Final Results and Notice of AGM

RNS Number : 8277S

Circle Property PLC

28 June 2018

Circle Property Plc

("Circle" or the "Group")

Final Results for the year ended 31 March 2018

SIGNIFICANT VALUATION AND INCOME GROWTH FROM REGIONAL OFFICE FOCUS AND ASSET MANAGEMENT

Notice of AGM

Circle Property Plc (AIM: CRC), the specialist regional UK office investment, development and management company, today announces its results for the year ended 31 March 2018.

Financial Highlights

· 22.63% increase in valuation of the Group's portfolio of 17 UK investment properties to £114.075 million (31 March 2017: £93.025 million) as the Group's asset management programme continues to deliver growth

· NAV per share up 25% to £2.30 per share (31 March 2017: £1.83 per share)

· 21.49% increase in annual contracted rental income to £6.829 million driven by asset management initiatives with further income reversion within the portfolio. A further £795,729 has been added to annual rent roll as a result of a letting for the entire office space at Somerset House in Birmingham following the year end

· The Board has proposed a final dividend per share of 3p to bring the annual dividend to 5.6p, up 12% (31 March 2017: 5p)

· 39.13% increase in operating profit to £3.2 million (31 March 2017: £2.3 million) with revaluation gains contributing to a pre-tax profit of £13.99 million, up 41.31% (31 March 2017: £9.9 million), and an 45.71% increase in earnings per share to 51p (31 March 2017: 35p)

· Based upon the March valuation of £114.075 million the portfolio reflects a net initial yield of 5.62% and a reversionary yield of 8.16%.

· Weighted average unexpired lease term to first break is now 7.24 years (31 March 2017: 7.39 years) and 10.50 years to expiry (31 March 2017: 11.23 years)

· Acquisition of 710 & 720 Aztec West Business Park for £4.2 million in an off-market transaction representing a net initial yield of 7.9%. The properties are fully let and generate a total passing rent of £351,573 per annum. The acquisition was funded through a £5 million extension to the Company's existing £50 million loan facility with RBS. £3.1 million of the facility remains undrawn

· The Group's LTV remains in the target range at 45.5%

Operational Highlights

· Portfolio Estimated Rental Values increased by 12.45% to £9.9 million per annum underlining strong potential future income growth as this reversion is captured and recently refurbished vacant space is leased.

· Ongoing strong demand for regional office space is reflected in the high occupancy across the Company's portfolio at 99%, excluding recently refurbished buildings.

· Refurbishment works have completed at the Group's three key developments at K2 Kents Hill Business Park in Milton Keynes, Somerset House, in Birmingham and 36 Great Charles Street, in Birmingham. Each has been well received in the lettings market with significant leasing successes including:

o 100% occupancy at Somerset House in Birmingham, five months after development completion. Following the year end, BE Offices has taken a 15 year lease adding £795,729 to the annual rent roll. Las Iguanas has agreed a 20 year lease (without break) and Camerons Brewery has taken a 20 year lease (15 years to first break). As a result, the property is expected to generate a total rental income of £1,231,479 per annum (after rent free periods and incentives expire).

o Letting all 6,641 sq ft of the remaining space at Powerhouse in Milton Keynes to Stephen Eagell Ltd, one of the UK's leading Toyota dealerships, on a 10 year lease at a rent of £0.11m per annum, equating to a rent of £16 per sq ft.

· Additional lettings success has been achieved across the portfolio taking advantage of continued strong demand in the UK's key regional cities:

o Topps Tiles has agreed a new 10 year lease with a five year break option at a rent of £0.050m per annum at the Baildon Bridge Retail Park in Shipley.

o Grant Thornton extended its lease by five years to 2023 at 300 Pavilion Drive, Northampton Business Park, Northampton.

o At One Castlepark in Bristol, a 10 year lease renewal has been agreed with JISC on 6,792 sq ft of office space at a rent of £23 per sq ft with a five year break option.

o The Group completed a 1,350 sq ft letting to Genius in 21 Days UK Ltd of the entire 5^th floor at 141 Moorgate in London for five years at a rent of £0.060m per annum.

o Anchor Safety LLP, which already occupied Unit A at Chapel Lane, Great Balkenham in Nr Ipswich, agreed to let Units A&B on a new five year lease without break at a rent of £0.15m per annum.

John Arnold, Chief Executive at Circle Property Plc, commented: "Since the IPO of the business two years ago, Circle has consistently delivered strong income and dividend returns for shareholders, as well as a 54% increase in NAV. This has been another successful year in which the Group has achieved a 25% uplift in NAV, significant lettings successes across recently completed developments leading to a 21.49% increase in contracted rent and a strong performance across our key metrics. Furthermore, we've secured an additional £795,729 of annual rent roll since the year end, which is not reflected in the rental income in these results.

"Continued growth in shareholder returns is underpinned by our consistent strategy of investing in well located regional office assets and actively managing the portfolio to grow income and maximise returns. Furthermore, we see no sign of the trend of diminishing office supply in regional cities across the UK abating, as Permitted Development Rights continue to enable the conversion of office stock to residential. As a result, we expect the demand for high quality office space in the regions to remain robust. Looking ahead, we continue to explore opportunities to grow the Company."

Circle Property Plc	+44 (0)20 7930 8503
John Arnold, CEO Edward Olins, COO

Smith & Williamson	+44 (0) 20 7131 4000
Azhic Basirov Katy Birkin Radnor Capital Joshua Cryer Iain Daly	+44 (0) 20 3897 1830
FTI Consulting	+44 (0)20 3727 1000
Giles Barrie Richard Sunderland Eve Kirmatzis

CHAIRMAN'S STATEMENT

Over the twelve months from April 2017, NAV per share as at 31 March 2018 increased from £1.83 to £2.30 which is a very strong performance that has been achieved primarily through asset management. Furthermore, this has only been possible as a result of our policy of buying well located regional office stock where we can identify a clear opportunity to add value and by placing an emphasis on total returns rather than the sole criteria of maximising the initial rental yield. The growth in rental returns flowing from the letting activities and asset management that we undertake are also now being positively reflected in our income statement. While the ongoing Brexit uncertainty is slowing the pace of letting activity in the wider market to some degree, our office investments have proven to be sufficiently well located and of high enough quality to remain attractive to tenants. The continued leasing momentum we have achieved also reflects the supportive dynamics of a supply constrained regional office market space which gives us further confidence to look for and undertake further redevelopment opportunities.

These market factors, as well as our own asset management initiatives, have allowed us to significantly improve contracted rental income to £6.829 million (which exclude rent-free periods and other incentives) in the year under review (up 21.49% from £5.62 million last year). As a result, and reflecting the board's confidence in the Company's prospects the Directors are recommending a dividend payment of 3p a share to bring the annual dividend to 5.6p per share (2017: 5p per share).

Circle Property Plc's ("Circle") tenant retention remains high as the management continues to maintain close contact with our occupiers and remains flexible in its approach in negotiations. The vacancy rate within our portfolio, remains at less than 1% excluding completed developments. The Board is committed to enlarging the Company's capital and shareholder base in order to increase liquidity in the stock and ultimately reduce the current discount in the share price versus NAV. We are confident that our opportunistic approach and specialisation in the provincial office market will continue to yield higher total returns from which our investors can continue to benefit.

Ian Henderson

Chairman

Notice of Annual General Meeting ("AGM")

The Company's third AGM will be held at 3rd Floor, Standard Bank House, 47-49 La Motte Street, St Helier, Jersey JE2 4SZ on 25 July 2018 at 2:30 p.m. Doors open at 2:15 p.m. The relevant documentation regarding the AGM, together with the Company's full annual report and accounts will be distributed in due course.

Dividend Declaration

Circle Property Plc announces today that, subject to approval by shareholders at the AGM on 25 July 2018, the dividend of 3.0p per share will be paid on 02 August 2018 to shareholders on the register on 06 July 2018.

CHIEF EXECUTIVE'S STATEMENT

In just over two years since our IPO on AIM, Circle Property Plc has consistently achieved its objective of delivering strong NAV and income returns. In total since IPO we have achieved 54% NAV growth on behalf of shareholders, including a 25% uplift in NAV for the year under review. In line with this, Circle has increased its dividend income return to shareholders by 8% to 2.6 pence since it was first declared in May 2016. The Board is recommending a further dividend of 3 pence per share to bring the annual dividend to 5.6 pence. There is also a clear prospect of further growth as we continue to capture the reversion in the portfolio and lease the remaining space across our pipeline of newly refurbished assets.

Further significant leasing progress has been made since the year end, particularly at our Somerset House redevelopment in Birmingham city centre where we have exchanged contracts with BE Offices, one of the UK's leading shared and flexible office space providers, for a 15 year lease covering the entire 36,300 sqft of office space adding almost £800,000 or 11.6% to the Company's contracted rent roll as at 31 March 2018. Importantly, along with the recent restaurant lettings, this means that the building is now fully let. We are also in advanced leasing negotiations with multiple occupiers at our 36 Great Charles Street development in Birmingham and at K2 Kents Hill Business Park in Milton Keynes.

Alongside this strong operational momentum, we have begun to increase our focus on finding opportunities to replenish our development pipeline, in order to continue creating value though asset management. As we let our refurbished properties any valuation uplift is fully reflected on our balance sheet. This additional value affords us the opportunity to take on further debt which provides capital for investment into new projects where we can create further additional value, while remaining within our existing loan to value ratio or other banking covenants.

We believe that with both our total return outperformance and the latent earnings and income potential within our current portfolio the Company represents a highly compelling investment opportunity. This is further enhanced by the fact that the strong supply demand fundamentals of the well located regional office asset class that we invest in, are becoming increasingly acute as the trend of converting offices to residential takes more supply out of the market and drives rental growth.

However, against this positive backdrop, we are aware that our current small scale and tightly held shareholder base are a cause of illiquidity in our shares and have been key contributing factors in Circle's stock trading at a discount to NAV. We have previously stated our intention, at the appropriate time, to expand the share register, increase our size and seek new acquisition opportunities. Smith and Williamson and Radnor Capital, who we appointed last year, are currently exploring opportunities for us to progress this initiative.

We remain confident that provincial occupational demand will continue to improve, in the context of a stable political and economic environment and, while investment yields for good quality, well located and securely let regional offices are firming, we believe that rental values will improve further as levels of supply continue to reduce.

Furthermore, we remain resolute in following our objectives of actively managing our existing portfolio to maximise total returns, while targeting added value opportunities where the location and proven demand justify the risk of development, and retaining completed and let developments in order to grow income and fund the future development pipeline.

John Arnold

Chief Executive Officer

PORTFOLIO REVIEW

During the year, we continued to increase the portfolio's income by concentrating on lettings and lease renewals.

As of 31 March 2018, contracted rental income increased to £6.829m (31 March 2017: £5.62m), reflecting an increase of 21.5% during the year. The adjusted contracted rental income during the year to 31 March 2018 increased to £6.53m (31 March 2017: £5.32m), an increase of 22.7%.

Refurbishment works have completed at our three key developments, K2 Kents Hill Business Park, Milton Keynes, and both Somerset House, Temple Street and 36 Great Charles Street, in Birmingham. Each has been well received in the letting market.

Our strategy of owning buildings capable of subdivision to provide smaller office suites of up to 5,000 sq ft is paying off, as 70% of all lettings in the cities where we are invested are within this size range. At this smaller end of the market, we attract local professionals and SMEs, which in management's view are less prone to the uncertainties of BREXIT.

The continued uncertainty in the market is giving rise to further opportunities which we will endeavour to exploit, should the returns be sufficiently attractive.

PORTFOLIO OVERVIEW

As at 31 March 2018, the total portfolio value was £114.075m, an increase of 22.63% from the previous year (31 March 2017 :£93.025m), mainly driven by asset management as opposed to yield compression.

The portfolio is made up of 17 assets, primarily well located provincial offices.

By floor area, 85% of the portfolio is let and income producing. Of the remaining vacant 15%, 13.9% is held within the three recently refurbished key office developments. Only 1.1% of the vacancy is held within the remaining buildings.

90.6% of the portfolio by value is in the office (and conference) sector. The remaining 9.4% is split across four sectors, which although provide good high yielding income, are likely to be sold once their business plans are complete.

76.8% of the portfolio by value is located in Milton Keynes, Bristol and Birmingham, an increase of 4.2% from the previous year end (2017: 73.7%).

Principal tenants within the portfolio include Compass Contract Services Limited (22.63% and 23.5 years to lease expiry), Which? Financial Services Limited (4.85%), B&M Retail (4.07%), Grant Thornton LLP (3.66%) and New World Trading Ltd (3.59%).

As at 31 March 2018, the weighted average unexpired lease term ('WAULT') to first break is 7.24 years, whilst average term to lease expiry is 10.50 years.

Edward Olins

Chief Operating Officer

Consolidated statement of comprehensive income
for the year ended 31 March 2018

	Note	1 April 2017 to 31 March 2018	1 April 2016 to 31 March 2017
		£	£

Rental income	4	6,211,820	5,265,507
Other income	4	142,585	138,122
		6,354,405	5,403,629

Property expenses	5	(831,189)	(1,037,375)

Net rental income		5,523,216	4,366,254

Administrative expenses	6	(2,368,220)	(2,114,965)

Operating profit		3,154,996	2,251,289

Gains on disposal of investment properties		1,497	278,771
Gains on revaluation of investment properties	12	11,980,810	7,360,657
Negative goodwill on acquisition of CPUT		-	195,554
Listing costs		-	(107,493)

Operating profit after revaluation of investment properties and goodwill		15,137,303	9,978,778

Finance income	8	3,620	48,511
Finance costs	9	(1,149,720)	(1,293,384)
Effective interest rate adjustment on borrowings	15	-	1,232,304

Net finance costs		(1,146,100)	(12,569)

Profit for the year before taxation		13,991,203	9,966,209

Taxation	10	534,864	(21,912)

Total comprehensive income and profit for the year		14,526,067	9,944,297

Earnings per share		0.51	0.35


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.

The Company's loss for the year (non-consolidated) was £646,617 (2017: profit £989,270).

Consolidated statement of financial position
As at 31 March 2018

	Note	31 March 2018	31 March 2017
		£	£
Non-current assets
Investment properties	12	106,372,636	86,054,336
Property, plant and equipment		56,287	29,158
Trade and other receivables	13	7,201,845	6,518,077
Deferred tax	10	1,727,959	1,141,887
Financial instruments at fair value through profit and loss	16	-	710
		115,358,727	93,744,168

Current assets
Trade and other receivables	13	1,141,191	1,195,372
Deferred tax		-	128,240
Cash and cash equivalents	14	2,639,783	4,893,807
		3,780,974	6,217,419


Total assets		119,139,701	99,961,587

Equity
Stated capital	18	42,542,179	42,542,179
Treasury share reserve		(257,487)	(380,001)
Retained earnings		22,714,092	9,659,457
Total equity		64,998,784	51,821,635

Non-current liabilities
Loan borrowings	15	51,815,616	45,590,423
		51,815,616	45,590,423

Current liabilities
Trade and other payables	17	2,325,301	2,549,529
		2,325,301	2,549,529

Total liabilities		54,140,917	48,139,952


Total liabilities and equity		119,139,701	99,961,587


The consolidated financial statements were approved and authorised for issue by the Board of Directors on 27 June 2018 and signed on its behalf by:

Michael Farrow
Director

Consolidated statement of changes in equity
for the year ended 31 March 2018

	Share capital	Treasury shares reserve	Retained earnings	Total
	£	£	£	£

As at 1 April 2016	42,542,179	(380,001)	1,073,405	43,235,583

Profit for the year	-	-	9,944,297	9,944,297

Dividends	-	-	(1,358,245)	(1,358,245)

As at 31 March 2017	42,542,179	(380,001)	9,659,457	51,821,635

Profit for the year	-	-	14,526,067	14,526,067

Share-based payments	-	122,514	-	122,514

Dividends	-	-	(1,471,432)	(1,471,432)

As at 31 March 2018	42,542,179	(257,487)	22,714,092	64,998,784

Consolidated statement of cash flows
for the year ended 31 March 2018

	1 April 2017 to 31 March 2018	1 April 2016 to 31 March 2017
	£	£

Cash flows from operating activities
Profit for the year before taxation	13,991,203	9,966,209
Adjustments for:
Finance income	(3,620)	(48,511)
Finance costs	1,149,720	1,293,384
Depreciation	7,405	7,414
Gains on revaluation of investment properties	(11,980,810)	(7,360,657)
Gains on disposal of investment properties	(1,497)	(278,771)
Share based payments	122,514	-
Amortisation of loan arrangement fees	44,188	40,136
Fair value movement on interest rate swaps	710	(95,565)
Effective interest rate adjustment on loan borrowings	-	(1,232,304)
Negative goodwill on acquisition of CPUT	-	(195,554)
Increase in trade and other receivables	(293,097)	(3,409,020)
Increase / (decrease) in trade and other payables	141,050	(103,177)

Cash generated from operating activities	3,177,766	(1,416,416)

Interest paid	(1,116,591)	(1,416,942)
Interest received	3,620	70,513

Net cash from operating activities	2,064,795	(2,762,845)

Cash flows from investing activities
Cost of refurbishment of investment properties	(4,528,703)	(3,520,046)
Cost of acquisition of investment property	(4,466,652)	-
Proceeds from disposal of investment properties	1,497	1,278,770
Cost of additions of property, plant and equipment	(34,534)	(14,200)

Net cash from investing activities	(9,028,392)	(2,255,476)

Cash flows from financing activities
Repayment of borrowings	-	(39,775,343)
Drawdown of borrowings	6,181,005	46,529,563
Dividends paid	(1,471,432)	(1,358,245)

Net cash used in financing activities	4,709,573	5,395,975

Net (decrease) / increase in cash and cash equivalents	(2,254,024)	377,654
Cash and cash equivalents at the beginning of the year	4,893,807	4,516,153
Cash and cash equivalents at the end of the year	2,639,783	4,893,807

Notes to the consolidated financial statements

for the year ended 31 March 2018

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 22.

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 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 and derivative financial instruments which are measured at fair value.

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. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in these financial statements. In addition note 21 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 19.

The Group has adequate financial resources together with long term rental contracts with a wide range of tenants. As a consequence, the Directors believe that the Group is well placed to manage its business risks.

The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they have adopted the going concern basis in preparing the financial statements.

Basis of consolidation and business combinations

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries, as outlined in note 22.

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 Consolidated Financial Statements.

The results of subsidiaries acquired during the year are included from the effective date of acquisition, being the date on which the Group obtains control. They are deconsolidated on the date that control ceases.

If the consideration transferred for the acquisition of a subsidiary is more than the fair value of the assets and liabilities acquired, the difference is recognised as goodwill and is written off directly in the Consolidated Statement of Comprehensive Income if there is no future economic benefit associated with the goodwill.

If the consideration transferred for the acquisition of a subsidiary is less than the fair value of the assets and liabilities acquired, the difference is recognised as negative goodwill and is reflected directly in the Consolidated Statement of Comprehensive Income.

Acquisition-related costs are expensed as incurred.

Adoption of new and revised IFRSs

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 2017. These changes have not had a significant impact on the preparation of these financial statements.

New standards and interpretations

A number of new standards and amendments to standards and interpretations will become effective for future accounting periods and have not been applied in preparing these consolidated financial statements. The most significant changes are noted below. Other changes are not expected to have a significant impact on the Group.

IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. The standard is effective for accounting periods beginning on or after 1 January 2018. The Directors have assessed the requirements of IFRS 9 and determine that there will be no impact on the measurement of the Group's financial instruments, however will impact the disclosure to the financial statements.

IFRS 15, 'Revenue from contracts with customers' deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. The standard will have no significant impact as the Group's primary source of income is rental income which will continue to be recognised in accordance with IAS 17 Leases.

IFRS 16, 'Leases' was issued in January 2016. For lessees, it will result in almost all leases being recognised on the statement of financial position, as the distinction between operating and finance leases will be removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low value leases. The accounting for lessors will not significantly change. The standard is effective for annual periods beginning on or after 1 January 2019 and earlier application is permitted. The Group is currently assessing the impact of the new standard.

IFRIC 23 clarifies the accounting for uncertainties in income taxes and is effective for annual periods beginning on or after 1 January 2019. The IFRIC adds to the requirements of IAS 12 'Income taxes' by specifying how to reflect the effects of uncertainty in the Group's income tax.

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. The Group does not intend to apply any of these pronouncements early.

Estimates and judgements

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenue and expenses during the period. The nature of the estimation means that actual outcomes could differ from those estimates. Estimates and judgements are continually evaluated and are based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised prospectively.

Significant estimates

Fair value of investment property

Investments in property and property-related assets 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 to perform valuations of the investment property using Royal Institute of Chartered Surveyors ("RICS") valuation standards as at 31 March 2018. 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.

Fair value of interest rate contracts

The fair values of interest rate contracts have been calculated and provided by the relevant counterparty bank using recognised valuation techniques. Details of the interest rate contracts are set out in note 16.

Significant judgements

Operating lease commitments - Group as lessor

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined that it retains all the significant risks and rewards of ownership of these properties and therefore accounts for them as operating leases.

Revenue recognition

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the lease. The term of the lease is the full lease period where there is a reasonable expectation at the inception of the lease that the tenant will not utilise the lease break clause. Lease incentives granted are spread evenly over the term of the lease.

Property service charges

The properties' tenants bear the service charge costs under the terms of their lease and therefore the Group considers that it is acting in the capacity of an agent. Service charges receivable from tenants and related costs are not recognised by the Group. Service charge costs in relation to void areas are recognised within property expenses on an accruals basis.

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 comprise 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 in the consolidated statement of comprehensive income. The fair value is based on valuations provided by Savills (UK) Limited at the balance sheet date using recognised valuation techniques.

An investment property shall be derecognised on disposal or at a time that no benefit is expected from future use or disposal. Any gain or loss is determined as the difference between the net disposal proceeds and the carrying amount and is recognised in profit or loss in the consolidated statement of comprehensive income.

Recognition and derecognition occurs on the completion of a sale between a willing buyer and a willing seller. Any investment properties on which contracts for sale have been exchanged but which had not completed at the year-end are disclosed as properties held for sale and stated at fair value. At 31 March 2018 and 2017 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 2018 and 2017 there were no properties under construction or development.

Investment property (continued)

Technique used for valuing investment properties

The traditional method converts anticipated future cash flow benefits in the form of rental income into present value. This approach requires careful estimation of future benefits and application of investor yield or return requirements. One approach to value the property on this basis is to capitalise net rental income on the basis of an Initial Yield, generally referred to as the 'All Risks Yield' approach or 'Net Initial Yield' approach.

These fair values are based on comparable market prices where possible, adjusted if necessary, for any difference in the nature, location or condition of the specific assets and factors not included in net rental income such as vacancies and lease incentives.

The fair value of investment properties is measured based on each property's highest and best use from a market participant's perspective and considers the potential uses of the property that are physically possible, legally permissible and financially feasible.

Operating leases

Properties leased out under operating leases, where the Group is the lessor, are included in investment property in the consolidated statement of financial position. Please refer to revenue recognition for the discussion of recognition of rental income.

Financial instruments

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of 3 months or less. These are carried at cost, which in the opinion of the Directors is a reasonable approximation of fair value.

Trade and other receivables

Loans and 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, loans 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 payables are not interest bearing and are recognised initially at fair value. Subsequent to initial recognition trade and other payables are measured at amortised costs 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 income statement 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.

Derivative financial instruments

The Group uses derivative financial instruments to hedge its risk associated with interest rate fluctuations. The Group's policy is not to trade in derivative instruments. The Group does not apply hedge accounting.

Recognition of the derivative financial instruments takes place on the date at which a derivative contract is entered into. Such derivative financial instruments are measured initially and subsequently at fair value; transaction costs are included as incurred in the statement of comprehensive income under finance costs. Gains or losses on derivatives are recognised in the statement of comprehensive income in net gain or loss from financial instruments at fair value through profit or loss. Interest expenses on derivative financial liabilities are included as incurred in the statement of comprehensive income in finance costs.

Impairment

The Group considers evidence of impairment for financial assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics.

In assessing collective impairment, the Group uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends.

An impairment loss is calculated as the difference between an asset's carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss.

Taxation

The Company, Circle Property Unit Trust ("CPUT") and Circle Property (Milton Keynes) Limited ("CPMK") are registered in Jersey, Channel Islands. The Company and CPMK are taxed at the Jersey company standard rate of 0%. CPUT is not subject to tax in Jersey.

The Company is registered under the Non-Resident Landlord Scheme and is liable to United Kingdom taxation at a rate of 20% on net rental income from its investment properties.

The UK Government made a number of announcements in the Autumn Budget 2017. UK rental income is currently subject to UK income tax at 20%. After April 2020, if amendments are enacted, non-resident corporate landlords will be subject to UK corporation tax rather than income tax and non-resident capital gains tax, subject to any existing exemptions.

The UK Government also announced that with effect from 1 April 2019 all non-UK resident entities that dispose of UK residential or commercial property will be subject to the UK Capital gains tax at a rate of 20% on gains arising after that date.

These proposed amendments have not yet been enacted and it is not possible to determine precisely their likely impact on the Group, but it is expected that the new rules will result, inter alia, in changes to applicable taxation rates and the way losses can be relieved.

Deferred taxation

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in profit or loss, except when it relates to items charged or credited directly to other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

Share capital

Ordinary share capital is classified as equity. Dividends are recognised as a liability in the year in which they are approved.

Treasury shares

Treasury shares are equity shares of the Company held for the purpose of awarding shares in the 2016 Long Term Incentive Plan ("LTIP"). The shares are recorded at cost and are deducted from equity.

Share based payments

The Group has applied the requirements of IFRS 2 Share-Based Payment to share options granted under the LTIP. The fair value of the share options are determined at the grant date and are expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement 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.

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included within intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

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 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 2017 to 31 March 2018	1 April 2016 to 31 March 2017
		£	£

Rental income		5,816,610	4,743,974
SIC 15 adjustment (spreading of lease incentives)		395,210	521,533
		6,211,820	5,265,507

Insurance recovery		99,398	118,647
Other income		43,187	19,475

		6,354,405	5,403,629

5 Property expenses		1 April 2017 to 31 March 2018	1 April 2016 to 31 March 2017
		£	£

Other void property costs		318,002	260,705
Void property service charges		259,588	337,635
Property repairs and maintenance costs		29,532	25,960
Property insurance		130,328	144,276
Void property rates		68,739	68,799
Lease variation costs		25,000	200,000

		831,189	1,037,375

6 Administrative expenses		1 April 2017 to 31 March 2018	1 April 2016 to 31 March 2017
	Note	£	£

Staff costs	7	1,321,982	1,060,222
Administration fees		250,309	251,829
Legal and professional fees		504,856	564,685
Audit fees		51,875	65,724
Accountancy fees		7,648	9,918
Rent, rates and other office costs		63,909	57,219
Other overheads		160,236	97,954
Depreciation of tangible fixed assets		7,405	7,414

		2,368,220	2,114,965


7 Employees and Directors'Remuneration	1 April 2017 to 31 March 2018	1 April 2016 to 31 March 2017
	£	£

Staff costs during the year were as follows:
Non-executive directors' fees	133,000	130,000
Wages and salaries	817,500	797,000
Share-based payments	122,514	-
National insurance costs	174,918	66,009
Pension contributions	32,856	31,948
Other employment costs	41,194	35,265

	1,321,982	1,060,222

8 Finance income	1 April 2017 to 31 March 2018	1 April 2016 to 31 March 2017
	£	£

Bank interest	3,620	5,220
Loan interest	-	43,291

	3,620	48,511

9 Finance costs	1 April 2017 to 31 March 2018	1 April 2016 to 31 March 2017
	£	£

Loan interest	1,073,998	1,060,234
Loan commitment fees	15,824	42,699
Loan arrangement fees	59,188	215,136
Fair value movement on interest rate contracts	710	(95,565)
Swap interest	-	70,880

	1,149,720	1,293,384

10 Taxation	1 April 2017 to 31 March 2018	1 April 2016 to 31 March 2017
	£	£

Current tax	(77,031)	77,031
Deferred tax	(457,833)	(55,119)

	(534,864)	21,912

A reconciliation of the current tax charge applicable to the results at the statutory income tax rate to the (credit) / charge for the year is as follows:

Current taxation	1 April 2017 to 31 March 2018	1 April 2016 to 31 March 2017
	£	£

Profit for the year before tax	13,991,203	9,966,209

UK income tax at a rate of 20%	2,798,241	1,993,242

Effects of:
Non-taxable negative goodwill on acquisition of CPUT	-	(39,111)
Non-taxable effective interest rate adjustment on borrowings	-	(246,461)
Non-taxable gains on investment properties	(2,396,461)	(1,527,886)
Non-taxable income	(9,361)	(9,702)
Expenses not deductible for tax purposes	68,261	120,376
Capital expenditure deductible for tax purposes	(152,831)	-
Utilisation of capital allowances	(307,849)	(168,761)
Utilisation of losses brought forward	-	(44,666)
Over provision of current tax in prior year	(77,031)	-

	(77,031)	77,031

Deferred taxation	1 April 2017 to 31 March 2018	1 April 2016 to 31 March 2017
	£	£

Deferred taxes at 31 March relates to the following:

Deferred tax asset
Capital allowances available to carry forward	1,727,959	1,270,126

Deferred tax asset brought forward	1,270,126	1,019,453
Under provision of deferred tax credit in prior year	373,101	-
Deferred tax recognised on the acquisition of CPUT	-	195,554
Deferred tax credit for the year	84,732	55,119

Deferred tax asset carried forward	1,727,959	1,270,126

At 31 March 2018, the Group had capital allowances of £8,639,795 (2017; £6,350,633) available to carry forward against future profits. A deferred tax asset of £1,727,959 (2017; £1,270,126) has been recognised as it is expected to be utilised in the foreseeable future.


11 Earnings per share

Basic earnings per share has been calculated on profit after tax attributable to ordinary shareholders for the year (as shown on the Consolidated Statement of Comprehensive Income) and the weighted average number of ordinary shares in issue during the year.

						1 April 2017 to 31 March 2018	1 April 2016 to 31 March 2017
						£	£

Profit for the year						14,526,067	9,944,297

Weighted average number of shares (excluding treasury shares)						28,296,762	28,296,762


Earnings per ordinary share:						0.51	0.35

In the opinion of the Board, treasury shares held to satisfy share awards to management, as disclosed in note 20, currently do not have any material value and hence do not have any dilutive effect. Therefore no diluted earnings per share has been presented.

12 Investment properties						31 March 2018	31 March 2017
						£	£

Opening fair value per valuation report						93,025,000	77,735,000
Cost of refurbishment of investment properties						4,207,328	3,912,856
Cost of acquisition of investment property						4,466,652	-
Disposal of investment properties						-	(1,000,000)
Gain on revaluation of investment properties						11,980,810	7,360,657
Lease incentive amortisation						395,210	5,016,487

Fair value of investment properties per valuation report						114,075,000	93,025,000

Unamortised lease incentives recorded within trade and other receivables						(7,702,364)	(6,970,664)

Carrying value						106,372,636	86,054,336

No properties were classified as held for sale at 31 March 2018 and 2017.

As at 31 March 2018 the fair value of investment properties under development included in the above amount was nil (2017; nil).

£110,325,000 (2017; £89,025,000) of the above properties' value, estimated by the valuer, relate to property held on a freehold basis and £3,750,000 (2017: £4,000,000) on a long leasehold basis, for a peppercorn rent.

The fair value of the Group's investment properties per the Valuation Report amounted to £114,075,000 (2017; £93,025,000). The difference between the fair value of the investment properties per the Valuation Report and the fair value per the balance sheet of £7,702,364 (2017; £6,970,664) 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 15.
The fair value of the Group's investment properties at 31 March 2018 has been estimated on the basis of valuation carried out by Savills (UK) Limited. 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.
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. (2017: no change)	The estimated fair value would increase / (decrease) if:
	2017	83,450,000			The estimated fair value would increase / (decrease) if:
	2018	103,325,000
Retail					void periods were shorter / (longer);
Warehousing				Market rents have been based on the specific circumstances of each property.
	2017	3,800,000			market rents were higher / (lower);
	2018	4,800,000
					rent free periods were shorter / (longer);
Retail
	2017	1,700,000		Estimated rent free periods range from 6 to 12 months on new leases. (2017: no change)	letting fees were lower / (higher);
	2018	1,700,000
					rent per square foot were higher / (lower);
Industrial
	2017	1,125,000		Letting fees have been estimated on vacant units.	equivalent yields were lower / (higher); or
	2018	1,300,000		Letting fees have been estimated on vacant units.
					market conditions were to improve / (decline).
				Rent per square foot ranges from £3 to £46 (2017: £3 to £46).	market conditions were to improve / (decline).
Other
	2017	2,950,000
	2018	2,950,000		Net equivalent yields range from 5.79% to 8.63% (2017: 5.97% to 8.74%).

Total
	2017	93,025,000		Market conditions are considered based on the property's location.
	2018	114,075,000


The ranges are based on averages per property. Individual tenancies within properties may fall outside these ranges. The relationship between the unobservable inputs and their impact on the fair value measurement is not certain. Changes to the tenancies may impact the fair value outside one or more of the above inter-relationships according to individual circumstances.

13 Trade and other receivables						31 March 2018	31 March 2017
						£	£

Non-current
Lease incentives						7,201,845	6,518,077

Current
Lease incentives						500,519	452,587
Amounts due from property agents						147,689	68,767
Amounts due from tenants						127,930	153,123
VAT						167,227	352,717
Other receivables						197,826	168,178

						1,141,191	1,195,372

Lease incentives consist of £3,477,667 (2017; £2,566,287) being the prepayments for rent-free periods recognised over the life of the lease and £4,224,697 (2017; £4,404,377) relating to incentives paid to tenants.

14 Cash and cash equivalents						31 March 2018	31 March 2017
						£	£

Royal Bank of Scotland International						2,387,889	4,641,977
National Westminster Bank plc						251,894	251,830

						2,639,783	4,893,807

As at 31 March 2018 £377,209 (2017; £377,027) of cash was held on blocked accounts. Of this, £125,315 (2017; £125,204) relates to deposits received from tenants and £251,894 (2017; £251,830) was held on an interest deposit account in relation to the loan borrowings disclosed in note 15.

15 Loan borrowings						31 March 2018	31 March 2017
						£	£

Brought forward						45,590,423	40,028,371
Loan repayments						-	(39,775,343)
Loan drawdowns						6,181,005	46,529,563
Effective interest rate and amortisation adjustment						-	(1,232,304)
Amortisation of lending costs						44,188	40,136

						51,815,616	45,590,423

The Group is party to a revolving facility, dated 22 June 2016, with National Westminster Bank Plc ("Natwest"). The facility has a three year term with two options, at the absolute discretion of Natwest, to extend for a further year. Where the loan to value is less than 55% of the Group's gross portfolio value an interest rate of 1.85% over LIBOR is charged, where the loan to value equals or exceeds 55% an interest rate of 2.75% over LIBOR is charged.

On 5 March 2018 the Group entered into a Deed of Amendment and Restatement whereby the total commitment of the facility was increased from £50,000,000 to £55,000,000.


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 65% loan to value, 1.75:1 interest cover to the second anniversary of the date of the facility agreement and 2.00:1 thereafter and 11:1 debt to rent cover to the second anniversary of the date of the facility agreement and 10:1 thereafter. There were no breaches of any of these covenants during the year.

The undrawn facility as at 31 March 2018 was £3,098,640 (2017; £4,279,645).

16 Financial instruments at fair value through profit and loss	31 March 2018	31 March 2017
	£	£

Fair value brought forward	710	(94,855)
Fair value (loss) / gain	(710)	95,565

Fair value carried forward	-	710

The Group uses an interest rate cap to manage its exposure to interest rate movements on a proportion of its variable rate borrowings. The interest rate cap, entered into with RBS, has a notional value of £10,000,000 and a strike rate of 3% from 15 October 2016 to maturity on 31 January 2019.

At 31 March 2018 the fair value of the interest rate cap was £0.18 (2017; £710). The interest rate cap is fair valued using recognised valuation techniques and the movement in fair value has been recorded in profit and loss.

17 Trade and other payables	31 March 2018	31 March 2017
	£	£

Trade payables	430,276	349,592
Property improvement costs	180,000	471,375
Wages and salaries	443,960	411,948
Deferred income	810,288	760,364
Rental deposit accounts	129,703	129,591
Finance costs	248,371	215,243
Valuation Fee	37,428	36,000
Audit fee	45,275	34,500
Listing costs	-	63,885
Current taxation	-	77,031

	2,325,301	2,549,529

Deferred income relates to deferred rental income of £730,744 (2017; £689,711) and deferred insurance recharges of £79,544 (2017; £70,653).

18 Stated capital

Issued and fully paid share capital is as follows:

31 March 2018

31 March 2017

Issued and fully paid shares of no par value

42,542,179

Number of shares in issue

Brought forward (at £1.49 per share)

28,551,796

Issued in the year

Carried forward

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 20. While held in treasury, these shares are not entitled to dividends and have no voting rights.

19 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 15.

The Group's debt and capital structure comprises the following:

31 March 2018

31 March 2017

Total liabilities

54,140,917

48,139,952

Less: cash and cash equivalents

(2,639,783)

(4,893,807)

Net debt

51,501,134

43,246,145

Total equity

64,998,784

51,821,635

Net debt to equity ratio

0.79

0.83

20 Share based payments

2016 Long Term Incentive Plan ("LTIP")

By a resolution of the Board dated 29 January 2016, the Company adopted the LTIP for the purpose of properly motivating and rewarding key employees of the Group in a manner that aligns their interests with that of the Shareholders by measuring performance against shareholder returns over the three financial years ending 31 March 2019.

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.

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. These follow a three year vesting period over which the performance of the Group must satisfy the targets in order that the awards will vest at the end of that period.

There are two equally weighted targets, being Total Shareholder Return ("TSR") and a fixed hurdle rate for NAV. TSR is a comparison of share price plus dividends paid with a bespoke basket of peer companies and REITs. The NAV target is fixed such that a NAV Total Return ("NAVTR") of less than 8% will not attract a vesting but where the NAVTR is between 8% and 14% the amount vesting will be calculated on a straight line basis between 30% and 100%.

The quantum of LTIP awards is restricted to 100% of the equivalent salary of the executive which will alter from time to time in line with the salary and share price. In numeric terms the awards previously granted are capped at 255,034 shares (at a price of £1.49 per ordinary share).

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 grant was measured at the grant date using a Black-Scholes pricing model, taking into account the terms and conditions upon which the instruments were granted. The services received and a liability to pay for those services are recognised over the expected vesting period.

Grant date

11/02/2016

Share price

£1.49

Exercise price

Term

3 years

Expected volatility

Expected dividend yield

3.36%

Risk free rate

0.36%

Fair value per option

£1.35

At the reporting date no Ordinary Shares had vested. A cumulative share-based payment expense of £122,514 has been recognised at the year-end based on an estimated vesting of 50%.

21 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 other than the interest rate cap entered into to hedge the interest paid on the interest bearing bank loans.

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 no foreign currency risk as all assets and liabilities of the Group are maintained in pounds sterling.

The Directors review and agree policies for managing its risk exposure. These policies are summarised in the following paragraphs.

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 Directors in order to anticipate, and minimise the impact of, defaults by occupational tenants.
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 2018 was £3,113,228 (2017; £5,283,875). There were no financial assets which were past due or considered impaired at 31 March 2018 and 2017.
All of the Group's cash is placed with financial institutions with a Moody's long-term credit rating of A3 or better. Bankruptcy or insolvency of such financial institutions may cause the Group's ability to access cash placed on deposit to be delayed or limited. Should the credit quality or the financial position of the banks currently employed significantly deteriorate, cash holdings would be moved to another bank.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. The Group's investments comprise UK commercial property. Property and property-related assets 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
	£	£	£	£	£	£
31st March 2018
Financial assets
Trade and other receivables	473,445	473,445	-	-	-	473,445
Financial instruments at fv	-	-	-	-	-	-
Cash and cash equivalents	2,639,783	2,639,783	-	-	-	2,639,783
	3,113,228	3,113,228	-	-	-	3,113,228

Financial liabilities
Trade and other payables	1,515,013	1,515,013	-	-	-	1,515,013
Loan borrowings	51,815,616	1,329,713	52,200,090	-	-	53,529,803
	53,330,629	2,844,726	52,200,090	-	-	55,044,816


			Contractual Value
		Carrying Amount	Within one year	1-2 years	2-5 years	More than 5 years	Total
		£	£	£	£	£	£
31st March 2017
Financial assets
Trade and other receivables		390,068	390,068	-	-	-	390,068
Financial instruments at fv		710	-	710	-	-	710
Cash and cash equivalents		4,893,807	4,893,807	-	-	-	4,893,807
		5,284,585	5,283,875	710	-	-	5,284,585

Financial liabilities
Trade and other payables		1,789,165	1,789,165	-	-	-	1,789,165
Loan borrowings		45,590,423	999,904	999,904	45,944,991	-	47,944,799
		47,379,588	2,789,069	999,904	45,944,991	-	49,733,964

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 detailed in note 16 the Group uses an interest rate cap to manage exposure to the interest on its bank borrowings. The cap has been entered into with The Royal Bank of Scotland plc on a notional amount of £10,000,000.
As a result the Group is exposed to changes in prevailing interest rates on the remaining balance of its borrowing detailed in note 15. Having assessed the level of risk the Directors have concluded that it is within acceptable limits.
The interest profile of the Group's financial assets and financial liabilities after the impact of the interest rate contracts held at the year end are as follows:
				Floating rate	Fixed rate	Interest free	Total
				£	£	£	£
31st March 2018
Financial assets
Trade and other receivables				-	-	473,445	473,445
Financial instruments at fair value				-	-	-	-
Cash and cash equivalents				2,639,783	-	-	2,639,783

Financial liabilities
Trade and other payables				-	-	1,515,013	1,515,013
Loan borrowings				51,901,360	-	-	51,901,360

				Floating rate	Fixed rate	Interest free	Total
				£	£	£	£
31st March 2017
Financial assets
Trade and other receivables				-	-	390,068	390,068
Financial instruments at fair value				-	710		710
Cash and cash equivalents				4,893,807	-	-	4,893,807

Financial liabilities
Trade and other payables				-	-	1,789,165	1,789,165
Loan borrowings				45,720,355	-	-	45,720,355

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 0.5% as at 31 March 2018 (2017; 0.25%). The Group's policy is to hold cash on variable rate bank accounts.

The Group has borrowings amounting to £51,901,360 (2017: £45,720,355) 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 £519,013 (2017; £457,204). A decrease of 1% would have an equal but opposite effect.
Market price risk
The Group holds a portfolio of UK commercial properties. The Group invests in properties which the Directors believe will generate a combination of long-term growth in income and capital for shareholders. Investment decisions are based on analysis of, amongst other things, prospects for future income and capital growth, sector and geographic prospects, tenant covenant strength, lease length and initial and equivalent yields.

Investment risks are spread through letting properties to low risk tenants. The management of market price risk is part of the investment management process and is typical of commercial property investment. The portfolio is managed with an awareness of the effects of adverse valuation movements through detailed analysis, with an objective of maximising overall returns to shareholders. Investments in property and property-related assets 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 (UK) Limited.
Any changes in market conditions will directly affect the profit or loss reported through the Consolidated Statement of Comprehensive Income. Details of the Group's investment portfolio held at the balance sheet date are disclosed in note 12.
Fair values
Accounting standards recognise a hierarchy of fair value measurements for financial instruments which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The classification of fair value measurements depends on the lowest significant applicable input, as follows:

-	Level 1: Unadjusted, fully accessible and current quoted prices in active markets for identical assets or liabilities.

-	Level 2: Quoted prices for similar assets and or liabilities, or other directly or indirectly observable inputs which exist for the duration of the period of investment.

-	Level 3: External inputs are unobservable. Value is the Directors' best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instruments. All investments in property would be included in level 3.

All of the Group's investment properties are classified as level 3. There have been no transfers of investment properties in or out of level 3 during the year. The Group determines transfers between levels at the end of each accounting period. A table reconciling opening and closing balances of level 3 properties is included in note 12 of the financial statements.

The fair values of the Group's financial instruments are not materially different from their carrying values. The classification of the fair value of the interest rate cap outstanding at the year end, as detailed in note 16, is deemed level 2.


22 Investment in subsidiaries	Principal Activity	Country of incorporation	Ownership interest
	Principal Activity	Country of incorporation	31 March 2018	31 March 2017

Circle Property Unit Trust	Property holding	Jersey	100%	100%
Circle Property (Milton Keynes) Limited	Property holding	Jersey	100%	100%
Circle Property Management Limited	-	England	-	100%

Circle Property Management Limited was dissolved on 30 May 2017 as the company was no longer required. The Group has no connection to the company Circle Property Management Limited which was incorporated on 25 October 2017 under UK company number 11032234.

23 Capital expenditure commitments

As at 31 March 2018 the Group had contracted capital expenditure on existing properties of £33,182 (2017; £2,156,704). This was committed but not yet provided for in the financial statements.

24 Operating 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 2018	31 March 2017
			£	£

Less than one year			6,021,899	5,325,385
Between two and five years			18,686,590	15,339,579
Over five years			29,155,902	26,142,360

Total			53,864,391	46,807,324

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 received. The largest single tenant at the year-end accounted for 26.2% (2017; 25.3%) of the current annual rental income.

Operating lease payments in respect of rents payable on leasehold properties were payable as follows:

			31 March 2018	31 March 2017
			£	£

Less than one year			28,860	28,860
Between two and five years			79,385	108,245

Total			108,245	137,105

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

Consortia Partnership Limited ("CPL") and Consortia Trustees Limited ("CTL") are joint Trustees of CPUT and provide administration and accounting services to the Group. Michael Farrow, Timothy Scott Warren and Richard Hebert are Directors of CPL and CTL. During the year CPL and CTL charged and received a total of £250,309 (2017; £251,829) for administration and accountancy services.

Directors' interests in the shares of the Company, including relevant family interests:

Ordinary shares

John Arnold

977,971

Edward Olins

128,089

The Duke of Roxburghe

2,483,069

James Hambro

3,217,321

There have been no changes in the Directors' shareholdings since the year end.

The remuneration of the Directors who are key management personnel of the group, is set out below in aggregate. Further information about the remuneration of individual directors is provided in the Remuneration report. Key personnel of the Group are those persons who have responsibility for planning, directing and controlling the activities of the Group either directly or indirectly, including any director, whether executive or otherwise.

1 April 2017 to 31 March 2018

1 April 2016 to 31 March 2017

Directors remuneration

982,271

953,870

A bonus was awarded to the executive directors ("Executives") of the Company for the year ended 31 March 2018. The Key Performance Indicators (KPIs") comprise the Net Asset Value, Earnings (EBITDA) and maintenance of a progressive dividend policy, each evenly weighted. The bonus awards, against KPIs, takes regard of the individual performance of the Executives and of the business as a whole but remain at the absolute discretion of the Board. Due to the performance of the Group over the year the bonus has achieved the capped amount of 100% of salary.

On 11 February 2016 two Directors were granted options under the company Long Term Incentive Plan ("LTIP") as described in note 20. John Arnold was granted an Option by Deed to acquire 134,229 Shares and Edward Olins was granted an Option to acquire 120,805 Shares both at nil cost.

On 12 June 2018 an award was made consequent to the performance of the Company within the rules of the LTIP. It was identified that during the year ended 31 March 2018 the Company had achieved 100% of the NAV target and had achieved 4th position within its nominated peer group of 16 comparative businesses which gives rise to an award of 62.5% of the TSR target.

27 Subsequent events

There have been no events subsequent to the year-end which require disclosure in the financial statements.

Officers and professional advisers
Directors
Ian Henderson	Non-Executive Chairman
John Arnold	Chief Executive Officer
Edward Olins	Chief Operating Officer
The Duke of Roxburghe	Non-Executive Director
James Hambro	Non-Executive Director
Michael Farrow	Non-Executive Director
Timothy Scott Warren	Non-Executive Director	(appointed 21 September 2017)
Richard Hebert	Non-Executive Director	(resigned 21 September 2017)

Company Secretary
Consortia Secretaries Limited

Registered Office		Independent tax advisors
3rd Floor		Lubbock Fine
Standard Bank House		Paternoster House
47-49 La Motte Street		65 St Paul's Churchyard
St Helier		London
Jersey		EC4M 8AB
JE2 4SZ
		Administrator
Independent Auditor		Consortia Partnership Limited
KPMG Channel Islands Limited		3rd Floor
37 Esplanade		Standard Bank House
St Helier		47-49 La Motte Street
Jersey		St Helier
JE4 8WQ		Jersey
		JE2 4SZ
Nominated Adviser and Broker
Smith & Williamson Corporate Finance Limited		Capital Advisory
25 Moorgate		Radnor Capital Partners
London		27 Clements Lane
EC2R 6AY		London
		EC4N 7AE
UK Legal Advisers
Charles Russell Speechlys LLP		Independent property valuer:
5 Fleet Place		Savills
London		33 Margaret Street
EC4M 7RD		London
		W1G 0JD
Jersey Legal Advisers
Pinel Advocates		Registrars
32 Commercial Street		Computershare Investor Services (Jersey) Limited
Jersey		Queensway House
JE2 3RU		Hillgrove Street
		St Helier
		Jersey
		JE1 1ES

Glossary

Contracted Rental Income - Rent receivable as at 31 March 2018 under the terms of a lease, less ground rent, with no allowance for the value of incentives granted at lease commencement.		Loan to value (LTV) - Drawn debt divided by the value of property assets.
Adjusted Contracted Rental Income - Contracted rental income with allowance for the value of incentives granted at lease commencement.		Net Asset Value (NAV) - This is calculated as the value of the investments and other assets of the Group, plus cash and debtors, less borrowings and any other creditors. It represents the underlying value of the Group at a point in time.
Earnings Per Share (EPS) - Profit after taxation attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the year.		Net Asset Value (NAV) per Share - This is calculated as the net assets of the Group divided by the number of shares in issue, excluding those shares held in treasury.
Estimated Rental Value (ERV) - Is the external valuers' opinion as to the open market rent which, on the date of valuation, could reasonably be expected to be obtained on a new letting or rent review of a property.		NAV Total Return (NAVTR) - The increase in the Group's net asset value during the financial year.
External Valuer - An independent external valuer of property. The Group's external valuer is Savills (UK) Limited and information regarding the valuation of the Group's properties is included in Note 12 to the Consolidated Financial Statements.		Net Rental Income - The net income from a property after deducting ground rent and non-recoverable expenditure.
IPD - Investment Property Databank. Leading provider of independent statistical analysis to the commercial property sector.		Portfolio Value - The fair value of the Group's investment properties as determined by the external valuers.
Lease - A legally binding contract between a landlord and a tenant which sets out the basis on which the tenant is permitted to occupy a property, including the Lease length.		Reversion - Increase in rent estimated by the Group's External Valuer, where the passing rent is below the ERV. The increases to rent arise on rent reviews and lettings.
Lease Incentive - A payment used to encourage a tenant to take on a new Lease, for example by a landlord paying a tenant a sum of money to contribute to the cost of a tenant's fit-out of a property or by allowing a rent free period.		SIC 15 - The IFRS treatment in respect of lease incentives. It requires the Group to offset the value of incentives granted to lessees against the total rent due over the length of the lease, or to a break clause if earlier.
LIBOR - Is the London Interbank Offered Rate, the interest rate charged by one bank to another for lending money.		Total Shareholder Return (TSR) - Is calculated by the growth in capital from purchasing a share in the Company assuming that the dividends are reinvested each time they are paid.
Like - For - Like Contracted Rental Income - Contracted rental income excluding properties acquired during the year.		Voids or Vacancy - The amount of rent relating to properties which are unoccupied and generating no rental income. Stated as a percentage of ERV.
Like - For - Like Adjusted Contracted Rental Income - Adjusted contracted rental income excluding properties acquired during the year.		Weighted average unexpired lease term (WAULT) - This is the average lease term remaining to first break, or expiry, across the portfolio weighted by rental income. This is also disclosed assuming all break clauses are exercised at the earliest date, as stated.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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