Annual results show an NAV per share of 9.4p at 30 June 2016. Also announced today are a share subscription for £500,000 by Gravity Investment Group at 10p per share and the appointment of a chief executive
This announcement contains inside information
K&C REIT plc (AIM: KCR), the residential real estate investment trust group, announces that the Board: will be appointing a new director, has accepted a share subscription, has published its annual results and has made other related changes.
The full results are available to
download in PDF format
1. Appointment of chief executive
The Board has agreed that Mr Dominic White will be appointed chief executive of the Group, effective from 1 January 2017, conditional upon Admission. He will receive a salary of £75,000 per annum with effect from 1 January 2017.
In addition, on 21 December 2016, the Company has entered into an agreement (the "WAL Agreement") with White Amba Limited ("WAL"). Mr White is an appointed representative of Vicarage Capital Limited (which is authorised and regulated in the United Kingdom by the Financial Conduct Authority) and he operates through WAL, which is a company that he owns and controls. The WAL Agreement provides that the Company will pay WAL a fee of £25,000 (representing five per cent of the amount to be subscribed by Gravity pursuant to the Subscription). In addition, the Company will pay WAL a further fee of five per cent (up to a maximum of a further £50,000) in respect of further subscriptions for shares in the Company, in exchange for cash, properties or other assets, where the subscribers for such shares have been introduced by WAL provided that (i) the shares are issued at the higher of (a) 10p per share and (b) the average middle-market closing price in the 15 dealing days prior to the date of issue of such shares; and (ii) such shares are issued prior to the first anniversary of the date of the WAL Agreement. The WAL Agreement also provides that the Company shall pay a fee of £25,000 (plus VAT if applicable) for advice given relating to the negotiating and structuring of the Subscription. It is expressly agreed that if it is proposed that WAL provides services/advice to the Company pursuant to the WAL Agreement, Mr White should (i) declare his interest; and (ii) not take part in any consideration or decision of the board of directors of the Company in relation to the provision of such services.
2. Details about Dominic White
Dominic Andrew White (age 44) is a member of the Institute of Chartered Financial Analysts and is a Chartered Surveyor who has more than 24 years' experience in the investment sector, working in private equity, real estate investment fund management and real estate advisory businesses in both the private and listed markets. During his career, he has held senior investment positions at international institutions such as Security Capital European Realty, Henderson Global Investors and Cordea Savills Investment Management. In addition, he has held chief executive and non-executive roles at public companies, including Limitless Earth plc and, currently, as chief executive of Energiser Investments plc (AIM:ENGI) ("Energiser").
|Present directorships / partnerships||Former directorships / partnerships held over past five years|
|Energiser Investments plc||Limitless Earth plc|
|eMed Pharma Group Limited||Silverhawk Investments Limited|
|Beet Plus Limited||White Panther Capital Limited|
|Ovio Wellness Limited||Clear Leisure plc|
|White Amba Investments LLP||Lakestar Capital LLP|
|White Amba Limited|
The directors of K&C have considered Dominic White's role as chief executive of Energiser. The directors do not consider that his involvement with Energiser will significantly affect Mr White's ability fully to perform his duties as chief executive of K&C, nor does the board consider the operations of Energiser and K&C to be in conflict.
No further information relating to Mr White is required to be disclosed pursuant to Schedule 2 paragraph (g) of the AIM Rules.
3. General meeting to receive the accounts to 30 June 2016, adopt new Articles of Association and to approve the issue of Restricted Preference Shares to certain persons
It is proposed to create a new long-term executive share incentive scheme based upon restrictive preference shares ("Restricted Preference Shares"). Implementing this new share incentive scheme will require the Company to convene a general meeting, which will be held prior to 31 January 2017. The meeting will receive the audited accounts of the Company to 30 June 2016 and to adopt new Articles of Association to create and set out the rights of the Restricted Preference Shares, which are intended to be fully paid up at their par value of £0.01. It will be proposed that an aggregate of sixty million Restricted Preference Shares at a subscription price of £0.01 per share will be created, generating proceeds for the Company (if all issued) of £600,000, although the current holders of executive share options in K&C will not be offered the opportunity to subscribe for these shares while their options remain outstanding.
The Restricted Preference Shares would vest as (i) the gross assets under management (AUM) of the Group (i.e. the gross value of the investment properties of the Group) exceed certain values and (ii) the Net Asset Value (NAV) per share of the Group exceeds certain values. These vested Restricted Preference Shares will be convertible into ordinary shares of the Company on a one-for-one basis. Further details of this proposal, which will require the approval of a special resolution of the Company's shareholders, will be announced in due course.
4. Payments made to executive directors and others
Except for James Cane and Christopher James, the executive directors have not received any salary or fees since the Company was admitted to trading on AIM.
Following Admission, certain executive directors and an employee of the Company will each become entitled to £25,000 (of which £15,000 will be dependent on the Company receiving further equity funding of at least £500,000) in satisfaction of all funds due to them from the Company and all remuneration up to 31 December 2016, including, in some cases, the reimbursement of various out-of-pocket expenses incurred by those individuals since 2014 that have not been reimbursed to date. The total of these payments (including the contingent element) will be £150,000, excluding any employer's national insurance contributions and/or value added tax that are payable.
The Board announces its intention to make salary payments, at rates equal to or less than the amounts stated in their service contracts, to all existing executive directors and an employee of the Company with effect from 1 January 2017.
Commenting on the results, Michael Davies, Chairman of K&C REIT, commented:
"In a year that has so far been dominated by political and economic uncertainty, K&C REIT has delivered good performance via its acquisitions of two special purpose vehicles, which integrated well and traded satisfactorily in the year under review, with NAV per share at year-end of 9.4p. K&C's progress has been further supported by today's announcement of a share subscription of £500,000 at 10p per share and the appointment of Dominic White as our new chief executive, which we believe will lead to a strong and exciting pipeline of opportunities. We are looking forward to 2017 with confidence."
This is K&C REIT plc's second Annual Report since its admission to AIM.
Market and strategy
The Group operates in the residential letting market, with an emphasis on Central London. The Group seeks to acquire property assets held within UK-incorporated companies, where there is an opportunity to capitalise on the advantages afforded to REITs to provide an efficient exit route for vendors.
The Company’s shares were admitted to trading on AIM on 3 July 2015. Shortly following admission, at which the Company issued 43,035,622 ordinary shares at 10 pence per share, including 35,663,400 shares issued pursuant to a fundraising that generated gross cash proceeds of £3,566,340, the Group acquired the entire share capital of Silcott Properties Limited ("Silcott") for a consideration of £3,630,000, of which £300,000 was satisfied by the issuance of 3,000,000 ordinary shares in K&C REIT plc, and 4,372,222 ordinary shares in K&C were issued to satisfy liabilities of the Company. Silcott, which has since been renamed K&C (Coleherne) Limited ("Coleherne"), is a special purpose vehicle that owns a freehold property in Central London with ten apartments for rent.
Nigel Payne and George Rolls both left the board, and I was appointed chairman at the Annual General Meeting on 30 December 2015.
The Group has made two significant acquisitions during the year: Coleherne, as mentioned above, and, on 27 May 2016, The Osprey Management Company Limited, which was subsequently renamed K&C (Osprey) Limited ("Osprey"). Both companies have traded well since acquisition, and Osprey has exceeded our expectations in the five weeks to the year-end and the subsequent five months. The transition to our ownership was, in each case, very smooth, and I would like to thank all those involved in the management and operations of both companies.
The Group reports a consolidated loss from operating activities for the year of £99,442. The total comprehensive expense for the year was £64,371. The financial results in the Annual Report cover the twelve months since the Group's admission to AIM, including the results of Coleherne and Osprey from the date of acquisition, which is referred to in more detail in note 5. The investment properties were revalued on acquisition in line with current market conditions. The costs attributable to the acquisitions of both Coleherne and Osprey were significant, and have been identified separately, because both transactions were complex. However, we believe that the long-term prospects for growth in each company make these valuable investments.
As my predecessor said last year, the Group needs to build a strong business with high quality assets that will be able to support an increasing income yield. We have taken the first steps towards achieving this through our acquisition strategy.
We have also sought to raise equity and loan capital to enable this strategy. On the debt side, we raised £1.1 million in May to complete the acquisition of Osprey, and believe that our debt is at a manageable level, given our asset base and the opportunities that the Group has for income generation.
The Board continues to find and be shown interesting acquisition opportunities and I hope that I will be able to report new developments to you before too long.
M D M Davies
21 December 2016
The directors present the strategic report of K&C REIT plc ('K&C' or the 'Company') and its subsidiaries (together, the 'Group') for the year ended 30 June 2016. The Company was incorporated in England and Wales on 10 June 2014.
The Group carries on the business of acquiring and managing residential property in the UK for letting to third parties on long and short leases. At the year-end, the Group consisted of the Company and three operating subsidiaries.
The directors intend to build a significant presence in the residential letting market, primarily through the acquisition of UK-registered special purpose vehicles that own residential property for letting to third parties.
The Group reports a loss from operating activities of £99,442 for the year to 30 June 2016. This is after charging the acquisition costs of Osprey and Coleherne, as set out in the notes to these financial statements.
FUTURE DEVELOPMENT OF THE GROUP
The acquisitions of Coleherne and Osprey, referred to above, are examples of the type of transaction envisaged for the future development of the group. It is anticipated that future acquisitions will be financed by a combination of debt, equity and the Group's own resources, and the Group expects to return to the capital markets again in the near future.
On 3 July 2015, the Company’s shares were admitted to trading on AIM when the Group became a REIT. On admission, the Group issued 43,035,622 ordinary shares at 10p, including 35,663,400 shares issued pursuant to a fundraising, generating gross cash proceeds of £3,566,340.
Shortly after admission, the Company acquired the entire share capital of Silcott for a consideration of £3,630,000, of which £300,000 was satisfied by the issuance of 3,000,000 ordinary shares in K&C to the vendor.
On 27 May 2016, K&C acquired The Osprey Management Company Limited for £1.6 million, of which £300,000 was satisfied by the issuance of 3,000,000 ordinary shares in K&C to the vendor.
REVIEW OF BUSINESS AND FINANCIAL PERFORMANCE
The Board has reviewed whether the Annual Report, taken as a whole, presents a fair, balanced and comprehensive summary of the Group's position and prospects, and believes that it provides the information necessary for shareholders to assess the Group's position, performance and strategy.
Information on the financial position and development of the Group is set out in the Chairman's Statement, the Directors' Report and the annexed financial statements.
FINANCIAL KEY PERFORMANCE INDICATORS
The directors use a variety of key performance indicators to monitor and improve Group performance, including:
A. At property level
B. At Group level
No analysis of performance compared to these KPIs has been provided due to the infancy of the Group and the diverse nature of the assets owned by the companies that it has acquired.
RISKS AND UNCERTAINTIES
The Board regularly reviews the risks to which the Group is exposed and ensures through its meetings and regular reporting that these risks are minimised as far as possible.
The principal risks and uncertainties facing the Group at this stage in its development are:
INTERNAL CONTROLS AND RISK MANAGEMENT
The directors are responsible for the Group's system of internal control. Although no system of internal control can provide absolute assurance against material misstatement or loss, the Group's system is designed to provide reasonable assurance that problems are identified on a timely basis and dealt with appropriately.
In carrying out their responsibilities, the directors have put in place a framework of controls to ensure as far as possible that ongoing financial performance is monitored in a timely manner, that, where required, corrective action is taken and that risk is identified as early as practically possible. The directors have reviewed the effectiveness of internal control.
The Board, subject to delegated authority, reviews, among other things, capital investment, property sales and purchases, additional borrowing facilities, guarantees and insurance arrangements.
The Group has adopted an anti-corruption policy and whistle-blowing policy under the Bribery Act 2010. Notwithstanding this, the Group may be held liable for offences under that Act committed by its employees or subcontractors whether or not the Group or the directors have knowledge of the commission of such offences.
This Annual Report contains certain forward-looking statements that have been made by the directors in good faith based on the information available at the time of the approval of the annual report and financial statements. By their nature, such forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results may differ from those expressed in such statements.
The Group has taken significant steps forward through its admission to AIM, achieving REIT status and making its first two acquisitions. It now needs to build on these achievements through further purchases of high quality assets that will be able to support an increasing income yield. The Group is currently investigating several potential acquisitions. To make further acquisitions, the Group will be required to raise more capital and it is working closely with funding sources, both equity and debt providers, to achieve this objective.
ON BEHALF OF THE BOARD:
22 December 2016
The directors present their report with the financial statements of the Company and the Group for the year ended 30 June 2016.
A review of the business and risks and uncertainties is included in the Chairman's Statement, the Strategic Report and in the notes to the financial statements.
The directors do not recommend payment of a dividend for the year (2015 - £nil).
The Group made no political donations during the year (2015 - £nil).
Corporate governance statement
The Board is committed to maintaining high standards of corporate governance. The UK Corporate Governance Code, published by the Financial Reporting Council, sets out standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders, providing principles of good governance and a code of best practice for listed companies. The UK Corporate Governance Code does not apply to AIM companies. However, shareholders expect companies in which they invest to be properly governed.
The Company's corporate governance procedures take due regard of the principles of good governance set out in the UK Corporate Governance Code having regard to the size and the stage of development of the Company. Nonetheless, the Company has not formally adopted any specific corporate governance code.
The Company has established audit, AIM compliance and remuneration committees, with formally delegated duties and responsibilities.
The audit committee comprises Patricia Farley and Michael Davies, who was appointed chairman. The committee is responsible for ensuring the financial performance, position and prospects of the Group are properly monitored and reported on, and for meeting the auditor and reviewing their reports relating to accounts and internal controls.
|Cost of sales||91,177||29,541|
|Revaluation on investment properties||4||250,000||-|
|OPERATING LOSS BEFORE EXCEPTIONAL ITEMS||(172,190)||(144,502)|
|Gain on bargain purchase||5||1,541,829||-|
|AIM admission costs||2||(786,578)||-|
|Costs of acquisition of subsidiaries||(469,848)||-|
|LOSS BEFORE TAXATION||(169,313)||(242,618)|
|LOSS FOR THE YEAR||(64,371)||(242,618)|
|Loss attributable to owners of the parent||(64,371||(242,618)|
|Loss per share expressed in pence per share|
|LOSS FOR THE YEAR||(64,371)||(242,618)|
|OTHER COMPREHENSIVE INCOME||-||-|
|OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF INCOME TAX||-||-|
|TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR||(64,371)||(242,648)|
|Total comprehensive expense attributable to:|
|Owners of the parent||(64,371)||(242,648)|
|Property, plant and equipment||2,730||-|
|Trade and other receivables||24,262||245,970|
|Cash and cash equivalents||250,650||1,732|
|Capital redemption reserve||67,500||67,500|
|Financial liabilities - borrowings|
|Interest-bearing loans and borrowings||7||2,690,108||-|
|Trade and other payables||7||277,960||389,469|
|Financial liabilities - borrowings|
|Interest-bearing loans and borrowings||7||30,161||874,000|
|TOTAL EQUITY AND LIABILITIES||7,403,642||939,258|
|Net asset value per share (pence)||9.42||(43.23)|
The financial statements were approved and authorised for issue by the Board of Directors on 21 December 2016 and were signed on its behalf by:
|Capital redemption reserve|
|Balance at 1 July 2014||75,000||-||-|
|Changes in equity|
|Buyback of deferred shares||(67,500)||-||67,500|
|Total comprehensive expense||-||-||-|
|Balance at 30 June 2015||7,500||-||67,500|
|Changes in equity|
|Issue of share capital||460,356||4,120,984||-|
|Total comprehensive expense||-||-||-|
|Balance at 30 June 2016||467,856||4,120,984||67,500|
|Balance at 1 July 2014||(156,593)||(81,593)|
|Changes in equity|
|Buyback of deferred shares||-||-|
|Total comprehensive expense||(242,618)||(242,618)|
|Balance at 30 June 2015||(399,211)||(324,211)|
|Changes in equity|
|Issue of share capital||-||4,581,340|
|Total comprehensive expense||(64,371)||(64,371)|
|Balance at 30 June 2016||(250,927)||4,405,413|
|Cash flows from operating activities|
|Cash generated from operations||(1,590,658)||(108,243)|
|Net cash used in operating activities||(1,663,667)||(206,359)|
|Cash flows from investing activities|
|Purchase of tangible fixed assets||(3,416)||-|
|Sale of investment properties||715,254||-|
|Acquisition of subsidiaries||(4,630,000)||-|
|Net cash used in investing activities||(3,915,024)||--|
|Cash flows from financing activities|
|Loan notes issued||-||200,000|
|Loan repayments in year||(874,000)||-|
|New loans in year||2,720,269||-|
|Net cash generated from financing activities||5,827,609||200,000|
|Increase/(decrease) in cash and cash equivalents||248,918||(6,359|
|Cash and cash equivalents at beginning of year||1,732||8,091|
|Cash and cash equivalents at end of year||250,650||1,732|
The notes to the financial statement are available in the PDF download.
Page last updated: 22 December 2016