Investors are underestimating prospects for a major re-rating of Circle Property (CRC:150p), an internally managed Jersey-registered property company. The shares are trading back at the 150p IPO price even though Circle has increased net asset value (NAV) per share by 90 per cent to 285p in the subsequent four years, including 3 per cent growth in the latest 12-month period, making it a top performer among UK-quoted real estate peers. It also pays a dividend.
The outperformance reflects the ability of Circle’s management, led by chief executive John Arnold, a stalwart of the property industry, to target well located short-let, or partly-let, property acquisitions with a view to redeveloping them to maximise the reversionary yield. Importantly, Circle’s portfolio is almost entirely focused on the regional office sector (97 per cent) and is generating high levels of income. Tenants representing 87 per cent of the £8.7m annual rent roll paid up in the second quarter, the shortfall reflecting rent deferrals due to the UK government's temporary rent relief measures that prohibit lease forfeiture for non payment. Mr Arnold expects a similar outcome this quarter and is comfortable with the credit quality of the tenants deferring payments.
Circle has been active on the lettings front, almost doubling occupation rates at its newest asset, Concorde Park, Maidenhead, from 36.6 to 67.6 per cent since the newly refurbished but underlet property was acquired for £14.6m in August 2019, and has received proposals from two tenants to occupy part of the 22,308 square foot (sq ft) vacant space. The property's annual contracted rent of £1.1m could rise to £1.6m when fully let. It accounts for £20m of Circle’s £139.5m investment portfolio, the latter valuation is based on a net initial yield (NIY) of 6.2 per cent and a 7.8 per cent reversionary yield.