Final Results for the year ended 31 March 2021

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 £4.9 million (31 March 2020: £4.3 million) .

 

· 2% increase in annual rental income to £7.7 million (31 March 2020: £7.5 million) against an extraordinary backdrop.

 

· 4% decrease in Net Asset Value ("NAV") per share to £2.74 (31 March 2020: £2.85) 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 £5.75 million reflecting a net LTV of 44%.  In aggregate, the Company has £10.2 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:

135 Aztec West, Bristol pre-let in January to Fertility Bristol Ltd and practical completion of the building expected in mid-July 2021.

Refurbishment of K3 Kents Hill, Milton Keynes due to re-start in Q3 2021, with £2.2 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.

 

 

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

+44 (0) 203 897 1830

Joshua Cryer

Iain Daly

 

 

 

Camarco

+44 (0) 203 757 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 £10.92 million per annum, compared to contracted rent of £8.70 million at 31 March 2020. The Company has a portfolio of 13 regional commercial property investment and development assets in the UK valued at £132.15 million as at 31 March 2021.

 

*  valuation figures stated after deducting the value of Power House, Davy Avenue, Milton Keynes (being £3.3 million as at 31 March 2020 and £3.25 million as at 30 September 2020) which was sold by the Company for £3.55 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 £7.7m (31 March 2020 - £7.5m) 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 £2.2 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 £5.75 million of available cash reflecting a net LTV of 44%.  In aggregate, the Group had £10.2 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

 

 

 

 

 

 

 

 

 

 

Note

1 April 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

£

 

£

 

 

 

 

 

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 2021

 

31 March 2020

 

 

£

 

£

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
capital

 

Treasury share
capital

 

Share based payment reserve (i)

 

Retained earnings

 

Total

 

 

£

 

£

 

£

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

£

 

 

 

 

 

 

 

 

 

 

 

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 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

£

 

£

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 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 expenses

 

 

 

 

 

 

 

 

1 April 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

 

 

 

 

 

 

 

Note

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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' Remuneration

 

 

 

 

 

 

 

1 April 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

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 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank interest

 

 

 

 

 

 

 

 

 

2,094

 

1,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,094

 

1,531

 

 

9

Finance costs

 

 

 

 

 

 

 

 

 

1 April 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 taxation

 

 

 

 

 

 

 

 

 

1 April 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

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 £682,917 (2020: £741,595) 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 £482,171 (2020: £336,412) has been recognised in respect of the expected future tax relief available on these losses. The amount recognised has been restricted by £481,867 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 £126,527 has been recognised in respect of the temporary timing difference on this future tax deduction.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 April 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

Deferred tax liability at 31 March relates to the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chargeable gains on investment properties

 

 

 

 

 

 

 

482,171

 

877,401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax liability brought forward

 

 

 

 

 

 

 

877,401

 

-

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 £2,537,740 (2020: £4,617,900), if the properties were disposed of at fair value, a deferred tax liability of £482,171 (2020: £877,401) 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 £407,878 and the deferred tax liability would have increased by £152,265.

 

                             

 

 

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 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 2021

 

31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£129,300,000 (2020; £136,250,000) of the above properties' value, estimated by the valuer, relate to property held on a freehold basis and £2,850,000 (2020: £3,200,000) on a long leasehold basis, for a peppercorn rent.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The fair value of the Group's investment properties per the Valuation Report amounted to £132,150,000 (2020; £139,450,000). The difference between the fair value of the investment properties per the Valuation Report and the fair value per the balance sheet of £10,860,851 (2020; £10,109,592) 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 2021

 

31 March 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 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 lease. (2020: no change)

The estimated fair value would increase / (decrease) if:

 

2020

104,200,000

 

 

 

2021

96,800,000

 

 

void periods were shorter / (longer);

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conference

 

 

 

Market rents have been based on the specific circumstances of each property.

market rents were higher / (lower);

Centre

 

 

 

 

 

 

 

 

 

2020

35,250,000

 

 

rent free periods were shorter / (longer);

 

2021

35,350,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 -

Estimated rent free periods range from 6 to 12 months on new leases. (2020: no change)

letting fees were lower / (higher);

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

rent per square foot were higher / (lower);

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

139,450,000

 

 -

Letting fees have been estimated on vacant units.

equivalent yields were lower / (higher); or

 

2021

132,150,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

market conditions were to improve / (decline).

 

 

 

 

 - 

Net equivalent yields range from 4.45% 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 2021

 

31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 assets

 

 

 

 

 

 

 

15 Duke
 Street

 

 12 St James' Place

 

 Total

 

 

 

 

 

 

 

 

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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
 Street

 

 12 St James' Place

 

 Total

 

 

 

 

 

 

 

 

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 undiscounted cash flows

 

 

 

15 Duke
 Street

 

 12 St James' Place

 

 Total

 

 

 

 

 

 

 

 

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 receivables

 

 

 

 

 

 

 

31 March 2021

 

31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 £6,373,806 (2020; £5,403,770) being the prepayments for rent-free periods and stepped increases in rental income recognised over the life of the lease and £4,487,045 (2020; £4,705,822) relating to incentives paid to tenants.

 

 

15

Cash and cash equivalents

 

 

 

 

 

 

 

 

31 March 2021

 

31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royal Bank of Scotland International

 

 

 

 

 

 

 

5,747,804

 

2,980,329

 

National Westminster Bank plc

 

 

 

 

 

 

 

 

1,775,000

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,522,804

 

2,980,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The amount of £1,775,000 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 2021

 

31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 £60,000,000 revolving facility with an accordion option of up to £40,000,000, of which £5,000,000 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 £50,000,000 at any time and that no single tenant represents more than 25% of the total contracted rents.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 March 2021 £62,300,000 of the total facility had been drawn down (31 March 2020: £61,300,000). The undrawn facility was £2,700,000 (2020; £3,700,000). On 15 April 2021 a repayment of £1,775,000 was made against the facility.

 

 

17 Reconciliation of movements of liabilities to cash flows from financing activities

 

31 March 2021

 

31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 payables

 

 

 

 

 

 

 

 

31 March 2021

 

31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 £1,645,006 (2020; £1,489,265) and deferred insurance recharges of £100,601 (2020; £114,724).

 

 

19

Stated capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued and fully paid share capital is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 March 2021

 

31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

 

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 2021

 

31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 £1.49 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 date

Number of shares granted

 

Performance period start date

 

Performance period end date

 

Percentage of shares vested / estimated to vest

 

Number of shares vested / estimated to vest

 

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

 

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

 

 

 

£1.49

 

£1.90

 

£1.90

 

£1.90

 

£1.62

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

 

 

£1.35

 

£1.74

 

£1.74

 

£1.74

 

£1.46

 

Share based payment expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The share-based payments expense recognised during the year is as follows:

 

 

 

31 March 2021

 

31 March 2020

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 £9,499,580 (2020; £4,537,588). At the reporting date £757,388 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 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual Value

 

 

 

Carrying Amount

 

Within one year

 

1-2 years

 

2-5 years

 

More than 5 years

 

Total

 

 

£

 

£

 

£

 

£

 

£

 

£

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 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Floating rate

 

Fixed rate

 

Interest free

 

Total

 

 

 

 

 

 

 

£

 

£

 

£

 

£

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 £62,300,000 (2020: £61,300,000) 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 £623,000 (2020; £613,000). 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 subsidiaries

 

 

Principal Activity

Country of incorporation

 

Ownership interest

 

 

 

 

 

 

31 March 2021

 

31 March 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 £1,945,081 (2020; £448,741). 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 2020 to 31 March 2021

 

1 April 2019 to 31 March 2020

 

 

 

 

 

 

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 £1,775,000 against the loan facility detailed in Note 16.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On 4 May 2021 John Arnold purchased an additional 25,000 shares in the Company.

 

 

 

 

                                 

 

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