPnil
(2021: GBP4,487,045) relating to incentives paid to tenants.
16 Cash and cash equivalents
31-Mar-22 31-Mar-21
GBP GBP
Royal Bank of Scotland International 25,303,218 5,747,804
National Westminster
Bank plc 182 1,775,000
25,303,400 7,522,804
----------- ----------
17 Loan borrowings
31-Mar-22 31-Mar-21
GBP GBP
Brought forward 61,922,684 60,721,840
Loan repayments (40,819,344) -
Loan drawdowns - 1,000,000
Amortisation of lending
costs 202,197 200,844
21,305,537 61,922,684
------------- -----------
The Group was party to a revolving facility, with NatWest and
HSBC. The facility was a GBP60,000,000 revolving facility with an
accordion option of up to GBP40,000,000. During the year, the
revolving facility commitment was reduced to GBP30,000,000, with a
total of GBP5,000,000 having been committed under the accordion
option. The facility had a four year term, repayable on 13 February
2023.
On 10 November 2021, the Company entered into a Deed of
Amendment and Restatement of the facility agreement whereby the
rate of interest chargeable under the facility was amended from
being linked to LIBOR to SONIA.
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 2022 GBP21,480,656 of the total facility had been
drawn down (31 March 2021: GBP62,300,000). The undrawn facility was
GBP13,519,344 (2021; GBP2,700,000).
On 26 May 2022, 720 Aztec West was sold, with all of the net
proceeds utilised to partially repay the loan facility. The loan
balance post repayment was reduced to GBP19m.
On 22 June 2022 the remaining balance of the loan facility was
repaid in full.
1 8 Reconciliation of movements of liabilities to cash flows from financing activities
31-Mar-22 31-Mar-21
GBP GBP
Balance brought forward 61,992,011 60,835,665
Cash flows from financing activities:
Repayment of borrowings (40,819,344) -
Drawdown of borrowings - 1,000,000
Payment of lease
liabilities (41,722) (51,360)
Non-cash movements:
Amortisation of arrangement
fees 202,197 200,844
Recognition of lease 84,907 -
liability
Termination of lease (43,438) -
Lease liability interest
expense 3,115 6,862
Balance carried forward 21,377,726 61,992,011
------------- -----------
19 Trade and other payables
31-Mar-22 31-Mar-21
GBP GBP
Non-current
Long-term incentive 1,055,871 -
payment
---------- ----------
Current
Trade payables 166,312 50,467
Property improvement
costs 235,423 27,433
VAT 25,307 170,918
Wages and salaries 352,723 338,664
Deferred
income 1,210,499 1,745,607
Rental deposit accounts 225,351 272,968
Finance costs 223,458 274,169
Valuation
Fee 24,000 30,000
Audit fee 75,630 67,000
Administration fees 66 64
Current taxation 92,359 473,679
2,631,128 3,450,969
---------- ----------
Deferred income relates to deferred rental income of
GBP1,126,026 (2021; GBP1,645,006) and deferred insurance recharges
of GBP84,473 (2021; GBP100,601).
20 Stated capital
Issued and fully paid share capital is as follows:
31-Mar-22 31-Mar-21
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.
21 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 17.
The Group's debt and capital structure comprises the
following:
31-Mar-22 31-Mar-21
GBP GBP
Total liabilities 25,987,773 65,925,152
Less: cash and cash
equivalents (25,303,400) (7,522,804)
------------- ------------
Net debt 684,373 58,402,348
Total equity 76,649,976 77,404,316
Debt to equity ratio 0.01 0.75
------------- ------------
22 Share based payments
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.
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.
During the year, the Group recognised a share-based payment
expense of GBP437,895 in relation to the 2019, 2020 and 2021 LTIP
awards. Following the modification of the Executive Directors'
remuneration agreements on 9 March 2022 the amounts expected to
vest from 1 April 2021 have been replaced by a new long-term
benefit with the amount recognised being reclassified from equity
to a liability as disclosed in note 27.
In line with the revised remuneration arrangements, the awards
granted for 2019 vested at two-thirds of the original 43.75%, being
a total number of shares of 129,734. The Directors have not yet
exercised their option to acquire shares under the awards.
The awards granted for 2020 vested at one-third of the original
25% being a total number of shares of 37,067. The Directors have
not yet exercised their option to acquire shares under the
awards.
The awards granted for 2021 lapsed in full and no further awards
will be granted for 2022 or subsequent periods.
Awards granted
Year Grant Number Performance Performance Percentage Number Date Vested
date of shares period period of shares of shares
granted start date end date vested vested
2016 11-Feb-16 255,034 01-Apr-16 31-Mar-19 87.50% 223,155 20-Aug-19
2017 20-Aug-19 261,410 01-Apr-17 31-Mar-20 87.50% 228,734 16-Oct-20
2018 20-Aug-19 267,944 01-Apr-18 31-Mar-21 100.00% 267,944 14-May-21
2019 20-Aug-19 444,804 01-Apr-19 31-Mar-22 29.17% 129,734 08-Mar-22
2020 16-Oct-20 444,804 01-Apr-20 31-Mar-23 8.33% 37,067 08-Mar-22
2021 07-Jul-21 444,804 01-Apr-21 31-Mar-24 Lapsed Lapsed Lapsed
------ ----------- ---------------- ------------ ------------ ----------- ------------------ ------------
An option may be exercised until the tenth anniversary of the
grant date, after which time it will lapse. To date the Directors
have not yet exercised their option to acquire any of the shares
which have vested.
23 Financial risk management
On 14 February 2022 the Group announced the disposal of Kents
Hill Park Conference Centre and provided an update on its future
strategy whereby it would make targeted property sales, whilst
investing in and actively managing the remainder of the property
portfolio, over an extended period of two to three years.
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 on the following pages.
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 28% (2021: excess of 30%) of
its contracted rents are from 2 major tenants, however the largest
tenant, representing 15.68% of contracted rents, 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 2022 was GBP27,087,025
(2021: GBP9,499,580). At the reporting date GBP688,741 (2021:
GBP757,388) of the amounts due from tenants were considered to be
overdue. After due consideration, the Directors have recognised a
provision for doubtful debts of GBP105,993 (2021: GBPnil),
representing 50% of the outstanding arrears for 141 Moorgate. The
Directors consider the remaining overdue amounts to be recoverable
in full.
All of the Group's cash is placed with financial institutions
with a Moody's long-term credit rating of A3 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 2-5 years More Total
Amount one year years than 5
years
GBP GBP GBP GBP GBP GBP
31 March
2022
Financial
assets
Trade and other receivables 1,783,625 1,783,625 - - - 1,783,625
Cash and cash equivalents 25,303,400 25,303,400 - - - 25,303,400
----------- ----------- ------- ---------- -------- -----------
27,087,025 27,087,025 - - - 27,087,025
Financial liabilities
Trade and other payables 2,476,500 1,420,629 - 1,055,871 - 2,476,500
Loan borrowings 21,305,537 22,017,578 - - - 22,017,578
----------- ----------- ------- ---------- -------- -----------
23,782,037 23,438,207 - 1,055,871 - 24,494,078
Contractual Value
------------------------------------------------------------
Carrying Within 1-2 years 2-5 years More than Total
Amount one year 5 years
GBP GBP GBP GBP GBP GBP
31 March 2021
Financial assets
Trade and other receivables 1,976,776 1,976,776 - - - 1,976,776
Cash and cash equivalents 7,522,804 7,522,804 - - - 7,522,804
----------- ---------- ----------- ---------- ---------- -----------
9,499,580 9,499,580 - - - 9,499,580
Financial liabilities
Trade and other payables 1,705,362 1,705,362 - - - 1,705,362
Loan borrowings 61,922,684 1,331,974 63,464,109 - - 64,796,083
----------- ---------- ----------- ---------- ---------- -----------
63,628,046 3,037,336 63,464,109 - - 66,501,445
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 17. 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 held at the year end are as follows:
Floating Fixed Interest Total
rate rate free
GBP GBP GBP GBP
31 March 2022
Financial assets
Trade and other receivables - - 1,783,625 1,783,625
Cash and cash equivalents 25,303,400 - - 25,303,400
----------- ------ ---------- -----------
Financial liabilities
Trade and other payables - - 2,476,500 2,476,500
Loan borrowings 21,480,656 - - 21,480,656
----------- ------ ---------- -----------
Floating Fixed rate Interest Total
rate free
GBP GBP GBP GBP
31 March 2021
Financial
assets
Trade and other receivables - - 1,976,776 1,976,776
Cash and cash equivalents 7,522,804 - - 7,522,804
----------- ----------- ---------- -----------
Financial liabilities
Trade and other payables - - 1,705,362 1,705,362
Loan borrowings 62,300,000 - - 62,300,000
----------- ----------- ---------- -----------
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 2022
(2021: 0.1%). The Group's policy is to hold cash on variable rate
bank accounts.
The Group has borrowings amounting to GBP21,480,656 (2021:
GBP62,300,000) which have interest rates linked to SONIA interest
rates. A 1% increase in the SONIA rate will have the effect of
increasing interest payable by GBP214,807 (2021: GBP623,000). A
decrease of 1% would have an equal but opposite effect.
Market price risk
The Group holds a portfolio of UK commercial properties. From 14
February 2022, the Group will mainly focus on targeted property
sales, which the Directors will be utilising for reduce borrowings
and to return capital to shareholders.
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 reporting 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.
24 Investment in subsidiaries
Principal Country Ownership interest
Activity of incorporation
31 March 31 March
2022 2021
Circle Property Unit
Trust Property holding Jersey 100% 100%
Circle Property (Milton
Keynes) Limited Property holding Jersey 100% 100%
25 Capital expenditure commitments
As at 31 March 2022 the Group had contracted capital expenditure
on existing properties of GBP1.1million (2021: GBP1,945,081). This
was committed but not yet provided for in the financial
statements.
26 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.
27 Related party disclosures
Directors' interests in the shares of the Company, including
relevant family interests:
Ordinary
shares
John Arnold 1,030,122
Edward Olins 138,933
James Hambro 3,217,321
Michael Farrow 28,900
On 13 May 2022 John Arnold acquired 6,276 shares and
simultaneously Edward Olins sold 6,276 shares.
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 Company' 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.
Directors' remuneration
1 April 1 April
2021 to 31 2020 to
March 2022 31 March
2021
GBP GBP
Short-term employee
benefits 900,683 896,094
Post- employment
benefits 37,784 35,784
Share-based payment
benefits 437,895 531,636
Other long-term employee 612,861 -
benefit
1,989,223 1,463,514
------------ ----------
A bonus was awarded to the executive directors ("Executives") of
the Company for the year ended 31 March 2022. The Key Performance
Indicators (KPIs") comprise the Net Asset Value and Earnings
(EBITDA) performance measures, 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. Both performance
measures were achieved in the year and the total bonus award was
70.00% 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-18 141,023 100.00%
31-Mar-19 234,107 29.17%
31-Mar-20 234,107 8.33%
Edward Olins 31-Mar-16 120,805 87.50%
31-Mar-17 123,826 87.50%
31-Mar-18 126,921 100.00%
31-Mar-19 210,697 29.17%
31-Mar-20 210,697 8.33%
In order to incentivise the revised disposal strategy and to
compensate the Executive Directors for the reductions of their LTIP
awards the Executive Directors are each eligible to receive a cash
Incentive Payment worth up to GBP2.5m per Executive Director.
The Incentive Payment is subject to certain terms and conditions
and is capped at a maximum of GBP2.5m per Executive Director or
GBP5m in totality. The quantum of the Incentive Payment is subject
to how quickly and for how much the Company's properties are sold
in comparison with the 31 March 2021 valuation. It is anticipated
that the disposals will be completed over a three-year period to 31
March 2024.
The Group has recognised a liability in respect of the incentive
payment payable to the Executive Directors on completion of the
disposal programme. In measuring the fair value of the liability,
the Board has considered the anticipated timing of each disposal
with the expected gain/loss on each disposal being measured using a
range between 10% under and 10% over the 31 March 2022 independent
valuation. The weighted average of these measurements has been
adjusted to present value using a discount rate of 2.74%.
The Incentive Payment liability as at year end is GBP1.1million
and incorporates the movement of GBP437,895 relating to the
share-based payment benefits and GBP612,861 relating to the other
long-term employee benefit.
A single incentive payment will be made to each Executive
Director on completion of the disposal programme.
28 Subsequent events
On 13 May 2022 John Arnold acquired 6,276 shares and
simultaneously Edward Olins sold 6,276 shares.
On 26 May 2022, the Group disposed of 720 Aztec West for a
consideration of GBP2.52m. The proceeds, net of costs, were
utilised to partly repay the loan facility detailed in note 17.
On 22 June 2022 the loan facility with NatWest and HSBC was
repaid in full.
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END
FR BKFBPQBKKOOD
(END) Dow Jones Newswires
July 18, 2022 02:00 ET (06:00 GMT)
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