LATEST RESULTS

Interim Results

KCR Residential REIT plc, the residential REIT group, is pleased to announce its interim results for the six months to 31 December 2019.

Operational Highlights

Revenue for the six months increased to £427,057 (2018: £269,113) and gross margin improved to 76% (2018: 45%).

  • Portfolio level occupancy is high, rental values have increased and capital values remain firm.
  • KCR recurring administrative expenses for the period fell to £706,177 (2018: £800,583) with further reductions to come.
  • Current liabilities at 31 December 2019 were down to £930,062 (2018: £7,904,125) and total liabilities were lower at £10,404,715 (2018: £14,710,415).
  • Incentive preference shares have been cancelled and negative share based payment charges will no longer appear in the profit and loss account.
  • The £7.9m refinancing of property in February 2020 delivered £2.9m of free cash to the Company, significantly strengthening KCR's liquidity position.
  • We expect the ongoing uncertainty in the market to lead to more acquisition opportunities.

CHAIRMAN'S STATEMENT
FOR THE SIX MONTHS ENDED 31 DECEMBER 2019

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

Since the year end report to 30 June 2019, the UK has had an election result (12 December 2019) that hands a clear majority to the Conservative Party, and the first stage of the UK's exit from the European Union has been implemented (31 January 2020).  This has removed some of the uncertainty that held back consumer and business confidence in recent years which has translated into, we believe, a firming up of house prices but not the "bounce" that the press has reported.

Although the election and the first phase of Brexit are behind us, there remains significant uncertainty. 

  • The reality of the next phase of Brexit is that it will be complicated to agree the detail of a trade deal with Europe by 31 December 2020 without which the UK will fall back onto World Trade Organisation (WTO) rules. 
  • The Coronavirus has had a global negative impact on demand, supply chains, stock markets and consumer and business confidence. Whilst the full impact is yet to be seen it is expected that travel restrictions and reduced leisure travel in the near term will have a negative impact on demand for short let accommodation in the United Kingdom. This has potential to negatively impact the occupancy profile and rentals that can be achieved in KCR's portfolio if stock that is currently used predominantly for short let leisure travel is repositioned for longer term lease. Further information can be found in note 11 of these interim financial statements.
  • On 11 March 2020 in the UK's Budget further changes were made to UK stamp duty (a 2% surcharge on foreign buyers) which is expected to negatively affect demand in the medium to high value residential property price range.

The UK residential rented property market, however, remains fundamentally under-supplied. KCR continues to target a specific segment of rented residential property that is in high demand and relatively short supply. The Company acquires blocks of flats for rent aimed at early-stage professionals and continues to experience positive rental growth and high occupancy rates across the portfolio.

CHIEF EXECUTIVE'S LETTER
FOR THE SIX MONTHS ENDED 31 DECEMBER 2019

We are pleased to report on the progress of the Group in the six-month period since 30 June 2019.

 

Property portfolio

KCR achieved its objective of increasing rental revenue across the portfolio. Revenue for the six months increased to £427,057 (2018: £269,113) and gross margin improved to 76% (2018: 45%).

At the time of writing, portfolio level occupancy is high, rental values have increased and capital values remain firm.

  • The Company's investment in 27 units at Deanery Court, Southampton is fully occupied. The wider Chapel Riverside development upon which Deanery Court is located is proceeding well which we expect to enhance the value of the property over time as cafes and retailers move-in alongside the new residents.
  • The Ladbroke Grove portfolio of 17 units is fully let apart from one unit which is being refurbished.  This will be complete in the next two weeks. 
  • The block of ten apartments at Coleherne Road has three units undergoing a light refurbishment that will be complete during March.
  • The Heathside property with 37 flats in Golders Green, London has four new lettings on assured shorthold tenancies (AST) in place alongside the 31 historic long leases. Two flats remain available to let on ASTs.

KCR is analysing the opportunity to provide all-inclusive rental contracts that include utilities and furniture, that can be let for periods of 1 week to 12 months plus.  This walk-in-walk-out (WIWO) strategy is designed to be frictionless for tenants, making the move-in move-out process simple and quick.  We believe there is demand for this type of residential offering in London and that a premium rental can be achieved for delivering this service.  We will trial the WIWO strategy at the 10 units in Coleherne Road in the coming months following a full refurbishment at the property.  Should the WIWO strategy be successful, the Company will implement it progressively in its other London assets.

 

Financial

For the six months to 31 December 2019:

  • Revenue increased to £427,057 (£269,113 at 31 December 2018) an increase of 58.7 per cent.
  • Consolidated operating loss before separately disclosed administrative items was £382,183 (£24,736 profit at 31 December 2018)

At 31 December 2019:

  • KCR's investment properties were valued at £23.4 million (£23.9 million at 30 June 2019) a decrease in portfolio value of £0.5 million due to a disposal of a single flat at Heathside, Golders Green.
  • The Group's net asset value per share was 47.84p (60.67p at 30 June 2019) following the issue of new shares as part of the Torchlight Fund LP transaction (See RNS 12 July 2019).

 

Corporate activity

The corporate transaction with Torchlight Fund LP was reported in detail in the Circular (12 July 2019) and outlined in the year end accounts to 30 June 2019 post balance sheet events.

Since the release of the Annual Report, on 12 February 2020 KCR successfully completed a £7.9m refinancing of its Coleherne Road, Ladbroke Grove and Lomond Court, London assets.  The refinancing, which has a 25-year term and a five year fixed rate, is interest only and is secured on the refinanced assets.  The interest rate on loans relating to these properties moved from 3.75% p.a. to 3.5% p.a. This transaction delivered £2.9m of free capital to KCR post repayment of the existing bank facility. 

Post completion of this KCR maintains a strong liquidity profile and is well placed to complete upgrades to the existing portfolio and pursue acquisitions to grow the portfolio.

 

Outlook

Given the ongoing resilience of the UK rented residential property sector, the potential equity available through its shareholder Torchlight Fund, and capital delivered through the refinancing of its London portfolio, the Board remains positive about investing in new opportunities to grow its portfolio and resulting revenue stream.

Our near term focus is on improving rental income from existing assets through the WIWO letting strategy, refurbishment to improve building quality and the optimisation of property management to reduce direct costs.  We are also implementing a strategy to reduce corporate overheads.

KCR continues to source and analyse potential acquisitions that fit its portfolio strategy.  The Company is also initiating a full refurbishment at its Coleherne Road, London property which it expects to complete in early 2021.

The Board looks forward to updating shareholders on these activities in due course

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31 DECEMBER 2019 (unaudited)

  Six months
ended 31
December
2019
 Six months
ended 31
December
2018
(as restated*)
 Year ended
30 June
2019
(audited)
 Notes£ £ £
       
Revenue 427,057 269,113 777,827
Cost of sales (103,063) (148,794) (212,743)
  ----- ----- -----
Gross profit 323,994 120,319 565,084
       
Administrative expenses (706,177) (800,583) (1,446,565)
Fair value through profit and loss - Revaluation of investment properties  6   -    705,000    3,268
  ----- ----- -----
Operating (loss)/profit before separately disclosed items (382,183) 24,736 (878,213)
       
Share-based payment charge8(1,599,678) (1,180,918) (1,387,441)
Costs associated with third-party fundraising and issue of shares   3   (300,835) -    (167,817)   (407,616)
Loss on disposal of property SPV    (325,002)  (340,753)
  ----- ----- -----
Operating loss (2,282,696) (1,649,001) (3,014,023)
       
Finance costs (229,527) (263,853) (732,984)
Finance income 1,541 9,590 9,635
  ----- ----- -----
Loss before taxation (2,510,682) (1,903,264) (3,737,372)
       
Taxation - - -
  ----- ----- -----
Loss for the period/year (2,510,682) (1,903,264) (3,737,372)
  ==== ==== ====
Total comprehensive expense for the period/year (2,510,682) (1,903,264) (3,737,372)
Basic and diluted loss per ordinary share (pence)  4 (9.94) (13.93) (24.66)
  ==== ==== ====

* The disposal of KCR (Cygnet) Limited in the period to 31 December 2018 was previously accounted for as a business combination with the loss on disposal shown as a loss from discontinued operations. This disposal has been restated as an asset disposal. Details of the prior period adjustment are included within the audited annual report for the year ended 30 June 2019.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2019 (unaudited)

  31
December
2019
 31
December
2018
 30 June 2019
(audited)
 Notes£ £ £
Non-current assets      
Property, plant and equipment 57,927 33,165 61,370
Investment properties623,385,000 24,600,000 23,923,000
  ----- ----- -----
  23,442,927 24,633,165 23,984,370
  ----- ----- -----
Current assets      
Trade and other receivables 127,855 1,221,412 77,078
Cash and cash equivalents 24,218 63,521 29,298
  ----- ----- -----
  152,073 1,284,933 106,376
  ----- ----- -----
Total assets 23,595,000 25,918,098 24,090,746
  ==== ==== ====
Equity      
Shareholders' equity      
Share capital72,756,963 2,029,178 2,029,178
Share premium 13,535,468 10,018,986 10,018,986
Capital redemption reserve 344,424 67,500 67,500
Other reserves 14,930 14,930 14,930
Retained earnings (3,461,500) (922,911) (2,550,496)
  ----- ----- -----
Total equity 13,190,285 11,207,683 9,580,098
  ----- ----- -----
Non-current liabilities      
Interest bearing loans and borrowings 9,474,653 6,806,290 9,881,344
  ----- ----- -----
Current liabilities      
Trade and other payables 754,944 6,327,574 2,737,010
Interest bearing loans and borrowings 175,118 1,576,551 1,892,294
  ----- ----- -----
  930,062 7,904,125 4,629,304
  ----- ----- -----
Total liabilities 10,404,715 14,710,415 14,510,648
  ----- ----- -----
Total equity and liabilities 23,595,000 25,918,098 24,090,746
  ==== ==== ====
Net asset value per share (pence) 47.84 70.97 60.67
  ==== ==== ====

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31 DECEMBER 2019 (unaudited)

 Share
capital
£
Share
premium
£
Unissued
share
capital
(as restated)
£
Capital
redemption
reserve
£
Retained
earnings
£
Other
reserves
£
Total
equity
£
Balance at 1 July 20181,435,7217,358,2441,260,29967,500(200,565)29,8629,951,061
        
Changes in equity       
Transactions with owners:       
Issue of share capital593,4572,660,742(1,260,299)---1,993,900
Share-based payment charge----1,180,918-1,180,918
 ----------------------------
Total transactions with owners:593,4572,660,742(1,260,299)-1,180,918-3,174,818
 ----------------------------
Total comprehensive expense----(1,903,264)-(1,903,264)
Equity element of loan finance-----(14,932)(14,932)
 ----------------------------
Balance at 31 December 20182,029,17810,018,986-67,500(922,911)14,93011,207,683
 ----------------------------
Changes in equity       
Transactions with owners:       
Share-based payment charge----206,523-206,523
 ----------------------------
Total transactions with owners:----206,523-206,523
 ----------------------------
Total comprehensive expense----(1,834,108)-(1,834,108)
 ----------------------------
Balance at 30 June 20192,029,17810,018,986  -67,500(2,550,496)14,9309,580,098
 ----------------------------
Changes in equity       
Transactions with owners:       
Issue of share capital1,004,7093,516,482----4,521,191
Restricted Preference Shares gifted to company(276,924)--276,924---
Share-based payment charge----1,599,678-1,599,678
 ----------------------------
Total transactions with owners:727,7853,516,482-276,9241,599,678-6,120,869
 ----------------------------
Total comprehensive expense----(2,510,682)-(2,510,682)
 ----------------------------
Balance at 31 December 20192,756,96313,535,468-344,424(3,461,500)14,93013,190,285
 =====================

*In the prior period unissued share capital was presented within current liabilities. This has been restated in the current period to re-classify the balance to equity. Details of the prior period adjustment are included in the audited annual report for the year ended 30 June 2019.

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2019 (unaudited)

   Six months
ended
31 December
2019
 Six months
ended
31 December
2018
(*as restated)
   Year
ended
30 June 2019
(audited)
 £ £ £
Cash flows from operating activities     
Loss for the period/year from continuing operations(2,510,682) (1,903,264) (3,737,372)
Adjustments for     
Depreciation charges11,621 5,828 18,074
Share-based payment charge Loss on disposal of property SPV1,599,678 - 1,180,918 360,081 1,387,441 340,753
Revaluation of investment properties- (705,000) (3,268)
Finance costs229,527 263,853 732,984
Finance income(1,541) (9,590) (9,635)
(Increase)/decrease in trade and other receivables(50,777) (517,985) 626,349
Decrease in trade and other payables(1,982,066) (1,977,431) (4,315,992)
 ---- ---- ----
Cash used in operations(2,704,240) (3,302,590) (4,960,666)
      
Interest paid(229,527) (263,853) (732,984)
 ---- ---- ----
Net cash used in operating activities(2,933,767) (3,566,443) (5,693,650)
      
Cash flows from investing activities     
Proceeds from sale of investment properties538,000 - -
Purchase of property, plant and equipment(8,178) - (40,451)
Purchase of investment properties- - (24,732)
Disposal of property SPV- 1,140,000 1,140,000
Interest received1,541 9,590 9,635
 ---- ---- ----
Net cash from/(used in) investing activities531,363 1,149,590 1,084,452
 ---- ---- ----
Cash flows from financing activities     
Loan repayments in period(2,123,867) (130,250) (796,079)
New loans in year- - 3,434,250
Shares issued4,521,191 2,604,199 1,993,900
 ---- ---- ----
Net cash from financing activities2,397,324 2,473,949 4,632,071
 ---- ---- ----
Increase/(decrease) in cash and cash equivalents(5,080) 57,096 22,873
 ---- ---- ----
Cash and cash equivalents at beginning of period29,298 6,425 6,425
 === === ===
Cash and cash equivalents at end of period24,218 63,521 29,298
 === === ===

*The disposal of KCR (Cygnet) Limited in the period to 31 December 2018 was previously accounted for as a business combination with the loss on disposal shown as a loss from discontinued operations. This disposal has been restated as an asset disposal. Details of the prior period adjustment are included in the audited annual report for the year ended 30 June 2019.

Page last updated: 27 March 2020