Interim Results

RNS Number : 3923G

Circle Property PLC

25 November 2020

 

25 November 2020

Circle Property Plc

Interim Results for the six months ended 30 September 2020

Strong average rent collection of 92.5% during period

Circle Property Plc (AIM:CRC) ("Circle", the "Company" or the "Group"), which invests in, develops and actively manages well-located regional office assets, announces its interim results for the six months ended 30 September 2020.

John Arnold, Chief Executive of Circle Property Plc, said:

"During the period, we have continued to benefit from our innovative approach and close relationships with our tenants, which has resulted in very strong rent collection rates of over 90% and a 10% increase in total rental income.

"We believe that demand, particularly in good locations in the regions, will rebound after a short-term contraction as a result of Covid-19. The established position we have in our chosen markets, with a portfolio of assets selected on the strength of location and letting prospects, leaves us well-placed to generate income and value over the medium term."

Financial highlights:

· Strong rental receipts throughout the year and since lockdown in March, running at an average of 92.5% of rents due for March and June quarters

· 10% increase in total rental income to £3.9m (30 September 2019: £3.6m)

· 12% increase in operating profit before property revaluations to £2.7m (30 September 2019: £2.4m)

· Unaudited estimated NAV per share of £2.83 (30 September 2019: £2.78; 31 March 2020: £2.85 per share), representing a 90% increase since admission to AIM in February 2016

· Proposed interim dividend of 2.5p per share for the six months ended 30 September 2020 (30 September 2019: 3.3p)

Chief Executive Statement

Despite the recent impact of the second lockdown, which saw a further decrease in demand within the wider commercial office market, we have seen the benefits of the quality of our assets and our long-term experience in actively managing them, evidenced through our strong rental collection. We work hard to identify high calibre tenants unlikely to default prior to leasing with them, meaning that our rental income is robust even in the current climate.

During the period to 30 September 2020, it has been pleasing that we have continued to let space, in this case to two new tenants, demonstrating that we remain able to build value and generate additional income. At Elizabeth House, London Road, Staines, DES Group have taken a 5-year lease with a break at the third year on the first floor at £32,500 p.a (£20.95 psf) and at Park House, Pavilion Drive, Northampton, NAK Consulting have taken a 10-year lease (with a 5-year break clause) at £34,000 p.a. on 2,373 sq ft (£14.33 psf).

It is the Board's view that further implemented lockdowns and the requirement to work from home, will lead to a rising number of commercial property tenants exercising break options across the market. Some businesses are downsizing as a result of more staff working from home on a permanent or part time basis. We have seen evidence of this in two small lettings within our portfolio but have worked with them to secure smaller suites, demonstrating our ability to actively manage the asset base.

As reported previously, we are of the view that working from home will, in the medium term, prove to be unpopular and more unproductive, and that offices will prove their worth when there is a return to something like normality. In the meantime, the recent news about the roll-out of Covid-19 vaccines is encouraging, yet it remains difficult to call when we may see a significant improvement in occupational demand.

Whilst the general market backdrop is challenging, we are seeing the predominant take-up of vacant offices being for those that are fully-fitted, either by virtue of the previous tenant having vacated, or because the landlord has undertaken a category B fit-out, specifically to encourage tenants that do not want to commit to that capital expense.

In order to respond to this shifting demand for 'plug and play' offices that are ready to move into, with telephony and broadband already connected, we are undertaking fit-outs of our vacant offices in Bristol (One Castlepark - 7,000 sq ft), Birmingham (36 Great Charles Street - 2,341 sq ft) and Maidenhead (6,400 sq ft).  It is anticipated that these projects, together with the redevelopment of 135 Aztec West, Bristol when pre-let, will account for approximately £2 million of our working capital. Again, our ability to adapt and flex around tenant requirements continues to serve us well.

As reported in our Final Results in September 2020, we remain committed to reduce gearing from the current level by opportunistic sales. We have a number of assets that have benefited from our active management approach and added value following redevelopment, lease restructures or renewals which we expect to be highly sought after.

The Board declares an interim dividend of 2.5p, which will be paid on 8 January 2021 to shareholders on the register on 4 December 2020, with an ex-dividend date of 3 December 2020.

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

Enquiries:

Circle Property Plc	[phone]
John Arnold, CEO Edward Olins, COO
Cenkos Securities plc	[phone]
Katy Birkin Mark Connelly Radnor Capital Joshua Cryer Iain Daly	[phone]
Camarco	[phone]
Ginny Pulbrook Oliver Head

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.

 

Condensed consolidated statement of comprehensive income
for the 6 months ended 30 September 2020
			6 months to 30 September 2020		6 months to 30 September 2019		12 months to 31 March 2020
	Note		(unaudited)		(unaudited)		(audited)
			£		£		£
Rental income	4		3,919,307		3,563,322		7,497,212
Other income	4		1,010,022		786,923		2,116,400
			4,929,329		4,350,245		9,613,612
Property expenses	5		(1,269,188)		(970,723)		(2,374,556)
Net rental income			3,660,141		3,379,522		7,239,056
Administrative expenses	6		(978,840)		(982,058)		(2,944,109)
Operating profit before gain/(loss) on investment properties			2,681,301		2,397,464		4,294,947
(Loss)/Gain on disposal of investment properties			-		(44,331)		235,729
(Loss)/Gain on revaluation of investment properties	11		(2,534,903)		(390,279)		2,514,049
Operating profit			146,398		1,962,854		7,044,725
Finance income	7		2,083		1,679		1,531
Finance costs	8		(884,516)		(858,920)		(1,885,340)
Net finance costs			(882,433)		(857,241)		(1,883,809)
Profit for the period before taxation			(736,035)		1,105,613		5,160,916
Taxation	9		113,714		145,074		(1,641,410)
Profit after taxation			(622,321)		1,250,687		3,519,506
Earnings per share	10		(0.02)		0.04		0.12
NAV per share			2.83		2.78		2.85
There is no comprehensive income other than that included in the profit for the period. All of the profit for the period is attributable to the owners of the Company.
All items in the above statement derive from continuing operations.

Condensed consolidated statement of financial position
as at 30 September 2020
	Note		30 September 2020		30 September 2019		31 March 2020
			(unaudited)		(unaudited)		(audited)
			£		£		£
Non-current assets
Investment properties	11		127,111,883		126,146,508		129,340,408
Right of use assets			84,540		-		108,043
Property plant and equipment			55,118		55,035		62,263
Lease incentives	12		10,128,672		8,546,628		9,562,066
Deferred tax asset			1,298,659		1,941,676		1,078,007
			138,678,872		136,689,847		140,150,787
Current assets
Trade and other receivables	12		2,683,828		1,811,350		2,398,119
Cash and cash equivalents			4,543,692		2,359,771		2,980,329
			7,227,520		4,171,121		5,378,448
Total assets			145,906,392		140,860,968		145,529,235
Equity
Stated capital			42,542,179		42,542,179		42,542,179
Treasury share reserve			668,456		(79,344)		516,048
Retained earnings			37,000,805		36,288,100		37,623,126
Total equity			80,211,440		78,750,935		80,681,353
Non-current liabilities
Borrowings	13		61,822,537		59,391,252		60,721,840
Lease liabilities for right of use assets			47,504		-		69,327
Deferred tax liability			768,913		-		877,401
			62,638,954		59,391,252		61,668,568
Current liabilities
Trade and other payables	14		3,011,500		2,718,781		3,134,816
Lease liabilities for right of use assets			44,498		-		44,498
			3,055,998		2,718,781		3,179,314
Total liabilities			65,694,952		62,110,033		64,847,882
Total liabilities and equity			145,906,392		140,860,968		145,529,235
The condensed consolidated interim financial statements were approved by the Board of Directors on 24 November 2020.

Condensed consolidated statement of changes in equity
for the 6 months ended 30 September 2020
		Share capital		Treasury shares reserve		Retained earnings		Total
		£		£		£		£
As at 1 April 2019		42,542,179		(79,344)		35,971,206		78,434,041
Profit for the period		-		-		1,250,687		1,250,687
Dividends		-		-		(933,793)		(933,793)
As at 30 September 2019		42,542,179		(79,344)		36,288,100		78,750,935
Profit for the period		-		-		2,268,819		2,268,819
Share-based payments				595,392		-		595,392
Dividends		-		-		(933,793)		(933,793)
As at 31 March 2020		42,542,179		516,048		37,623,126		80,681,353
Profit for the period		-		-		(622,321)		(622,321)
Share-based payments		-		152,408		-		152,408
As at 30 September 2020		42,542,179		668,456		37,000,805		80,211,440

Condensed consolidated statement of cash flows
for the 6 months ended 30 September 2020
				6 months to 30 September 2020		6 months to 30 September 2019		12 months to 31 March 2020
				(unaudited)		(unaudited)		(audited)
				£		£		£
Cash flows from operating activities
(Loss)/profit for the period before taxation				(736,035)		1,105,613		5,160,916
Adjustments for:
Finance income				(2,083)		(1,679)		(1,531)
Finance expense				884,516		858,920		1,885,340
Depreciation				7,145		5,443		11,744
Amortisation of right of use assets				23,502		-		47,005
Loss/(gain) on revaluation of investment properties				2,534,903		390,279		(2,466,035)
Loss/(gain) on disposal of investment properties				-		44,331		(235,729)
Share based payments				152,408		-		595,392
Increase in trade and other receivables				(852,315)		(493,376)		(2,095,583)
Decrease in trade and other payables				(138,347)		(653,810)		(179,700)
Cash generated from operating activities				1,873,694		1,255,721		2,721,819
Interest and other finance costs paid				(858,649)		(613,803)		(1,510,806)
Interest received				2,083		1,679		1,531
Taxation paid				(116,773)		-		(189,154)
Net cash from operating activities				900,355		643,597		1,023,390
Cash flows from investing activities
Cost of refurbishment of investment properties				(311,312)		(404,189)		(1,977,597)
Cost of acquisition of investment property				-		(15,412,420)		(15,412,420)
Proceeds from disposal of investment properties				-		4,555,671		6,135,729
Cost of additions of property plant and equipment				-		(615)		(14,143)
Net cash from investing activities				(311,312)		(11,261,553)		(11,268,431)
Cash flows from financing activities
Repayment of borrowings				-		-		(2,530,000)
Payment of lease liabilities				(25,680)		-		(51,360)
Drawdown of borrowings				1,000,000		10,261,148		14,023,944
Dividends paid				-		(933,793)		(1,867,586)
Net cash used in financing activities				974,320		9,327,355		9,574,998
Net increase/(decrease) in cash and cash equivalents				1,563,363		(1,290,601)		(670,043)
Cash and cash equivalents at the beginning of the period				2,980,329		3,650,372		3,650,372
Cash and cash equivalents at the end of the period				4,543,692		2,359,771		2,980,329

Notes to the condensed consolidated interim financial statements
for the 6 months ended 30 September 2020
1 General information
These condensed consolidated interim financial statements are for Circle Property Plc ("the Company") and its subsidiary undertakings (together referred to as the "Group").
The Company's shares are admitted to trading on AIM, a market operated by the London Stock Exchange plc. The Company is domiciled and registered in Jersey, Channel Islands. The address of its registered office is 3rd Floor, Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2 4SZ.
The nature of the Company's operations and its principal activities are that of property investment in the UK.
2 Principal accounting policies
Basis of accounting
The condensed consolidated interim financial statements have been prepared in accordance with the IAS 34 "Interim Financial Reporting" and should be read in conjunction with the Group's last consolidated financial statements as at and for the year ended 31 March 2020. They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last financial statements.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's statement. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in these financial statements.
The Directors have assessed the Group's ability to continue as a going concern, including an assessment of the impact of Covid-19. In making their assessment the Directors have modelled the Group's cash forecasts based on the circumstances of each tenant on an individual basis. Rental collections have been monitored on a weekly basis with ongoing communication with tenants in respect of the collection of rental arrears. Loan covenants have been stress tested taking into consideration a potential reduction in the valuation of the Group's property portfolio.
Based on these considerations the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they have adopted the going concern basis in preparing the financial statements.
Estimates and judgements
In preparing these condensed consolidated interim financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 March 2020.
3 Operating segments
During the period the Group operated in one geographical segment, which is the United Kingdom, and one reporting segment, which is investment in commercial property. Therefore, no segmental reporting is required.
4 Revenue			6 months to 30 September 2020		6 months to 30 September 2019		12 months to 31 March 2020
			(unaudited)		(unaudited)		(audited)
			£		£		£
Rental income			3,290,782		3,339,652		6,715,456
Lease incentive adjustment			628,525		223,670		781,756
			3,919,307		3,563,322		7,497,212
Insurance recovery			71,130		72,286		144,874
Service charge income			856,174		681,637		1,697,533
Dilapidation monies			82,718		33,000		273,993
			1,010,022		786,923		2,116,400
			4,929,329		4,350,245		9,613,612
5 Property expenses			6 months to 30 September 2020		6 months to 30 September 2019		12 months to 31 March 2020
			(unaudited)		(unaudited)		(audited)
			£		£		£
Property expenses			6,729		11,504		28,331
Property service charges			158,495		83,437		246,737
Property repairs and maintenance costs			89,832		8,753		59,260
Property insurance			79,630		76,483		166,995
Property rates			78,328		108,909		175,700
Recoverable service charge costs			856,174		681,637		1,697,533
			1,269,188		970,723		2,374,556
6 Administrative expenses			6 months to 30 September 2020		6 months to 30 September 2019		12 months to 31 March 2020
			(unaudited)		(unaudited)		(audited)
			£		£		£
Staff costs			536,032		384,712		1,593,790
Administration fees			152,311		153,189		305,250
Legal and professional fees			214,488		344,413		749,233
Audit fees			-		1,928		62,673
Accountancy fees			3,484		2,105		7,778
Rent, rates and other office costs			24,891		49,981		26,334
Other overheads			16,987		40,287		140,303
Depreciation of tangible fixed assets			7,145		5,443		11,744
Amortisation of right of use assets			23,502		-		47,004
			978,840		982,058		2,944,109
7 Finance income			6 months to 30 September 2020		6 months to 30 September 2019		12 months to 31 March 2020
			(unaudited)		(unaudited)		(audited)
			£		£		£
Bank interest			2,083		1,679		1,531
			2,083		1,679		1,531
8 Finance costs			6 months to 30 September 2020		6 months to 30 September 2019		12 months to 31 March 2020
			(unaudited)		(unaudited)		(audited)
			£		£		£
Loan interest			767,484		732,280		1,592,948
Loan commitment fees			12,479		36,217		49,039
Amortisation of lending costs			100,697		90,423		188,215
Annual agency fee			-		-		45,000
Interest on lease liabilities			3,856		-		10,138
			884,516		858,920		1,885,340
9 Taxation			6 months to 30 September 2020		6 months to 30 September 2019		12 months to 31 March 2020
			(unaudited)		(unaudited)		(audited)
			£		£		£
Current tax			215,426		192,684		238,098
Deferred tax (credit) / charge			(329,140)		(337,758)		1,403,312
			(113,714)		(145,074)		1,641,410
10 Earnings/loss per share
Basic earnings/loss per share has been calculated on profit/loss after tax attributable to ordinary shareholders for the period (as shown on the condensed consolidated statement of comprehensive income) and the weighted average number of ordinary shares in issue during the period.
			6 months to 30 September 2020		6 months to 30 September 2019		12 months to 31 March 2020
			(unaudited)		(unaudited)		(audited)
			£		£		£
Profit/(loss) for the period			(622,321)		1,250,687		3,519,506
Weighted average number of shares			28,296,762		28,296,762		28,296,792
Earnings/(loss) per ordinary share:			(0.02)		0.04		0.12
In the opinion of the Board, treasury shares held to satisfy share awards to management currently do not have any material value and hence do not have any dilutive effect. Therefore no diluted earnings/(loss) per share has been presented.
11 Investment properties			30 September 2020		30 September 2019		31 March 2020
			(unaudited)		(unaudited)		(audited)
			£		£		£
Balance brought forward			139,450,000		124,600,000		124,600,000
Cost of refurbishment of investment properties			306,378		404,189		2,041,775
Cost of acquisition of investment property			-		15,412,420		15,412,420
Disposal of investment properties			-		(4,600,000)		(5,900,000)
(Loss)/Gain on revaluation of investment properties			(2,534,903)		(390,279)		2,514,049
Lease incentive amortisation			628,525		223,670		781,756
Fair value of investment properties per valuation report			137,850,000		135,650,000		139,450,000
Unamortised lease incentives			(10,738,117)		(9,503,492)		(10,109,592)
Closing fair value			127,111,883		126,146,508		129,340,408
The fair value of the Group's investment properties at 30 September 2020 has been arrived at on the basis of valuation carried out by Savills (UK) Limited. The valuation was carried out in accordance with the Practice Statements contained in the Appraisal and Valuation Standards as published by the RICS. In forming their opinion of the fair value, the independent valuers had regard to the current best use of the property, its investment attributes and recent comparable transactions. The valuation was carried out using the "All Risks Yield" method taking into consideration both sales and rental evidence and formulating the opinion of market value taking into account the properties' locations, specifications and specific characteristics.
At 30 September 2020, the fair value of the Group's investment properties per the valuation report amounted to £137,850,000. This valuation takes into account the impact of Covid-19 and the Company's valuers' inclusion of a 'material uncertainty clause' on the independent valuations (in accordance with VPS3 and VPGA 10 of the RICS valuation - Global Standards). The difference between the fair value of the investment properties per the valuation report and the fair value per the balance sheet of £10,738,117 relates to unamortised lease incentives which are recorded in the financial statements within non-current and current assets.
The Group has pledged all of its investment properties to secure banking facilities granted to the Group as detailed in note 13.
12 Trade and other receivables			30 September 2020		30 September 2019		31 March 2020
			(unaudited)		(unaudited)		(audited)
			£		£		£
Non-current
Lease incentives			10,128,672		8,546,628		9,562,066
Current
Lease incentives			609,445		956,864		547,526
Amounts due from property agents			532,692		15,391		405,794
Amounts due from tenants			1,124,020		602,316		888,529
Tenant deposits			271,017		88,152		293,334
Other receivables			146,654		148,627		262,936
			2,683,828		1,811,350		2,398,119
13 Borrowings			30 September 2020		30 September 2019		31 March 2020
			(unaudited)		(unaudited)		(audited)
			£		£		£
Brought forward			60,721,840		49,738,852		49,039,681
Loan repayments			-		-		(2,530,000)
Loan drawdowns			1,000,000		10,261,148		14,091,148
Lending costs			-		(721,900)		(67,204)
Amortisation of lending costs			100,697		113,152		188,215
Total borrowings			61,822,537		59,391,252		60,721,840
The Group is party to a revolving facility, with NatWest and HSBC. The facility is a £60,000,000 revolving facility with an accordion option of up to £40,000,000, of which £5,000,000 had been committed at the period end. The facility has a four-year term, repayable on 13 February 2023.  The rate of interest is the aggregate of the margin 2.05% and LIBOR and is payable quarterly.  A commitment fee is payable at a rate of 0.82% on the undrawn facility and in relation to the accordion facility.
The Group paid an arrangement fee of 0.875% for the facility, which along with other costs of arranging the facility including legal costs have been amortised and will be written off over the 4-year term.
The facility is secured by a first and only legal charge over the Group's investment properties, an assignment of rental income, charges over specified bank accounts of the Group and a floating charge granted over all assets of the Group.
The facility's financial covenants are 60% loan to value, 2.00:1 interest cover looking both forward and backward, the Group shall ensure that the total market value of the charged properties does not fall below £50,000,000 at any time and that no single tenant represents more than 25% of the total contracted rents.
At 30 September 2020, £62,300,000 of the total facility had been drawn down. The undrawn facility was £2,700,000.
14 Trade and other payables			30 September 2020		30 September 2019		31 March 2020
			(unaudited)		(unaudited)		(audited)
			£		£		£
Trade payables			26,782		39,698		79,009
Property improvement costs			59,242		-		64,178
Wages and salaries			27,902		-		235,408
Deferred income			1,749,920		1,611,306		1,603,989
Rental deposit accounts			271,017		92,546		295,787
Finance costs			285,834		343,033		364,520
VAT			257,742		257,413		186,444
Valuation fee			18,000		15,000		28,000
Audit fee			-		-		60,745
Administration fees			363		-		691
Current taxation			314,698		359,785		216,045
			3,011,500		2,718,781		3,134,816
15 Subsequent events
There are no material subsequent events requiring adjustment or disclosure in the financial statements.

 

END

 

 

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