Latest Results

Annual Results for year ended 30 June 2017

K&C REIT plc (AIM: KCR), the residential real estate investment trust group, is pleased to announce its annual results for year ended 30 June 2017. A copy of the annual report and accounts will be posted to shareholders shortly. A copy will also be available from the Company's website, www.kandc-reit.co.uk.

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Highlights:

  • Revenue up 240% to £514,746 (2016: £151,417)
  • Gross profit up 343% to £404,202 (2016: £91,177)
  • NAV per share of 8.57p at 30 June 2017 (2016: 9.42p)
  • Year-end portfolio valuation of £7.24 million (2016: £7.13 million)
  • Company issued £599,000 of new equity and £350,000 of restricted preference shares in the year
  • £1.35 million 6% loan note 2020 issued after the year-end, partly to finance acquisition of three residential units at Company's freehold Heathside property for £935,000.

Commenting on the results, Michael Davies, Chairman of K&C, said:

"K&C continued to make progress during the period despite the wider residential property market having to contend with a number of political and economic events. The Company successfully raised capital and made further investment in the portfolio to improve performance. As such, revenue has grown through ground rents, sales commissions and lease extensions and occupancy levels remain close to 100 per cent. Post year-end, the Company completed the acquisition of three residential units at its freehold Heathside property in Hampstead for £935,000, with refurbishing and improvements underway.

"The Board continues to find and be shown interesting acquisition opportunities and looks forward to updating the market in due course on further progress and asset developments."

 

Chairman's Statement

This is K&C REIT plc's third Annual Report since its admission to AIM.

Market and strategy

The Group operates in the UK residential private rented sector (PRS). It seeks to acquire:

  • under-managed rented property assets and portfolios
    The team's considerable PRS expertise enables them to improve portfolios and, importantly, tenant experience at under-managed properties, through asset and property management activity. This has resulted in higher rental and property values.
  • in lower price segments
    The focus on lower price segments ensures that the portfolio is directed towards the highest area of tenant and buyer demand. This is defensive in a downturn and shows strong growth in an upturn.
  • held within UK-incorporated companies
    The REIT structure itself provides K&C with the opportunity to capitalise on the advantages afforded to REITs to provide an efficient exit route for vendors of SPVs, in particular, managing deferred capital gains tax liabilities.

The residential sales market has slowed over the last year, particularly in higher price-band properties in Central London. The impact of the Brexit vote, a more difficult economy, an inconclusive general election result and significant tax changes, particularly for 'buy-to-let' landlords, all taking place within a relatively short period of time, have been difficult for the market to digest.

It is important to note that, across the UK as a whole, prices and rental values continue to rise, albeit at slower rates. Indeed, the Group's assets, which, on a unit basis, are all in the lower price bands (studio, one and two beds), have performed well.

The positive overall economic fundamentals in the residential sector - strong demand and shortage of supply - will, in our view, deliver attractive rental and capital value performance across the UK over the medium term

Investment and operations

Osprey has exceeded expectations, having significantly increased revenue from ground rents, sales commissions, lease extensions and other management income. We have invested in the operations of the business and believe that Osprey is well positioned to continue its strong performance in the future.

The Coleherne Road apartments have continued to perform well. The small size of the units (studio, one- and two-bed flats) is exactly what the market is looking for. This has meant that occupancy has been maintained at close to 100 per cent and rents have increased by eight per cent since acquisition in July 2015.

The Group considered a number of UK residential investment opportunities during the year. Post the year-end, the Group completed the acquisition of three residential units at its freehold Heathside property in Hampstead for £935,000 (accepting the surrender of 67-year leasehold interests) using funds raised from the issue of convertible loan notes. The Company continues to implement its value-adding asset-management plan at this property of creating 'marriage value' through the buy-in of leasehold units.

Financial

Income increased from £151,417 to £514,746 in the financial year. The Group reports a consolidated operating loss before separately disclosed administrative items of £636,896, which includes abortive and ongoing acquisition costs of approximately £200,000. The operating loss of £1,029,215 includes a non-cash share-based payment charge of £392,319.

During the year, the Company issued £599,000 of new ordinary shares at just over 10 pence per share and £350,000 of restricted preference shares at 1p per share. The funds raised have been used to maintain the Group's property assets and cover working capital requirements.

On 9 July 2017, the Company issued 6% Loan Notes in the total sum of £1.35 million, a proportion of which are convertible into ordinary shares. £950,000 had been received in advance at the year-end. The loan notes are redeemable by the Company on 30 June 2020. This capital injection has been used primarily to acquire and refurbish the three Heathside units referred to above.

The net asset value per share at 30 June 2017 is 8.57p. The post-balance sheet active asset management, acquisitions and light refurbishment in the Osprey portfolio has crystallised further value in the portfolio of more than £400,000.

Portfolio valuation

The portfolio at year-end was valued at £7.24 million, an increase of £0.1 million compared to 30 June 2016.

Board changes

We were delighted that Dominic White joined the Board as chief executive in January 2017. His long background in property investment has already proved of great value to the Company.

Christopher James, Tim Oakley and Patricia Farley stepped down from the board at the end of March. Christopher and Tim continue to play important roles as members of the senior management team while Patricia's property expertise and experience remains available to the business. Oliver Vaughan became a non-executive director of the Company in May 2017.

Future prospects

During the year, the Group has raised capital, restructured its Board, and, since year-end, acquired valuable assets. It has continued to build the positive momentum from the previous year.

The Company aims to deliver a strong and growing covered dividend from rental streams and net asset value growth through the professional management of residential assets and the acquisition and management of SPVs with attractive and undervalued portfolios. We have built a significant pipeline of potential UK residential investments that, if acquired, would deliver this outcome.

The Board continues to find and be shown interesting acquisition opportunities and I hope that I will be able to report further positive developments to you before too long.

 

Strategic Report

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 2017. The Company was incorporated in England and Wales on 10 June 2014.

PRINCIPAL ACTIVITY

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 subsidiaries.

  1. K&C (Coleherne) Limited owns a freehold residential property in Chelsea, London
  2. K&C (Osprey) Limited owns the freehold of several retirement properties let on long leases to residents and provides management services in respect of these properties and to third party landlords
  3. K&C (Newbury) Limited owns no property and is now effectively dormant.

GROUP STRATEGY

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.

RESULTS

The Group reports an operating loss from operating activities of £1,029,215 for the year to 30 June 2017.

REVIEW OF BUSINESS AND FINANCIAL PERFORMANCE

The Board has reviewed whether the Annual Report, taken as a whole, presents a fair, balanced and understandable 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 report of the directors and the annexed financial statements.

FINANCIAL KEY PERFORMANCE INDICATORS

The directors and management team review a variety of key performance indicators to monitor and improve Group performance, including:

A. At property level

  • Rent per ft2 compared with comparable market data and with other units in the asset
  • Vacancy rate in terms of number of units available and potential rental income
  • Management costs as a percentage of rental income (including repairs and maintenance, insurance, cleaning, agents' fees, legal fees, utilities and council tax)
  • Gross and net yield compared with target levels
  • Marginal increase in income as a percentage of capital expenditure
  • Outstanding rents as a percentage of rental income
  • Implementation of property plans compared with target.

B. At Group level

  • Assets under management compared with target
  • Overheads as a percentage of gross/net rental income compared with target.

No analysis of performance compared to these KPIs has been provided because the diverse nature of the assets owned by the subsidiary companies, and the changes to the operating models initiated by the Group, make such analyses at this stage of their ownership potentially misleading.

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:

  • Financing and liquidity risk
    The Company has an ongoing requirement to fund its activities through the equity markets and in future to obtain finance for property acquisition and management. There is no certainty that such funds will be available when needed.
  • Financial instruments
    Details of risks associated with the Group's financial instruments are given in the notes to the financial statements.
  • Valuations
    The valuation of the investment property portfolio is inherently subjective as it is made on the basis of assumptions made by the valuer that may not prove to be accurate. The outcome of this judgment is significant to the Group in terms of its investment decisions and results.

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.

BRIBERY RISK

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.

FORWARD-LOOKING STATEMENTS

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.

OUTLOOK

The Group took significant steps forward through its admission to AIM, achieving REIT status and enhancing the performance of its first two acquisitions. It now intends 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.

 

Report of the Directors

The directors present their report with the financial statements of the Company and the Group for the year ended 30 June 2017.

A review of the business, risks and uncertainties and future developments is included in the Chairman's Statement, the Strategic Report and the notes to the financial statements.

DIVIDENDS

The directors do not recommend payment of a dividend for the year (2016 - £nil).

Political donations

The Group made no political donations during the year (2016 - £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.

Audit committee

The audit committee currently comprises James Cane and Michael Davies, the 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.

SUBSTANTIAL SHAREHOLDINGS

As at 11 October 2017, the directors had been notified that the following shareholders own a disclosable interest of three per cent or more in the ordinary shares of the Company:

Name   Interest
Venaglass Limited   18.96%
Michael Wellesley-Wesley   7.85%
Christopher James   6.35%
Timothy James   6.21%
Susan Hards   5.69%
5XM Finance   5.21%
Forbes Ventures   4.74%
Xiao Min   4.21%
Simon Wharmby   3.83%

GOING CONCERN

The directors have adopted the going concern basis in preparing the financial statements. This is further explained in the notes to the financial statements.

 

Consolidated statement of comprehensive income
for the year ended 30 June 2017

  30 June
2017
  30 June
2016
  £   £
CONTINUING OPERATIONS      
Revenue 514,746   151,417
Cost of sales (110,544)   (60,240)
GROSS PROFIT 404,202   91,177
Administrative expenses (1,157,098)   (513,367)
Revaluation on investment properties 116,000   250,000
OPERATING LOSS BEFORE SEPARATELY DISCLOSED ITEMS (636,896)   (172,190)
       
Separately disclosed administrative items      
Gain on bargain purchase -   1,541,829
Share-based payments (392,319)   (212,655)
AIM admission costs -   (786,578)
Costs of acquisition of subsidiaries -   (469,848)
OPERATING LOSS (1,029,215)   (99,442)
       
Finance costs (195,361)   (73,009)
Finance income 5   3,138
       
LOSS BEFORE TAXATION (1,224,571)   (169,313)
Taxation -   104,942
       
LOSS FOR THE YEAR (1,224,571)   (64,371)
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR (1,224,571)   (64,371)
Loss attributable to owners of the parent (1,224,571)   (64,371)
       
Loss per share expressed in pence per share      
Basic (2.48)   (0.15)
Diluted (2.48)   (0.15)

 

Consolidated statement of financial position

    30 June
2017
  30 June
2016
    £   £
ASSETS        
NON-CURRENT ASSETS        
Property, plant and equipment   1,843   2,730
Investment properties   7,242,000   7,126,000
    7,243,843   7,128,730
CURRENT ASSETS        
Trade and other receivables   90,777   24,262
Cash and cash equivalents   1,023,752   250,650
    1,114,529   274,912
TOTAL ASSETS   8,358,372   7,403,642
EQUITY        
SHAREHOLDERS' EQUITY        
Share capital   877,518   467,856
Share premium   4,660,322   4,120,984
Capital redemption reserve   67,500   67,500
Retained earnings   (1,083,179)   (250,927)
TOTAL EQUITY   4,522,161   4,405,413
         
LIABILITIES        
NON-CURRENT LIABILITIES        
Financial liabilities - borrowings        
Interest bearing loans and borrowings   1,560,756   2,690,108
CURRENT LIABILITIES        
Trade and other payables   194,147   277,960
Financial liabilities - borrowings        
Interest-bearing loans and borrowings   31,308   30,161
Other loans   2,050,000   -
    2,275,455   308,121
TOTAL LIABILITIES   3,836,211   2,998,229
TOTAL EQUITY AND LIABILITIES   8,358,372   7,403,642
         
Net asset value per share (pence)   8.57   9.42

 

Consolidated statement of cash flows

    2017   2016
    £   £
Cash flows from operating activities        
Cash used in operations   (902,338)   (1,590,658)
Interest paid   (195,361)   (73,009)
Net cash used in operating activities   (1,097,699)   (1,663,667)
         
Cash flows from investing activities        
Purchase of tangible fixed assets   -   (3,416)
Sale of investment properties   -   715,254
Acquisition of subsidiaries   -   (4,630,000)
Interest received   5   3,138
Net cash generated from/(used in) investing activities   5   (3,915,024)
         
Cash flows from financing activities        
Loan repayments in year   (28,204)   (874,000)
New loans in year   950,000   2,720,269
Shares issued   949,000   3,981,340
Net cash generated from financing activities   1,870,796   5,827,609
         
Increase in cash and cash equivalents   773,102   248,918
         
Cash and cash equivalents at beginning of year   250,650   1,732
Cash and cash equivalents at end of year   1,023,752   250,650

 

Reconciliation of loss before taxation to cash used in operations

Group 2017   2016
  £   £
Loss before taxation (1,224,571)   (169,313)
Depreciation charges 887   686
Profit on disposal of investment properties -   (23,698)
Gain on bargain purchase -   (1,541,829)
Revaluation of investment properties (116,000)   (250,000)
Share-based payment charge 392,319   212,655
Finance costs 195,361   73,009
Finance income (5)   (3,138)
  (752,009)   (1,701,628)
(Increase)/decrease in trade and other receivables (66,516)   221,708
Decrease in trade and other payables (83,813)   (110,738)
Cash used in operations (902,338)   (1,590,658)
       
Company 2017   2016
  £   £
Loss before taxation (1,591,032)   (1,978,502)
Depreciation charges 754   587
Profit on disposal of investment properties -   (17,874)
Share-based payment charge 392,319   212,655
Finance costs 194,149   65,271
Finance income -   (3,086)
  (1,003,810)   (1,720,949)
(Increase)/decrease in trade and other receivables (24,741)   228,540
Increase/(decrease) in trade and other payables 107,993   (101,764)
Cash used in operations (920,558)   (1,594,173)

 

Notes

The notes to the financial statement are available in the PDF download.

 

Page last updated: 17 October 2017