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 £5,464,000 (2019 £5,656,000)
· 5.4% decrease in investment property valuation to £82,060,000 (2019 £86,710,000)
· 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 £1,000,000 to £27,200,000; LTV 33% (2019 30%)
· Cash £3,295,000 (2019 £1,559,000)
· 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 £5.46m.
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 £82.1m 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
£'000
£'000
£'000
£'000
£'000
£'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
£'000
£'000
Assets
Non-current assets
Investment property
4
78,810
86,710
Equity investments at fair value through profit or loss
5
-
-
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 for sale
3,250
-
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 reserve-
Other
Share
Capital
Realised
Retained
share
payment
property
equity
premium
redemption
capital
earnings
Total
capital
reserve
reserve
reserve
reserve
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'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
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'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
£'000
£'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
£'000
£'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
£'000
£'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 years
(2)
-
Income tax credit
-
(6)
2 Dividends
In 2020 the following dividends have been paid by the company:
2020
2019
£'000
£'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 £1,553,000, 30.00p per share, together with a special property income distribution for 2020 of £311,000, 6.00p per share, (2019 final property income distribution of £1,397,000, 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 £1,147,000 (2019 profit £1,154,000) 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 £3,503,000 (2019 £4,055,000) has been calculated.
2020
2019
£'000
£'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
£'000
£'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 as current asset
(3,250)
-
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 £76,832,000 (2019 £76,832,000).
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
£'000
£'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
£'000
£'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
£'000
£'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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