Untitled

NAVIGATING THE MARKET

FOR LONGTERM SUCCESS

Leveraging market

opportunities to grow

sustainably

Annual report and accounts for the year

ended 31 December 2021

Stock code: HCFT

www.highcroftplc.com

Stakeholder focused

Market aware

Opportunity driven

View more online at:

www.highcroftplc.com

AN EXPERIENCED

INTERNAL TEAM

HIGHQUALITY

PROPERTY

ASSETS

FINANCIAL

STRENGTH

MODERATE

GEARING

Highcroft

Investments PLC

Annual report and

accounts 2021

Who we are

Highcroft Investments PLC is an

internally managed Real Estate

Investment Trust (REIT), which invests

in commercial property in England

and Wales.

Our purpose

Highcroft’s purpose is to provide our

tenants with excellent properties, in

optimal locations, enabling them to

succeed, and our stakeholders to benefit

on a long-term sustainable basis.

Our vision

Our vision is to ensure every opportunity

has a positive impact on others.

Our values

Our values are reputation, integrity and good

governance built on long-term relationships,

and on sustainability and responsibility.

Our strategy

Highcroft aims to deliver sustainable long-term

income and capital growth for its shareholders

through accretive asset management

initiatives and recycling of capital in its

regionally-based property portfolio.

We deliver our strategy by leveraging our strengths:

HIGHLIGHTS

Contents

BUSINESS OVERVIEW

Highlights 01

Chairman’s statement 02

Group at a glance 04

Our portfolio 08

STRATEGIC REPORT

Our marketplace 18

Our business model 20

Our strategy 22

Our key performance indicators 24

Operating review 26

Financial review 28

Our risks 32

Going concern statement 38

Stakeholder engagement 39

Section 172(1) Statement

Sustainability 40

GOVERNANCE

Chairman’s introduction

to corporate governance

Board of directors 48

Corporate governance 50

Report of the

audit committee

Report of the

nomination committee

Directors’ remuneration report 59

Remuneration at a glance 60

Report of the directors 71

Statement of directors’

responsibilities

FINANCIAL STATEMENTS

Independent auditor’s report 76

Consolidated statement

of comprehensive income

Consolidated statement

of financial position

Consolidated statement

of changes in equity

Consolidated statement

of cashflows

Notes to the consolidated

financial statements

Company statement

of financial position

Company statement

of changes in equity

Notes to the company

financial statements

100

List of definitions 104

Group five-year summary

(unaudited)

104

Directors and advisers IBC

DIVIDENDS PAYABLE

TO SHAREHOLDERS

55.0p -3.5%

2021

2020

2019

2018

2017

55.0p

57.0p

48.0p

52.5p

46.25p

* includes special dividend

of 6p per share

NET ASSET VALUE

PER SHARE

1,275p +15.5%

2021

2020

2019

2018

2017

1,275p

1,104p

1,175p

1,207p

1,161p

GROSS PROPERTY

INCOME

£5.9m -2.6%

2021

2020

2019

2018

2017

£5.9m

£6.1m

£5.8m

£5.0m

£4.8m

NET PROPERTY

INCOME

£5.3m -3.8%

2021

2020

2019

2018

2017

£5.3m

£5.5m

£5.7m

£4.9m

£4.5m

ADJUSTED EARNINGS

PER SHARE

56.7p -11.0p

2021

2020

2019

2018

2017

56.7p

67.7p

78.5p

87.3p

64.8p

TOTAL EARNINGS

PER SHARE

230.5p

2021

2020

2019

2018

2017

230.5p

(22.2)p

23.3p

95.3p

132.3p

VALUE OF PROPERTY

ASSETS

£87.6m +6.70%

2021

2020

2019

2018

2017

£87.6m

£82.1m

£86.7m

£77.7m

£77.1m

NET DEBTGEARING

£21.5m 32%

2021

2020

2019

2018

2017

£21.5m/32%

£23.9m/42%

£24.6m/41%

£14.2m/23%

£17.5m/29%

AVERAGE LOT SIZE

£4.2m +11.8%

2021

2020

2019

2018

2017

£4.2m

£3.7m

£3.9m

£3.6m

OCCUPANCY IN OUR

PORTFOLIO

93%

2021

2020

2019

2018

2017

93%

99%

100%

Stock code: HCFT www.highcroftplc.com

010101

CHAIRMAN’S STATEMENT

CHARLES BUTLER

Chairman

At the time of writing to you

last year, I don’t think we would

have believed that 2021 would

be primarily dominated by

continuing to deal with the

effects of the pandemic. Whilst

the effects of Covid-19 continued

to be felt across the world, we

took a cautious approach in

how we managed the portfolio,

keeping a relatively low LTV,

a healthy level of cash and

taking no unnecessary risks.

Our portfolio proved to be very

resilient throughout 2021 and I

am pleased to report a very solid

set of results for the year.

Property portfolio

The focus of our asset management has

been on warehouses and retail warehouses

for several years (making up 73% of our

portfolio by asset value). This has proven to

be a successful strategy with a strong sector

performance in 2021. Notwithstanding the

volatile macro environment, we expect to see

this positive momentum continue into2022.

We did not acquire any properties during the

year and sold one property well at an increase

of 9% over its 31 December 2020 valuation.

Notwithstanding the ongoing pandemic,

we continued to achieve a high level of rent

collection for the year of 97% (2020 94%). Our

gross rental revenue decreased by 2.6% (2020

4% increase) due primarily to the negative

effects of CVAs and voids offset by our asset

management initiatives and one-off income.

When taken together with a very positive like-

for-like property revaluation of 11.1% this led to

an overall increase in net assets of 15.5%.

Dividend

The company’s interim dividend was 22p, a

4.8% increase on 2020 and we are proposing a

final dividend for 2021 of 33p per share, taking

the total dividend for 2021 to 55p per share.

This represents an increase of 8% from the

2020 dividend of 51p per share (excluding the

2020 special dividend of 6p per share).

Sustainability

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 consider

climate-related risks and opportunities and

over the year have evaluated how any future

developments will be approached, and the

most appropriate strategy for reducing our

impact within the existing portfolio. We are

in a process of identifying what levers we

can operate and influence to ensure the

sustainability of our business.

People

As for many companies, the ongoing impacts

of the Covid-19 pandemic have presented

challenges to the board, the tenants we serve,

and the communities we operate in. During

the year the business has continued to perform

commendably, and I would like to thank my

fellow directors and the employees for the

continued commitment and considerable

efforts over the last year.

Our portfolio proved to be

very resilient throughout

2021 and I am pleased to

report a very solid set of

results for the year.”

READ MORE ABOUT

SUSTAINABILITY ON

PAGES 40 TO 43

READ MORE ABOUT

OUR PORTFOLIO

ON PAGES 08 TO 15

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

BUSINESS OVERVIEW

During the year, we welcomed Anne-Marie

Palmer as company secretary. Anne-Marie has

20 years’ experience as a chartered secretary

advising listed companies and as reported

last year, recognising both the increase in

governance and reporting requirements, we

welcome her addition to the team.

Outlook

2021 was a strong year for Highcroft despite

the world still being seriously affected by

Covid-19. We now face new macro challenges

with the tragic events in Ukraine. While there

is no doubt the effects of this will be severe

and long lasting, we are confident that with

the cautious approach we take to managing

the portfolio, along with relatively low levels

of gearing, we can continue to deliver robust

shareholder returns against a continuing

volatile globalbackdrop.

We are planning that our AGM this year will

be back to normal as an open meeting, and I

look forward to meeting those of you who can

make it.

CHARLES BUTLER

Chairman

28 March 2022

Stock code: HCFT www.highcroftplc.com

0303

BUSINESS OVERVIEW

GROUP AT A GLANCE

2017

2018

Navigating the market for long-term success

by maintaining the quality of our tenant

covenants, increasing our average lot size,

and being sector aware.

KEY ACQUISITION

Giant Booker,

Nottingham: A

freehold cash &

carry warehouse

let to the strong

covenant of Giant

Booker. Price

£5.28m, yield 6%.

KEY ACQUISITION

Rubery: Our leisure

sector was increased

with the purchase of

this gym asset let to

Nuffield Health for

£4.925m and a yield

of 7.0%. The lease was

subsequently regeared

for a term of 20 years

with guaranteed

fixeduplifts.

KEY ACQUISITION

St Austell: 250,000

sq ft of industrial/

warehouse space

let to Walstead

Roche Limited.

The property was

acquired for £4.2m

and an attractive

yield of 11.2%.

KEY DISPOSAL

Staines: We further

reduced our exposure to

the high street by selling

these shops with offices

above for a price of £2.3m.

2016:

41.0p

2017:

46.25p

2018:

52.50p

The shift in our portfolio enables long-term sustainable success

and increased dividend returns for our shareholders.

Our portfolio in 2016

Warehouse 29%

Retail warehouse 39%

Leisure 3%

Office 10%

High street retail 18%

Residential 1%

PROPERTY WEIGHT

TOTAL VALUE

£66.0m

NUMBER OF

DISPOSALS SINCE 2016

NUMBER OF

ACQUISITIONS

SINCE 2016

6 including those in 2016

AVERAGE LOT SIZE

£3.3m

NUMBER OF PROPERTIES

*excluding residential

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

BUSINESS OVERVIEW

2019

2021

Shift in portfolio

The directors have an ongoing strategy to rebalance the portfolio to take advantage

of a changing property market. We have reduced our high street retail weighting as

shopping patterns were changing, principally due to the internet and Covid-19, and

increased the weighting of warehousing and retail warehousing assets.

KEY DISPOSALS

Southampton: We sold the

leasehold interest of our warehouse

unit on the Nursling industrial

estate for 4.7%, £3.67m. The lease

had only 2 years remaining.

Cirencester: Our policy of selling

high street assets continued

with our Cirencester property let

to Ladbrokes and Clinton Cards

and others, where we achieved a

sale at 6%.

KEY DISPOSAL

Andover: This

leasehold

property let

to Jewson

had shown no

rental growth

and was sold

for a yield

of 4.9%.

KEY ACQUISITION

Ipswich: This

purchase comprised

a gym unit let to

DW Fitness on a

long lease with

fixed uplifts, plus

a motorcycle

showroom. The

purchase price was

£4.65m and 7%.

KEY ACQUISITION

Llantrisant: We

increased our

industrial/warehouse

sector with the

acquisition of 108,000

sq ft let to BAAE.

The acquisition price

was £6.5m and the

yield 11.6%.

2019:

48.0p

2020:

57.0p

2021:

55.0p

Our portfolio in 2021

READ MORE ABOUT

OUR MARKETPLACE

ON PAGES 18 TO 19

READ MORE ABOUT

OUR BUSINESS

MODEL ON PAGES

20 TO 21

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

BUSINESS OVERVIEW

Strong balance sheet and cash generative

Our £87.6m, 849,000 sq ft of assets underpin our balance

sheet and financial strength.

Progressive dividend returns

Our dividends have increased by a compound annual

rate of 6.4% since joining the REIT regime in 2009.

Diversified and sustainable income from

the UK property market

We have 21 assets, spread across five sectors,

geographically focused in the south of the UK with a

WAULT of 5.6 years.

Strong internal management team,

aligned with stakeholders’ interests, with

a consistent track record

Our experienced executive team has consistently

delivered on our strategy.

Why invest in Highcroft?

READ MORE ABOUT

OUR ASSETS ON

PAGES 08 TO 15

READ MORE ABOUT

OUR DIVIDEND

HISTORY ON

PAGE 28

READ MORE ABOUT

THE SHIFT IN

PORTFOLIO ON

PAGES 04 TO 05

READ MORE ABOUT

OUR BOARD ON

PAGES 48 TO 49

Stock code: HCFT www.highcroftplc.com

0707

BUSINESS OVERVIEW

A diversified portfolio well-placed to deliver

long-term success.

RETAIL WAREHOUSE  CRAWLEY

OFFICES  OXFORD

WAREHOUSE  ST AUSTELL

WAREHOUSE  ASH VALE

OUR PORTFOLIO

Warehouse

Retail warehouse

Leisure

Office

High street retail

KEY

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

BUSINESS OVERVIEW

RETAIL WAREHOUSE  BICESTER

OFFICES  OXFORD

OFFICES  CARDIFF

WAREHOUSE  LLANTRISANT

WAREHOUSE  KIDLINGTON

READ OUR KEY

PERFORMANCE

INDICATORS ON

PAGES 24 TO 25

READ OUR

OPERATING

REVIEW ON PAGES

26 TO 27

BUSINESS OVERVIEW

0909

BUSINESS OVERVIEW

www.highcroftplc.comStock code: HCFT

WAREHOUSEINDUSTRIAL

This sector continued its dramatic

growth seen in 2020 with logistics

being the main growth driver and

Amazon grabbing almost a third of

available space. 2022 will be another

year of strong demand from both

occupiers and investors and there is

likely to be further yield compression

to the already record-breaking low

yields. Over 45% of our portfolio is

held in this sector which is likely to

increase once further management

opportunities have been exploited.

RETAIL WAREHOUSE

Retail warehousing was the

‘comeback kid’ of the market in

2021 as shoppers shied away from

the high street and felt more

comfortable with the click-and-

collect, private transport and social

distancing opportunities that a

retail warehouse can provide. With

approximately 28% of our portfolio in

this sector, we are in a good position

to benefit from this resurgence.

LEISURE

2021 was another difficult year for the

leisure industry with lockdowns and

social distancing regulations. However,

restrictions eased throughout the year

which provided confidence for occupiers;

this resulted in the letting of our vacant

gym unit in Ipswich for a 15-year term,

without breaks, and an enhanced year-

end valuation.

Warehouse portfolio

Value

£’000

Nottingham 6,900

Milton Keynes 6,700

St Austell 6,350

Llantrisant 6,250

Kidlington 5,000

Ash Vale 4,900

Bedford 3,700

Total 39,800

Retail warehouse

portfolio

Value

£’000

Grantham 7,400

Bicester 7,150

Wisbech 6,825

Crawley 2,875

Total 24,250

Leisure portfolio

Value

£’000

Rubery 5,150

Ipswich 3,700

Coventry 1,900

Total 10,750

OFFICE

The office sector continued to

suffer from the ‘work from home’

regulations imposed by the

government; this was exacerbated by

people’s general reluctance to return

to the office when restrictions eased

and employers struggled to enforce a

return. This has led to a restructuring

of how much space occupiers need

with some occupiers reducing their

requirements by up to 20%. Offices

account for less than 9% of our

portfolio.

HIGH STREET RETAIL

We have concentrated on reducing

our exposure to the high street which

now only represents 5.6% of our

portfolio. 2021 was another difficult

year for high street retailers who were

unable to trade for parts of the year.

Turnover figures were dramatically

reduced with shoppers preferring

online shopping or retail parks

where social distancing and private

transport were possible.

ALTERNATIVES

We continue to look at this sector but

have not yet acquired any properties.

Moving into this sector – retirement

homes, hospitals etc. would help

balance our portfolio further and

provide a greater spread of risk.

Office portfolio

Value

£’000

Oxford 4,850

Cardiff 2,950

Total 7,800

High street retail

portfolio

Value

£’000

Oxford (2 units) 2,200

Leamington Spa 1,200

Norwich 900

Oxford 665

Total 4,965

OUR PORTFOLIO

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

BUSINESS OVERVIEW

Why the south of England and Wales?

Highcroft has benefitted from the growth

in rents and values in these areas whilst

maintaining our risk exposure at an acceptable

level. Our search for new properties is not solely

confined to these areas and we will consider

any opportunity subject to solid property

fundamentals.

16–17 & 21

Warehouse

Retail warehouse

Leisure

Office

High street retail

OUR CORE SECTORS

Numbering corresponds to order of assets by valuation.

For more detail see pages 13 to 15.

Stock code: HCFT www.highcroftplc.com

1111

BUSINESS OVERVIEW

SEE HOW WE

ENGAGE WITH

OUR TENANTS

AND OTHER

STAKEHOLDERS

ON PAGE 39

SEE OUR

SUSTAINABILITY

SECTION ON PAGES

40 TO 43 FOR MORE

INFORMATION

ABOUT OUR

APPROACH TO THE

ENVIRONMENT AND

CLIMATE CHANGE

OUR PORTFOLIO

Why the quality of our tenants is crucial

to our success; how we assess potential

tenants and manage relationships

The quality of our tenants is crucial to our success so that

we can maintain the dividend growth our shareholders

have witnessed and benefitted from over many years.

We assess the strength and quality of each new tenant

relevant to the property and location in question; if a

tenant trades well, the rental income will be secure

which will be passed on to shareholders via a dividend.

Equally, if the location is good for the tenant this will

attract further occupiers and increase demand, therefore

ensuring future rental growth.

Prior to entering into a lease with a tenant, we will

undertake financial due diligence to ensure the

prospective tenant can meet its financial commitments

under the lease.

Our tenant criteria: ensuring our tenants

are sustainable

We make great efforts to ensure our properties are

let to, and occupied by, tenants and companies that

have sustainable, environmental credentials. We work

together with our occupiers to make sure we comply

with government guidelines on green policies which

includes ensuring that there will be no future ground

contamination issues.

2020

£82.1m

2021

£87.6m

Valuation gains

£9.9m

Disposals

£(3.2)m

£m

Valuation losses

£(1.2)m

MOVEMENTS IN INVESTMENT PROPERTY VALUATION

INVESTMENT PROPERTIES AT ANNUAL

VALUATION

£87.6m +6.7%

2021

2020

2019

2018

2017

£87.6m

£82.1m

£86.7m

£77.7m

£77.1m

WEIGHTED AVERAGE

LEASE LENGTH

5.6 years -5.4%

2021

2020

2019

2018

2017

5.6 years

5.9 years

6.3 years

6.5 years

7.2 years

WEIGHTED AVERAGE

LEASE EXPIRIES

> 5 years

2-5 years

1-2 years

< 1 year

73%

22%

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

BUSINESS OVERVIEW

Tenure Let to

Value

£’000

Size

sq ft

ASH VALE

Freehold

warehouse

4,900 25,081

BEDFORD

Freehold

warehouse

3,700 40,536

KIDLINGTON

Freehold

warehouse

5,000 30,638

LLANTRISANT

Virtual freehold

warehouse/r&d

facility

6,250 107,684

MILTON

KEYNES

Freehold

warehouse

6,700 43,444

NOTTINGHAM

Freehold

warehouse

6,900 83,916

ST AUSTELL

Freehold

warehouse

6,350 250,087

Warehouses

Total value: £39.8m

Stock code: HCFT www.highcroftplc.com

1313

BUSINESS OVERVIEW

Tenure Let to

Value

£’000

Size

sq ft

BICESTER

Freehold retail

warehouse

7,150 29,130

CRAWLEY

Freehold retail

warehouse

2,875 6,898

GRANTHAM

Freehold retail

warehouse

7,400 42,090

WISBECH

Freehold retail

warehouse park

6,825 55,628

Retail warehouses

Total value: £24.2m

OUR PORTFOLIO

Tenure Let to

Value

£’000

Size

sq ft

COVENTRY

Freehold

leisure

1,900 5,953

IPSWICH

Freehold

leisure/retail

3,700 43,738

RUBERY

Freehold

leisure

5,150 38,264

Leisure

Total value: £10.8m

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

BUSINESS OVERVIEW

Tenure Let to

Value

£’000

Size

sq ft

OXFORD

SUMMERTOWN

Freehold

offices

4,850 11,526

CARDIFF

Freehold

offices

Void 2,950 17,797

Office

Total value: £7.8m

Tenure Let to

Value

£’000

Size

sq ft

LEAMINGTON

SPA

Freehold

shop

Sabre Retail Limited

t/a

1,200 3,139

NORWICH

Freehold

shop

900 4,658

OXFORD

HIGH STREET

Freehold

shop

Void 665 1,741

OXFORD

HIGH STREET

One long

leasehold

One freehold

shop/office

Robinson Webster

t/a

2,200 6,895

High street retail

Total value: £5.0m

Stock code: HCFT www.highcroftplc.com

1515

BUSINESS OVERVIEW

STRATEGIC REPORT

Contents

Our marketplace 

Our business model 

Our strategy



Our key performance indicators



Operating review 

Financial review 

Our risks 

Going concern statement 

Stakeholder engagement 

Sustainability 

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

WAREHOUSE  LLANTRISANT

Stock code: HCFT www.highcroftplc.com

OUR MARKETPLACE

Economic backdrop

2021 witnessed the UK economy continuing to struggle with the effects of Covid-19 with businesses trying to cope with

changeable government directives over lockdowns and work from home, as well as difficulties with supply chains and new

challenges for imports and exports out of Europe. The marginal increase in interest rates at the end of the year dispelled

the idea of negative interest rates and an element of confidence in the future and a return to normality crept back into the

public domain, despite the forecasted inflation figures for 2022.

The forecasts for 2022 would indicate that there will be a strong investor market with investment volumes pushed high due

to overseas and homegrown investors’ pent-up demand and a limited supply of the right property. The industrial sector will

see another year of strong rental growth and investor interest, whilst demand in the resurgent retail warehouse market will

continue. The uncertainty will be the situation in Ukraine which will have an effect on confidence in the markets and the

likely disruption to supply chains.

ESG will become an even more prominent factor in the considerations of occupiers, landlords and investors with lending

institutions also setting out stricter criteria in this regard.

Total return by sector

2015

-10

-20

-30

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Standard retail

Office

Industrial

Shopping centre

Retail warehouse

Market trend What this means for Highcroft How are we responding?

Covid-19

The pandemic and the ensuing

lockdown measures continued were

a big obstacle for the majority of

businesses in 2021.

Some of our tenants continued to be

affected by the restrictions imposed by

the lockdowns – particularly in the retail

and hospitality sectors.

We work with our tenants to ensure

the continuity of their businesses;

however, high street retail forms the

smallest part of our portfolio.

Online retailing

Online retailing continued its dramatic

growth in 2021.

The high street continued to be badly

affected but there was a resurgence in

the retail warehouse sector as lockdown

sanctions were eased and people could

shop at a social distance afforded by a

retail warehouse.

We have reduced our exposure to the

high street over the past few years

and agreed a new lease on one of our

retail warehouse units.

Economic backdrop

It is forecast the UK will lead the

economic growth in developed

countries with an anticipated 5.8%.

Inflation is expected to be 4.5% by the

end of the year.

Trading will continue to be difficult for

some of our tenants.

Our assets should perform if

consumer spending increases as

forecast.

Brexit

There was a hangover from Brexit

with the disruption of supply chains

from/to the EU.

This potentially slowed turnover in

certain sectors. Additionally, there was a

reduction in supply of the workforce as

EU nationals continued to return home.

Our investments have proved robust

in these circumstances.

Forecast

Source: MSCI

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

Market trend What this means for Highcroft How are we responding?

Warehouse

The demand for industrial space in

2021 was the highest on record.

Yields are getting lower and therefore

prices higher making it difficult

to acquire new properties with an

attractive return. We are looking to

exploit development opportunities

within our portfolio.

This demand has meant Highcroft

has achieved good increases in rents

upon lease renewals and significant

uplifts on valuation of some of our

industrial assets.

Offices

The ‘work from home’ directive

frustrated both occupiers and

landlords in the office sector and has

led to companies revising their office

space requirements for the future.

Offices form less than 9% of our

portfolio. During the year one of our

tenants exercised a break option and

we achieved a 27% rental uplift on

review on our Oxford office investment.

The uplift in value following the

rent review at the Oxford office has

maintained the values in this sector.

Retail warehouses

Retail warehouses witnessed a

resurgence in 2021 with shoppers

keen to return to the tills but on a

socially distanced basis, which this

sector afforded.

Our tenants in this sector – Wickes, Pets

at Home, Dunelm, Halfords, PCWorld –

continued to trade well.

Our rent collection rates were high

and all of our units are occupied.

High street retail

There were further receiverships and

CVAs throughout 2021. Trading was

tough in competition with online

retailing.

We have a minimal exposure to the

high street.

Where necessary, we work out

payment plans to assist our tenants.

Leisure

The leisure, food and beverage

industries were again the most

affected by the pandemic lockdowns.

This sector comprises approximately

12% of our portfolio. In 2020 one of our

tenants went into receivership but the

unit has since been re-let on a new

15-year lease.

68% of this sector of our portfolio has

an average weighted unexpired lease

term of 16 years.

Investment

Total returns from the property

market in 2021 were 20% a contrast

to the previous year. This was largely

driven by the industrial sector which

showed returns of 38%.

There were limited opportunities for

Highcroft considered worth pursuing,

to show satisfactory returns.

We took a cautious approach

during 2021 and concentrated on

managing our existing assets, which

resulted in good lease renewals at

enhanced rents.

Overseas investors were still present

in the UK market in 2021.

Overseas investors look mainly at

central London, and trophy buildings.

These are not the sectors in which

Highcroft looks to compete.

Investors still seeking secure, well-

let investments on long leases,

particularly in the warehouse/

distribution sector.

Prices for this category are still

very keen.

Highcroft continues to look at

alternative sectors whilst benefitting

from the uplift in values in the

industrial warehouse and retail

warehouse sectors which constitutes

73% of our portfolio.

STRATEGIC REPORT

Stock code: HCFT www.highcroftplc.com

OUR BUSINESS MODEL

Our method of value generation is simple: we aim to maximise

our return for shareholders, primarily via an increase in dividend.

We endeavour to operate a cyclical model, buying when the market is low, generating rental income and selling, if

appropriate, when the market is high in order to maximise cash to reinvest. We use a combination of our key resources

to select the best opportunities within our chosen market sectors. We then redevelop and refurbish these in order to

increase the value of the property, therefore allowing us to secure higher rental incomes. We let our properties out on

long leases, guaranteeing consistent income for our shareholders.

Our key resources and

competitive advantages

Key activities

PEOPLE

We are a small team with diverse

skill sets. Our knowledge and

understanding of the marketplace

informs decisions. As a source of

competitive advantage, the talent of

our staff is integral in prudent decision

making, ensuring that our performance

is in line with our objectives.

FINANCIAL STRENGTH

We have a medium level of gearing

for a company investing in property.

Our conservative capital structure and

track record of delivering strong returns

make us a lower risk investment than

others.

OUR TENANTS

Our tenants are diverse companies

with wide-ranging requirements.

As shown on pages 13 to 15, they are

mainly large commercial companies

requiring property on long-term leases.

OUR KEY RELATIONSHIPS

Our key relationships are with our

tenants, our advisory team and with

local communities.

Highcroft’s purpose

is to provide our

tenants with excellent

properties in optimal

locations, enabling

them to succeed, and

our stakeholders to

benefit on a long-term

sustainable basis.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

The value we generate

READ MORE ABOUT

STAKEHOLDER

ENGAGEMENT ON

PAGE 39

READ MORE ABOUT

SUSTAINABILITY

ON PAGES 40 TO 43

SHAREHOLDERS

Short term: Secure dividend

income stream.

Medium term: Income growth

in excess of inflation.

Long term: Increased

shareholder value via

sustained capital and income

growth, arising from our low-

risk business strategy.

TENANTS

Short term: Supportive

landlord/asset manager/

tenant relationships.

Medium term: Improving

environments as opportunities

to enhance our properties are

identified and actioned.

Long term: High quality

environments that help our

tenants succeed with their

business strategy.

SOCIETY

Short term: Taking cost-

effective action to reduce the

environmental impact of our

properties.

Medium term: Helping to

support the terminally ill

and disadvantaged via our

charitable donations.

Long term: Enabling

economic prosperity by

supporting the provision

of appropriate space in

appropriate locations to

encourage employment and

business to flourish.

We look for:

• Location

• Growth markets

• Potential for

development

We are also looking to

increase our average

lot size, to uphold the

quality of our tenants,

grow the portfolio,

and navigate market

uncertainty.

We work hard to ensure all our properties

are income producing and enjoyed 100%

occupancy for many years until our first vacant

unit in March 2020. Our income stream is

strong and derived from good quality tenants.

We maximise the value of our portfolio through

redeveloping and refurbishing properties

to meet tenant demands and maintain

relationships to increase lease length and

rental income. This also enables us to make our

properties more sustainable – see pages 40 to 43

for our sustainability journey and future plans.

We strategically sell smaller lots and properties

in under-performing markets, like high street

retail, to ensure long-term success – see pages

04 to 05 for the evolution of our property over

the last five years

We buy

We generate rental income

We sell

We maximise potential

We are

Stakeholder focused Market aware Opportunity driven

STRATEGIC REPORT

Stock code: HCFT www.highcroftplc.com

Introduction to our

strategy

The objective of the group is to

generate secure and sustainable

income growth to drive a

progressive dividend, which,

when coupled together with

capital value growth, will deliver

strong total shareholder returns.

We set clear strategic priorities

against which we measure our

performance.

The effect of the global

Covid-19 pandemic on

ourstrategy

As the pandemic continued to

evolve during 2021, the board

considered the impact of this

on Highcroft’s stated strategy.

It concluded that, whilst there

was no change to the long-term

strategy of the business, in the

short term the actions that

had been carried out to ensure

effective cashflow management

were adequate. Highcroft had

taken advantage of the available

deferral of £316,000 of VAT

payments in 2020 and these

were repaid prior to the deadline

of 31 March 2021. In 2021 the

board approved the reduction

of its 2019 PID pool outstanding

at 31 December 2019 by £1.6m,

incurring a £304k tax liability

but not prejudicing the group’s

REIT status. This enabled £1.3m

of cash to be retained in the

business at a time when our voids

and void costs were increasing

and the risks from the Covid-19

pandemic were still evolving.

More information regarding PID

pool can be found on page 28.

OUR STRATEGY

Our purpose

Highcroft’s purpose is to provide our

tenants with excellent properties in optimal

locations, enabling them to succeed, and

our stakeholders to benefit on a long-term

sustainable basis.

’

Our strategic priorities

1. Build a high-quality portfolio

2. Use capital effectively

3. Deliver sustainable growth

UNDERSTANDING THE

EXTERNAL ENVIRONMENT

We pay great attention to market

trend forecasts and consider the

impact that these may have on our

strategy. Our decision to rebalance

the portfolio away from residential

and high street retail assets,

and focus more on warehousing

assets, together with a move to

the larger average lot size, was

taken in anticipation of evolving

market trends. Our strategy was

also altered in the short term, as

the Covid-19 pandemic continued

to evolve.

ALIGNING TO OUR

STAKEHOLDERS INTERESTS

All of our strategic priorities and

the associated risk management

strategies are developed with a

focus on our overall objective of

generating progressive returns for

our investors with benefits to all

our stakeholders.

MARKET

AWARE

STAKEHOLDER

FOCUSED

OPPORTUNITY

DRIVEN

UNDERPINNED BY OUR VALUES:

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

Strategic priority

How this priority will help

us achieve our overall

objective Progress in 2021 Future opportunities

Link to

risks –

page 33

Building a portfolio of high-quality commercial properties in the right places occupied by the right tenants with good

lease fundamentals

Continue

to grow our

commercial

property

portfolio with

a bias towards

the south

of England

and Wales.

The directors regard

commercial assets in

these geographical areas

as being best placed to

outperform the market in

any cycle. These locations

are also considered

relatively low risk and fit

our risk profile.

We disposed of one

leasehold industrial asset

where there was little

opportunity for future

growth. This increased

the cash available to

pursue refurbishment

and development

opportunities in the

portfolio.

As asset sourcing

remains challenging in

2022, we are looking at

opportunities within our

portfolio for development

and additional income

generation.

Increase the

average lot

size to £5m,

with no asset

representing

more than 15%

of the portfolio.

As many costs are directly

related to the number

of assets rather than

their size, increasing the

average lot size should

reduce average property

costs, thereby increasing

the net property income

available for distribution.

Average lot size increased

to £4.2m from £3.7m

wholly due to an increase

in the valuation of the

portfolio.

Future growth will come

from revaluation gains,

new assets being bought

that are larger lots than

our average, and from

the disposal of smaller

underperforming units.

Seek capital

growth

opportunities

within our

property

asset base.

Identifying growth

opportunities will enable

either enhanced sales

prices to be achieved or

improve the yield from our

properties.

Lease events which

occurred during the

year have led to an

improvement in yields on

those properties.

Options are being

considered for additional

asset management

opportunities with

excellent sustainability

criteria.

Using available capital, including debt, efficiently and effectively

Use medium-

term gearing at

a modest level.

The use of keenly priced

debt to expand our

property portfolio should

increase our net property

income.

Our debt remains at

£27.2m.

We have headroom with

one lender of £2.8m and

would consider additional

gearing to fund further

acquisitions alongside

existing cash resources.

One loan of £7.5m

matures in May 2022 and

a new replacement facility

has been agreed.

Deliver a sustainable income growth to our investors

Provide a

dividend

increase in

excess of

inflation.

Maintenance of a property

income distribution

stream that is increasing

in real terms is our highest

priority for enhancing

shareholder value.

Following a reduction in

dividends paid in 2020 due

to Covid-19, dividends paid

in 2021 increased 21% to

£3.0m including a special

dividend of £0.3m.

As a REIT we are required

to distribute 90% of our

net property income.

ALL

RISK KEY

Macro-economic outlook

including Covid-19

Occupier demand

and tenant default

Availability and cost

of finance

Key personnel

Political and regulatory

outlook

Commercial property

investor demand

Business strategy

Sustainability

STRATEGIC REPORT

Stock code: HCFT www.highcroftplc.com

1. MOVEMENT IN VALUE OF

PROPERTY ASSETS

2. MOVEMENT IN NET

PROPERTY INCOME

3. INCREASE IN NET ASSET

VALUE PER SHARE

2020

2019

2018

2017

£82.1m

£86.7m

£77.7m

£77.1m

2021

£87.6m

2020

2019

2018

2017

£5.5m

£5.7m

£4.9m

£4.5m

2021

£5.3m

2020

2019

2018

2017

1,104p

2021

1,275p

1,175p

1,207p

1,161p

Link to strategy

Link to risks

Link to strategy

Link to risks

Link to strategy

Link to risks

WHY WE USE THIS

INDICATOR

The value of our commercial

property portfolio and its

movement on a like-for-like

basis versus the market,

give a good measure of the

performance of our assets, on

acapital basis, in the year.

COMMENTARY ON

PERFORMANCE

The value of our assets has

increased by £8,755,000, 11.1%

on a like-for-like basis, which is

slightly below the all-property

MSCI result of 14.1%.

LOOKING FORWARD

The sector and geographical

spread of our assets, together

with the lease lengths and

covenant strength, result in a

portfolio that should perform

well in the current market.

WHY WE USE THIS

INDICATOR

As a REIT, we are required to

distribute 90% of our relevant

property profits. Increasing net

property income contributes

towards an increase in our

dividend.

COMMENTARY ON

PERFORMANCE

Net property income

decreased by £206,000, 3.8%

in the year as a result of a

decrease in rental income

of £156,000 and increased

property costs of £274,000,

offset by a £224,000 reduction

in bad debt charge.

LOOKING FORWARD

In 2022 we hope to build on

the progress made in 2021

where we have dealt with the

ongoing effects of the Covid-19

pandemic and taken steps to

reduce bad debts and to deal

with dilapidations and void

costs arising at our empty

units.

WHY WE USE THIS

INDICATOR

Net asset value per share

measures the value of

shareholders’ equity in the

business. It gives a simple,

clear message of the overall

performance, taking into

account asset performance,

the result for the year and

dividends to shareholders.

COMMENTARY ON

PERFORMANCE

Net asset value per share

increased by 15.5% in 2021,

primarily as a result of the

increase in our property

valuation and also the

net increase arising from

our revenue profits net of

dividends paid in the year.

LOOKING FORWARD

The market remains strong

in 2022, our asset base is

good and we believe that it is

positioned to perform well in

the future.

OUR KEY PERFORMANCE

INDICATORS KPIs

The following key performance indicators are

considered to be the most appropriate for measuring

how successful the company has been in meeting its

strategic objectives.

KPI key

1–4 Financial KPIs

5–6 Non-financial KPIs

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

READ MORE ABOUT

OUR PORTFOLIO

ON PAGES 08 TO 15

READ MORE ABOUT

OUR RISKS ON

PAGES 32 TO 37

4. ACHIEVE AN ADJUSTED

EPS PER SHARE GROWTH

THAT IS IN LINE WITH

THE MARKET

5. AVERAGE OCCUPANCY

LEVELS

6. MAINTAIN THE QUALITY

OF OUR TENANT

COVENANTS

This KPI was new in 2020

Adjusted

EPS %

return

Weighted

market

return

2021 5.6 6.6

2020 5.8 5.5

2020

2019

2018

2017

99%

2021

93%

100%

Link to strategy

Link to risks

Link to strategy

Link to risks

Link to strategy

Link to risks

WHY WE USE THIS

INDICATOR

This KPI measures our

adjusted earnings per share

and compares it to the MSCI

income return for the year

weighted to our portfolio.

This links our performance

for our shareholders to the

performance of the market as

a whole.

COMMENTARY ON

PERFORMANCE

The 2021 performance was

lower than the MSCI income

return for the year which

reflects the costs associated

with our listed status and the

effect of voids and bad debt

provisions.

LOOKING FORWARD

It is hoped that future

performance will return to

market levels.

WHY WE USE THIS

INDICATOR

This indicator is a measure

of the extent to which we

are maximising income and

minimising void costs.

COMMENTARY ON

PERFORMANCE

We had 93% occupancy at

the year-end due to voids

at two of our properties.

An additional property

became void and was re-let

during 2021.

LOOKING FORWARD

We are carrying out

improvement and remedial

works at one of our void units

to improve sustainability and

letting potential.

We are pursuing lease

renewal negotiations at our

2022 lease expiries.

WHY WE USE THIS

INDICATOR

This indicator signals the

quality of our long-term

income stream.

COMMENTARY ON

PERFORMANCE

We continue to have the

majority of our properties let

to strong covenants.

LOOKING FORWARD

The strength of the covenant

will remain important in

assessing new acquisitions

and tenancies and forms part

of our process in assessing

expected credit losses.

STRATEGIC REPORT

Stock code: HCFT www.highcroftplc.com

OPERATING REVIEW

SIMON GILL

Chief executive

Introduction

Throughout 2021 we continued our policy of

managing our portfolio under close scrutiny

and within the restrictions imposed by the

enforcement and lifting of lockdowns which

the market had to tolerate in 2020 and which

had become a feature and frustration of

everyday business. Whilst the great majority of

tenants abided by their contractual liabilities,

a very small minority took full advantage of

the government’s restrictions on enforcing

rent payments. At Highcroft, via diligent

management and good tenant liaison, our 2021

rent collection rate was very high at 97%.

The high street continued to suffer with

the dramatic surge in online retailing, but

retail warehousing witnessed a resurgence

as shoppers were keen to get back to their

favourite activity, and the easing of lockdown

measures meant they could shop in socially

distanced fashion which a warehouse affords,

and a shop does not. High street retail

accounts for less than 6% of our portfolio whilst

retail warehousing is approximately 28%.

The work from home directive meant that the

office sector suffered significantly as occupiers

reviewed their future space requirements in

light of long-term proposals for the workforce

to work remotely for part of their week or,

indeed, permanently. One of our office tenants

exercised their break option in June 2021

which gave us the opportunity to reconfigure

and refurbish the building in preparation for

when the office letting market is active once

again. Planning consent was granted just

prior to Christmas and work commenced in

February 2022.

Our industrial properties, which constitute 45%

of our portfolio, performed well. We achieved

a 20% uplift in rent upon lease renewal at

our St Austell property and at the same time

released a c.1.75-acre site for development.

Plans are being prepared for a new 30,000 sq ft

warehouse unit on the site.

Our occupancy reduced due to the additional

void unit at our office property referred to

above. Our contractual rent also reduced due

to this void and also due to the sale of our

Andover property. These reductions were offset

by rent review uplifts at five of our properties

and the new lease agreed at one of our Ipswich

units where the previous tenant was in CVA

in 2020.

In 2021 we improved our rent

collection rate, over the various

government lockdowns, and

concluded a letting of one of

our three vacant units resulting

in a 93% occupancy rate within

the portfolio.”

READ MORE ABOUT

OUR BUSINESS

MODEL ON PAGES

20 TO 21

READ MORE ABOUT

OUR MARKETPLACE

ON PAGES 18 TO 19

PROPERTY INCOME

2021 2020 2019 2018 2017

Contracted annual rent at

year end £5,700,000 £5,907,000 £6,253,000 £5,025,000 £4,966,000

(Decrease)/increase in year (3.5)% (5.5)% +24.4% +1.2% +20.8%

Occupancy 93% 99% 100% 100% 100%

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

Investments

The industrial sector was, once again,

the star of the property market

show in 2021. Average prime rents

for large distribution warehouses

rose by 15.6% in the UK and a similar

figure for smaller and multi-let

units. This significant growth was

exceeded for those units in the ‘last

mile’ distribution category and also

in London where industrial assets

achieved c.25% annualincrease.

This continuing strong demand

for warehouse and distribution

space, together with the increase in

confidence and trading in the retail

warehouse sector, led to an increase

in our portfolio valuation of 11.1%,

compared to the MSCI all property

value increase of 14.1%. Our St Austell

property increased by almost 50%

over the 12 months commencing

January 2021, due to a 10-year lease

renewal and a 20% increase in rent.

Other industrial assets in the portfolio

increased in value in excess of 15%.

Following the settlement of rent

review at our Oxford offices where the

rent increased by 26.6%, the valuation

rose by 16.9%. We let our one vacant

leisure unit in Ipswich on a new 15-

year lease which led to an increase in

valuation of 23%.

Property acquisitions

and disposals

We made one disposal during the year

which was our Andover property let

to Saint Gobain Building Distribution

Limited (t/a Jewson). Our rationale

for sale was the diminishing head

leasehold interest that we held,

with limited opportunity to regear

on favourable terms, together with

the fact that the investment had

witnessed no rental growth over

the past two reviews. We decided to

take advantage of a strong industrial

investment market and we sold our

leasehold interest for £3,550,000 gross,

a yield of 4.8%.

£2.3m

High street retail

Staines

£2.3m

High street retail

Staines

£1.1m

High street

retail

Kingston

£1.8m

High street retail

Cirencester

£1.8m

High street retail

Cirencester

£1.5m

Warehouse

Warwick

£0.4m

Residential x2

£3.7m

Warehouse

Southampton

£3.7m

Warehouse

Southampton

£0.7m

Residential

£0.7m

Residential

£11.5m

Total

disposals

£12.0m

Total

disposals

£3.5m

Warehouse

Andover

£5.6m

Warehouse

Nottingham

Note: There were no property additions in 2020 or 2021

and no disposals in 2019 or 2020.

£4.5m

Warehouse

St Austell

£5.2m

Leisure

Rubery

£7.0m

Warehouse

Llantrisant

£4.9m

Leisure

Ipswich

£27.2m

Total

acquisitions

FIVEYEAR SUMMARY OF

ACQUISITIONS AND DISPOSALS

CONTRACTED

RENT AT THE

YEAREND PA

£5.7m

REDUCTION IN

CONTRACTED

RENT PA

£0.2m

RENTAL

PIPELINE

£32.2m

REDUCTION IN

RENTAL PIPELINE

£2.6m

Sector balance

The sector balance in our portfolio is now, by valuation:

2021

2020

2019

2018

2017

Warehouse 45 46 42 39 40

Retail warehouse 28 26 27 33 34

Leisure 12 12 14 9 3

Office 9 9 9 9 9

Retail 6 7 8 10 13

Residential 0 0 0 0 1

Total 100 100 100 100 100

Over the past five years we have reduced our exposure to the high street, and

will continue to do so, whilst concentrating on those sectors which will give

our shareholders a better return. Further detail is provided in the financial

review on page 28.

SIMON GILL

Chief executive

28 March 2022

STRATEGIC REPORT

Stock code: HCFT www.highcroftplc.com

FINANCIAL REVIEW

ROBERTA MILES

Finance director

Our 2021 performance showed

a strong bounce-back in terms

of investment returns whilst our

profitability remained strong

notwithstanding the effect of

the Covid-19 pandemic on our

gross and net rental income.”

Overview

2021 2020

Profitability

Net rental income £5,258,000 £5,464,000

Adjusted earnings per share 56.7p 67.7p

IFRS profit/(loss) for the year £11,944,000 (£1,147,000)

Net admin expenses to gross rent 19.6% 17.6%

Investment returns

Net asset value per share 1,275p 1,104p

Dividend per share* 55p 57p

Total shareholder return 29.6% (18.5%)

Return on equity 19.4% (1.90%)

Financing

Net debt £21,485,000 £23,905,000

Net debt to property value 25% 29%

Average cost of debt at the year end 3.1% 3.1%

* For 2020 the figure includes a special dividend of 6p per share.

The group has again shown resilient

performance during 2021, which continued to

be dominated by the Covid-19 pandemic. Gross

rental income decreased by 2.6% (£156,000) to

£5,928,000, notwithstanding a one-off receipt

of £165,000. This fall was primarily due to the

voids at three of our properties and the sale

of our Andover property. Property operating

expenses increased by £50,000 to £670,000.

These costs comprised a bad debt charge

of £142,000 and property costs arising from

our ongoing asset management, plus the

costs arising from our void properties. Our

administrative and finance costs also increased

in the year, primarily due to the increased costs

associated with being a listed company, and

with our status as an associated undertaking

together with an increase in directors’

remuneration and in staff costs, partly due

to the appointment of our new company

secretary. Our underlying adjusted revenue

profit before tax (excluding revaluation gains

and gains on disposals) decreased by 7.4% as

a result of the 3.8% fall in net rental income,

the 8.9% rise in administration expenses

net of the 4.6% fall in interest payable. The

taxation charge of £304,000 has arisen from

the reduction of our PID pool by £1.6m made

as a result of the Covid-19 pandemic. Further

information on the reduction of the PID pool

ison page 88.

Net assets have increased by 16% to £66,117,000

and we have a low net debt to property

value of 25%. The average cost of debt at the

year-end remains 3.1% with the reduction in

interest payable arising in the year due to the

refinancing of two loans and an additional

£1m of borrowing taken in 2020 at lower rates

than the expiring facilities. Our investment

properties increased in value by £8,755,000 (11%

on a like-for-like basis).

We are proposing a final dividend for 2021 of

33p per share giving a total dividend for 2021

of 55p per share, an increase of 8% from the

2020 dividend of 51p per share (excluding

the 2020 special dividend of 6p per share).

Since 2009 (our first full accounting year as

a REIT), our dividends have risen by a total of

112% – a compound annual increase of 6.4%.

In the same period, our net assets per share

have increased by 92% from £6.66 to £12.75

per share.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

Income

Total income has decreased by 2.6%

Commercial property income

Residential property income

Income from equity investments

2020

5,840

2019

5,035

2018

4,749

2017

6,500

6,000

5,500

5,000

4,500

4,000

£’000

6,084

5,928

Total

£’000

6,084

2021

5,928

5,097

5,843

4,857

The annual movement in our property income can be summarised as:

2021

2020

2019

2018

2017

Increase in gross rental income (2.6) 4 16 6 22

2020 2021

Reduction in

Covid-19

concessions

5,928

6,084

One-off income

165

Negative effect

of voids

(220)

Reduction in

insurance

premiums

chargeable

(18)

6,000

5,000

7,000

4,000

£’000

Negative effects of CVAs

(214)

Negative effects of

sale of asset

(65)

Positive effect of

asset management

184

Administration and other expenses

2021

£’000

2020

£’000

2019

£’000

2018

£’000

2017

£’000

Directors’ remuneration 837 801 597 541 492

Auditor’s remuneration including other services 64 58 35 32 31

Other expenses 263 210 194 163 140

Administration expenses 1,164 1,069 826 736 663

Net finance expenses 851 892 850 699 649

Total expenses 2,015 1,961 1,676 1,435 1,312

Director’s remuneration rose primarily due to three years of the share element of the Highcroft Incentive Plan being

expensed in the year (2020 two years), the 2021 Incentive Plan award being higher than for 2020, net of the decrease in

base salary and Incentive Plan award reduction for David Kingerlee when he changed status to a non-executive director

on 7 April 2021. More detail can be found in the remuneration report on pages 59 to 70. Other expenses have increased as a

result of the rising professional costs associated with our status as a premium main marked listed entity and the additional

professional work and fees required due to the increased risk of being an associated undertaking of Kingerlee Holdings

Limited. We added a part-time company secretary to our small team in October 2021 in order to strengthen our internal

governance and improve the robustness of our organisation. It is likely that these costs will continue to increase significantly

in the future due to the governance and regulatory demands facing all listed entities. Net finance expenses decreased as

a result of a full year’s saving arising from our £4,000,000 loan refinancing and additional £1,000,000 loan drawn in 2020,

where our new fixed interest rates were significantly lower than those on the maturing loans.

STRATEGIC REPORT

Stock code: HCFT www.highcroftplc.com

FINANCIAL REVIEW

Summary of profit before tax and income tax credit on revenue activities

2021

£’000

2020

£’000

2019

£’000

2018

£’000

2017

£’000

Profit before tax 3,243 3,503 3,983 4,445 3,287

Income tax (charge)/credit (304) – 72 67 61

Profit for the year 2,939 3,503 4,055 4,512 3,348

The decrease in the revenue profit for the year in 2021 was influenced by a decrease in net rental income of £206,000, an

increase in administration expenses of £95,000 and a decrease in net finance expenses of £41,000.

Investments

Commercial property*

Residential property*

Equities

* Including assets held for sale

classified as current asset

investments

2017

76,315

90,000

70,000

£’000

Total

£’000

2019

86,710

£86,710

2020

82,060

£82,060

2021

87,565

£87,565

798

2,131

£79,244

2018

77,700

679

£78,379

80,000

60,000

Our investments increased due to valuation gains net of the disposal of our warehouse property in Andover.

Summary of property investment activities

During 2021 we disposed of our warehouse property in Andover. More details can be found on page 27.

2021

£’000

2020

£’000

2019

£’000

2018

£’000

2017

£’000

Acquisitions at cost – – 11,898 5,226 10,086

Net proceeds from disposals (3,500) – – (6,090) (2,259)

Net (divestment)/investment (from)/into the

property portfolio (3,500) – 11,898 (864) 7,827

Realised and unrealised property gains

Our valuations are undertaken by Knight Frank LLP as reported in Note 8 to the consolidated accounts. The capital

performance of our property portfolio can be summarised as follows:

2021

£’000

2020

£’000

2019

£’000

2018

£’000

2017

£’000

Realised gains on investment property 250 – – 967 1

Revaluation gains on investment property 9,925 2,525 739 2,600 3,365

Revaluation losses on investment property (1,170) (7,175) (3,627) (2,116) (77)

Net revaluation gains/(losses) 8,755 (4,650) (2,888) 484 3,288

The realised gain on disposals arose from the sale of our Andover property in August 2021.

Overall, our property portfolio increased in value during the year by £8,755,000, which represents 11.1% on a like-for-like basis. Our

most significant revaluation gains related to one of our warehouse units where we negotiated a successful lease renewal during

the year with a 20% increase in the basic rent, and one of our leisure units where the tenant had been in administration in 2020

and where we completed a new long-term lease in October 2021. The most significant revaluation losses were in our high street

retail assets, where a further move in market sentiment, has resulted in a reduced valuation and there was also a significant

decrease at our void office property. The revaluation movement is summarised by class of asset in the following table.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

Valuation

movement

Movement to opening

valuation less disposals

Office 350,000 4.7%

Industrial 5,500,000 14.6%

Retail (570,000) (10.3%)

Leisure 700,000 6.0%

Retail warehouse 2,775,000 12.9%

 8,755,000 11.1%

Financing and cashflow

Net cash generated from operating activities was £282,000 higher at £3,502,000. The increase arose from a £804,000

decrease in working capital requirement and a £41,000 reduction in finance expense, net of a reduced profit from operations

before changes in working capital of £273,000 and an increase in tax paid of £290,000. It is the directors’ intention to reinvest

surplus cash, that is not required for PID payments, into the commercial property portfolio when suitable opportunities arise.

2021

£’000

2020

£’000

2019

£’000

2018

£’000

2017

£’000

Opening cash 3,295 1,559 5,202 1,904 3,369

Net cash from operating activities 3,502 3,220 3,560 3,620 3,568

Investment acquisitions – property – – (11,898) (5,226) (10,086)

Investment disposals – property* 1,925 – – 6,090 2,259

Investment disposals – equities – – 724 1,333 477

Dividend paid (3,007) (2,484) (2,829) (2,519) (2,183)

Net new bank borrowings – 1,000 6,800 – 4,500

Closing cash 5,715 3,295 1,559 5,202 1,904

* For 2021 net of proceeds transferred into deposit given as bank security and included in other receivables in Note 10 to the consolidated

financial statements.

Analysis of borrowing

2021

£’000

2020

£’000

2019

£’000

2018

£’000

2017

£’000

Handelsbanken term loans 2030 5,000 5,000 – – –

Handelsbanken term loans 2029 6,800 6,800 6,800 – –

Handelsbanken term loan 2027 4,500 4,500 4,500 4,500 4,500

Handelsbanken term loan 2026 3,400 3,400 3,400 3,400 3,400

Handelsbanken term loan 2022 7,500 7,500 7,500 7,500 7,500

Handelsbanken term loans 2020 – – 4,000 4,000 4,000

Total debt 27,200 27,200 26,200 19,400 19,400

Cash (5,715) (3,295) (1,559) (5,202) (1,904)

Net debt 21,485 23,905 24,641 14,198 17,496

Net assets 66,117 57,121 60,721 62,384 59,977

Gearing (net of cash) 32% 42% 41% 23% 29%

Our weighted average cost of total debt was 3.13% (2020 3.13%).

The group has a facility letter in place to re-finance its loan that matures on 16 May 2022.

Outlook

We believe that the quality of our assets, our ongoing asset management programme and spread of sector risk, all

combined with our concentration of assets in the south of England and Wales, means that we are in a strong position to

deliver a secure dividend return to our shareholders.

We remain optimistic about the prospects for the group and its ability to meet its strategic objectives in the medium and

long term.

Approved by the board and signed on its behalf

ROBERTA MILES

Finance director

28 March 2022

STRATEGIC REPORT

Stock code: HCFT www.highcroftplc.com

OUR RISKS

Risk framework

The company has a well-established risk management

and internal control framework. The board has overall

responsibility for risk management with a focus on

determining the nature and extent of exposure to principal

risks the group is willing to take in achieving its strategic

objectives. The amount of risk is assessed in the context

of the core strengths of our business and the external

environment in which we operate. Whilst risk is an integral

part of our business, the general appetite of the group for

risk is low.

The board believes that effective risk management is

integral to our strategy of delivering long-term sustainable

income and capital growth.

Strategic risk management reporting

Audit committee

• Assurance of risk management process

Board of directors

• Overall responsibility for risk management

• Regular review of effectiveness of system of internal

control

• Regular assessment of emerging and principal risks

Executive committee

• Day-to-day risk management

• Ongoing identification, assessment and mitigation

of risk

• Design implementation and evaluation of system of

internal control

• Ensuring operational effectiveness of control system

Our approach to risk management is to identify the

financial operational and compliance risks that may prevent

the attainment of our strategic objectives, our future

performance, solvency or liquidity. We then evaluate the

risks and take any appropriate action to reduce or remove

the likelihood of any of these having a material impact. This

process is regularly monitored and reviewed.

At the point that any key strategic decision is taken, the

potential risks are considered. Effective risk management

is an important part of our board decision-making process.

All directors are kept up to date with key issues on at least a

monthly basis. The small size of the management team and

regular consideration of risk areas means we can respond

quickly to changes in the risk environment.

The principal risks that have been identified and the

management and/or mitigation of these are set out on pages

34 to 37. The board has identified that emerging risks are

likely to be linked to our existing principal risks and these are

also included as appropriate in the table on pages 34 to 37.

Against the backdrop of economic and political challenges

due to the continued impacts of the global Covid-19

pandemic, we have continued to actively manage our

risk exposure by maintaining a high occupancy across

our portfolio and an efficient capital structure and

liquidityposition.

Risk appetite

Whilst risk is an integral part of our business the general

appetite of the group for risk is low.

Changes to our principal risks

The principal risks and uncertainties facing the group in 2021

are set out on pages 34 to 37 together with the mitigating

actions and controls in place. We define a principal risk

as one that is currently impacting on the group or could

impact the group over the next 12 months. These principal

risks are not a complete list of all risks facing the group but

are a snapshot of the group’s risk profile as at the date of

thisreport.

New principal risks or new factors

affecting existing principal risks

International trade negotiations affecting the

political and regulatory outlook

The trade agreement with the EU was completed just prior

to the end of the transition period on 31 December 2020.

Whilst all our properties are in the UK, our tenants operate

global businesses with international supply chains and

recruitment policies. During 2021 we have not become

aware of any significant adverse effect on our tenants that

may have an impact on our income and we have also not

seen any reduction in demand for properties arising from

the Brexit process.

The ongoing Covid-19 pandemic affecting the

macro-economic climate

During 2021 there has been a successful vaccine rollout in

the UK and the potential risks from the ongoing pandemic

have reduced significantly. There have, however, been some

significant shifts in the way that people live their lives with

more working from home and less shopping in the high

street and an increase in online shopping. These cultural

shifts have affected the property marketplace. In general,

property valuations, particularly in the industrial sector, have

performed well and recovered from much of the uncertainty

factored into the 2020 valuations.

The board has established protocols for remote working for

itself and its employees. In the move to new premises during

the year, the related health and safety issues connected

with the virus were taken into account in developing our

workplace operating procedures.

The board continues to pay close attention to the evolving

situation and to mitigating the risks for our business and all

our stakeholders.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

The longer-term operations of the business affected by the sustainability credentials of

the business

During the year the board agreed that expectations relating to environmental, social and governance issues had increased

and as a result the sustainability credentials of the business were now a principal risk. Further details on the company’s

approach to identifying, assessing and managing climate-related risks are in the sustainability section of the report.

Risk heat map

The risk heat map below illustrates the principal risks that have the potential to significantly impact the group’s strategic

objectives, financial position or reputation. It highlights net risk, after taking account of principal mitigations.

Low HighImpact

Low HighLikelihood

1 3

Principal risk key

External risks

Link to

strategic

objectives

Macro-economic outlook including

Covid-19

Political and regulatory outlook

Occupier demand and tenant default

Commercial property investor

demand

Availability and cost of finance

Internal risks

Business strategy

Key personnel

Sustainability

As at 7 April 2021

As at 28 March 2022

Strategic priorities key

The objective of the group is to enhance shareholder value via a combination of increasing net asset value, profits and

dividends.

We set clear, strategic objectives against which we measure our performance:

Continue to grow our commercial property portfolio with a bias towards the south of England and Wales

Increase the average lot size to £5m with no asset representing more than 15% of the portfolio

Seek capital growth opportunities within our property asset base

Use medium-term gearing at a modest level

Provide a dividend increase in excess of inflation

STRATEGIC REPORT

Stock code: HCFT www.highcroftplc.com

OUR RISKS

Principal risk How we manage/mitigate the risk Commentary

Change in risk

assessment in

the year

Link to strategic

priority

External risks

Macro-economic outlook

The UK economic climate, any further adverse

consequences of Covid-19 and the potential global

impact of the conflict in Ukraine, particularly in relation

to future movements in interest rates and cost-of-living,

present both risks and opportunities in the property

and associated financial markets. This could impact the

delivery of our planned revenue and capital strategy.

• Monitoring of economic and property industry

research by the executive team and review at board

meetings and adjustment of strategy as necessary.

• Our activities are restricted solely to the UK with no

foreign exchange exposure.

• Use of advisers as appropriate when considering key

transactions.

• Ongoing review of tenant, asset and sector profile.

During 2021, the economic position in the UK improved from the severe uncertainties

experienced in 2020 because of the pandemic. In addition, the successful vaccine rollout

and move away from the imposition of lockdowns will benefit our tenants. However,

interest rates have now started to rise, inflation is surging and there is still a level of

uncertainty regarding the future outlook.

Our property valuations have risen as a result of the improvement in market sentiment

during 2021.

In 2022, we will continue to carry out our controls, management and mitigation

procedures.

Political and regulatory outlook

The end of the Brexit transition period at the end

of 2020 and the effect of the new trade deals could

further impact the profitability of our tenants. The ever-

increasing regulatory framework for listed companies

will increase our cost base.

• We are not able to influence political events and

decisions, however, we review and monitor potential

scenarios and consider them in our planning process.

• We use our advisory team to ensure that the board

remains up to date with the evolving regulatory

requirements for a listed real estate company.

• We have introduced a board portal to enhance our

governance systems and procedures.

The Brexit transition period expired on 31 December 2020. There have been issues

arising for our tenants, exacerbated by the Covid-19 pandemic and primarily related to

supply chain costs and delays. However, these issues are not causing a fundamental

effect on our tenants.

Listed real estate company compliance requirements continue to increase.

In 2021, we strengthened our team by splitting the role of finance director and company

secretary and further enhancing our reporting procedures.

Occupier demand and tenant default

Any weakening in the UK economy, reduced consumer

confidence, business activity and investment could result

in tenant administration/CVA and reduce income, rental

growth and capital performance.

• We review market data with our advisers, together

with industry trends, to assess whether any risk-

mitigating steps need to be taken.

• Our strategy is to invest in the lower risk areas of the

south of England and Wales.

• Our strategy to invest across different sectors reduces

our exposure to an individual sector or tenant.

• We maintain close relationships with our tenants and

support them through their business cycle.

• We review the managing agents rent collection

reports regularly and take action, where necessary.

We have 21 properties with 27 tenants and 25 individual covenants. At the year-end two

of our properties are void representing 6.6% of the annual rent roll. In addition one unit

in a multi-let property representing 3.6% of our annual rent roll became void in the year

as the result of a CVA and has been re-let. Our bad debt charge for the year is £143,000

which represents 2% of gross rental revenue.

The weighted average lease expiry is 5.6 years, which provides a reasonable longevity of

income.

In 2022, we will continue to carry out our frequent reviews and controls.

Commercial property investor demand

Any drop in, inter alia, the health of the UK economy,

or in the availability of finance, or the attractiveness of

sterling, may result in a reduction in investor demand

for UK property, which may result in a fall in our asset

valuations.

We review market data with our advisers, together with

industry trends, to assess whether any risk-mitigating

steps need to be taken.

During 2021, in the light of the improving macro-economic situation, the property

market improved and transaction rate increased. We took advantage of this to dispose

of one long-leasehold asset. More details on page 27.

In 2022, we will continue with our current controls and will look to take opportunities to

invest or divest at particularly opportune points in the property cycle.

Availability and cost of finance and debt covenant

requirements

Bank of England monetary policy may result in interest

rate rises and future increased costs of borrowing.

Reduced availability of appropriately priced finance

would affect our ability to refinance and/or increase cost.

Breach of debt covenants could trigger loan defaults and

repayment of facilities.

The board aims to only assume a moderate level of

gearing, thereby increasing the likelihood of being seen

as an attractive banking proposition for lenders. Our

preference is for fixed interest, non-amortising debt with

a spread of maturity dates. We monitor our LTV and debt

requirements and maintain good long-term relationships

with our current and potential financing partners.

During 2021, there were no changes to our debt.

Our next loan maturity is in May 2022 and a new replacement facility has been agreed.

In 2022, we will carry out our annual review with our current lender and continue to

carry out our monitoring procedures.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

Principal risk How we manage/mitigate the risk Commentary

Change in risk

assessment in

the year

Link to strategic

priority

External risks

Macro-economic outlook

The UK economic climate, any further adverse

consequences of Covid-19 and the potential global

impact of the conflict in Ukraine, particularly in relation

to future movements in interest rates and cost-of-living,

present both risks and opportunities in the property

and associated financial markets. This could impact the

delivery of our planned revenue and capital strategy.

• Monitoring of economic and property industry

research by the executive team and review at board

meetings and adjustment of strategy as necessary.

• Our activities are restricted solely to the UK with no

foreign exchange exposure.

• Use of advisers as appropriate when considering key

transactions.

• Ongoing review of tenant, asset and sector profile.

During 2021, the economic position in the UK improved from the severe uncertainties

experienced in 2020 because of the pandemic. In addition, the successful vaccine rollout

and move away from the imposition of lockdowns will benefit our tenants. However,

interest rates have now started to rise, inflation is surging and there is still a level of

uncertainty regarding the future outlook.

Our property valuations have risen as a result of the improvement in market sentiment

during 2021.

In 2022, we will continue to carry out our controls, management and mitigation

procedures.

Political and regulatory outlook

The end of the Brexit transition period at the end

of 2020 and the effect of the new trade deals could

further impact the profitability of our tenants. The ever-

increasing regulatory framework for listed companies

will increase our cost base.

• We are not able to influence political events and

decisions, however, we review and monitor potential

scenarios and consider them in our planning process.

• We use our advisory team to ensure that the board

remains up to date with the evolving regulatory

requirements for a listed real estate company.

• We have introduced a board portal to enhance our

governance systems and procedures.

The Brexit transition period expired on 31 December 2020. There have been issues

arising for our tenants, exacerbated by the Covid-19 pandemic and primarily related to

supply chain costs and delays. However, these issues are not causing a fundamental

effect on our tenants.

Listed real estate company compliance requirements continue to increase.

In 2021, we strengthened our team by splitting the role of finance director and company

secretary and further enhancing our reporting procedures.

Occupier demand and tenant default

Any weakening in the UK economy, reduced consumer

confidence, business activity and investment could result

in tenant administration/CVA and reduce income, rental

growth and capital performance.

• We review market data with our advisers, together

with industry trends, to assess whether any risk-

mitigating steps need to be taken.

• Our strategy is to invest in the lower risk areas of the

south of England and Wales.

• Our strategy to invest across different sectors reduces

our exposure to an individual sector or tenant.

• We maintain close relationships with our tenants and

support them through their business cycle.

• We review the managing agents rent collection

reports regularly and take action, where necessary.

We have 21 properties with 27 tenants and 25 individual covenants. At the year-end two

of our properties are void representing 6.6% of the annual rent roll. In addition one unit

in a multi-let property representing 3.6% of our annual rent roll became void in the year

as the result of a CVA and has been re-let. Our bad debt charge for the year is £143,000

which represents 2% of gross rental revenue.

The weighted average lease expiry is 5.6 years, which provides a reasonable longevity of

income.

In 2022, we will continue to carry out our frequent reviews and controls.

Commercial property investor demand

Any drop in, inter alia, the health of the UK economy,

or in the availability of finance, or the attractiveness of

sterling, may result in a reduction in investor demand

for UK property, which may result in a fall in our asset

valuations.

We review market data with our advisers, together with

industry trends, to assess whether any risk-mitigating

steps need to be taken.

During 2021, in the light of the improving macro-economic situation, the property

market improved and transaction rate increased. We took advantage of this to dispose

of one long-leasehold asset. More details on page 27.

In 2022, we will continue with our current controls and will look to take opportunities to

invest or divest at particularly opportune points in the property cycle.

Availability and cost of finance and debt covenant

requirements

Bank of England monetary policy may result in interest

rate rises and future increased costs of borrowing.

Reduced availability of appropriately priced finance

would affect our ability to refinance and/or increase cost.

Breach of debt covenants could trigger loan defaults and

repayment of facilities.

The board aims to only assume a moderate level of

gearing, thereby increasing the likelihood of being seen

as an attractive banking proposition for lenders. Our

preference is for fixed interest, non-amortising debt with

a spread of maturity dates. We monitor our LTV and debt

requirements and maintain good long-term relationships

with our current and potential financing partners.

During 2021, there were no changes to our debt.

Our next loan maturity is in May 2022 and a new replacement facility has been agreed.

In 2022, we will carry out our annual review with our current lender and continue to

carry out our monitoring procedures.

STRATEGIC REPORT

Stock code: HCFT www.highcroftplc.com

Principal risk How we manage/mitigate the risk Commentary

Change in risk

assessment in

the year

Link to strategic

priority

Internal risks

Business strategy

If the group has the wrong strategy for the current stage

of the property cycle and the macro-economic climate

there will be reduced profitability and capital values.

Our strategy is determined to be consistent with our

stated risk appetite and is based on our evaluation of the

macro-economic environment. Individual investment or

divestment decisions are made by the board and subject

to a risk evaluation.

During 2021, a year still dominated by the global pandemic, our capital performance was

close to the market and our rent collection was 97%.

In 2021, we held an annual strategy away day to discuss the group’s five-year strategy,

monitor our portfolio for further asset management activities and manage the void

rate, examine opportunities for acquisitions and disposals to recycle capital, and we will

continue to monitor and react to the impact of Covid-19 on our business.

Key personnel

A number of critical business processes lie in the hands

of a few people. Failure to recruit, develop and retain staff

and directors with the right skills and experience may

result in significant underperformance or impact the

effectiveness of operations and decision making, in turn,

impacting business performance.

Remuneration packages are reviewed annually to ensure

that the group can retain, motivate and incentivise key

staff. We outsource a number of key routine processes

to minimise the risk of business interruption. Succession

planning and the composition of the board are regularly

reviewed by the nomination committee and the board

reviews the key advisers at least annually. Future

recruitment may require the use of a head-hunter to

source candidates with the appropriate skillset.

There were no changes during the year. This is the third year of operation of the

Highcroft Incentive Plan, designed to enhance the linkage between director

remuneration and performance.

In 2021, we split the role of finance director and company secretary to further reduce

risk. An experienced part-time company secretary was appointed with the use of a

head-hunter.

The remuneration policy was reviewed in the year by the remuneration committee and

no changes were considered necessary.

Sustainability

If the group fails to address climate-related risks in the

short, medium and long term, the company’s assets

and its licence to operate will be challenged. Identifying

future opportunities for operating and the ability of the

executives to manage these risks are also factors.

A separate strategic session on sustainability was held by

a sub-group of the board during the year. This covered the

climate-related risks and opportunities to the business.

The board agreed a series of initiatives which included evaluation of the EPC risk

strategy for the portfolio and a series of stakeholder engagements intended to take

place over 2022. Construction at St Austell will incorporate certain sustainable features.

Further details are available on page 41.

OUR RISKS

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

Principal risk How we manage/mitigate the risk Commentary

Change in risk

assessment in

the year

Link to strategic

priority

Internal risks

Business strategy

If the group has the wrong strategy for the current stage

of the property cycle and the macro-economic climate

there will be reduced profitability and capital values.

Our strategy is determined to be consistent with our

stated risk appetite and is based on our evaluation of the

macro-economic environment. Individual investment or

divestment decisions are made by the board and subject

to a risk evaluation.

During 2021, a year still dominated by the global pandemic, our capital performance was

close to the market and our rent collection was 97%.

In 2021, we held an annual strategy away day to discuss the group’s five-year strategy,

monitor our portfolio for further asset management activities and manage the void

rate, examine opportunities for acquisitions and disposals to recycle capital, and we will

continue to monitor and react to the impact of Covid-19 on our business.

Key personnel

A number of critical business processes lie in the hands

of a few people. Failure to recruit, develop and retain staff

and directors with the right skills and experience may

result in significant underperformance or impact the

effectiveness of operations and decision making, in turn,

impacting business performance.

Remuneration packages are reviewed annually to ensure

that the group can retain, motivate and incentivise key

staff. We outsource a number of key routine processes

to minimise the risk of business interruption. Succession

planning and the composition of the board are regularly

reviewed by the nomination committee and the board

reviews the key advisers at least annually. Future

recruitment may require the use of a head-hunter to

source candidates with the appropriate skillset.

There were no changes during the year. This is the third year of operation of the

Highcroft Incentive Plan, designed to enhance the linkage between director

remuneration and performance.

In 2021, we split the role of finance director and company secretary to further reduce

risk. An experienced part-time company secretary was appointed with the use of a

head-hunter.

The remuneration policy was reviewed in the year by the remuneration committee and

no changes were considered necessary.

Sustainability

If the group fails to address climate-related risks in the

short, medium and long term, the company’s assets

and its licence to operate will be challenged. Identifying

future opportunities for operating and the ability of the

executives to manage these risks are also factors.

A separate strategic session on sustainability was held by

a sub-group of the board during the year. This covered the

climate-related risks and opportunities to the business.

The board agreed a series of initiatives which included evaluation of the EPC risk

strategy for the portfolio and a series of stakeholder engagements intended to take

place over 2022. Construction at St Austell will incorporate certain sustainable features.

Further details are available on page 41.

VIABILITY STATEMENT

Assessment of viability

In accordance with provision 31 of the

Code, the directors have assessed the

viability of the group over a longer

period than the 12 months required

by the ‘going concern’ provision. The

board conducted this review for a

period of five years to coincide with

its detailed review of the group’s

financial budgets and forecasts. The

period is consistent with the periods

until the next lease event on many

of our properties, and includes the

dates of expiry of our next two expiring

term loans, which represent 40% of

our total debt. This five-year period is

considered to be the optimal balance

between the long-term strategy of

delivering sustainable income and

capital growth, and the fact that

property investment is a long-term

business, counterbalanced by the

inherent uncertainties involved in

medium to long-term forecasting

in an industry that has been cyclical

innature.

The board, in conjunction with the

audit committee, carried out a robust

assessment of the principal risks

and uncertainties facing the group

including those that would threaten

its business model, strategy, future

performance, solvency, or liquidity

over the five-year period. This review

provided the board with assurance

that the mitigations and management

systems are operating as intended.

The board receives regular (at least

monthly) briefings from the executive

team, which include rent collection

data, portfolio updates including

issues and tenant discussions, debt

covenants and a review of the principal

risks and any adverse movements in

risk exposure.

The board considered the group’s

cashflows including the required

cashflows to meet the dividend

requirement of the REIT regime, REIT

compliance, income profile, loan to

value and other key financial metrics.

The board has also considered the

level of property capital transactions

that are likely to occur and noted the

agreement of a facility letter to re-

finance the loan maturing in 2022.

The board also conducted a sensitivity

analysis, considering the potential

impacts of one, or more, of the group’s

principal risks, as set out on page 33,

occurring. In particular the board

considered the effect of the following

sensitivities during the forecast period:

• a 20% drop in income during the

forecast period,

• a 100% increase in the financing

cost of the debt maturing in 2022,

• a 25% increase in our

proposed capital expenditure

programme, and

• the effect of the non-release of the

£1.6m held by Handelsbanken plc

as cash security for borrowing.

Viability statement

Having considered the forecast

cashflows, covenant compliance, and

the impact of the sensitivities, the

directors confirm that they have a

reasonable expectation that the group

will be able to continue in operation

and meet its liabilities as they fall due

over the period to 31 December 2026.

STRATEGIC REPORT

Stock code: HCFT www.highcroftplc.com

GOING CONCERN STATEMENT

Assessment of

goingconcern

The directors have assessed the

group’s ability to continue as a going

concern. This includes a review of

the continuing uncertainties created

by the ongoing Covid-19 pandemic,

and the potential global impact of

the conflict in Ukraine, particularly in

respect of rental income, the group’s

cash resources, borrowing facilities and

dividend distributions.

The group’s business activities,

together with the factors likely to affect

its future development, performance

and financial position are set out in

the strategic report. The financial

performance of the group for 2021

including its cashflows, liquidity and

borrowing facilities are set out in the

financial statements with additional

information in the financial review on

pages 28 to 31. Note 18 to the accounts

on page 95 includes information on

the group’s financial instruments

and on its approach to credit and

liquidity risk.

At 31 December 2021, the group had

£5.7m of cash and cash equivalents

and fixed-term, fixed interest, non-

amortising borrowing of £27.2m that

expires during the period May 2022

– July 2030. In addition, there was a

secured deposit of £1.6m which should

become available in May 2022, an

undrawn overdraft facility of £1m and

additional headroom of £1.8m. The

first facility maturity is in May 2022 for

£7.5m and the company has an agreed

facility letter in place to replace this

with a new £7.5m fixed-term loan. No

other renewals fall due before August

2026. The group has a modest gearing

of 32% and its net debt to investment

property valuation is 23%.

Our primary debt covenants relate

to interest cover and loan-to-value.

They are tested annually, and the LTV

covenant is based on the valuations

addressed to the bank (which may

not be the same as the current

valuations). In order to respond to a

potential shortfall in the LTV covenant

as a result of a reduction in valuation

of our secured properties, the group

gave additional property as security

during the year. The group disposed

of its Andover property, which was

charged to the bank, during the

year. In addition, to maintain the LTV

covenant, £1.6m of the proceeds from

sale were placed into a secured deposit

account. It is anticipated that these

funds will be transferred to cash at or

before the time that the maturing loan

is financed in May 2022. In addition,

one further property will be charged to

the Handelsbanken PLC in 2022.

The group has a secure property

income stream from 27 tenants with

no undue reliance on any one tenant.

The Covid-19 pandemic has, however,

resulted in us being unable to quickly

re-let our unit in Oxford High Street

that went void in March 2020, nor

have we been able to secure a new

tenant for our Cardiff property where

the lease ended in June 2021. We

have, however, managed to re-let

our leisure unit in Ipswich where the

previous tenant went into CVA in 2020.

Based on this experience, the board

has carefully reviewed its forecast

assumptions regarding potential void

periods and lease incentives at break

dates and lease ends. In addition, we

have three tenants with whom we

are in detailed discussion regarding

their arrears positions and with one

of these we have taken further action

to recover the sums owed to us.

Notwithstanding the fact that Covid

restrictions are easing in England and

Wales and the Ukraine conflict does

not directly impact our assets which

are all in England and Wales, there

remain uncertainties regarding our

tenants’ ability to carry on their normal

business and generate cash to pay

their rent. We have taken this into

account in our sensitivity analyses.

The group’s most significant

outflows are its PID and bank interest

payments, which made up 54% and

15% of the 2021 cashflow respectively.

The directors have reviewed the

projected cashflows of the group and

its compliance with debt covenants.

They have also overlaid their best

estimates of the impact of the

ongoing Covid-19 pandemic and the

potential global impact of the conflict

in Ukraine onto their forecasting and

debt covenant reviews and considered

scenarios including:

• Rent collections continuing to be

reduced throughout 2022, affecting

cash generation and covenant

compliance

• Void properties and those that

may become void at lease end

and/or break dates remaining

void for a longer than usual period

thereby reducing income and

increasing costs

• The ongoing pandemic and

global conflict affecting property

valuations and related debt

covenants

The directors have also stress tested

the forecasts considering the level

of fall in income and valuations that

would cause the business to be unable

to pay its liabilities as they fall due and

have concluded that the possibility of

these scenarios occurring is remote.

The audit committee reviewed the

analysis, on page 85, supporting the

going concern basis of preparation

of the accounts. This review included

the forecast 12-month cashflows,

loan maturities, headroom on debt

covenants, undrawn loan facilities

and the quality and parameters of the

stress testing. Having completed their

review, the committee recommended

to the board that it was appropriate to

adopt a going concern basis.

Going concern statement

The directors are not aware of any

material uncertainties that may cast

significant doubt upon the group’s

ability to continue as a going concern.

They have considered the audit

committee recommendation and

concluded that there is a reasonable

expectation that the group has

adequate resources to continue

in operational existence for the

foreseeable future.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

STAKEHOLDER ENGAGEMENT

Effective engagement enables the

board to ensure stakeholder interests

are considered when making decisions.”

Section 172(1) statement

The board of directors confirms that it has, during the year,

acted to promote the long-term success of the company

for all of its stakeholders, including its shareholders, whilst

having due regard to the matters set out in section 172 (1) (a)

to (f) of the Companies Act 2006 being:

(a) the likely consequences of any decision in the long term

(b) the interests of the company’s employees

with suppliers, customers and others

(d) the impact of the company’s operations on the

community and the environment

(e) the desirability of the company maintaining a reputation

for high standards of business conduct

(f) the need to act fairly between members of the company.

The nature of our business means that we have an ongoing dialogue with a wide group of stakeholders, as summarised below.

Stakeholder

Why is it important

to engage? Ways we engage Key interests How do we respond?

Our

shareholders

In order to

understand

the views and

aspirations of

shareholders as

the owners of our

business

Direct and indirect shareholder

engagement via the annual

report, shareholder meetings

and calls with our two main

shareholder groups. We also

seek all shareholders’ views via

our website and at the AGM.

Further details on page 52

• Growth strategy

and healthy returns

whilst meeting our

environmental and

social responsibilities

We had several meetings

with our two main

shareholder groups in

the year and sought their

views on strategy and risk

Our tenants

In order to have

the ability to react

swiftly to issues and

opportunities and

to understand how

tenant demands are

changing to help us

evolve our strategy

We build relationships with

tenants, directly if possible, and

also via our asset managers

• Tenant satisfaction,

with fit-for-purpose

spaces that are able

to evolve with their

business

• Ability to

meet future

tenants’ needs

We had direct dialogue

with 13 of our tenants

and also with prospective

tenants during the year

and considered their views

in our decision-making

With the general concern

over the environment,

we took a ‘green’

approach to our proposed

development in St Austell

with the ambition of

providing a BREEAM very

good building

Our employees

We value the input

and insight that all

team members can

provide

As we only have only two

employees outside the board,

our engagement is informal

• Wellbeing

• Health and safety

• Personal

development

Informal reviews were held

with the employees by a

director who is not their

line manager

Our advisory

team and other

suppliers

In order to have

the ability to

react swiftly to

opportunities

and issues

To ensure we are

aware of emerging

trends and risks in

the marketplace

Building close relationships,

where advisers have a detailed

understanding of the business,

its purpose, culture, and

objectives

• Responsible

payment practices

• No conflicts of

interest

• Mutually beneficial

relationships,

supporting both

parties’ interests

A director took

responsibility for each key

relationship and ensured

that communication

and feedback loops were

appropriate and effective

Our local

communities and

the environment

We wish to

ensure that our

activities have a

positive impact on

communities and

the environment

Engagement with tenants

and local communities to

understand their views and

concerns and, in 2021, their

Covid-19 related issues, either

directly or via our asset

managers

• Making a positive

contribution to

communities and

the environment

• Charitable donations

(detailed on page 43)

Quarterly meetings with

asset managers that

include environmental

matters as an agenda item

CHARLES BUTLER

Chief executive

STRATEGIC REPORT

Stock code: HCFT www.highcroftplc.com

SUSTAINABILITY

Our culture

At Highcroft, we strive to conduct our business

in an ethical and responsible manner, making

a positive contribution to society whilst

minimising any negative impacts on people

and the environment.

Our stakeholders

Our key stakeholders are our shareholders,

tenants, employees, advisory team and other

suppliers, and our local communities and the

environment. Our engagement with them and

their key interests is set out in our stakeholder

engagement statement on page 39.

The environment and climate

change

We recognise that natural resources are finite

and should be used responsibly. We seek to

understand the environmental performance of

our portfolio and to implement improvement

policies where possible.

During the year we have undertaken deep

dives into our strategy and approach to climate

change and strengthened our governance and

risk management processes.”

SIMON GILL

Chief executive

Streamlined energy and

carbon reporting regulations

(SECR)

The nature of our business and the ultimate

responsibilities of our tenants for power

supplies within our investment properties,

means we fall below the de minimis limit for

required reporting under the SECR.

The taskforce on climate-

related financial disclosures

(TCFD)

In accordance with Listing Rule 9.6.8 (8)

requiring premium-listed companies to include

a statement in the annual report confirming

the extent to which they have made disclosures

consistent with TCFD on a comply or explain

basis, we have summarised our compliance to

date with the TCFD guidelines on the following

pages. Our focus for the coming year will be

to further analyse and prioritise the strategic

and financial impacts of our most material

climate-related issues to inform our strategy

and manage these risks and opportunities

across our businesses.

READ MORE ABOUT

OUR RISKS ON

PAGES 32 TO 37

READ MORE ABOUT

OUR PORTFOLIO

ON PAGES 08 TO 15

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

Our ApproachRecommended DisclosureTCFD Theme

Governance Disclose the

organisation’s

governance around

climate-related risks

and opportunities

The board is responsible for approving the group’s climate change

targets and monitoring portfolio performance.

Describe the

board’s oversight of

climate-related risks

and opportunities

• During the year our audit committee, a principal committee

of the main board, oversaw the management of our climate-

related risks and opportunities. It was agreed that expectations

relating to environmental, social and governance issues had

increased and as a result the sustainability credentials of the

business were now deemed a principal risk. Separate sessions

on sustainability were also held by a sub-group of the board,

to ensure that the company adopted a strategic approach to

planning for climate change. These sessions considered what

additional expertise may be required to assist the board in

addressing the challenges posed by climate-related issues and

the board will continue to regularly analyse its approach and the

data available, recognising these matters will evolve.

Describe management’s

role in assessing and

managing climate-related

risks and opportunities.

• Simon Gill, CEO, is the main board member with overall

accountability for climate and sustainability. Through engagement

with our property managing agents, Workman LLP, work is

underway to identify the most appropriate strategy for reducing

the impact on the environment of the company’s properties and

promoting the health and wellbeing of occupiers and visitors and

generating positive social value within the local community.

• Future developments will be undertaken with the intention of

identifying the opportunities available to build and produce

properties that are aligned with both our sustainability

commitments and those of our prospective tenants. In particular

our development project at St Austell will consider sustainability

as a key criterion and where we are aiming to construct a

BREEAM very good or excellent building.

Stock code: HCFT www.highcroftplc.com

STRATEGIC REPORT

Our ApproachRecommended DisclosureTCFD Theme

Strategy Disclose the actual and

potential impacts of

climate-related risks and

opportunities on the

organisation’s businesses,

strategy and financial

planning where such

information is material.

The board considers climate change as part of its decision making,

particularly around acquisitions and refurbishment projects. As

part of its approach to evaluating the climate-related risks and

opportunities, it will assess which of those could have a material

financial impact on the organisation.

Describe the climate-

related risks and

opportunities the

organisation has

identified over the short,

medium and long term.

• Short term (0–5 years) – market shift in terms of stricter

legislation, such as the introduction in the UK of the new

minimum energy efficiency standards (MEES) for commercial

and domestic property.

• Medium term (5–15 years) – market demand from occupiers for

buildings and spaces with higher levels of efficiency and lower

carbon footprints.

• Long term (15+ years) – changing climate conditions in the south

east of England and Wales, principally temperature increases

and flooding and their potential impact on our buildings.

Describe the impact of

climate-related risks and

opportunities on the

organisation’s businesses,

strategy, and financial

planning.

• As a REIT, we invest in, maintain, and manage property in the

south of England and Wales and, as such, climate-related issues

affect the way we assess properties for acquisition and how we

and our tenants develop and maintain existing ones.

• As part of our assessment of our existing portfolio, we consider

the geographical location, access to utilities and other

relevant factors when evaluating any climate-related risks and

opportunities on properties within our existing portfolio.

• We will be evaluating the company’s EPC risk strategy over the

coming year with a view to identifying appropriate actions for

particular properties.

Describe the resilience

of the organisation’s

strategy, taking into

consideration different

climate-related scenarios,

including a 2°C or lower

scenario.

• Physical climate-related risks, such as increasing temperatures,

could increase the stresses on our properties and, in turn,

increase our cost base and/or make them less attractive to

existing or potential tenants. We will continue to consider

energy and carbon reduction, ensuring that our buildings

operate as efficiently as possible.

Risk

management

Disclose how the

organisation identifies,

assesses, and manages

climate-related risks.

Potential climate change risks are identified and monitored as

part of our wider risk management procedures. As noted, the

sustainability credentials of the business are deemed to be a

principal risk.

Describe how processes

for identifying, assessing,

and managing climate-

related risks are

integrated into the

organisation’s overall risk

management.

• Our asset managers report on climate change as part of their

quarterly reporting and the CEO considers whether any issues

arising from this or other matters are material enough to be

considered further. During 2021, as part of the overall review

of principal and emerging risks, the audit committee and in

turn the board considered the position on the sustainability

credentials of the business and a sub-group of the board met

toconsider the specific issues involved.

Metrics &

targets

Disclose the metrics and

targets used to assess

and manage relevant

climate-related risks and

opportunities where such

information is material.

Due to our size and the limited amount of carbon emissions that

we are able to influence as a business, we are still considering

the extent of metrics and targets that will be appropriate for us

to adopt. As we evolve our strategy to addressing climate-related

risks and opportunities, it is intended that identifying metrics and

targets will form part of this.

SUSTAINABILITY

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

STRATEGIC REPORT

The environment – energy efficiency

actions taken during 2021

During 2021, we have continued to ensure that:

• Subject to the limitations imposed by the Covid-19

restrictions, all sites are visited at least annually by our

asset managers, and any environmental issues identified

are reported to the chief executive immediately and

recorded in the managers’ quarterly management report

and appropriate actions are taken;

• All new leases require occupiers to observe relevant

environmental regulations;

• All our property maintenance suppliers have

SafeContractor accreditation. The vetting, tendering,

appointment and management of these suppliers

follows the principles of our asset manager’s purchasing

policy;

• Our asset managers recognise the requirement for, and

actively encourage, sustainable working practices to

minimise environmental impacts both in respect of their

own business activities and when managing clients’

properties;

• Our asset managers are committed to operating to an

environmental policy and management system that

satisfies the requirements of BS EN ISO 14001: 2004

accreditation and as part of which they measure and set

targets for improvement;

• The weighted average of the EPCs on the 19 of our 22

properties where we have certificates remains at a C

or above. It is currently 66 which is a C rating. The only

change in the year arose from the weighting calculation

as relative property valuations moved;

• We continue to adopt a paperless strategy with our

shareholders, which has reduced our paper mailings to

shareholders by 64% in the last three years; and

• We make recommendations to the landlord of our

serviced office for energy savings that could be made.

Fairness and equality

We value the contributions made by all of our employees,

including our directors and our advisory team, and

believe that a diverse team is key to maximising business

effectiveness. We aim to select, recruit and develop the

best employees and advisers, and create an environment

where everyone is treated with dignity and respect and

where individual differences are valued. We achieve this by

ensuring that there are equal opportunities in recruitment

and selection processes, paying fair and competitive salaries

and fees, and being opposed to any form of discrimination

for any reason. We encourage effective communication with

all our stakeholders ensuring that everyone understands our

culture and purpose.

Employee alignment

We align our executive management team with our

shareholders via the Highcroft Incentive Plan, which

includes a share-based element for those executive directors

eligible to participate. More details of the incentive plan can

be found on page 62.

Diversity

We believe that a diverse team is an important factor in

maximising business effectiveness. We aim to maintain the

right blend of skills, experience and knowledge in the board

and its advisory teams. The diverse experience of the board

is highlighted on pages 48 and 49.

At 31 December 2021, the average composition of the group’s

employees was as follows:

Director

diversity

Total

staff

Male Female

Communities we serve

The board considers the impact on the local communities,

including neighbouring tenants, when development and

refurbishment activity take place. A project manager is used

to oversee the work and only approved suppliers are used.

Care is taken to ensure that health and safety is taken into

account at all stages of the work.

The board also considers the potential impact on the

local community and on existing tenants when planning

permissions are applied for, and would listen to any

legitimate concerns raised.

Charity

During 2021, donations were made to local and national

charities totalling £12,000. These charities support the sick,

terminally ill and disadvantaged. Examples of our support

include:

• Contributions towards the funding of palliative care in

three hospices, in a day centre, in hospitals and at home.

• Funding towards the support of those with learning

disabilities in the local community to help them to live

life to the full.

• Contributions towards national campaigns for support of

those who suffer from abuse, neglect, autism and heart

disease.

Future focus

In 2022, we will continue to conduct our business in an

ethical and responsible manner. Highcroft will endeavour to

find the correct balance between regulation, cost, and the

absolute impact of any changes that it is able to influence.

This strategic report on pages 16 to 43 was approved by the

board and signed on its behalf.

SIMON GILL

Chief executive

28 March 2022

STRATEGIC REPORT

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

Contents

Chairman’s introduction to corporate

governance 

Board of directors 

Corporate governance



Report of the audit committee



Report of the nomination committee 

Directors’ remuneration report 

Remuneration at a glance 

Report of the directors 

Statement of directors’ responsibilities 

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

RETAIL WAREHOUSE  GRANTHAM

Stock code: HCFT www.highcroftplc.com

CHAIRMAN’S INTRODUCTION TO GOVERNANCE

CHARLES BUTLER

Chairman

The effective delivery of our

strategy, the sustainability of

our business and the creation

of value for all our stakeholders

continues to be supported by

our governance structures and

processes.”

Our corporate governance

On behalf of the board, I am pleased to present

the corporate governance section of the

group’s annual report. Whilst Highcroft is a

relatively small premium listed group, good

corporate governance remains one of our key

values and the board endeavours to follow the

appropriate guidance and rules. The board

maintains good governance at the centre

of all its decisions and discussions and our

framework continues to serve the Company

well. The effective delivery of our strategy, the

sustainability of our business and the creation

of value for all our stakeholders continues to be

supported by our governance structures and

processes.

Compliance with the UK

Corporate Governance Code

The board acknowledges the intention of

the 2018 UK Corporate Governance Code

(the Code) in promoting the value of good

corporate governance to enable long-term

sustainable success. To the extent that is

reasonable and practical for a company of our

size and structure and the nature and scale of

our activities, these are applied. The company,

therefore, complies with all principles and

provisions of the Code with the exception of

the areas listed on page 47.

These non-compliances relate to the size of

the board and employee base and the board

considers our governance structures and

processes are in line with our corporate culture

and are fit for purpose. The board has concluded

that compliance would outweigh any potential

benefits given the size and lack of complexity

of the group. The board will continue to review

compliance with the Code, and with evolving

best practice at least annually.

Our strategy is set out on pages 22 to 23. All

of the board support this strategy and ensure

that any matters that it approves are in line

with thisstrategy.

We recognise the importance of stakeholder

engagement and its place within a sound

governance framework. During the year,

we have had regular contact with our key

shareholders. The Kingerlee Concert Party

falls within the definition of a controlling

shareholder as it owns in excess of 30% of the

share capital of the company, and there is a

Controlling Shareholder Agreement in place

as required by the Listing Rules. Given the

constraints that continued to be faced during

2021 due to Covid-19 restrictions, our annual

general meeting (AGM) was again held with

the minimum quorum in attendance. We

continued to offer a dedicated email address

for any shareholder wishing to raise questions

and encouraged shareholders to appoint the

chairman of the meeting as their proxy to

ensure that the shareholders’ votes would be

counted. Following changes to the Articles of

Association at the 2021 AGM, we will look to

offer, where appropriate and cost-effective,

greater flexibility on shareholder participation

at future AGMs. We have decided that the 2022

AGM will be held face to face in London on 18

May 2022 and we look forward to welcoming

shareholders to that meeting.

This governance report on pages 44 to 73

sets out in more detail our compliance with

the Code during the year and explains our

governance structure. All members of the

board support the principles of good corporate

governance and believe that we complied

with the principles and provisions of the Code

as was appropriate throughout the year, and

have explained any non-compliances and our

explanations for these.

Key governance activities

in2021

The board’s key governance activities during

the year have included:

• a separate strategic session on

sustainability, identifying the

climate-related risks and opportunities

to the business and a series of initiatives;

• the 2021 annual general meeting (AGM);

• evaluation of the board; and

• continued review of the issues associated

with David Kingerlee’s change of status

to shareholder representative.

Board and committee

attendance for the year

ended 31 December 2021

100%

Female representation

on our board

20%

Independent directors

(including chairman)

40%

READ MORE ABOUT

OUR BOARD ON

PAGES 48 TO 49

READ MORE ABOUT

OUR STAKEHOLDER

ENGAGEMENT ON

PAGE 39

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

Compliance with the provisions of the 2018 UK Corporate Governance Code (the Code)

Our governance section evidences our compliance with Principles (A to R) of the Code and illustrates how we have applied

the Code principles and complied with the provisions.

Section Description Further information

1. Board leadership and

company purpose

A. Effective board

You can read about the board’s

effectiveness on pages 50 to 51

B. Purposes, values and culture

You can read about our purpose values and

culture on pages 22 and 40

C. Governance framework and board resources

Learn more about our governance framework

and board resources on ages 50 to 51

D. Stakeholder engagement

Learn more about our engagement with

stakeholders on page 39

E. Workforce polices and practices

Learn more about our workforce policies and

practices on page 51

2. Division of responsibilities

F. Board roles

You can read about the division of

responsibilities on page 51

G. Independence

Learn more about the board independence

on pages 48 to 49

H. External commitments and conflicts of interest

You can read about the board’s other roles

on pages 48 to 49

I. Key activities of the board in 2021

Learn more about the board’s key governance

activities on page 46

3. Composition, succession

and evaluation

J. Appointments to the board

You can read about the work of the

nomination committee on page 57 to 58

K. Board skills, experience and knowledge

Learn more about our board on pages

48 to 49

L. Annual board evaluation

You can read about the board’s

evaluation process on page 51

4. Audit, risk and

internalcontrol

M. Financial reporting

external auditor and internal audit

You can read about our audit process on

pages 55 to 56

N. Review of the 2021 annual report

Learn more about the our review of the

annual report on page 55

O. Internal financial controls

Risk management

You can read more about our approach to risk

management on page 56

5. Remuneration

P. Linking remuneration with purpose and

strategy

You can read about the Highcroft Incentive

Plan on page 62

Q. Remuneration policy

Read more on our remuneration policy on

pages 61 to 62

R. Performance outcomes in 2021

Strategic targets

You can read about the board’s

effectiveness on pages 50 to 51

Throughout the financial year ended 31 December 2021, the company fully complied with all the provisions of the Code, except for

five of the 41 provisions and an explanation is provided below. The board agrees that, due to the size of its board and the fact that

there are only two non-board employees, the risks of non-compliance are not significant and that the costs of compliance would

outweigh any potential benefits. The board will review compliance with the Code and evolving best practice, at least annually.

NewCode

provision Detail

Potential action to enable

compliance with the provision Highcroft decision

At least half the board, excluding the chair,

should be independent non-executive directors

Recruit at least two more

independent non-executive

directors

Compliance would outweigh any potential

benefits given the small size and lack of

complexity of the group

Audit committee – the chairman of the board

should not be a member

Before appointment as chair of remuneration

committee, the appointee should have served

on a remuneration committee for at least 12

months

Recruit at least one more

independent non-executive

director who had the necessary

experience to assume the role

of committee chair

Compliance would outweigh any potential

benefits given the small size and lack of

complexity of the group. The selection

criteria for a future non-executive director

will include this point

Share awards should have a total vesting and

holding period of five years or more

Amend Incentive Plan and/or

remuneration policy

The Remuneration Committee considered

the matter during 2021 and concluded

that an increased vesting period would be

a disincentive to the executive directors

There should be engagement by the workforce

by remuneration committee

None appropriate

As there are only two employees other

than the board, it is not believed that such

engagement and disclosure thereof would

add value to shareholders

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

BOARD OF DIRECTORS

CHARLES BUTLER

Non-executive chairman

SIMON COSTA

Non-executive director and

senior independent director

SIMON GILL

Chief executive

APPOINTMENT TO THE BOARD

Charles joined the group as

non-executive chairman in

January 2018.

COMMITTEE MEMBERSHIP

Chairman of the nomination

committee, and a member of the audit

and remuneration committees.

OTHER APPOINTMENTS

Charles holds the following

appointments:

• non-executive chairman of Mysale

Group PLC, an international online

retailer;

• non-executive director of Essensys

plc, a global provider of SaaS

platforms and on-demand cloud

services to the flexible workspace

industry; and

• executive director of Belerion

Capital Group Limited, an FCA

regulated firm advising high net

worth individuals and family offices.

PREVIOUS EXPERIENCEBRINGS TO

THE BOARD

Charles is a chartered accountant

who, prior to joining the board, was

the CEO of Market Tech Holdings PLC,

where he transformed a small group of

central London real estate assets into a

profitable, listed company with a £1.3bn

portfolio. With a successful track record

in running public companies, M&A,

raising equity and debt for expansion,

Charles is well positioned to continue

to help the company navigate its next

phase of growth.

APPOINTMENT TO THE BOARD

Simon joined the board as senior

independent director in May 2015.

COMMITTEE MEMBERSHIP

Chairman of the remuneration and

audit committees, and member of the

nomination committee.

OTHER APPOINTMENTS

Simon is currently University Treasurer

at the Royal Agricultural University,

Cirencester, where his remit includes

financial strategy and balance sheet

management. Until recently, he was

the Finance Director there, where he

oversaw all the financial and related

operations of the university.

PREVIOUS EXPERIENCEBRINGS TO

THE BOARD

Simon was formerly the Senior Bursar

of a college of the University of Oxford.

He was responsible for overseeing

the management of the endowment,

and the finance and estates functions,

and he served on all the college’s core

committees.

Prior to that, he was an investment

banker specialising in global M&A

activities, and then for nine years he

ran his own property company. In these

roles, he advised US and UK public and

private corporations on financial and

related matters and owned a modest

property portfolio. Simon’s breadth of

experience continues to provide the

board with a greater range of market

knowledge and skills, which are

particularly relevant to a company in

Highcroft’s position.

APPOINTMENT TO THE BOARD

Simon joined the group as property

director in April 2013 and assumed the

role of chief executive in August 2013.

COMMITTEE MEMBERSHIP

Simon chairs the executive committee.

OTHER APPOINTMENTS

Simon runs his own property

investment and development

business and is a director of Waingate

Management Services Limited and

Solar Estates Limited.

PREVIOUS EXPERIENCEBRINGS TO

THE BOARD

Simon is a chartered surveyor who

started his property career in one of the

major London practices, subsequently

becoming a partner in Allsop & Co,

before setting up his own advisory

practice in 1988. Later, he took on the

role of principal by setting up various

joint ventures and becoming an asset

manager to one of Close Brothers’

private equity funds. Simon’s long-term

involvement and experience in the

property market in his various positions

mean that opportunities for the board

are assessed on a quick and efficient

basis so that the correct decisions are

reached at an early stage.

Division of

responsibilities

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

DAVID KINGERLEE

Non-independent

non-executive director

ROBERTA MILES

Finance director

APPOINTMENT TO THE BOARD

David joined the group as an executive

director in September 1996. With

effect from 7 April 2021, he became

a non-independent non-executive

director.

COMMITTEE MEMBERSHIP

Executive committee to 7 April 2021.

OTHER APPOINTMENTS

David is an executive director of each

of the Kingerlee group of companies,

which trade in the construction and

property development sectors. He is

chairman of Kingerlee Limited and

Kingerlee Holdings Limited.

PREVIOUS EXPERIENCEBRINGS TO

THE BOARD

David has a long-term knowledge

of the group. On 10 December 2020,

David notified the board that he

would be changing his role to that

of a shareholder representative,

representing the interests of Kingerlee

Holdings Limited with immediate

effect. Consequently, with effect

from 7 April 2021, David became a

non-independent non-executive

director. In this role, he does not sit

on any board committees.

APPOINTMENT TO THE BOARD

Roberta joined the group in April

2010 and was appointed to the board

as finance director and company

secretary in July 2010. From October

2021, she continued in her role as

finance director having relinquished

her role as company secretary.

COMMITTEE MEMBERSHIP

Executive committee.

OTHER APPOINTMENTS

Roberta acts as company secretary or

chief financial officer for a number of

companies. She is currently a director

of Mechadyne International Limited

and MCD Ventures Limited.

PREVIOUS EXPERIENCEBRINGS TO

THE BOARD

Roberta qualified as a chartered

accountant in 1988 and, after

leaving the profession in 1996, has

maintained a portfolio of part-time

executive board-level roles in a variety

of businesses at various stages of

their life cycle. Her acute attention to

detail, financial acumen and business

expertise are a valuable asset to

the board together with her project

management capabilities. The board

benefits greatly from the experience

of her varied executive roles.

Non-executive chairman

Independent non-executive

directors

Non-independent non-executive

directors

Executive directors

Finance

Mergers and acquisitions

Property

Corporate governance

Technology

MEMBERSHIP OF THE BOARD

EXPERIENCE OF THE BOARD

KEY

Chairman

Executive

committee

Nomination

committee

Audit

committee

Remuneration

committee

Member

Division of

responsibilities

Effective board

Our board is composed of highly

skilled professionals, all of whom

continue to bring a range of

skills, perspective and corporate

experience to our boardroom.

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

CORPORATE GOVERNANCE

Governance framework

The board

The board has overall responsibility for the group. It has delegated authority to the following committees and there are

terms of reference of these committees available on the group’s website www.highcroftplc.com.

Chairman: Charles Butler

Comprised: Two executive and three non-executive directors

Role: The board is responsible to the shareholders for the long-term strategy, control and leadership of the group

Board committees

Executive

committee

Audit

committee

Remuneration

committee

Nomination

committee

Chair: Simon Gill Chair: Simon Costa Chair: Simon Costa Chair: Charles Butler

This committee is comprised

of the executive directors

and the company secretary

and is chaired by the chief

executive.

Roles: Implementation

of strategy and policies,

day-to-day decision making

and administration of

the group.

This committee is comprised

of the independent

non-executive directors.

Audit committee meetings

are attended, by invitation,

by the auditor and the

finance director, and other

executives may be invited to

attend from time to time.

Roles: Financial reporting,

monitor risk management

and internal control, monitor

external audit process.

This committee is comprised

of the independent

non-executive directors.

Roles: Remuneration

policy, setting of directors’

remuneration packages,

agreeing incentive plan

targets and outcomes.

This committee is comprised

of the independent

non-executive directors.

Roles: Recommends board

appointments, succession

planning, reviewing board

composition, skills and

diversity and performance

evaluation.

Board effectiveness

The board meets at least five times per year and has a schedule of matters specifically reserved for its decision, including

approval of strategy, all capital transactions, issue of shares, documents to shareholders including annual report and

accounts, stock exchange announcements, dividends, board membership and remuneration and related party transactions.

It also approves the terms of reference of all sub-committees and conducts an annual evaluation of the board.

Each of the directors has committed to attend all scheduled and relevant committee meetings. If a director cannot, for

unseen circumstances, attend a meeting, they will be provided with the papers in advance of the meeting as usual and can

discuss them with the chairman or chief executive and provide comments. Attendance at the committee meetings is shown

in the respective committee reports. Attendance at board meetings is shown below:

Attendance

Charles Butler 8/8

Simon Costa 8/8

Simon Gill 8/8

David Kingerlee 8/8

Roberta Miles 8/8

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

The board receives appropriate and

timely information and the directors

are free to seek any further information

they consider necessary. All directors

have access to advice from the

company secretary and independent

professionals at the company’s

expense. The chairman reviews

directors’ training needs annually and

appropriate training is available for

new directors and other directors as

identified by that plan.

All directors receive an induction

on joining the board and there is an

annual review of skills and knowledge

and any necessary training is identified

and undertaken.

Division of responsibilities

Chairman

• Leads the board ensuring it

operates effectively and in

accordance with good governance.

• Sets board agenda for meetings

and ensures that adequate,

accurate and clear board

information is circulated in a

timely manner; that all matters are

discussed properly; and promotes

a culture that encourages

constructive open debate on all

keyissues.

• Maintains a dialogue with

shareholders.

Charles Butler was considered to be

independent upon appointment and

is considered, by the board, to have

remained independent throughout

theyear.

Chief executive

There is a clear division of

responsibilities between the chairman

and the chief executive.

• Oversees the day-to-day running of

the group’s business including the

development and implementation

of the board’s agreed strategy.

• Leads the executive team.

Company secretary

• Provides advice and assistance

to the board, chairman and other

directors.

• Supports the chairman with

the development of agenda for

board meetings and provision of

information to the board.

• Advises the board on corporate

governance developments.

Non-executive director

• Brings an external perspective,

constructive challenge and

objectivity to the board’s

deliberations and decision making.

• Drawing on their extensive

experience and knowledge, they

act as both a sounding board

and as objective, constructive

scrutinisers and challengers to the

executive board.

• Help facilitate the strategic

decision making process and the

monitoring of the performance

of the executive management in

achieving the agreed strategy and

objectives.

Senior independent director

• Provides a sounding board for

the chairman and serves as an

intermediary for other directors

when necessary.

• Available to discuss concerns

with shareholders that cannot be

resolved by the normal channels of

communication with the chairman

or chief executive.

As previously reported, with effect from

7 April 2021, David Kingerlee changed

his status from executive director

to non-independent non-executive

director.

Governance framework

and board resources

Corporate governance is essential to

ensuring our business is run in the

right way for the benefit of all of our

stakeholders.

Our governance framework, on

page 50, was established to provide

clear lines of accountability and

responsibility. It also assists with

the sharing of information and

facilitates fast decision making and

effective oversight. Our governance

arrangements continue to support

the development and delivery of

strategy by ensuring accountability

and responsibility, facilitating the

sharing of information to inform

decisions, enabling engagement

with key stakeholders, maintaining

a sound system of risk oversight,

management and internal controls,

providing independent insight and

knowledge from the independent

non-executive directors and facilitating

the development and monitoring of

key performance indicators.

The Directors utilise an electronic

board portal, which provides

immediate and secure access to

current and past papers. The chairman

of the board, and the chairs of the

committees, set the agendas for

upcoming meetings with support from

the company secretary. As noted in the

nomination committee report, on page

57, during the year Anne-Marie Palmer

was appointed as company secretary,

providing further support to the board

on corporate governance.

Workforce policies

andpractice

Since there are only five directors

and two employees, our policies are

informal. Everyone is aware of the

group’s purpose and understand its

values. We require all directors to notify

the company if there is a situation that

could give rise to a conflict or potential

conflict of interest, and we ensure

that our independent non-executive

directors remain independent of

executive management and free from

any business relationship that might

materially interfere with exercise of

their judgement.

Board evaluation

Formal procedures appropriate

to the size of the business are in

use for performance evaluation

of the board and its committees.

They include objective setting and

review with the use of an external

facilitator on a periodic basis. During

the year, the board conducted a

self-performance evaluation by

way of a questionnaire, which was

facilitated by the company secretary.

The questionnaire was designed

to evaluate the effectiveness of the

board and its committees, as well as

identify areas for improvement. The

results were discussed by the board

and action points created to ensure

that any areas needing improvement

were prioritised and addressed. The

effectiveness of the actions taken from

the last evaluation were also analysed.

The board considered itself to be

generally effective in all the key areas

identified in the questionnaire and

areas for improvement identified were:

enhancing stakeholder engagement

and board training.

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

CORPORATE GOVERNANCE

Relations with shareholders

The board values the views of its shareholders and

recognises their interest in the company’s strategy

and performance, board membership and quality of

management. The chairman and other directors are

available to meet shareholders if required. The AGM

providesa forum, both formal and informal, for shareholders

to meet and discuss relevant matters with all the directors.

Documents are sent to shareholders at least 21 clear days

before the meeting. Separate resolutions are proposed on

each substantial issue so that they can be given proper

consideration, and there is a resolution to receive and

consider the annual report and financial statements, and

the directors’ remuneration report. The company counts all

proxy votes and will indicate the level of proxies lodged on

each resolution. Full details of the AGM voting are included

on the company’s website after the meeting. The company

has no institutional shareholders but has continued a

programme of meetings with key shareholders, subject

to regulatory constraints, and the board is provided with

feedback from these meetings.

The company has a controlling shareholder, and this is

explained fully onpage 72.

The directors have put in place measures to ensure that

the election or re-election by the shareholders of any

independent non-executive director should be approved by

an ordinary resolution of the shareholders and separately

approved by those shareholders who are not controlling

shareholders, namely the independent shareholders.

Shareholders who wish to communicate with the board

should contact the company secretary in the first instance

via our website: www.highcroftplc.com.

Directors powers at the year end

At the 2019 AGM, the directors were given powers, as follows:

• To allot new shares, or to grant rights to subscribe for or

convert any security into shares of the company for the

purpose of the satisfaction of awards granted under the

Highcroft Incentive Plan up to an aggregate nominal

amount of £64,591; and

• To allot equity securities for cash on a non-pre-emptive

basis, up to an aggregate nominal amount of £64,591.

These authorities will expire in 2024, unless previously

revoked by the Company.

During 2021, new ordinary shares with a nominal amount of

£2,131 were allotted under these authorities in satisfaction of

the 2020 awards under the Highcroft Incentive Plan, leaving

£60,476 of authorities remaining.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

Main responsibilities

In line with the authority delegated by the board, the audit

committee has the following main responsibilities:

• Risk management and internal controls

– reviewing the system of internal controls and risk

management.

• Financial reporting

– monitoring the integrity of the company’s financial

statements and any formal announcements relating to

financial performance, and considering significant financial

reporting issues, judgements and estimates.

• Property valuations

– considering the process and outcome and the effectiveness

and independence of the external valuer.

• External audit

– oversight and remuneration of the external auditor, and

review of the policy for non-audit services provided by the

external auditor.

I am pleased to introduce the audit committee

report for the year ended 31 December 2021.

We set out below a summary of our main

responsibilities and key activities during the

year. As a committee, we are responsible

for monitoring the integrity of the group’s

reporting, and in continuing to develop and

maintain a sound system of risk management

and internal control.

Composition of the committee

and attendance at meetings

There have been no changes to the membership

of the committee during the year. The

committee continues to be composed solely

of the independent chair of the board and

the independent non-executive director. The

board is satisfied that they both have sufficient

financial experience, business acumen and

real estate sector experience to carry out their

duties effectively. Their attendance at committee

meetings is set out below:

Director

Committee

position Attendance

Simon Costa Chairman 3/3

Charles Butler Member 3/3

The committee meets regularly during the

year, in line with the financial reporting

timetable and, in 2021, met three times for

routine business. Roberta Miles, as finance

director, attends part of each meeting and

the external auditor attends all meetings.

The committee has an agenda item at each

meeting to discuss business without any

executive directors being present.

In addition to the three main meetings, there

were also several informal meetings, and

general discussions between the committee

members and, at times, the finance director

and/or the auditor, primarily as a result of

David Kingerlee’s announcement regarding

his change of status to that of a shareholder

representative.

The terms of reference were reviewed during

the year and are available on the group’s

website at: www.highcroftplc.com.

REPORT OF THE AUDIT COMMITTEE

Audit, risk and internal control

SIMON COSTA

Chairman of the audit committee

We monitor the quality and

integrity of the financial

reporting and the valuation

process, and focus on the risks

affecting the group.”

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

Principal responsibilities of the committee and its related activities

Financial reporting

The committee is responsible for monitoring the integrity of the group’s financial statements and any formal announcements

relating to performance. It paid particular attention to those matters that were considered to be important to the group due to

their subjectivity, the level of judgement involved or their effect on the financial statements.

In 2021, the key issues relating to our financial statements that were considered are set out below:

Significant

issues

considered Potential risk How those issues were addressed Conclusion

Valuation

of property

portfolio

The valuation of

our investment

property portfolio

is inherently

subjective as it

is undertaken

on the basis of

assumptions made

by valuers, which

may not prove

to be accurate.

The outcome of

the valuation is

significant in terms

of our results,

future investment

decisions and

remuneration.

The external valuers carry out a valuation every year at

30June and 31 December. They also provide an overview

of the UK property market and the detailed performance

of the group’s assets. The valuer attended a meeting

with the board and the auditor after the year end, where

the agenda included the process adopted by the valuer,

data provision by management, comparable market

data and assumptions used by the valuer, in particular

estimated rental values and yields. It also included a

commentary on the relevant qualifications of the valuer

and on their independence. It noted that the fee for

the recurring valuation work was £18,000 and for other

advisory work, including valuation fees for lenders, was

£16,000 (2020£18,000 and £16,000). The audit committee

analysed the reports, reviewed the summary of the work

of the executives in reviewing the valuer’s work, reviewed

the valuation outcomes and challenged assumptions

where it believed appropriate. It also noted that the fee

arrangement with the valuer was on a fixed fee basis in

line with best practice.

The committee was

satisfied with the

valuation process,

the independence

and effectiveness

of the group’s

external valuer

and the valuation

disclosures included

in the annual report.

Revenue

recognition

Revenue may

be recorded in

the incorrect

accounting

period, or fail to be

recorded at all, or

fictitious revenues

may be recorded.

The committee considered the appropriateness of the

controls in place in the revenue cycle, having particular

regard to the use of external agents and the controls

in place over their work including the reconciliations

performed and reviewed internally.

The committee

concluded that

revenue recognition

policies and controls

were appropriate.

REIT status The group loses its

REIT status.

The committee considered the controls in place to

ensure compliance with REIT tests. In particular,

they reviewed the compliance with the distribution

requirement and the impact of forecasted results and

trends on this criterion. They also reviewed the non-close

company status requirement and the professional

advice that had been taken on this during the year.

The committee

concluded that

the group’s REIT

status had been

maintained during

the year.

Going concern

statement

If this basis was

inappropriate

then there could

be material

misstatements

in the financial

statements.

The committee reviewed the analysis supporting the

going concern basis of preparation, particularly in light

of the ongoing Covid-19 pandemic This review included

forecast cashflows, loan maturities, headroom on our

debt covenants and undrawn debt facilities.

The committee

concluded

that the going

concern method

of preparation

remained

appropriate. The

going concern

statement is set out

on page 38.

REPORT OF THE AUDIT COMMITTEE

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

Significant

issues

considered Potential risk How those issues were addressed Conclusion

Viability

statement

If the statement

was incorrect then

corrective action

might need to

be undertaken to

ensure the group’s

viability.

The committee considered whether the period of five

years covered by the statement was reasonable. It also

considered the reasonableness of the assumptions

used, taking into account the market environment

and the group’s strategy. The committee reviewed the

sensitivities identified and stress tested whether they

were the mostappropriate.

The committee

concluded that

the statement had

been drawn up on

a reasonable basis

and agreed with

its assessment. The

viability statement,

together with

further details on

the assessment

undertaken, is on

page 37.

Impact of

Covid-19

The potential

impacts of the

Covid-19 pandemic

on the assessment

of the group’s

principal risks

and uncertainties,

risk appetite and

viability statement

may have not been

fully considered,

affecting the results

and conclusions

that were drawn

from them.

A detailed analysis of the impacts of Covid-19 on the

group's risk framework is included within the risk review

on pages 32 to 37.

The committee

concluded that the

potential impacts

of Covid-19 had

been appropriately

considered.

As noted in the 2020 annual report, David Kingerlee announced to the board on 10 December 2020, that he would, in future,

be representing the interests of Kingerlee Holdings Limited. The committee considered the issue of whether or not Highcroft

should, in the future, consider itself to be an associated undertaking of Kingerlee Holdings Limited. The committee and board

consulted extensively with its advisers on this matter. On 1 February 2021, the audit committee and board agreed that, as a

result of Kingerlee Holdings Limited’s indirect 27% holding in Highcroft, its place in the wider Kingerlee Concert Party, and

David Kingerlee’s new status, Highcroft was, with effect from 10 December 2020, an associated undertaking of Kingerlee

Holdings Limited. The impact of this is that Highcroft’s external auditors, Mazars, have to complete a group audit questionnaire

for the auditors of Kingerlee Holdings Limited’s auditor, and consider the additional risk of this status to the financial reporting

process. Kingerlee Holdings Limited has agreed to pay, each year, any additional fees that relate to the impact of this change.

During 2021, the audit committee recommended to the board that Mazars undertake a full interim review for the first time in

2021 due to the additional risks arising as a result of Highcroft’s status as an associated undertaking.

The committee assessed the results of the auditor’s work, the interim and annual reports prior to their publication, the

application of the company’s accounting policies and the detail of any changes to the financial reporting requirements. The

committee also considered the annual report and accounts, as a whole, on behalf of the board and made a recommendation

to the board that it resolve that they were fair, balanced and understandable and provided the information necessary for

stakeholders to assess the group’s position, performance, business model and strategy. The committee ensured that the

board continued to present a balanced and understandable assessment of the company’s position and prospects in all

interim and other price-sensitive public reports to regulators. The responsibilities of the directors as regards the financial

statements are described on page 73, and that of the auditor on pages 76 to 80.

External auditor

The audit committee reviews the terms of engagement with the external auditor annually and ensures that the external

auditor is independent. It has received and reviewed written disclosures from the auditor regarding independence.

Mazars LLP were appointed as auditors to the group in 2017, following a formal competitive tender, and carry out no other

services for the group other than interim review, for which the fee is £10,000. The audit fee is £54,000. The group’s audit

partner is Stephen Eames who has been in role since Mazars were appointed. The committee will ensure that rotation of

audit partner takes place in 2022 in line with regulation.

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

In order to ensure that the external

audit is as effective as possible, the

auditors must identify the appropriate

risks as part of their planning process.

For this financial year, Mazars LLP

submitted a detailed audit plan at the

planning audit committee meeting,

which outlined key risks (including the

valuation of investment property, risk

of revenue misstatement due to the

inclusion of fraudulent transactions

and areas of accounting capable

of manipulation). The directors are

satisfied that the risks identified by

the auditors are consistent with those

identifiedinternally.

At each audit committee meeting, the

committee reserves time for a meeting

without executive management being

present. We discuss matters including

the quality of the information provided

to the auditor by the executives,

confirmation that the auditor has not

been restricted in their audit process

and a discussion of any areas where

they have had to use their professional

scepticism.

The audit committee reviews

the appointment of the external

auditor on an annual basis, reviews

their objectivity, effectiveness,

independence and remuneration. As

part of this review, Mazars provide the

committee with an annual report on its

integrity, objectivity and independence

and on the policies and procedures

that they have in place to ensure this.

The committee concluded that, on the

basis of this review, the auditor was

objective, effective and independent

and recommended to the board

that a resolution proposing Mazars’

reappointment be put to shareholders

at the 2022 AGM.

Risk management and internal

controls

The board is responsible for an ongoing

process to identify, evaluate and

manage the risks facing the business,

establishing and maintaining a

sound system of internal control and

for reviewing its effectiveness. The

committee considered the group’s

risk appetite and concluded that it

remains set at an appropriate level

in line with the group’s strategy. The

audit committee is responsible for

overseeing the effectiveness of the

risk management and internal control

systems. The system of internal control

is designed to meet the needs of

the group and the risks to which it is

exposed, and by its very nature provide

reasonable, but not absolute, assurance

against material misstatement or loss.

The internal control system was in

place for the period under review up

to the date of approving the accounts.

There is an ongoing process to identify,

evaluate and manage the risks facing

the business. The entire system of

internal control and board protocols

was reviewed during the year and

the conclusion was that the systems

are adequate for a group of this

size and complexity. This review has

been undertaken in accordance with

guidance published by The Institute

of Chartered Accountants in England

and Wales.

The key procedures, which exist to

provide effective internal control,

include:

• Clear limits of authority;

• Annual revenue, cash flow and

capital forecasts, reviewed

regularly during the year, monthly

monitoring of cash flow and capital

expenditure reported to the board,

quarterly and half-year revenue

comparisons with forecast;

• Financial controls and procedures;

• Clear protocols for capital

expenditure and disposals,

including defined levels of

authority;

• An audit committee, which

approves audit plans and published

financial information, and reviews

reports from the external auditor

arising from the audit and deals

with significant control matters

raised;

• Regular board meetings to monitor

areas of concern;

• Annual review of risks and internal

controls; and

• Annual review of compliance with

the Code.

More detail regarding our

management of risk within our

strategic framework is set out on

page 32.

The committee has considered the

internal control and risk management

systems in relation to the financial

reporting process and considered

them adequate.

These include suitably qualified staff

preparing the documents; information

being prepared in good time to allow

adequate internal review and audit

processes to take place; and a review

with the auditors prior to the release

ofthe financial results.

Internal audit

The committee has considered the

need for an internal audit function,

but has decided that the size and

complexity of the group does not

justify it at present. The work of the

external auditor provides an element

of comfort that controls are operating

as intended and the executive

team review the operation of the

group’s policies and procedures. The

committee is mindful of the need to

ensure a sufficiently robust evaluation

of the group’s risk management and

internal control systems is undertaken.

In the absence of an internal audit

function, it will keep the arrangements

for achieving internal assurance

under review, at least annually, and

endeavour to improve this.

The audit committee reports on each

of its meetings at the subsequent

board meeting.

SIMON COSTA

Chairman of the audit committee

28 March 2022

REPORT OF THE AUDIT COMMITTEE

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

Main responsibilities

In line with the authority delegated by the board, the nomination

committee has the following main responsibilities:

• Board appointments

– leads the process for board appointments, ensures plans are

in place for orderly succession to the board.

• Board composition

– reviews the structure, size and composition of the Board

and its committees, recommending to the Board any new

appointees and the reappointment of existing directors and

committee members.

• Board diversity

– ensures there is a balance of skills, knowledge, experience,

and diversity on the board.

• Board evaluation

– oversees a formal and rigorous annual evaluation of the

Board, its committees and directors.

Welcome to the report of the nomination

committee. We set out below a summary of

the main responsibilities and key activities

during the year.

Composition of the committee

and attendance at meetings

There have been no changes to the

membership of the committee during the year.

The committee continues to be composed

solely of the independent chairman of the

board and the independent non-executive

director, their attendance at committee

meetings is set out below:

Director

Committee

position Attendance

Charles Butler Chairman 1/1

Simon Costa Member 1/1

If this committee is dealing with the successor

to the chairmanship it would be chaired by

another non-executive director and may

involve an external consultant.

Activities of the committee

Appointment of company secretary

Having considered the expanding remit of

the finance director and company secretary,

it was agreed that recognising the significant

increase in governance and financial reporting

requirements, that the role would be split.

During the year, an independent search

consultant was engaged to assist with the

appointment of a company secretary. A

comprehensive appointment process was

undertaken and recognising the skills required

for the role, Anne-Marie Palmer FCG was

appointed with effect from 5 October 2021.

Anne-Marie has 20 years’ experience as a

chartered secretary advising listed companies,

including those with the property sector, and is

working on a part-time basis for the Company.

Succession planning

During the year, succession planning remained

a key focus for the committee. The committee

assessed the skills and experience required

to meet the organisation’s current and future

needs, with the aim of ensuring business

success and long-term shareholder value. The

committee will continue to review the need to

secure any particular or specific skills.

REPORT OF THE NOMINATION COMMITTEE

Composition, succession and evaluation

CHARLES BUTLER

Chairman of the board and of the nomination committee

Our role in ensuring the

board has the appropriate

balance of skills, experience

and knowledge enabling

the company to achieve its

objectives remains a key

responsibility of the committee.”

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

Consideration was given to succession planning to fill key

roles in the short, medium and long term and these plans

were written down so that they continue to be reviewed on a

regular basis.

Board composition and tenure

In accordance with the Code, all directors offer themselves

for reappointment on an annual basis at the AGM. The board

carried out an effectiveness evaluation during the year

and the committee concluded that each of the directors

continues to make an effective and valuable contribution,

demonstrates commitment to their role and that it is in

the best interest of the shareholders that each director be

re-elected. The board considers that the length of time that

each director serves on the board should not necessarily be

limited and has not set a finite tenure policy.

Diversity

The company has a culture that recognises the benefits of

all aspects of diversity not limited to gender, ethnic group,

background, age or cognitive and personal strengths. The

company maintains a policy of ensuring that, during its

review of board composition and during any recruitment

process, all aspects of diversity are considered. The company

aims to employ the best candidates available based on

merit and ability. Given the small size of the organisation,

the board does not consider that diversity quotas are

appropriate in determining its composition. Asacompany

consisting of five directors and two employees, our

diversity in terms of female appointments is 43% as

at31December 2021.

CHARLES BUTLER

Chairman of the nomination committee

28 March 2022

REPORT OF THE NOMINATION COMMITTEE

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

Main responsibilities

In line with the authority delegated by the board, the remuneration

committee has the following main responsibilities:

• Role

– assist the Board to fulfil its responsibility to shareholders to

ensure that executive remuneration is designed to support

strategy and promote sustainable success and is aligned to

company purpose and linked to delivery of the company’s

long-term strategy.

• Remuneration Policy

– is responsible for determining and agreeing with the Board

the policy for the remuneration of the executive directors

and ensuring that they are appropriately incentivised to

enhance the group’s performance and are rewarded for their

contribution to the success of the business by designing,

monitoring, and assessing incentive arrangements, and

assessing performance and outcomes against them.

• Dialogue with shareholders

– maintains an active dialogue with shareholders, ensuring

theirviews are sought and considered when setting

remuneration policy.

Annual Statement

I am pleased to introduce the remuneration

report for the year ended 31 December 2021.

This report comprises three sections:

• This annual statement;

• The summary of directors’ remuneration

policy; and

• The annual report on remuneration for

the year.

This report describes the second year of

the application of the remuneration policy

incorporating the Highcroft Incentive Plan and

explains the committee’s intentions for 2022.

Membership of the committee

There have been no changes to the

membership of the committee during the year.

The committee continues to be comprised

solely of the independent chairman of the

board and the independent non-executive

director, and meets at least three times per

year, together with ad-hoc meetings when

required. The attendance at committee

meetings during the year is set out below:

Director

Committee

position Attendance

Simon Costa Chairman 3/3

Charles Butler Member 3/3

The board considered our independence

during the year and concluded that both

members were independent. Neither

of the committee members had any

potential conflicts of interest arising from

cross-directorships, nor any day-to-day

involvement in running the business.

Major decisions made during

the year

During the year, the remuneration committee

met to:

• Review the current policy in the context

of the ongoing appropriateness for the

company and evolving practice and

determining its proposal to the 2022 AGM;

• Ensure that the Highcroft Incentive Plan

continues to add rigour and transparency

to the determination of awards, while also

rewarding both the delivery of returns to

shareholders and sustained long-term

performance in line with the requirements

of the Code;

• Agree the incentive plan criteria and

awards for executive directors for 2021; and

• Begin to review the level of directors’ fees for

2022. The directors’ salaries were informally

benchmarked against the external market

and changes for all directors were proposed

and confirmed after the year end.

Advisers

The committee did not appoint any external

advisers to carry out any work during 2021.

DIRECTORS’ REMUNERATION REPORT

Policy, practices, supporting strategy

SIMON COSTA

Chairman of remuneration committee

The Committee and Board believes

that the remuneration policy

remains appropriate in motivating

and rewarding executive directors,

as well as aligning their interests

with the company’s strategy and

the interests of shareholders.”

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

Remuneration philosophy

The board’s stated objective is to enhance shareholder value through a combination of increasing asset value, profits and

dividends. In order to achieve this objective, the board must focus its efforts on the strategic priorities that it believes will

maximise the likelihood of success. The committee welcomes engagement with shareholders and welcomes feedback on

the form and content of this report.

Remuneration strategy

The current remuneration policy was approved by the shareholders at the 2019 AGM and remained in place in 2020 and

2021. Having considered the remuneration policy during the year, the Committee and Board have determined that the

existing policy remains appropriate in that it is designed to support strategy and to promote sustainable success. The only

amendment to the existing policy has been to remove the separate section referring to David Kingerlee’s entitlement under

the Highcroft Incentive Plan, as following his transition to non-executive director, he is no longer eligible to participate. As a

non-executive director, David Kingerlee’s remuneration is governed in the same manner as for all non-executives. The policy

will be proposed to shareholders for approval at the 2022 AGM. The Committee consulted major shareholders on renewal of

the policy and no concerns were raised.

Total remuneration – split between fixed and performance-linked elements

Simon Gill

2020 2021

Fixed 43% 40%

Base salary 42% 39%

Pension and other benefits 1% 1%

Performance-linked 57% 60%

Highcroft Incentive Plan – cash 34% 34%

Highcroft Incentive Plan – share award 23% 26%

Roberta Miles

2020 2021

Fixed 43% 40%

Base salary 42% 39%

Pension and other benefits 1% 1%

Performance-linked 57% 60%

Highcroft Incentive Plan – cash 34% 34%

Highcroft Incentive Plan – share award 23% 26%

David Kingerlee (for the period to 7 April

2021 when he became a non-executive

director)

2020 2021

Fixed 65% 62%

Base salary 63% 60%

Pension and other benefits 2% 2%

Performance-linked 35% 38%

Highcroft Incentive Plan – cash 35% 38%

Highcroft Incentive Plan – share award – –

Single total figure of remuneration for

executive directors for year ended 31 December 2021

Fixed pay

Highcroft Incentive Plan – cash

Highcroft Incentive Plan – share award

£’000

57%

43%

2020

51%

49%

2020

57%

43%

2020

35%

65%

2020

51%

49%

2020

35%

65%

2020

2021

60%

40%

60%

40%

2021

38%

62%

2021

Simon Gill

Roberta Miles

327

288

132

116

111

98 74

David Kingerlee*

1610 6

* David Kingerlee also received remuneration as a non-executive director in 2021 (with effect from 7 April 2021).

REMUNERATION AT A GLANCE

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

Summary of directors’ remuneration policy

The objective of the group’s remuneration policy is to embed a clear, transparent remuneration structure, which helps drive

the group’s strategy by properly rewarding performance.

This section of the report summarises the group’s remuneration policy, which was approved by shareholders at the 2019

AGM. During the year, the committee and the Board considered the elements of the policy and its link to strategy and

long-term sustainable success and concluded that the policy’s structure and operation remained appropriate, and the

existing policy will be proposed to shareholders for approval at the 2022 AGM. An ordinary resolution to approve this is put to

shareholders at least every three years. The policy is available on the group’s website: www.highcroftplc.com.

The board’s policy is that the remuneration of all directors should reflect their experience and expertise, and the particular

value that they add to the group. In addition, the packages should be sufficient to attract and retain individuals of an

appropriate calibre and capability, and should reflect the duties and responsibilities of the directors and the value and

amount of time committed to the group’s affairs. The packages should continue to be aligned with our remuneration

philosophy with at least one element of performance-related pay for each executive director.

The remuneration packages of all directors are reviewed annually, and these are listed in the table below, together with an

explanation of who they apply to, their purpose, their link to our strategy, the mechanics of the operation of the element and

any maximum amounts or performance criteria that apply.

Element Purpose

Link to

strategy Operation Maximum Performance target

Executive directors

Fixed

Base salary Competitive

remuneration

base,

benchmarked

to the market

reflecting role,

responsibilities,

skills and

experience.

To assist with

recruitment

and retention.

Reviewed at least annually. Paid

monthly via payroll.

Not set. N/A

Pension To provide the

legal minimum

post-retirement

benefits.

To assist with

recruitment

and retention.

There is an auto-enrolment

compliant scheme in place.

Thegroup will pay either to this,

or another personal pension

scheme nominated by the

director, at least the minimum

legal level of company

auto-enrolment contribution.

The group may pay a

non-pensionable cash sum in

lieu of pension contributions.

Not set. N/A

Benefits Provide a

competitive level

of benefits.

To assist with

recruitment

and retention.

There is no intention to

introduce direct benefit

provision for the executive

directors at this time. However,

the remuneration committee

recognises the need to

maintain suitable flexibility to

ensure it is able to attract and

retain directors. Accordingly,

the remuneration committee

expects to be able to pay

a cash allowance in lieu of

benefits such as private medical

insurance and death in service

life assurance as appropriate.

The

maximum

will be set

at the cost

of providing

the benefits

described.

N/A

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

Element Purpose

Link to

strategy Operation Maximum Performance target

Variable

The Highcroft

Incentive Plan

To incentivise

the executive

directors to deliver

both strong

in-year financial

and non-financial

performance

and sustained

longer-term

returns to

shareholders.

To assist with

recruitment

and retention.

To align

executive

director

interests

with those of

shareholders.

Annual awards paid part in cash

and part in shares.

Annual

cash award

capped

at 10% of

distributions

paid to

shareholders.

Performance is measured

over the financial year.

75% of the award is payable

on the achievement of

financial targets, with the

balance being payable

on the achievement of

strategic targets.

The remuneration

committee is of the opinion

that given the commercial

sensitivity arising in relation

to the detailed financial

targets, disclosing precise

targets in advance would

not be in shareholder

interests. Actual targets,

performance achieved

and awards made will be

published at the end of

the performance periods

so shareholders can fully

assess the basis for any

payouts.

The remuneration

committee retains

discretion in exceptional

circumstances to change

performance metrics and

targets and the weightings

attached to metrics part

way through a performance

year if there is a significant

and material event that

causes the remuneration

committee to believe the

original metrics, weightings

and targets are no longer

appropriate. Discretion may

also be exercised in cases

where the remuneration

committee believe that the

formulaic outcome is not a

fair and accurate reflection

of business performance

The cash element shall be the

higher of 80% of base salary

or 50% of the total award and

will be paid out after the end of

the financial year to which the

award relates.

Any balance will be paid in the

form of deferred shares that

vest 50% after three years, and

50% after four years subject

to the executive director’s

continued employment at the

date of vesting.

Malus will apply for the period

from grant to vesting with

clawback applying for the

two-year period post vesting.

Up to 200%

of base

salary.

Shareholding

requirement

To support

long-term

commitment to

the company and

the alignment

of executive

director interests

with those of

shareholders.

To align the

executive

director

interests

with those of

shareholders.

The remuneration committee

has adopted formal

shareholding guidelines

that will encourage the

executive directors to build

up over a five-year period

and then subsequently hold

a shareholding equivalent to

a percentage of base salary.

This requirement will continue

until the audited accounts

for the year of cessation of

employment are finalised and

the sale of any shares will then

be subject to orderly market

provisions.

100% of base

salary.

None

Chairman and non-executive directors

Fees Competitive

remuneration,

benchmarked

to the market

reflecting role,

responsibilities,

skills and

experience.

To assist with

recruitment

and retention.

Fees are reviewed annually

taking into account

responsibilities, time

commitment and benchmark

data for organisations of a

similar size and complexity. Fees

are paid monthly via the payroll

and relevant expenses incurred

are reimbursed.

Not set. N/A

REMUNERATION AT A GLANCE

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

The committee addressed the following factors when determining the remuneration policy and practices, as recommended

by the Code.

Code principles How the committee has addressed these

Clarity

Remuneration arrangements should

be transparent and promote effective

engagement with shareholders and the

workforce.

The committee is satisfied that the remuneration arrangements in the

policy are transparent, comprising simple incentive structures that are

commonplace in the market and in line with best practice remuneration

provisions.

Key shareholders were consulted when the remuneration policy was initially

adopted and are consulted prior to any updated policy being put to an AGM

for approval, which happens at least every three years. Our two employees

are aware of the policy.

Simplicity

Remuneration structures should avoid

complexity and their rationale and

operation should be easy to understand.

The components of our remuneration policy are straightforward and are

simple to operate and communicate.

Risk

Remuneration arrangements should

ensure reputational and other risks

from excessive rewards, and behavioural

risks that can arise from target-based

incentive plans, are identified and

mitigated.

The range of performance outcomes is looked at carefully when setting

performance target ranges. Discretion is used where the outcomes lead to

an inappropriate pay outcome.

The deferred share element of the Highcroft Incentive Plan, the shareholding

requirement and clawback and malus provisions all help to mitigate risk.

Predictability

The range of possible values of rewards to

individual directors and any other limits

or discretions should be identified and

explained at the time of approving the

policy.

Incentive plans are determined based on a proportion of base salary so there

is a sensible balance between fixed pay and performance-linked elements.

There is the ability to override a formulaic driven outcome of incentive plans

to minimise the likelihood of a poor link between reward and performance.

Proportionality

The link between individual awards, the

delivery of strategy and the long-term

performance of the company should be

clear. Outcomes should not reward poor

performance.

The incentive plan is determined based on a proportion of base salary, and is

capped, so there is a sensible balance between fixed pay and performance

linked elements.

Alignment to culture

Incentive schemes should drive

behaviours consistent with company

purpose, values and strategy.

The committee ensure that the Highcroft Incentive Plan criteria are

consistent with the company purpose and values, and that the performance

measures are linked to the business strategy.

DIRECTORS’ REMUNERATION REPORT

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

Recruitment policy

The remuneration committee’s approach to recruitment remuneration is to apply the same structure as described in the

policy table. On appointment, base salary levels will be set taking into account a range of factors including expected time

commitment, market levels, experience, internal relativities and affordability. The maximum annual opportunity under the

Highcroft Incentive Plan will be no more than 200% of base salary as set out in the remuneration policy.

The remuneration committee’s policy is not to provide sign-on compensation or to provide buyouts as a matter of course.

However, should the remuneration committee determine that the individual circumstances of recruitment justified the

provision of a buyout, the equivalent value of any incentives that will be forfeited on cessation of a director’s previous

employment will be calculated, taking into account the proportion of the performance period completed on the director’s

cessation of employment, the performance conditions attached to the vesting of these incentives and the likelihood of them

being satisfied, and any other terms and conditions having a material effect on their value. The remuneration committee

may then grant up to the same value as this calculated value, where possible, under the company’s incentive plan. To the

extent that it is not possible or practical to provide the buyout within the terms of the company’s existing incentive plan, a

bespoke arrangement would be used.

Loss of office policy

The remuneration committee will honour any contractual arrangements. When determining any loss of office payment for

a departing individual, the remuneration committee will always seek to minimise cost to the company, whilst seeking to

address the circumstances at the time.

Leaving arrangements under the Highcroft Incentive Plan are defined in the plan rules and vary by leaver type as set

out below:

• A ‘good leaver’ is defined as a participant ceasing to be in employment by reason of death, injury, ill health, disability,

redundancy, retirement or otherwise at the remuneration committee’s discretion. In these circumstances, unvested

incentive awards will vest in full on the usual date but pro-rated for time served and the achievement of performance

conditions.

• The remuneration committee may at its discretion bring forward the vesting date for a good leaver, in which case the

performance would be assessed at that point.

• All other leavers who cease employment prior to the cash element of the incentive award being paid, or who are under

notice of cessation at the time that the cash element of the award is paid, will not be eligible to receive the cash element

of the award for that financial year, and all deferred shares for such leavers will lapse and any dividends paid on such

shares will be clawed back.

Illustration of policy

The tables below illustrate the remuneration opportunity provided to each executive director in line with different levels of

performance for 2022.

Chief executive Finance director

Maximum

On target

Minimum

£424,000

£319,000

£144,000

34%

45% 55%

100%

66%

Maximum

On target

Minimum

£376,000

£283,000

34% 66%

45%

£128,000

100%

55%

Salary, benefits and pension Highcroft Incentive Plan

On target performance

Comprising base salary, pension allowances and an incentive plan payment at 62.5% of the maximum opportunity.

Maximum performance

Comprising base salary, pension allowances and an incentive plan payment at 100% of the maximum opportunity.

Minimum performance

Comprising the minimum remuneration receivable being base salary and pension allowances.

Directors’ service contracts

Executive directors are given service contracts, within which there is a notice period by either party of six months.

Non-executive directors have a formal appointment document for a period of up to three years subject, at any time, to

termination on six months’ notice by either party. All directors retire and are subject to election at the first AGM after their

appointment. The board follows the Code recommendations in that all directors offer themselves for re-election at each AGM.

DIRECTORS’ REMUNERATION REPORT

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

Consideration of employment conditions elsewhere in the company

There are two other part-time employees in the company, a company secretary and a management accountant, whose

salaries are decided by benchmarking to the market, their skills, experience, and contribution. The directors did not consult

with these employees in setting the directors’ remuneration policy as it was not considered appropriate to do so.

Consideration of shareholder views

During the year, the remuneration committee engages with key shareholders to ensure that their views are understood

when considering remuneration policy.

Audit

The law requires the group’s auditor, Mazars LLP, to report on whether the part of the directors’ remuneration report to be

audited has been properly prepared in accordance with the Companies Act 2006. Where disclosures have been audited,

they are indicated as such. The auditor’s opinion is included in the independent auditor’s report on pages 76 to 80.

Directors’ contracts

A summary of the directors’ contracts is set out below:

Non-executive directors

Date of appointment

as director

Effective date of current

appointment letter Expiry of term Notice period

Charles Butler 2 January 2018 2 January 2021 1 January 2024 Six months

Simon Costa 15 May 2015 15 May 2021 14 May 2024 Six months

David Kingerlee* 12 September 1996 7 April 2021 6 April 2024 Six months

* Prior to 7 April 2021, David Kingerlee was an executive director.

Executive directors

Date of appointment

as director Date of contract Notice period

Simon Gill 1 April 2013 7 December 2017 Six months

Roberta Miles 1 July 2010 7 December 2017 Six months

Annual report on remuneration for the year

Relative importance of spend on pay

The directors are the only employees of the group, other than two part-time employees, the company secretary and the

management accountant.

2021

£’000

2020

£’000

2019

£’000

Directors’ remuneration 737 703 534

Increase in director’s remuneration* 4.8% 31.6% 10.4%

Distributions paid to shareholders 3,007 2,484 2,829

Directors’ remuneration as a % of distributions paid to shareholders 24.5% 28.3% 18.9%

Cash element of directors’ incentive plan award as % of distributions paid to shareholders 7.2% 8.4% 6.7%

* In 2020, the accounting treatment for the PAYE/NI on the share award was altered – see page 67 for more details.

Directors remuneration 2021 (audited)

2021 2020

Base

salary

Pension/

pension

allowance

Incentive plan

Total

Base

salary

Pension/

pension

allowance

Incentive plan

Total

Cash

award

award*

Cash

award

award*

Charles Butler 50,000 – – – 50,000 49,000 – – – 49,000

Simon Costa 38,000 – – – 38,000 37,000 – – – 37,000

Simon Gill 127,500 3,825 111,435 83,931 326,691 125,000 3,750 100,000 68,171 296,921

David Kingerlee 28,250 285 5,928 – 34,463 38,000 1,125 20,944 – 60,069

Roberta Miles 112,500 3,375 98,325 73,756 287,956 110,000 3,300 88,000 58,983 260,283

356,250 7,485 215,688 157,687 737,110 359,000 8,175 208,944 127,154 703,273

* Element relating to the financial year including, where appropriate, the proportion of previous years’ award expensed in financial year. In

2020, the accounting treatment for the PAYE/NI on the share award was altered – see page

67 for more details.

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

Highcroft Incentive Plan 2021

The maximum opportunity under the Highcroft Incentive Plan for 2020 was 200% of salary for Simon Gill and Roberta Miles

and 100% of salary for David Kingerlee (for the period to 31 March 2021).

The 2021 award was based on four performance measures as shown in the table below. The financial performance measures

are related to the weighted average relevant MSCI measure, which is deemed to be an appropriate relevant market

index. The relative weighting, thresholds and outcomes together with the 2021 outcome for the individual directors is

tabulated below.

Performance

measure

Weighting Threshold

% of

maximum

payout

Performance

agreed

Agreed

outcome

Actual

% of

maximum

awarded

Award as % of base salary

Simon Gill Roberta Miles

David

Kingerlee

Cash

Deferred

shares Cash

Deferred

shares Cash

Adjusted NAV per

share movement

30% 6.4%

25.8%

25%

100%

22% 81% 24.3%

Adjusted EPS

growth

30% 2.7%

10.6%

25%

100%

10% 92% 27.6%

Gross rent (ERV)

growth

15% 1.0%

4.0%

25%

100%

3% 70% 10.5%

Strategic personal

objectives

25%

Simon Gill 100% 25%

Roberta Miles 100% 25%

David Kingerlee 0% 0%

Total 100%

Simon Gill 87.4% 87.4% 87.4%

Roberta Miles 87.4% 87.4% 87.4%

David Kingerlee* 62.4% 62.4%

*For the period to 31 March 2021.

Deferred share element of award

The cost of the net pay, used to purchase shares for the deferred share element of the award is, for accounting purposes,

spread across the total service and vesting periods of the deferred shares, which are:

Deferral period

50% of the

award

years

50% of the

award

years

2019 award 3.77 4.77

2020 award 3.37 4.37

2021 award 3.46 4.46

DIRECTORS’ REMUNERATION REPORT

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

Deferred share element Expensed in

Base

salary

% of

base

salary

Gross

pay put

through

payroll

MV of

issued

@53%

PAYE/NI

payable

award*

2019

2020

2021

2022

2023

2024

2025

Simon

Gill

2019

award 113,500 47.50% 53,913 28,574 12,802 768 6,785 5,913 2,306 – –

25,339 – 25,339 – – – – –

2020

award 125,000 55.23% 69,039 36,591 9,616 9,616 9,616 6,195 1,548 –

32,448 32,448 – – – – –

2021

award 127,500 87.40% 111,435 59,061 15,156 15,156 15,156 10,547 3,046

52,374 – – 52,374 – – – –

12,802 68,171 83,931 30,685 23,657 12,095 3,046

Roberta

Miles

2019

award 95,500 47.50% 45,363 24,042 10,771 646 5,709 4,975 1,941 – –

21,321 – 21,321 – – – – –

2020

award 110,000 55.23% 60,754 32,200 8,462 8,462 8,462 5,452 1,362 –

28,554 28,554 – – – – –

2021

award 112,500 87.40% 98,325 52,112 13,373 13,373 13,373 9,306 2,687

46,213 – – 46,213 – – – –

10,771 58,983 73,756 26,810 20,765 10,668 2,687

Total 23,573 127,154 157,688 57,495 44,423 22,763 5,733

* In 2020, the accounting treatment for the share award was altered, in that the PAYE/NI on the whole share award is expensed in the service period

and only the expense of the net salary used to acquire shares is spread across the total service and vesting period. This resulted in a net additional

expense of £35,580 related to the 2019 share award being charged in 2020, together with £10,447 of employer’s national insurance.

Awards of prior years

The 2019 and 2020 awards were paid via the payroll in the year after the year of award and the net sum (calculated as 53% of

the gross sum, after deducting PAYE and NI) was used to purchase new shares at the average of the closing share price for

the previous three working days.

2019 award 2020 award Total

Date shares

purchased

Number of

Purchase

price at £6.63

per share

Date shares

purchased

Number of

Purchase

price at £8.07

per share

Purchase

price

Value at

31 December

2021

Simon Gill 05 May 2020 4,309 28,569 12 April 2021 4,534 36,589 65,158 77,376

Roberta Miles 05 May 2020 3,626 24,040 12 April 2021 3,990 32,199 56,239 66,640

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

Remuneration of the chief executive (CEO)

The table below shows the total remuneration of Simon Gill (from 31 July 2013) and Jonathan Kingerlee (deceased)

(until 31 July 2013) in respect of their role as CEO, together with the annual percentage change.

2021

£’000

2020

£’000

2019

£’000

2018

£’000

2017

£’000

2016

£’000

2015

£’000

2014

£’000

2013

£’000

2012

£’000

Fixed remuneration

Simon Gill 131 129 113 108 98 95 70 51 21 –

Jonathan Kingerlee – – – – – – – – 20 35

Variable remuneration

Simon Gill 195 168 104 101 94 87 82 60 – –

Total remuneration

Simon Gill 326 297 217 209 192 182 152 111 21 –

Jonathan Kingerlee – – – – – – – – 20 35

326 297 217 209 192 182 152 111 41 35

Percentage change in total

remuneration of CEO 10% 37% 4% 9% 5% 20% 37% 171% 17% –

Annual variable element

award payout against

maximum opportunity* 87% 68% 64% N/A N/A N/A N/A N/A N/A N/A

* The Highcroft Incentive Plan was introduced in 2019. Prior to that, any bonuses paid were entirely discretionary with no maximum

opportunities defined.

If the share price increased, there would be no effect on the remuneration of the CEO as disclosed above as the value of any

share award is determined at the time that the new shares are issued for more details see page 67.

Executive directors’ remuneration 2021

The charts below show the 2021 actual remuneration against the potential opportunity for the year and also the 2020 actual

remuneration for each executive director. Full disclosure of the single total figure for remuneration is set out above.

Simon Gill

Chief executive

2021 actual

2021 potential*

2020 actual

£326,691

£352,492

£296,921

39% 60%

36% 63%

42%

57%

Roberta Miles

Finance director

2021 actual

2021 potential*

2020 actual

£287,956

£310,722

£260,283

39% 60%

36% 63%

42%

57%

David Kingerlee

Executive director

for the period 1 January 2021 to 7 April 2021

2021 actual

2021 potential*

2020 actual

£34,463

£19,285

£60,069

62% 38%

50% 50%

63%

35%

Base salary

Pension

Incentive plan/discretionary bonus

* 2021 potential assumes that maximum incentive plan payment was made and spread evenly over the service and vesting period and takes

into account the revised accounting treatment for the PAYE and NI on the 2019 and subsequent share awards.

Annual percentage change in remuneration of directors and employees

The table below shows a comparison of the annual change of each individual director’s pay. As there are only two

non-boardemployees, one of whom started in 2021, it is not considered appropriate or beneficial to include that

informationas a comparator.

Incentive plan

Change in pay between the year ended

31 December 2020 and 31 December 2021

Base salary/

fees

% change

Pension/

pension

allowance %

change

Cash award

% change

Share award

% change**

Executive directors Simon Gill 2% 2% 11% 61%

David Kingerlee (to 7 April 2021) * 0% 0% 1% –

Roberta Miles 2% 2% 12% 62%

Non-executive directors Charles Butler 2% – – –

Simon Costa

3% – – –

David Kingerlee (from 7 April 2021)* (19%) (100%) (100%) –

* David Kingerlee’s % change has been calculated on a pro-rata basis and to his 2020 executive remuneration.

** The % change is calculated by reference to the gross value of the award for the year and not the amount expensed in the year (see pages 66 to 67).

DIRECTORS’ REMUNERATION REPORT

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

Company performance

The board is responsible for the group’s performance.

The graph below shows the company’s Total Shareholder Return (TSR) compared to the FTSE 350 Super Sector Real Estate

Index over the last ten years, which the board considers to be the most appropriate benchmark. TSR is defined as share price

growth plus reinvested dividends.

Total Shareholder Return performance graph

86,710

2012

2013 2019

350

300

200

£’000

250

150

100

2014 2015 2016

2017

2018

2020 2021

Highcroft Investments FTSE 350 SS Real Estate

Statement of implementation of remuneration policy in the next financial year

The board does not intend to make any significant changes to remuneration policy during 2022.

Salaries 2022

The committee undertook a benchmarking exercise with PWC at the beginning of 2019. At the end of each subsequent year,

the committee carried out their own informal internal update of this exercise and reviewed the board salaries against wider

market practice. The following base salaries apply from 1 January 2022:

Simon Gill £140,500 Charles Butler £53,000

Roberta Miles £124,000 Simon Costa £40,500

David Kingerlee £25,000

Highcroft Incentive Plan 2022

The maximum opportunity under the Highcroft Incentive Plan for 2022 will continue to be 200% of salary for Simon Gill and

Roberta Miles. The awards will be based on four performance measures:

• NAV per share performance 30% weighting

• Adjusted EPS performance 30% weighting

• Gross rent growth 15% weighting

• Strategic metrics (non-financial) 25% weighting

Performance targets for the Incentive Plan for 2022 are not disclosed here on the grounds of commercial sensitivity, and will

be disclosed in the 2022 directors’ remuneration report.

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

Interests of the directors in the shares of the company (audited)

The interests of the directors, and their connected persons, in the shares of the company at 31 December 2021,

wereasfollows:

Held

under the

Highcroft

Incentive

Plan*

Held

directly Total

Charles Butler – – –

Simon Costa – – –

Simon Gill 8,843 – 8,843

David Kingerlee – 1,498,333 1,498,333

Roberta Miles 7,616 5,950 13,566

* The shares held under the Highcroft Incentive Plan include all those issued in prior years, see page 67 (awards of prior years) all of which are

subject to malus and clawback in accordance with the remuneration policy (page 62).

Director’s shareholding guideline

Executive directors are subject to within-employment and post-employment shareholding requirements – see page 62.

David Kingerlee was subject to this guideline until he ceased to be an executive director on 7 April 2021.

They are encouraged to build up over a five-year period from May 2020; a holding equivalent to 100% of base salary.

At 31 December 2021, the executive directors are on track to build up, on a straight-line basis, to their shareholding guideline

within the five-year period

Executive director

Beneficially

held shares*

2021 base

salary

Target by

May 2025

Achieved at

31 December

2021

Value of

beneficially

held shares

Simon Gill 8,843 127,500 127,500 60.7% 77,376

Roberta Miles 13,566 112,500 112,500 105.5% 118,703

* The number of shares includes those issued in their name but not yet vested under the Highcroft Incentive Plan.

The value of the executive directors’ shareholdings has been calculated using the closing price at 31 December 2021 of £8.75.

Statement of shareholder voting

At the AGM in 2021, the resolution to approve the directors’ remuneration report received the following voting from

shareholders:

Votes cast in favour 2,672,890 99.96%

Votes cast against 1,000 0.04%

Total votes cast 2,673,890 100%

Votes withheld – –

Approved by the board of directors and signed by

SIMON COSTA

Chairman of the remuneration committee

28 March 2022

DIRECTORS’ REMUNERATION REPORT

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

REPORT OF THE DIRECTORS

The corporate governance report on pages 46

to 73 forms part of the report of the directors.

The directors present their report together

with the audited financial statements for the

year ended 31 December 2021.

The principal activity of the group continues to

be property investment.

Directors

The directors, who served throughout the year,

are listed below:

Charles Butler Non-executive chairman

Simon Costa Senior independent

non-executive director

Simon Gill Chief executive

David Kingerlee Non-executive director*

Roberta Miles Finance director

* With effect from 7 April 2021, David Kingerlee became

a shareholder representative for Kingerlee Holdings

Limited and subsequently a non-independent

non-executive director as explained on page 49.

The board recognises the requirement of the

UK Corporate Governance Code regarding

the segregation of roles and division of

responsibilities between the chairman and

chief executive, and between the leadership

of the board and the executive leadership of

the business, and has complied with these

requirements during the year.

The interests of the directors in the shares of

the company are included in the remuneration

report on page 70.

In accordance with the Code, all directors will

retire and offer themselves for re-election at

the forthcoming 2022 AGM.

The board confirms that following

performance evaluations, and review by the

nomination committee, the performance of

each director continues to be effective and

that they demonstrate commitment to their role. The board believes that

it is in the best interest of shareholders that these directors be re-elected.

Financial instruments

The groups exposure to, and management of, capital risk and liquidity

risk is in Note 18 to the consolidated financial statements.

Structure of share capital and rights and

obligations attaching to shares

The company’s allotted and issued share capital, as at 31 December 2021,

was £1,295,925 (2020 £1,293,794) divided into 5,183,699 (2020 5,175,175)

ordinary shares of 25 pence each, each of which was called up and fully

paid. There have been no changes to the share capital since the year end.

Subject to the Companies Act for the time being in force (the Act)

the company’s articles of association confer on holders the following

principal rights:

• To receive a dividend. The profits of the company available for dividend,

and resolved to be distributed, shall be applied in the payment of

dividends to the members and to persons becoming entitled to shares

by transmission, in accordance with their respective rights and priorities.

The company in general meeting may declare dividends accordingly.

• To a return of capital or assets, if available, on liquidation. Upon any

winding up of the company, the liquidator may, with the sanction of

a special resolution of the company and any other sanction required

by the statutes, divide among the members in specie the whole or

any part of the assets of the company and may, for that purpose,

value any assets and determine how the division shall be carried out

as between the members of different classes of members.

• To receive notice of, attend and vote at an AGM. At each AGM, upon

a show of hands, every member present in person or by proxy shall

have one vote, and upon a poll every member present in person or by

proxy shall have one vote for every share of which they are the holder.

• To have, in the case of certificated shares, rights in respect of

share certificates and share transfers. Every person whose name is

entered as a member in the register as the holder of any certificated

share shall be entitled without payment to one certificate for all

the shares of each class held by them or, upon payment of such

reasonable out-of-pocket expenses for every certificate after the first

as the board shall from time to time determine, several certificates

each for one or more of their shares. On any transfer of shares, the

transferor shall be deemed to remain the holder of the share until the

name of the transferee is entered in the register in respect thereof.

Substantial shareholders

As at 31 December 2021, the following notifications of interests in 3% or more of the company’s ordinary share capital in issue

had been received:

Beneficial Number of shares

D G & M B Conn and associates 23.27% 1,206,205

Controlling shareholder – Kingerlee

Concert Party comprising

– the wholly owned subsidiaries of Kingerlee Holdings Limited:

Kingerlee Limited

9.93% 515,000

Kingerlee Homes Limited

7.70% 399,093

T H Kingerlee & Sons Limited

9.55% 494,770

Total – Kingerlee Holdings Limited

27.18% 1,408,863

– other associates

13.86% 718,519

Total – Kingerlee Concert Party

41.04% 2,127,382

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

REPORT OF THE DIRECTORS

Controlling shareholder

A controlling shareholder is defined by the FCA as ‘any

person who exercises or controls, on their own or together

with any other person with whom they are acting in

concert, 30% or more of the votes able to be cast on all

or substantially all matters at general meetings of the

company’. The directors are aware that the shareholdings of

Kingerlee Holdings Limited and its subsidiaries referred to

in the previous table, together with their connected parties

and associates form the Kingerlee Concert Party, which, as at

28 March 2022, held 2,127,382 ordinary shares, representing

41.04% of the company’s issued share capital. The Kingerlee

Concert Party is, therefore, a controlling shareholder. The

persons comprising the Kingerlee Concert Party were

confirmed by the Takeover Panel in 1999. The company can

confirm that, in accordance with these rules:

• It entered into a controlling shareholder agreement (CSA)

with the Kingerlee Concert Party on 13 November 2014;

• The company has complied with the independence

provisions in the CSA from 1 January 2021 until 31

December 2021 (the period);

• So far as the company is aware, the independence

provisions in the CSA have been complied with by

the controlling shareholder and its associates in the

period; and

• So far as the company is aware, the procurement

obligation in the CSA has been complied with by the

controlling shareholder in the period.

The CSA contains undertakings that inter alia:

• Transactions and relationships with the controlling

shareholder (and/or any of its associates) will be conducted

at arm’s length and on normal commercial terms;

• Neither the controlling shareholder nor any of its

associates will take any action that would have the effect of

preventing the company or any member of its group from

complying with its obligations under the Listing Rules; and

• Neither the controlling shareholder nor any of its associates

will propose or procure the proposal of a shareholder

resolution, which is intended or appears to be intended to

circumvent the proper application of the Listing Rules.

The directors have put in place measures to ensure that

the election or re-election by the shareholders of any

independent non-executive director should be approved by

an ordinary resolution of the shareholders and separately

approved by those shareholders who are not controlling

shareholders, the independent shareholders.

Directors’ indemnification

and insurance

The company’s articles of association provide for the

directors’ and officers of the company to be appropriately

indemnified, subject to the provisions of the Companies

Act 2006. The company purchases and maintains insurance

for the directors and officers of the company in performing

their duties, as permitted by section 233 Companies

Act 2006.

Greenhouse gas emissions

Under the Companies Act 2006 (Strategic and Directors’

Reports) Regulations 2013, the company is required to

report annual greenhouse gas emissions. The directors

have considered this obligation and taken into account the

following factors:

• The group operates from a serviced office within a

larger building and has no direct responsibility for

energy usage;

• The annual energy cost for the limited shared

commercial areas within the property portfolio are less

than 40,000kWh and also less than £5,000pa.

• The car fuel used by the group and its advisers is

considered de minimis.

On this basis, the directors do not consider that it is

practicable or valuable to collect and report any detailed data

on greenhouse gas emissions.

Engagement with customers, suppliers

and others who have a business

relationship with the company

The directors work closely with tenants, potential tenants

and key members of our advisory team. During 2021, due

to the continued impact of the Covid-19 pandemic, our

interactions have continued to be mixture of face to face and

virtual. More detail can be found on page 39.

Dividends

The dividends paid by the company during the year and

declared prior to the publication of this report are set out in

Note 6 of the consolidated financial statements on page 89.

Charitable donations

During the year, the group made charitable donations of

£12,000. More detail can be found on page 43.

Disclosure of information to the auditor

So far as the directors who held office at the date of approval

of this directors’ report are aware there is no relevant audit

information of which the auditor is unaware and each

director has taken steps that they ought to have taken as a

director to make themselves aware of any audit information

and to establish that the auditor is aware of that information.

Likely future developments in the

business of the company

In our strategic report we outlined our business model,

strategy and future opportunities for development. Read

more about this in our strategic report on pages 16 to 43.

Auditor

Mazars LLP have expressed their willingness to continue in

office as auditors and a resolution to appoint them will be

proposed at the forthcoming AGM.

Post-balance sheet events

There were no post-balance sheet events requiring

disclosure.

This report was approved by the board.

ROBERTA MILES

Finance director

28 March 2022

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

GOVERNANCE

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

in respect of the annual report, remuneration report and the financial statements

The directors are responsible for preparing the annual

report, remuneration report and the financial statements in

accordance with applicable law and regulations.

Company law requires the directors to prepare financial

statements for each financial year. Under that law, the

directors have prepared the group financial statements in

accordance with the Companies Act 2006 and International

Financial Reporting Standards (“IFRS”) as adopted for use

in the United Kingdom for the group, and have elected

to prepare the parent company financial statements in

accordance with United Kingdom Accounting Standards

(United Kingdom Generally Accepted Accounting Practice).

Under company law, the directors must not approve the

financial statements unless they are satisfied that they give

a true and fair view of the state of affairs and of the profit or

loss of the company and group for that period. In preparing

these financial statements, the directors are required to:

• select suitable accounting policies and then apply them

consistently;

• make judgements and estimates that are reasonable

and prudent;

• state whether applicable IFRSs and UK accounting

standards have been followed, subject to any material

departures disclosed and explained in the financial

statements; and

• prepare the financial statements on the going concern

basis unless it is inappropriate to presume that the

company will continue in business.

The directors are responsible for keeping adequate

accounting records that are sufficient to show and explain

the company’s transactions and disclose with reasonable

accuracy at any time the financial position of the company,

and enable them to ensure that the financial statements

and the remuneration report comply with the Companies

Act 2006 and Article 4 of the IAS Regulation. They are also

responsible for safeguarding the assets of the company

and group and hence for taking reasonable steps for the

prevention and detection of fraud and other irregularities.

In so far as each of the directors is aware:

• there is no relevant audit information of which the

company’s auditor is unaware; and

• the directors have taken steps that they ought to have

taken to make themselves aware of any relevant audit

information and to establish that the auditor is aware of

this information.

Under applicable law and regulations, the directors are also

responsible for preparing a strategic report, directors’ report,

directors’ remuneration report and corporate governance

statement that comply with that law and those regulations.

The directors are responsible for the maintenance and

integrity of the corporate and financial information included

on the company’s website: www.highcroftplc.com. Visitors

to the website should be aware that legislation in the United

Kingdom governing the preparation and dissemination of

financial statements may differ from legislation in other

jurisdictions.

Responsibility statement of directors in

respect of the annual financial report

We confirm that to the best of our knowledge:

• the financial statements have been prepared in

accordance with the Companies Act 2006 and

International Financial Reporting Standards (“IFRS”) as

adopted for use in the United Kingdom for the group

and United Kingdom Generally Accepted Accounting

Practice (United Kingdom Accounting Standards and

applicable laws) for the parent company, give a true

and fair view of the assets, liabilities, financial position

and profit or loss of the company and the undertakings

included in the consolidation taken as a whole;

• the annual report, including the strategic report, includes

a fair review of the development and performance of

the business and the position of the company and the

undertakings included in the consolidation taken as a

whole, together with a description of the principal risks

and uncertainties that they face; and

• the report and accounts, taken as a whole, are fair,

balanced, and understandable and provide the necessary

information for shareholders to assess the group’s

performance, business model and strategy.

On behalf of the board

CHARLES BUTLER

Chairman

28 March 2022

Stock code: HCFT www.highcroftplc.com

GOVERNANCE

FINANCIAL STATEMENTS

Contents

Independent auditor’s report 

Consolidated statement

ofcomprehensive income 

Consolidated statement

offinancialposition



Consolidated statement

ofchangesinequity



Consolidated statement

of cashﬂows 

Notes to the consolidated

financialstatements 

Company statement

offinancialposition 

Company statement

of changes inequity 

Notes to the company

financialstatements 

List of definitions 

Group five-year summary (unaudited) 

Directors and advisers IBC

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

WAREHOUSE  ROCHE, ST AUSTELL

Stock code: HCFT www.highcroftplc.com

INDEPENDENT AUDITOR’S REPORT

to the members of Highcroft Investments PLC

Opinion

We have audited the financial

statements of Highcroft Investments

PLC (the ‘parent company’; the

‘company’) and its subsidiaries

(the ‘group’) for the year ended 31

December 2021 which comprise

the consolidated statement of

comprehensive income, the

consolidated statement of financial

position, the consolidated statement

of changes in equity, the consolidated

statement of cash flow, the notes to

the consolidated financial statements,

including a summary of significant

accounting policies, the company

statement of financial position, the

company statement of changes in

equity and notes to the financial

statements, including a summary of

significant accounting policies.

The financial reporting framework that

has been applied in their preparation

is applicable law and UK-adopted

international accounting standards

and, as regards the parent company

financial statements, as applied in

accordance with the provisions of the

Companies Act 2006.

In our opinion, the financial

statements:

• give a true and fair view of the state

of the group’s and of the parent

company’s affairs as at 31 December

2021 and of the group’s profit for

the year then ended;

• have been properly prepared in

accordance with UK-adopted

international accounting standards

and, as regards the parent company

financial statements, as applied in

accordance with the provisions of

the Companies Act 2006; and

• have been prepared in accordance

with the requirements of the

Companies Act 2006.

Basis for opinion

We conducted our audit in accordance

with International Standards on

Auditing (UK) (ISAs (UK)) and applicable

law. Our responsibilities under those

standards are further described in the

“Auditor’s responsibilities for the audit

of the financial statements” section

of our report. We are independent of

the group and the parent company

in accordance with the ethical

requirements that are relevant to our

audit of the financial statements in

the UK, including the FRC’s Ethical

Standard as applied to listed entities

and public interest entities and

we have fulfilled our other ethical

responsibilities in accordance with

these requirements. We believe that

the audit evidence we have obtained is

sufficient and appropriate to provide a

basis for our opinion.

Conclusions relating to

going concern

In auditing the financial statements,

we have concluded that the directors’

use of the going concern basis of

accounting in the preparation of the

financial statements is appropriate.

Our audit procedures to evaluate the

directors’ assessment of the group’s

and the parent company’s ability to

continue to adopt the going concern

basis of accounting included but were

not limited to:

• Undertaking an initial assessment

at the planning stage of the audit

to identify events or conditions that

may cast significant doubt on the

group’s and the parent company’s

ability to continue as a going

concern;

• Evaluating the directors’ method to

assess the group’s and the parent

company’s ability to continue

as a going concern approved by

the board of directors on 28th

March 2022;

• Making enquiries of directors

to understand the period of

assessment considered by them,

the assumptions they considered

and the implication of those

when assessing the group’s and

the company’s future financial

performance. This included

examining the minimum cash

inflow and committed outgoings

under the cash flow forecasts and

evaluating whether the directors’

conclusion that liquidity headroom

remained in all events was

reasonable;

• Challenging the appropriateness

of the directors’ key assumptions

in their cash flow forecasts, as

described in Note 1, by reviewing

supporting and contradictory

evidence in relation to these key

assumptions and assessing the

directors’ consideration of severe

but plausible scenarios. This

included assessing the viability

of mitigating actions within the

directors’ control;

• Evaluating the key assumptions

used and judgements applied

by the directors in forming their

conclusions on going concern;

• Testing the accuracy used to

prepare the directors’ forecasts; and

• Evaluating the appropriateness

of the directors’ disclosures in the

financial statements on going

concern.

Based on the work we have performed,

we have not identified any material

uncertainties relating to events

or conditions that, individually or

collectively, may cast significant

doubt on the group’s and the parent

company’s ability to continue as a

going concern for a period of at least

twelve months from when the financial

statements are authorised for issue.

Our responsibilities and the

responsibilities of the directors with

respect to going concern are described

in the relevant sections of this report.

In relation to Highcroft Investments

PLC’s reporting on how it has applied

the UK Corporate Governance Code, we

have nothing material to add or draw

attention to in relation to the directors’

statement in the financial statements

about whether the director’s

considered it appropriate to adopt the

going concern basis of accounting.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

FINANCIAL STATEMENTS

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the

financial statements of the current period and include the most significant assessed risks of material misstatement

(whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy; the

allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the

context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a

separate opinion on these matters.

We summarise below the key audit matters in forming our opinion above, together with an overview of the principal audit

procedures performed to address each matter and our key observations arising from those procedures.

These matters, together with our findings, were communicated to those charged with governance through our Audit

Completion Report.

Key Audit Matter How our scope addressed this matter

Investment property valuation

The group has a significant portfolio of investment properties

consisting of warehouse/industrial, retail warehouse, high

street retail, office and leisure in England and Wales. The

group’s investment properties were carried at £87.6m as at 31

December 2021.

The valuation were carried out by the third party valuer Knight

Frank (the ‘valuer’). The valuer was engaged by the Directors and

performed their work in accordance with the Royal Institute of

Chartered Surveyors (“RICS”) Valuation – Professional Standards and

the requirements of IAS 40 ‘Investment property’.

Investment properties make up 91% of total assets by value and is

considered to be the key driver of commercial property return for

the group and involves significant level of judgement in ascertaining

the value under IFRS 13. The valuation of the investment properties

is inherently subjective due to, among other factors, the individual

nature of each property, its location and the expected future rentals

for that particular property. The wider challenges currently facing

the real estate sector as a result of Covid-19 further contributed to

the subjectivity at 31 December 2021. As a result, the valuation of

investment properties is considered to be a key audit matter.

Refer to page 54 (Report of the Audit Committee), page 85 (Note

1 Significant accounting policies, accounting estimates and

judgments and investment property) and pages 90 to 92 (Note 8

Investment property).

Our audit work included but was not limited to:

• Understanding management’s review controls on the third-

party valuation report by discussing with management and

performing a walkthrough to understand the design and

implementation of review controls;

• Evaluating the valuer’s competence, capabilities and objectivity;

• Obtaining the valuation reports and evaluating that valuation

approach was in accordance with the RICS standard;

• On a sample basis, engaging our valuation expert to review

reasonableness and suitability of the key valuation assumptions;

• For all properties, reviewing the key assumptions made by the

valuer and appraising these against available market data such

as locations and forecasts for market yield, market growth and

return on investment percentages;

• For all properties, comparing the property valuations to publicly

available recent comparable property transactions; and

• Reviewing the adequacy of the disclosure in the financial

statements, including the valuation methodology, assumptions

and fair value hierarchy used.

Our observations

Based on the work performed and evidence obtained, we consider

the methodology and assumptions used to value the investment

properties to be appropriate

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

Our application of materiality and an overview of the scope of our audit

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.

These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and

extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect

of misstatements, both individually and on the financial statements as a whole. Based on our professional judgement, we

determined materiality for the financial statements as a whole as follows:

Group materiality

Overall materiality £793,000

How we

determined it

The overall group statutory materiality has been calculated with reference to the group’s total assets, of which

it represents approximately 1%. This level has then been capped by the group materiality set by James Cowper

Kreston who is responsible for the audit of the financial statements of Kingerlee Holdings Limited, which from

a group perspective includes the results of the company as an associated entity by virtue of its group holding of

27.2% of the company’s shares.

Rationale for

benchmark applied

Total assets have been identified as the principal benchmark within the financial statements as it is considered

to be the focus of the shareholders

1% has been chosen to reflect the level of understanding of the stakeholders of the group in relation to the

inherent uncertainties around accounting estimates and judgements.

Performance

materiality

Performance materiality is set to reduce to an appropriately low level the probability that the aggregate of

uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial

statements as a whole.

On the basis of our risk assessments, together with our assessment of the group’s overall control environment,

we set performance materiality at £555,000 which is approximately 70% of overall group materiality.

Reporting threshold

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above

£24,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Parent company materiality

Overall materiality £502,000

How we

determined it

The parent company’s statutory materiality has been calculated with reference to the group’s total assets, of

which it represents approximately 1%. For the purposes of the group audit, we capped the overall materiality for

the company to be 63% of the group overall materiality.

Rationale for

benchmark applied

Total assets have been identified as the principal benchmark within the financial statements as it is considered

to be the focus of the shareholders.

1% has been chosen to reflect the level of understanding of the stakeholders of the group in relation to the

inherent uncertainties around accounting estimates and judgements.

Performance

materiality

Performance materiality is set to reduce to an appropriately low level the probability that the aggregate of

uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial

statements as a whole.

On the basis of our risk assessments, together with our assessment of the group’s overall control environment,

we set performance materiality at £351,000 which is approximately 70% of overall company materiality.

Reporting threshold

We agreed with the directors that we would report to them misstatements identified during our audit above

£15,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

We also applied a lower level of specific

materiality for certain areas such as

the revenue return of the consolidated

statement of comprehensive income,

directors’ remuneration and related

party transactions.

As part of designing our audit,

we assessed the risk of material

misstatement in the financial

statements, whether due to fraud

or error, and then designed and

performed audit procedures responsive

to those risks. In particular, we looked

at where the directors made subjective

judgements, such as assumptions on

significant accounting estimates.

We tailored the scope of our audit to

ensure that we performed sufficient

work to be able to give an opinion on

the financial statements as a whole.

We used the outputs of our risk

assessment, our understanding of

the group and the parent company,

their environment, controls, and

critical business processes, to consider

qualitative factors to ensure that we

obtained sufficient coverage across all

financial statement line items.

Our group audit scope included an

audit of the group and parent company

financial statements. Based on our

risk assessment, all components of the

group, including the parent company,

were subject to full scope audit

performed by the group audit team. For

each component in the scope of the

group audit, we allocated a materiality

that is less than our overall group

materiality. The range of materiality

allocated across components was

between £70,000 and £688,000. For

all components across the group

performance materiality was set at 70%.

At the parent company level, the

group audit team also tested the

consolidation process and carried

out analytical procedures to confirm

our conclusion that there were

no significant risks of material

misstatement of the aggregated

financial information.

INDEPENDENT AUDITOR’S REPORT CONTINUED

to the members of Highcroft Investments PLC

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

FINANCIAL STATEMENTS

Other information

The other information comprises

the information included in the

annual report and accounts other

than the financial statements and

our auditor’s report thereon. The

directors are responsible for the other

information. Our opinion on the

financial statements does not cover the

other information and, except to the

extent otherwise explicitly stated in our

report, we do not express any form of

assurance conclusion thereon.

Our responsibility is to read the other

information and, in doing so, consider

whether the other information is

materially inconsistent with the financial

statements or our knowledge obtained

in the course of audit or otherwise

appears to be materially misstated. If we

identify such material inconsistencies or

apparent material misstatements, we

are required to determine whether this

gives rise to a material misstatement in

the financial statements themselves. If,

based on the work we have performed,

we conclude that there is a material

misstatement of this other information,

we are required to report that fact.

We have nothing to report in this regard.

Opinions on other

matters prescribed by the

Companies Act 2006

In our opinion, the part of the directors’

remuneration report to be audited has

been properly prepared in accordance

with the Companies Act 2006.

In our opinion, based on the work

undertaken in the course of the audit:

• the information given in the

strategic report and the directors’

report for the financial year for

which the financial statements

are prepared is consistent with the

financial statements and those

reports have been prepared in

accordance with applicable legal

requirements;

• the information about internal

control and risk management

systems in relation to financial

reporting processes and about

share capital structures, given

in compliance with rules 7.2.5

and 7.2.6 in the Disclosure

Guidance and Transparency Rules

sourcebook made by the Financial

Conduct Authority (the FCA Rules),

is consistent with the financial

statements and has been prepared

in accordance with applicable legal

requirements; and

• information about the parent

company’s corporate governance

code and practices and about

its administrative, management

and supervisory bodies and their

committees complies with rules

7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.

Matters on which we

are required to report by

exception

In light of the knowledge and

understanding of the group and

the parent company and their

environment obtained in the course

of the audit, we have not identified

material misstatements in the:

• strategic report or the directors’

report; or

• information about internal control

and risk management systems

in relation to financial reporting

processes and about share capital

structures, given in compliance with

rules 7.2.5 and 7.2.6 of the FCA Rules.

We have nothing to report in respect

of the following matters in relation to

which the Companies Act 2006 requires

us to report to you if, in our opinion:

• adequate accounting records

have not been kept by the parent

company, or returns adequate for

our audit have not been received

from branches not visited by us; or

• the parent company financial

statements and the part of the

directors’ remuneration report to

be audited are not in agreement

with the accounting records and

returns; or

• certain disclosures of directors’

remuneration specified by law are

not made; or

• we have not received all the

information and explanations we

require for our audit; or

• a corporate governance statement

has not been prepared by the

parent company.

Corporate governance

statement

The Listing Rules require us to

review the directors’ statement in

relation to going concern, longer-

term viability and that part of the

Corporate Governance Statement

relating to Highcroft Investments PLC’s

compliance with the provisions of the

UK Corporate Governance Statement

specified for our review.

Based on the work undertaken as part

of our audit, we have concluded that

each of the following elements of the

Corporate Governance Statement is

materially consistent with the financial

statements or our knowledge obtained

during the audit:

• Directors’ statement with regards

the appropriateness of adopting the

going concern basis of accounting

and any material uncertainties

identified, set out on page 38;

• Directors’ explanation as to its

assessment of the entity’s prospects,

the period this assessment covers

and why they period is appropriate,

set out on page 37;

• Directors’ statement on fair,

balanced and understandable, set

out on page 73;

• Board’s confirmation that it has

carried out a robust assessment of

the e-merging and principal risks,

set out on page 34-37;

• The section of the annual report

that describes the review of

effectiveness of risk management

and internal control systems, set

out on page 56; and;

• The section describing the work

of the audit committee, set out on

page 53-56.

Responsibilities of

Directors

• As explained more fully in the

directors’ responsibilities statement

set out on page 73, the directors

are responsible for the preparation

of the financial statements and for

being satisfied that they give a true

and fair view, and for such internal

control as the directors determine is

necessary to enable the preparation

of financial statements that are

free from material misstatement,

whether due to fraud or error.

In preparing the financial statements,

the directors are responsible for

assessing the group’s and the parent

company’s ability to continue as

a going concern, disclosing, as

applicable, matters related to going

concern and using the going concern

basis of accounting unless the

directors either intend to liquidate the

group or the parent company or to

cease operations, or have no realistic

alternative but to do so.

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

Auditor’s responsibilities

for the audit of the

financial statements

Our objectives are to obtain reasonable

assurance about whether the financial

statements as a whole are free from

material misstatement, whether due to

fraud or error, and to issue an auditor’s

report that includes our opinion.

Reasonable assurance is a high level

of assurance but is not a guarantee

that an audit conducted in accordance

with ISAs (UK) will always detect a

material misstatement when it exists.

Misstatements can arise from fraud

or error and are considered material

if, individually or in the aggregate,

they could reasonably be expected

to influence the economic decisions

of users taken on the basis of these

financial statements.

The extent to which our procedures

are capable of detecting irregularities,

including fraud is detailed below.

Irregularities, including fraud, are

instances of non-compliance with laws

and regulations. We design procedures

in line with our responsibilities,

outlined above, to detect material

misstatements in respect of

irregularities, including fraud.

Based on our understanding of the

group and the parent company and

their industry, we considered that non-

compliance with the following laws

and regulations might have a material

effect on the financial statements:

compliance with the Real Estate

Investment Trust (REIT) status.

To help us identify instances of

non-compliance with these laws

and regulations, and in identifying

and assessing the risks of material

misstatement in respect to non-

compliance, our procedures included,

but were not limited to:

• Gaining an understanding of the

legal and regulatory framework

applicable to the group and the

parent company, the industry

in which they operate, and the

structure of the group, and

considering the risk of acts by the

group and the parent company

which were contrary to the

applicable laws and regulations,

including fraud;

• Inquiring of the directors,

management and, where

appropriate, those charged with

governance, as to whether the

group and the parent company

is in compliance with laws and

regulations, and discussing their

policies and procedures regarding

compliance with laws and

regulations;

• Inspecting correspondence with

relevant licensing or regulatory

authorities;

• Reviewing minutes of directors’

meetings in the year; and

• Discussing amongst the

engagement team the laws and

regulations listed above, and

remaining alert to any indications

of non-compliance.

We also considered those laws and

regulations that have a direct effect

on the preparation of the financial

statements, such as: Listing Rules, UK

Corporate Governance Code, Disclosure

Guidance and Transparency Rules, UK

Tax legislation and Companies Act 2006.

In addition, we evaluated the directors’

and management’s incentives

and opportunities for fraudulent

manipulation of the financial

statements, including the risk of

management override of controls,

and determined that the principal

risks related to: posting manual

journal entries to manipulate financial

performance, management bias

through judgements and assumptions

in significant accounting estimates,

in particular in relation to revenue

recognition (which we pinpointed to

the cut-off and accuracy), valuation of

investment property, and significant

one-off or unusual transactions.

Our procedures in relation to fraud

included but were not limited to:

• Making enquiries of the directors

and management on whether

they had knowledge of any actual,

suspected or alleged fraud;

• Gaining an understanding of the

internal controls established to

mitigate risks related to fraud;

• Discussing amongst the

engagement team the risks of fraud;

• Addressing the risks of fraud

through management override

of controls by performing journal

entry testing

The primary responsibility for

the prevention and detection of

irregularities, including fraud, rests

with both those charged with

governance and management. As with

any audit, there remained a risk of non-

detection of irregularities, as these may

involve collusion, forgery, intentional

omissions, misrepresentations or the

override of internal controls.

The risks of material misstatement that

had the greatest effect on our audit are

discussed in the “Key audit matters”

section of this report.

A further description of our

responsibilities is available on the

Financial Reporting Council’s website at

www.frc.org.uk/auditorsresponsibilities.

This description forms part of our

auditor’s report.

Other matters which we

are required to address

Following the recommendation of the

audit committee, we were appointed

by the members on 20 May 2021 to

audit the financial statements for the

year ending 31 December 2021 and

subsequent financial periods. The period

of total uninterrupted engagement is

five years, covering the years ending

31 December 2017 to 31 December 2021.

The non-audit services prohibited by

the FRC’s Ethical Standard were not

provided to the group or the parent

company and we remain independent

of the group and the parent company

in conducting our audit.

Our audit opinion is consistent with

our additional report to the audit

committee.

Use of the audit report

This report is made solely to the

company’s members as a body in

accordance with Chapter 3 of Part 16

of the Companies Act 2006. Our audit

work has been undertaken so that we

might state to the company’s members

those matters we are required to state

to them in an auditor’s report and for

no other purpose. To the fullest extent

permitted by law, we do not accept or

assume responsibility to anyone other

than the company and the company’s

members as a body for our audit work,

for this report, or for the opinions we

have formed.

STEPHEN EAMES

(Senior Statutory Auditor)

for and on behalf of Mazars LLP

Chartered Accountants and Statutory

Auditor

The Pinnacle

160 Midsummer Boulevard

Milton Keynes MK91FF

28 March 2022

INDEPENDENT AUDITOR’S REPORT CONTINUED

to the members of Highcroft Investments PLC

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2021

2021 2020

Note

Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

Gross rental revenue 5,928 – 5,928 6,084 – 6,084

Property operating expenses 8 (670) – (670) (620) – (620)

Net rental income 5,258 – 5,258 5,464 – 5,464

Profit on disposal of

investment property – 250 250 – – –

Valuation gains on investment

property – 9,925 9,925 – 2,525 2,525

Valuation losses on investment

property – (1,170) (1,170) – (7,175) (7,175)

Net valuation gains/(losses) on

investment property 8 – 8,755 8,755 – (4,650) (4,650)

Administration expenses 3 (1,164) – (1,164) (1,069) – (1,069)

Net operating profit/(loss)

before net finance expense 4,094 9,005 13,099 4,395 (4,650) (255)

Finance income 4 – 4 4 – 4

Finance expense (855) – (855) (896) – (896)

Net finance expense (851) – (851) (892) – (892)

Profit/(loss) before tax 3,243 9,005 12,248 3,503 (4,650) (1,147)

Income tax charge 5 (304) – (304) – – –

Profit/(loss) for the year after tax 2,939 9,005 11,944 3,503 (4,650) (1,147)

Total profit/(loss) and

comprehensive income/(loss)

for the year attributable to the

owners of the parent 2,939 9,005 11,944 3,503 (4,650) (1,147)

Basic and diluted

earnings/(loss) per share 7 230.5p (22.2p)

The total column represents the statement of comprehensive income as defined in IAS 1.

The accompanying notes form an integral part of these financial statements.

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 31 December 2021

Note

2021

£’000

2020

£’000

Assets

Non-current assets

Investment property 8 87,565 78,810

Total non-current assets 87,565 78,810

Current assets

Trade and other receivables 10 2,876 1,692

Cash and cash equivalents 5,715 3,295

Assets classified as held for sale 9 – 3,250

Total current assets 8,591 8,237

Total assets 96,156 87,047

Liabilities

Current liabilities

Interest bearing loan 12 7,500 –

Trade and other payables 11 2,839 2,726

Total current liabilities 10,339 2,726

Non-current liabilities

Interest bearing loan 12 19,700 27,200

Total non-current liabilities 19,700 27,200

Total liabilities 30,039 29,926

Net assets 66,117 57,121

Equity

Issued share capital 13 1,296 1,294

Share-based payment reserve 102 43

Revaluation reserve – property 19,236 12,814

Other equity reserve (121) (53)

Share premium 117 51

Capital redemption reserve 95 95

Realised capital reserve 29,623 28,995

Retained earnings 15,769 13,882

Total equity attributable to the owners of the parent 66,117 57,121

These financial statements were approved by the board of directors on 28 March 2022.

Simon Gill Charles Butler

Director Director

Company number: 00224271

The accompanying notes form an integral part of these financial statements.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

2021

Issued

capital

£’000

Share-

based

payment

reserve

£’000

Revaluation

reserve-

property

£’000

Other

equity

reserve

£’000

premium

£’000

Capital

redemption

reserve

£’000

Realised

capital

reserve

£’000

Retained

earnings

£’000

Total

£’000

At 1 January 2021 1,294 43 12,814 (53) 51 95 28,995 13,882 57,121

Transactions with owners:

Issue of shares 2 – – (68) 66 – – – –

Dividends – – – – – – – (3,007) (3,007)

2 – – (68) 66 – – (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 1,296 102 19,236 (121) 117 95 29,623 15,769 66,117

2020

Issued

capital

£’000

Share-

based

payment

reserve

£’000

Revaluation

reserve

property

£’000

Other

equity

reserve

£’000

premium

£’000

Capital

redemption

reserve

£’000

Realised

capital

reserve

£’000

Retained

earnings

£’000

Total

£’000

At 1 January 2020 1,292 12 12,931 – – 95 28,995 17,396 60,721

Transactions with owners:

Issue of shares 2 – – (53) 51 – – – –

Dividends – – – – – – – (2,484) (2,484)

2 – – (53) 51 – – (2,484) (2,484)

Reserve transfers:

Non-distributable items

recognised in income

statement:

Revaluation losses – – (4,650) – – – – 4,650 –

Change in excess of cost

over fair value through

retained earnings – – 4,533 – – – – (4,533) –

– – (117) – – – – 117 –

Share award expensed – 31 – – – – – – 31

Total comprehensive loss

for the year – – – – – – – (1,147) (1,147)

At 31 December 2020 1,294 43 12,814 (53) 51 95 28,995 13,882 57,121

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CASHFLOWS

at 31 December 2021

Note

2021

£’000

2020

£’000

Operating activities

Profit/(loss) before tax 12,248 (1,147)

Adjustments for:

Net valuation (gains)/losses on investment property (8,755) 4,650

Net gain on disposal of investment property (250) –

Share-based payment expense 59 31

Finance income (4) (4)

Finance expense 855 896

Operating cashflow before changes in working capital and provisions 4,153 4,426

Decrease/(increase) in trade and other receivables 391 (545)

Increase in trade and other payables 120 252

Cash generated from operations 4,664 4,133

Finance income 4 4

Finance expense (855) (896)

Income taxes paid (311) (21)

Net cashflows from operating activities 3,502 3,220

Investing activities

Sale of current assets – investment property 8 1,925 –

Net cashflows from investing activities 1,925 –

Financing activities

Dividends paid (3,007) (2,484)

Repayment of bank borrowings – (4,000)

New bank borrowings – 5,000

Net cashflows from financing activities (3,007) (1,484)

Net increase in cash and cash equivalents 2,420 1,736

Cash and cash equivalents at 1 January 3,295 1,559

Cash and cash equivalents at 31 December 5,715 3,295

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2021

1 Significant accounting policies

Highcroft Investments PLC is a company domiciled in the United Kingdom. The consolidated financial statements of the

company for the year ended 31 December 2021 comprise the company and its subsidiaries, together referred to as the group.

The principal activity of the group is investment in commercial property in England and Wales. The accounting policies

remain unchanged.

Basis of preparation

The financial statements have been prepared in accordance with the Companies Act 2006 and International Financial

Reporting Standards (IFRS) as adopted for use in the United Kingdom.

In light of the ongoing impact of Covid-19 on the UK economy, and the sectors in which the group and company operates,

the directors have placed a particular focus on the appropriateness of adopting the going concern basis in preparing

the group’s and company’s financial statements for the year ended 31 December 2021. The group’s and company’s going

concern assessment considers the group’s and company’s principal risks, identified on pages 34 to 37 of this document, and

is dependent on a number of factors, including cashflow and liquidity, continued access to borrowing facilities, in particular

the agreed facility in place to replace the term loan expiring in May 2022, and the ability to continue to operate the group’s

and company’s borrowings within its financial covenants. The debt has a number of financial covenants that the group is

required to comply with including an LTV covenant a 12-month historical interest cover ratio, and the facility agreements

have cure provisions in the event of a breach. The going concern assessment is based on a 12-month outlook from the date

of the approval of these financial statements, using the group’s five-year forecast. This forecast is based on a reasonable

scenario, which includes the following key sensitivities:

− 20% reduction in net income from our portfolio.

− A 100% increase in the financing cost of the debt maturing in 2022.

− A 25% increase in the forecast proposed capital expenditure.

− The non-release of the £1.6m held by Handelsbanken plc as cash security for borrowing.

Under this scenario, the group and company are forecast to maintain sufficient cash and liquidity resources and remain

compliant with its financial covenants.

Based on the consideration above, the board believes that the group and company have the ability to continue in business

at least 12 months from the date of approval of the financial statements for the year ended 31 December 2021, and therefore

have adopted the going concern basis in the preparation of this financial information.

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of

investment properties.

Analysis of statement of comprehensive income

The profit or loss section of the statement of comprehensive income is analysed into two columns, being revenue and

capital. The capital column comprises valuation gains and losses on property, profits and losses on disposal of property, and

all gains and losses on financial assets and the related tax impact. The revenue column includes all other items.

The directors have also stress tested the forecasts considering the level of fall in income and valuations that would cause

the business to be unable to pay its liabilities as they fall due and have concluded that the possibility of these scenarios

occurring is remote.

Accounting estimates and judgements

The preparation of financial statements requires management to make judgements, assumptions and estimates that affect

the application of accounting policies and amounts reported in the consolidated statement of comprehensive income and

consolidated statement of financial position. Such decisions are made at the time the financial statements are prepared and

adopted based on historical experience and other factors that are believed to be reasonable at the time. Actual outcomes

may be different from initial estimates and are reflected in the financial statements as soon as they become apparent. The

measurement of fair value and carrying investments at fair value through profit and loss constitutes the principal areas

of estimate and judgement exercised by the directors in the preparation of these financial statements. The valuation of

investment properties at fair value is carried out by external advisers who the directors consider to be suitably qualified to

carry out such valuations. The primary source of evidence for property valuations is recent, comparable market transactions

on arm’s-length terms. However, the valuation of the group’s property portfolio is inherently subjective, which may not

prove to be accurate, particularly where there are few comparable transactions. Key assumptions, which are also the major

sources of estimation uncertainty used in the valuation, include the value of future rental income, the outcome of future

rent reviews, the rate of voids and the length of such voids. Estimates and judgements are continually evaluated and are

based on historical information of the group, the best judgement of the directors, and are adjusted for current market

conditions. In the process of applying the group’s accounting policies, management is of the opinion that any instances of

the application of judgements did not have a significant effect on the amounts recognised in the financial statements.

New accounting standards and interpretations

There are no new accounting standards or interpretations issued during the year that would materially affect the group.

There are no amendments to, or interpretations of, existing standards that are relevant to the group but are not yet effective

and have not been adopted.

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

for the year ended 31 December 2021

1 Significant accounting policies continued

Basis of consolidation

The group financial statements consolidate the financial statements of the company and its 100% subsidiaries: Rodenhurst

Estates Limited, BL (Wisbech) Limited and Belgrave Land (Wisbech) Limited, which are all made up to 31 December 2021,

also following consistent accounting policies. Unrealised profits or losses on intra-group transactions are eliminated in full.

Rental revenue as a lessor

Investment properties are leased to tenants under operating leases. The rental income receivable under these leases is

recognised in the statement of comprehensive income on a straight-line basis over the term of the lease. Any rent-free

period is spread over the period of the lease. Since the risks and rewards of ownership have not been transferred to the

lessee, the assets held under these leases continue to be recognised in the group’s accounts. Dilapidations’ income is

recognised in the statement of comprehensive income when the amount is receivable from the tenant.

Finance costs

Interest is recognised using the effective interest method, which calculates the amortised cost of a financial liability and

allocates the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated

future cash payments through the expected life of the financial liability to the net carrying amount of the financial liability.

Share-based employee remuneration

Share-based employee remuneration is determined with reference to the fair value of the cash award that is used to

purchase the newly issued shares at the date that the award is agreed and charged to the income statement over the

service and vesting period on a straight-line basis.

Expenses

All expenses are recognised in the statement of comprehensive income on an accrual basis.

Lease expenses

Lease expenses related to short-term leases, that are determinable on less than 12 months’ notice, are recognised on a

straight-line basis over the lease term.

Realised gains and losses

Realised gains and losses are calculated as the difference between the proceeds, less expenses, and the value of the asset at

the beginning of the financial year. The related revaluation gains or losses of previous years are transferred from revaluation

reserve to realised capital reserve when the asset is disposed of.

Income tax

Income tax on the profit or loss for the periods presented comprises current and deferred tax, except where it relates to

items charged directly to equity, in which case the related deferred tax is also charged or credited to equity. Income tax is

recognised in the income statement. As a REIT, tax is not payable on the income and gains generated in the tax-exempt

property business.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying

amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively

enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax liabilities

are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is

probable that taxable profits will be available against which deductible temporary differences can be utilised.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of

equity investments, using tax rates enacted or substantively enacted at the date of the statement of financial position.

Investment property

Investment property is that which is held either to earn rental income or for capital appreciation or for both. Investment

property is stated at fair value. An external independent valuation company, having an appropriate recognised professional

qualification and recent experience in the location and category of property being valued, values the properties every six

months. The fair values are based on market values, being the estimated amount for which a property could be exchanged

on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing

wherein the parties had each acted knowledgeably, prudently and without compulsion.

An asset will be classified as a short-term investment within current assets when the decision has been made by the board

to dispose of it in its present condition and the sale is highly probable.

In accordance with IAS 40, a property interest under an operating lease is classified and accounted for as an investment

property on a property-by-property basis when the group holds it to earn rentals or for capital appreciation or both. Any such

property interest under an operating lease classified as an investment property is carried at fair value.

Acquisitions and disposals are recognised on the date of completion. Any unrealised gain or loss arising from a change in fair

value is recognised in the statement of comprehensive income.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

FINANCIAL STATEMENTS

1 Significant accounting policies continued

Assets classified as held for sale

Where a board decision has been made to dispose of an investment property in its present condition prior to the year end

and a sale is regarded as highly probable the property is included within current assets and stated at fair value.

Trade and other receivables

Trade and other receivables, which are generally due for settlement, in advance, prior to the relevant quarter or month, are

recognised and carried at the original invoice amount less an allowance for any uncollectable amounts. The group applies

the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected impairment provision for

all applicable trade receivables. In determining the expected credit losses, the group takes into account any recent payment

behaviours and future expectations of likely default events such as 90 days past due. Trade and other receivables are written

off once all avenues to recover the balances are exhausted. Receivables written off are no longer subject to any enforcement

activity.

Cash and cash equivalents

Cash and cash equivalents comprise cash available with an original maturity of less than three months.

Financial liabilities

The group’s financial liabilities include trade and other payables and borrowings.

Trade payables and borrowings are recognised initially at fair value less transaction costs and subsequently measured

at amortised cost using the effective interest rate (EIR) method. Amortised cost is calculated by taking into account any

discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in

finance costs in the statement of comprehensive income.

Loans and borrowings are classified as current liabilities unless the group has an unconditional right to defer the settlement

of the liability for at least 12 months after the balance sheet date.

A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

Issued share capital

Ordinary shares are classified as equity because they do not contain an obligation to transfer cash or another financial asset.

Dividends are recognised as a liability in the period in which they are payable.

Share-based payment reserve

The share-based payment reserve includes the unissued element of the Highcroft Incentive Plan award that has been

recorded in the comprehensive income statement.

Revaluation reserve – property

This revaluation reserve includes annual revaluation gains and losses less applicable deferred taxation and is

non-distributable.

Other equity reserve

The other equity reserve is debited with the value of the shares issued under the Highcroft Incentive Plan and credited with

the value of the shares as they vest.

Share premium

Share premium represents the excess over nominal value of the fair value consideration for equity shares net of expenses of

the share issue.

Capital redemption reserve

The capital redemption reserve is a statutory non-distributable reserve into which amounts are transferred following the

redemption or purchase of issued share capital.

Realised capital reserve

The realised capital reserve includes realised revaluation gains and losses less attributable income tax and are

non-distributable.

Retained earnings

Retained earnings include total comprehensive income less revaluation gains on properties and any applicable taxation less

dividends paid.

Segment reporting

The group has one main operating segment – commercial property – and therefore no additional segmental information

is required.A segment is a distinguishable component of the group whose operating results are regularly reviewed by the

group’s chief operating decision maker, who is the chief executive. For management purposes, the group uses the same

measurement policies as those used in its financial statements.

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

for the year ended 31 December 2021

2 Segment reporting

The group is comprised of one main operating segment. All of the revenue is received from England and Wales.

In 2021, one tenant represented £684,000, 11.5% of the gross rental revenue of £5,928,000. In 2020, the largest tenant

represented £684,000, 11.2% of gross rental revenue.

3 Administrative expenses

2021

£’000

2020

£’000

Directors (Note 4) 837 801

Auditor’s fees

– Fees payable to the company’s auditor for the audit of the company’s accounts – current year* 54 48

– Additional fee in respect of prior year – 8

– Fees payable to the company’s auditor for other services 10 2

Staff costs – (excluding directors’ remuneration) 44 28

Other expenses 219 182

1,164 1,069

*The audit fee for 2021 includes £10,900 (2020 £10,000) related to the completion of a group reporting questionnaire for

the Kingerlee Holdings Limited’s auditor. This amount is recoverable in full from Kingerlee Holdings Limited and has been

netted off other expenses.

4 Directors

2021

£’000

2020

£’000

Remuneration in respect of directors was as follows:

Remuneration

Pension costs

738

–

703

Social security costs 99 97

837 801

The average number of employees was six (2020 six) all of whom, other than a part-time management accountant and a

part-time company secretary, were directors of the group. All directors are considered to be key managers of the company.

More detailed information concerning directors’ remuneration is shown in the directors’ remuneration report.

5 Income tax charge/(credit)

2021

£’000

2020

£’000

Current tax:

On revenue profits – current year

– prior year

–

(8)

On write off of part of PID pool 304 –

Income tax charge 304 –

During the year the group took advantage of HMRC Covid-19 concessions and wrote £1.6m off its outstanding PID pool

which resulted in a tax charge of £304,000, 19%.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

FINANCIAL STATEMENTS

5 Income tax charge/(credit) continued

The tax assessed for the year differs from the standard rate of corporation tax in the UK of 19% (2020 19%).

The differences are explained as follows:

2021

£’000

2020

£’000

Profit/(loss) before tax 12,248 (1,147)

Profit before tax multiplied by the standard rate of corporation tax in the UK of 19% (2020 19%) 2,327 (218)

Effect of:

Profit not taxable as a result of REIT status (2,327) 220

Tax due on non-payment of part of PID pool 304 –

Adjustment in respect of prior year – (2)

Income tax charge 304 –

The Finance Act 2016 included legislation to reduce the main rate of UK corporation tax from 20% to 19% from 1 April 2017

and to 17% from 1 April 2020. The rate reduction to 17% was subsequently reversed by the Finance Act 2020, such that

the main rate of UK corporation tax from 1 April 2021 remains at 19%. The Finance Act 2021 confirmed an increase of UK

corporation tax rate from 19% to 25% with effect from 1 April 2023 and this was substantively enacted by the statement of

financial position date and therefore included in these financial statements. Temporary differences have been remeasured

using the enacted tax rates that are expected to apply when the liability is settled or the asset realised.

6 Dividends

In 2021, the following dividends have been paid by the company:

2021

£’000

2020

£’000

2020 Final: 30.00p per ordinary share (2019 27.00p) 1,555 1,397

2020 Special: 6.00p per ordinary share (2019 nil) 311 –

2021 Interim: 22.00p per ordinary share (2020 21.00p) 1,141 1,087

3,007 2,484

On 28 March 2022, the directors declared a final property income distribution for 2021 of £1,711,000, 33.00p per share,

together with a special property income distribution for 2021 of £nil per share (2020 final property income distribution of

£1,555,000, 30.00p per share, and special property income distribution for 2020 of £311,000, 6.00p per share), payable on

7 June 2022 to shareholders registered on 22 April 2022.

7 Earnings per share

The calculation of earnings per share is based on the total profit after tax for the year of £11,944,000 (2020 loss £1,147,000)

and on 5,181,317 shares (2020 5,167,465), which is the weighted average number of shares in issue during the year ended

31December 2021. 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 that 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 £2,939,000 (2020 £3,503,000) has been calculated.

2021

£’000

2020

£’000

Earnings:

Basic profit/(loss) for the year 11,944 (1,147)

Adjustments for:

Profit on disposal of investment property (250) –

Net valuation (gains)/losses on investment property (8,755) 4,650

Adjusted earnings 2,939 3,503

Per share amount:

Earnings/(loss) per share (unadjusted) 230.5p (22.2p)

Adjustments for:

Profit on disposal of investment property (4.8p) –

Net valuation (gains)/losses on investment property (169.0p) 89.9p

Adjusted earnings per share 56.7p 67.7p

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

for the year ended 31 December 2021

8 Investment property

2021

£’000

2020

£’000

Total valuation at 1 January 82,060 86,710

Disposals (3,250) –

Revaluation gains 9,925 2,525

Revaluation losses (1,170) (7,175)

Valuation at 31 December 87,565 82,060

Less property held for sale categorised as current asset – (3,250)

Property categorised as fixed asset 87,565 78,810

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 2021, 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 £73,961,000 (2020 £76,832,000).

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.

During 2020, many valuations were reported with material valuation uncertainty clauses on certain classes of assets.

However, valuation markets are mostly functioning again, with transaction volumes and other relevant evidence at levels

where an adequate quantum of market evidence exists upon which to base opinions of value. Accordingly, our independent

valuers have confirmed that the valuations at 31 December 2021 and 31 December 2020 were not reported as being subject

to material valuation uncertainty.

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 discussions 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

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.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

FINANCIAL STATEMENTS

8 Investment property continued

Significant unobservable inputs

31 December 2021 Warehouse

Retail

warehouse Leisure Office

High street

retail Total

Valuation technique Income capitalisation

Fair value of property portfolio £’000 39,800 24,250 10,750 7,800 4,965 87,565

Area sq ft 581,386 133,746 87,955 29,323 16,433 848,843

Gross estimated rental value

(ERV) £'000 3,310 1,557 812 600 382 £6,661

ERV per sq ft

Minimum £ 2.40 11.33 7.50 20.00 70.00

Maximum £ 12.00 24.50 28.85 22.50 125.00

Weighted average £ 8.18 13.37 12.12 21.02 102.55

Net initial yield

Minimum % 4.31 5.02 2.93 0.00 0.00

Maximum % 11.98 8.44 7.73 4.39 8.94

Weighted average % 8.31 6.45 5.16 1.78 5.12

Reversionary yield

Minimum % 4.57 5.29 6.10 4.71 6.57

Maximum % 19.24 7.31 8.15 11.27 7.69

Weighted average % 11.22 6.13 7.22 8.61 7.31

Equivalent yield

Minimum % 4.51 5.25 6.15 4.66 6.50

Maximum % 8.49 7.23 7.92 7.51 7.46

Weighted average % 6.73 6.10 7.12 6.35 7.01

31 December 2020 Warehouse

Retail

warehouse Leisure Office

High street

retail Total

Valuation technique Income capitalisation

Fair value of property portfolio £’000 37,550 21,475 10,050 7,450 5,535 82,060

Area sq ft 600,717 133,746 87,955 29,323 16,433 868,174

Gross estimated rental value

(ERV) £’000 3,342 1,539 818 544 399 6,642

ERV per sq ft

Minimum £ 2.00 11.33 7.50 19.00 70.00

Maximum £ 12.00 24.00 28.85 19.00 135.00

Weighted average

£ 8.28 13.17 12.09 19.00 109.87

Net initial yield

Minimum % 4.97 5.98 3.05 4.05 0.00

Maximum % 11.52 8.43 12.11 11.31 8.47

Weighted average % 8.65 6.95 7.56 8.57 2.88

Reversionary yield

Minimum % 5.50 6.08 6.10 4.65 6.48

Maximum % 18.50 7.98 10.24 9.57 7.22

Weighted average % 11.36 6.82 8.07 7.71 6.82

Equivalent yield

Minimum % 4.99 6.03 6.02 4.65 5.95

Maximum % 9.00 7.92 9.09 8.42 7.07

Weighted average % 6.94 6.79 7.57 7.00 6.41

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

for the year ended 31 December 2021

8 Investment property continued

Sensitivities of measurement of significant unobservable inputs

As set out on page 90, the valuation of the group’s property portfolio is open to judgements that are inherently subjective by

nature.

Unobservable input

Impact on the fair value measurement

of a significant increase in input

Impact on the fair value measurement

of a significant decrease in input

Estimated rental value Increase Decrease

Net initial yield Decrease Increase

Reversionary yield Decrease Increase

Equivalent yield Decrease Increase

There are inter-relationships between these inputs as they are partially determined by market conditions. An increase in the

reversionary yield may accompany an increase in ERV and would mitigate its impact on the fair value measurement.

Information about the impact of changes in unobservable inputs on the fair value of the group’s

propertyportfolio

Sensitivities for changes in assumptions have been set out below at +/- 5% for ERV and +/- 50bps for EY, which are deemed

to be the levels that give a reasonable worst-case scenario given the like-for-like valuation rise of 11.1% already recognised in

the year.

31 December 2021

Warehouse

£’000

Retail

warehouse

£’000

Leisure

£’000

Office

£’000

High street

retail

£’000

Total

£’000

Fair value of property portfolio 39,800 24,250 10,750 7,800 4,965 87,565

Impact on valuation of:

+5% on ERV 1,989 1,210 536 390 245 4,370

-5% on ERV (1,989) (1,210) (536) (390) (245) (4,370)

-50bps on EY 354 204 119 69 50 796

+50bps on EY (347) (200) (116) (68) (49) (780)

31 December 2020

Warehouse

£’000

Retail

warehouse

£’000

Leisure

£’000

Office

£’000

High street

retail

£’000

Total

£’000

Fair value of property portfolio 37,550 21,475 10,050 7,450 5,535 82,060

Impact on valuation of:

+5% on ERV 1,873 1,072 501 373 274 4,093

-5% on ERV (1,873) (1,072) (501) (373) (274) (4,093)

-50bps on EY 295 162 110 66 66 699

+50bps on EY (290) (159) (107) (65) (64) (685)

Additional property disclosures including property covenant information

Thirteen investment properties with a carrying amount of £59,165,000 (2020 thirteen properties with a valuation of

£49,850,000) are charged to Handelsbanken plc to secure the group’s short-term and medium-term loans.

The group leases out its commercial investment property under operating leases. The future minimum lease payments

receivable under non-cancellable leases are as follows:

2021

£’000

2020

£’000

Less than one year 5,518 5,161

Between one and five years 14,265 16,315

More than five years 12,393 13,354

32,176 34,830

Property disposals related to our Andover property, which had a net book value at 31 December 2020 of £3,250,000, was

disposed of for net consideration of £3,500,000, of which £1,575,000 was immediately placed as security with Handelsbanken

plc and is disclosed within other receivables (Note 10) and £1,925,000 was added to cash.

Property operating expenses are all analysed as arising from generating rental income and include the movement in the

bad debt provision.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

FINANCIAL STATEMENTS

9 Assets classified as held for sale

2021

£’000

2020

£’000

Investment property held for sale – 3,250

The asset held for sale at 31 December 2020; our Andover property was sold in August 2021.

10 Trade and other receivables

2021

£’000

2020

£’000

Trade receivables 310 783

Accrued rent receivable 868 871

Other receivables 1,698 38

2,876 1,692

Included in trade receivables are amounts due from tenants at each year end and include amounts invoiced on

25 December in respect of rents in advance for the period 25 December to 24 March. At 31 December 2021, amounts

due from tenants that were more than 90 days overdue, which related to rents for 2021 or earlier, totalled £432,000

(2020£281,000). Trade and other receivables are shown after deducting a provision for bad and doubtful debts of £471,000

(2020 £366,000). The provision for doubtful debts is calculated as an expected credit loss on trade and other receivables

in accordance with IFRS 9 (see Note 1). The charge to the income statement in relation to write offs and provisions made

against doubtful debts was £189,000 (£2020 £366,000). The expected credit loss is recognised on initial recognition of

a debtor and is reassessed at each reporting period. In order to calculate the expected credit loss, the group applies a

forward-looking outlook to historic default rates. In the current reporting period, the forward-looking outlook has considered

the impacts of Covid-19. The historic default rates used are specific to receivables that are 90 days past due. Specific

provisions are also made in excess of the expected credit loss where information is available to suggest that a higher

provision than the expected credit loss is required. In the current reporting period, an additional review of tenant debtors

was undertaken to assess recoverability in light of the Covid-19 pandemic and other factors. The directors consider that the

carrying amount of trade and other receivables is approximate to their fair value. There is no concentration of credit risk with

respect to trade and other receivables as all of the group’s tenants have terms that require them to pay their rent in advance.

Other receivables includes £1,575,000 given as security to Handelsbanken plc from the proceeds of sale of our secured

Andover property. It is anticipated that this cash will be available in May 2022 as part of the re-financing of our term loan

maturing then.

11 Trade and other payables

2021

£’000

2020

£’000

Deferred income 1,040 983

Social security and other taxes 628 960

Other payables 1,171 783

2,839 2,726

The directors consider that the carrying value of trade and other payables approximates to their fair value.

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

for the year ended 31 December 2021

12 Interest-bearing loan

2021

£’000

2020

£’000

Short-term bank loans due within one year 7,500 –

Medium-term bank loans 19,700 27,200

The medium-term bank loans comprise amounts falling due as follows:

Between one and two years – 7,500

Between two and five years 3,400 –

Over five years 16,300 19,700

19,700 27,200

Further analysis of the short-term and medium-term bank loans, including the £5,000,000 drawn and the £4,000,000 repaid

in 2020, is set out on page 31. The group has a facility letter in place to re-finance its loan that matures on 16 May 2022.

The weighted average effective interest rate is 3.13% (2020 3.13%).

13 Share capital

The movement in the number of 25p ordinary shares in issue is shown below:

2021 2020

Number £’000 Number £’000

At 1 January 5,175,175 1,294 5,167,240 1,292

Issued under the Highcroft Incentive Plan 8,524 2 7,935 2

At 31 December 5,183,699 1,296 5,175,175 1,294

The directors monitor capital on the basis of total equity and operate within the requirements of the articles of association.

There was £7,500,000 of short-term debt and £19,700,000 of medium-term debt at 31 December 2021 (2020 £27,200,000

short and medium-term debt).

The rights and obligations relating to the company’s share capital is summarised on page 71.

14 Share premium

2021

£’000

2020

£’000

At 1 January 51 –

Issued under the Highcroft Incentive Plan 66 51

At 31 December 117 51

15 Capital commitments

There were no capital commitments at 31 December 2021 or at 31 December 2020.

16 Contingent liabilities

There were no contingent liabilities at 31 December 2021 or at 31 December 2020.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

FINANCIAL STATEMENTS

17 Related party transactions

Kingerlee Holdings Limited owns, through its subsidiaries, 27.2% (2020 27.2%) of the company’s shares, and David Kingerlee

is a director and shareholder of both the company and Kingerlee Holdings Limited. The transactions between the group and

Kingerlee Holdings Limited or its subsidiaries were as follows:

2021

£’000

2020

£’000

Transactions by the company:

Property income distribution paid to related party 817 676

Licence fee for use of property and recharge of sundry costs paid to related party 1 14

The company terminated its licence with Kingerlee Limited, a subsidiary of Kingerlee Holdings Limited, on 20 January 2021.

The company owns 100% of Rodenhurst Estates Limited and BL (Wisbech) Limited and Belgrave Land (Wisbech) Limited.

The transactions between these companies have been eliminated on consolidation. Details of the net assets and profit for

the financial year of these companies are set out on page 102 of this annual report.

The key management personnel are the directors of the group. Their remuneration is set out in Note 4. In addition, the

following directors received dividends during the year in respect of their shareholdings:

2021

£’000

2020

£’000

Simon Gill 5 2

David Kingerlee 52 43

Roberta Miles 8 5

18 Financial instruments and financial risk

Categories of financial instruments

2021 2020

Carrying

amount

£’000

Gains/

(losses)

£’000

Carrying

amount

£’000

Gains/

(losses)

£’000

Financial assets measured at amortised cost:

Trade and other receivables 1,301 – 1,692 –

Cash and cash equivalents 5,715 – 3,295 –

7,016 – 4,987 –

Financial liabilities measured at amortised cost:

Interest-bearing loans 27,200 – 27,200 –

Trade and other payables 1,171 – 783 –

28,371 – 27,983 –

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

for the year ended 31 December 2021

18 Financial instruments and financial risk continued

Fair value and maturity of financial instruments

The group has no derivative financial instruments. Exposure to credit, liquidity and market risks arises in the normal

course of the group’s business. At 31 December 2021, the group had £7,500,000 of short-term borrowing and £19,700,000

of medium-term borrowing (2020 £27,200,000 of medium-term borrowing), of which £7,500,000 is repayable in 2022,

£3,400,000 in 2026, £4,500,000 in 2027, £6,800,000 in 2029 and £5,000,000 in 2030 at fixed interest rates with a weighted

average of 3.13% (2020 3.13%). The fair values of loans and receivables and financial liabilities held at amortised cost were not

materially different from book values. A maturity analysis, based on contractual, undiscounted payments is set out below:

2021

Carrying

amount

£’000

Total

contractual

undiscounted

cashflow

£’000

Due within

1 year

£’000

Due in more

than 1 but

less than

2 years

£’000

Due in more

than 2 but

less than

5 years

£’000

Due in more

than 5 years

£’000

Bank loans 27,200 30,991 8,166 557 5,037 17,231

Trade and other payables 1,171 1,171 1,171 – – –

2020

Carrying

amount

£’000

Total

contractual

undiscounted

cashflow

£’000

Due within

1 year

£’000

Due in more

than 1 but

less than

2 years

£’000

Due in more

than 2 but

less than

5 years

£’000

Due in more

than 5 years

£’000

Bank loans 27,200 31,863 850 8,166 1,672 21,175

Trade and other payables 783 783 783 – – –

Credit risk

The group’s credit risk, that is the risk of financial loss due to a third party failing to discharge its obligation, primarily affects

its trade receivables. Creditworthiness of potential tenants is assessed before entering into contractual arrangements. The

amount of trade receivables presented in the balance sheet is calculated after any allowances for credit losses, estimated by

the directors. The allowance as at 31 December 2021 was £392,000 (2020 £366,000). The group’s maximum exposure to credit

risk is limited to the carrying amount of financial assets recognised at 31 December 2021 as summarised in the table above.

The group has no significant concentration of credit risk, with exposure spread over a number of tenants. The credit status

of tenants is continuously monitored and particularly reviewed before properties are acquired, before properties are let and

before new leases are granted.

The group’s cash holdings are mainly in Handelsbanken plc and Lloyds Bank plc. Cash is also held by the group’s property

managers, lawyers and registrars acting as agents, though not, other than for tenant deposits, for long periods of time. The

group only places cash holdings with major financial institutions that satisfy specific criteria.

Capital risk

The directors manage the group’s working capital to take advantage of suitable commercial opportunities as they arise

whilst maintaining a relatively low-cost capital base. This capital management policy is principally carried out by the use

of surplus cash. In the medium term, the directors may use additional medium-term debt to finance future commercial

property acquisitions in line with its long-term strategy.

Liquidity risk

The group’s liquidity risk, i.e. the risk that it might encounter difficulty in meeting its obligations as they fall due, applies to

its trade payables and any short and medium-term borrowings that the group takes out from time to time. The group has

not encountered any difficulty in paying its trade payables in good time. The group has a facility letter in place to re-finance

its loan that matures on 16 May 2022. The objective of the group in managing liquidity risk is to ensure that it can meet

its financial obligations as and when they fall due. The group expects to meet its financial obligations through operating

cash flows.

Interest rate risk

The group finances its operations through retained profits and medium-term borrowings at an interest rate that is fixed

over the term of the loan. Interest rate swaps have not been used. The group places any cash balances on deposit at rates

that may be fixed in the short term but for sufficiently short periods that there is no need to hedge against the implied risk.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

FINANCIAL STATEMENTS

18 Financial instruments and financial risk continued

Currency exchange risk

The group is not directly exposed to currency risk.

Market risk

The group is not directly exposed to market risk.

Borrowing facilities

The group has no undrawn committed borrowing facilities.

19 Changes in liabilities arising from financing activities

Bank loans (Note 12)

2021

£’000

2020

£’000

At 1 January 27,200 26,200

New loans – 5,000

Loans repaid – (4,000)

Interest charged 850 896

Interest paid (850) (896)

At 31 December 27,200 27,200

20 Net assets per share

2021 2020

Net assets £66,117,000 £57,121,000

Ordinary shares in issue 5,183,699 5,175,175

Basic net assets per share 1,275p 1,104p

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

COMPANY STATEMENT OF FINANCIAL POSITION

at 31 December 2021

Note

2021 2020

£’000 £’000 £’000 £’000

Fixed assets

Investments 5 60,418 50,784

Current assets

Debtors 6 2,597 5,006

Cash at bank 3,860 2,040

6,457 7,046

Creditors – amounts falling due within one year 7 758 709

Net current assets 5,699 6,337

Total assets less current liabilities 66,117 57,121

Net assets 66,117 57,121

Capital and reserves

Called-up share capital 8 1,296 1,294

Reserves

– Share-based payment 102 43

– Realised capital 8,728 8,728

– Other equity (121) (53)

– Share premium 117 51

– Capital redemption 95 95

– Revaluation 50,155 40,521

– Retained earnings 5,745 6,442

64,821 55,827

Shareholders’ funds 66,117 57,121

The company reported total profit and comprehensive income for the financial year ended 31 December 2021 of £11,944,000

(2020 loss £1,147,000).

These financial statements were approved by the board of directors on 28 March 2022.

Simon Gill Charles Butler

Director Director

Company number: 00224271

The accompanying notes form an integral part of these financial statements.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

FINANCIAL STATEMENTS

COMPANY STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2021

Note

capital

£’000

Share-

based

payment

reserve

£’000

Realised

capital

reserve

£’000

Other

equity

reserve

£’000

premium

£’000

Capital

redemption

reserve

£’000

Revaluation

reserve

£’000

Retained

earnings

£’000

Total

£’000

At 1 January 2021 1,294 43 8,728 (53) 51 95 40,521 6,442 57,121

Profit for the year 2 – – – – – – – 2,310 2,310

Other comprehensive

income for the year 2 – – – – – – – 9,634 9,634

Dividends paid – – – – – – – (3,007) (3,007)

Revaluation gain of

subsidiaries – – – – – – 9,634 (9,634) –

Issue of shares 2 – – (68) 66 – – – –

Share award expensed – 59 – – – – – – 59

At 31 December 2021 1,296 102 8,728 (121) 117 95 50,155 5,745 66,117

Note

capital

£’000

Share-

based

payment

reserve

£’000

Realised

capital

reserve

£’000

Other

equity

reserve

£’000

premium

£’000

Capital

redemption

reserve

£’000

Revaluation

reserve

£’000

Retained

earnings

£’000

Total

£’000

At 1 January 2020 1,292 12 8,728 – – 95 44,294 6,300 60,721

Profit for the year 2 – – – – – – – 2,626 2,626

Other comprehensive

loss for the year 2 – – – – – – – (3,773) (3,773)

Dividends paid – – – – – – – (2,484) (2,484)

Revaluation loss of

subsidiaries – – – – – – (3,773) 3,773 –

Issue of shares 2 – – (53) 51 – – – –

Share award expensed – 31 – – – – – – 31

At 31 December 2020 1,294 43 8,728 (53) 51 95 40,521 6,442 57,121

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

NOTES TO THE COMPANY FINANCIAL STATEMENTS

for the year ended 31 December 2021

1 Accounting policies

Basis of preparation

The financial statements have been prepared in accordance with applicable United Kingdom accounting standards,

including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the United Kingdom and

Republic of Ireland (FRS 102) and with the Companies Act 2006. The financial statements have been prepared under the

historical cost convention except for the modification to a fair value basis for certain financial instruments as specified

in the accounting policies below. The principal accounting policies of the company have remained unchanged from the

previous year.

These financial statements have been prepared on a going concern basis and in adopting the going concern basis the

directors have, based on the information available at the date of this report, considered the financial implications of Covid-19.

In preparing these financial statements, the following disclosure exemptions have been taken:

• The requirement to present a cashflow and related notes

• Financial instrument disclosures including:

− Categories of financial instruments;

− Items of income, expenses, gains or losses relating to financial instruments; and

− Exposure to, and management of, financial risks.

Dividend revenue

Dividend revenue is recognised in the statement of comprehensive income when the right to receive the payment

is established.

Share-based employee remuneration

Share-based employee remuneration is determined with reference to the fair value of the cash award that is used to

purchase the newly issued shares at the date at which the award is agreed and charged to the income statement over the

service and vesting period on a straight-line basis.

Interest income

Interest is recognised under the effective interest method.

Dividends payable

Dividend payments are dealt with when paid as a change of equity in retained earnings. Final dividends proposed are not

recognised as a liability.

Investments

Investments are included at the following valuations:

• Shares in subsidiary undertakings – at market value (net assets as shown by their financial statements are taken as a

reasonable estimate of market value as their assets and liabilities are carried at fair value).

• Unlisted investments – at market value estimated by the directors.

The directors manage and evaluate performance on a fair value basis and therefore have designated qualifying financial

assets including shares in subsidiary undertakings at fair value through the profit and loss account. Other movements are

recognised directly in equity.

Receivables

Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market

are categorised as financial assets at amortised cost. These are measured at amortised cost using the effective interest rate

method, less any impairment. Discounting is omitted where the effect of discounting is immaterial.

Deferred tax

Deferred tax is recognised in respect of all timing differences at the reporting date. Deferred tax assets are recognised when

it is more likely than not that they will be recovered. Deferred tax is calculated using tax rates and laws that have been

enacted or substantively enacted by the reporting date.

Deferred tax liabilities are presented within provisions for liabilities.

Financial liabilities

The company’s financial liabilities include trade and other payables. Trade payables are recognised initially at fair value less

transaction costs and subsequently measured at amortised cost. A financial liability is derecognised when it is extinguished,

discharged, cancelled or expires.

Gains on disposals of assets

Gains on disposals of assets are the excess of net proceeds over the valuation at the beginning of the year. They are not

available for distribution under the company’s articles of association and are taken to realised capital reserve.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

100

FINANCIAL STATEMENTS

2 Company profit/(loss) for the year after tax

The company has not presented its own profit and loss account as permitted under section 408 of the Companies Act 2006.

The profit after tax for the year was £11,944,000 (2020 loss £1,147,000). Information regarding directors’ remuneration appears

on pages 59 to 70 of this annual report.

3 Auditor’s fees

2021

£’000

2020

£’000

Fees payable to the company’s auditor for the audit of the group’s annual accounts* 54 48

Additional fee in respect of prior year – 8

Fees payable to the company’s auditor for other services:

Audit-related assurance services 10 2

64 58

* The audit fee for 2021 includes £10,900 (2020 £10,000) related to the completion of a group audit questionnaire for the Kingerlee Holdings

Limited’s auditor. This amount is recoverable in full from Kingerlee Holdings Limited and has been netted of other expenses.

4 Dividends

In 2021, the following dividends have been paid by the company:

2021

£’000

2020

£’000

2020 Final: 30.00p per ordinary share (2019 27.00p) 1,555 1,397

2020 Special: 6.00p per ordinary share (2019 nil) 311 –

2021 Interim: 22.00p per ordinary share (2020 21.00p) 1,141 1,087

3,007 2,484

On 28 March 2022, the directors declared a final property income distribution for 2021 of £1,711,000, 33.00p per share,

together with a special property income distribution for 2021 of £nil per share (2020 final property income distribution

of£1,555,000, 30.00p per share, together with a special property income distribution for 2020 of £311,000, 6.00p per share),

payable on 7 June 2022 to shareholders registered on 22 April 2022.

5 Investments

Shares in

subsidiary

undertaking

£’000

Valuation at 1 January 2021 50,784

Surplus on revaluation in excess of cost 9,634

Valuation at 31 December 2021 60,418

Equity investments are included at their market value. If investments had not been revalued, they would have been included

on the historical cost basis at the following amounts:

Shares in

subsidiary

undertaking

£’000

Cost at 31 December 2021 10,271

Cost at 31 December 2020 10,271

Stock code: HCFT www.highcroftplc.com

101

FINANCIAL STATEMENTS

NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

for the year ended 31 December 2021

5 Investments continued

At 31 December 2021, the company held 100% of the following companies which are all registered in England and Wales and

which all have the same registered office address as the company: Park Farm Technology Centre, Akeman Street, Kirtlington,

Oxon, OX5 3JQ.

Subsidiary Primary activity Immediate parent company Ownership

Rodenhurst Estates Limited Property investment Highcroft Investments PLC 100%

BL (Wisbech) Limited Holding company Rodenhurst Estates Limited 100%

Belgrave Land (Wisbech) Limited Property investment BL (Wisbech) Limited 100%

At 31 December 2021, the net assets and the profit for the financial year of these subsidiaries were:

2021 2020

Net assets

£’000

Profit

for the

financial

year

£’000

Net assets

£’000

Loss for the

financial

year

£’000

Rodenhurst Estates Limited 60,418 12,634 50,784 (773)

BL (Wisbech) Limited* – – – –

Belgrave Land (Wisbech) Limited 3,509 1,097 2,142 (628)

* BL (Wisbech) Limited is a dormant intermediate holding company between Belgrave Land (Wisbech) Limited and Rodenhurst Estates

Limited. It holds the shares in Belgrave Land (Wisbech) Limited at cost.

6 Debtors

2021

£’000

2020

£’000

Owed by subsidiary undertakings 2,567 4,982

Other debtors 30 24

2,597 5,006

7 Creditors – amounts falling due within one year

2021

£’000

2020

£’000

Other taxes and social security 251 295

Other creditors 507 414

758 709

8 Share capital

The movement in the number of 25p ordinary shares in issue is shown below:

2021 2020

Number £’000 Number £’000

At 1 January 5,175,175 1,294 5,167,240 1,292

Issued under the Highcroft Incentive Plan 8,524 2 7,935 2

At 31 December 5,183,699 1,296 5,175,175 1,294

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

102

FINANCIAL STATEMENTS

9 Share premium

2021

£’000

2020

£’000

At 1 January 51 –

Issued under the Highcroft Incentive Plan 66 51

At 31 December 117 51

10 Capital commitments

There were no capital commitments at 31 December 2021 or at 31 December 2020.

11 Contingent liabilities

There were no contingent liabilities at 31 December 2021 or at 31 December 2020.

12 Related party transactions

Kingerlee Holdings Limited, through its subsidiaries, owns 27.2% (2020 27.2%) of the company’s shares, and David Kingerlee

is a director and shareholder of both the company and Kingerlee Holdings Limited. The transactions between the company

and Kingerlee Holdings Limited or its subsidiaries, all of which were undertaken on an arm’s-length basis, were as follows:

2021

£’000

2020

£’000

Property income distribution paid to related party 817 676

Licence fee for use of property and recharge of sundry costs paid to related party 1 14

The company terminated its licence with Kingerlee Limited, a subsidiary of Kingerlee Holdings Limited, on 20 January 2021.

Under the provisions of section 33 FRS 102, transactions between Highcroft Investments PLC and its subsidiaries Rodenhurst

Estates Limited, BL (Wisbech) Limited and Belgrave Land (Wisbech) Limited are exempt from these disclosure requirements

as they are all wholly owned subsidiaries.

13 Employees

The employees of the group are all employees of the company and all their costs are incurred by the company as follows:

2021

£’000

2020

£’000

Remuneration 777 728

Pension costs – 1

Social security costs 103 100

880 829

Stock code: HCFT www.highcroftplc.com

103

FINANCIAL STATEMENTS

GROUP FIVEYEAR SUMMARY UNAUDITED

2021

£’000

2020

£’000

2019

£’000

2018

£’000

2017

£’000

Investment properties – at annual valuation 87,565 82,060 86,710 77,700 77,113

Equity investments – at market value – – – 679 2,131

Total net assets 64,117 57,121 60,721 62,384 59,977

Net asset value per share in issue at end of each year 1,275p 1,104p 1,175p 1,207p 1,161p

Revenue (excluding gains/losses on disposals of assets)

Gross income from property 5,928 6,084 5,840 5,043 4,765

Net admin expenses to gross rent 19.6% 17.6% 14.1% 14.6% 13.9%

Profit available for distribution 2,939 3,503 4,055 4,512 3,348

Share capital

Weighted average number in issue (000s) 5,184 5,172 5,167 5,167 5,167

Basic earnings per ordinary share 230.5p (22.2p) 22.3p 95.3p 132.3p

Adjusted earnings per ordinary share 56.7p 67.7p 78.5p 87.3p 64.8p

Dividends payable per ordinary share 55.00p 57.00p 48.00p 52.50p 46.25p

FTSE 350 Real Estate Index 623 491 602 468 568

Highcroft year-end share price 875.0p 720.0p 942.5p 885.0p 887.5p

LIST OF DEFINITIONS

Company voluntary arrangement (CVA): A procedure

that allows a company to settle debts by paying only a

proportion of the amount that it owes to creditors.

Estimated rental value (ERV): The rent at which the space

could be let out in the market conditions prevailing at the

date ofvaluation.

Interest cover ratio (ICR): The number of times net

interest payable is covered by rental income of the secured

properties.

Loan-to-value (LTV): Drawn debt divided by the fair value

of the property portfolio. For bank facility purposes, the ‘fair

value of the property portfolio’ is replaced by the valuation

included on valuation reports addressed to the bank.

Net debt: Borrowings plus bank overdraft less cash and cash

equivalents.

Net initial yield: The initial gross income as a percentage of

the market value plus standard costs of purchase.

Property income distribution (PID): Dividends from profits

of the group’s tax-exempt property rental business under

the REIT regulations.

Real Estate Investment Trust (REIT): The UK REIT regime

was launched on 1 January 2007. On 1 April 2008, Highcroft

elected to convert to REIT status. The REIT legislation was

introduced to provide a structure that closely mirrors the

tax outcomes of direct ownership in property and removes

tax inequalities between different real estate investors. It

provides a liquid and publicly available vehicle that opens

the property market to a wide range of investors. A REIT

is exempt from corporation tax on qualifying income and

gains of its property rental business providing various

conditions are met. It remains subject to corporation tax

on non-exempt income and gains. Subject to concessions

granted during the Covid-19 pandemic, REITs must

distribute at least 90% of their income profits from their

tax-exempt property rental business, by way of dividend,

known as a property income distribution (PID). These

distributions can be subject to withholding tax at 20%. If the

REIT distributes profits from the non-tax-exempt business,

the distribution will be taxed as an ordinary dividend in the

hands of the investors (non-PID).

Return on equity: Total profit and comprehensive income

divided by average total equity.

Reversionary yield: The yield that would be achieved if the

passing rent adjusts to the level of the ERV.

Total shareholder return: The growth in the ordinary

share price as quoted on the London Stock Exchange plus

dividends per share received for the year, expressed as a

percentage of the share price at the beginning of the year.

Weighted average unexpired lease term (WAULT): The

average lease term remaining to the first to occur on each

lease of a tenant break option, or lease expiry, across the

portfolio, weighted by rental income.

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

104

FINANCIAL STATEMENTS

DIRECTORS AND ADVISERS

Company number

00224271

Directors

Charles Butler, BSc ACA

(Non-executive chairman)

Simon Costa, BSSc MA MPhil

(Non-executive)

Simon Gill, BSc FRICS

(Chief executive)

David Kingerlee

(Non-executive)

Roberta Miles, MA FCA

(Finance)

Company secretary

Anne-Marie Palmer LLB FCG

Independent auditor

Mazars LLP

Statutory Auditor

Chartered Accountants

The Pinnacle

160 Midsummer Boulevard

Milton Keynes

MK9 1FF

Independent valuer

Knight Frank LLP

55 Baker Street

London

W1U 8AN

Bankers

Handelsbanken plc

Latimer House

Langford Locks

Kidlington

Oxon

OX5 1GG

and

Lloyds Bank plc

Ground Floor

Canons House

Canons Way

Bristol

BS1 5LL

Solicitors

Clarkslegal LLP

5th Floor

Thames Tower

Station Road

Reading

RG1 1LX

and

Charles Russell Speechly LLP

5 Fleet Place

London

EC4M 7RD

Property managing

agents

Workman LLP

Alliance House

12 Caxton Street

London

SW1H 0QS

Corporate finance

advisers

Singer Capital Markets Advisory LLP

One Bartholomew Lane

London

EC2N 2AX

Registrars

Link Group

10th Floor

Central Square

29 Wellington Street

Leeds

LS1 4DL

Tax advisers

Grant Thornton UK LLP

30 Finsbury Square

London

EC2A 1AG

Registered office and

business address

Park Farm Technology Centre

Akeman Street

Kirtlington

Oxon

OX5 3JQ

United Kingdom

Stock code: HCFT www.highcroftplc.com

FINANCIAL STATEMENTS

Park Farm Technology Centre

Akeman Street

Kirtlington

Oxon

OX5 3JQ

Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021

Stock code: HCFT