TIDMHCFT

RNS Number : 7482U

Highcroft Investments PLC

08 April 2021

Highcroft Investments PLC ("Highcroft" or the "Company")

Final results for the year ended 31 December 2020

KEY HIGHLIGHTS

   --      3.4% decrease in net property income to GBP5,464,000 (2019 GBP5,656,000) 
   --      5.4% decrease in investment property valuation to GBP82,060,000 (2019 GBP86,710,000) 
   --      No property acquisitions or property disposals in the period 
   --      6.0% decrease in net asset value per share to 1104p (2019 1175p) 
   --      13.8% decrease in adjusted earnings per share to 67.7p (2019 78.5p) 
   --      A loss per share of 22.2p (2019 earnings 22.3p) 
   --      Total debt increased by GBP1,000,000 to GBP27,200,000; LTV 33% (2019 30%) 
   --      Cash GBP3,295,000 (2019 GBP1,559,000) 

-- 11.1% increase in final dividend to 30p per share (2019 27.00p per share) and an additional special dividend of 6p per share

-- 18.7% increase in total dividend payable for 2020 (including the special dividend) to 57.00p per share (2019 48.00p per share)

Dear Shareholder,

Introduction

While 2020 will go down in history as one of the most difficult post war periods we have experienced I am pleased to report that in the circumstances Highcroft have delivered a commendable performance with net rent after bad debt provisions falling just 3.4% to GBP5.46m.

Property portfolio

Over the last few years we have purposefully repositioned the portfolio significantly, moving away from high street retail and into warehouses and onto well located out of town retail parks, to reflect the changing patterns of consumer behaviour. Whilst all retail locations were hit hard by lockdowns throughout 2020 it is fair to say that high street retail took the worst of it with retail parks fairing slightly better due to their ability to adhere more easily to social distancing rules and work as click and collect locations for online orders. At the year end, high street retail represented just 7% of the total portfolio with retail warehouses at 26% and warehouses at 46%. The positive trends on warehouse demand and values during the year partially offset the decline in capital values for retail assets, meaning that the valuation of the Highcroft portfolio fell by only 5.4% to GBP82.1m by the year-end. This compares favourably to the MSCI UK all property index which fell by 6.2% over the same period.

Due to the levels of uncertainty created by the COVID-19 pandemic we chose not to buy or sell any assets during the year and instead concentrated on working closely with our tenants to ensure we minimised rental voids and empty units. Our rental collection for 2020 is 94% of the contractual rent due. We also kept our debt levels conservative and manageable with our ratio of net debt to property value at 29% and an LTV of 33%. The overall impact on the company's net assets for the year was a reduction of just 6%.

People

When times are tough like they were in 2020 it is far too easy to just focus on the fact that returns for the year have been negative. Whilst not what we had hoped to deliver, it is easy to forget that in exceptional years like this the team have to go above and beyond their normal duties to protect shareholder value. To that end, I would like to thank the team at Highcroft for all their hard work and dedication during the year.

On 10 December 2020 David Kingerlee announced that he would be representing the interests of our largest shareholder, Kingerlee Holdings Limited, on the board and, with effect from 7 April 2021 (the date of signing of the year end accounts), would change his status from an executive director to a non-independent non-executive director. I would like to thank David for his contribution to the business over the many years he has worked as an executive director.

Dividend

Whilst we recognise the importance of dividends to our shareholders, we must balance this with ensuring we keep sufficient cash available to take account of unforeseen circumstances in what continue to be unpredictable times.

The Company's interim dividend was held at 21p as a result of good rent collection levels, and we are proposing a final dividend of 30p per ordinary share taking the total ordinary dividend for the year to 51p. When deciding on the final dividend for 2019 and interim dividend for 2020 we took certain rent collection projections into account. As actual rent collection have been strong we are also declaring a special dividend of 6p per ordinary share for 2020, making the total dividend payable in May 2021 36p per ordinary share.

Outlook

This time last year when we released our 2019 full year results, we were aware of the COVID-19 outbreak and the first 3-month UK wide lockdown had commenced. I certainly didn't think that a full year later we would only just be starting to see signs of the country getting back to some resemblance of normality.

Whilst we have a well-diversified portfolio, a relatively low level of gearing and a healthy cash balance, as a board we will continue to take a cautious approach to managing our portfolio and the group to ensure we can weather any further market volatility and continue to deliver long term shareholder value.

Charles Butler

Chairman

7 April 2021

Enquiries:

 
Highcroft Investments PLC 
 Charles Butler / Roberta Miles                  01869 352766 
N+1 Singer 
 Peter Steel / Amanda Gray - Corporate Finance 
 Tom Salvesen - Corporate Broking                 020 7496 3000 
 

This announcement contains inside information for the purpose of Article 7 of Regulation (EU) No 596/2014.

Consolidated statement of comprehensive income

for the year ended 31 December 2020

 
                                   Note                2020                          2019 
                                          Revenue   Capital     Total   Revenue   Capital     Total 
                                          GBP'000   GBP'000   GBP'000   GBP'000   GBP'000   GBP'000 
 
 Gross rental revenue                       6,084         -     6,084     5,840         -     5,840 
 Property operating expenses                (620)         -     (620)     (184)         -     (184) 
                                         --------  --------  --------  --------  --------  -------- 
 Net rental income                          5,464         -     5,464     5,656         -     5,656 
                                         --------  --------  --------  --------  --------  -------- 
 
 Net gains on investment                        -         -         -         -         -         - 
  property 
                                                                                 -------- 
 
 Valuation gains on investment 
  property                                      -     2,525     2,525         -       739       739 
 Valuation losses on investment 
  property                                      -   (7,175)   (7,175)         -   (3,627)   (3,627) 
                                         --------  --------  --------  --------  --------  -------- 
 Net valuation losses on 
  investment property                           -   (4,650)   (4,650)         -   (2,888)   (2,888) 
                                         --------  --------  --------  --------  --------  -------- 
 
 Dividend revenue                               -         -         -         3         -         3 
 Gains on equity investments                    -         -         -         -        53        53 
 Losses on equity investments                   -         -         -         -         -         - 
                                         --------  --------  --------  --------  --------  -------- 
 Net investment income                          -         -         -         3        53        56 
                                         --------  --------  --------  --------  --------  -------- 
 
 Administration expenses                  (1,069)         -   (1,069)     (826)         -     (826) 
                                         --------  --------  --------  --------  --------  -------- 
 Net operating (loss)/profit 
  before net finance expense                4,395   (4,650)     (255)     4,833   (2,835)     1,998 
                                         --------  --------  --------  --------  --------  -------- 
 
 Finance income                                 4         -         4         6         -         6 
 Finance expense                            (896)         -     (896)     (856)         -     (856) 
 Net finance expense                        (892)         -     (892)     (850)         -     (850) 
                                                                                 -------- 
 
 (Loss)/profit before tax                   3,503   (4,650)   (1,147)     3,983   (2,835)     1,148 
 
 Income tax (charge)/credit         1           -         -         -        72      (66)         6 
 
 (Loss) /profit for the 
  year after tax                            3,503   (4,650)   (1,147)     4,055   (2,901)     1,154 
                                         --------  --------  --------  --------  --------  -------- 
 
   Total (loss)/profit and 
   comprehensive (loss)/income 
   for the year attributable 
   to the owners of the parent              3,503   (4,650)   (1,147)     4,055   (2,901)     1,154 
                                         --------  --------  --------  --------  --------  -------- 
 
 
 
 Basic and diluted earnings 
  per share                                                   (22.2p)                         22.3p 
 

Consolidated statement of financial position

at 31 December 2020

 
                                   Note      2020      2019 
                                          GBP'000   GBP'000 
 Assets 
 Non-current assets 
 Investment property                4      78,810    86,710 
 Equity investments at fair         5           -         - 
  value through profit or loss 
                                         --------  -------- 
 Total non-current assets                  78,810    86,710 
                                         --------  -------- 
 
 Current assets 
 Trade and other receivables                1,692     1,147 
 Cash and cash equivalents                  3,295     1,559 
                                         -------- 
                                            4,987     2,706 
 Assets classified as held                  3,250         - 
  for sale 
                                         --------  -------- 
 Total current assets                       8,237     2,706 
                                         --------  -------- 
 Total assets                              87,047    89,416 
                                         --------  -------- 
 
 Liabilities 
 Current liabilities 
 Interest bearing loan                          -     4,000 
 Trade and other payables                   2,726     2,495 
                                         --------  -------- 
 Total current liabilities                  2,726     6,495 
                                         --------  -------- 
 
 Non-current liabilities 
 Interest bearing loan              7      27,200    22,200 
 Deferred tax liabilities                       -         - 
                                         --------  -------- 
 Total non-current liabilities             27,200    22,200 
                                         --------  -------- 
 
 Total liabilities                         29,926    28,695 
                                         --------  -------- 
 
 Net assets                                57,121    60,721 
                                         -------- 
 
 Equity 
 Issued share capital                       1,294     1,292 
 Share-based payment reserve                   43        12 
 Revaluation reserve - property            12,814    12,931 
 Other equity reserve                        (53)         - 
 Share premium                                 51         - 
 Capital redemption reserve                    95        95 
 Realised capital reserve                  28,995    28,995 
 Retained earnings                         13,882    17,396 
                                         -------- 
 Total equity attributable 
  to the owners of the parent              57,121    60,721 
                                         -------- 
 
 

Consolidated statement of changes in equity

 
 2020                  Issued   Share-based   Revaluation     Other     Share      Capital   Realised    Retained 
                                               reserve- 
                        share       payment      property    equity   premium   redemption    capital    earnings     Total 
                      capital       reserve                 reserve                reserve    reserve 
                      GBP'000       GBP'000       GBP'000   GBP'000   GBP'000      GBP'000    GBP'000     GBP'000   GBP'000 
 At 1 January 2020      1,292            12        12,931         -         -           95     28,995      17,396    60,721 
                     --------  ------------  ------------  --------  --------  -----------  ---------  ----------  -------- 
 Transactions with 
 owners: 
 Issue of shares            2             -             -      (53)        51            -          -           -         - 
 Dividends                  -             -             -         -         -            -          -     (2,484)   (2,484) 
                     --------  ------------  ------------  --------  --------  -----------  ---------  ----------  -------- 
                            2             -             -      (53)        51            -          -     (2,484)   (2,484) 
 Reserve transfers: 
 Non-distributable 
 items 
 recognised in 
 income statement: 
 Revaluation losses         -             -       (4,650)         -         -            -          -       4,650         - 
 Change in excess 
  of cost 
  over fair value 
  through 
  retained earnings         -             -         4,533         -         -            -          -     (4,533)         - 
                     --------  ------------  ------------  --------  --------  -----------  ---------  ----------  -------- 
                            -             -         (117)         -         -            -          -         117         - 
                     --------  ------------  ------------  --------  --------  -----------  ---------  ----------  -------- 
 Share award 
  expensed                  -            31             -         -         -            -          -       -            31 
                     --------  ------------  ------------  --------  --------  -----------  ---------  ----------  -------- 
 Total 
  comprehensive 
  income 
  for the year              -             -             -         -         -            -          -     (1,147)   (1,147) 
                     --------  ------------  ------------  --------  --------  -----------  ---------  ----------  -------- 
 At 31 December 
  2020                  1,294            43        12,814      (53)        51           95     28,995      13,882    57,121 
                     ========  ============  ============  ========  ========  ===========  =========  ==========  ======== 
 

Consolidated statement of changes in equity continued

 
 2019                    Issued           Share    Revaluation reserves        Capital   Realised   Retained 
                          share   Based payment        Property     Other   redemption    capital   earnings     Total 
                        capital         reserve                                reserve    reserve 
                        GBP'000         GBP'000         GBP'000   GBP'000      GBP'000    GBP'000    GBP'000   GBP'000 
 At 1 January 2019        1,292               -          18,770       574           95     28,378     13,275    62,384 
                       --------  --------------  --------------  --------  -----------  ---------  ---------  -------- 
 Transactions with 
  owners: 
  Dividends                   -               -               -         -            -          -    (2,829)   (2,829) 
                       --------  --------------  --------------  --------  -----------  ---------  ---------  -------- 
 Reserve transfers: 
 Non-distributable 
 items 
 recognised in income 
 statement: 
 Revaluation losses           -               -         (2,888)         -            -          -      2,888         - 
 Realised 
  gains/(losses)              -               -               -         -            -         43       (43)         - 
 Movement in deferred 
  tax 
  on realisation of 
  equities                    -               -               -        29            -       (29)          -         - 
 Surplus attributable 
  to 
  assets sold in the 
  year                        -               -               -     (603)            -        603          -         - 
 Reassessment of 
  carrying 
  value of reserves           -               -         (4,168)         -            -          -      4,168         - 
 Change in excess of 
  cost 
  over fair value 
  through 
  retained earnings           -               -           1,217         -            -          -    (1,217)         - 
                       --------  --------------  --------------  --------  -----------  ---------  ---------  -------- 
                              -               -         (5,839)     (574)            -        617      5,796         - 
                       --------  --------------  --------------  --------  -----------  ---------  ---------  -------- 
 Share award expensed         -              12               -         -            -          -          -        12 
 Total comprehensive 
  income 
  for the year                -               -               -         -            -          -      1,154     1,154 
                       --------  --------------  --------------  --------  -----------  ---------  ---------  -------- 
 At 31 December 2019      1,292              12          12,931         -           95     28,995     17,396    60,721 
                       ========  ==============  ==============  ========  ===========  =========  =========  ======== 
 

Consolidated statement of cash flows

for the year ended 31 December 2020

 
                                                                         2020       2019 
                                                                      GBP'000    GBP'000 
 
 Operating activities 
 Profit before tax on ordinary activities                             (1,147)      1,148 
 Adjustments for: 
 Net valuation losses/(gains) on investment 
  property                                                              4,650      2,888 
 Net gain on disposal of investment property                                -          - 
 Net (gain)/loss on investments                                             -       (53) 
 Share-based payment expense                                               31         12 
 Finance income                                                           (4)        (6) 
 Finance expense                                                          896        856 
                                                                               --------- 
 Operating cashflow before changes in working 
  capital and provisions                                                4,426      4,845 
 
 (Increase)/decrease in trade and other receivables                     (545)      (667) 
 Increase in trade and other payables                                     252        325 
                                                                     --------  --------- 
 Cash generated from operations                                         4,133      4,503 
 
 Finance income                                                             4          6 
 Finance expense                                                        (896)      (856) 
 Income taxes paid                                                       (21)       (93) 
                                                                     --------  --------- 
 Net cashflows from operating activities                                3,220      3,560 
                                                                     --------  --------- 
 
 Investing activities 
 Purchase of non-current assets - investment 
  property                                                                  -   (11,898) 
 Sale of non-current assets - investment                                    -          - 
  property 
                                              - equity investments          -        724 
                                                                     --------  --------- 
 Net cashflows from investing activities                                    -   (11,174) 
                                                                     --------  --------- 
 
 Financing activities 
 Dividends paid                                                       (2,484)    (2,829) 
 Repayment of bank borrowings                                         (4,000)          - 
 New bank borrowings                                                    5,000      6,800 
                                                                     --------  --------- 
 Net cashflows from financing activities                              (1,484)      3,971 
                                                                     --------  --------- 
 
 Net increase/(decrease) in cash and cash 
  equivalents                                                           1,736    (3,643) 
 Cash and cash equivalents at 1 January                                 1,559      5,202 
                                                                     --------  --------- 
 Cash and cash equivalents at 31 December                               3,295      1,559 
                                                                     --------  --------- 
 

Notes

for the year ended 31 December 2020

1 Income tax credit

 
                                                            2020      2019 
                                                         GBP'000   GBP'000 
 Current tax: 
 On revenue profits - current year                           (8)        72 
                            - prior year                       8         - 
 On capital profits                                            -      (99) 
                                                               -      (27) 
 Deferred tax                                                  -        33 
                                           ---------------------  -------- 
 Income tax credit                                             -         6 
                                           ---------------------  -------- 
 

The tax assessed for the year differs from the standard rate of corporation tax in the UK of 19% (2019 19%).

The differences are explained as follows:

 
                                             2020      2019 
                                          GBP'000   GBP'000 
 Profit before tax                        (1,147)     1,148 
                                         --------  -------- 
 Profit before tax multiplied by the 
  standard rate of corporation tax 
  in the UK of 19% (2019 19%)               (218)       218 
 Effect of: 
 Tax exempt revenues                            -      (11) 
 Profit not taxable as a result of 
  REIT status                                 220     (216) 
 Chargeable gains more than accounting 
  profit                                        -       103 
 Use of management expenses                     -      (67) 
 Change in deferred tax liability               -      (33) 
 Adjustment in respect of previous            (2)         - 
  years 
 Income tax credit                              -       (6) 
                                         --------  -------- 
 

2 Dividends

In 2020 the following dividends have been paid by the company:

 
                                                   2020         2019 
                                                GBP'000      GBP'000 
 
    2019 Final: 27.00p per ordinary share 
     (2018 33.75p)                                1,397        1,744 
    2020 Interim: 21.00p per ordinary 
     share (2019 21.00p)                          1,087        1,085 
                                            -----------  ----------- 
                                                  2,484        2,829 
                                            -----------  ----------- 
 

On 7 April 2021 the directors declared a final property income distribution for 2020 of GBP1,553,000, 30.00p per share, together with a special property income distribution for 2020 of GBP311,000, 6.00p per share, (2019 final property income distribution of GBP1,397,000, 27.00p per share) both payable on 27 May 2021 to shareholders registered on 23 April 2021.

3 Earnings per share

The calculation of earnings per share is based on the total loss after tax for the year of GBP1,147,000 (2019 profit GBP1,154,000) and on 5,172,465 shares (2019 5,167,240) which is the weighted average number of shares in issue during the year ended 31 December 2020. There are no dilutive instruments.

In order to draw attention to the profit that is not due to the impact of valuation gains and losses, which are included in the statement of comprehensive income but not available for distribution under the company's articles of association, an adjusted earnings per share based on the profit available for distribution of GBP3,503,000 (2019 GBP4,055,000) has been calculated.

 
                                                               2020               2019 
                                                            GBP'000            GBP'000 
    Earnings: 
    Basic profit for the year                               (1,147)              1,154 
    Adjustments for: 
    Net valuation losses on investment 
     property                                                 4,650              2,888 
    Gains on investments                                          -               (53) 
    Income tax on profit                                          -                 66 
                                                 ------------------  ----------------- 
    Adjusted earnings                                         3,503              4,055 
                                                 ------------------  ----------------- 
    Per share amount: 
    Earnings per share (unadjusted)                         (22.2p)              22.3p 
    Adjustments for: 
    Net valuation losses/(gains) on investment 
     property                                                 89.9p              55.9p 
    Gains on investments                                          -             (1.0p) 
    Income tax on profits                                         -               1.3p 
                                                 ------------------  ----------------- 
    Adjusted earnings per share                               67.7p              78.5p 
                                                 ------------------  ----------------- 
 

4 Investment property

 
                                                     2020         2019 
                                                  GBP'000      GBP'000 
    Total valuation at 1 January                   86,710       77,700 
    Additions                                           -       11,898 
    Revaluation losses                            (4,650)      (2,888) 
                                              -----------  ----------- 
    Valuation at 31 December                       82,060       86,710 
    Less property held for sale categorised       (3,250)            - 
     as current asset 
                                              -----------  ----------- 
                                                   78,810       86,710 
                                              -----------  ----------- 
 

In accordance with IAS 40 the carrying value of investment properties is their fair value as determined by independent external valuers. This valuation has been conducted by Knight Frank LLP, as external valuers, and has been prepared as at 31 December 2020, in accordance with the Appraisal & Valuation Standards of the Royal Institution of Chartered Surveyors, on the basis of market value.

The historical cost of the group's investment properties is GBP76,832,000 (2019 GBP76,832,000).

Valuation process

The valuation reports produced by the independent external valuers are based on information provided by the group such as current rents, terms and conditions of lease agreements, service charges and capital expenditure (if any). This information is derived from the group's property management and financial information systems and is subject to the group's overall control environment.

In addition, the valuation reports are based on assumptions and models used by the independent valuer. The assumptions are typically market related such as yields and discount rates and are based on their professional judgement and market observation. Each property is considered a separate asset class based on the unique nature, characteristics, and risks of the property.

During 2020, many valuations were reported with material valuation uncertainty clauses on certain classes of assets. However, valuation markets are mostly functioning again, with transaction volumes and other relevant evidence at levels where an adequate quantum of market evidence exists upon which to base opinions of value. Accordingly, our independent valuers have confirmed that the valuation at 31 December 2020 is not reported as being subject to material valuation uncertainty.

The executive director responsible for the valuation process verifies all major inputs to the external valuation reports, assesses the individual property valuation changes from the prior year valuation report and holds discussion with the independent valuer. When this process is complete, the whole board then meet the valuer in the presence of the auditor. The valuation report is recommended to the audit committee, which considers it as part of its overall responsibilities.

Valuation technique

The fair value of the property portfolio has been determined using an income capitalisation technique whereby contracted and market rental values are capitalised with a market capitalisation rate. The resulting valuations are cross checked against the equivalent yields and the fair market values per square foot derived from comparable recent market transactions on an arm's length terms.

These techniques are consistent with the principles in IFRS 13 Fair Value Measurement and use significant unobservable inputs such that the fair value measurement of each property within the portfolio has been classified as level 3 in the fair value hierarchy. In 2019, all investment properties were classified were with level 2 inputs. The change to the classification to level 3 is to comply with best practice and for comparison purposes.

   5   Equity investments 
 
                                          2020      2019 
                                       GBP'000   GBP'000 
 Valuation at 1 January                      -       679 
 Disposals                                   -     (670) 
 Valuation at 31 December                    -         9 
 Unlisted investments transferred 
  to other receivables                       -       (9) 
                                     ---------  -------- 
 Equity investments at 31 December           -         - 
                                     ---------  -------- 
 

6 Assets classified as held for sale

 
                                        2020      2019 
                                     GBP'000   GBP'000 
 Investment property held for sale     3,250         - 
                                    --------  -------- 
 

In December 2020, the directors decided to sell our Andover investment property in early 2021 to take advantage of prevailing market sentiment. There were several interested parties, and , at the date of this report, contracts have been exchanged for the disposal with a conditional completion arrangement.

   7   Interest bearing loans 
 
                                                   2020      2019 
                                                GBP'000   GBP'000 
 Short-term bank loans due within one year            -     4,000 
 Medium-term bank loans                          27,200    22,200 
                                               --------  -------- 
 The medium-term bank loans comprise amounts 
  falling due as follows: 
 Between one and two years                        7,500         - 
 Between two and five years                           -     7,500 
 Over five years                                 19,700    14,700 
                                               --------  -------- 
                                                 27,200    22,200 
                                               --------  -------- 
 
   8   Basis of preparation 

The preliminary announcement has been prepared in accordance with applicable accounting standards as stated in the financial statements for the year ended 31 December 2020. The accounting policies remain unchanged.

   9   Annual General Meeting 

The Annual General Meeting will be held on 20 May 2021.

10 Publication of non-statutory accounts

The above does not constitute statutory accounts within the meaning of the Companies Act 2006. It is an extract from the full accounts for the year ended 31 December 2020 on which the auditor has expressed an unmodified opinion and does not include any statement under section 498 of the Companies Act 2006. The accounts will be posted to shareholders on or before 22 April 2021 and subsequently filed at Companies House.

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