Focused on undervalued regional office properties where there is scope for refurbishment upside
Net asset value (NAV) has risen 85% over past two and half years
Dividend set to rise 12.5% this year to March
Yield 3.2% at 195p.
Market value of £54mln compared to underlying or EPRA NAV of £77.9mln
What it does
Circle Property's strategy is to identify under-utilised buildings and rejuvenate them to boost the underlying value and rental income.
The sweet spot is properties worth between £5mln and £15mln or that are too small for institutional funds and too large for most private investors.
About 94% of the portfolio are regional offices, a property sub-sector that was the UK’ second best performer in 2018 with capital returns of more than 5%.
There is a minimum total return target of 12% on acquisitions and 20% on development projects.
Circle is not a REIT, so it is not obliged to return rental profits to shareholders, something that gives it financial flexibility to acquire and renovate.
What the boss says
“I know all of the towns, all of the [UK's] streets and probably most of the buildings as do my colleagues Edward Olins (COO) and Ian Henderson (chairman),“ says John Arnold, chief executive.
What it owns
Eleven properties of which three most valuable are Kent Hills Business Park, Milton Keynes (40% of gross assets); Somerset House, Birmingham (15% of gross assets) and
36 Great Charles Street, Birmingham (4% of gross assets)
Eight other properties in Bristol, Birmingham, Northampton, Staines and Moorgate, the only property in London.
The provincial office portfolio totals 375,741 sq ft and has an average passing rent of £14.80 per sq ft and capital value of £192 per sq ft.
Occupancy at end September was 90% excluding refurbishments.
What the broker says: Cenkos
"Circle offers the opportunity to invest in a small, nimble and well-regarded property investment and development.
Since it floated in 2016 it has generated an outstanding 85% increase in NAV per share.
Being a relatively small, but a highly nimble company has undoubtedly helped as generating income and capital growth from a small number of properties can significantly boost total returns.
Since IPO, the EPRA NAV has increased from £43.2m to £77.9m as at September 2018 without raising any additional equity capital.
Underlying (EPRA) net asset value forecast to rise 26% to 230p this year and to 290p in 2020.
'Buy' is the Cenkos investment view.
“The investment case is predicated on the continued recovery in selective provincial office markets and the prospect of generating high returns from under-utilised secondary properties through the cycle," says Cenkos, which is also house broker.
"The company has a good pipeline of investment opportunities which would be significantly accretive to EPS and NAV while boosting share liquidity.
"The existing portfolio has performed strongly but continues to offer considerable latent income and capital growth potential.
“We believe that our NAV forecasts are conservative and the shares are significantly under-valued given the company’s track record and growth prospects.”