LATEST RESULTS

Interim Results for the period ended 31 December 2018

This announcement contains inside information

KCR Residential REIT plc (AIM: KCR), the residential real estate investment trust group, is pleased to announce its interim results for the six months to 31 December 2018.  A copy of the interim report and accounts will be posted to shareholders shortly.  A copy will also be available from the Company's website, www.kcrreit.com.

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Commenting on the results, Michael Davies, chairman of KCR, said: "KCR is both an income and capital growth opportunity for its shareholders.  It seeks to deliver income return from the collection of rents from tenants and generates capital returns through investment in under-valued property assets that are generally marked to market at acquisition.  The Group is currently scaling-up its activities such that it can generate a profit and pay a dividend to shareholders."

Dominic White, the chief executive of KCR, said: "The portfolio at 31 December 2018 was valued at £24.6 million, an increase of £15.1 million compared to 31 December 2017.  The Group has grown the portfolio through investment and asset management value improvements during the six-month period.

KCR's net asset value per share at 31 December 2018 was 70.97p (88.17p - 30 June 2018)."

Market Abuse Regulation (MAR) Disclosure

The information contained within this announcement is deemed by the Company to constitute inside information for the purposes of the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

 

 

 

CHAIRMAN'S STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER 2018

KCR Residential REIT plc ("KCR" or the "Company") and its subsidiaries (together the "Group") operate in the private rented residential investment market.  We acquire whole blocks of studio, one- and two-bed apartments that are rented to private tenants.  The Company currently focuses on the UK residential sector. 

There continue to be positive economic fundamentals for housing in the UK - strong demand and shortage of supply, particularly in KCR's target rental segments in the low to mid-price bands.  This type of housing will, in our view, deliver attractive rental and capital value performance over the medium term.

KCR is both an income and capital growth opportunity for its shareholders.  It delivers income return from the collection of rents from tenants and capital return through investment in under-valued and under-managed property assets that are often marked-to-market at or shortly after acquisition when opportunities to add value have been taken.

As the UK's planned exit from the EU looms, London's housing market has plateaued overall and has, in some areas, fallen (in particular for larger properties located in the so called Prime Central London areas).  The market in other parts of the UK is also slowing; however, the overall market-price trend remains upwards.  Year-on-year house price growth across the UK in January 2019 was 0.1 per cent, according to the Nationwide index, improving slightly in February with a 0.4 per cent year-on-year rise.  The Royal Institution of Chartered Surveyors (RICS) puts the sluggish results down to "ongoing uncertainty about the path to Brexit dominating the news agenda".

Beyond Brexit effects, the housing market cycle has moved into a later stage in which the Midlands and north of England outperform London and the south (Savills, February 2019).  House price growth is being limited by tighter regulation on mortgage lending and the possibility of rising interest rates.  London in particular has been affected by regulatory and tax changes for private landlords, with Brexit also removing buyers from the market.  Given the house prices rises over recent years, however, there is significant equity in the market to absorb price falls.

Against this backdrop of uncertain politics, we note that KCR targets a very specific segment of residential property that is less affected by the current challenges.  We buy low to mid-price blocks of flats for rent, aimed at new entrants and early-stage professionals.  This continues to be a resilient segment of the rental market and we have experienced positive rental growth at every rented asset in our portfolio.  The higher price-band homes, particularly in Central London, that have declined in value do not fall within KCR's investment strategy. 

Michael D M Davies
28 March 2019

 

 

CHIEF EXECUTIVE'S REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2018

We have pleasure in reporting on the progress of the Group in the six-month period since the year-end on 30 June 2018.

Property portfolio

KCR achieved its short-term objective of increasing rental revenue across the portfolio, in particular at the investments the Company made in Southampton and Ladbroke Grove shortly before the financial year-end.

In mid-October 2018, the Company took delivery of the new development at Deanery Court, Southampton. By 31 December, 13 of the 27 two-bed apartments had been let. At the time of writing, 26 apartments have been let and we expect the property to be fully let by the end of April 2019, delivering additional rent at the rate of £345,000 a year to the portfolio, approximately 20 per cent higher than our forecasts at the time of purchase.

The Ladbroke Grove portfolio consists of 16 apartments in three blocks.  It is currently fully let.  In the period ended 31 December 2018, four apartments have been refurbished and let prior to the works being completed, delivering rent increases in the range 11 per cent to 19 per cent.  Rents have been increased on a further seven apartments either as a result of new lettings (two apartments with no vacancy between lettings) or tenancy renewals (five apartments), delivering rent increases in the range four per cent to 15 per cent.  As at 31 December 2018, the portfolio delivered rent at the rate of £259,000 a year, an increase of 6.8 per cent since acquisition.

The block of ten studio and one-bed apartments at Coleherne Road has performed well in rental terms and continue to be exactly what the rental market is looking for. Occupancy has been maintained at close to 100 per cent, with one short vacancy whilst an apartment was being refurbished, delivering a rent increase of 12 per cent on re-letting.  As at 31 December 2018, the property delivered rent at the rate of £143,600 per annum, an increase of 2.6 per cent during the period under review. 

On 12 December 2018, KCR sold its wholly owned subsidiary, KCR (Cygnet) Limited, for a cash consideration of £1.14 million.  This investment consisted of two index-linked long leases on supermarket sites in southeast England and the sale included the associated debt facility.  The proceeds of the sale were used to reduce the Company's indebtedness. 

Financial

KCR's revenue increased to £269,113 (£142,114 to 31 December 2017), an increase of 89 per cent.

The Company's portfolio at 31 December 2018 was valued at £24.6 million, an increase in portfolio size of £15.1 million compared to 31 December 2017 (£9.5 million).

The Group reports a consolidated operating profit before separately disclosed administrative items of £24,736 (profit of £17,959 to 31 December 2017). 

The net asset value per share at 31 December 2018 is 70.97p (88.17p - 30 June 2018).

Corporate activity

On 30 July 2018, KCR announced that it had successfully placed 4,434,570 ordinary shares at £0.70 with a value of £3.10 million.  This included 1,287,857 shares as capital raising, 1,800,427 shares to satisfy consideration payable on the acquisition of Inland Commercial Ltd (subsequently renamed KCR (Cygnet) Limited) from Inland Homes Plc, the conversion of £650,000 of convertible loan notes into 946,286 shares and the allotment to Arden, the Company's nomad, of 400,000 shares in settlement of fees.

Outlook

The Board remains positive regarding KCR's strategy of investing in low- to mid-price blocks of flats for rental.  The market supply and demand fundamentals are strong.  Short-term political uncertainty and the reluctance of equity investors to fund the majority of companies through the stock market is challenging for the growth of KCR, which relies on raising equity and debt capital to grow its portfolio and rental income.

The Board is looking at a number of ways to increase the size of its portfolio, including through corporate activity with other companies or property funds, with the aim of delivering a larger portfolio with higher revenues and proportionately lower Company operating costs. The Board looks forward to updating shareholders on this activity in due course.

Dominic White
Chief Executive
28 March 2019

 

Consolidated statement of comprehensive income
for the six months ended 31 December 2018 (unaudited)

    Six months ended 31 December 2018   Six months ended 31 December 2017   Year ended 30 June 2018 (audited)
  Notes £   £   £
             
Revenue   269,113   142,114   265,936
Cost of sales   (148,794)   (44,292)   (191,420)
             
Gross profit   120,319   97,822   74,516
             
Administrative expenses   (800,583)   (639,727)   (1,317,971)
Revaluation of investment properties 5 705,000   559,864   1,235,377
             
Operating profit/(loss) before separately disclosed items   24,736   17,959   (8,078)
Gain on bargain purchase   -   -   2,201,639
Costs of acquisition of subsidiaries   -   -   (318,295)
Share-based payment charge 7 (1,180,918)   (679,625)   (950,188)
Costs associated with third-party fundraising   (167,817)   (509,839)   (673,999)
             
Operating (loss)/profit   (1,323,999)   (1,171,505)   251,079
             
Finance costs   (263,853)   (130,398)   (325,688)
Finance income   9,590   181   7,035
             
Loss before taxation   (1,578,262)   (1,301,722)   (67,574)
             
Taxation   -   -   -
             
Loss for the period/year from continuing operations   (1,578,262)   (1,301,722)   (67,574)
             
Loss for the period/year from discontinued operations 9 (325,002)   -   -
             
Total comprehensive expense for the period/year (1,903,264)   (1,301,722)   (67,574)
Basic and diluted loss per ordinary share (pence)
From continuing operations
From discontinued operations
4 (11.55)
(2.38)
  (24.68)
-
  (1.02)
-

 



 

Consolidated statement of financial position
at 31 December 2018 (unaudited)

    31 December 2018   31 December 2017   30 June 2018 (audited)
  Notes £   £   £
Non-current assets            
Property, plant and equipment   33,165   2,753   38,993
Investment properties 5 24,600,000   9,452,000   26,695,000
             
    24,633,165   9,454,753   26,733,993
             
Current assets            
Trade and other receivables   1,221,412   71,375   703,427
Cash and cash equivalents   63,521   334,169   6,425
             
    1,284,933   405,544   709,852
             
Total assets   25,918,098   9,860,297   27,443,845
             
Equity            
Shareholders' equity            
Share capital 6 2,029,178   877,518   1,435,721
Share premium   10,018,986   4,660,322   7,358,244
Capital redemption reserve   67,500   67,500   67,500
Other reserves   14,931   168,493   29,862
Retained deficit   (922,911)   (1,705,276)   (200,565)
             
Total equity   11,207,684   4,068,557   8,690,762
             
Non-current liabilities            
Financial liabilities - borrowings            
Interest-bearing loans and borrowings   6,806,290   3,225,624   8,749,702
             
Current liabilities            
Trade and other payables   6,327,573   1,108,182   8,332,548
Current portion of borrowings   101,551   32,934   195,833
Other loans   1,475,000   1,425,000   1,475,000
             
    7,904,124   2,566,116   10,003,381
             
Total liabilities   14,710,414   5,791,740   18,753,083
             
Total equity and liabilities   25,918,098   9,860,297   27,443,845
             
Net asset value per share (pence)   70.97   77.16   88.17

 


 

Consolidated statement of changes in equity
for the six months ended 31 December 2018 (unaudited)

  Share
capital
£
Share
premium
£
Capital
redemption
reserve
£
Retained
deficit
£
Other
reserves
£
Total
£
Balance at 1 July 2017 877,518 4,660,322 67,500 (1,083,179) - 4,522,161
             
Changes in equity            
Issue of share capital - - - - - -
Total comprehensive expense - - - (1,301,722) - (1,301,722)
Share-based payment charge - - - 679,625 - 679,625
Equity component of convertible loan notes - - - - 168,493 168,493
Balance at 31 December 2017 877,518 4,660,322 67,500 (1,705,276) 168,493 4,068,557
             
Changes in equity            
Issue of share capital
Total comprehensive income
558,203 2,697,922 - -
1,234,148
- 3,256,125
1,234,148
Share-based payment charge - - - 270,563 - 270,563
Conversion of convertible loan notes - - - - (138,631) (138,631)
             
Balance at 30 June 2018 1,435,721 7,358,244 67,500 (200,565) 29,862 8,690,762
             
Changes in equity            
Issue of share capital 593,457 2,660,742 - - - 3,254,199
Total comprehensive expense - - - (1,903,264) - (1,903,264)
Share-based payment charge - - - 1,180,918 - 1,180,918
Conversion of convertible loan notes  
-
 
-
 
-
 
-
 
(14,931)
 
(14,931)
             
Balance at 31 December 2018 2,029,178 10,018,986 67,500 (922,911) 14,931 11,207,684

 

 

Consolidated statement of cash flows
for the six months ended 31 December 2018 (unaudited)

    Six months ended 31 December 2018   Six months ended 31 December 2017   Year ended 30 June 2018 (audited)
    £   £   £
Cash flows from operating activities            
Loss for the period/year from continuing operations   (1,578,262)   (1,301,722)   (67,574)
Loss for the period/year from discontinued operations   (325,002)   -   -
Adjustments for            
Depreciation charges   5,828   601   6,365
Share-based payment charge Gain on bargain purchase   1,180,918
-
  679,625
-
  950,188 (2,201,639)
Loss on disposal of subsidiary   360,081   -   -
Revaluation of investment properties   (705,000)   (559,864)   (1,235,377)
Finance costs   263,853   130,398   325,688
Finance income   (9,590)   (181)   (7,035)
(Increase)/decrease in trade and other receivables   (517,985)   19,402   (590,502)
(Decrease)/increase in trade and other payables   (1,977,431)   914,038   725,027
             
Cash used in operations   (3,302,590)   (117,703)   (2,094,859)
             
Interest paid   (263,853)   (130,398)   (325,688)
             
             
Net cash used in operating activities   (3,566,443)   (248,101)   (2,420,547)
             
Cash flows from investing activities
Acquisition of subsidiaries
   
-
   
-
    (5,278,164)
Proceeds from sale of discontinued operations   1,140,000   -   -
Purchase of tangible fixed assets   -   (1,513)   (43,515)
Purchase of investment properties   -   (1,650,136)   (2,046,594)
Interest received   9,590   181   7,035
             
Net cash from/(used in) investing activities   1,149,590   (1,651,468)   (7,361,238)
             
Cash flows from financing activities            
Loan repayments in period   (130,250)   (15,014)   (1,131,525)
Increase in borrowings   -   1,225,000   7,739,858
Share issues   2,604,199   -   2,156,125
             
Net cash from financing activities   2,473,949   1,209,986   8,764,458
             
Increase/(decrease) in cash and cash equivalents   57,096   (689,583)   (1,017,327)
             
Cash and cash equivalents at beginning of period   6,425   1,023,752   1,023,752
             
Cash and cash equivalents at end of period   63,521   334,169   6,425

 


 

Notes

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

 

Page last updated: 29 March 2019

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