Sustaining Delivery with Steady Growth Circle Property Plc Report and Condensed Consolidated Interim Financial Statements for the period from 1 April 2016 to 30 September 2016 2 Circle Property Plc Report and Condensed Consolidated Interim Financial Statements for the period 1 April 2016 to 30 September 2016
Circle Property Plc Contents Page Financial highlights 1 Chief Executive's statement 1 - 3 Condensed consolidated statement of comprehensive income 4 Condensed consolidated statement of financial position 5 Condensed consolidated statement of changes in equity 6 Condensed consolidated statement of cash flows 7 Notes to the condensed consolidated financial statements 8 - 14
Circle Property Plc Financial Highlights 1 April 2016 to 4 December 30 September 2015 to 31 2016 March 2016 Investment returns Net Asset Value (NAV) per share 179p 153p Return on Equity 19% 3% Profitability Operating Profit £1.15m £0.84m Profit for the period (including revaluation surplus) £8.21m £1.07m Basic earnings per share (including revaluation surplus) 29p 3.8p Financing Group Net Debt £41m £36m Portfolio Valuation £90.42m £77.74m Chief Executive's Statement Overview I am pleased to present the Group’s results for the first full six months of operations since its AIM listing in February 2016 which clearly demonstrate that Circle is delivering on its aim to provide attractive returns for shareholders by investing in regional office markets. These markets are often overlooked by other investors who have tended in recent years to focus their office portfolios in London. Moreover, while the London office market has softened, conditions in the English regions in which Circle specialises continue to be favourable, and there is enough confidence in these markets for decision makers to justify taking space at the right rental level. By capitalising on our wide contact base and deep market knowledge combined with our asset management skills, we seek to out-perform benchmark indices. Regardless of the fact that the comparisons we are making today are with a four month previous period, the six months covered by these results are, we are pleased to say, testament to that approach and the Group is well placed to capitalise on improving markets in the wider south-east, Birmingham and Bristol, where the European Union Referendum result appears to have had less impact. Circle’s portfolio increased in value by 16.3% in the period from £77.7 million to £90.4 million, equating to a 17%, 26 pence per share increase in Net Assets per share to 179 pence per share, which, most encouragingly, has been primarily driven by our own asset management initiatives. Profits before tax have risen to £8.27 million, reflecting the increase in operating profit but, more importantly, a £12.68 million gain in the value of our investment portfolio. Net rental income has also shown a strong gain, to £2 million, over the last six months. Page 1
Circle Property Plc Chief Executive's Statement (continued) Asset management The Group had a very active first six months of the year, with a particular highlight being a very long new lease agreement with Compass Group at its Kents Hill Park Conference Centre in Milton Keynes. This involved Compass agreeing to surrender the 7 years remaining on its lease and agreeing a new 25 year lease with fixed 3% annual uplifts throughout the term at a rent commencing at £1,500,428, representing a 71% or £625,428 increase over the previous rental level. The new lease is subject to 15 and 20 year tenant break options and Circle has a call option over one of the buildings at any time during the term of the lease. Savills valued Kents Hill Park in its entirety, at £32 million as of September 2016 - an increase of £10.75 million, reflecting the Compass lease re-gear, and the completion of the K2 refurbishment. This new lease was signed at the very end of this reporting period and therefore the resulting enhanced rental income will only be recognised in full for the second half of the year. This transaction also gave Compass the confidence to invest in its conference centre which adjoins Kents Hill Park, and is the type of mutually beneficial arrangement we strive to agree with our tenants. In April, Circle also secured a new 10 year lease, with a five year break option, with Urgent Technology on 4,350 sq. ft. of vacant ground floor space at the 21,400 sq. ft. Power House office in Milton Keynes. The lease was agreed at £70,000 per annum (discounted by 50% for the first year), representing an increase of 8% over the previous tenant’s rent after they vacated the space in February 2016. 6,640 sq. ft. of the office remains vacant but with good tenant interest. Another highlight of the period was the Group agreeing a new 10 year lease with a five year break option with Topps Tiles on 4,700 sq. ft. of currently vacant space at the 37,200 sq. ft. Baildon Bridge Retail Park, which brings occupancy at the park to 91%. Developments Our developments are all on track with occupational demand still evident in both Milton Keynes and Birmingham. Kents Hill Park The only two buildings not currently let to Compass are K1 and K2. We refurbished K1 in 2015 which was fully let by the 31 March 2016. The K2 refurbishment completed in July 2016 with 40,000 sq. ft. currently available to let in which there is good interest. ERV is £600,000 per annum . The half year valuation increase of £10.75 million values Kents Hill Park at £32 million as of September 2016. When K2 is let, the total income from Kents Hill Park is expected to exceed £2.5 million. In addition, there is an option to take back the smallest building let to Compass (K3) with no reduction in the Compass rental. On completion of any future refurbishment of that building, the income will rise by a further £222,750 p.a. (£16.50 psf). Somerset House Somerset House, Temple Street, Birmingham now has planning consent for a change of use of the ground floor from offices to A3 restaurant. A lease surrender with the existing ground floor tenant has been agreed (to complete December 2016), with both ground floor A3 units totalling approximately 10,950 sq. ft. under offer to 2 national restauranteurs at a combined rental of £410,000 p per annum . The refurbishment of floors 1-6 totalling 36,455 sq. ft. will commence in December with completion scheduled for July 2017. On completion, the building should generate a total income of circa £1.2 million. Charles Street, Birmingham At 36, Great Charles Street, Birmingham the rolling refurbishment of the seven floors of offices totalling approximately 25,000 sq. ft. commenced in May 2016 with completion due in February 2017. Three tenants are being retained and moved into newly refurbished floors and approximately 17,000 sq. ft. is to be offered to the market in spring 2017 at a rent yet to be announced. When complete, the ERV of the building will be in excess of £500,000 per annum. A rent of £2.28 million of income is obtainable upon letting these refurbishments at full Estimated Rental Values. There is an additional £770,000 to be obtained by undertaking lease renewals and rent reviews and lettings within the investment portfolio. Page 2
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