viewCircle Property PLC

Circle Property making progress with portfolio


  • Focused on undervalued regional office properties
  • Scope for refurbishment upside
  • Valuation (NAV) gained 95% over three years

Quick facts: Circle Property PLC

Price: 172.5 GBX

Market: LSE
Market Cap: £49.25 m

What it does

Circle Property's strategy is to identify under-utilised office 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 is regional offices, a property sub-sector that has been one of UK’s performers recently.

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.

How it's doing

In its interim results statement covering the six months to the end of September 2019, Circle said the estimated NAV per share on 30 September stood at 278p, up from 275p a year earlier and 277p at the end of March.

The company noted that NAV per share has risen by 87% since Circle floated in February 2016. Since floating, Circle has delivered a NAV compound average growth rate of 23% a year and a total return compound average growth rate of 26%, making it one of the top-performing public property companies.

The property portfolio valuation increased to £135.6mln from £124.6mln at the end of March, largely due to the £14.6mln purchase of Concorde Park, Maidenhead, which was the company's largest acquisition to date,

Net rental income in the six-month period eased to £3.38mln from £3.52mln the year before.

The company saw a 7.2% increase in annualised contracted rental income to £8.2mln with a further £598,478 of contracted rent added since the period end.

The weighted average unexpired lease term (WAULT) is 8.41 years to the break period, compared to 10.15 years at the end of September 2018.

This time round, the company made a paper-based loss of £390,279 on the revaluation of investment properties whereas last year it benefited from an £11.7mln uplift, which mostly accounts for why profit before tax fell to £1.1mln from £13.8mln last year.

Occupancy levels across the portfolio stood at 87.70% at the end of September and has since improved to 91.25% even when including the additional vacant accommodation at Concorde Park.

The interim dividend was bumped up by 10% to 3.3p from 3p last year.

In November, the company unveiled two new lettings at the Concorde Park in Maidenhead, the first since the firm acquired the park in August.

What the boss says

"Circle's portfolio now comprises 99% (by value) regional offices, which is highly reversionary and has no exposure to retail property. Our focus on 'added value' rather than initial yield continues to reap rewards with income generation arising from judicious capital expenditure,” said John Arnold, the chief executive officer of Circle.

"In the six months ended 30 September and post period end, we have been investing in the pipeline, increasing our rental growth and we are on track to deliver expectations for the full year. In the first half, the pace of lettings has increased, with over £950,000 of newly-contracted rents being completed to date since the start of the year. This bodes well for an uplift in valuation at the year-end and we look forward to continuing our positive momentum," he added.


What the broker says

Circle offers "investors with the opportunity to invest in a small, nimble and well regarded property investment and development company which specialises in opportunistically buying and actively managing provincial offices in undersupplied towns and cities".

Analysts say that 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" and Circle has added substantial value to a number of its previously under-utilised regional office buildings.

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