21% total return in H1 continues strong growth

Circle Property 17 January 2019 Update
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Circle Property

21% total return in H1 continues strong growth

Interim results update

Real estate

17 January 2019

Price

193p

Market cap

£55m

Net debt (£m) at 30 September 2018

47.1

Net LTV at 30 September 2018

37.7%

Shares in issue

28.6m

Free float

63.6%

Code

CRC

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.3)

(3.3)

20.3

Rel (local)

(2.2)

(0.3)

36.0

52-week high/low

230p

156p

Business description

Circle Property is a property investment company registered in Jersey and listed on AIM. The company actively manages its assets, placing an emphasis on total returns rather than maximising short-term income. It targets the acquisition of well-located regional office properties where it has identified a clear opportunity to add value by undertaking active asset management.

Next events

Property valuation for 31 March 2019

Exp. April 2019

FY19 results

Exp. June 2019

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

Circle Property is a research client of Edison Investment Research Limited

In the six months ending 30 September 2018 (H119) Circle Property continued to generate strong returns. The 21.1% H119 NAV total return takes the total return since IPO in February 2016 to 93%, a compound annual average 29.0%. Current returns reflect the benefits, in terms of rising income and capital values, of letting recently refurbished space. We forecast more gains to come from the existing portfolio, while management is seeking to replenish the refurbishment pipeline.

Year end

Net rental income (£m)

Adjusted
net profit* (£m)

Adjusted
EPS* (p)

NAV per share (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

03/17

4.4

0.9

3.1

183

5.0

1.05

2.6

03/18

5.5

2.5

9.0

230

5.6

0.84

2.9

03/19e

7.0

2.7

9.4

280

6.3

0.69

3.3

03/20e

7.5

3.1

11.0

290

7.0

0.67

3.6

Note: *Edison adjusted net profit and EPS is adjusted for gains/losses on sales of investment property, revaluation movements and non-recurring items.

The harvest continues

Circle targets well-located, primarily office, properties in the UK’s provincial cities where it can add value by undertaking lease renewals, rent reviews, lettings and refurbishments. As a result, capital returns and NAV growth are key drivers of total returns. Due to letting progress, H119 net rental income increased 35% on H118 and NAV per share increased 20% to 275p per share, taking the total increase since IPO in February 2016 to 85%. DPS increased c 15% y-o-y, to 3.0p, 1.5x covered by Edison adjusted earnings (income earnings). Our forecast end-FY20 NAV per share is increased by 7% to 290p and our forecast DPS growth is unchanged, despite the dampening effect of mature asset disposals on income earnings (our forecasts assume no reinvestment although this is targeted).

Seeking to replenish the refurbishment pipeline

The supply-demand balance for regional offices (more than 90% of the Circle portfolio) remains positive, although management notes an increased level of hesitation by tenants in committing to new lease commitments. Our forecasts reflect management confidence in the prospects for letting the remaining vacant space in its portfolio, concentrated in two recently refurbished assets, based on their quality and location. As Circle seeks to replenish its refurbishment pipeline, the recent increase in market and economic uncertainty, in part Brexit related, may open new opportunities, particularly off-market, for reinvestment of disposal proceeds.

Valuation: Share price lagging NAV growth

The shares have performed strongly over the past year, but have retraced from the highs reached in July, while NAV per share has continued to increase strongly. The shares trade at a c 30% discount to the recently reported H119 NAV, and our FY20e DPS (1.6x covered) provides a prospective yield of more than 3%.

Strong returns continued in H119

Circle issued strong interim results covering the six-month period that ended 30 September 2018 (H119) in late December. Strong capital growth continued in the period, driven by the company’s asset management strategy, taking the end-H119 NAV per share to a level above our previous forecasts for both end-FY19 and FY20. Income earnings (Edison ‘adjusted earnings’), excluding realised and unrealised property valuation gains, was slightly lower, reflecting a rebalancing of expenses from H2 to H1 as well as the disposal of one mature asset in the period (two more properties were sold after the period end), but the declared DPS was at the same level as H218 and 15% ahead of H118, well covered by adjusted earnings. The net asset value total return during the first six months of the year was 21.1% and the aggregate return since IPO in February 2016 is now 29.0%. The disposal contributed to a reduction in net loan to value (LTV) to 37.7%. We review the interim results in more detail below, and update on the prospects later in this note. A more detailed review of the company and its strategy can be found in our last outlook report.

Exhibit 1: Summary of H119 financial performance

£000's unless otherwise stated

H119

H118

H119 v H118

FY18

Net rental income

3,524

2,611

35.0%

5,523

Administrative expenses

(1,250)

(801)

56.1%

(2,368)

Operating profit before revaluations & other one-off items

2,274

1,810

25.6%

3,155

Recurring net finance costs

(736)

(551)

33.5%

(1,145)

Edison adjusted PBT

1,538

1,259

22.2%

2,010

Tax

(227)

99

535

Edison adjusted earnings after tax

1,311

1,358

-3.5%

2,544

Edison adjustments:

Gains on disposal

495

0

1

Gains on revaluation

11,733

7,307

11,981

Fair value movement on interest rate swaps

0

(1)

(1)

IFRS net profit

13,539

8,664

56.3%

14,526

Edison adjusted EPS

4.6

4.8

-3.5%

9.0

IFRS EPS (p)

47.8

30.6

56.3%

51.3

DPS declared (p)

3.00

2.60

15.4%

5.60

Dividend cover (Adjusted EPS/DPS)

1.54

1.85

1.61

IFRS NAV per share (p)

275

212

29.8%

230

NAV total return

21.1%

17.1%

28.3%

Fair value of investment properties (£m)

115.8

96.3

106.4

Net LTV

37.7%

42.3%

43.2%

Source: Circle Property, Edison Investment Research

The investment portfolio at fair value increased to £115.8m from £106.4m at end-FY18. The movement included revaluation gains of £11.7m, £0.6m of investment in existing properties, £3.0m of disposals, and lease incentive adjustments. Based on a period end contracted rent roll of £7.5m (end-FY18: £6.8m) and our estimate of end-H119 estimated rental value, or ERV, of £9.8m (end-FY18: £9.9m) we calculate a net initial yield (NIY) of c 5.6% and a reversionary yield of c 7.3%. The NIY is similar to end-FY18 and the reversionary yield has reduced slightly (end-FY18: c 8.2%), primarily the result of the letting of vacant space. We estimate the disposal in the period (a petrol filling station at Amesbury) reduced H119 rent roll and ERV by c £0.2m whereas key lettings of recently refurbished space included the previously disclosed letting of the entire (36,300 sq ft) office space at Somerset House on Temple Street in Birmingham city centre announced in May, adding c £0.8m to rent roll, and two new leases (covering c 4,800 sq ft) at 36 Great Charles St in Birmingham, adding c £0.1m.

Primarily reflecting leasing progress during H119 and previously, gross rental income increased 23.8% to £3.6m compared with H118, and net rental income by a larger 35.0% to £3.5m. The greater increase in net rental income mainly reflects the reduction in non-recoverable property costs as a result of leasing progress. On an EPRA basis, 30 September 2018 occupancy was 92%.

Administrative expenses were sharply higher but we believe this mainly reflects a rebalancing of staff costs between H2 and H1. Additionally, legal and professional costs were high in the period, which we believe reflects the amount and complexity of leasing activity.

Despite the expense rebalancing, pre-tax Edison adjusted earnings were ahead strongly, by 22.2% y-o-y. With a prior year tax credit reverting to a more normal tax charge, after tax Edison adjusted earnings and EPS were slightly lower compared with H118.

NAV per share increased to 275p compared with 230p at end-FY18. Including the 3.0p (FY18 final) DPS paid, NAV total return was a very strong 21.1%.

Mainly reflecting the impact of disposals, end-H119 net LTV reduced to 37.7% (end-FY18: 43.2%). Given the strength of interest cover we believe that management remains comfortable with the current level of borrowing and that the LTV is likely to edge back up as disposal proceeds are reinvested. We do not, however, include reinvestment in our forecasts.

Disposals and leasing continuing since the half year

Since H119 ended, Circle has continued its progress with letting remaining vacant space, has sold two further mature properties, and continues to seek acquisitions to replenish its pipeline of refurbishment/redevelopment opportunities.

In November 2018 the remaining ground floor space in the K2 building at Kents Hill Business Park in Milton Keynes was let to T-Systems, a subsidiary of Deutsche Telekom at £215k (£15.50 per sq ft) on a 10-year lease with a tenant break at five years.

Also in November, two shops let to Morrisons and A-Plan Insurance in Maidstone were sold for £1.35m, in line with the valuation.

Management expects further income and value growth

In its outlook comments, management expresses confidence in the prospects for letting the remaining vacant space in its portfolio, concentrated in two recently refurbished assets, which it expects to further increase income and assets. This is despite observing an increased level of hesitation on the part of tenants in committing to new lease agreements and reflects both the quality and location of the assets as well as the company’s strategy of seeking to attract tenants quickly for refurbished assets with competitive rents to beat local competition. This way it aims to quickly achieve an attractive yield, increasing both rental income and capital values. Although some space remains to be let, the current redevelopment and refurbishment pipeline is complete, and Circle anticipates that the recent increase in market and economic uncertainty, in part Brexit related, will open new opportunities, particularly off market, for reinvestment of disposal proceeds. We would anticipate that management will continue to target acquisitions at close to vacant possession value, with potential for cost-efficient refurbishment and development, to maximise reversionary rental values and secure new leases.

Financials

Our revised estimates are shown in Exhibit 2. Our forecasts for NAV per share are again lifted following the very strong valuation gains reported in H119. As a result of the letting progress, H119 rental income was running ahead of the level implied in our previous forecasts and this feeds through to our revised FY19 expectation. At the adjusted net profit level this is offset by slightly higher assumed costs and taxes.

For FY20 the reduction in net rental income reflects a full year impact of the property disposals recently announced and this feeds through to adjusted net profit.

We have not changed of DPS forecasts given the strength of dividend cover.

Importantly, in our forecasts we have not made any assumption of the reinvestment of the disposal proceeds, although management is clearly looking for suitable opportunities. We would expect these to be at yields that would be accretive to adjusted earnings while offering the potential for longer-term capital uplift through active asset management.

Exhibit 2: Estimate revisions

Net rental income (£m)

Adjusted net profit (£m)

Adjusted EPS (p)

NAV per share (p)

DPS (p)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

03/19e

6.8

7.0

3.3

2.7

2.7

-0.8

9.5

9.4

-0.8

258

280

8.6

6.3

6.3

0.0

03/20e

7.7

7.5

-3.1

3.3

3.1

-6.0

11.7

11.0

-6.0

271

290

7.2

7.0

7.0

0.0

Source: Edison Investment Research

Our key forecasting assumptions are:

Contracted rental income. Contracted rent at end-H119 was £7.5m and we estimated the impact of the subsequent disposal of two shops in Maidstone to reduce this by c £0.1m. The November letting at K2 adds c £0.2m, such that we estimate the current contracted rent roll to be c £7.6m. We are now assuming contracted rents of £7.9m by end-FY19 (previously £8.2m) and £8.2m by end-FY20 (previously £8.8m). The main change reflects the announced disposals which we estimate reduce contracted rent roll by c £0.4m pa. We continue to allow for the effective full letting of 36 Great Charles St and K2 over the period, although at a slightly reduced overall ERV than we had previously assumed. In addition to the upside from letting these two assets, we estimate an additional £1.6m of reversionary potential within the portfolio.

Exhibit 3: Estimated contracted rents and ERV

£000's

Contracted rent roll at 30 September 2018

7.5

Maidstone disposal*

(0.1)

K2 T-Systems let (November)

0.2

Adjusted contracted rent roll

7.6

Development assets expected rent (ERV)

K2, Kents Hill Business Park, Milton Keynes*

0.2

Great Charles St, Birmingham uplift*

0.4

Potential rent including development assets

8.2

Other, rent reversion potential

1.6

Total portfolio estimated ERV*

9.8

£000's

Contracted rent roll at 30 September 2018

Maidstone disposal*

K2 T-Systems let (November)

Adjusted contracted rent roll

Development assets expected rent (ERV)

K2, Kents Hill Business Park, Milton Keynes*

Great Charles St, Birmingham uplift*

Potential rent including development assets

Other, rent reversion potential

Total portfolio estimated ERV*

7.5

(0.1)

0.2

7.6

0.2

0.4

8.2

1.6

9.8

Source: Circle property. Note: *Edison estimates.

Improving occupancy translates into lower void costs and a small decrease in overall property costs.

Our forecast for administrative expenses in FY19 is affected by relatively high legal and professional fees in H119, we believe related to the high level and complexity of leasing activity. We expect this to ‘normalise’ in FY20 and otherwise assume expense growth broadly in line with inflation.

Finance costs are forecast slightly higher in FY19, tracking higher LIBOR on broadly unchanged floating rate borrowings of c £50.1m. As we assume no reinvestment of disposal proceeds there is a slight benefit to interest received, apparent in FY20.

Property revaluation gains. The £11.7m revaluation gain reported in H119 was significantly ahead of the £7m that we had assumed for the year as a whole. Our assumptions are based on the expectation that continuing underlying rental growth and the further letting progress that we forecast will have a positive impact on property values, without assuming any effect from changes in the general level of market valuations. Given the scale of the H119 movement, we have slightly reduced our revaluation assumptions through to end-FY20, to an aggregate £2.5m over the 18-month period. In combination with our contracted rent and ERV growth assumption (2.0% pa), this implies an increase in the portfolio NIY from c 5.6% at end-H119 (a similar level to end-FY18) to c 6% at end-FY20. As more of the reversionary potential is captured in contracted rents the implied reversionary yield declines slightly from c 7.4% at end-H119 (c 8.2% at end-FY18) to c 7.3%. The H119 revaluation gain added 41p to NAV and our assumptions add 4p in H219 and 6p per share in FY20. A 0.25% increase in the FY20 NIY would reduce forecast NAV by c 20p per share, and a 0.25% reduction would add 18p.

We have applied a 15% tax rate to adjusted earnings, although the effective rate of tax since listing has been much lower, primarily benefiting from capital allowances. Circle Property and its main subsidiaries are Jersey registered and pay no tax. From 1 April 2020, non-resident landlord companies (such as Circle) are to be brought into the scope of UK corporation tax rather than income tax, and additionally from 1 April 2019, capital gains made by a non-resident on the disposal of commercial property will be subject to UK tax. Both changes are likely to have an impact on the company’s tax position.

Valuation

Circle is not a REIT and, unlike most REITs, capital returns are a significant element of overall total returns generated by the company. Although the company aims to increase rental income through leasing and rental growth, it is not focused on income maximisation over the short term, and cash flow is deployed for reinvestment in the portfolio with the aim of optimising longer-term total returns, as well as for dividend distributions. The recent strong capital uplifts are the result of letting assets, at increased rents, which were previously held vacant for a period of refurbishment. Given its total-return strategy, we think Circle’s value creation is best illustrated by the NAV total return (the change in NAV per share plus dividends paid per share). NAV total return from IPO to end-H119, has been an aggregate 93.4%, or a compound annual average 29.0% pa, well above the minimum 12% pa targeted by management. Our FY19 full-year estimates imply a total return of 24.6% and for FY20 our estimates imply 5.6%, although there remains considerable scope for Circle to do better than this if market conditions remain favourable and it is successful in continuing to let remaining vacant refurbished space and capturing reversionary potential through lease renewals. Management also continues to seek accretive acquisitions, which are similarly not reflected in our forecasts.

Exhibit 4: NAV total return since IPO

FY16*

FY17

FY18

H119

Since IPO

Opening NAV per share (p)

149

153

183

230

149

Closing NAV per share (p)

153

183

230

275

275

Dividends per share paid (p)

0

4.8

5.2

3.0

13

NAV total return

2.5%

23.0%

28.3%

21.1%

93.4%

Compound annual return

29.0%

Source: Circle Property data, Edison Investment Research. Note: *16 February 2016 to 31 March 2016.

This focus on NAV total return and the significant growth in Circle’s NAV and adjusted earnings per share since IPO highlights the difficulty of making a simple P/NAV or yield comparison with the broader sector, not least because many of those companies have a deliberate focus on recurring income generation rather than total return.

In Exhibit 5, we show a summary valuation and performance comparison of Circle with a peer group of regional property investors, a group of companies with a broad range of income versus total return strategies. The P/NAV ratios shown are based on the last published data, and so include the H119 NAV growth at Circle. The yields are based on dividends declared on a trailing 12-month basis.

Exhibit 5: Peer comparison

Price
(p)

Market cap. (£m)

P/NAV*
(x)

Yield
(%)

Share price performance

One
month

Three
months

12 months

From 12
month high

Custodian REIT

117

460

1.08

5.6

0%

-2%

-2%

-6%

Mucklow

497

315

0.89

4.6

5%

-5%

-1%

-11%

Palace Capital

304

139

0.72

6.3

2%

-3%

-9%

-19%

Picton

85

455

0.92

4.1

4%

-1%

-1%

-9%

Real Est Inv

53

98

0.75

6.7

-4%

-4%

-1%

-15%

Regional REIT

93

348

0.82

8.5

3%

-6%

-8%

-8%

Schroder REIT

56

290

0.81

4.5

1%

-6%

-11%

-17%

Median

0.82

5.6

2%

-4%

-2%

-11%

Circle Property

193

54

0.69

2.9

-1%

-3%

15%

-25%

UK property index

1,625

5.3

2%

-4%

-11%

-14%

FTSE All-Share Index

3,769

4.7

2%

-3%

-12%

-13%

Source: Company data, Edison Investment Research. Note: *Last reported EPRA NAV per share. ** Trailing 12-month DPS declared. Prices as at 17 January 2019.

Circle’s share price has performed strongly over the past 12 months, with the shares rising by 15% compared with declines across the narrow peer group, broad sector and FTSE All Share Index. This continues the trend since IPO in February 2016, which we show in Exhibit 6, with Circle generating one of the highest share price total returns (dividends reinvested) across the broad UK property sector, a group that includes may different strategies and a number of specialist sector REITs. We have highlighted the performance of the narrow peer group stocks in grey.

However, Circle’s share price has failed to keep pace with the growth in NAV per share, and the c 30% share price discount to NAV is much wider than the peer average. Reflecting the nature of Circle’s strategy, with a strong focus on reinvestment in the portfolio to drive total returns, its dividend yield is lower than the average for the peer group, and the broader sector, but dividend cover is relatively high (we estimate 1.4–1.5x over FY19 and FY20).

Exhibit 6: Share price total return since Circle IPO*

Source: Thomson Reuters. Note: *Circle IPO 16 February 2016.

Taken as a whole, and given the strong historical track record of total return generation, Circle’s valuation appears very undemanding and may in part reflect:

The relatively low market capitalisation and free float of the stock is likely to have a limiting impact on institutional investment. We note that management is continuing to review options for enlarging the shareholder base, perhaps in conjunction with growing the asset base, which has the potential not only to broaden the appeal of the shares, but to capture potential economies of scale.

Continuing signs of investor preference for recurring income, historically a less volatile component of total property return, compared with the sharp swings in property valuations observed across the cycle. We note that while there are a number of uncertainties surrounding the economic outlook, occupier and investor demand for regional office assets has continued to be robust while rental and capital values do not look stretched in historical terms. Factors such as business relocation from London to the UK regions and the conversion of empty offices to residential use are positive for the supply-demand balance, and there is no sign of the speculative over-development that generally accompanies a cycle peak. Against this background, Circle has continuing opportunities to drive further returns from the existing portfolio (continued letting at Great Charles St and K2, and £1.6m reversionary potential elsewhere in the portfolio), while creating new asset management potential through acquisitions.

Supporting our view that the valuation is undemanding, on 20 November 2018 Circle was notified that Palace Capital, a UK property investment company listed on the Main Market of the LSE, had become a significant shareholder, with a 5.04% disclosable shareholding, deploying surplus liquidity.

Exhibit 7: Financial summary

Year ending 31 March

2016

2017

2018

2019e

2020e

£000s

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Rental income

664

5,266

6,212

7,500

8,036

Other income

595

138

143

207

100

Total income

1,260

5,404

6,354

7,707

8,136

Property expenses

(123)

(1,037)

(831)

(678)

(660)

Net rental income

1,137

4,366

5,523

7,030

7,476

Administrative expenses

(293)

(2,115)

(2,368)

(2,489)

(2,454)

Operating profit before valuation gains

844

2,251

3,155

4,540

5,022

Gains on disposal of investment properties

0

279

1

495

0

Revaluation of investment properties

0

7,361

11,981

12,733

1,500

Exception items

374

88

0

0

0

Operating profit

1,217

9,979

15,137

17,769

6,522

Net finance costs

(112)

(13)

(1,146)

(1,423)

(1,375)

Profit before tax

1,106

9,966

13,991

16,345

5,148

Tax

(32)

(22)

535

(464)

(547)

Net profit

1,073

9,944

14,526

15,881

4,600

Adjusted for:

Gain/(loss) on disposal of investment property

0

(279)

(1)

(495)

0

Revaluation of investment property

0

(7,361)

(11,981)

(12,733)

(1,500)

Fair value movement on interest rate swaps

2

(96)

1

0

0

Other non-recurring items

(427)

(1,320)

0

0

0

Edison adjusted earnings

648

889

2,544

2,653

3,100

Shares ('000s) exc. own shares held

28,297

28,297

28,297

28,297

28,297

IFRS EPS (p)

3.8

35.1

51.3

56.1

16.3

Diluted Edison adjusted EPS (p)

2.3

3.1

9.0

9.4

11.0

Dividend declared (p)

2.4

5.0

5.6

6.3

7.0

Dividend cover (adjusted earnings/DPS declared)

0.96

0.63

1.61

1.49

1.57

BALANCE SHEET

Investment properties

75,781

86,054

106,373

115,901

118,401

Trade and other receivables

1,771

6,518

7,202

8,524

8,524

Deferred tax

915

1,142

1,728

1,142

1,142

Financial instruments at FV through P&L

22

30

56

50

50

Total non-current assets

78,490

93,744

115,359

125,617

128,117

Trade and other receivables

2,555

1,195

1,141

1,694

1,750

Deferred tax

105

128

0

506

506

Cash and equivalents

4,516

4,894

2,640

4,401

4,758

Total current assets

7,176

6,217

3,781

6,600

7,013

Total assets

85,665

99,962

119,140

132,217

135,130

Borrowings

(40,028)

(45,590)

(51,816)

(50,121)

(50,161)

Financial liability at FV through P&L

(95)

0

0

0

0

Total non-current liabilities

(40,123)

(45,590)

(51,816)

(50,121)

(50,161)

Trade and other payables

(2,306)

(2,550)

(2,325)

(2,734)

(2,874)

Total current liabilities

(2,306)

(2,550)

(2,325)

(2,734)

(2,874)

Total liabilities

(42,430)

(48,140)

(54,141)

(52,855)

(53,035)

Net assets

43,236

51,822

64,999

79,362

82,095

Basic and diluted IFRS NAV per share (p)

153

183

230

280

290

CASH FLOW

Profit before tax

1,106

9,966

13,991

16,345

5,148

Adjusted for

Net finance expense

112

1,245

1,146

1,423

1,375

Depreciation

1

7

7

13

13

Share-based payments

0

0

123

0

0

Gains on revaluation

0

(7,361)

(11,981)

(12,733)

(1,500)

Gains on disposal of investment properties

0

(279)

(1)

(495)

0

Amortisation of loan arrangement fees

7

40

44

55

40

Goodwill, interest rate and swap valuation movements

(1,751)

(1,523)

1

0

0

Working capital movements

1,132

(3,512)

(152)

(1,548)

84

Cash from operations

607

(1,416)

3,178

3,060

5,159

Tax paid

0

0

0

(237)

(547)

Net interest (paid)/received

(56)

(1,346)

(1,113)

(1,381)

(1,375)

Net cash from operations

551

(2,763)

2,065

1,442

3,237

Net cash from investing

3,610

(2,255)

(9,028)

3,586

(1,013)

Net cash used in financing

356

5,396

4,710

(3,448)

(1,868)

Net increase/(decrease) in cash and equivalents

4,516

378

(2,254)

1,581

357

Opening cash

0

4,516

4,894

2,640

4,221

Closing cash

4,516

4,894

2,640

4,221

4,578

Debt

(40,028)

(45,590)

(51,816)

(50,121)

(50,161)

Un-amortised loan arrangement costs & other

1,062

(130)

(86)

(31)

9

Net debt

(34,450)

(40,827)

(49,262)

(45,930)

(45,574)

Net LTV

44.3%

43.9%

43.2%

36.7%

35.7%

Source: Circle Property, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Circle Property and prepared and issued by Edison, in consideration of a fee payable by Circle Property. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

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Frankfurt +49 (0)69 78 8076 960

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Germany

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United Kingdom

New York +1 646 653 7026

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US

Sydney +61 (0)2 8249 8342

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Circle Property and prepared and issued by Edison, in consideration of a fee payable by Circle Property. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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