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 in recent years.
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 the financial flexibility to acquire and renovate.
How it’s doing
In a year-end statement in April, the company said its investment and development portfolio was independently valued at £139.5mln at the end of March, up from £124.6mln a year earlier.
Net asset value (NAV) per share of 290p was up 4.7% versus a share price at the time of 170p.
At the time the majority of its tenants had paid the March quarter rent in full but Circle said it had agreed to accept monthly rental payments from those that demonstrated necessity due to the coronavirus pandemic.
Out of its £100mln financing facility, £61.3mln was drawn down.
At the end of March, the company’s loan-to-value (LTV) reflected 43.96%, excluding the £2.98mln cash in the bank, reflecting a net LTV of 41.82%.
Having paid an increased interim dividend of 3.3p in September, Circle decided to delay the publication of its full-year results for the year to the end of March 2020 until late September, to allow the dust to settle on the coronavirus situation.
The expectation was that the final dividend will be maintained but given the fluid economic situation, that might change.
What the boss says
“During the reported period we have been successful in enhancing and growing our well-located, income-generating assets, delivering material NAV growth over the full year. This is testament to our strong team and their ability to negotiate new lettings, asset manage and consequently generate market-leading returns,” said John Arnold, chief executive officer.
“We have been consistently amongst the best performing quoted UK real estate companies by NAV total returns. We, therefore, believe we have a strong team and the right strategy in place to face the challenges ahead,” 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.