TIDMCRC
RNS Number : 3754E
Circle Property PLC
07 July 2021
7 July 2021
Circle Property Plc
("Circle", the "Company" or the "Group")
Final Results for the year ended 31 March 2021
PROACTIVE ASSET MANAGEMENT PROVIDES STRONG PLATFORM FOR GROWTH
IN ASSET VALUES AND 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 2021.
John Arnold, Chief Executive of Circle Property Plc, said:
"Our focused strategy of concentrating on our regional office
assets has proven to be resilient in the challenging pandemic year.
We have not been complacent and have actively managed our assets to
make them fit for the new office world with well designed, flexible
workspaces. We believe that although office working patterns may
alter in the future, there still remains a strong demand, both
professional and social, for office locations. This is particularly
the case in regional locations where tenants can drive to work and
are not reliant on using public transport. We are therefore
cautiously optimistic as we head into Q3 2021."
Financial Highlights: Resilient Performance
-- 15% increase in operating profit to GBP4.9 million (31 March 2020: GBP4.3 million) .
-- 2% increase in annual rental income to GBP7.7 million (31
March 2020: GBP7.5 million) against an extraordinary backdrop.
-- 4% decrease in Net Asset Value ("NAV") per share to GBP2.74
(31 March 2020: GBP2.85) reflects the impact of pandemic but
surpasses peer group performance (-6.1% MSCI All Property
Index).
-- Year end LTV of 46% (excluding cash at bank) and available
cash of GBP5.75 million reflecting a net LTV of 44%. In aggregate,
the Company has GBP10.2 million of liquidity at its disposal.
-- Proposed final dividend of 4p per share for the year ended 31
March 2021 (31 March 2020: 2p per share) which together with the
interim dividend of 2.5p per share, brings the total annual
dividend to 6.5p per share (31 March 2020: 5.3p per share).
Operational Highlights: Active Portfolio Management and
Renovations undertaken despite challenges of pandemic
-- 96.4% of total portfolio is let and incoming producing.
-- High-spec, modern fit-outs undertaken at Concorde Park,
Maidenhead and 36 Great Charles Street, Birmingham.
-- Developments projects:
o 135 Aztec West, Bristol pre-let in January to Fertility
Bristol Ltd and practical completion of the building expected in
mid-July 2021.
o Refurbishment of K3 Kents Hill, Milton Keynes due to re-start
in Q3 2021, with GBP2.2 million allocated development costs with
completion scheduled for Spring 2022.
-- Concentrating efforts on our regional office assets - 88.35%
of assets located in Milton Keynes, Bristol, Birmingham and
Maidenhead & flexible in terms of 1-5,000 sq.ft. with the
ability to be sub-divided.
-- Rent collection for both March and June 2021 quarters was90% and 71%, respectively.
Outlook
-- Cautiously confident in outlook based on the team's
experience in maximising returns from regional office assets and
the dynamics of regional office demand post pandemic lockdowns.
The annual report and accounts for the year ended 31 March 2021
and the Notice of AGM are expected to be posted to shareholders on
13 July 2021, 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.
+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
Toby Strong
About Circle Property Plc
Circle is amongst the best performing quoted UK real estate
companies having delivered 85% NAV growth and a 105% total return
(NAV growth and dividends) since IPO in 2016.
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 GBP10.92 million per
annum, compared to contracted rent of GBP8.70 million at 31 March
2020. The Company has a portfolio of 13 regional commercial
property investment and development assets in the UK valued at
GBP132.15 million as at 31 March 2021.
* valuation figures stated after deducting the value of Power
House, Davy Avenue, Milton Keynes (being GBP3.3 million as at 31
March 2020 and GBP3.25 million as at 30 September 2020) which was
sold by the Company for GBP3.55 million in March 2021.
Chief Executive's Statement
During a period of ongoing challenges associated with COVID-19,
we are pleased with the resilience of our regional offices
portfolio. Although the NAV growth achieved last year has been
somewhat offset by the 4% reduction in NAV during this full year,
this modest decrease surpasses the performance of our peers and was
better than the -6.1% MSCI All Property Index performance. We are
optimistic that we will return to growth as confidence in the
economy builds, employees return to the workplace and sentiment
improves, particularly across the UK's regions.
Although lockdown has created considerable challenges throughout
this financial year, we are privileged in having a strong and
diverse tenant base, with only a handful genuinely needing support.
Our timely disposal of retail property assets in previous years,
and the fact that our portfolio is reversionary, has allowed us to
maintain exceptionally high rental recovery in excess of 90%
throughout the year. As an internally managed company we take pride
in our tenant relationships and the benefits of this model have
been particularly apparent during the crisis. Indeed, we are
pleased to have grown our rental income by 2% in the year to
GBP7.7m (31 March 2020 - GBP7.5m) against an extraordinary
backdrop.
Notwithstanding a difficult macro environment we have not been
complacent with regards our active asset management strategy. A
rolling programme of asset management and renovations across a
number of assets has continued to guarantee our offices are
attractive workplaces for an increasingly discerning occupier
audience. To ensure that our vacant offices let ahead of the
competition, we have completed high-spec, modern fit-outs at
Concorde Park, Maidenhead and 36 Great Charles Street, Birmingham.
Wherever possible, Circle's rent concessions have been negotiated
in return for some improvement in lease terms where the yield
improvement offsets the loss in rental income.
At our two developments projects, 135 Aztec West, Bristol was
pre-let in January to Fertility Bristol Ltd and we anticipate
achieving practical completion of the building contract in mid July
2021.
Work is due to re-start in Q3 2021 upon the refurbishment of K3,
Kents Hill, Milton Keynes. The project was temporarily paused
following the strip out when we entered lockdown but there is now
sufficient letting interest to warrant re-starting the project on a
speculative basis. Redevelopment costs, including extensive
external landscaping works will amount to GBP2.2 million and we
anticipate the project to complete in Spring 2022. As per our
strategy to recycle capital to drive growth, the works will be
financed from the Group's cash resources.
At 31 March 2021, the Group's LTV reflected 46% (excluding cash
at bank) and the Group had GBP5.75 million of available cash
reflecting a net LTV of 44%. In aggregate, the Group had GBP10.2
million of liquidity at its disposal.
Most business owners and tenants we speak with are firmly of the
view that a return to work for a significant part of the working
week is desirable, although the flexibility to work some of the
time from home can be advantageous in certain circumstances,
dependent upon the individual and the nature of the work. The
consensus view of those we have surveyed is that team building,
collaboration, creativity, employee assessment, mentoring and
training can only be effective within an office environment and,
although virtual meetings have an important role to play, they are
no substitute for face-to-face discussion, debate or negotiation.
Moreover, for the majority of younger employees, a significant part
of their leisure time is connected to social events and friendships
established within the workplace. Given all of this, we remain of
the view that whilst working patterns may adapt, the office is very
much here to stay.
Whilst Circle Property remains one of the top performing quoted
property companies measured by total returns (NAV plus dividends),
to maintain this position, the Company will need to further reduce
gearing through selective asset sales at valuations at or above
book value and achieve further lettings in-line with our estimated
rental values (ERV).
Our ability to achieve lettings at these levels will depend upon
the further restoration of business confidence together with a more
mainstream return to the workplace. We remain live to the ongoing
disruption caused by COVID-19 and Government policy, but anticipate
a gradual return for office-workers, gaining pace in the latter
part of the year after the eventual relaxation from lockdown and
the restrictions associated. The established position we have in
our chosen regional markets, with a portfolio of assets selected on
the strength of location and letting prospects, leaves us
well-placed to generate income and value.
In reflection of strong rent collection and growing rental
income, the Board has proposed a final dividend of 4p per share for
the year ended 31 March 2021 which together with the interim
dividend of 2.5p per share, brings the total annual dividend to
6.5p per share (31 March 2020: 5.3p per share). The final dividend
of 4p per share, subject to shareholder approval, will be paid on
13 August 2021 to shareholders on the register on 16 July 2021
which gives an ex-dividend date of 15 July 2021.
We have started the current financial year strongly and are
focussed on continuing to drive NAV and rental income growth,
creating further value for the Company and our shareholders. While
cognisant of the ongoing uncertainties around the Covid-19
pandemic, we are cautiously optimistic that the economy and thus
the regional rental market is heading in a positive direction and
are therefore optimistic of Circle Property's ability to grow
returns given its market-leading position and historical
outperformance.
Consolidated statement of comprehensive
income
for the year ended 31 March 2021
1 April 1 April
2020 to 2019 to
31 March 31 March
Note 2021 2020
GBP GBP
Rental income 4 7,657,830 7,497,212
Other income 4 2,233,842 2,116,400
------------ ------------
9,891,672 9,613,612
Property expenses 5 (2,356,221) (2,374,556)
7,535,451 7,239,056
Administrative expenses 6 (2,615,926) (2,944,109)
Operating profit 4,919,525 4,294,947
Gain on disposal of investment properties 263,446 235,729
(Loss)/gain on revaluation of investment
properties 12 (6,224,003) 2,514,049
Operating (loss)/profit after revaluation
of investment properties (1,041,032) 7,044,725
Finance income 8 2,094 1,531
Finance costs 9 (1,696,110) (1,885,340)
Net finance costs (1,694,016) (1,883,809)
(Loss)/profit for the year before taxation (2,735,048) 5,160,916
Taxation 10 199,729 (1,641,410)
Total comprehensive (loss)/profit for the
year (2,535,319) 3,519,506
------------ ------------
(Loss) / earnings per share (0.09) 0.12
------------ ------------
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 2021
Note 31 March 31 March
2021 2020
GBP GBP
Non-current assets
Investment properties 12 121,289,149 129,340,408
Right of use assets 13 61,039 108,043
Property, plant and equipment 54,410 62,263
Lease incentives 14 10,127,528 9,562,066
Deferred tax asset 10 1,291,615 1,078,007
------------ ------------
132,823,741 140,150,787
Current assets
Trade and other receivables 14 2,982,923 2,398,119
Cash and cash equivalents 15 7,522,804 2,980,329
------------ ------------
10,505,727 5,378,448
Total assets 143,329,468 145,529,235
============ ============
Equity
Stated capital 19 42,542,179 42,542,179
Share based payment reserve 1,047,684 516,048
Retained earnings 33,814,453 37,623,126
------------ ------------
Total equity 77,404,316 80,681,353
Non-current liabilities
Loan borrowings 16 61,922,684 60,721,840
Lease liabilities for right of use assets 13 28,601 69,327
Deferred tax liability 10 482,171 877,401
------------ ------------
62,433,456 61,668,568
Current liabilities
Trade and other payables 18 3,450,969 3,134,816
Lease liabilities for right of use assets 13 40,727 44,498
------------ ------------
3,491,696 3,179,314
Total liabilities 65,925,152 64,847,882
------------ ------------
Total liabilities and equity 143,329,468 145,529,235
============ ============
The consolidated financial statements were approved and authorised
for issue by the Board of Directors on 6 July 2021.
Consolidated statement of changes
in equity
for the year ended 31 March
2021
Stated Treasury Share based Retained Total
capital share payment earnings
capital reserve
(i)
GBP GBP GBP GBP GBP
As at 1 April
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
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
----------- --------- ------------ ------------ ------------
(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
------------
Consolidated statement of cash flows
for the year ended 31 March 2021
1 April 1 April
2020 to 2019 to
31 March 31 March
2021 2020
GBP GBP
Cash flows from operating activities
(Loss)/profit for the year before taxation (2,735,048) 5,160,916
Adjustments for:
Finance income (2,094) (1,531)
Finance costs 1,696,110 1,885,340
Depreciation 14,167 11,744
Amortisation of right of use assets 47,005 47,005
Loss/(gain) on revaluation of investment
properties 6,224,003 (2,466,035)
Gain on disposal of investment properties (263,446) (235,729)
Share based payments 531,636 595,392
Increase in trade and other receivables (1,150,266) (2,095,583)
Increase/(decrease) in trade and other payables 185,615 (179,700)
Cash generated from operating activities 4,547,682 2,721,819
Interest paid (1,578,755) (1,510,806)
Interest received 2,094 1,531
Taxation paid (151,475) (189,154)
Net cash from operating activities 2,819,546 1,023,390
------------ -------------
Cash flows from investing activities
Net proceeds from disposal of investment
properties 3,513,446 6,135,729
Cost of refurbishment of investment properties (1,459,489) (1,977,597)
Cost of acquisition of investment property - (15,412,420)
Cost of additions of property, plant and
equipment (6,314) (14,143)
Net cash from investing activities 2,047,643 (11,268,431)
------------ -------------
Cash flows from financing activities
Repayment of borrowings - (2,530,000)
Drawdown of borrowings 1,000,000 14,023,944
Payment of lease liabilities (51,360) (51,360)
Dividends paid (1,273,354) (1,867,586)
Net cash used in financing activities (324,714) 9,574,998
------------ -------------
Net increase / (decrease) in cash and cash
equivalents 4,542,475 (670,043)
Cash and cash equivalents at the beginning
of the year 2,980,329 3,650,372
Cash and cash equivalents at the end of
the year 7,522,804 2,980,329
------------ -------------
Notes to the consolidated financial
statements
for the year ended 31 March
2021
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. 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, 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 monthly 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.
Based on these considerations the Directors have a reasonable expectation
that the Company and its subsidiaries 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 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 2020. 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 2020,
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 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 2021. 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.
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
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 2021 and 31 March 2020 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 2021 and 31 March 2020 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.
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.
For the years ended 31 March 2020 and 31 March 2021 the Group pays
UK corporation tax on 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.
In the prior year the Company was registered under the Non-Resident
Landlord Scheme and was liable to United Kingdom taxation at a rate
of 20% on net rental income from its investment properties.
With effect from 6 April 2020 the Group pays UK corporation tax
on its net rental income at a rate of 19%.
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. 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
2020 2019
to 31 to 31
March March
2021 2020
GBP GBP
Rental income 6,906,571 6,715,456
Lease incentives
adjustment 751,259 781,756
---------- ----------
7,657,830 7,497,212
Service charge
income 1,633,071 1,697,533
Insurance recovery 142,762 144,874
Other income 458,009 273,993
9,891,672 9,613,612
---------- ----------
5 Property expenses 1 April 1 April
2020 2019
to 31 to 31
March March
2021 2020
GBP GBP
Void property
service charges 331,904 246,737
Void property
rates 101,968 175,700
Other void property
costs 26,392 28,331
Property repairs and
maintenance costs 94,556 59,260
Property insurance 168,330 166,995
Recoverable service
charge costs 1,633,071 1,697,533
2,356,221 2,374,556
---------- ----------
6 Administrative 1 April 1 April
expenses 2020 2019
to 31 to 31
March March
2021 2020
Note GBP GBP
Staff costs 7 1,657,273 1,593,790
Administration and accountancy
fees 305,540 305,250
Legal and professional
fees 415,687 749,233
Audit fees 67,000 62,673
Accountancy
fees 8,016 7,778
Rent, rates and
other office costs 26,763 26,334
Other overheads 74,475 140,302
Depreciation of tangible
fixed assets 14,167 11,744
Amortisation of right
of use assets 47,005 47,005
2,615,926 2,944,109
---------- ----------
7 Employees and Directors' 1 April 1 April
Remuneration 2020 2019
to 31 to 31
March March
2021 2020
GBP GBP
Staff costs during the
year were as follows:
Non-executive
directors' fees 168,750 166,563
Wages and salaries 762,400 648,090
Share-based payments
(Note 21) 531,636 595,392
National insurance
costs 112,118 104,435
Pension contributions 37,028 37,911
Other employment
costs 45,341 41,399
1,657,273 1,593,790
---------- ----------
8 Finance income 1 April 1 April
2020 2019
to 31 to 31
March March
2021 2020
GBP GBP
Bank interest 2,094 1,531
2,094 1,531
-------- --------
9 Finance 1 April 1 April
costs 2020 2019
to 31 to 31
March March
2021 2020
GBP GBP
Loan interest 1,420,734 1,592,948
Loan commitment
fees 22,670 49,039
Amortisation of
lending costs 200,844 188,215
Annual agency
fee 45,000 45,000
Interest on lease
liabilities 6,862 10,138
1,696,110 1,885,340
---------- ----------
10 Taxation 1 April 1 April
2020 to 2019
31 March to 31
2021 March
2020
GBP GBP
Current tax charge for
the year 409,109 238,098
Deferred tax (credit)/charge
for the year (608,838) 1,403,312
Total (credit)/charge
for the year (199,729) 1,641,410
---------------- ----------
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
2020 to 2019
31 March to 31
2021 March
2020
GBP GBP
(Loss) / Profit for the year
before tax (2,735,048) 5,160,916
---------------- ----------
UK corporation tax at a rate of 19% (2020:
income tax at a rate of 20%) (i) (519,659) 1,032,183
Effects of:
Non-taxable loss/(gain) on investment
properties 1,182,561 (496,233)
Non-taxable income - (55,105)
Taxable gains (9,500) -
Expenses not deductible for
tax purposes 105,049 47,917
Capital expenditure deductible
for tax purposes - 491
Utilisation of capital
allowances (284,772) (250,156)
Overprovision of prior year
taxation (64,570) (40,999)
Current taxation 409,109 238,098
---------------- ----------
(i) In the prior year the Group was taxed at a rate of 20% on its
net rental income under the Non-Resident Landlord Scheme, with
effect from 6 April 2020 the Group pays UK corporation tax on its
net rental income at a rate of 19%.
Deferred 1 April 1 April
taxation 2020 to 2019
31 March to 31
2021 March
2020
GBP GBP
Deferred tax asset at 31 March
relates to the following:
Capital allowances available
to carry forward 682,917 741,595
Unrealised losses on investment
properties 482,171 336,412
Share-based payments 126,527 -
1,291,615 1,078,007
---------------- ----------
Deferred tax asset brought
forward 1,078,007 1,603,918
Deferred tax credit/(charge)
for the year 213,608 (525,911)
Deferred tax asset carried
forward 1,291,615 1,078,007
---------------- ----------
At 31 March 2021, 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 GBP682,917 (2020: GBP741,595) as the capital allowances
available are expected to be utilised in full against future profits.
The Group has recognised unrealised losses on the revaluation of
certain investment properties. A deferred tax asset of GBP482,171
(2020: GBP336,412) has been recognised in respect of the expected
future tax relief available on these losses. The amount recognised
has been restricted by GBP481,867 to correspond with the amount
of the deferred tax liability recognised on chargeable gains, being
the maximum amount of available future tax deductions.
It is expected that a statutory tax deduction for share-based payments
will be available when the share options, issued under the Group's
LTIP, are exercised by the Directors. A deferred tax asset of GBP126,527
has been recognised in respect of the temporary timing difference
on this future tax deduction.
1 April 1 April
2020 to 2019
31 March to 31
2021 March
2020
GBP GBP
Deferred tax liability at 31 March
relates to the following:
Chargeable gains on investment
properties 482,171 877,401
---------------- ----------
Deferred tax liability brought 877,401 -
forward
Deferred tax (credit)/charge
for the year (395,230) 877,401
Deferred tax liability carried
forward 482,171 877,401
---------------- ----------
The Directors have assessed the potential deferred tax liability
of the Group as at 31 March 2021, with relation to the chargeable
gains which will arise on the disposal of investment properties.
Based on the unrealised chargeable gains of GBP2,537,740 (2020:
GBP4,617,900), if the properties were disposed of at fair value,
a deferred tax liability of GBP482,171 (2020: GBP877,401) 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. If this rate change had been substantively enacted at the
current Statement of Financial Position date and applied to the
calculation of all recognised deferred tax amounts, the deferred
tax asset would have increased by GBP407,878 and the deferred tax
liability would have increased by GBP152,265.
11 Earnings per
share
Basic earnings per share has been calculated on (loss)/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
2020 2019
to 31 to 31
March March
2021 2020
GBP GBP
(Loss) / profit
for the year (2,535,319) 3,519,506
-------------- -------------
Weighted average number of shares
(excluding treasury shares) 28,296,762 28,296,762
-------------- -------------
(Loss) / earnings per
ordinary share: (0.09) 0.12
-------------- -------------
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
2021 2020
GBP GBP
Opening fair value per valuation
report 139,450,000 124,600,000
Cost of refurbishment of investment
properties 1,422,744 2,041,775
Cost of acquisition of investment
property - 15,412,420
Disposal of investment properties (3,250,000) (5,900,000)
(Loss)/gain on revaluation of investment
properties (6,224,003) 2,514,049
Lease incentive amortisation 751,259 781,756
Fair value of investment properties
per valuation report 132,150,000 139,450,000
-------------- --------------
Unamortised lease incentives recorded
within trade and other receivables (10,860,851) (10,109,592)
Carrying value 121,289,149 129,340,408
-------------- --------------
No properties were classified as held for sale
at 31 March 2021 and 31 March 2020.
As at 31 March 2021 the fair value of investment properties under
development included in the above amount was nil (2020; nil).
GBP129,300,000 (2020; GBP136,250,000) of the above properties' value,
estimated by the valuer, relate to property held on a freehold basis
and GBP2,850,000 (2020: GBP3,200,000) on a long leasehold basis,
for a peppercorn rent.
The fair value of the Group's investment properties per the Valuation
Report amounted to GBP132,150,000 (2020; GBP139,450,000). The difference
between the fair value of the investment properties per the Valuation
Report and the fair value per the balance sheet of GBP10,860,851
(2020; GBP10,109,592) 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
2021 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 March 31 March
2021 2020
GBP GBP
Increase in ERV by
5% 4,886,156 5,592,814
Decrease in ERV by
5% (4,922,933) (4,657,477)
Increase in yield by
0.25% (5,332,137) (5,585,000)
Decrease in yield by
0.25% 5,799,355 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
GBP technique unobservable between key
inputs unobservable
inputs and fair
value
measurement
------------------- ----------------- ----------------- ----- ------------------ -------------------
Office All Risks Estimated void The estimated fair
Yield periods value would
range from 6 increase
months / (decrease) if:
to 24 months
after
the end of each
lease.
(2020: no change)
2020 104,200,000
2021 96,800,000 void periods were
shorter /
(longer);
Conference Market rents have market rents were
been based on the higher / (lower);
specific
circumstances
of each property.
Centre
2020 35,250,000 rent free periods
were shorter /
(longer);
2021 35,350,000
- Estimated rent letting fees were
free lower / (higher);
periods range
from
6 to 12 months on
new leases.
(2020:
no change)
rent per square
foot
were higher /
(lower);
Total
2020 139,450,000 - Letting fees have equivalent yields
been estimated on were lower /
vacant units. (higher);
or
2021 132,150,000
- Net equivalent market conditions
yields were to improve /
range from 4.45% (decline).
to 8.63%. (2020:
4.45% to 8.54%)
- 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 31 March
2021 2020
GBP GBP
Less than one
year 7,024,942 6,605,924
One to two years 7,272,046 6,863,487
Two to three
years 6,503,502 6,826,035
Three to four
years 6,137,528 6,122,824
Four to five
years 5,328,743 5,771,912
Over five years 47,251,404 53,335,378
Total 79,518,164 85,525,560
------------ ------------
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 20.08% (2020: 24.87%)
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 use 15 Duke 12 St Total
assets Street James'
Place
GBP GBP GBP
Balance at 1 April
2020 44,008 64,035 108,043
Amortisation for the
year (27,794) (19,210) (47,004)
Balance at 31 March
2021 16,214 44,825 61,039
--------- ------------ ------------
Lease Liabilities 15 Duke 12 St Total
Street James'
Place
GBP GBP GBP
Balance at 1 April
2020 47,421 66,405 113,826
Interest expense 2,541 4,321 6,862
Lease payments (28,860) (22,500) (51,360)
Balance at 31 March
2021 21,102 48,226 69,328
--------- ------------ ------------
Maturity analysis - contractual 15 Duke 12 St Total
undiscounted cash flows Street James'
Place
GBP GBP GBP
Less than one
year 21,645 22,500 44,145
One to five
years - 30,000 30,000
More than five years - - -
--------- ------------ ------------
Total undiscounted lease liabilities
at 31 March 2021 21,645 52,500 74,145
Future finance charges at
31 March 2021 (543) (4,274) (4,817)
Lease liabilities at 31 March
2021 21,102 48,226 69,328
--------- ------------ ------------
Non-Current - 28,601 28,601
--------- ------------ ------------
Current 21,103 19,624 40,727
--------- ------------ ------------
14 Lease incentives and 31 March 31 March
receivables 2021 2020
GBP GBP
Non-current
Lease incentives 10,127,528 9,562,066
------------------ ---------------
Current
Lease incentives 733,323 547,526
Amounts held by agents - 405,794
Tenant deposits 272,824 293,334
Amounts due from
tenants 1,695,925 888,529
Other receivables 280,851 262,936
2,982,923 2,398,119
------------------ ---------------
Lease incentives consist of GBP6,373,806 (2020; GBP5,403,770) being
the prepayments for rent-free periods and stepped increases in
rental income recognised over the life of the lease and GBP4,487,045
(2020; GBP4,705,822) relating to incentives paid to tenants.
15 Cash and cash 31 March 31 March
equivalents 2021 2020
GBP GBP
Royal Bank of Scotland
International 5,747,804 2,980,329
National Westminster 1,775,000 -
Bank plc
7,522,804 2,980,329
---------- ------------
The amount of GBP1,775,000 held by National Westminster Bank plc
related to disposal proceeds in respect of the sale of Power House,
Milton Keynes and was utilised as a repayment of the loan facility
detailed in Note 16 on 15 April 2021.
16 Loan borrowings 31 March 31 March
2021 2020
GBP GBP
Brought forward 60,721,840 49,039,681
Loan repayments - (2,530,000)
Loan drawdowns 1,000,000 14,091,148
Lending costs - (67,204)
Amortisation of
lending costs 200,844 188,215
61,922,684 60,721,840
--------------------- ----------------------
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% per annum 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 2021 GBP62,300,000 of the total facility had been drawn
down (31 March 2020: GBP61,300,000). The undrawn facility was GBP2,700,000
(2020; GBP3,700,000). On 15 April 2021 a repayment of GBP1,775,000
was made against the facility.
17 Reconciliation of movements of liabilities 31 March 31 March
to cash flows from financing activities 2021 2020
GBP GBP
Balance brought forward 60,835,665 49,039,681
Cash flows from financing activities:
Repayment of borrowings - (2,530,000)
Drawdown of borrowings 1,000,000 14,023,944
Payment of lease
liabilities (51,360) (51,360)
Non-cash movements:
Amortisation of arrangement
fees 200,844 188,215
Recognition of
lease liability - 155,047
Lease liability
interest expense 6,862 10,138
Balance carried forward 61,992,011 60,835,665
----------- ------------
18 Trade and other 31 March 31 March
payables 2021 2020
GBP GBP
Trade payables 50,467 79,009
Property improvement
costs 27,433 64,178
VAT 170,918 186,444
Wages and salaries 338,664 235,408
Deferred
income 1,745,607 1,603,989
Rental deposit accounts 272,968 295,787
Finance
costs 274,169 364,520
Valuation
Fee 30,000 28,000
Audit fee 67,000 60,745
Administration fees 64 691
Current
taxation 473,679 216,045
3,450,969 3,134,816
---------------- ---------------
Deferred income relates to deferred rental income of GBP1,645,006
(2020; GBP1,489,265) and deferred insurance recharges of GBP100,601
(2020; GBP114,724).
19 Stated
capital
Issued and fully paid
share capital is as follows:
31 March 31 March
2021 2020
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
2021 2020
GBP GBP
Total liabilities 65,925,152 64,847,882
Less: cash and
cash equivalents (7,522,804) (2,980,329)
--------------- --------------
Net debt 58,402,348 61,867,553
Total equity 77,404,316 80,681,353
Net debt to equity
ratio 0.75 0.77
--------------- --------------
21 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.
Terms of
the LTIP
A key employee of the Company may be invited to join the LTIP scheme,
the purpose of which is to align the longer term objectives of shareholders
and management. Awards take the form of a conditional right or nil
cost option to acquire Ordinary shares. There follows 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 vest 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 is a
comparison of share price plus dividends paid with a bespoke basket
of peer companies and REITs. The NAV target is non-vesting if under
8% and if the NAV return is 14% or above then the shares vest in
full. Where the NAV return falls between 8% and 14% the number of
shares that vest are 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.
Awards
granted
Year Grant Number Performance Performance Percentage Number Date
date of shares period period of shares of shares Vested
granted start end date vested vested
date / / estimated
estimated to vest
to vest
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 43.75% 194,602 N/A
2020 16-Oct-20 444,804 01-Apr-20 31-Mar-23 25.00% 111,201 N/A
--------- ------------- ---------------- ------------ ------------ ----------- ----------------- ----------
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.
Fair value
The main assumptions of the Black-Scholes
pricing model are as follows:
Year 2016 2017 2018 2019 2020
Shares awarded 255,034 261,410 267,944 444,804 444,804
Share price GBP1.49 GBP1.90 GBP1.90 GBP1.90 GBP1.62
Exercise
price 0p 0p 0p 0p 0p
Performance period 3 years 3 years 3 years 3 years 3 years
Expected
volatility 5% 28% 28% 28% 28%
Expected dividend
yield 3.36% 2.89% 2.89% 2.89% 3.41%
Risk free
rate 0.36% 0.38% 0.38% 0.38% 0.00%
Fair value per option GBP1.35 GBP1.74 GBP1.74 GBP1.74 GBP1.46
---------------------------- --------- -------- -------- -------- --------
Share based payment
expense
The share-based payments expense recognised 31 March 31 March
during the year is as follows: 2021 2020
GBP GBP
LTIP 2017 90,307 308,104
LTIP 2018 256,174 210,539
LTIP 2019 131,106 76,749
LTIP 2020 54,049 -
531,636 595,392
--------- ---------
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% (2020: 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 2021 was GBP9,499,580 (2020; GBP4,537,588).
At the reporting date GBP757,388 of the amounts due from tenants
were considered to be overdue, however the Directors anticipate
that the amounts due will be recovered in full and therefore no
impairment has been recognised.
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
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
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
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 held at the year end are as follows:
Floating Fixed Interest Total
rate 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
----------- ------ ---------- -----------
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
----------- ------ ---------- -----------
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 2021 (2020;
0.1%). The Group's policy is to hold cash on variable rate bank
accounts.
The Group has borrowings amounting to GBP62,300,000 (2020: GBP61,300,000)
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 GBP623,000 (2020; GBP613,000). A
decrease of 1% would have an equal but opposite effect.
The Group is considering the impact of the transition of existing
LIBOR based borrowings to SONIA (the sterling overnight indexed
average). The transition is not expected to have a material impact
on the Group.
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
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.
23 Investment in Principal Activity Country Ownership interest
subsidiaries of incorporation
31 March 31 March
2021 2020
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 2021 the Group had contracted capital expenditure
on existing properties of GBP1,945,081 (2020; GBP448,741). 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
Directors' interests in the shares of the Company,
including relevant family interests:
Ordinary
shares
John Arnold 1,005,122
Edward Olins 138,933
James Hambro 3,217,321
Michael
Farrow 12,900
On 4 May 2021 John Arnold purchased an additional
25,000 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 2021 Annual Report and Accounts. Key
personnel of the Group are those persons who have responsibility
for planning, directing and controlling the activities of the Group
either directly or indirectly, including any director, whether executive
or otherwise.
Directors remuneration
1 April 1 April
2020 2019
to 31 to 31
March March
2021 2020
GBP GBP
Short-term employee
benefits 896,094 821,789
Post- employment
benefits 35,784 36,245
Share-based payment
benefits 531,636 595,392
1,463,514 1,453,426
---------- ----------
A bonus was awarded to the executive directors ("Executives") of
the Company for the year ended 31 March 2021. 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 decrease
in NAV in the year meant that the first KPI was not achieved and
that the total bonus award was 66.67% 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 0.00%
31-Mar-20 234,107 0.00%
Edward Olins 31-Mar-16 120,805 87.50%
31-Mar-17 123,826 87.50%
31-Mar-18 126,921 100.00%
31-Mar-19 210,697 0.00%
31-Mar-20 210,697 0.00%
27 Subsequent
events
On 15 April 2021 the Group made a partial repayment of GBP1,775,000
against the loan facility detailed in Note 16.
On 4 May 2021 John Arnold purchased an additional
25,000 shares in the Company.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR FQLLBFDLFBBD
(END) Dow Jones Newswires
July 07, 2021 02:00 ET (06:00 GMT)
Circle Property (LSE:CRC)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Circle Property (LSE:CRC)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024
