Record valuations and a solid future

  • First half net asset value (NAV) per share rises seven percent to 1,364 pence
  • Comparable property valuation rises 5.6% to £92.9m
  • Adjusted earnings per share (EPS) of 29.5 pence supports interim payment increase of 23 pence

Highcroft Investments (HCFT:1,000p) has posted its highest NAV per share to date, having posted £5.2m of valuation gains on its property portfolio in the six months to June 30, 2022. The well-managed REIT owns a diversified portfolio of 21 properties spread across the warehouse, retail, leisure, office and retail sectors.

Around 80 per cent of the property increase was booked in Highcroft’s industrial warehouse and retail warehouse properties, the value of which rose by 7 per cent to £42.6m and by 6.5 per cent to £25m. .8 million pounds sterling, respectively. They make up 72 percent of the total portfolio, and the prospects for valuation gains were bullish when I started to hedge the stock, at 957.5 pence, last summer (Alpha Research: ‘A High-Performance Retail & Industrial Storage Kit’, June 16, 2022). Although Highcroft’s retail properties are down from £4.9m to £4.7m in value, the sector only accounts for five per cent of the overall portfolio and three of its high street properties are currently being marketed to further reduce plus exposure. The directors are also looking to make a bank profit on one of the warehouse properties.

Rent collection rates remain strong (100 and 99 percent in the first and second quarters, respectively) and higher occupancy rates (89 to 93 percent) have reduced gaps. Although two units remain vacant, Highcroft is negotiating a new lease for one of them, which represents one percent of the group’s rental income. The company is actively seeking new tenants for the other, an 18,000-square-foot office building in Cardiff that has just been refurbished.

There are also prospects for development gains on the 1.75-acre site which adjoins one of the company’s warehouses in St Austell. The company is in the final stages of obtaining planning permission for the construction of a new 30,000-square-foot storage unit and is finalizing a pre-lease agreement. Expect Highcroft to pull off an attractive rent. When the lease on its 250,000-square-foot warehouse property in St Austell was renewed last year, the company achieved a 20 per cent rent increase that boosted the value of the property by nearly 50 per cent to £6.35 million. of pounds sterling. The move to localized production is one of many factors driving demand for industrial warehouse and distribution space in the UK. Offshoring is certainly not the attractive proposition it once was due to supply chain disruptions resulting in increased domestic demand for space.

It is true that the rising interest rate environment and domestic economic headwinds are now pushing up valuation returns, but with the stock priced 27% below book value and with nearly three-quarters of the portfolio exposed to tight industrial and retail warehouse markets, then Highcroft is well placed to weather any short-term uncertainties. Importantly, the net debt of £21m is less than 30% of the net asset value of £70.9m and bank debt is fixed at an average interest rate of 3.13% with first maturity expired in four years.

Income seekers should note that the rolling 12-month payout of 56 pence per share equates to a 5.6 percent dividend yield, offering an attractive income stream as well as strong price support. of actions. To buy.

Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.

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