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Circle Property reports 30% rise in net asset value in first half, targets more acquisitions in next half year

The office property investor reported that its NAV had risen 30.3% to £2.75 per share compared to £2.11 a year ago
Office space
The company targets office properties in regions of the UK

Circle Property PLC (LON:CRC) has seen its net asset value (NAV) rise by around a third in the first half of the fiscal year, growing in spite of what seems to be a period of uncertainty in the market.

The office property investor reported that its NAV had risen 30.3% to £2.75 per share compared to £2.11 a year ago.

READ: Circle Property reports profit jump in half-year as net asset value rises 30%

Pre-tax profits for the period were at £13.8mln, up from £8.6mln previously while total income (excluding gains from investment properties) rose to £3.8mln from £3mln.

Circle added that the value of its portfolio had increased 12.4% to £124.8mln from £111.1mln a year ago.

Since its initial public offering in February 2016, the group has delivered a NAV compound annual growth rate (CAGR) of 29.5% and a total return CAGR of 32.1%.

Rather than agonising around the “increased levels of hesitations” of new tenancy signings amid Brexit, Circle’s chief executive John Arnold said that the uncertainty had led to “a number of buying opportunities emerging” and “more off-market deals”.

Acquisition planned for first half of 2019

Speaking to Proactive, Arnold cited the beginnings of “price weakness” on the type of buildings Circle is aiming to buy as a factor in its search for new properties.

He adds that the company is looking to make an acquisition “in the next half year…probably by April/May”.

Bucking the trend

Circle’s success comes at a time when the general property market seems to be in a downturn, but Arnold says this is down to the companies focus, office properties in the regions.

“We’ve been buying offices in the regions, London has suffered because of the Brexit situation,” he says, adding that the firm has also avoided retail properties due to the pressure on high street retailers from online competition and a general downturn in consumer sentiment.

Arnold also says that the supply of offices has reduced dramatically, with rents rising in response. He cites the company’s 80,000 sq ft building in Bristol, which has seen rents double since the firm purchased the property around 5 years ago.

Major contract renegotiation

In October, Circle also renegotiated a lease with one of its major tenants at its biggest asset, the Kents Hill Business Park in Milton Keynes.

The tenant, whose name was not disclosed, has agreed to remove two break clauses at year 15 and 20 in its lease, which has 23 years remaining before expiry.

READ: Circle Property renegotiates lease with major tenant at biggest asset

At the time, Arnold said the negotiation “significantly enhanced the certainty of long-term income, which is now RPI (retail price index) linked and so creates an institutional quality asset”.

Circle also added to its holdings at Aztec Park during the month, one of Bristol’s more popular business Parks. It bought two fully-let buildings there for £4.2mln representing a net initial yield of 7.9%.

In November the company also let the remaining 13,500 square feet on the ground floor of the K2 Kents Hill Business Park in Milton Keynes to Deutsche Telekom subsidiary, T-Systems Ltd, at £214,582 per annum on a 10-year term.

Strong share price rise

Circle had also seen a strong share performance in 2018, with the stock trading around 20% higher than the start of the year at 195p, giving the firm a market cap of £55.2mln.

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“We believe that our NAV forecasts are conservative and the shares are significantly under-valued given the company’s track record and growth prospects.”

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