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HIGHCROFT Investments (HCFT) – the next to look anomalously cheap

SKYSHIP
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HIGHCROFT Investments (HCFT) – the next to look anomalously cheap

#472315

Postby SKYSHIP » January 12th, 2022, 10:27 am

HIGHCROFT Investments (HCFT) – the next to look anomalously cheap

HCFT is perhaps the smallest of the investable UK listed property companies, with Net Assets of £61.4m and a MCap of just £46.6m. It is a very conservatively managed company with antenna well attuned to the sector minefield; ie, where to allocate your funds – office, industrial, retail warehouse, retail etcetcetc.

Warehouse/Retail Warehouse (“W/RW”) together accounted for 72% of the portfolio at the Jun’21 Interim stage, with Retail at just 7%. This compares with 48% & 29% just 8yrs ago; and at that time they also had 4% in residential. So, they have moved the portfolio strongly in the right direction; and a perusal through the website also shows the quality of the tenant mix at each and every one of their W/RW sites.
The highlight of September’s Interim Statement was the 7.3% increase in the NAV to 1185p, a figure surpassing the pre-Covid high of 1175p. Less good was the fall in occupancy rate from 99% to 89%:

“At the period end three of our properties were void, representing 11% of our rental income. We are negotiating a new lease on one of these units representing 4% of our rental income, and we are actively engaged in seeking new tenants for the others.”

A post period completion on a sale takes their cash up to £6.2m; so news of an acquisition would be beneficial before too much earnings lag.
An obvious attraction is the yield. With last year’s dividend of 57p (inc. a 6p special dividend) the yield at 900p = 6.33%. At that same 900p the NAV discount = 24.1%. LTV is 31.4% and Debt Cost = 3.1%.

Trading is complicated by the fact that associates of one of the Directors, David Kingerlee, account for 41% of the equity; whilst another holding company with the awkward name of DG & MB Conn & Associates account for a further 23.2%. Conn (AKA Stewart & Wight Ltd) is a private property company and a long term holder which routinely adds c15,000 shares to their holding every year.

With the free float at just 35.8% of the 5.183m shares, ie just c1.85m shares, the Market is always tight and the spread usually wide; though not as wide as the headline figure. The spread at the moment is 888p-914p (2.9%) versus the headline figure of 870p-920p (5.7%).

Accordingly, buyers need to be patient, not over-pay, perhaps wait to follow in after a seller.

To summarise, HCFT is well managed, has an excellent portfolio and offers a yield and discount level now rather out-of-line with their larger peers. With talk of rationalisation amongst the smaller REITs, corporate action remains a possibility; and would likely deliver an immediate 33% upside.

A safe and secure high-yielder.

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