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:

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

o  Refurbishment of K3 Kents Hill, Milton Keynes due to re-start in Q3 2021, with £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	[phone]
John Arnold, CEO Edward Olins, COO
Cenkos Securities	[phone]
Katy Birkin  Mark Connelly
Radnor Capital	[phone]
Joshua Cryer Iain Daly
Camarco	[phone]
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.

 

END

 

 

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