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Circle Property's office portfolio shows worth in pandemic

Snapshot

  • Focused on undervalued regional office properties
  • Scope for refurbishment upside
  • Portfolio has held value through the coronavirus crisis
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Quick facts: Circle Property PLC

Price: 172.5 GBX

LSE:CRC
Market: LSE
Market Cap: £49.25 m
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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

Circle's rent collections for the final quarter of 2020 are now at 75%, it said in October, with the September quarter at 80% including agreed monthly payments.

The strong collection rate reflected its focus on UK regional offices and minimal retail exposure, the property group added.

Rent collection for the March and June 2020 quarters had also improved since last reported, Circle said, and now stands at 93% and 89%, respectively with further improvement expected.

The independent valuation of the portfolio at September 30, 2020, was £137.9mln (2019: £139.5mln) with the dip the result of £1.6mln refurbishment of two assets in Milton Keynes and Bristol.

On a per-share basis, Circle's net asset value (NAV) at end-September 2020 was 283p compared to 285p at the end of March.

What the boss says: John Arnold, chief executive

"We have continued to work closely with our tenants and this has resulted in strong levels of rent collection. 

"Despite the disruption caused by the COVID-19 pandemic, our focus on regional offices and our notable lack of exposure to retail property has allowed us to maintain a strong portfolio valuation of £137.85 mln.”

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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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Circle Property's John Arnold hoping for another year of NAV growth

Circle Property PLC's (LON:CRC) John Arnold speaks to Proactive after announcing they've recorded their fourth successive year of growth in its net asset value (NAV). The regional offices specialist revealed that its NAV per share rose by 3% to 285p at the end of March 2020 from 277p a year...

on 25/9/20

2 min read