Circle Property upbeat on trading, regional office trends

Regional office investor Circle Property reported an improvement in rent collection for the December quarter on Monday, to 92%, with collections in the current quarter at 84%.

The AIM-traded firm said that since the outbreak of Covid-19 last March, it had continued to actively engage with its tenants, resulting in an average rent collection of 90.5%.

It said the majority of arrears were attributable to its limited retail assets, being two public houses and one restaurant in central Birmingham.

The tenants remained solvent, and the businesses were expected to reopen when lockdown restrictions were lifted and legislation permitted, after which Circle said it expected the majority of the arrears to be paid.

Its rental income had been increasing throughout the year as rent-free periods on more recently-granted leases came to an end, with net income now standing at £7.9m per annum over £1m more than at the start of the financial year.

The company said its offices remained under-rented, which meant that tenants were less likely to operate break clauses, making its income more robust.

Circle reported that it had pre-let 135 Aztec West in Bristol to Fertility Bristol on a 15-year lease, with a tenant break option at the end of the 11th year.

As it had previously said, the building was being refurbished at a cost of £1.5m.

The property was vacated by Davies & Partners in mid-January, and refurbishment works which began at the end of January were expected to be completed by June.

Circle said the 13,800 square foot building would generate an income of £0.3m per annum, or £21.50 per square foot.

As expected, the board said the number of viewings had increased as the anticipated end of lockdown restrictions approached.

It noted that tenants, being reluctant to fund expensive office fit-outs, were now preferring to take on fully-fitted space in the UK’s regions, generally where a tenant had recently vacated and either left all fixtures and fittings in place or where the landlord had provided a good quality category B fit-out.

Having identified that trend, Circle said it had been undertaking its own fit-outs of some of its vacant suites within the portfolio at Birmingham and Maidenhead, and reported a subsequent “notable” increase in viewings and requests for letting proposals on those suites.

The works were funded from working capital.

Circle Property also announced that it has exchanged contracts to sell Power House on Davy Avenue in Milton Keynes to Steven Eagell Group - the largest Toyota Dealership in Europe and the building’s current tenants, which would hold the building for continued occupation and part investment.

The sale price of £3.55m represented a 9.23% increase on the September valuation of £3.25m, and the disposal would complete before the financial year-end on 31 March.

“From our direct experience during the period, we are pleased to see that there is plenty of activity in the regional office sector, with strong demand for well designed office space, which provides office workers with flexible, safe environments,” said chief executive officer John Arnold.

“We believe that as the UK progresses out of the pandemic, office workers will be keen to return to the workplace and we aim to ensure that our offices provide attractive working conditions fit for the future.”

At 0907 GMT, shares in Circle Property were up 1.34% at 180.9p.