Highcroft Investments : Half-year Report 28 July 2016

28 July 2016

Highcroft Investments PLC

Interim Report for the six months ended 30 June 2016

Key Highlights:

*Gross rental income increased 18% to £1,867,000 (2015 £1,585,000)

*100% occupancy in our property portfolio (2015 97%)

*Net rental income increased 27% to £1,775,000 (2015 £1,394,000)

*Total earnings per share reduced 31% to 44.3p (2015 64.2p)

*Property valuation £57,240,000 (2015 £57,022,000) increased 1% on a like-for-like basis

*Net assets per share increased 8% to 1046p (June 2015 965p, December 2015 1026p)

*Net debt £4,794,000 (2015 £9,490,000)

*Interim property income distribution up 5% to 15.0p (2015 14.3p)

Dear Shareholder

I am pleased to report good trading results for the 6 months ended 30 June 2016. Gross rental income has increased by 18%, reflecting the benefit of a full period's income from our Wisbech property bought in May 2015. Despite general uncertainty in the pre and post referendum environment, our confidence in the group's future is reflected by a proposed interim property income distribution of 15.0p per share - an increase of 5% on 2015. This continues our long- standing policy and record of raising our dividend ahead of inflation.

Results for the period

Property

Gross rental income has risen by 18%. This increase primarily reflects the rental income from the Wisbech property purchased in May 2015, net of the rental income foregone from the sale of the Warrington property in August 2015 and the Kingston property in January 2016. In addition we have benefited from two positive rent reviews and have no voids, whereas in 2015 three properties in our portfolio were vacant for part of the first half of the year. Our property expenses for the six month period fell to £92,000 (2015 £191,000). The 2015 figure was abnormally high and arose from significant one-off works, including asbestos removal, which had to be carried out at the Norwich and Leamington Spa retail units. The 2016 costs include £42,000 of professional fees associated with an aborted acquisition where a decision was taken to withdraw because the covenant weakened significantly during our negotiations. We disposed of one residential unit, occupied by a regulated

tenant, in the period, at a profit of £90,000 over the December 2015 valuation. We have also completed one lease extension in our multi-occupied block of flats.

The external independent valuation of our property portfolio at 30 June 2016 showed a gain of 1% on a like-for-like basis arising from small increases gained, in part from positive rent reviews on our properties at Bicester and Crawley, and also in the granting of planning consent to construct 9 residential units at our property in Staines. In light of the Chancellor's increase in stamp duty on commercial properties, this 1% gain was significant compared with many of our competitors in the market who have had downward adjustments to their portfolios.

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 £57.2 million (2015 £57.0 million).

Equities

Equity markets have undergone considerable volatility in the period, and we took advantage of this to reduce our portfolio by £0.5m in line with our stated long-term strategy. As a result of this approach, together with the sales made in 2015, dividend income from our equity portfolio reduced to £73,000 (2015 £87,000). We raised £493,000 from the sale of equities at a loss of £13,000 to the year end valuation and made a small purchase, costing £3,000. The net gain on valuation of

£200,000 (2015 loss on valuation £210,000) in the half year is a reflection of the prevailing market conditions that existed at 31 December 2015 and also at 30 June 2016. We intend to continue to reduce our equity portfolio in line with our stated strategy.

Financial

Earnings per share on revenue activities increased to 28.4p (2015 23.1p) 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 44.3p (2015 64.2p).

At 30 June 2016 the cash position was £6,706,000 (2015 £2,010,000), our medium term loans totalled £11,500,000 (2015 £11,500,000) resulting in a net gearing level of 9% (2015 19%).

Dividend

I am pleased to report that we will propose an interim property income distribution of 15.0p (2015 14.3p) per share, payable on 14 October 2016 to shareholders on the register at 16 September 2016 (with an ex dividend date of 15 September 2016).

Outlook

One lease renewal has been completed after the period end and this, together with those completed in the first half of 2016, should enable us to increase the underlying gross rental income in the second half of 2016. However, profits on capital activities may be affected in the second half of the year due to the uncertainties arising in this post referendum period.

Following the vote for 'Brexit' the property market would appear to have polarised. Whilst the large open-ended funds and institutions are facing cash calls from investors, and therefore seek to urgently sell substantial amounts of property, the small company and private investor market is still very acquisitive and is as strong as ever. Our own requirements fall into this latter category which is making it competitive for us to secure suitable investments. However, having been somewhat cautious since the middle of 2015, when faced with a paucity of suitable properties which fitted our quality and price criteria, we are, I believe, well placed in terms of liquidity and low gearing to take advantage of any purchasing opportunities that may arise in this post referendum period.

Given the subdued outlook for interest rates in both the short and long dated ends of the market, we would consider raising our level of gearing, if opportunities arise, to increase the quality and yield of our portfolio.

John Hewitt Chairman 27 July 2016

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 2016			First half 2015			Full year 2015
Note	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Continuing operations
Gross rental income	1,867	-	1,867	1,585	-	1,585	3,435	-	3,435
Property operating expenses	(92)	-	(92)	(191)	-	(191)	(329)	-	(329)
Net rental income	1,775	-	1,775	1,394	-	1,394	3,106	-	3,106
Realised gains on investment property	127	-	127	22	-	22	418	-	418
Realised losses on investment property	-	-	-	-	-	-	-	-	-
Net gain on disposal of investment property	127	-	127	22	-	22	418	-	418
Valuation gains on investment property	-	778	778	-	2,329	2,329	-	4,840	4,840
Valuation losses on investment property	-	(165)	(165)	-	-	-	-	(75)	(75)
Net valuation gains on investment property	-	613	613	-	2,329	2,329	-	4,765	4,765
Dividend income	73	-	73	87	-	87	182	-	182
Gains on investments	3	294	297	4	52	56	-	87	87
Losses on investments	(16)	(94)	(110)	(16)	(262)	(278)	-	(502)	(502)
Net investment income/(loss)	60	200	260	75	(210)	(135)	182	(415)	(233)
Administrative expenses	(323)	-	(323)	(243)	-	(243)	(533)	-	(533)
Operating profit before net financing costs	1,639	813	2,452	1,248	2,119	3,367	3,173	4,350	7,523
Finance income	8	-	8	3	-	3	7	-	7
Finance expenses	(235)	-	(235)	(128)	-	(128)	(365)	-	(365)
Net finance costs	(227)	-	(227)	(125)	-	(125)	(358)	-	(358)
Profit before tax	1,412	813	2,225	1,123	2,119	3,242	2,815	4,350	7,165
Income tax credit	4	60	3	63	70	3	73	56	14	70
Total profit and comprehensive income for the financial period	1,472	816	2,288	1,193	2,122	3,315	2,871	4,364	7,235
Basic and diluted earnings per share	6	28.4p	15.9p	44.3p	23.1p	41.1p	64.2p	55.6p	84.4p	140.0p

Condensed consolidated interim statement of comprehensive income (unaudited) for the six months ended 30 June 2016