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I’ve bought into the nice steady, safe and secure – in relative terms for an equity investor – business of Highcroft Investments (LSE:HCFT) at £8.75 for my net current asset value portfolio. It buys commercial property, mostly large warehouses, retail warehouses or offices, and rents them out to the likes of Booker, British Airways, Parcel Force and the BBC.
It pays shareholders 90% of net property (rental) income in dividends because it is a Real Estate Investment Trust (The tax benefits of REIT are explained at the end of the newsletter). For 2020 Highcroft had a net property income of £3.5m or 67.7p per share and paid out to shareholders £2.95m or 57p per share. Dividend yield is 57p/875p = 6.5%.
The market capitalisation is £45.3m (£8.75 x 5.18m shares). However, my calculation of net current asset value (including all property) is £56.78m or £10.96 per share. The gap between NCAV and price plus the substantial proven annual income and dividend flow allow me to feel comfortable that there is a good margin of safety (income and dividend history are discussed in the next newsletter).
Net current asset value, NCAV
If I was to stick strictly to Ben Graham’s definition of NCAV I would only look at those assets officially designated as “current” and then deduct one-fifth of receivables. This gives only £7.9m.
However, Highcroft regularly trades its properties so, even though they are technically non-current assets, I’m going to include them here in my intrinsic value estimation.
| £m | Dec 2020 | Dec 2019 | ||
| Receivables | 1.70 | 1.15 | ||
| Cash | 3.30 | 1.56 | ||
| Assets held for sale | 3.25 | 0 | ||
| Current assets | 8.24 | 2.71 | ||
| Investment property | 78.81 | 86.71 | ||
| Less one-fifth receivables | -0.34 | -0.23 | ||
| Less all liabilities | -29.93 | -28.70 | ||
| NCAV + property (intrinsic value) | 56.78 | 60.49 |
Despite the reduction in total property values, due to the recession and the continuing decline in high street retail, from £86.71m to £78.81m + £3.25m, Highcroft has a NCAV, at £56.78m, 25% larger than its market capitalisation, at £45.3m.
And these assets a generally good solid properties for our age of drift from town centres: only 7% by value are high street retail, with 46% warehouses and 26% retail warehouses. The remainder is 9% offices and 12% leisure.
The portfolio consists of 22 properties with 28 tenants – see table below. They are 99% occupied and rent collection for 2020 was 91%. For Q1 2021 it is 89% so far, and for Q2 2021 its is already 88% – not bad numbers a………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
