REG - Circle Property PLC - Final Results
18/07/2022 07:00
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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 £62 million, £3 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, £0.32 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 £2.81 (31
March 2021: £2.74).
· Earnings per share of 15p (31 March 2021: loss of 9p).
· Profit before tax of £5.8 million reflecting a combination of
operational profit and revaluation gains (31 March 2021: loss of £2.7
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 £62
million (£3 million or 5% above the aggregate March 2021 valuation)
o Compass Conference Centre, Milton Keynes: £34.5 million
o 135 Aztec West, Bristol: £3.96 million
o 141 Moorgate, London: £3.56 million
o One Castle Park, Bristol: £20 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 £2.52 million (14.5% increase
on the March 2022 valuation of £2.2 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 £5.8m
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 £2.75 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:
Circle Property Plc +44 (0)207 930 8503
John Arnold, CEO
Edward Olins, COO
Cenkos Securities +44 (0) 207 397 8900
Katy Birkin
Mark Connelly
Radnor Capital Partners +44 (0) 203 897 1830
Joshua Cryer
Iain Daly
Camarco +44 (0) 203 757 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 £132.15 million and by the year end, four properties had been sold
at an aggregate price of £62 million (£3 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 £2.75 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 £2.2 million refurbishment where Kuehne +
Nagel have signed an agreement to lease the entire property of 13,200 sq ft at
a rent of £316,000 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 £20 million (a
3.9% increase on the 31 March 2021 valuation) and sold 135 Aztec West, Bristol
for £3.961 million, a 62% increase (post refurbishment cost) on the 31 March
2021 valuation of £1.55 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 £2.52 million, an uplift on the 31 March 2022 valuation of
£2.2 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
Note 1 April 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
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 2022 31 March 2021
£ £
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 Share based payment reserve (i) Retained earnings Total
capital
capital
£ £ £ £ £
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
£
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 2021 to 31 March 2022 1 April 2020 to 31 March 2021
Note £ £
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
£25.3 million. The balance of the Group's loan facility with NatWest and HSBC
at that date was £21.4m 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 £19 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:
Ÿ Management is committed to a plan to sell
Ÿ The asset is available for immediate sale
Ÿ An active programme to locate a buyer is initiated
Ÿ The sale is highly probable, within 12 months of classification as held for
sale
Ÿ The asset is being actively marketed for sale at a sales price reasonable
in relation to its fair value
Ÿ 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 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
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 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
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 2021 to 31 March 2022 1 April 2020 to 31 March 2021
Note £ £
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 debts 105,993 -
3,583,744 2,615,926
7 Employees and Directors' Remuneration
1 April 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
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 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
Bank interest 192 2,094
192 2,094
9 Finance costs
1 April 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
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 payment 5,111 -
Interest on lease liabilities (300) 6,862
1,488,907 1,696,110
10 Taxation
1 April 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
Current tax charge for the year 99,459 409,109
Deferred tax charge/(credit) for the year 433,958 (608,838)
Impairment of deferred tax asset 891,920 -
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 taxation 1 April 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
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 allowances (424,790) (284,772)
Overprovision of prior year taxation (49,506) (64,570)
Current taxation 99,459 409,109
Deferred taxation 1 April 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
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 asset (891,920) -
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 £47,355 (2021:
£682,917) 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 £359,257 (2021: £482,171) 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 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
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 £4,619,383 (2021 £2,537,740), if the properties were disposed of at
fair value, a deferred tax liability of £923,046 (2021: £482,171) 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 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
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 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
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
£ £
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 held for sale (2,200,000) -
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 £41,950,000 of the total value of
the investment property of £75,700,000 has been recognised as a current asset
and £33,750,000 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).
£75,700,000 (2021: £129,300,000) of the above properties' value, estimated
by the valuer, relate to property held on a freehold basis and £nil (2021:
£2,850,000) 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 £75,700,000 (2021: £132,150,000). The
difference between the fair value of the investment properties per the
Valuation Report and the fair value per the balance sheet of £3,306,330
(2021: £10,860,851) 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
£ £
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.
Sector Valuation Valuation technique Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement
£
Office All Risks Yield Estimated void periods range from 6 months to 24 months after the end of each The estimated fair value would increase / (decrease) if:
lease. (2021: no change)
2021 96,800,000
2022 75,700,000 void periods were shorter / (longer);
Conference Market rents have been based on the specific circumstances of each property. market rents were higher / (lower);
Centre
2021 35,350,000 rent
free
perio
ds
were
short
er /
(long
er);
2022 -
Estimated rent free periods range from six to 15 months on new leases. (2021: letting fees were lower / (higher);
six to 12 months)
rent
per
squar
e
foot
were
highe
r /
(lowe
r);
Total
2021 132,150,000 Letting fees have been estimated on vacant units. equivalent yields were lower / (higher); or
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
£ £
Reclassification of 720 Aztec West 2,200,000 -
Carrying value 2,200,000 -
As at year end, the Directors were satisfied that the property met the
relevant IFRS 5 criteria given that:
Ÿ Management is committed to a plan to sell
Ÿ The asset was available for immediate sale
Ÿ The buyer had been found and an offer received
Ÿ The sale was highly probable, within 12 months of classification as held
for sale
Ÿ The asset is being actively marketed for sale at a sales price reasonable
in relation to its fair value
Ÿ 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 £2,520,000.
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
£ £
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 assets 15 Duke 12 St James' Place Total
Street
£ £ £
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 James' Place Total
Street
£ £ £
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 undiscounted cash flows 15 Duke 12 St James' Place Total
Street
£ £ £
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
£ £
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 debts (105,993) -
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 £7,554,520,
reversal of lease incentives in respect of properties sold was £7,159,464.
Lease incentives consist of £3,306,330 (2021: £6,373,806) being the
prepayments for rent-free periods and stepped increases in rental income
recognised over the life of the lease and £nil (2021: £4,487,045) relating
to incentives paid to tenants.
16 Cash and cash equivalents
31-Mar-22 31-Mar-21
£ £
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
£ £
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 £60,000,000 revolving facility with an accordion option of up
to £40,000,000. During the year, the revolving facility commitment was
reduced to £30,000,000, with a total of £5,000,000 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 £50,000,000 at any
time and that no single tenant represents more than 25% of the total
contracted rents.
At 31 March 2022 £21,480,656 of the total facility had been drawn down (31
March 2021: £62,300,000). The undrawn facility was £13,519,344 (2021;
£2,700,000).
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 £19m.
On 22 June 2022 the remaining balance of the loan facility was repaid in full.
18 Reconciliation of movements of liabilities to cash
flows from financing activities
31-Mar-22 31-Mar-21
£ £
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 liability 84,907 -
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
£ £
Non-current
Long-term incentive payment 1,055,871 -
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 £1,126,026 (2021;
£1,645,006) and deferred insurance recharges of £84,473 (2021; £100,601).
20 Stated capital
Issued and fully paid share capital is as follows:
31-Mar-22 31-Mar-21
£ £
Issued and fully paid shares of no-par value 42,542,179 42,542,179
Number of shares in issue
Brought forward (at £1.49 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
£1.49 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
£ £
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
£1.49 each to be held in treasury subject to award under the LTIP.
During the year, the Group recognised a share-based payment expense of
£437,895 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 date Number of shares granted Performance period start date Performance period end date Percentage of shares vested Number of shares vested Date 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 £27,087,025
(2021: £9,499,580). At the reporting date £688,741 (2021: £757,388) of the
amounts due from tenants were considered to be overdue. After due
consideration, the Directors have recognised a provision for doubtful debts of
£105,993 (2021: £nil), 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 Amount Within one year 1-2 years 2-5 years More than 5 years Total
£ £ £ £ £ £
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 Amount Within one year 1-2 years 2-5 years More than 5 years Total
£ £ £ £ £ £
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 rate Fixed rate Interest free Total
£ £ £ £
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 rate Fixed rate Interest free Total
£ £ £ £
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 £21,480,656 (2021: £62,300,000) 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 £214,807 (2021:
£623,000). 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 Activity Country of incorporation Ownership interest
31 March 2022 31 March 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 £1.1million (2021: £1,945,081). 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 2021 to 31 March 2022 1 April 2020 to 31 March 2021
£ £
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 benefit 612,861 -
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
£2.5m per Executive Director.
The Incentive Payment is subject to certain terms and conditions and is capped
at a maximum of £2.5m per Executive Director or £5m 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 £1.1million and
incorporates the movement of £437,895 relating to the share-based payment
benefits and £612,861 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
£2.52m. 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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