REG - Highcroft Invs PLC - Final Results
28/03/2023 07:00
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RNS Number : 3794U Highcroft Investments PLC 28 March 2023
Highcroft Investments PLC ("Highcroft" or the "Company")
Final results for the year ended 31 December 2022
KEY HIGHLIGHTS
· 2022 rent collection 100% (2021 97%)
· 0.3% increase in net property income to £5,275,000 (2021
£5,258,000)
· 1.2% increase in revenue profit before tax to £3,283,000 (2021
£3,243,000)
· 11.8% decrease in property valuation on a like-for-like basis to
£77.9m, reflecting the volatile macro-economic backdrop, (2021 11.1% increase
to £87.6m)
· £0.7m of additions to existing properties during the year
· 15.2% decrease in net asset value per share to 1081p (2021 15.5%
increase to 1275p)
· Total debt remained at £27,200,000; LTV 35% (2021 31%)
· Next debt maturity 2026
· Cash £7,206,000 (2021 £5,715,000)
· Loss per share of 137.0p (2021 profit 230.5p)
· Final dividend 33p per share (2021 33p per share)
· 1.8% increase in total dividend payable for 2022 to 56p per share
(2021 55p per share)
Dear Shareholder,
Highcroft has not been immune to the macro-economic factors affecting the UK
and the wider global economy during 2022. Just as the economy started to
recover from the Covid-19 pandemic, we were hit by the effects of the Russian
invasion of Ukraine, which contributed to a year of soaring inflation,
significant rises in interest rates and political instability. However,
while the gains in net asset value of 2021 were reversed in 2022, I am pleased
to say that due to our diversified portfolio, strong balance sheet, low levels
of gearing, and low fixed borrowing costs, our profit before tax increased
during the year leading to a 1.8% increase in the total annual dividend. I
believe we are well positioned to weather the current economic challenges and
to continue to deliver an attractive, secure, and long-term dividend to our
shareholders.
Property portfolio
During 2022, our portfolio remained unchanged. It remained focussed on
warehouses and retail warehouses, which made up 72% of our portfolio by asset
value at the yearend. These sectors performed well in the first half of 2022,
but were affected by the significant adverse market movements in the second
half of the year. On a like-for-like basis, our total portfolio reduced by
11.8% (£10.4m), which was better than the all-property market negative
movement of 14.2%.
We did not acquire any properties during the year, although we carried out
improvement work at our Cardiff property and gained planning permission for
the development of an industrial unit at our property in St Austell, resulting
in additions of £0.7m to property carrying value. After the year end, in
February 2023, we sold our Llantrisant asset for £7.85m, £1.1m above the
2022 year-end valuation and £0.9m above cost. As this asset had been vacated
by the tenant during 2022, and the lease expired in Q1 2024, this disposal, at
this price, in the current market protects shareholder value in the
medium-term. We intend to invest our available cash back into property that
meets our strict selection criteria in a timely manner. Despite the
macro-economic challenges affecting our tenants in 2022, we collected 100% of
the rent due for the year (2021 97%) and we let one of the two properties that
were void at the start of the year, leaving one void unit, our Cardiff asset,
representing 6% of our rental income. At the year end contracted rental
revenue was 0.2% higher than at 31 December 2021, whilst net rental income
remained constant at £5.3m compared to 2021.
Our net assets have fallen by £9.9m,15.0%, (2021 rise of £9.0m, 15.7%),
primarily because of the movements in property valuation.
We have kept our debt levels low at 35% LTV with a weighted average cost of
debt of 3.06% and have no debt maturing before 2026.
Dividend
The company's interim dividend was 23p, a 4.5% increase on 2021, and we are
proposing a final dividend for 2022 of 33p per share, taking the total
dividend for 2022 to 56p per share. This represents an increase of 1.8% from
the 2021 dividend of 55p per share.
Continued focus on ESG
Highcroft has a clear purpose of providing our tenants with excellent
properties in optimal locations, enabling them to succeed, and our
stakeholders to benefit on a long-term sustainable basis. As a board, we have
maintained our focus on sustainability, particularly during the refurbishment
of our Cardiff asset and the design of a new building at our St Austell site.
We continue to develop the most appropriate strategy for reducing our
environmental impact within the existing portfolio and consider ESG matters in
the selection of new assets.
People
Our strategy is focussed on our competitive strength and our people, including
our advisory teams, who are critical to this. In September 2022, Simon Gill
indicated his intention to stand down as executive director on 31 March 2023
and I would like to thank him for his valuable contribution to the board over
the past decade, which has been a period of significant growth for the group.
He leaves behind a strong and well-positioned property portfolio.
In January 2023, we were pleased to announce the appointment of Paul
Leaf-Wright as chief executive with effect from 1 January 2023. He brings with
him a wealth of experience of property companies and of delivering shareholder
value. As part of this change, we have also appointed new property advisers to
the board and both they and Paul have completed their handover from Simon
Gill.
Outlook
Highcroft's performance in 2022 was resilient, notwithstanding global and UK
events causing repercussions in our marketplace. Since the year end, as
mentioned, we have successfully sold one of our properties for £7.85m, an
increase of 16% over the 31 December 2022 valuation. With our well-positioned
portfolio, low level of well-priced debt and cash in the bank for
reinvestment, we are well placed to continue to deliver long-term secure
returns for our shareholders.
Our AGM this year will, as last year, be an open meeting, and I look forward
to meeting those of you who can attend.
Charles Butler
Chairman
27 March 2023
Enquiries:
Highcroft Investments PLC
Charles Butler / Roberta Miles
01869 352766
Singer Capital Markets Advisory LLP
Peter Steel / Alex Emslie - Corporate Finance
Tom Salvesen - Corporate Broking
020 7496 3000
The information contained within this announcement is deemed by the Company to
constitute inside information stipulated under retained EU law version of the
Market Abuse Regulations (EU No. 596/2014) (the "UK MAR"), which is part of UK
law by virtue of the European Union (withdrawal) Act 2018.
Consolidated statement of comprehensive income
for the year ended 31 December 2022
Note 2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gross rental revenue 5,608 - 5,928 5,928 - 5,928
Property operating expenses (333) - (670) (670) - (670)
Net rental income 5,275 - 5,258 5,258 - 5,258
Profit on disposal of investment property - - - - 250 250
Valuation gains on investment property - 605 605 - 9,925 9,925
Valuation losses on investment property - (10,986) (10,986) - (1,170) (1,170)
Net valuation (losses)/gains on investment property - (10,381) (10,381) - 8,755 8,755
Administration expenses (1,191) - (1,191) (1,164) - (1,164)
Net operating profit/(loss) before net finance expense 4,084 (10,381) (6,297) 4,094 9,005 13,099
Finance income 39 - 39 4 - 4
Finance expense (840) - (840) (855) - (855)
Net finance expense (801) - (801) (851) - (851)
Profit/(loss) before tax 3,283 (10,381) (7,098) 3,243 9,005 12,248
Income tax charge 1 (18) - (18) (304) - (304)
Profit/(loss) for the year after tax 3,265 (10,381) (7,116) 2,939 9,005 11,944
3,265 (7,116) 2,939 9,005 11,944
Total profit/(loss) and comprehensive income/(loss) for the year attributable
to the owners of the parent
(10,381)
Basic and diluted (loss)/earnings per share (137.0p) 230.5p
Consolidated statement of financial position
at 31 December 2022
Note 2022 2021
£'000 £'000
Assets
Non-current assets
Investment property 4 71,160 87,565
Total non-current assets 71,160 87,565
Current assets
Trade and other receivables 1,143 2,876
Cash and cash equivalents 7,206 5,715
Assets classified as held for sale 6,750 -
Total current assets 15,099 8,591
Total assets 86,259 96,156
Liabilities
Current liabilities
Interest bearing loan - 7,500
Trade and other payables 2,883 2,839
Total current liabilities 2,883 10,339
Non-current liabilities
Interest bearing loan 6 27,200 19,700
Total non-current liabilities 27,200 19,700
Total liabilities 30,083 30,039
Net assets 56,176 66,117
Equity
Issued share capital 1,299 1,296
Share premium 226 117
Share-based payment reserve 160 102
Revaluation reserve - property 11,499 19,236
Other equity reserve (207) (121)
Capital redemption reserve 95 95
Realised capital reserve 29,623 29,623
Retained earnings 13,481 15,769
Total equity attributable to the owners of the parent 56,176 66,117
Consolidated statement of changes in equity
2022
Issued share capital Share premium Share-based payment reserve Revaluation reserve-property Other equity reserve Capital redemption reserve Realised capital reserve Retained earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2022 1,296 117 102 19,236 (121) 95 28,623 15,769 66,117
Transactions with owners:
Issue of shares 3 109 - - (112) - - - -
Dividends - - - - - - - (2,909) (2,909)
3 109 - - (112) - - (2,909) (2,909)
Reserve transfers:
Non-distributable items recognised in income statement:
Revaluation losses - - - (10,381) - - - 10,381 -
Change in excess of cost over fair value through retained earnings
- - - 2,644 - - - (2,644) -
Share award vested - - (26) - 26 - - - -
- - (26) (7,737) 26 - - 7,737 -
Share award expensed - - 84 - - - - - 84
Total comprehensive income for the year - - - - - - - (7,116) (7,116)
At 31 December 2022 1,299 226 160 11,499 (207) 95 29,623 13,481 56,176
Consolidated statement of changes in equity continued
2021
Issued share capital Share premium Share-based payment reserve Revaluation reserve-property Other equity reserve Capital redemption reserve Realised capital reserve Retained earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2021 1,294 51 43 12,814 (53) 95 28,995 13,882 57,121
Transactions with owners:
Issue of shares 2 66 - - (68) - - - -
Dividends - - - - - - - (3,007) (3,007)
2 66 - - (68) - - (3,007) (3,007)
Reserve transfers:
Non-distributable items recognised in income statement:
Revaluation gains - - - 8,755 - - - (8,755) -
Realised gains - - - - - - 250 (250) -
Surplus attributable to assets sold in the year
- - - (378) - - 378 - -
Change in excess of cost over fair value through retained earnings
- - (1,955) - - - 1,955 -
- - - 6,422 - - 628 (7,050) -
Share award expensed - - 59 - - - - - 59
Total comprehensive income for the year - - - - - - 11,944 11,944
At 31 December 2021 1,296 117 102 19,236 (121) 95 29,623 15,769 66,117
Consolidated statement of cash flows
for the year ended 31 December 2022
2022 2021
£'000 £'000
Operating activities
(Loss)/profit before tax (7,098) 12,248
Adjustments for:
Net valuation losses/(gains) on investment property 10,381 (8,755)
Net gain on disposal of investment property - (250)
Share-based payment expense 84 159
Finance income (39) (4)
Finance expense 840 855
Operating cashflow before changes in working capital and provisions
4,168 4,153
Decrease in trade and other receivables 1,732 391
Increase in trade and other payables 34 120
Cash generated from operations 5,934 4,664
Finance income 39 4
Finance expense (840) (855)
Income taxes paid (7) (311)
Net cashflows from operating activities 5,126 3,502
Investing activities
Sale of non-current assets - investment property - 1,925
Purchase of non-current assets - investment property (726) -
Net cashflows from investing activities (726) 1,925
Financing activities
Dividends paid (2,909) (3,007)
Repayment of bank borrowings (7,500) -
New bank borrowings 7,500 -
Net cashflows from financing activities (2,909) (3,007)
Net increase in cash and cash equivalents 1,491 2,420
Cash and cash equivalents at 1 January 5,715 3,295
Cash and cash equivalents at 31 December 7,206 5,715
Notes
for the year ended 31 December 2022
1 Income tax charge
2022 2021
£'000 £'000
Current tax:
On revenue profits - current year 11 -
- prior year 7 -
On write-off of part of PID pool - 304
Income tax charge 18 304
The tax assessed for the year differs from the standard rate of corporation
tax in the UK of 19% (2021 19%).
The differences are explained as follows:
2022 2021
£'000 £'000
Profit before tax (7,098) 12,248
Profit before tax multiplied by the standard rate of corporation tax in the UK (1,349) 2,327
of 19% (2019 19%)
Effect of:
Profit not taxable as a result of REIT status (1,360) (2,327)
Tax due on non-payment of part of PID pool - 304
Adjustment in respect of prior year 7 -
Income tax charge 18 304
2 Dividends
In 2022 the following dividends have been paid by the company:
2022 2021
£'000 £'000
2021 Final: 33p per ordinary share (2020 30p) 1,714 1,555
2021 Special: nil per ordinary share (2020 6p) - 311
2022 Interim: 23p per ordinary share (2021 22p) 1,195 1,141
2,909 3,007
On 27 March 2023 the directors declared a final property income distribution
for 2022 of £1,714,000, 33p per share, (2021 final property income
distribution of £1,714,000, 33p per share) payable on 2 June 2023 to
shareholders registered on 20 April 2023.
3 Earnings per share
The calculation of earnings per share is based on the total loss after tax for
the year of £7,116,000 (2021 profit £11,944,000) and on 5,192,186 shares
(2021 5,181,317) which is the weighted average number of shares in issue
during the year ended 31 December 2022. 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 £3,265,000 (2021 £2,939,000) has been
calculated.
2022 2021
£'000 £'000
Earnings:
Basic (loss)/profit for the year (7,116) 11,944
Adjustments for:
Profit on disposal of investment property - (250)
Net valuation losses/(gains) on investment property 10,381 (8,755)
Adjusted earnings 3,265 2,939
Per share amount:
Earnings/(loss) per share (unadjusted) (137.0p) 230.5p
Adjustments for:
Profit on disposal of investment property - (4.8p)
Net valuation (gains)/losses on investment property 199.9p) (169.0p)
Adjusted earnings per share 62.9p 56.7p
4 Investment property
2022 2021
£'000 £'000
Total valuation at 1 January 87,565 82,060
Additions 726 -
Disposals - (3,250)
Revaluation (losses)/gains (10,381) 8,755
Valuation at 31 December 77,910 87,565
Less property held for sale categorised as current asset (6,750) -
71,160 87,565
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 2022, 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 £74,686,000 (2021
£73,961,000).
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.
Our independent valuers have provided an explanatory note on the market
conditions at 31 December 2022: "Following the government's 'mini-budget' of
23 September 2022 and subsequent financial turmoil, we draw the group's
attention to a recent combination of global inflationary pressures,
significant currency movements and higher borrowing costs, which may produce
greater volatility in property markets over the short-to-medium term. It is
apparent that consumer and investor behaviour can change quickly during
periods of such heightened volatility. Our opinions set out in this report are
only valid as at the valuation date"
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.
5 Assets classified as held for sale
2022 2021
£'000 £'000
Investment property held for sale 6,750 -
At 31 December 2022 the directors were in the advanced stages of the potential
sale of our Llantrisant property. The purchaser completed their due diligence
in February 2023 and the sale was exchanged and completed on 8 February 2023.
The gross sales proceeds were £7,850,000, £1,100,000 in excess of the
valuation at 31 December 2022 and £899,000 in excess of cost.
6 Interest bearing loans
2022 2021
£'000 £'000
Short-term bank loans due within one year - 7,500
Medium-term bank loans 27,200 19,700
The medium-term bank loans comprise amounts falling due as follows:
Between one and two years - -
Between two and five years 7,900 3,400
Over five years 19,300 16,300
27,200 19,700
7 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 2022. The accounting policies remain unchanged.
8 Annual General Meeting
The Annual General Meeting will be held on 17 May 2023.
9 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 2022 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 17 April
2023 and subsequently filed at Companies House.
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