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Final Results

Published: 25/09/2020, 07:00

RNS Number : 0692A

Circle Property PLC

25 September 2020

Circle Property Plc

("Circle" or the "Company")

Final Results for the year ended 31 March 2020

SELECTIVE ASSET MANAGEMENT EXPERTISE DELIVERS RESILIENT PERFORMANCE AND STRONG 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 2020.

John Arnold, Chief Executive of Circle Property Plc, said:

"Our regional office assets have been individually selected by virtue of their strength of location and letting prospects which, alongside our active management expertise, has enabled Circle to deliver a very resilient performance during the year.

"Our approach in providing flexible regional commercial work places means that we are cautiously optimistic about our future performance."

Financial Highlights: Resilient Performance

· Further 3% growth in Net Asset Value ("NAV") per share to £2.85 (31 March 2019: £2.77)

o Fourth successive year of delivering Net Asset Value ("NAV") growth

o NAV up 91% since IPO in February 2016 to £80.7m

o NAV Compound Average Growth Rate ("CAGR") of 15.5% since IPO; total return CAGR of 17.6%

· 11.92% increase in the independent valuation of the Group's portfolio of 14 commercial property investment and development assets in the UK to £139.45m (31 March 2019: 124.6m) demonstrating continued growth

· 14.16% increase in contracted annual rental income to £8.71m (31 March 2019: £7.61m)

· Increase in operating profit to £4.3m (31 March 2019: £3.67m) due to an increase in rental and other income, excluding service charge income, to £7.9m (31 March 2019: £7.1m)

· Profit before tax of £5.2m (31 March 2019: £15.25m)

· Earnings per share of 12p (31 March 2019: 53p)

· Year-end LTV of 44% and year-end LTV net of cash of 42%, in target range

· Proposed final dividend of 2p per share for the year ended 31 March 2020, which together with the interim dividend of 3.3p per share (paid in January 2020) brings the total annual dividend to 5.3p per share

Operational Highlights: Generating Strong Returns and Capital Growth

· Rent collection for both March and June 2020 quarters was 91% and 87% respectively

· 88.42% of total portfolio is let and incoming producing

· 100% of the Company's portfolio is within the regional office sector

· 88.35% located in Milton Keynes, Bristol, Birmingham and Maidenhead and the majority is flexible in terms of 1000-5,000sq.ft. space with the ability to be sub-divided if required

· Successful £14.2m acquisition of 71,500 sq ft. Concorde Park, Maidenhead - now 61% let

Market Overview

· The regional letting market up to the YE March 2020 had continued to remain stable for affordable good quality well-located offices, as companies sought to relocate to save costs, being attracted by lower employment costs, business rates and rent, coupled with the demand from local professional occupiers and SMEs

· Post YE March 2020, both the investment and letting markets have been affected by the COVID-19 pandemic with much quieter activity in both markets being reported. The current economic uncertainty and likely prospect of recession during 2020 has reduced both investor and tenant confidence for commercial property more generally, putting rental levels and valuations under threat, albeit predominantly in the retail and leisure sectors where the Group has little to no exposure

Outlook

· Confidence in outlook based on flexibility of regional commercial property portfolio and the team's expertise in extracting both income and capital value

Sell-side analyst briefing

A Zoom briefing for sell-side analysts will take place at 09.30 am on 25 September 2020. If you would like to register for the meeting, please contact Camarco on 0203 757 4992 or email circleproperty@camarco.co.uk.

The annual report and accounts for the year ended 31 March 2020 and the Notice of AGM will be posted to shareholders, and will be available on the Company's website: www.circleproperty.co.uk, shortly.

This announcement is inside information for the purposes of Article 7 of EU Regulation 596/2014.

Circle Property Plc	+44 (0)207 930 8503
John Arnold, CEO Edward Olins, COO

Cenkos Securities	+44 (0) 207 397 8900
Katy Birkin Mark Connelly

Radnor Capital	+44 (0) 203 897 1830
Joshua Cryer Iain Daly

Camarco	+44 (0) 203 757 4992
Ginny Pulbrook Tom Huddart

About Circle Property Plc

Circle is one of the best performing quoted UK real estate companies by NAV total return (NAV growth and dividend) having delivered consistent returns, with 91% NAV growth since IPO in 2016 in absolute terms.

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 £10.92m per annum, compared to contracted rent of £8.70m at 31 March 2020. The Company has a portfolio of 14 regional commercial property investment and development assets in the UK valued at £139.45m.

CHAIRMAN'S STATEMENT

Since admission to AIM in February 2016, the Group has almost doubled its NAV and sold all of its retail assets at or above valuation.

I am pleased to report our fourth consecutive year of asset and income growth, with revenues of £7.9 million, excluding service charge income, and a profit before tax of £5.2m.

The backdrop of Brexit resulted in considerable uncertainty in the lettings market particularly during 2019, and more recently the COVID-19 pandemic has impacted upon the investment market. Our regional office assets have been individually selected by virtue of their strength of location and letting prospects. Our letting strategy has been to minimise letting voids by leasing at economic rents with minimal incentives and if necessary pricing below the prevailing market rate in order to let our buildings ahead of the competition. We take the view that the creation of a strongly reversionary portfolio is a more sustainable business model than seeking to maximise the initial income to feed an ambitious dividend yield. The business strategy is focused on delivering total returns to shareholders rather than dividends alone, meaning even in times of crisis, the Group should not find itself in a position of over-distributing income. Given all of this, our portfolio has remained under-rented with significant reversionary value attached, which in turn means that tenants are less likely to break leases whenever there is a downturn and will be the first to let in a recovery.

Due to the swift actions of the team, we were able to divest our non-core retail assets at or above book value. The Group is now almost exclusively focused on offices (other than a conference centre, two public houses and one restaurant in Birmingham), particularly in the regions, where we continue to see long-term market opportunity.

Until the full effects of COVID-19 and lockdown have been realised and the impact on confidence in the economy has been assessed, it would be unwise to formulate any other strategy than one of prudence and caution.

Our priority is to maintain income levels providing support to those businesses where their need is greatest.

We are aware of the current disconnect between our share price and the performance of the Company. Our focus over the coming year will be to reduce the discount to NAV.

Ian Henderson

Chairman

CHIEF EXECUTIVE'S STATEMENT

Having always actively targeted assets with the potential for added value, at the end of this financial year, investors have seen a further 3% growth in NAV per share to £2.85 (31 March 2019: £2.77) resulting in a 91% increase in NAV since admission to AIM in February 2016.

Operating profit has increased to £4.3m (31 March 2019: £3.67m) due to an increase in rental and other income, excluding service charge income, to £7.9m (31 March 2019: £7.1m).

We have made considerable progress in letting our completed redevelopments and asset management projects throughout the year. For instance, Concorde Business Park in Maidenhead was acquired with only one third of its space let and is now two thirds let following a successful refurbishment and leasing programme. At Kents Hill Business Park in Milton Keynes, Buildings K1 and K2 are now fully let, we have commenced the redevelopment of K3 and we are in negotiations on a potential pre-let.

At Aztec West, Bristol we are expecting to take back possession of Building 135 from the tenants in January 2021 after they opted to remain in occupation for longer during COVID-19 and are in discussion with a potential new occupier.

The disposal of our sole remaining industrial property resulted in a gain of £0.28m over the September 2019 valuation of £1.3m, with the gains on revaluation of investment properties contributing £2.51m to an operating profit after revaluation of investment properties of £7m (31 March 2019: £16.75m). Further to this and the divestment of our limited retail assets, Circle's portfolio is almost exclusively office assets in attractive locations.

Rental collection has become an important metric during COVID-19 and one which we are very proud of. As at the time of writing, rent collection for both March and June quarters is 91% and 87% respectively, which reflects both the lack of exposure to retail and the strength of our covenants. We expect this to increase further and remain in dialogue with all tenants adopting a flexible approach to the payment of arrears according to need.

There has been much speculation as to whether the COVID-19 restrictions will precipitate a fundamental shift in office working practices, with office workers wishing to continue working from home and employers happy to see the benefits in reduced fixed overheads. Whilst this may be more likely in central London or major conurbations with a large commuter workforce, most regional offices with adequate car parking are already seeing a return to the workplace as the novelty of home working subsides.

With all of the challenges arising from the lockdown, and the likely implications for the economy, it is considered prudent now to reduce gearing from the current level. We have a number of assets that have benefited from our active management approach and where we have added considerable value following redevelopment, lease restructures or renewals. These investments, with secure tenants and long-term income, will be highly sought after as investors lead the flight to secure income in an uncertain world and low yielding macroeconomic environment.

For instance, our largest asset, Kents Hill Business Park in Milton Keynes is a prime candidate owing to its long lease term to a strong covenant. The asset has been actively managed over the period of ownership (+5 years) with the lease having been re-geared and increased from £875,000 per annum upon purchase to over £1.6m per annum currently. The break clauses at years 15 and 20 have been removed and annual RPI increases have been incorporated making this property highly attractive to an institutional investor.

Further to the announcements made on 14 April and 14 July 2020, the Board is proposing to pay a final dividend of 2p per share for the year ended 31 March 2020 which together with the interim dividend of 3.3p per share (paid in January 2020) brings the total annual dividend to 5.3p per share. The Board recognises the importance of dividends to shareholders and has navigated the COVID-19 crisis adeptly leading to this position and believes this remains an attractive yield to shareholders. The final dividend of 2p per share, subject to shareholder approval, will be paid on 6 November 2020 to shareholders on the register on 2 October 2020 which gives an ex-dividend date of 1 October 2020.

John Arnold

Chief Executive Officer

Consolidated statement of comprehensive income
for the year ended 31 March 2020

	Note	1 April 2019 to 31 March 2020	1 April 2018 to 31 March 2019
		£	£

Rental income	4	7,497,212	6,878,912
Other income	4	2,116,400	1,429,681
		9,613,612	8,308,593

Property expenses	5	(2,374,556)	(1,844,798)

		7,239,056	6,463,795

Administrative expenses	6	(2,944,109)	(2,794,124)

Operating profit		4,294,947	3,669,671

Gain on disposal of investment properties		235,729	471,177
Gains on revaluation of investment properties	12	2,514,049	12,609,968

Operating profit after revaluation of investment properties and goodwill		7,044,725	16,750,816

Finance income	8	1,531	2,717
Finance costs	9	(1,885,340)	(1,507,471)

Net finance costs		(1,883,809)	(1,504,754)

Profit for the year before taxation		5,160,916	15,246,062

Taxation	10	(1,641,410)	(291,142)

Total comprehensive income and profit for the year		3,519,506	14,954,920

Earnings per share		0.12	0.53

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 2020

	Note	31 March 2020	31 March 2019
		£	£
Non-current assets
Investment properties	12	129,340,408	115,320,178
Right of use assets	13	108,043	-
Property, plant and equipment		62,263	59,865
Lease incentives	14	9,562,066	8,310,903
Deferred tax asset	10	1,078,007	1,603,918
		140,150,787	125,294,864

Current assets
Trade and other receivables	14	2,398,119	1,553,699
Cash and cash equivalents	15	2,980,329	3,650,372
		5,378,448	5,204,071

Total assets		145,529,235	130,498,935

Equity
Stated capital	18	42,542,179	42,542,179
Treasury share reserve		516,048	(79,344)
Retained earnings		37,623,126	35,971,206
Total equity		80,681,353	78,434,041

Non-current liabilities
Loan borrowings	16	60,721,840	49,039,681
Lease liabilities for right of use assets	13	69,327	-
Deferred tax liability	10	877,401	-
		61,668,568	49,039,681

Current liabilities
Trade and other payables	17	3,134,816	3,025,213
Lease liabilities for right of use assets	13	44,498	-
		3,179,314	3,025,213

Total liabilities		64,847,882	52,064,894

Total liabilities and equity		145,529,235	130,498,935

The consolidated financial statements were approved and authorised for issue by the Board of Directors on 24 September 2020 and signed on its behalf by:

Michael Farrow
Director

Consolidated statement of changes in equity
for the year ended 31 March 2020

	Share capital	Treasury share capital	Share based payment reserve	Retained earnings	Total
	£	£	£	£	£

As at 1 April 2018	42,162,178	380,001	(257,487)	22,714,092	64,998,784

Profit for the year	-	-	-	14,954,920	14,954,920

Share-based payments	-	-	178,143	-	178,143

Dividends	-	-	-	(1,697,806)	(1,697,806)

As at 31 March 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

Consolidated statement of cash flows
for the year ended 31 March 2020

	1 April 2019 to 31 March 2020	1 April 2018 to 31 March 2019
	£	£
Cash flows from operating activities
Profit for the year before taxation	5,160,916	15,246,062
Adjustments for:
Finance income	(1,531)	(2,717)
Finance costs	1,885,340	1,507,471
Depreciation	11,744	13,296
Amortisation of right of use assets	47,005	-
Gains on revaluation of investment properties	(2,466,035)	(12,609,968)
Gains on disposal of investment properties	(235,729)	(471,177)
Share based payments	595,392	178,143
Increase in receivables	(2,095,583)	(1,521,566)
Increase in payables	(179,700)	961,902

Cash generated from operating activities	2,721,819	3,301,446

Interest paid	(1,510,806)	(1,459,030)
Interest received	1,531	2,717
Taxation paid	(189,154)	-

Net cash from operating activities	1,023,390	1,845,133

Cash flows from investing activities
Net proceeds from disposal of investment properties	6,135,729	2,228,749
Cost of refurbishment of investment properties	(1,977,597)	(1,006,634)
Cost of acquisition of investment property	(15,412,420)	-
Cost of additions of property, plant and equipment	(14,143)	(16,874)

Net cash from investing activities	(11,268,431)	1,205,241

Cash flows from financing activities
Repayment of borrowings	(2,530,000)	(49,358,932)
Drawdown of borrowings	14,023,944	49,016,953
Payment of lease liabilities	(51,360)	-
Dividends paid	(1,867,586)	(1,697,806)

Net cash used in financing activities	9,574,998	(2,039,785)

Net (decrease) / increase in cash and cash equivalents	(670,043)	1,010,589
Cash and cash equivalents at the beginning of the year	3,650,372	2,639,783
Cash and cash equivalents at the end of the year	2,980,329	3,650,372

Notes to the consolidated financial statements

for the year ended 31 March 2020

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.

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 of the 2020 Annual Report & Accounts. 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, including an assessment of the potential impact of Covid-19. 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 weekly 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. In addition the Group's progressive dividend policy has been reviewed in order to maintain liquidity within the Group and the declaration of a final dividend for the year has been reduced accordingly.

Based on these considerations 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

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

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

Acquisition-related costs are expensed as incurred.

Adoption of new and revised IFRSs

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 2019. These changes have not had a significant impact on the preparation of these financial statements.

The Group adopted for the first time the following standard during the year:

IFRS 16 Leases was issued in January 2016, and was endorsed by the EU in 2017. IFRS 16 introduces a single on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a corresponding lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items.

Transition

The Group has applied IFRS16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4. of adoption for IFRS 16 with no material impact on the Group results.

On initial application, the Group has elected to record right of use assets based on the corresponding lease liability. Right of use assets and lease obligations of £155,047 were recorded as of 1 April 2019, with no net impact on retained earnings. When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at 1 April 2019. The weighted-average rate applied is 2.852%.

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.

New Accounting Requirements not yet adopted

At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS that have been issued but are not yet effective:

Amendments to IFRS 3 (Business Combinations) is effective for financial years commencing on or after 1 January 2020. The amendment relates to changes in the criteria for determining whether an acquisition is a business combination or an asset acquisition.

Amendments to IFRS 9 (Financial Instruments) is effective for financial years commencing on or after 1 January 2020. The amendments offer relief in meeting the criteria for hedge accounting on the transition from LIBOR to IBOR.

Amendments to References to the Conceptual Framework are effect for financial years commencing on or after 1 January 2020.

Amendments to IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors) are also effective for financial years commencing on or after 1 January 2020.

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 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 2020. 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.

Due to COVID-19 the 31 March 2020 valuation prepared by Savills is subject to the following material uncertainty disclosure:

Our valuation is reported on the basis of 'material valuation uncertainty' as per VPS 3 and VPGA 10 of the RICS RedBook Global. Consequently, less certainty, and a higher degree of caution, should be attached to our valuation than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market we recommend that the valuation of the properties are kept under frequent review.

The significant methods and assumptions used by the valuers in estimating the fair value of investment property are set out in note 12.

Significant judgements

Operating lease commitments - Group as lessor

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

Revenue recognition

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

In the prior year the Group had considered that it was acting in the capacity of an agent in respect of service charge collection and therefore service charges receivable from tenants and the related costs were not recognised by the Group. Following a reassessment in the year, the Group now considers itself to be acting as principal and the amounts recharged to tenants and the related costs have been represented for the prior year in Notes 4 and 5. This change has no net impact on the 2019 total comprehensive income and profit for the year or the Group's total and net assets as at the 31 March 2019.

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 the consolidated statement of comprehensive income. The fair value is based on valuations provided by Savills 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 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 2020 and 31 March 2019 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 2020 and 31 March 2019 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.

Operating leases

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

Financial instruments

Cash and cash equivalents

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

Trade and other receivables

Trade and other receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, trade and other and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Trade and other receivables are derecognised where the rights to receive cash flows have expired and substantially all risks and rewards of the asset have been transferred.

Trade and other payables

Trade and other payables are not interest bearing and are recognised initially at fair value. Subsequent to initial recognition trade and other payables are measured at amortised cost which approximates their fair value.

Loan borrowings

Loan borrowings are recorded initially at fair value, net of direct issue costs incurred. Loan borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised, within finance costs, in the statement of comprehensive income over the term of the borrowings using the effective interest rate method.

The Group derecognises a financial liability when the obligation under the liability is discharged, cancelled or expired.

Impairment

The Group recognises expected credit loss ("ECL") on financial assets measured at amortised cost. The Group measures loss allowance as an amount equal to the lifetime ECL, except for bank balances for which credit risk (i.e. risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

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

Taxation

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

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

The Finance (No 3) Bill published in November 2018 set out a number of significant changes to the taxation of UK real estate which came into effect in 2019 and 2020. Capital gains arising on the disposal of UK commercial property held in non-UK resident structures were previously exempt from tax. Following the implementation of the Finance (No 3) Bill UK corporation tax is applicable to all gains arising on UK commercial property from 6 April 2019 and from April 2020 non-resident corporate landlords are subject to UK corporation tax rather than income tax. 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.

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

Share based payments

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

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the 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 2019 to 31 March 2020	1 April 2018 to 31 March 2019
			£	£

Rental income			6,715,456	6,390,514
Lease incentives adjustment			781,756	488,398
			7,497,212	6,878,912

Service charge income			1,697,533	1,205,358
Insurance recovery			144,874	130,323
Other income			273,993	94,000

			9,613,612	8,308,593

5	Property expenses		1 April 2019 to 31 March 2020	1 April 2018 to 31 March 2019
			£	£

Void property service charges			246,737	271,493
Void property rates			175,700	118,037
Other void property costs			28,331	76,229
Property repairs and maintenance costs			59,260	24,788
Property insurance			166,995	148,893
Recoverable service charge costs			1,697,533	1,205,358

			2,374,556	1,844,798

6	Administrative expenses		1 April 2019 to 31 March 2020	1 April 2018 to 31 March 2019
		Note	£	£

Staff costs		7	1,593,790	1,403,844
Administration and accountancy fees			305,250	321,013
Legal and professional fees			749,233	788,994
Audit fees			62,673	57,084
Accountancy fees			7,778	7,164
Rent, rates and other office costs			26,334	68,521
Other overheads			140,302	134,208
Depreciation of tangible fixed assets			11,744	13,296
Amortisation of right of use assets			47,005	-

			2,944,109	2,794,124

7	Employees and Directors' Remuneration		1 April 2019 to 31 March 2020	1 April 2018 to 31 March 2019
			£	£
Staff costs during the year were as follows:
Non-executive directors' fees			166,563	180,000
Wages and salaries			648,090	838,475
Share-based payments			595,392	178,143
National insurance costs			104,435	131,580
Pension contributions			37,911	36,850
Other employment costs			41,399	38,796

			1,593,790	1,403,844

8	Finance income		1 April 2019 to 31 March 2020	1 April 2018 to 31 March 2019
			£	£

Bank interest			1,531	2,717

			1,531	2,717

9	Finance costs		1 April 2019 to 31 March 2020	1 April 2018 to 31 March 2019
			£	£

Loan interest			1,592,948	1,347,779
Loan commitment fees			49,039	51,219
Amortisation of lending costs			188,215	108,473
Annual agency fee			45,000	-
Interest on lease liabilities			10,138	-

			1,885,340	1,507,471

10	Taxation		1 April 2019 to 31 March 2020	1 April 2018 to 31 March 2019
			£	£

Current tax			238,098	167,101
Deferred tax			1,403,312	124,041

			1,641,410	291,142

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 2019 to 31 March 2020	1 April 2018 to 31 March 2019
			£	£

Profit for the year before tax			5,160,916	15,246,062

UK income tax at a rate of 20% (2019: 20%)			1,032,183	3,049,212

Effects of:
Non-taxable gains on investment properties			(496,233)	(2,593,287)
Non-taxable income			(55,105)	(19,343)
Expenses not deductible for tax purposes			47,917	37,118
Capital expenditure deductible for tax purposes			491	(22,797)
Utilisation of capital allowances			(250,156)	(191,444)
Utilisation of losses brought forward			-	(92,358)
Overprovision of 2019 taxation			(40,999)	-

Current taxation			238,098	167,101

Deferred taxation			1 April 2019 to 31 March 2020	1 April 2018 to 31 March 2019
			£	£
Deferred tax asset at 31 March relates to the following:

Capital allowances available to carry forward			741,595	1,603,918
Unrealised losses on investment properties			336,412	-

			1,078,007	1,603,918

Deferred tax asset brought forward			1,603,918	1,727,959
Deferred tax charge for the year			(525,911)	(124,041)

Deferred tax asset carried forward			1,078,007	1,603,918

At 31 March 2020, the Group had capital allowances available to carry forward against future profits and had recognised unrealised losses on the revaluation of certain investment properties. Having assessed the potential impact of future tax charges, the Group has recognised a deferred tax asset of £741,595 in respect of the capital allowances and £336,412 in respect of the revaluation losses, as these are expected to be able to be utilised against future profits.

			1 April 2019 to 31 March 2020	1 April 2018 to 31 March 2019
			£	£
Deferred tax liability at 31 March relates to the following:

Chargeable gains on investment properties			877,401	-

Deferred tax liability brought forward			-	-
Deferred tax charge for the year			877,401	-

Deferred tax liability carried forward			877,401	-

The Directors have assessed the potential deferred tax liability of the Group as at 31 March 2020, with relation to the chargeable gains which will arise on the disposal of investment properties. Based on the unrealised chargeable gains of £4,617,900, if the properties were disposed of at fair value, a deferred tax liability of £877,401 has been recognised.

Earnings per share

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

1 April 2019 to 31 March 2020

1 April 2018 to 31 March 2019

Profit for the year

3,519,506

14,954,920

Weighted average number of shares (excluding treasury shares)

28,296,762

Earnings per ordinary share:

0.12

0.53

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.

Investment properties

31 March 2020

31 March 2019

Opening fair value per valuation report

124,600,000

114,075,000

Cost of refurbishment of investment properties

2,041,775

826,634

Cost of acquisition of investment property

15,412,420

Disposal of investment properties

(5,900,000)

(4,300,000)

Gain on revaluation of investment properties

2,514,049

12,609,968

Lease incentive amortisation

781,756

1,388,398

Fair value of investment properties per valuation report

139,450,000

124,600,000

Unamortised lease incentives recorded within trade and other receivables

(10,109,592)

(9,279,822)

Carrying value

129,340,408

115,320,178

No properties were classified as held for sale at 31 March 2020 and 31 March 2019.

As at 31 March 2020 the fair value of investment properties under development included in the above amount was nil (2019; nil).

£136,250,000 (2019; £121,000,000) of the above properties' value, estimated by the valuer, relate to property held on a freehold basis and £3,200,000 (2019: £3,600,000) on a long leasehold basis, for a peppercorn rent.

The fair value of the Group's investment properties per the Valuation Report amounted to £139,450,000 (2019; £124,600,000). The difference between the fair value of the investment properties per the Valuation Report and the fair value per the balance sheet of £10,109,592 (2019; £9,279,822) 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 2020 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 subject to a material uncertainty disclosure and 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 2020

Increase in ERV by 5%

5,592,814

Decrease in ERV by 5%

(4,657,477)

Increase in yield by 0.25%

(5,585,000)

Decrease in yield by 0.25%

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 (including Conference Centre 2020: £35,250,000 2019: £35,250,000)

All Risks Yield

Estimated void periods range from 6 months to 24 months after the end of each lease. (2019: no change)

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

2019

118,700,000

2020

139,450,000

Retail

void periods were shorter / (longer);

Warehousing

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

2019

4,600,000

market rents were higher / (lower);

2020

rent free periods were shorter / (longer);

Industrial

2019

1,300,000

Estimated rent free periods range from 6 to 12 months on new leases. (2019: no change)

letting fees were lower / (higher);

2020

rent per square foot were higher / (lower);

Total

2019

124,600,000

Letting fees have been estimated on vacant units.

equivalent yields were lower / (higher); or

2020

139,450,000

market conditions were to improve / (decline).

Rent per square foot ranges from £4 to £40. (2019: no change)

Net equivalent yields range from 4.45% to 8.54%. (2019: 5.50% to 8.39%)

Market conditions are considered based on the property's location.

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 2020

Less than one year

6,605,924

One to two years

6,863,487

Two to three years

6,826,035

Three to four years

6,122,824

Four to five years

5,771,912

Over five years

53,335,378

Total

85,525,560

31 March 2019

Less than one year

6,128,074

Between two and five years

20,881,970

Over five years

51,993,629

Total

79,003,673

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 24.87% (2019; 20.86%) 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 2019

71,802

83,245

155,047

Amortisation for the year

(27,794)

(19,210)

(47,004)

Balance at 31 March 2020

44,008

64,035

108,043

Lease Liabilities

15 Duke
Street

12 St James' Place

Total

Balance at 1 April 2019

71,802

83,245

155,047

Interest expense

4,479

5,659

10,138

Lease payments

(28,860)

(22,500)

(51,360)

Balance at 31 March 2020

47,421

66,404

113,825

Maturity analysis - contractual undiscounted cash flows

15 Duke
Street

12 St James' Place

Total

Less than one year

28,860

22,500

51,360

One to five years

21,645

52,500

74,145

More than five years

Total undiscounted lease liabilities at 31 March 2020

50,505

75,000

125,505

Future finance charges at 31 March 2020

(3,084)

(8,596)

(11,680)

Lease liabilities at 31 March 2020

47,421

66,404

113,825

Non-Current

21,102

48,225

69,327

Current

26,319

18,179

44,498

Lease incentives and receivables

31 March 2020

31 March 2019

Non-current

Lease incentives

9,562,066

8,310,903

Current

Lease incentives

547,526

968,919

Amounts due from property agents

405,794

20,034

Tenant deposits

293,334

88,152

Amounts due from tenants

888,529

275,540

Other receivables

262,936

201,054

2,398,119

1,553,699

Lease incentives consist of £5,403,770 (2019; £4,354,622) being the prepayments for rent-free periods and stepped increases in rental income recognised over the life of the lease and £4,705,822 (2019; £4,925,200) relating to incentives paid to tenants.

Cash and cash equivalents

31 March 2020

31 March 2019

Royal Bank of Scotland International

2,980,329

3,650,332

National Westminster Bank plc

2,980,329

3,650,372

Loan borrowings

31 March 2020

31 March 2019

Brought forward

49,039,681

51,815,616

Loan repayments

(2,530,000)

(51,901,360)

Loan drawdowns

14,091,148

49,738,852

Lending costs

(67,204)

(721,900)

Amortisation of lending costs

188,215

108,473

60,721,840

49,039,681

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% 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 2020 £61,300,000 of the total facility had been drawndown. the undrawn facility was £3,700,000 (2019; £10,261,148).

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

31 March 2020

31 March 2019

Balance brought forward

49,039,681

51,815,616

Cash flows from financing activities:

Repayment of borrowings

(2,530,000)

(49,358,932)

Drawdown of borrowings

14,023,944

49,016,953

Payment of lease liabilities

(51,360)

Non-cash movements:

Amortisation of arrangement fees

188,215

108,473

Non-cash movement on loan repayments

(2,542,429)

Recognition of lease liability

155,047

Recognition of interest expense

10,138

Balance carried forward

60,835,665

49,039,681

Trade and other payables

31 March 2020

31 March 2019

Trade payables

79,009

65,997

Property improvement costs

64,178

VAT

186,444

267,442

Wages and salaries

235,408

454,333

Deferred income

1,603,989

1,638,217

Rental deposit accounts

295,787

92,545

Finance costs

364,520

188,339

Valuation Fee

28,000

30,000

Audit fee

60,745

55,080

Administration fees

691

66,159

Current taxation

216,045

167,101

3,134,816

3,025,213

Deferred income relates to deferred rental income of £1,489,265 (2019; £1,535,383) and deferred insurance recharges of £114,724 (2019; £102,834).

Stated capital

Issued and fully paid share capital is as follows:

31 March 2020

31 March 2019

Issued and fully paid shares of no par value

42,542,179

Number of shares in issue

Brought forward (at £1.49 per share)

28,551,796

Issued in the year

Carried forward

28,551,796

The Company has one class of Ordinary Share which carry no rights to fixed income. Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company.

On admission to AIM, the Company issued 255,034 Ordinary Shares at a price of £1.49 each to be held in treasury subject to award under the LTIP described in note 21. While held in treasury, these shares are not entitled to dividends and have no voting rights.

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 2020

31 March 2019

Total liabilities

64,847,882

52,064,894

Less: cash and cash equivalents

(2,980,329)

(3,650,372)

Net debt

61,867,553

48,414,522

Total equity

80,681,353

78,434,041

Net debt to equity ratio

0.77

0.62

Share based payments

Circle Property 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 ended 31 March 2019.

On admission to AIM, the Company issued 255,034 Ordinary Shares at a price of £1.49 each to be held in treasury subject to award under the LTIP.

A key employee of the Company may be invited to join the LTIP scheme, the purpose of which is to align the long longer term objectives of shareholders and management. Awards will take the form of a conditional right or nil cost option to acquire Ordinary shares. There will 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.

The awards vested 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 was a comparison of share price plus dividends paid with a bespoke basket of peer companies and REITs. The NAV target was non-vesting if under 8% and if the NAV return was 14% or above then the shares vested in full. Where the NAV return fell between 8% and 14% the number of shares that vested were 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.

Grant date

2016

Award

255,034

Share price

£1.49

Exercise price

Term

3 years

Expected volatility

Expected dividend yield

3.36%

Risk free rate

0.36%

Fair value per option

£1.35

87.50% of the 2016 shares vested (223,154) at a fair value of £300,657. The Directors have not yet exercised their options to acquire.

2017 LTIP award

The options were granted to the executive directors and will vest at the end of a three-year period ending 31 March 2020. The award is subject to targets which measure the performance of the Group. 50% of the award will vest with reference to total shareholder return measured by reference to members of a bespoke comparator group. The remaining 50% of the award vested with reference to the growth in net asset value of the Group, taking into account dividends paid during the relevant period.

Grant date

2017

Award

261,410

Share price

£1.49

Exercise price

Term

3 years

Expected volatility

28%

Expected dividend yield

3.36%

Risk free rate

0.80%

Fair value per option

£1.35

At 31 March 2020 87.50% of the 2017 shares vested (228,733) at a fair value of £308,105. The Directors have not yet exercised their options to acquire.

2018 LTIP award

The options were granted to the executive directors and will vest at the end of a three-year period ending 31 March 2021. The award is subject to targets which measure the performance of the Group. 50% of the award will vest with reference to total shareholder return measured by reference to members of a bespoke comparator group. The remaining 50% of the award vested with reference to the growth in net asset value of the Group, taking into account dividends paid during the relevant period.

Grant date

2018

Award

267,944

Share price

£1.49

Exercise price

Term

3 years

Expected volatility

28%

Expected dividend yield

3.36%

Risk free rate

0.80%

Fair value per option

£1.35

Based on current performance it is estimated that 87.50% of the 2018 shares will vest.

2019 LTIP award

The options were granted to the executive directors and will vest at the end of a three-year period ending 31 March 2022. The award is subject to targets which measure the performance of the Group. 50% of the award will vest with reference to total shareholder return measured by reference to members of a bespoke comparator group. The remaining 50% of the award vested with reference to the growth in net asset value of the Group, taking into account dividends paid during the relevant period.

Grant date

2019

Award

444,803

Share price

£1.84

Exercise price

Term

3 years

Expected volatility

28%

Expected dividend yield

3.50%

Risk free rate

0.73%

Fair value per option

£1.66

Based on current performance it is estimated that 31.25% of the 2019 shares will vest.

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

31 March 2020

31 March 2019

LTIP 2016

178,143

LTIP 2017

308,104

LTIP 2018

210,539

LTIP 2019

76,749

595,392

178,143

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% 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 2020 was £4,537,588 (2019; £4,235,152). There were no financial assets which were past due or considered impaired at 31 March 2020 and 31 March 2019.

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 2020

Financial assets

Trade and other receivables

1,557,259

Cash and cash equivalents

2,980,329

4,537,588

Financial liabilities

Trade and other payables

1,530,827

Loan borrowings

60,721,840

1,621,385

62,717,046

65,959,816

62,252,667

3,152,212

1,621,385

62,717,046

67,490,643

Contractual Value

Carrying Amount

Within one year

1-2 years

2-5 years

More than 5 years

Total

31 March 2019

Financial assets

Trade and other receivables

584,780

Cash and cash equivalents

3,650,372

4,235,152

Financial liabilities

Trade and other payables

1,386,995

Loan borrowings

49,039,681

1,410,285

1,236,415

52,563,287

55,209,987

50,426,676

2,797,280

1,236,415

52,563,287

56,596,982

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 after the impact of the interest rate contracts held at the year end are as follows:

Floating rate

Fixed rate

Interest free

Total

31 March 2020

Financial assets

Trade and other receivables

1,557,259

Cash and cash equivalents

2,980,329

Financial liabilities

Trade and other payables

1,530,827

Loan borrowings

61,300,000

Floating rate

Fixed rate

Interest free

Total

31 March 2019

Financial assets

Trade and other receivables

584,780

Cash and cash equivalents

3,650,372

Financial liabilities

Trade and other payables

1,386,995

Loan borrowings

49,738,852

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 2020 (2019; 0.75%). The Group's policy is to hold cash on variable rate bank accounts.

The Group has borrowings amounting to £61,300,000 (2019: £49,738,852) 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 £613,000 (2019; £497,389). 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 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 balance sheet date are disclosed in note 12.

Fair values

Accounting standards recognise a hierarchy of fair value measurements for financial instruments which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The classification of fair value measurements depends on the lowest significant applicable input, as follows:

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

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

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

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

The fair values of the Group's financial instruments are not materially different from their carrying values.

Investment in subsidiaries

Principal Activity

Country of incorporation

Ownership interest

31 March 2020

31 March 2019

Circle Property Unit Trust

Property holding

Jersey

100%

Circle Property (Milton Keynes) Limited

Property holding

Jersey

100%

Capital expenditure commitments

As at 31 March 2020 the Group had contracted capital expenditure on existing properties of £448,741 (2019; £198,154). This was committed but not yet provided for in the financial statements.

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.

Related party disclosures

Oak Group (Jersey) Limited ("OG(J)L") and Oak Trustees (Jersey) Limited ("OT(J)L") are joint Trustees of CPUT and provide administration and accounting services to the Group. Michael Farrow was a Director of OG(J)L and OT(J)L until his resignation on 31 May 2019. During the year OG(J)L and OT(J)L charged a total of £305,250 (2019: £321,013) for administration and accountancy services, at the year end nil was outstanding (2019: £66,159).

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

Ordinary shares

John Arnold

1,005,122

Edward Olins

138,933

The Estate of The Duke of Roxburghe

2,483,069

James Hambro

3,217,321

Michael Farrow

12,900

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 33 to 34 of the 2020 Annual Report & Accounts. Key personnel of the Group are those persons who have responsibility for planning, directing and controlling the activities of the Group either directly or indirectly, including any director, whether executive or otherwise.

1 April 2019 to 31 March 2020

1 April 2018 to 31 March 2019

Directors remuneration

1,453,426

1,352,776

A bonus was awarded to the executive directors ("Executives") of the Company for the year ended 31 March 2020. 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 COVID-19 pandemic is considered of such significance that the Directors were unable to recommend a progressive dividend. This meant that the third KPI was not achieved. Further to which, the post year-end impact of COVID-19 on the NAV cannot yet be fully determined and so the remuneration committee, being prudent, recommended that only 50% of that KPI be awarded. The total bonus award, therefore, is 50% 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

0.00%

31-Mar-19

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

0.00%

31-Mar-19

210,697

0.00%

Subsequent events

There are no material subsequent events requiring adjustment or disclosure in the financial statements.

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Market data

Final Results