KCR RESIDENTIAL REIT PLC

Quarterly Report • Mar 30, 2016

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RNS Number : 4654T

K&C REIT PLC

30 March 2016

30 March 2016

K&C REIT plc

Interim Results for the six months ended 31 December 2015

K&C REIT plc, the residential REIT group, today announces its interim results for the six months ended 31 December 2015. 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.kandc-reit.co.uk.

Chairman's statement

This is K&C REIT plc's first interim report since it was admitted to trading on AIM on 3 July 2015. 

Market and strategy

K&C REIT plc ("the Company") and its subsidiaries (together "the Group" or "K&C") operate in the residential letting market, with a particular emphasis on Central London.  K&C will seek 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 exit route for vendors.

AIM admission

As reported in December, the Company was admitted to trading on AIM on 3 July 2015 and became an HM Revenue and Customs-approved REIT on admission.  Shortly following admission, at which the Company issued 43,035,622 ordinary shares at £0.10 per share, including 35,663,400 shares issued pursuant to a fundraising, generating gross cash proceeds of £3,566,340, the Company 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.  Silcott is a special purpose vehicle that owns a freehold property in Central London comprising ten leased apartments.  A further 4,372,222 ordinary shares were issued to satisfy liabilities of the Company.

Operations

K&C has traded in line with management's expectations during the period and since the period-end.  Silcott has achieved strong rental growth when reletting its units and the Company has improved the property, with further refurbishment planned for this spring.

One of the three Newbury properties owned by Kensington & Chelsea REIT Limited was sold during the period and a second property has been sold since the period-end, both at a profit.  The final property is currently on the market.

Financial

During the period, K&C reports a consolidated loss and total comprehensive expense of £938,629.  The costs of admission to AIM (£780,728) and of acquiring Silcott (£100,202) have obviously added considerably to the expenses incurred during the period. 

Board changes

During the period, Nigel Payne and George Rolls stepped down as directors of the Company in order to pursue other business interests.

Future prospects

As stated in the annual report, K&C is seeking to build a strong business with high quality assets that will be able to support an increasing income yield.  To this end, we will need to raise more capital in order to make further acquisitions.  The directors are working closely with funding sources, both equity and debt providers, to achieve this objective.

We announced in our annual report in December that we had exclusivity on a particular project.  We are continuing to progress work on that acquisition and hope to be able to report further on developments in the near future.  In addition, the Board is reviewing a number of other acquisition opportunities.

Michael Davies

Chairman

30 March 2016

Contacts

K&C REIT plc Tim James, Managing Director	info@kandc-reit.co.uk +44 (0) 7768 833029  www.kandc-reit.co.uk
Allenby Capital Limited Jeremy Porter/James Reeve	+44 (0) 20 3328 5656
Yellow Jersey PR Philip Ranger/Harriet Jackson	+44 (0) 7768 534641

Notes to editors:

K&C REIT's objective is to build a substantial residential property portfolio that generates secure income flow for shareholders through the acquisition of property-owning SPVs (Special Purpose Vehicles). The Directors intend that the group will acquire, develop and manage residential property assets in Central London and other key residential areas in the UK.

Consolidated statement of comprehensive income for the six months ended 31 December 2015 (unaudited)
	Notes		Six months ended  31 December 2015 £		Six months ended  31 December 2014 £		Period ended  30 June 2015 (audited) £
Continuing operations
Revenue			75,227		15,625		34,380
Cost of sales			(28,866)		(2,052)		(4,839)
Gross profit			43,361		13,573		29,541
Profit on disposal of investment properties			17,736		-		-
Total profit before expenses			64,097		13,573		29,541
Administrative expenses			(1,203,973)		(390,336)		(174,043)
Share-based payment charge			(126,561)		-		-
Loss from operating activities			(1,266,437)		(376,763)		(144,502)
Gain on bargain purchase	11		364,783		-		-
Finance costs			(36,975)		-		(98,116)
Loss before taxation			(938,629)		(376,763)		(242,618)
Taxation			-		-		-
Loss for the period			(938,629)		(376,763)		(242,618)
Total comprehensive expense for the period			(938,629)		(376,763)		(242,618)
Basic and diluted loss per ordinary share (pence)	6		(2.2)		(50.2)		(32.3)

Consolidated statement of financial position for the six months ended 31 December 2015 (unaudited)
	Notes		31 December 2015 £		31 December 2014 £		30 June 2015 (audited) £
Non-current assets
Investment properties	7		4,473,198		691,556		691,556
Property, plant and equipment			1,453		-		-
Total non-current assets			4,474,651		691,556		691,556
Current assets
Trade and other receivables			13,676		14,861		245,970
Cash and cash equivalents			486,054		50,933		1,732
Total current assets			499,730		65,614		247,702
Current liabilities
Trade and other payables			107,831		341,526		389,469
Current portion of borrowings			60,228		-		-
Taxation payable			3,738		-		-
Loan notes			228,000		874,000		874,000
Total current liabilities			399,797		1,215,526		1,263,469
Net current assets/(liabilities)			99,932		(1,149,912)		(1,015,766)
Non-current liabilities
Long-term borrowings			(1,429,522)		-		-
Net assets/(liabilities)			3,145,061		(438,356)		(324,211)
Equity
Share capital	8		437,856		75,000		7,500
Share premium			3,850,984		-		-
Capital redemption reserve			67,500		-		67,500
Retained deficit			(1,211,279)		(533,356)		(399,211)
		3,145,061			(438,356)		(324,211)
Net asset value per share (pence)		7.20

Consolidated statement of changes in equity for the six months ended 31 December 2015 (unaudited)
	Share capital £		Share premium £		Capital redemption reserve £		Retained deficit £		Total £
Balance at 1 July 2014	75,000		-		-		(156,593)		(81,593)
Total comprehensive expense for the period	-		-		-		(376,763)		(376,763)
Balance at 31 December 2014	75,000		-		-		(533,356)		(458,356)
Total comprehensive income for the period	-		-		-		134,145		134,145
Buyback of deferred shares	(67,500)		-		67,500		-		-
Balance at 30 June 2015	7,500		-		67,500		(399,211)		(324,211)
Equity issued during the period (net of costs)	430,356		3,850,984		-		-		4,281,340

Total comprehensive expense for the period	-		-		-		(938,629)		(938,629)

Share-based payment charge	-		-		-		126,561		126,561
Balance at 31 December 2015	437,856		3,850,984		67,500		(1,211,279)		3,145,061

Consolidated statement of cash flows for the six months ended 31 December 2015 (unaudited)
		Six months ended 31 December  2015  £		Six months ended 31 December  2014  £		Period ended 30 June 2015 (audited) £
Cash flows from operating activities
Loss for the period		(938,629)		(376,763)		(242,618)
Adjustments for
Profit on disposal of investment properties		(17,736)		-		-
Increase in trade and other receivables		232,294		(8,219)		(239,508)
Increase in taxation payable		3,738		-		-
Increase in trade and other payables		(286,854)		227,824		275,767
Share-based payment charge		126,561		-		-
Gain on bargain purchase		(364,783)		-		-
Net cash flows used in operating activities		(1,245,409)		(157,158)		(206,359)
Cash flows from investing activities
Disposal of investment properties		236,094		-		-
Acquisition of plant, property and equipment		(1,453)		-		-
Acquisition of subsidiary		(3,330,000)		-		-
Net cash flows used in operating activities		(3,095,359)		-		-
Cash flows from financing activities
Increase in borrowings		1,489,750		-		-
(Repayment)/proceeds from loan notes		(231,000)		200,000		200,000
Proceeds from shares issued		3,566,340		-		-
Net cash flows from financing activities		4,825,090		200,000		200,000
Net increase/(decrease) in cash and cash equivalents		484,322		42,842		(6,359)
Cash and cash equivalents at beginning of period		1,732		8,091		8,091
Cash and cash equivalents at end of period		486,054		50,933		1,732

Notes to the financial statements

for the six months ended 31 December 2015 (unaudited)

1.         Reporting entity

The Company is domiciled in England and Wales.  The consolidated interim financial statements for the six months ended 31 December 2015 comprise the results of the Company and its subsidiaries.  The Group is primarily involved in UK property ownership and letting.

2.         Basis of preparation

Statement of compliance

This consolidated interim financial report has been prepared in accordance with IAS 34 Interim Financial Reporting.  Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial performance and position of the Group since the last annual consolidated financial statements for the period ended 30 June 2015.  This consolidated interim financial report does not include all the information required for full annual financial statements prepared in accordance with International Financial Reporting Standards.  The financial statements are unaudited and do not constitute statutory accounts as defined in section 434(3) of the Companies Act 2006.

A copy of the audited annual report for the period ended 30 June 2015 has been delivered to the Registrar of Companies.  The auditor's report on these accounts was unqualified and did not contain statements under s498(2) or s498(3) of the Companies Act 2006.

This consolidated interim financial report was approved by the Board of Directors on 30 March 2016.

3.         Significant accounting policies

The accounting policies applied by the Group in this consolidated interim financial report are the same as those applied by the Group in its consolidated financial statements for the period ended 30 June 2015.

Share-based payments

Estimating the fair value of share-based payments requires determination of the most appropriate valuation model, which depends on the terms and conditions of the instruments issued.  This estimate also requires determination of the most appropriate inputs to the valuation model, including the expected life of the instruments, volatility and dividend yield.  For the measurement of the fair value, the Group uses the Black-Scholes pricing model. 

4.         Operating segments

The Group is involved in UK property ownership and letting and is considered to operate in a single geographical and business segment.

5.         Loss from operating activities

Loss from operating activities is stated after charging:

	Six months ended  31 December 2015 £		Six months ended 31 December 2014 £		Period ended 30 June  2015 £
Costs associated with admission to AIM	780,728		-		-
Costs associated with the acquisition of Silcott	100,202		-		-
Directors' remuneration	13,780		-		-

During the period the Company paid Perry, Cane, a consultancy business owned by James Cane, fees of £61,000 plus VAT for services provided to the Company for the period from its incorporation on 10 June 2014 to 31 December 2015.

6.         Basic and fully diluted loss per share

Basic

The calculation of loss per share for the six months to 31 December 2015 is based on the loss for the period attributable to ordinary shareholders of £938,629 divided by a weighted average number of ordinary shares in issue of 43,080,118 (2014 - £376,763/750,000).

In the opinion of the directors, all of the outstanding share options and warrants are anti-dilutive and, hence, basic and fully diluted loss per share are the same. 

7.         Investment properties

	31 December 2015 £		31 December 2014 £		30 June 2015 £
At start of period	691,556		691,556		691,556
Additions	4,000,000		-		-
Disposals	(218,358)		-		-
At end of period	4,473,198		691,556		691,556

On 22 June 2015, the investment property at 25 Coleherne Road was valued by an independent valuer who is a Member of the Royal Institution of Chartered Surveyors (MRICS) on an open market value basis, and this valuation was incorporated into the financial statements in accordance with IFRS.  For this reason, the directors consider that the carrying value of the investment properties at 31 December 2015 is not materially different from their market value.

On 6 November 2015, the Company sold one of its investment properties in Newbury for net proceeds of £236,277.  The property was acquired for £218,358 in March 2014 by a subsidiary and transferred at cost to the Company in June 2015, at which time the Company acquired a loan note of £215,000 secured on the property, which was converted into ordinary shares in the Company at par on admission to trading on AIM.  Most of the proceeds of sale were used to part-repay the remaining loan notes. 

Since the period-end, on 22 January 2016, the Company has sold a second investment property in Newbury for net proceeds of £280,629.

8.         Share capital

Issued	31 December  2015 £		31 December 2014 £		30 June 2015 £
15,000,000 ordinary shares of £0.005 each	-		75,000		-
750,000 ordinary shares of £0.01 each	-		-		7,500
43,785,622 ordinary shares of £0.01 each	437,856		-		-

During the period, the Company issued ordinary shares, each of nominal value of £0.01, as follows:

Description of shares	#	Notes
Placing shares	34,528,400	Placed at £0.10 on admission to AIM
Subscription shares	1,135,000	Subscribed for at £0.10 on admission to AIM
Conversion shares	2,150,000	Loans converted into shares at £0.10 on admission to AIM
Conversion shares	2,222,222	Loans converted into shares at £0.09 on admission to AIM
Consideration shares	3,000,000	Issued at £0.10 in part-consideration for the acquisition of Silcott on 9 July 2015
Total	43,035,622

9.         Share-based payments

Share-based payment charge

The expense recognised during the period is shown in the following table:

	Six months ended  31 December 2015 £		Six months ended 31 December 2014 £		Period ended 30 June  2015 £
Expense arising from share options	87,815		-		-
Expense arising from warrants	38,746		-		-
Total expense from share-based payments	126,561		-		-

Executive share option plan

Under the Group's executive share option plan, share options have been granted to senior executives and directors on admission at £0.01 per share.  The share options vest if and when the Group's gross assets under management reach £25 million and the Group's net asset value per share reaches £0.105 and the participant remains employed on such date.  The share options will not vest if the performance targets are not met and expire on the date immediately preceding the date of the fifth anniversary of the date of vesting.  The contractual term of each share option is estimated to be five years.  There are no cash settlement alternatives. 

The executive directors' interests in share options were as follows:

Director		Granted on 3 July 2015 #		Exercised or forfeited #		Balance at 31 December 2015 #
---	---	---	---	---	---	---
James Cane		180,000		-		180,000
Christopher James		600,000		-		600,000
Timothy James		810,000		-		810,000
Timothy Oakley		300,000		-		300,000
Oliver Vaughan		810,000		-		810,000

There have been no changes to the executive directors' interests in share options since the period end.

Non-executive share option plan

Under the Group's non-executive share option plan, share options have been granted to certain non-executive directors on admission at £0.10 per share.  There are no vesting conditions.  The non-executive share options do not have any performance criteria attached to them and may be exercised at any time during the period commencing one year from the date of admission to AIM and ending on the date immediately preceding the date of the tenth anniversary of the date of admission to AIM.

The non-executive directors' interests in share options are as follows:

Director		Granted #		Exercised or forfeited #		Balance at 31 December 2015 #
---	---	---	---	---	---	---
Michael Davies		-		-		-
Patricia Farley		144,493		-		144,493
Nigel Payne		-		-		-
George Rolls		437,856		(437,856)		-

George Rolls resigned as a non-executive director on 30 December 2015 at which time his share options were forfeited.  There have been no changes to the directors' interests in non-executive share options since the period-end.

Founder warrants

On 8 September 2014, 750,000 warrants were issued to shareholders to subscribe for one ordinary share at £0.10 per share at any time before 31 December 2018.    The interests of the directors in warrants at 31 December 2015 were as follows:

Name	#
James Cane	10,000
Michael Davies	-
Patricia Farley	20,000
Christopher James	100,000
Timothy James	175,000
Timothy Oakley	50,000
Oliver Vaughan	175,000

There have been no changes to the directors' interests in founder warrants since the period-end.

Allenby warrant

On admission, the Company granted to Allenby Capital Limited a warrant to acquire 437,856 ordinary shares at £0.10 per share, within five years of admission, namely by 3 July 2020.

Movements during the period

The following table illustrates the number of, and movements in, share options and warrants during the period:

	Executive share options		Non-executive share options		Founder warrants		Allenby warrant
Outstanding at 31 December 2014 and 30 June 2015	-		-		750,000		-
Granted during the period	3,000,000		582,349		-		437,856
Forfeited during the period	-		(437,856)		-		-
Outstanding at 31 December 2015	3,000,000		144,493		750,000		437,856

The following table lists the inputs to the models used:

31 December 2015	Executive share options		Non-executive share options		Founder warrants		Allenby warrant
Share price at grant date (£)	0.10		0.10		0.10		0.10
Exercise price (£)	0.01		0.10		0.10		0.10
Dividend yield (%)	0.00		0.00		0.00		0.00
Expected volatility (%)	50.0		50.0		50.0		50.0
Risk-free interest rate (%)	0.950		0.535		0.535		0.535
Expected life of share options/warrants (years)	5.00		3.00		2.60		3.00
Fair value of share option/warrant (£)	0.0907		0.0340		0.0318		0.0340
Expiry date	see note above		2 July 2025		31 December 2018		3 July 2020

The expected life of the share options and warrants is based on historical data and current expectations and is not indicative of exercise patterns that may occur.  The expected volatility reflects the assumption that the historical volatility of comparator companies over a period similar to the life of the share options is indicative of future trends, which may not necessarily be the actual outcome.

10.       Related parties

Loans from directors

During the period to 30 June 2015, the Group was in receipt of loans totalling £465,000 from two directors of the Company, Christopher James (£215,000) and Oliver Vaughan (£265,000).  The loans were subject to an interest charge for the period from receipt to redemption of 17.5 per cent of the principal amount, payable in full at the earlier of admission to AIM or 31 July 2016.  On admission to AIM, Christopher James's loan was converted into ordinary shares in the Company at £0.10.  On 3 July 2015, gross interest of £37,625 was paid to Christopher James and £21,875 to Oliver Vaughan.  On 6 November 2015, a part-repayment totalling £68,000 was made to Mr Vaughan. 

Subsequent event

On 22 January 2016, K&C sold 24 Martingale Close for a total cash consideration of £285,000.  The net proceeds of the sale of the property would ordinarily have been used to repay the £228,000 outstanding under the 7 March Loan Notes and 14 March Loan Notes issued by the Company (and as defined and described in its AIM Admission Document dated 30 June 2015) (the "Loan Notes") in accordance with the terms of the Loan Notes and as agreed with the Loan Note holders on 25 June 2015.  The amount outstanding to Oliver Vaughan is £62,000.  However, the Company has agreed a new repayment date with the Loan Note holders of the earlier of i) 28 April 2016; ii) the sale of the Company's property at 49 Cheap Street, Newbury; or iii) completion of a fundraising of at least £3.5 million.  In return, the Company will pay interest of 10 per cent per annum calculated daily from 22 January 2016, payable on repayment of the Loan Notes.

11.       Acquisition of Silcott

On 9 July 2015, the Company acquired the entire issued share capital of Silcott for £3,630,000, satisfied by cash and the issuance of ordinary shares at £0.10 to the value of £300,000.  

Details of the acquisition are set out below:

Fair value of consideration	£
Cash	3,330,000
3,000,000 ordinary shares of £0.01	300,000
Bank loan repayment	(130,238)
Net fair value of consideration	3,499,762
Fair value of assets acquired	3,864,545
Gain on bargain purchase	(364,783)

This information is provided by RNS

The company news service from the London Stock Exchange

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