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Highcroft Investments (LSE:HCFT), whose shares I bought recently at £8.75, has simple business model. So simple that it only requires six and half employees to run the £45m company.  It buys and holds commercial buildings, mostly warehouses and retail warehouse, and rents them out. It occasionally sells a unit, usually when the property no longer fits the direction the managers want to go, e.g. in the last five years high street retail and residential have been sold off and small warehouses replaced with larger ones. In most years it buys an extra one or two units as cash accumulates and capital values of the existing portfolio rise.

Currently it has 22 properties with 30 tenants spread over 868,000 sq ft.  Its units are 99% occupied; and that has been achieved after one of the worst ever periods for commercial property owners. Rent collection was 94% of that due in 2020.

In documents the directors emphasise their shareholder orientation. For example, the 2020 annual report stated: “Our strategy: Highcroft aims to deliver sustainable long-term income and capital growth for its shareholders through accretive asset management initiatives and recycling of capital in its regionally based property portfolio…

…Our actions are centred on our shareholders; investments are considered in order to execute our strategy and increase shareholder value.”

Stated objective:

“To generate secure and sustainable income growth to drive a progressive dividend, which, when coupled together with capital value growth, will deliver strong total shareholder returns.”

It has the following the following strategic priorities:

  1. Grow our commercial property portfolio with a bias towards the south of England and Wales. The directors regard commercial assets in these geographical areas as being best placed to outperform the market in any cycle. These locations are also considered relatively low risk and fit our risk profile…, the geographical spread may need to be expanded to ensure that adequate yields are maintained without increasing the inherent risk to an unacceptable level.
  2. Increase the average lot size to £5m, with no asset representing more than 15% of the portfolio. As many costs are directly related to the number of assets rather than their size, increasing the average lot size should reduce average property costs, thus increasing the net property income available for distribution…Future growth will come from revaluation gains, new assets being bought that are larger lots than our average, and from the disposal of smaller underperforming units.
  3. Seek capital growth opportunities within our property asset base. Lease events which occurred during the year have led to an improvement in yields on those properties. Options are being considered for additional asset management opportunities.
  4. Use medium term gearing at a modest level. The use of keenly priced debt to expand our property portfolio should increase our net property income.
  5. Provide a dividend increase in excess of inflation. As a REIT, we are required, subject to HMRC COVID-19 concessions, to distribute 90% of our net property income. Since 2009, the year it became a REIT, Highcroft has raised its dividend 119%, a compound increase of 7.4%. (the dividend yield is 6.5%). In the same period, net assets per share have increased by 66% from £6.66 to £11.04 per share.

Despite the harsh Covid-19 crisis the

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