COVID-19 and Valuation and Trading Update
14 April 2020
Circle Property Plc
("Circle" or the "Company")
COVID-19 AND VALUATION AND TRADING UPDATE
Circle Property Plc (AIM: CRC), which invests in, develops and actively manages well-located regional office assets, provides the following update.
Update on COVID-19
The Company's primary focus through this unprecedented and challenging period has been, and continues to be, to ensure its employees and their families are safe with all of our staff working remotely. In addition, we have worked to ensure that our assets are securely maintained and we are protecting the long-term value of our business. A core part of this involves working closely with our tenants to support them through this period.
We have a high quality, regionally-focused portfolio of assets and an expert operational and property management team in our business. Our team have been working tirelessly through this uncertain time in order to protect the value of our commercial properties.
The Company's investment and development portfolio, which is almost entirely focused in the regional office sector with no exposure to retail (other than two public houses and one restaurant in Birmingham), has been independently valued at £139.5 million as at 31 March 2020 (31 March 2019: £124.6 million).
Over the twelve-month period, net asset value per share ("NAV") has increased by 4.7% reflecting an unaudited estimated NAV of £2.90 per share (31 March 2019: £2.77 per share). The Company delivered the NAV growth, as anticipated, in the second half and prior to the COVID-19 pandemic. Circle is amongst the best performing quoted UK real estate companies by NAV total return (NAV growth and dividend) having delivered consistent returns with 101% NAV growth since IPO in 2016 in absolute terms.
We benefit from a highly diverse tenant base but are acutely aware that livelihoods and businesses are currently at risk from short-term cashflow issues as a result of COVID-19. We place great value on our relationships with our occupiers and it is in the interest of all stakeholders to work together during this period of economic downturn.
In response to the current economic climate experienced by our tenants, we have therefore agreed to accept monthly rental payments from those who are able to demonstrate necessity but the majority of our tenants have paid the March quarter rent in full; 70% has been paid, with a further 9% expected before the end of April (79% in aggregate). Of the remainder, we are in constructive dialogue with our tenants, balancing the need for genuine assistance against short-term opportunism.
Financing and Liquidity
The Company has a financing facility in place with RBS and HSBC for £100 million. The senior revolving facility is for £65 million (of which the Company has drawn £61.3 million) with an "accordion" option for a further £35 million. At 31 March 2020, the Company's LTV reflected 43.96% (excluding cash at bank) and the Company had £2.98 million cash reflecting a net LTV of 41.82%. In aggregate, the Company has £6.68 million of liquidity at its disposal.
Circle has a flexible development and refurbishment pipeline and, where appropriate, has deferred expenditure on future projects. Our appetite to create value through asset management and development remains, but only at the right time.
Asset Management and Lettings Activity
During the year, Circle agreed nine new lettings across the portfolio, comprising a total of 76,516 sq ft at an aggregate contracted annual rent of over £1.373 million (31 March 2019: £1.35 million).
We also undertook the strategic disposal of £6.2 million of non-core assets including:
· A retail warehouse in Shipley for £4.6 million at valuation;
· A property at Great Blackenham, Ipswich for £1.6 million (£0.3 million or 23.08% above valuation).
The proceeds of these disposals were re-assigned to the purchase of Concorde Park, Maidenhead, a south east office park for £14.6 million. Following this activity, the Company's portfolio is almost entirely focused on regional offices (other than two public houses and one restaurant in Birmingham).
We have been active across the following assets; refurbishing, developing and re-gearing where possible to enhance both income and value:
· K2, Milton Keynes - letting of 20,482 sq ft to Grand Union Housing, contractual rent of £352,625 pax on a 10 year lease with a CPI rent review in the fifth year;
· Basekit, Birmingham - relocation within Castle Park, Birmingham of 3,939 sq ft letting of £86,658 p.a. equating to a new level £22 per sq ft;
· Pavilion Drive/Victory House, Northampton - as previously reported, Regus re-geared the lease for a further 12 years without break, at £360,000 p.a. and are paying an increased fixed percentage of 70% (previously 50%) with a top up based upon occupancy. As a result, the valuation on this property has increased by £2 million;
· Concorde Park, Maidenhead - as previously reported in December 2019, the Company completed two lettings totalling approximately 21,000 sq ft increasing the contracted passing rent (excluding rent free) by a further £485,234 pax. The largest letting was to Regus which has taken 16,406 sq ft for rental of £370,942 p.a. (£22 per sq ft) on a 10 year lease without break. In addition, the Company let to Avetta on 4,665 sq ft at £114,292 p.a. (£24.50 per sq ft) on a 5 year lease. Both Regus and Avetta have completed fit outs and are now fully operational within the property;
· K3, Milton Keynes - the strip-out of K3 at Kents Hill Business Park has been completed in readiness for the refurbishment. However, in light of COVID-19, we will only proceed with the works in the event that a pre-let can be secured and not on a speculative basis.
· 135 Aztec West, Bristol - the current tenants decided to extend their occupation of the property (possibly until September 2020 or beyond) and this refurbishment is therefore deferred for an indeterminate period.
Encouragingly, lettings activity continues albeit at a much slower pace. At Maidenhead we are in negotiations for a further lease for 7,370 sq ft (at £24.50 per sq ft).
Dividend and Publication of Final Results
The Company notes the recent guidance issued by the FCA and FRC for companies to delay the release of preliminary results in view of the circumstances and uncertainty presented by COVID-19. Consequently, the Board believes it prudent to delay the publication of the Company's final results and report and accounts for the year ended 31 March 2020 until late September 2020 by which time the Board anticipates the extent of the impact of COVID-19 should be clearer. Furthermore, given the uncertainty over how long these conditions will prevail, the Board has decided that, at this stage, it will not provide guidance on expectations for its financial performance for the year ending 31 March 2021.
Consequently, although the Board currently expects that the final dividend for the year ended 31 March 2019 will be maintained, it has taken the decision to defer payment of the dividend until such time as there is better clarity on the financial consequences of COVID-19.
Further announcements will be made in this regard, as appropriate.
John Arnold, CEO of Circle Property Plc, commented:
"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.
With the outbreak of COVID-19 and the Government's instructions to work from home, we are unable to provide forward guidance until greater visibility returns.
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."
This announcement is inside information for the purposes of Article 7 of EU Regulation 596/2014.
Circle Property Plc
+44 (0)207 930 8503
John Arnold, CEO
Edward Olins, COO
+44 (0)207 397 8900
+44 (0)203 897 1830
+44 (0)203 757 4992
About Circle Property Plc
Circle is amongst the best performing quoted UK real estate companies by NAV total return (NAV growth and dividend) having delivered consistent returns with 101% NAV growth since IPO in 2016 in absolute terms.
Circle focusses on acquiring assets in regional cities, many of which have significant office supply constraints, and on office assets with active management potential (refurbishment opportunities, under-rented or vacant properties or short leases), rather than just maximising initial rental yields.
Circle is not a Real Estate Investment Trust (REIT) and can actively recycle proceeds from asset sales into its refurbishment and redevelopment pipeline, as well as future investment opportunities, therefore targeting a broader range of returns for shareholders, which are primarily driven by NAV growth.
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