TIDMCRC
RNS Number : 5823N
Circle Property PLC
10 August 2017
Circle Property Plc
("Circle" or the "Group")
10 August 2017
CIRCLE'S REGIONAL OFFICE PORTFOLIO CONTINUES TO DELIVER STRONG
INCOME, NAV AND PROFIT GROWTH
Circle Property Plc (AIM: CRC), a specialist regional UK office
investment, development and management company today announces its
results for the year ended 31 March 2017.
Financial Highlights
-- 19.7% increase in value of the Group's portfolio of 15 UK
investment properties to GBP93 million (31 March 2016: GBP77.7
million) resulting primarily from the Group's successful asset
management initiatives.
-- 19.9% growth in EPRA NAV per share to GBP1.83 (31 March 2016: GBP1.53 per share).
-- An operating profit of GBP2.3 million (4 month period ended
31 March 2016: GBP0.8 million), combined with revaluation gains and
profit on disposals, contributing to a pre-tax profit of GBP9.9
million (4 month period ended 31 March 2016: GBP1.1 million) and an
increase in earnings per share to 35p (4 month period ended 31
March 2016: 4p).
-- Annual contracted rental income for the period was GBP5.6
million, an increase of 18.6% driven by completed asset management
initiatives.
-- Based upon the March valuation of GBP93 million the portfolio
reflects a net initial yield of 5.7% and a reversionary yield of
8.9%.
-- The weighted average unexpired lease term to break is now
6.85 years (5.6 years at 31 March 2016) and 11.23 years to expiry
(7.39 years at 31 March 2016).
-- In the year, Circle signed a new GBP50 million revolving
facility with RBS which enabled the refinancing of GBP39 million of
existing facilities at a lower cost, and provides capital for
further acquisitions. Consequent to this transaction and as at 31
March the Group's secured debt amounts to GBP45.7 million with a
term to expiry of 1.83 years and a weighted average cost of 2.44%
secured on the Company's investment property portfolio.
-- The Board has proposed a final dividend of 2.6p per share, an
increase of 8.3% over the preceding six months, to bring the annual
dividend to 5p.
Operational Highlights
-- Three significant lease contracts were secured during the
period, adding GBP648,300 of annualised rent and comprising:
o Compass Group on new 25 year lease at the Kents Hill
Conference Centre in Milton Keynes at a commencing rent of
GBP1,500,428 per annum, up 71.48%, with fixed annual increases of
3%.
o 4,350 sq. ft. of vacant space at Powerhouse in Milton Keynes
was let to Urgent Technology for 10 years at GBP70,000 per annum,
representing an increase of 8% over the previous tenant's rent.
o At Elizabeth House in Staines, the Group has signed a new 10
year lease to Hardy & Hewitt with rent agreed at GBP18.95 psf,
significantly above the average passing rent of GBP14.50 psf.
-- Significant progress with development pipeline:
o K1, Kents Hill Park, Milton Keynes is refurbished and fully
let, with good interest in K2 following our decision to subdivide
the newly refurbished building into smaller suites.
o In July 2016 planning permission was obtained for a change of
use of the ground floor of Somerset House, Temple Street,
Birmingham from offices into two self-contained A3 restaurants
totalling 10,950 sq.ft. A lease surrender with the former ground
floor tenant was agreed (completed December 2016), and the northern
ground floor A3 unit totalling approximately 5,530 sq. ft. was
under offer to a national restaurant chain at a rent of GBP220,000
per annum. The refurbishment of floors 1-6 totalling 36,455 sq. ft.
commenced in December 2016 with completion scheduled for September
2017.
o At 36 Great Charles Street, Birmingham the rolling
refurbishment of the offices on the Ground to 7(th) floors
totalling approximately 25,000 sq. ft. completed in June 2017.
Three tenants were retained and moved into newly refurbished floors
and approximately 17,000 sq. ft. is to be offered to the market in
summer 2017 with a rent of GBP18.50 psf. When complete, the ERV of
the building will be around GBP525,000 per annum.
-- In addition, Circle has made significant operational progress
post the year end, including three new leases:
o The remaining refurbished space at Powerhouse in Milton Keynes
has been let to Steven Eagell Limited for 10 years at a rent of
GBP106,256 per annum, equating to GBP16 psf.
o Having secured planning permission for a change of use on the
ground floor of Somerset House, Temple Street in Birmingham's CBD
from offices to higher value A3 restaurant in the first half of the
year, Circle has agreed a 20 year lease with the popular Latin
American restaurant, Las Iguanas, at a rent of GBP220,000 per
annum.
o The Group has also entered into an agreement with Topps Tiles
for a new 10 year lease with a five year break option on 4,700 sq.
ft. of currently vacant space at the 37,200 sq. ft. Baildon Bridge
retail park bringing occupancy at the park to 91%.
John Arnold, Chief Executive at Circle Property Plc, commented:
"Our first full year as a public company has been one of
significant growth and success. We have delivered strong results
across all key metrics and further crystallised the value in the
portfolio through our asset management expertise, leading to an
impressive uplift in value of 19.7%.
"Despite ongoing uncertainty as a result of the general election
in June, our portfolio is well positioned to resist any potential
headwinds due to its distribution in strong and undersupplied
regional business markets, such as Birmingham and Milton Keynes,
and the proven management abilities of our team. Therefore, our
focus remains in understanding and meeting the requirements of
these occupiers, thereby continuing to maintain our liquidity and
deliver meaningful value to our shareholders. To this end, we look
to the year ahead with confidence and are working to progress our
current pipeline of asset management opportunities, whilst also
exploring ways to undertake new acquisitions and grow our
portfolio."
+44 (0)20 7930
Circle Property Plc 8503
John Arnold, CEO
Edward Olins, COO
Peel Hunt (Nominated Adviser and +44 (0) 20 7418
broker) 8900
Capel Irwin
Edward Fox
+44 (0)20 3727
FTI Consulting 1000
Chairman's Statement
Whilst the political and economic uncertainty of 2016 continues
to play out, the underlying quality of Circle Property Plc's
portfolio of regional offices and the wealth of experience and
expertise inherent within its management team has driven a period
of growth for the Company.
Circle has successfully realised a year-on-year growth of 19.9%
in NAV, delivering a final NAV of 183p per share, as well as a
proposed final dividend of 2.6p per share, an increase of 8.3%, to
bring the annual dividend to 5p. This growth has come almost
entirely through the team's strong asset management and stock
picking capabilities, with asset-transforming capex programmes at
key sites including K2, Kents Hill Park in Milton Keynes and 36
Great Charles Street in Birmingham, which reached completion in the
period, as well as solid progress being made at Somerset House in
Birmingham's CBD.
Circle's high level of tenant retention is largely attributable
to both the high standards of management that we demand within our
multi-let properties and our flexible approach to tenant renewal
negotiations. Our vacancy rate in the standing investment portfolio
is less than 1% as, where appropriate, we continue to place a
greater emphasis upon the certainty of secure income and the
creation of longer leases in preference to the maximisation of
rents.
It is the strength of Circle's asset management that
differentiates the Company from its peers. In order to achieve
lettings in a highly competitive market, it is essential to respond
swiftly to tenants' ever-changing occupational demands. By
listening to tenants and taking advice from agents, the Company
remains totally aware of emerging occupier trends, such as the
increasing preference towards characterful or individualistic
offices, and is able to increase value by providing supply for this
demand. This strategy to deliver best-in class office properties in
regional locations was further supported by the successful
refinancing of Circle's senior debt with RBS following the
agreement of a new GBP50m facility.
Circle is well positioned in this uncertain political and
economic environment with a closely managed business, a positive
strategy and an entrepreneurial management team ready to exploit
emerging opportunities.
Ian Henderson
Chairman
Chief Executive's Statement
Throughout the year we have continued with our asset management
programme and have now assembled a core portfolio of high quality
regional offices in prime locations which are primarily well let to
high quality tenants on medium or long-term leases. As a result,
and because of the resilient demand for the type of space we offer,
we believe our portfolio will prove less susceptible to any
downward valuation shifts arising from any prolonged political and
economic uncertainty.
Following the refinancing of our debt facility with RBS, we are
currently also reviewing our hedging strategy, including the
possibility of entering into longer-term fixed rate funding. Our
interest cover is sufficient to cover any potential or anticipated
increased interest charges, but we are aware that inflationary
pressures are growing as a result of the weaker pound.
It is therefore likely that income will continue to feature as a
prerequisite to attract investors but, through continued strong
stock selection, appropriate portfolio recycling and strong asset
management, we aim to provide a better total return over time, than
a purely income driven stock, as evidenced by the 19.9% growth in
EPRA NAV in the year under review compared to a 3.9% total return
for the MSCI All Property index in 2016.
Most encouragingly, almost all of the increase in NAV within the
portfolio is attributable to our asset management. By successfully
undertaking lease renegotiations, new lettings and lease renewals
we have maximised income and have generated earnings per share of
35p.
In Birmingham, we only recently in July launched 36 Great
Charles Street into the letting market and it has been very well
received. The façade has just been cleaned while the reception area
has been enlarged, decorated and furnished to form a distinctive
area for the tenants to meet and greet visitors as well as hold
informal meetings, directly off street level.
Also in Birmingham, Somerset House, Temple Street will be
available in the autumn. The specification we are implementing
enhances and complements the building's many art deco features
including the restored parquet flooring that will help to
differentiate our offering from many others in the vicinity. Prime
rents in the city have now reached GBP35 psf, so our two buildings
at GBP18 and GBP20 psf respectively should prove highly attractive
to those tenants seeking well located high quality office
space.
Although the letting market for requirements over 10,000 sq ft
has been noticeably slower in the first half of the 2017 calendar
year, we are in negotiations to let a substantial part of our
40,000 sq ft office building, K2 at Kents Hill Park, Milton Keynes
to a major occupier and have multiple interest in the remainder,
following our decision to further subdivide the building into
smaller suites. From the outset we built maximum flexibility into
the layout of the property and by a simple repositioning of
services, subdivision is possible with minimum loss of net internal
area and at a modest additional construction cost.
All of our buildings that are either in the course of
refurbishment or completed and available to let are capable of
being occupied by tenants seeking less than 5,000 sq ft, which is
the most active sector of the market. Our optimism in the economy
in the lead up to leaving the EU is being tested by the hung
parliament and increasing political uncertainty following the
general election. We are mindful that the heightened sense of
nervousness may have an adverse effect upon some areas of the
property market. However, with a strong cash flow and cash at bank
we believe that our business is well placed to capitalise upon a
regional office market that has, to-date, remained fairly robust
due to sustained demand for offices in the sub 5,000 sq ft range
and the continuing loss of much of the lower quality office stock
due to obsolescence and residential conversion.
In the short term, Circle Property Plc will concentrate on
letting the space within the development portfolio which once fully
let, on the basis of current rental levels, has the capability to
treble the net operating profits, enhancing the future earnings per
share and supporting our progressive dividend policy. We hope this
will help drive demand for our shares, facilitating an expansion of
our investor base and so creates greater liquidity in our
stock.
John Arnold
Chief Executive Officer
Portfolio Review
During the year, we continued to increase the portfolio's income
by concentrating on lease renewals and lettings.
In addition, our three key developments are progressing well.
Both K2, Kents Hill Business Park and 36 Great Charles Street,
Birmingham are complete and we have good tenant interest for both.
At Somerset House, Temple Street, Birmingham, planning permission
was obtained for change of use of the ground floor for two enlarged
restaurant units which attract a higher rental than offices, GBP40
psf against GBP20 psf. The offices above are undergoing
refurbishment and are due to be completed by autumn 2017.
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 letting market,
we attract local professionals and SMEs, which are less prone to
the uncertainties of BREXIT.
The current uncertainty in the market may give rise to further
opportunities which we will endeavour to exploit, should the
returns be sufficiently attractive.
As at 31 March 2017, the total portfolio value was
GBP93,025,000, an increase of 19.7% from the previous year, mainly
driven by asset management as opposed to yield compression.
The portfolio is made up of 15 assets, primarily well located
provincial offices. Our car showroom in Warrington was sold at a
price of GBP1.32m, an increase of 34% above the previous year's
valuation.
Portfolio Floor Area (sq Portfolio Location by
ft) by Sector Region and Value
Sector Floor Area Region % of Value
------------------ --------------------------- ----------------- -----------
Office 351,843 South East 44%
------------------ --------------------------- ----------------- -----------
Conference
Facility 163,711 South West 21%
------------------ --------------------------- ----------------- -----------
Warehouse 45,319 West Midlands 18%
------------------ --------------------------- ----------------- -----------
Retail Warehouse 37,169 East Midlands 8%
------------------ --------------------------- ----------------- -----------
Retail 24,236 London 4%
------------------ --------------------------- ----------------- -----------
Other 7,706 North of England 4%
------------------ --------------------------- ----------------- -----------
Roadside 4,817 East of England 1%
------------------ --------------------------- ----------------- -----------
By floor area, 80% of the total portfolio is let and income
producing and forms the investment portfolio. For the remaining
vacant 20%, 19% is held within our development portfolio which
consists of three office buildings, two of which have been
refurbished and one is currently under refurbishment. Only 1% of
the vacancy is held within the core investment portfolio.
89.7% of the portfolio by value is in the office (and
conference) sector which forms the core portfolio. The remaining
10.3% is split across four sectors, being the non-core portfolio,
which although providing good high yielding income, are likely to
be sold once their business plans are complete.
73.7% of the portfolio by value is located in Milton Keynes,
Bristol and Birmingham, an increase of 5% from the previous year
end.
Principal tenants within the portfolio include Compass Contract
Services Ltd (26.69% 24.5 years to lease expiry), Which? Financial
Services Ltd (5.89%), Grant Thornton LLP (5%), B&M Retail Ltd
(5%) and New World Trading Company Ltd (4.3%).
As at 31 March 2017, the weighted average unexpired lease term
("WAULT") to first tenant's break option increased from 5.6 years
to 7.39 years, whilst to lease expiry increased from 6.85 years to
11.23 years.
The total annual contracted income produced by the portfolio is
over GBP5.6m, (net current annual income of GBP5.32m) with a
reversionary rent based on full ERV and once the development assets
are let of approximately GBP8.9m.
Edward Olins
Chief Operating Officer
Consolidated statement of comprehensive
income
for the year ended 31 March 2017
Note 1 April 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Rental income 4 5,265,507 664,392
Other income 4 138,122 595,178
------------ ------------
5,403,629 1,259,570
Property expenses 5 (1,037,375) (122,529)
Net rental income 4,366,254 1,137,041
Administrative expenses 6 (2,114,965) (293,255)
Operating profit 2,251,289 843,786
Gains on disposal of investment
properties 278,771 -
Gains on revaluation of investment
properties 13 7,360,657 -
Negative goodwill on acquisition
of CPUT 195,554 3,817,264
Impairment of goodwill on acquisition
of CPML - (2,117,591)
Listing costs 12 (107,493) (1,326,054)
Operating profit after revaluation
of investment properties and goodwill 9,978,778 1,217,405
Finance income 8 48,511 17,875
Finance costs 9 (1,293,384) (183,054)
Effective interest rate adjustment
on borrowings 16 1,232,304 53,578
Net finance costs (12,569) (111,601)
Profit for the year / period before
taxation 9,966,209 1,105,804
Taxation 10 (21,912) (32,399)
Total comprehensive income and
profit for the year / period 9,944,297 1,073,405
------------ ------------
Earnings per share 0.35 0.04
------------ ------------
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 profit for the year
(non-consolidated) was GBP989,270.
The notes on pages 30 to 45 form an integral
part of these consolidated financial statements.
Consolidated statement of
financial position
As at 31 March 2017
Note 31 March 31 March
2017 2016
GBP GBP
Non-current assets
Investment properties 13 86,054,336 75,780,824
Property, plant and equipment 29,158 22,371
Trade and other receivables 14 6,518,077 1,771,394
Deferred tax 10 1,141,887 914,949
Financial instruments at
fair value through profit
and loss 17 710 -
------------ --------------
93,744,168 78,489,538
Current assets
Trade and other receivables 14 1,195,372 2,555,037
Deferred tax 10 128,240 104,504
Cash and cash equivalents 15 4,893,807 4,516,153
------------ --------------
6,217,419 7,175,694
Total assets 99,961,587 85,665,232
============ ==============
Equity
Stated capital 19 42,542,179 42,542,179
Treasury share reserve (380,001) (380,001)
Retained earnings 9,659,457 1,073,405
------------ --------------
Total equity 51,821,635 43,235,583
Non-current liabilities
Loan borrowings 16 45,590,423 40,028,371
Financial instruments at
fair value through profit
and loss 17 - 94,855
------------ --------------
45,590,423 40,123,226
Current liabilities
Trade and other payables 18 2,549,529 2,306,423
------------ --------------
2,549,529 2,306,423
Total liabilities 48,139,952 42,429,649
------------ --------------
Total liabilities and equity 99,961,587 85,665,232
============ ==============
The consolidated financial statements were approved
and authorised for issue by the Board of Directors
on 9 August 2017 and signed on its behalf by:
Michael Farrow
Director
The notes on pages 30 to 45 form an integral
part of these consolidated financial statements.
Consolidated statement of changes
in equity
for the year ended 31
March 2017
Share Treasury Retained Total
capital shares earnings
reserve
GBP GBP GBP GBP
As at 4 December 2015 - - - -
Profit for the period - - 1,073,405 1,073,405
Issue of ordinary share
capital 42,162,178 - - 42,162,178
Issue of treasury shares 380,001 (380,001) - -
As at 31 March 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
----------- ---------- ------------ ------------
The notes on pages 30 to 45 form an integral
part of these consolidated financial statements.
Consolidated statement of cash flows
for the year ended 31 March 2017
1 April 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Cash flows from operating activities
Profit for the year / period before
taxation 9,966,209 1,105,804
Adjustments for:
Finance income (48,511) (17,875)
Finance expense 1,293,384 129,476
Depreciation 7,414 1,195
Gains on revaluation of investment
properties (7,360,657) -
Gains on disposal of investment
properties (278,771) -
Amortisation of loan arrangement
fees 40,136 7,223
Fair value movement on interest
rate swaps (95,565) 2,146
Effective interest rate adjustment
on loan borrowings (1,232,304) (53,578)
Negative goodwill on acquisition
of CPUT (195,554) (3,817,264)
Impairment of goodwill on acquisition
of CPML - 2,117,591
(Increase) / decrease in trade and
other receivables (3,409,020) 1,712,781
Decrease in trade and other payables (103,177) (580,888)
Cash generated from operating activities (1,416,416) 606,611
Interest paid (1,416,942) (60,158)
Interest received 70,513 4,107
Net cash from operating activities (2,762,845) 550,560
------------- ------------
Cash flows from investing activities
Cost of additions to investment
properties (3,520,046) (266,755)
Proceeds from disposal of investment
properties 1,278,770 -
Cost of additions of property, plant
and equipment (14,200) (15,150)
Acquisition of subsidiaries, net
of cash acquired - 3,891,568
Net cash from investing activities (2,255,476) 3,609,663
------------- ------------
Cash flows from financing activities
Repayment of borrowings (39,775,343) (827,790)
Drawdown of borrowings 46,529,563 -
Proceeds of issue of shares - 1,183,720
Dividends paid (1,358,245) -
Net cash used in financing activities 5,395,975 355,930
------------- ------------
Net increase in cash and cash equivalents 377,654 4,516,153
Cash and cash equivalents at the
beginning of the year / period 4,516,153 -
Cash and cash equivalents at the
end of the year / period 4,893,807 4,516,153
------------- ------------
The notes on pages 30 to 45 form an integral
part of these consolidated financial statements.
Notes to the consolidated
financial statements
for the year ended
31 March 2017
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 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 (IFRS) as adopted by the EU and the Companies
(Jersey) Law 1991. The financial statements have been
prepared in pounds 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
on page 3. 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 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 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 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 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 Statement of Comprehensive Income.
Acquisition-related costs are expensed as incurred.
Adoption of new and revised IFRSs
New standards, amendments to standards and interpretations
which came in to effect for accounting periods starting
on or after 1 April 2016 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 are effective for annual periods
beginning on or after 1 January 2017, and have not
been applied in preparing these consolidated financial
statements.
IAS 12, 'Income taxes' was amended to clarify the accounting
for deferred tax where an asset is measured at fair
value and that fair value is below the asset's tax
base. This amendment is effective for annual periods
beginning on or after 1 January 2017.
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.
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.
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 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 2017. Volatility in the economic
environment is reflected in commercial real estate
markets. In arriving at their estimate of market value
as at 31 March 2017, 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 13.
Significant judgements
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
17.
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 service charge accounts are managed
by third parties 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 and loan interest income.
Finance costs comprise interest expense on borrowings
and net interest on interest rate swaps. 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 the 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 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 2017 and 2016
none existed.
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 2017 and 2016 none existed.
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 active market prices
where possible, adjusted if necessary, for any difference
in the nature, location or condition of the specific
assets.
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.
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 payables
Trade payables are not interest bearing and are recognised
initially at fair value. The subsequent carrying amount
of these liabilities 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.
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
CPUT's subsidiary investments are registered in Jersey,
Channel Islands. The Company and CPUT's subsidiaries
are taxed at the Jersey company standard rate of 0%.
CPUT is not subject to tax in Jersey.
Circle Property Management Limited ("CPML") was registered
in the United Kingdom and subject to corporation tax
at a rate of 20%. No corporation tax was incurred during
the year (2016: nil) and CPML was dissolved on 30 May
2017.
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.
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. To the extent that
the Directors assess this to be material, 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.
Negative goodwill recognised in the year relates to
the recognition of additional capital allowances, available
to the Group to carry forward against future profits,
on the acquisition of Circle Property Unit Trust in
the prior period.
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 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Rental
income 4,743,974 614,024
SIC 15 adjustment (spreading
of lease incentives) 521,533 50,368
--------------- ----------------
5,265,507 664,392
Insurance recovery 118,647 18,884
Other
income 19,475 576,294
5,403,629 1,259,570
--------------- ----------------
5 Property expenses 1 April 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Property expenses 260,705 18,450
Property service
charges 337,635 35,828
Property repairs
and maintenance
costs 25,960 41,103
Property insurance 144,276 19,157
Property
rates 68,799 7,991
Lease surrender
payment 200,000 -
1,037,375 122,529
--------------- ----------------
6 Administrative 1 April 4 December
expenses 2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Staff
costs 1,060,222 77,913
Administration
fees 251,829 30,797
Legal and professional
fees 564,685 110,117
Audit
fees 65,724 32,500
Accountancy
fees 9,918 1,733
Rent, rates and
other office costs 57,219 5,696
Other overheads 97,954 33,304
Depreciation of
tangible fixed assets 7,414 1,195
2,114,965 293,255
--------------- ----------------
7 Employees and Directors' Remuneration 1 April 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Staff costs during the
year / period were as follows:
Non-executive directors' fees 130,000 15,874
Wages and salaries 797,000 50,083
Social security
costs 66,009 7,826
Pension contributions 31,948 -
Other employment
costs 35,265 4,130
1,060,222 77,913
--------------- ----------------
8 Finance income 1 April 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Bank
interest 5,220 4,107
Loan
interest 43,291 13,768
48,511 17,875
--------------- ----------------
9 Finance costs 1 April 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Swap
interest 70,880 16,749
Loan
interest 1,060,234 164,159
Loan commitment
fees 42,699 -
Loan arrangement
fees 215,136 -
Fair value movement on
interest rate contracts (95,565) 2,146
1,293,384 183,054
--------------- ----------------
10 Taxation 1 April 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Current
tax 77,031 -
Deferred
tax (55,119) 32,399
21,912 32,399
--------------- ----------------
A reconciliation of the current tax charge applicable
to the results at the statutory income tax rate to
the charge for the year / period is as follows:
Current taxation 1 April 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Profit for the year
/ period before
tax 9,966,209 1,105,804
--------------- ----------------
UK income tax at
a rate of 20% 1,993,242 221,161
Effects
of:
Non-taxable negative goodwill
on acquisition of CPUT (39,111) (763,453)
Non-taxable impairment of goodwill
on acquisition of CPML - 423,518
Non-taxable effective interest
rate adjustment on borrowings (246,461) -
Non-taxable gains on investment
properties (1,527,886) -
Non-taxable fair value movement
on interest rate contracts - 429
Non-taxable
income (9,702) (128,197)
Expenses not deductible
for tax purposes 120,376 278,168
Utilisation of capital
allowances (168,761) (31,626)
Utilisation of losses
brought forward (44,666) -
77,031 -
--------------- ----------------
Deferred taxation 1 April 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Deferred taxes at 31 March
relates to the following:
Deferred tax
asset
Capital allowances available
to carry forward 1,270,126 1,019,453
--------------- ----------------
Deferred tax asset
brought forward 1,019,453 -
Deferred tax recognised
on the acquisition of CPUT 195,554 1,051,852
Deferred tax credit/charge
for the year/period 55,119 (32,399)
Deferred tax asset
carried forward 1,270,126 1,019,453
--------------- ----------------
At 31 March 2017, the Group had capital allowances
of GBP6,350,633 (2016; GBP5,097,266) available to carry
forward against future profits. A deferred tax asset
of GBP1,270,126 (2016; GBP1,019,453) 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 period (as shown on the Consolidated Statement
of Comprehensive Income) and the weighted average number
of ordinary shares in issue during the year.
1 April 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Profit for
the year /
period 9,944,297 1,073,405
--------------- ----------------
Weighted average number of shares
(excluding treasury shares) 28,296,762 28,165,517
--------------- ----------------
Earnings per ordinary
share: 0.35 0.04
--------------- ----------------
For the purposes of the above calculation the comparative
period is deemed to start from 16 February 2016 being
the date on which operating revenue and expenditure
commenced.
In the opinion of the Board, treasury shares held to
satisfy share awards to management, as disclosed in
note 21, 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 Listing Costs 1 April 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Nomad
fees - 307,193
Legal and professional
fees 72,285 450,987
Audit and advisory
fees - 232,700
Administration
fees - 168,114
Tax and accountancy
fees 10,350 65,000
Valuation
fees - 49,000
Other
fees 24,858 53,060
107,493 1,326,054
--------------- ----------------
The costs listed above related to the Company's admission
to AIM. The costs may also include some elements relating
to the acquisition of the subsidiary entities. However,
as the acquisition of the subsidiary entities was conditional
on the company listing and, due to the combined nature
of the fees payable, they have all been presented as
listing costs in the consolidated statement of comprehensive
income.
Listing costs recognised in the year relate to expenses
incurred in the period ended 31 March 2016 but, presented
to the Company during the year ended 31 March 2017.
13 Investment properties 31 March 31 March
2017 2016
GBP GBP
Opening fair
value 77,735,000 -
Fair value of investment
properties acquired - 77,264,267
Cost of additions
to investment properties 3,912,856 420,365
Disposal of investment
properties (1,000,000) -
Gain on revaluation of
investment properties 7,360,657 -
Lease incentive
amortisation 5,016,487 50,368
Fair value of investment
properties per valuation
report 93,025,000 77,735,000
--------------- ----------------
Unamortised lease
incentives (6,970,664) (1,954,176)
Closing fair
value 86,054,336 75,780,824
--------------- ----------------
No properties were held for sale
at 31 March 2017 and 2016.
As at 31 March 2017 the fair value of investment properties
under development included in the above amount was
nil (2016; nil).
GBP89,025,000 (2016; GBP73,735,000) of the above properties'
value, estimated by the valuer, relate to property
held on a freehold basis and GBP4,000,000 (2016: GBP4,000,000)
on a long leasehold basis.
The fair value of the Group's investment properties
per the Valuation Report amounted to GBP93,025,000
(2016; GBP77,735,000). The difference between the fair
value of the investment properties per the Valuation
Report and the fair value per the balance sheet of
GBP6,970,664 (2016; GBP1,954,176) 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 2017 has been arrived at 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.
Inter-relationship
Significant between key unobservable
Valuation Valuation unobservable inputs and fair value
Sector GBP technique inputs measurement
---------------- ------------ ----------- ----------------------- -------------------------------------------------
Office All Estimated void The estimated fair
Risks periods range value would increase
Yield from 6 months / (decrease) if:
to 24 months
after the end
of each lease.
(2016: no change)
2016 67,150,00
2017 83,450,00
void periods were
Retail shorter / (longer);
Market rents
have been based
on the specific
circumstances
Warehousing of each property.
3,725,000 market rents were
2016 higher / (lower);
2017 3,800,000
rent free periods
were shorter / (longer);
Retail
Estimated rent
1,800,000 free periods
range from 6
to 12 months
on new leases. letting fees were
2016 (2016: no change) lower / (higher);
2017 1,700,000
rent per square foot
were higher / (lower);
Industrial
Letting fees equivalent yields
1,125,000 have been estimated were lower / (higher);
2016 on vacant units. or
2017 1,125,000
market conditions
were to improve /
(decline).
Rent per square
foot ranges
from GBP3 to
GBP46. (2016:
Other GBP2 to GBP46)
2016 3,935,000
2,950,000 Net equivalent
yields range
from 5.97% to
8.74%. (2016:
2017 5.66% to 9.63%)
Total
Market conditions
are considered
based on the
2016 77,735,00 property's location.
-----------------------
2017 93,025,00
---------- -----------
The ranges are based on averages per property. Individual
tenancies within properties may fall outside these
ranges.
14 Trade and other 31 March 31 March
receivables 2017 2016
GBP GBP
Non-current
Lease incentives 6,518,077 1,771,394
--------------- ----------------
Current
Circle Property Trading
(Maidstone) Limited - 1,526,167
Loan interest due from Circle
Property Trading (Maidstone) Limited - 22,002
Lease incentives 452,587 182,782
Amounts due from
property agents 68,767 100,956
Amounts due
from tenants 153,123 135,276
VAT 352,717 387,031
Other receivables 168,178 200,823
1,195,372 2,555,037
--------------- ----------------
On 29 September 2016 Compass Contract Services (UK)
Limited ("Compass") surrendered their existing 10 year
lease, relating to land and buildings at Kents Hill
Park, and entered into a new 25 year lease for the
same property. The Group made a payment of GBP4,494,955,
inclusive of SDLT and land registry fees, to Compass
in relation to the surrender of their 10 year lease.
This payment is recognised as a lease incentive and
spread evenly to the statement of comprehensive income
over the term of the lease.
The Group was party to a loan facility agreement with
Circle Property Trading (Maidstone) Limited ("CPTML").
The purpose of the loan was to finance CPTML's acquisition
of a 999 year lease of the residential elements of
the Group's property located at 69-77 Week Street,
Maidstone, Kent and its subsequent refurbishment and
development works. Rent is charged under the lease
at a rate of one peppercorn (if demanded). The loan
was secured by a first legal mortgage over the property
and a fixed charge over the assets of CPTML. The loan
was interest bearing at a rate of 8% per annum. The
loan and all interest thereon was repaid on 2 February
2017.
15 Cash and cash 31 March 31 March
equivalents 2017 2016
GBP GBP
Royal Bank of Scotland
International 4,641,977 3,176,679
National Westminster
Bank plc 251,830 1,339,187
Other
cash - 287
4,893,807 4,516,153
--------------- ----------------
As at 31 March 2017 GBP377,027 (2016; GBP382,335) of
cash was held on blocked accounts. Of this, GBP125,204
(2016; GBP131,048) relates to deposits received from
tenants and GBP251,830 (2016; GBP251,287) was held
on an interest deposit account in relation to the loan
borrowings disclosed in note 16.
16 Loan borrowings 31 March 31 March
2017 2016
GBP GBP
Brought forward 40,028,371 -
Fair value
of loans acquired - 40,902,516
Loan repayments (39,775,343) (827,790)
Loan drawdowns 46,529,563 -
Effective interest rate
and amortisation adjustment (1,232,304) (53,578)
Amortisation of
lending costs 170,068 7,223
Unamortised
lending costs (129,932) -
45,590,423 40,028,371
--------------- ----------------
The Group was party to a revolving credit facility
(the "previous facility") with National Westminster
Bank Plc ("Natwest") for a total commitment of GBP39,200,000.
The facility was secured by the investment properties
and rental income detailed in notes 13 and 4 and a
security interest agreement over the issued share capital
of the wholly owned subsidiaries, Circle Property (Milton
Keynes) Limited and Circle Property (Warrington) Limited.
Interest was charged at a rate of 2.95% over LIBOR.
On 21 June 2016 the Directors agreed a GBP50 million
revolving facility (the "new facility") with Natwest
for the purpose of refinancing the previous facility.
The new 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. The new facility was drawn
down on 22 June 2016 and the previous facility repaid.
The new 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 financial covenants relating to the previous facility
were 55% loan to value, 2.25:1 interest cover and 11:1
debt to rent cover. In relation to the new facility
the 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 2017 was GBP4,279,645.
17 Financial instruments at fair 31 March 31 March
value through profit and loss 2017 2016
GBP GBP
Fair value
brought forward (94,855) -
Fair value of financial
instruments acquired - (92,709)
Fair value
gain / (loss) 95,565 (2,146)
Fair value
carried forward 710 (94,855)
--------------- ----------------
The Group uses interest rate caps and swaps to manage
its exposure to interest rate movements on a proportion
of its variable rate borrowings. An interest rate swap
entered into with The Royal Bank of Scotland plc. ("RBS"),
had a notional value of GBP10,000,000, and a fixed
interest rate of 1.98% to maturity on 29 September
2016. An interest rate cap, entered into with RBS,
has a notional value of GBP10,000,000 and a strike
rate of 3% from 15 October 2016 to maturity on 31 January
2019.
At 31 March 2017 the fair value of the interest rate
cap resulted in an asset of GBP710 (2016; liability
of GBP94,855). The interest rate cap is fair valued
using recognised valuation techniques and the movement
in fair value has been recorded in profit and loss.
18 Trade and other payables 31 March 31 March
2017 2016
GBP GBP
Trade payables 384,092 489,873
Property improvement
costs 471,375 184,333
Wages and salaries 411,948 -
Deferred income 760,364 639,269
Rental deposit
accounts 129,591 137,705
Finance
costs 215,243 62,756
Valuation
Fee 36,000 28,000
Listing
costs 63,885 338,888
Current taxation 77,031 -
Final distribution due
to CPML shareholders - 396,670
SWAP interest
payable - 28,929
2,549,529 2,306,423
--------------- ----------------
Deferred income relates to deferred rental income of
GBP689,711 (2016; GBP532,444) and deferred insurance
recharges of GBP70,653 (2016; GBP106,825).
19 Stated capital
Issued and fully paid share capital
is as follows:
31 March 31 March
2017 2016
GBP GBP
Issued and fully
paid shares of no
par value 42,542,179 42,542,179
--------------- ----------------
Number of shares
in issue
Brought forward
(at GBP1.49 per
share) 28,551,796 -
Issued in the
year / period - 28,551,796
Carried forward 28,551,796 28,551,796
--------------- ----------------
The Company has one class of Ordinary Share which carry
no rights to fixed income. Holders of these shares
are entitled to dividends as declared from time to
time and are entitled to one vote per share at general
meetings of the Company.
On admission to AIM, the Company issued 255,034 Ordinary
Shares at a price of GBP1.49 each to be held in treasury
subject to award under the LTIP described in note 21.
Whilst held in treasury, these shares are not entitled
to dividends and have no voting rights.
20 Capital management
The Group's policy is to maintain a strong capital
base so as to maintain investor, creditor and market
confidence and to sustain future development of the
business. The objective is to ensure that it will continue
as a going concern and to maximise return to its equity
shareholders through appropriate levels of gearing.
The Group is not subject to any externally imposed
capital requirements with the exception of the loan
covenant requirements as disclosed in note 16.
The Group's debt and capital structure
comprises the following:
31 March 31 March
2017 2016
GBP GBP
Total liabilities 48,139,952 42,429,649
Less: cash and cash
equivalents (4,893,807) (4,516,153)
--------------- ----------------
Net debt 43,246,145 37,913,496
Total
equity 51,821,635 43,235,583
Net debt to
equity ratio 0.83 0.88
--------------- ----------------
21 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 GBP1.49 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
long 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 GBP1.49
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.
At the reporting date no Ordinary Shares had vested
and the board have concluded that the fair value of
the options at the grant date and the period end are
not material to these financial statements.
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 receivable and 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 on
the following pages.
These disclosures include, where appropriate, consideration
of the Group's investment properties which, whilst
not constituting financial instruments as defined by
IFRS, are considered by the Board to be integral to
the Group's overall risk exposure.
Credit risk
Credit risk is the risk that an issuer or counterparty
to an asset will be unable or unwilling to meet a commitment
that it has entered into with the Group.
In the event of default by an occupational tenant,
the Group will suffer a rental shortfall and incur
additional costs including: legal expenses; and in
maintaining, insuring, and re-letting the property.
The Board produces regular reports on any tenant arrears
which are monitored by the Directors in order to anticipate,
and minimise the impact of, defaults by occupational
tenants.
The carrying amount of financial assets, including
cash balances, recorded in the financial statements
represents the Group's maximum exposure to credit risk.
The carrying amount of these assets at 31 March 2017
was GBP5,283,875 (2016; GBP6,501,377). There were no
financial assets which were past due or considered
impaired at 31 March 2017 and 2016.
All of the Group's cash is placed with financial institutions
with a Moody's long-term credit rating of A3. 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 Within 1-2 2-5 More Total
Amount one years years than
year 5 years
GBP GBP GBP GBP GBP GBP
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
Contractual Value
--------------------------------------------------------------------------
Carrying Within 1-2 2-5 More Total
Amount one years years than
year 5 years
GBP GBP GBP GBP GBP GBP
31st March
2016
Financial assets
Trade and other
receivables 1,985,224 1,985,224 - - - 1,985,224
Cash and cash
equivalents 4,516,153 4,516,153 - - - 4,516,153
----------- ---------- ----------- -------------- --------------- ----------------
6,501,377 6,501,377 - - - 6,501,377
Financial liabilities
Trade and other
payables 1,604,398 1,604,398 - - - 1,604,398
Financial liabilities
at fair value 94,855 - 98,053 (3,198) - 94,855
Loan borrowings 40,091,127 1,441,378 1,378,622 40,121,911 - 42,941,911
----------- ---------- ----------- -------------- --------------- ----------------
41,790,380 3,045,776 1,476,675 40,118,713 - 44,641,164
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 GBP10,000,000.
As a result the Group is exposed to changes in prevailing
interest rates on the remaining balance of its borrowing
detailed in note 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 after the impact of the interest
rate contracts held at the year end are as follows:
Floating Fixed Interest
rate rate free Total
GBP GBP GBP GBP
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
----------- -------------- --------------- ----------------
Floating Fixed Interest
rate rate free Total
GBP GBP GBP GBP
31st March
2016
Financial assets
Trade and other
receivables - 1,526,167 459,057 1,985,224
Cash and cash
equivalents 4,516,153 - - 4,516,153
----------- -------------- --------------- ----------------
Financial liabilities
Trade and other
payables - - 1,667,154 1,667,154
Financial instruments
at fair value - 94,855 - 94,855
Loan borrowings 28,966,135 10,000,000 - 38,966,135
----------- -------------- --------------- ----------------
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
0.25% as at 31 March 2017 (2016; 0.5%). The Group's
policy is to hold cash on variable rate bank accounts.
The Group has borrowings amounting to GBP45,720,355
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 GBP457,204
(2016; GBP298,661). 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 13. A 10 per cent increase in
the fair value of the properties at 31 March 2017 would
have increased net assets and profit for the year by
GBP9,302,500 (2016; GBP7,773,500). A decrease of 10
per cent would have an equal but opposite effect.
The calculations are based on the investment property
valuations at the respective balance sheet dates.
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 13 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 17, is deemed level 2.
23 Investment in Country
subsidiaries of
incorporation Ownership interest
31 March 31 March
2017 2016
Circle Property
Unit Trust Jersey 100% 100%
Circle Property
(Warrington) Limited Jersey - 100%
Circle Property
(Milton Keynes)
Limited Jersey 100% 100%
Circle Property
Management Limited England 100% 100%
Circle Property (Warrington) Limited
was dissolved on 15 February 2017.
Circle Property Management Limited
was dissolved on 30 May 2017.
24 Commitments under construction
contracts
As at 31 March 2017 the Group had contracted capital
expenditure on existing properties of GBP2,156,704
(2016; GBP533,318). This was committed but not yet
provided for in the financial statements.
25 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 31 March
2017 2016
GBP GBP
Less than one
year 5,325,385 4,279,104
Between two and five years 15,339,579 13,700,180
Over
five
years 26,142,360 11,053,958
Total 46,807,324 29,033,242
--------------- ----------------
Operating lease payments in respect of rents
payable on leasehold properties were payable
as follows:
31 March 31 March
2017 2016
GBP GBP
Less than one
year 137,105 16,829
--------------- ----------------
26 Ultimate controlling
party
In the opinion of the Directors there is no ultimate
controlling party as no one individual is deemed to
satisfy this definition.
27 Related party
disclosures
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 and Richard Hebert are
Directors of CPL and CTL. During the year CPL and CTL
charged and received a total of GBP251,829 (2016; GBP30,797)
for administration and accountancy services and nil
(2016; GBP168,114) for administration services in relation
to the admission to AIM.
As disclosed in note 14, the Group was party to a loan
facility agreement with Circle Property Trading (Maidstone)
Limited ("CPTML"). John Arnold, Edward Olins, The Duke
of Roxburghe and James Hambro are all Directors and
Shareholders of CPTML. The loan and all interest thereon
was repaid on 2 February 2017.
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 3,267,656
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 on
pages 23-24. 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 4 December
2016 2015
to 31 to 31
March March
2017 2016
GBP GBP
Directors remuneration 953,870 66,020
--------------- ----------------
A bonus was awarded to the executive directors ("Executives")
of the Company for the year ended 31 March 2017. 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 21. 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.
28 Subsequent events
There have been no events subsequent to the year end
which require disclosure in the financial statements.
Officers and professional
advisers
Directors
Non-Executive
Ian Henderson Chairman
John Arnold Chief Executive
Chief Operating
Edward Olins Officer
Non-Executive
The Duke of Roxburghe Director
Non-Executive
James Hambro Director
Non-Executive
Michael Farrow Director
Non-Executive
Richard Hebert Director
Company Secretary
Consortia Secretaries
Limited
Registered Office
3rd Floor
Standard Bank
House
47-49 La Motte
Street
St Helier
Jersey
JE2 4SZ
Independent Auditor
KPMG Channel
Islands Limited
37 Esplanade
St Helier
Jersey
JE4 8WQ
Nominated Adviser
and Broker
Peel Hunt LLP
Moor House
120 London Wall
London
W1G 0JD
Independent property
valuer:
Savills
33 Margaret Street
London
W1G 0JD
Independent tax
advisors
Lubbock Fine
Paternoster House
65 St Paul's
Churchyard
London
EC4M 8AB
Administrator
Consortia Partnership
Limited
3rd Floor
Standard Bank
House
47-49 La Motte
Street
St Helier
Jersey
JE2 4SZ
UK Legal Advisers
Charles Russell
Speechlys LLP
5 Fleet Place
London
EC4M 7RD
Jersey Legal
Advisers
Pinel Advocates
32 Commercial
Street
Jersey
JE2 3RU
Registrars
Computershare Investor Services
(Jersey) Limited
Queensway House
Hillgrove Street
St Helier
Jersey
JE1 1ES
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAKPNEADXEFF
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August 10, 2017 02:00 ET (06:00 GMT)
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