Highcroft Investments PLC

Final results for the year ended 31 December 2019

KEY HIGHLIGHTS

·      16.4% increase in net property income to £5,656,000 (2018 £4,859,000)

·      11.6% increase in investment property valuation to £86,710,000 (2018 £77,700,000)

·      Property acquisitions of £11,898,000, no property disposals

·      2.7% decrease in net asset value per share to 1175p (2018 1207p)

·      10.1% decrease in adjusted earnings per share to 78.5p (2018 87.3p)

·      76.6% decrease in earnings per share to 22.3p (2018 95.3p)

·      Total debt increased by £6,800,000 to £26,200,000; LTV 30% (2018 25%)

·      Cash and liquid equity investments £1,559,000 (2018 £5,881,000)

·      12.7% total shareholder return (2018 5.2%)

·      20.0% decrease in final dividend to 27.00p per share (2018 33.75p per share)

·      8.6% decrease in total dividend to 48.00p per share (2018 52.50p per share)

Dear Shareholder,

Introduction

I am pleased to say Highcroft has delivered a robust performance in the 2019 financial year. As a result of our proactive asset management strategy, we have reported an increase in net property income of 16.4% and a total shareholder return of 12.7%.

This provided a strong starting point for the current financial year; however the Covid-19 pandemic has now introduced a significant level of uncertainty into the marketplace in which we operate and in turn for all our stakeholders. As a consequence, we are in regular dialogue with our tenants to understand their needs and will continue to monitor on-going developments carefully and take any necessary action, if required.

Property portfolio

Throughout 2019 the property market faced unsettled conditions with different sub sectors affected in different ways. In support of our on-going diversification away from high street retail, we have seen warehouses and logistics continue to perform well as the structural shift to online shopping continues.  During the year we made two property acquisitions, one warehouse and one leisure asset. The total gross acquisition cost for both properties was £11.9m with income of £1.15m giving a strong combined net initial yield of 9.7%.

We continue to actively asset manage our portfolio and at the year-end warehouse/industrial accounted for 42% of portfolio valuation (2018 39%). At the other end of the spectrum one of the more challenging sub sectors has been retail where we have very limited exposure to the high street at just 8% (2018 10%).  We also have 27% (2018 33%) of our portfolio in retail warehouses however we have strong tenant covenants, affordable rents and good access for both traditional shoppers or online shoppers using click and collect at these properties.

During the year we increased the total value of property assets on our balance sheet by 11.6% to £86.7m while maintaining our conservative view on debt with loan to property valuation (LTV) levels of 30% (2018 25%).

Our net asset value per share fell by 2.7% (32p per share), comprising income of 78.5p per share, an asset revaluation loss of 55.9p per share and dividends paid in the year of 54.75p per share.  The revaluation loss was 3.6% on a like-for-like basis which compares favourably with an IPD all property capital value decrease of 3.8%.

Covid-19

The global coronavirus pandemic, that was announced by the World Health Organisation on 11 March 2020, has introduced significant levels of uncertainty into most businesses. There are key uncertainties regarding the extent and duration of lockdown and social distancing measures which have impacted some of our tenants' ability to carry on their normal business and generate sufficient cash to pay their rent. While it is too early to assess the full impact that this will have on our tenants we are aware that, notwithstanding our strong tenant covenants, we will be unable to collect a proportion of our full Q2 rent on the usual payment days, or during the quarter.  Whilst we have not agreed to waive any rent due by our tenants, this will influence our short-term cash generation.  Consequently, we have challenged all our future assumptions and forecasts and run a sensitivity analysis and stress test. As a result, we are confident, based on the information available to us at the date of this report, that the group remains robust financially and has a viable model to continue to create shareholder value over the long term.

Dividend

The company's interim dividend was increased 12.0% as a result of strong revenue growth and this revenue growth continued into the second half of the year. We have very carefully considered the level of final dividend for the year.  Whilst we recorded a robust set of results in 2019, we are in the midst of a global pandemic.  We recognise the importance of the dividend to our shareholders but also that it is the group's most significant cash out-flow and that we need to manage our cash resources prudently at this difficult time.  We are therefore recommending a final dividend of 27.00p per share which is a 20% decrease on the prior year, giving a total dividend of 48.00p per share, a decrease of 8.6% year-on-year. Whilst we have not met our stated strategy of increasing dividends in excess of inflation every year, I am sure that you will agree that we all find ourselves in exceptional circumstances at this time.

Outlook

After a turbulent macro-economic environment in 2019, we ended the year with increased confidence levels for the UK property market and a higher degree of political certainty than for some time, following the UK general election result on 12 December and with a Brexit withdrawal agreement. Operationally we achieved a robust result in 2019 and entered 2020 with clear strategic direction, a well-balanced income producing portfolio and modest gearing.

During the first quarter of 2020 everything changed significantly as the impacts of the Covid-19 pandemic began to unfold, and undoubtedly 2020 is likely to be an extremely challenging year for us all. Highcroft is however well positioned, with a well-diversified, high-quality property portfolio, a low level of gearing and a strong management team which should position us well to survive the current crisis and continue to create long-term shareholder value.

Charles Butler

Chairman                                                                                                                       

30 April 2020

Enquiries:

Highcroft Investments PLC

Charles Butler / Roberta Miles

01865 840023

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

Consolidated statement of financial position

at 31 December 2019