Highcroft Investments : Half year report 28 July 2017

28 July 2017

Highcroft Investments PLC

Interim Report for the six months ended 30 June 2017

Key Highlights:

*Gross rental income increased 20% to £2,238,000 (2016 £1,867,000)

*Net rental income increased 19% to £2,119,000 (2016 £1,775,000)

* No voids in our property portfolio (2016 none)

*Total earnings per share increased 18% to 52.1p (2016 44.3p)

*Net investment in property £7,801,000 (2016 net divestment £1,337,000)

*Property valuation £74,819,000 (2016 £57,240,000) increased 2.0% on a like-for-like basis

*Net assets per share increased 2.4% to 1097p (June 2016 1046p, December 2016 1071p)

*Net debt £18,627,000 (June 2016 £4,794,000, December 2016 £11,531,000)

*Interim property income distribution up 8.3% to 16.25p (2016 15.00p)

Dear Shareholder

I am pleased to report continued good trading results for the 6 months ended 30 June 2017.

Gross rental income has increased by 20%, reflecting the benefits arising from the ongoing strategy. Notwithstanding the likely uncertainties during the Brexit process, our confidence in the group's future is reflected in an interim property income distribution of 16.25p per share - an increase of 8.3% on 2016. This continues our long-standing policy and record of raising the dividend by more than inflation.

Results for the period

Property

Gross rental income has risen by 20%. This increase reflects the benefit of a full period's income from the Coventry and Grantham properties bought in August 2016, one quarter of income from the Nottingham purchase at the end of March 2017 and one month of income from the St Austell purchase. These increases have been offset by the reduction in income from the disposal of the properties in Staines in February 2017 and Warwick in December 2016. In addition, we have benefited from one positive rent review and one lease surrender premium. As in 2016 we have no voids. Property expenses for the six month period increased to £119,000 (2016 £92,000). A significant portion of these expenses relates to legal and professional fees that we have incurred in dealing with a leasehold enfranchisement claim at our one remaining residential asset. This claim failed at Tribunal; however, the leaseholders have exercised their right to appeal and we will

continue to incur costs on this exercise. Other property costs remain tightly controlled. As reported in the 2016 annual report, we completed on the sale of our Staines unit in February 2017 at a £1,000 profit to the year-end valuation.

The external independent valuation of the property portfolio at 30 June 2017 showed a gain of 2.0% on a like-for-like basis arising, in part, from a positive, backdated, rent review on our office building in Oxford, and from market sentiment lifting the value of the warehouse element of the portfolio.

This gain mirrored the performance of the property market in general. Only one asset showed a loss on valuation and this arose on our Nottingham asset which was valued at cost (net of capitalised purchaser's fees).

The upgrading of the property portfolio continues with the aim of improving the weighted unexpired lease term, strengthening covenants and increasing the average lot size.

Our property portfolio is now valued at £74.8 million (2016 £57.2 million). Equities

Equity markets strengthened in the second half of 2016, and we took advantage of this strength to reduce the portfolio by £0.5m in January 2017 in line with our stated long-term strategy. As a result, and together with the sales made in 2016, dividend income from the equity portfolio reduced to

£38,000 (2016 £73,000). We raised £477,000 from the sale of equities at a gain of £18,000 to the year-end valuation. There was a net gain on valuation of £69,000 (2016 £200,000) in the half year. We intend to continue to reduce the equity portfolio in line with our stated strategy.

Financial

Earnings per share on revenue activities increased to 31.1p (2016 28.4p) due primarily to the increased net rental income, net of increased finance expenses. The more volatile measure of total earnings per share which includes unrealised valuation gains was 52.1p (2016 44.3p).

At 30 June 2017 the cash position was £657,000 (2016 £6,706,000), while our medium term loans totalled £19,400,000 (2016 £11,500,000) resulting in a net gearing level of 33% (2016 9%). In the period we have increased our borrowing by £4,500,000 to purchase the St Austell asset and have also put in place a short-term overdraft facility. The medium term loans are at fixed rates with a weighted average of 3.64%.

Dividend

I am pleased to report an interim property income distribution of 16.25p (2016 15.00p) per share, payable on 13 October 2017 to shareholders on the register at 15 September 2017 (with an ex- dividend date of 14 September 2017).

Outlook

One lease renewal is in negotiation and this, together with the income arising from the acquisitions completed in the first half of 2017, should enable us to increase underlying gross rental income in the second half of 2017. In addition we also have five rent reviews in process. We expect the full year results to continue to reflect the benefits of our strategy.

John Hewitt Chairman 27 July 2017

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

For further information, contact: Highcroft Investments PLC

John Hewitt/Roberta Miles [phone]

Panmure Gordon (UK) Limited

Karri Vuori/Fabien Holler [phone]

Unaudited			Unaudited			Audited
First half 2017			First half 2016			Full year 2016
Note	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Continuing operations
Gross rental income	2,238	-	2,238	1,867	-	1,867	3,906	-	3,906
Property operating expenses	(119)	-	(119)	(92)	-	(92)	(198)	-	(198)
Net rental income	2,119	-	2,119	1,775	-	1,775	3,708	-	3,708
Realised gains on investment property	1	-	1	127	-	127	134	-	134
Realised losses on investment property	-	-	-	-	-	-	-	-	-
Net gain on disposal of investment property	1	-	1	127	-	127	134	-	134
Valuation gains on investment property	-	1,337	1,337	-	778	778	-	2,509	2,509
Valuation losses on investment property	-	(316)	(316)	-	(165)	(165)	-	(1,536)	(1,536)
Net valuation gains on investment property	-	1,021	1,021	-	613	613	-	973	973
Dividend income	38	-	38	73	-	73	144	-	144
Gains on investments	19	137	156	3	294	297	-	546	546
Losses on investments	(1)	(68)	(69)	(16)	(94)	(110)	-	(58)	(58)
Net investment income	56	69	125	60	200	260	144	488	632
Administrative expenses	(339)	-	(339)	(323)	-	(323)	(651)	-	(651)
Operating profit before net financing costs	1,837	1,090	2,927	1,639	813	2,452	3,335	1,461	4,796
Finance income	1	-	1	8	-	8	11	-	11
Finance expenses	(295)	-	(295)	(235)	-	(235)	(506)	-	(506)
Net finance costs	(294)	-	(294)	(227)	-	(227)	(495)	-	(495)
Profit before tax	1,543	1,090	2,633	1,412	813	2,225	2,840	1,461	4,301
Income tax credit	4	64	(4)	60	60	3	63	72	(30)	42
Total profit and comprehensive income for the financial period	1,607	1,086	2,693	1,472	816	2,288	2,912	1,431	4,343
Basic and diluted earnings per share	6	31.1p	21.0p	52.1p	28.4p	15.9p	44.3p	55.7p	28.3p	84.0p

Condensed consolidated interim statement of comprehensive income (unaudited) for the six months ended 30 June 2017