REG - KCR Residential REIT - Final Results
23/09/2022 10:45
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220923:nRSW4689Aa&default-theme=true
RNS Number : 4689A KCR Residential REIT PLC 23 September 2022
23 September 2022
KCR Residential REIT plc
("KCR" or the "Company")
Final Results
KCR Residential REIT Plc is pleased to announce its annual results for the
year ended 30 June 2022.
The Annual Report will shortly be available from the Company's website,
www.kcrreit.com (http://www.kcrreit.com) and will be distributed to
shareholders in the coming days.
Operational highlights
§ Revenue for the financial year increased by 23.6% (to £1.28 million up
from £1.04 million in 2021) - largely underpinned by the letting up of
Coleherne Road during the December quarter following completion of
refurbishment works to eight of the ten flats. Loss before tax was £342,081
(2021: £924,234).
§ Portfolio level occupancy has remained close to 100% of all available
flats (currently one flat across the portfolio is vacant and in the process of
being re-let). Rental increases continue to be achieved at renewals /
re-lettings.
§ Total assets increased to £27.37 million (up from £24.41 million in
2021) following the partial exercise of the Torchlight option. Net asset value
per share reduced to 32.82 pence (2021: 40.18 pence) primarily driven by the
impact of partial option exercise.
Focus on cost management and improving operational performance continues to
minimise cash burn from operating activities.
The focus of this year has been on the letting up of the Coleherne Road
property following refurbishment, refurbishing the additional flat acquired at
Heathside, maintaining high occupancy across the portfolio, and keeping
corporate and operating costs to a minimum.
Current focus to drive value over the next financial year is:
§ Conversion of Deanery Court to self-managed under the Cristal
Apartments "walk in walk" out model;
§ Complete Coleherne Road and let up the last two flats;
§ Continuing to progress planning works at Chymedden and Ladbroke Grove;
§ Roll out of property management software across the Group to provide a
centralised platform to support growth and enhanced management capability;
§ Control of core running costs within incremental reductions where
possible; and
§ Make acquisitions to increase scale (subject to pricing / value
drivers).
Progress continues to be made to create a stable platform that can be
successfully scaled-up.
Schedule 2(g) Update
In the announcement of 25 July 2022 "Historic Disclosures and Related Party
Transactions". Richard Boon's past directorship disclosure should have stated
that he was previously a director of Artefact Partners (Cayman) Limited, not
Artefact Partners (Cayman) LLP.
This announcement contains inside information for the purposes of the UK
Market Abuse Regulation and the Directors of the Company are responsible for
the release of this announcement.
For further information please contact:
KCR Residential REIT plc info@kcrreit.com (mailto:info@kcrreit.com)
Russell Naylor, Executive Director Tel: +44 (0)20 7628 5582
Cairn Financial Advisers LLP (Nomad) Tel: +44 (0)20 7213 0880
James Caithie / James Lewis / Louise O'Driscoll
Arden Partners Plc (Broker) Tel: +44 (0)20 7614 5900
John Llewellyn-Lloyd
Notes to Editors:
KCR's objective is to build a substantial residential property portfolio that
generates secure income flow for shareholders. The Directors intend that the
group will acquire, develop and manage residential property assets in a number
of jurisdictions including the UK.
CHAIRMAN'S LETTER
Dear Shareholder
This last year has seen continued growth of the business in an environment
that has remained uncertain. Whilst the impact of Covid-19 appears to now be
behind us, increasing interest rates, cost of living pressure and supply chain
disruption bring ongoing challenges for the business.
Strategy and Operations
During the financial year, and as reported at the half year, we have been
continuing with the transition of the business. As outlined in both last
year's Annual Report and the Interim Report for this financial year, the
strategy remains to:
• improve the rental revenue from the existing
properties;
• upgrade the overall portfolio quality;
• explore the development opportunity within the
portfolio; and
• focus on reducing costs.
Revenue growth for the 2022 financial year has been driven by the work
completed to date on modernising and improving the standard of the property
portfolio. As works have been completed and the apartments let up, enhanced
rental levels have been achieved.
The Coleherne Road property was a key driver with this being let up during the
December 2021 quarter. We have now obtained vacant possession in respect of
the basement flat which has delayed completion of this project. We look
forward to fully completing this project this financial year.
Refurbishment works in respect of the two basement flats at Coleherne Road and
all external areas have now commenced. This well-located asset has been
transformed from a poorly presented, bottom end rental product into modern,
spacious studio apartments that have been well received by the market. The
financial impact on rentals achievable has been significant and the eight
fully refurbished apartments have performed well and underpinned revenue
growth during the financial year.
An additional flat was acquired within Heathside, fully refurbished during the
financial year and was let in July 2022. The strategy of acquiring,
refurbishing and re-letting flats here has proven astute. Nine flats are now
owned within this property and their letting up has assisted in delivering
rental growth for the portfolio. We continue to look for additional
opportunities to make follow-on acquisitions of flats within Heathside.
We continue to explore development opportunities within the existing portfolio
and planning works are being progressed in respect of the Chymedden property
within the retirement portfolio and the Ladbroke Grove properties, however,
planning costs incurred in 2022, along with legal expenses relating to
refinancing, obtaining vacant possession at Coleherne Road and taking back
management of Heathside have all negatively impacted administration expenses
resulting in a year-on-year increase.
Core costs continue to be tightly controlled and the additional expenditure
incurred is necessary as we move to continue to drive value from the existing
portfolio.
Capital and Personnel
New funding arrangements entered into during the financial year have supported
group activities together with the proceeds received from the partial exercise
of the Torchlight option. This has resulted in the Group being well placed to
continue implementation of the current strategy around driving value from the
existing portfolio.
On August 6, 2022 the Torchlight option to acquire further shares in the
Company lapsed.
In October last year Dominic White moved from being an Executive to a
Non-Executive Director, with day-to-day management of the business overseen by
Russell Naylor.
Market Conditions and Outlook for the Group
From a macro-economic perspective, cost of living pressures and supply chain
disruption are likely to present ongoing challenges for the group. Solid
increases in rental levels have been achieved in the post Covid-19
environment, whether they can be sustained remains to be seen as inflationary
pressures impact tenants. Supply chain disruption is expected to continue to
impact and extend timeframes required to complete refurbishment works. Price
increases across the board for both fixtures and fittings and from contractors
continue to flow through, nevertheless, existing portfolio performance remains
strong with high levels of occupancy being maintained with nominal rental
arrears. Rental levels for the most part continue to be increased on
re-letting albeit with a marginal increase in void periods.
Fundamentals for UK residential property appear positive, and it appears that
the return to London and other major international capitals trend in a post
Covid-19 environment has continued.
KCR continues to actively look for acquisition opportunities and any market
volatility flowing from interest rate increases and cost of living pressures
has the potential to create a more attractive entry point for deploying
additional capital.
The Group's overall long-standing objective remains to grow the size of its
residential portfolio to deliver an increase in revenue and profitability
against its central overhead base and achieve an ability to pay dividends. At
the same time, we focus on growing net asset value per share.
On behalf of the Board and our shareholders, I would like to thank everyone at
KCR for their hard work and dedication over the past year.
James Thornton
Chairman
CHIEF EXECUTIVE'S LETTER
Dear Shareholder
I have pleasure in reporting to you on the progress of the Group for the year
to 30 June 2022.
Our efforts in restructuring the balance sheet over the last couple of years
and the implementation of an active refurbishment works programme has resulted
in the Group being well positioned to continue to drive growth from the
existing assets.
Operational highlights -
§ Revenue for the financial year increased by 23.6% (to £1.28 million up
from £1.04 million in 2021) - largely underpinned by the letting up of
Coleherne Road during the December quarter following completion of
refurbishment works to eight of the ten flats.
§ Portfolio level occupancy has remained close to 100% of all available flats
(currently one flat across the portfolio is vacant and in the process of being
re-let). Rental increases continue to be achieved at renewals / re-lettings.
§ Total assets increased to £27.37 million (up from £24.41 million in 2021)
following the partial exercise of the Torchlight option. Net asset value per
share reduced to 32.82 pence (2021: 40.18 pence) primarily driven by the
impact of partial option exercise.
Focus on cost management and improving operational performance continues to
minimise cash burn from operating activities.
The focus of this year has been on the letting up of the Coleherne Road
property following refurbishment, refurbishing the additional flat acquired at
Heathside, maintaining high occupancy across the portfolio, and keeping
corporate and operating costs to a minimum.
Current focus to drive value over the next financial year is:
§ conversion of Deanery Court to self-managed under the Cristal Apartments
"walk in walk out" model;
§ complete Coleherne Road and let up the last two flats;
§ continuing to progress planning works at Chymedden and Ladbroke Grove;
§ roll out of property management software across the Group to provide a
centralised platform to support growth and enhanced management capability;
§ control of core running costs within incremental reductions where possible;
and
§ make acquisitions to increase scale (subject to pricing / value drivers).
Progress continues to be made to create a stable platform that can be
successfully scaled-up.
Property portfolio
Property transactions during the year
KCR acquired an additional one-bedroom flat within Heathside in October 2021.
The flat was very tired and poorly presented at the time of acquisition. Full
refurbishment has been completed including creation of an outdoor living area.
Contractor availability and supply chain issues impacted the timing of
refurbishment with works being fully completed during June 2022 and the flat
being let in July.
A number of acquisitions were considered during the year, however we were
unable to reach price agreement with vendors. We continue to maintain a
disciplined approach to acquisitions and will only make acquisitions that
offer compelling value to shareholders
Existing portfolio
KCR continues with its performance enhancement focus on its existing
portfolio. The refurbishment of apartments at Coleherne Road is substantially
complete. We have now obtained vacant possession to enable works to be
completed on the last two unrefurbished flats and the exterior areas. We look
forward to fully completing this project during the 2023 financial year.
We intend to commit more capital expenditure to positively reposition the
Ladbroke Grove portfolio. Planning submission has been progressed which, if
successful, will result in both an increase in the number of apartments and
uplift in net lettable area. Repositioning of the rental product and
materially enhancing the quality of the product on offer as part of the
refurbishment works is expected to drive a material uplift in achievable
rentals and capital values. The tired condition of the current presentation is
also increasingly capital intensive from a repairs and maintenance
perspective, but this is also expected to substantially reduce following
completion of more holistic upgrade refurbishment works.
We have already experienced a significant uplift in rental and capital values
at our repositioned asset in Coleherne Road. The apartments have moved into a
far higher rental bracket with strong market demand for the repositioned
product. The aim is for this to be repeated at Ladbroke Grove.
KCR is continuing the process of creating two operating lines, clearly
identifiable by brand, property quality and letting strategy.
1. Cristal Apartments. Residential apartments, finished to a high modern
specification, furnished and let on a Walk-In-Walk-Out (WIWO) basis (the
intention is for utilities, internet, furniture, and TV licence to be included
in the rental payment) for a frictionless and flexible letting experience.
Rental contracts may be from a week to multi-year.
2. Osprey Retirement Living. 4* retirement living property rented on the
same basis as above, with optionality on furniture. Rental contracts to be
assured shorthold tenancies (six months plus).
1. Cristal Apartments (WIWO letting strategy)
The Coleherne Road property has been repositioned and now delivers the higher
quality style of apartments that the Cristal brand represents.
Conversion of the Southampton property to the Cristal Apartments model has
commenced and is planned to be completed over the course of the 2023 financial
year. This is expected to be one of the key drivers of revenue growth over the
coming financial year.
If the outcome from the planning application mentioned above is positive, it
is also intended to reposition the Ladbroke Grove portfolio into Cristal
branded apartments which is expected to result in both enhanced rentals and a
substantive reduction in ongoing repairs and maintenance.
· The property at Coleherne Road, held within K&C (Coleherne)
Limited, comprises ten studio and one-bedroom flats. KCR has completed a
whole-building refurbishment of the property in respect of eight of the ten
apartments to a significantly higher standard. The new apartments have
produced strong rental uplifts and occupancy levels since letting up during
the December 2021 quarter. Works to complete the balance of this project have
now commenced.
· The Ladbroke Grove portfolio (owned by KCR (Kite) Limited) consists
of 16 one- and two-bedroom flats in three buildings which remain 100%
occupied. The stand-alone flat in Harrow Road has been sold and settled during
the financial year. Proceeds from the sale of the Harrow Road property were
applied primarily to reduction of the Hodge Bank facility. Units have been
lightly refurbished as tenants leave and are then re-let in the private
market. Planning works have been progressed during the financial year and a
planning application submitted. The Company's intention is to undertake a
whole building refurbishment of the Ladbroke Grove assets subject to planning
permission.
· The Southampton block of 27 residential units at Deanery Court,
Chapel Riverside (owned by KCR (Southampton) Limited) is in the process of
being converted to the Cristal Apartments operating model. As leases have
expired the apartments have been taken back, lightly refurbished, fully
furnished and are now being let under the Cristal Apartments walk in walk out
operating model. As of today, around half of the apartments have been taken
back with 11 apartments converted and now being managed under the Cristal
Apartments model. Another 11 apartments are in the process of being converted
with full conversion of this property to the Cristal Apartments model expected
to be completed during the 2023 financial year. Historically the property is
considered to have been under rented and we believe substantive upside in
gross and net rental performance exists from the more active direct management
style proposed for this asset.
2. Osprey Retirement Living (4* retirement apartments)
The Osprey portfolio (K&C (Osprey) Limited) consists of 159 flats and 13
houses let on long leases in six locations, together with an estate consisting
of 30 freehold cottages in Marlborough where Osprey delivers estate management
and sales services.
Whilst the proposed legislative changes in respect of ground rents have had a
negative impact on portfolio valuation, overall, the portfolio has held its
value mainly as a result of the acquisition strategy to acquire flats within
Heathside. The nine owned flats within Heathside are delivering strong rental
returns on cost and have assisted in offsetting the value decline associated
with the ground rent component of the portfolio. We continue to focus on
unlocking value via completion of lease extensions on the shorter dated long
leasehold flats.
The key asset in the portfolio representing 71% of the Osprey portfolio value
is the freehold block at Heathside, Golders Green, where 28 of the 37
residential units are held on a long leasehold basis. The strategy continues
to be to selectively acquire (subject to pricing) long-leasehold units in the
block, refurbish the units to a high standard and let them in the open market
under assured shorthold tenancies. This strategy continues to provide strong
rental returns for the Group. During the June 2022 quarter we successfully
took back management of this property from the RTM Co. This will provide
incremental management fee income and, more importantly, will enable us to
control the future direction for positioning of this property. In this
respect, design work and a tender programme have been completed for building
works to enhance the internal common parts (including reconfiguration of the
ground floor) and external areas. Works are planned to commence during the
current financial year and are expected to extend over the next two financial
years (works will be funded via sinking fund and special levies). This is
expected to enhance both the market demand for our rental product and capital
values within the building as a whole.
Financial
The current financial year reflects the outcome of enhanced gross revenue
following letting up of Coleherne Road and ongoing cost control of core
operating overhead. KCR has recorded an operating profit before separately
disclosed items, and a significantly lower operating loss for the year.
Further details regarding the financial performance of the Group can be found
in the Strategic Report below.
Prospects
The business continues to be cashflow negative, however, KCR has made major
steps to becoming cashflow positive. We continue to work on achieving this
and look forward to delivering further improved performance from the existing
portfolio.
I am excited about the potential for the Company to grow from a far more
stable operating base, and in particular I am pleased by the ongoing progress
made this year towards Group profitability.
Russell Naylor
Executive Director
GROUP STRATEGIC REPORT
The directors present the strategic report of KCR Residential REIT plc ('KCR'
or the 'Company') and its subsidiaries (together, the 'Group') for the year
ended 30 June 2022.
PRINCIPAL ACTIVITY
The Group carries on the business of acquiring, developing and managing
residential property predominantly for letting to third parties on long and
short leases. At the year-end, the Group consisted of the Company, which is
a public Company limited by shares, and its wholly owned subsidiaries:
1. K&C (Coleherne) Limited owns a freehold residential
property in Chelsea, London containing ten studio flats;
2. K&C (Osprey) Limited owns nine freehold apartments
and 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. KCR (Kite) Limited owns three freehold residential
properties in Ladbroke Grove, London (16 flats);
4. KCR (Southampton) Limited owns a long leasehold block
of 27 two-bedroom apartments at Chapel Riverside, Southampton. The lease is a
999 lease for which the Company pays a peppercorn rent; and
5. K&C (Newbury) Limited owns no property and is now
effectively dormant.
Throughout the year the Company remained a REIT and has complied with REIT
rules throughout the period and since the balance sheet date.
GROUP STRATEGY
The directors intend to build a significant presence in the residential
letting market, primarily through the acquisition of land with planning
permission that will be developed into residential property and the
acquisition of existing residential property. Assets are predominantly
acquired with the purpose of letting to third parties.
RESULTS
The Group reports a consolidated loss of £342,081 for the year to 30 June
2022 (2021 - £924,234).
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.
In reporting financial information, KCR presents alternative performance
measures, "APMs", which are not defined or specified under the requirements of
IFRS. For example, portfolio occupancy and percentage of rent arrears. The
Company believes that these APMs, which are not considered to be a substitute
for or superior to IFRS measures, provide stakeholders with additional helpful
information on the performance of the business. The Board reminds readers
that these APMs are not GAAP measures, are not intended as a substitute for
those measures, and that other companies may use different measures.
Revenue in this financial year increased by 24% to £1,280,770 (2021 -
£1,036,011). Core portfolio revenue (relating to Rentals, Management fees and
Ground Rent) was the primary contributor to revenue growth as Coleherne Road
was let up during the year. Portfolio occupancy (excluding the planned vacancy
at Coleherne Road) and rent collection remained above 95% for the whole
period.
The Group recorded an Operating Profit before separately disclosed items of
£340,613 (2021 £416,669). Reduction against the prior year was due to a
reduced contribution from positive revaluation movements. After allowing for
separately disclosed items and finance costs, the loss before taxation was
£342,081 (2021 - £924,234). Separately disclosed items relating to
refinancing and refurbishment works accounted for about half of the loss
before taxation in the 2022 financial year. Reduction in costs associated with
refurbishment accounted for the majority of the year- on-year reduction in
separately disclosed items. The Group reports the operating result both
before and after separately disclosed items as the costs associated with
refurbishment works is expected to vary significantly year-on-year.
Total assets at 30 June 2022 increased to £27.4 million (2021 - £24.4
million). Investment property increased overall (£343,300) primarily due to
the acquisition of an additional apartment at Heathside. The increase in
total assets reflects the increase in cash balances as a result of the partial
option exercise by Torchlight during the year.
Net assets increased to £13.68 million (2021 - £11.32 million) but net asset
value per share decreased to 32.82p (2021 - 40.18p), predominantly due to the
impact of a share option exercise by Torchlight.
Upon completion of the Torchlight transaction in the 2020 financial year, the
Group entered into an option agreement to grant Torchlight an option to
subscribe for a further 50,000,000 new Ordinary Shares during the Option
Period (up to 6 August 2022). Torchlight had the right to subscribe for the
shares at a price per share of:
• for any notice of exercise served on the Company on any date up
to and including 31 December 2019, the Issue Price; and
• for any notice of exercise served on the Company from 1 January
2020 until the end of the Option Period, the higher of (i) the price per
Option Share which is equivalent to 95 per cent. of the 30-Day VWAP for the
Ordinary Shares and (ii) the par value of each Ordinary Share.
The Option was only exercisable by Torchlight during the Option Period and if
the Option was not exercised prior to the expiry of the Option Period, it
would lapse. Unless otherwise agreed, any exercise of the Option by Torchlight
would be for not less than 2,000,000 Option Shares.
In October 2021, Torchlight exercised 13,500,000 options (2021: 600,000) and
converted into 10p shares at a price of 19.9821p per share (2021: 19.8079p per
share), increasing Torchlight's interest in the Company to 23,100,000 shares,
representing 55.4% of the Company's enlarged issued share capital.
Post balance date the option expired with no further exercises being made by
Torchlight.
KEY PERFORMANCE INDICATORS
The directors and management team monitor key performance indicators relevant
to each of the subsidiaries to improve Group performance. Management reports
to the board if data show significant variances against expected outcomes and
proposes mitigation action as necessary.
Examples of the KPIs used to monitor aspects of performance include:
1. At property level:
1.1. Vacancy rate in terms of number of units available and
potential rental income
Target occupancy of at least 90 per cent achieved; and
1.2. Outstanding rents as a percentage of rental income
Target debtor balance of less than 10 per cent of rental revenue achieved.
2. At Group Level
Near term focus continues to be on reducing costs, enhancing revenue and
growing the business to achieve a cash break even position (before separately
disclosed capital expenditure) to provide a stable base to grow from. Solid
progress in this respect is being made. In order to achieve this the Group is
focussing on optimising performance from the existing assets and incremental
acquisitions where they make sense.
RISKS AND UNCERTAINTIES
The Board regularly reviews the risks to which the Group is exposed and
ensures through its meetings and its 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
development. Although there is no certainty that such funds will be available
when needed, the Company believes it would be able to access further funding
for the directors to continue to focus on selectively growing the Group's
asset base
· Financial instruments
Details of risks associated with the Group's financial instruments are given
in note 20 to the financial statements. The directors seek to mitigate these
risks in manners appropriate to the risk;
· Valuations
The valuation of the investment property portfolio is inherently subjective as
it is made on the basis of assumptions made by the valuer, or the Directors
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. The directors,
who have long experience of property and valuation principles, seek to
mitigate this risk by employing independent valuation experts to complete
periodic valuations of the assets in the portfolio. Valuation assumptions are
reviewed and considered by the Directors for reasonableness; and
· COVID-19
The Group seeks to preserve a safe environment within its properties for its
colleagues, residents, tenants and suppliers and reviews this risk regularly,
updating its procedures as required. To date, COVID-19 has not materially
impacted Group operations, with minimal impact on rent collections during the
lockdown period. Only a minimal number of tenants were in rent arrears at the
balance sheet date and up to the date of this report.
The main financial risks that the Board has identified in relation to the
pandemic are potential income reduction and bad debts as tenants have
difficulty in maintaining rent payments and potential voids within the
portfolio arising from tenant failures.
The actions taken to mitigate the risks are summarised below:
· the Group undertakes credit checks on prospective new tenants to
assess credit risk. The checks include verification of income levels and
capacity to pay, as well as checks of rental references. Any arrears are
actively managed; and
· the Group has continued with periodic monitoring of apartment
usage for short let operators. Monitoring included car park usage
(Southampton), power, water and gas readings as a proxy for occupancy. The
purpose of this was to enable the directors to form a view as to the
underlying occupancy profile of the short let operators as a proxy for their
ability to continue to meet rent. Our sampling / testing has suggested an
implied underlying occupancy rate of 80% or better which suggests adequate
capacity for the short let operators to meet rent.
Directors' duty to promote the success of the Company under Section 172
Companies Act 2006
Section 172 (1) of the Companies Act 2006 requires Directors to act in the way
they consider, in good faith, would be most likely to promote the success of
the Company for the benefit of shareholders as a whole, and in doing so having
regard to a diverse group of stakeholders.
The Directors continue to have regard to the impact of decisions made on all
stakeholders and are aware of their responsibilities to promote the success of
the Company, in accordance with section 172 of the Companies Act 2006.
We aim to work responsibly with our stakeholders and outline below the key
Board decisions made during the 2022 financial year:
Key Decision Stakeholders Action and Impact
Governance Policies Regulators / The Board periodically reviews governance policies for the Company and Terms
of Reference for established committees to ensure they remain appropriate for
Shareholders the Group.
A robust governance framework is an integral part of how the Company operates
and ensures compliance with its listing and regulatory requirements.
The Company considers that the confidence provided to all stakeholders from a
robust governance framework is an important component for ongoing stakeholder
support of the Company.
During the course of the year the Board updated its governance, updating its
AIM Listing Rules Compliance Board Memorandum to reflect developments in the
AIM rules and reviewing its internal control systems for compliance with AIM
Rule 31. Board Committee terms of reference were reviewed and updated and new
policies in respect of bribery risk and social media communications adopted.
The Company continued to take actions to implement the strategy outlined in
last year's Annual Report.
Primary focus was -
§ Letting up Coleherne Road following completion of refurbishment works to
substantially upgrade the standard of accommodation provided to tenants.
§ Progressing incremental refurbishment works to enhance the quality of the
rental product provided.
§ Progressing planning works to enhance value within the existing portfolio.
§ Commencement of conversion of the Deanery Court property to the Cristal
Apartments brand and operating model.
§ Successful implementation of strategy is expected to result in continued
financial performance of the Company.
Improving the quality of the standard of rental accommodation provides tenants
with an enhanced and hassle-free rental experience. For shareholders the
investment in improving the quality and standard of the rental product is a
primary driver of improved financial performance for the Company.
Strategy Implementation Tenants / Shareholders
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
Whilst the near-term focus remains on reducing costs and improving the
operational performance of the existing assets, the Group is continuing to
investigate the purchase of residential property assets that are capable of
supporting an increasing income yield. To achieve these, the Group may 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:
Russell Naylor
Executive Director
CORPORATE GOVERNANCE STATEMENT
Introduction
During the year to 30 June 2022 KCR Residential REIT plc, while an AIM quoted
Company, was operating initially with four directors and three employees. In
September 2018, it adopted the QCA code but with such a tightly controlled
operational and risk environment was not able to, in all areas, fully comply
with the principles. During the current year, the directors have continued to
work towards compliance and updating the website to comply as far as possible
with the following QCA code principles, noting areas where the small scope of
operations limits their ability to fully comply:
Principle 1: Establish a strategy and business model which promote long-term
value for shareholders
The Company's objective is to build a substantial property portfolio
predominantly in the residential sector that generates both secure income flow
from rents and increasing net asset value for shareholders. The Company
acquires or develops blocks of studio, one, two and three-bed apartments that
are close to transport links, shopping and leisure, mostly in London, its
surrounds and the South East. These blocks are focused on attracting tenants
seeking affordable rental accommodation.
The Company brings its property corporate finance expertise to the
identification and execution of these acquisitions.
The Company looks to acquire properties at below market value to improve yield
on cost and enhance net asset value. It aims to achieve this through
acquisition strategies including:
· using the REIT's inherent tax advantages; acquiring properties in
corporate structures with embedded capital appreciation and deferred tax
liabilities which are reduced to zero as the corporate becomes part of the
REIT group; and
· acquiring permitted land, funding the development process and
retaining the developer's profit.
Over the medium to long term, the Company expects rental and property values
to increase in line with inflation. These increases, coupled with new
acquisitions are designed to enable the Company, once it has reached scale, to
pay dividends from cash flow generated by rents and deliver net asset value
increases through positive property revaluations. Active asset management of
the properties may also deliver value increases. The Company as a REIT is
required to distribute 90 per cent of its rental profits.
It is the Company's paramount intention to conduct its activities in a
professional and responsible manner for the benefit of its shareholders, its
employees, and the communities in which it operates.
Further detail on the key challenges that the Board addresses are set out
under Risks and Uncertainties in the Strategic Report.
Principle 2: Seek to understand and meet shareholder needs and expectations
In August 2019, a major equity re-capitalisation brought in £4.05m of capital
and a substantial new shareholder, Torchlight Fund LP. This transaction was
designed to stabilise and re-position the Company so that it can move forward
in a way that all existing and new shareholders may benefit from future
uplifts to profitability and increases in net asset value.
The Company remains committed to engaging with its shareholders to ensure its
strategy and performance are clearly understood. Feedback from investors is
obtained through direct interaction between the Executive Director and
shareholders following the Company's full and half year results and certain
other ad hoc meetings between executive management and shareholders that take
place during the year.
The Company seeks to communicate with its shareholders on a timely and
transparent basis at all times. Announcements through RNS are as comprehensive
as possible. As part of the Company's repositioning, the intention is to
improve the speed of reporting of the interim and full year results to
shareholders.
The Chief Executive attends and presents at investor forums from time to time,
as well as holding discussions with analysts, shareholders and investment
managers.
It is apparent from such interaction that shareholders have several concerns,
including:
· How do the directors propose to expand operations without
dilution to existing shareholdings?
Since property companies are capital-intensive, the Company
will raise equity over time to fund the acquisition of new properties.
Torchlight Fund LP exercising its option rights as approved by shareholders
was dilutive to existing shareholders with this dilution having already being
accepted and approved by shareholders. The Board will aim to maximise the
issuance price of any additional equity offerings such that issuances are
accretive or, if that is not possible, offer all shareholders the opportunity
to participate in the offering on an equal access.
· When will the Company become profitable?
Based on current overheads and interest forecasts, the
Company may become profitable and cash flow positive once it has approximately
£50m of investments generating satisfactory rental income. Executive
management is focused on achieving this objective as soon as possible. This is
naturally dependent on the availability of suitable transactions and the
ability to complete the acquisitions either via raising additional equity
capital or debt.
Shareholder liaison is managed though Russell Naylor
Russell.Naylor@kcrreit.com (mailto:Russell.Naylor@kcrreit.com) .
Principle 3: Take into account wider stakeholder and social responsibilities
and their implications for long-term success
The Company currently operates in the UK. It identifies the main stakeholders
in the UK as being investors, tenants, and suppliers of services (accountant,
nominated adviser, broker, lawyers), employees, directors, third-party
property managers, banks and other debt providers and property agents
introducing investment opportunities.
The Company has an important social responsibility in its role as a landlord
of residential housing. We commit to delivering great service to our tenants,
which includes providing safe and high-quality residential units, at market
prices, managed in a professional way.
Treating all our stakeholders well, and in particular our key customers - our
tenants, is key to growing a sustainable business that will have long-term
success.
Principle 4: Embed effective risk management, considering both opportunities
and threats, throughout the organisation
The Board is responsible for setting the risk framework within which the
Company operates and ensuring that suitable risk-management controls and
reporting structures are in place throughout the Group.
The Board seeks to minimise risk in the management of its operations. The
Company uses third- party advisors to address specific issues that arise
during operations where they bring complementary expertise and experience.
Principle 5: Maintain the board as a well-functioning, balanced team led by
the chair
The Board comprises a balance of independent and non-independent directors
with collective, specific and complementary skills that enable the Company to
manage and direct its affairs in a professional manner, with embedded
corporate governance procedures that are fit for purpose.
Full Board meetings are generally held on a quarterly basis and all necessary
documentation is provided to the Board in advance, so that they can understand
the issues under review and make well-considered decisions. During the year,
between full Board meetings, the Board convenes whenever necessary to consider
and, if appropriate, approve the execution and completion by executive
management of key matters that fall within the Board's defined remit as set
out below.
The Board has audit and remuneration sub-committees that are chaired by
non-executive directors.
All of the directors devote such time to the Company's affairs as the board
considers appropriate.
On 3 November 2020 Michael Davies stepped down as Chairman and James Thornton,
an independent non-executive director of KCR, became the Non-Executive
Chairman of the board. KCR believes that a reduced board of four members is
appropriate for a business of its size and is in line with its efforts to
reduce operating costs, assisting with its drive to profitability. As a result
of these changes, the Company has only one Independent Non-Executive Director.
The Company acknowledges the recommendations of the QCA Corporate Governance
Code, which it has adopted, and it is intended at the appropriate time to seek
appointment of a further Independent Non-Executive Director.
Principle 6: Ensure that between them the directors have the necessary
up-to-date experience, skills and capabilities
The Board maintains up-to-date skills, knowledge and experience to enable it
to direct and manage the Company's operations, finances and its interface with
investors, the public markets and its other stakeholders.
The Board takes great care to appoint managers and staff with the appropriate
skills and experience, and is aware of the importance of encouraging diversity
among its workforce.
The Board works as a team and regularly reviews its procedures and
composition.
The relevant experience and skills of the current directors is set out under
About Us / The Board on the Company's website. Each director is involved in
other organisations which keep their professional skills sharpened and up to
date.
Principle 7: Evaluate Board performance based on clear and relevant
objectives, seeking continual improvement
The Board of KCR comprises:
Name Role Appointed Status
Russell Naylor Executive Director 06 August 2019 Non-independent
James Thornton Non-Executive chairman 06 August 2019* Independent
Richard Boon Non-Executive director 06 August 2019 Non-independent
Dominic White Non-Executive director 01 January 2017 Non-independent
*appointed Chairman on 3 November 2020
In accordance with its obligations under the QCA code, the Board will review
internally its collective performance, and the performance of its committees
and Board members. At this stage of its evolution and in view of the size of
the Board, the Directors do not believe that it is practical to undertake an
external or a wide-ranging evaluation of the performance of Board members. The
primary tasks of the Executive Director, Russell Naylor, have been and will
continue to be to grow the Company's asset base and revenue through the
delivery of additional assets to the portfolio. This has included developing
capital and asset partnerships and finding ways to raise appropriately priced
and structured debt finance to support transactions and equity capital in an
uncertain equity market. He is a key point of contact for the capital markets.
In these tasks, he will be supported by the Non-Executive Directors advising
on matters such as internal financial controls, financial management, capital
planning and overseeing the preparation of financial reports to shareholders.
The primary task of the Chairman, James Thornton, is to ensure that the Board
has performed its role correctly, that governance is adhered to, and that the
Company works towards delivering value to shareholders in accordance with the
Company's strategy. He is also a point of contact with many of the Company's
shareholders and professional advisers.
Succession planning remains an important issue for the Board, and in
particular the Chairman.
Principle 8: Promote a corporate culture that is based on ethical values and
behaviours
The Board strives to promote a corporate culture based on sound ethical values
and behaviours.
The Company has adopted a code for directors' and employees' dealings in
securities, which is appropriate for a company whose securities are traded on
AIM. The code is in accordance with the requirements of the Market Abuse
Regulation that came into effect in 2016.
The Board is also aware that the tone and culture it sets will greatly impact
all aspects of the Company and the way that employees behave, as well as the
achievement of corporate objectives. A significant part of the Company's
activities is centered upon an open dialogue with shareholders, employees and
other stakeholders. Therefore, the importance of sound ethical values and
behaviours is crucial to the ability of the Company to successfully achieve
its corporate objectives.
Principle 9: Maintain governance structures and processes that are fit for
purpose and support good decision-making by the Board
The Board is committed to high standards of corporate governance. No system of
internal control can completely eliminate the risk of process or individual
failures. To an extent, the corporate governance structures which the Company
is able to operate are limited by the size of the executive management team
and the small number of executive directors, which is itself dictated by the
current size of the Company's operations. Within this limitation necessitated
by the current small size of the business, the Board is dedicated to having
strong internal control systems in place to enable it to maintain the highest
possible standards of governance and probity.
The Chairman, James Thornton:
· leads the Board and is primarily responsible for the effective working of
the Board;
· in consultation with the Board, ensures good corporate governance and sets
clear expectations with regards to Company culture, values and behaviour;
· sets the Board's agenda and ensures that all Directors are encouraged to
participate fully in the activities and decision-making process of the Board;
· takes responsibility for relationships with the Company's professional
advisers and major shareholders.
The Executive Director, Russell Naylor:
· is primarily responsible for developing the Company's strategy in
consultation with the Board, for its implementation and for the operational
management of the business;
· is primarily responsible for new projects and expansion;
· runs the Company on a day-to-day basis;
· implements the decisions of the Board;
· monitors, reviews and manages key risks;
· is the Company's primary spokesperson, communicating with external
audiences, such as investors, analysts and the media;
· is primarily responsible for the systems of financial controls in operation
for the Company and each of its subsidiaries;
· is primarily responsible for all financial management and financial
planning matters;
· monitors, reviews and manages key risks as they relate to financial impact;
and
· implements the financial and internal control decisions of the Board.
The Remuneration Committee is chaired by Richard Boon, Non-Executive Director,
and comprises James Thornton and Richard Boon, and meets on an ad hoc basis
when required.
The Audit and Risk Committee is chaired by James Thornton, Chairman and
Independent Non-Executive Director, and comprises James Thornton and Richard
Boon, Non-Independent Non-Executive Director. Russell Naylor is invited to
attend as appropriate. It meets at least twice each financial year to consider
the interim and final results. In the latter case, the auditors are present
and the meeting considers and takes action on any matters raised by the
auditors arising from their audit.
The chair of each of the Committees may invite executive management and Board
members to attend any meeting.
Matters reserved for the Board include:
· vision and strategy;
· review of budgets, asset plans and trading results;
· approving financial statements;
· financing strategy, including debt strategy;
· business planning relating to acquisitions, divestments and major
refurbishments not already agreed in the strategy and asset plans;
· capital expenditure in excess of agreed budgets;
· corporate governance and compliance;
· risk management and internal controls;
· appointments and succession plans at senior management level; and
· Directors' remuneration.
Principle 10: Communicate how the Company is governed and is performing by
maintaining a dialogue with shareholders and other relevant stakeholders
The Company's website sets out the principal approach of the Company to
governance. It contains all relevant documents and information for
shareholders, including all RNS announcements, financial reports, shareholder
circulars, and the Company's articles.
Shareholders are additionally encouraged to participate at the AGM, to ensure
that there is a high level of accountability and identification with the
Group's strategy and goals.
Audit & Risk Committee Report
The Audit & Risk committee is a Board committee delegated with
responsibility to oversee and review financial and internal controls in
accordance with its Terms of Reference. The Committee also makes
recommendations to the Board on payment of dividends or otherwise. The
Committee is also responsible for setting and agreeing Audit fees and
overseeing the process for Auditor appointment.
The committee is chaired by Independent Non-Executive Chairman, James
Thornton, with a quorum of a minimum of two Non-Executives. There are two
Non-Executive members; James Thornton and Richard Boon.
During the 2022 financial year the Audit & Risk committee has met three
times, to review and recommend the interim and year-end financial statements,
and to consider the need for and to oversee the change of auditors. The
chairman of the committee also attended the 2022 year end planning meeting
with the new auditors and reviewed the audit plan.
In 2022, the Company conducted a tender process for the Group and subsidiary
audits. This process resulted in the appointment of Grant Thornton Limited on
1 July 2022.
At the completion of the audit, the Auditor presented the Audit Completion
Report to the Audit Committee, these were discussed before the financial
statements were presented for Board approval.
Remuneration Committee Report
The Remuneration Committee is a Board committee of Non-Executive Directors
acting within its terms of reference to execute its responsibility for the
review and approval of salary and bonuses of Board Members and Senior
Management personnel and related employment matters.
During 2022, the Remuneration Committee met to review and approve senior
management salaries and bonus structure for staff.
It is the Company's policy that the remuneration of Directors should be
commensurate with the services provided by them to the Company and should take
account of published data on reasonable market comparable Groups, where
available. Details of the Directors' remuneration are set out in the Report of
the Directors.
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 2022.
A review of the business, risks and uncertainties and future developments is
included in the Chairman's Letter, the Chief Executive's Letter, the Group
Strategic Report, and in note 20 to the financial statements.
DIVIDENDS
The directors do not recommend payment of a dividend for the year (2021 -
£nil).
Political donations
The Group made no political donations during the year (2021 - £nil).
DIRECTORS
The following directors served during the year to 30 June 2022 and up to the
date of approval of this Annual Report:
Name
James Thornton
Russell Naylor
Richard Boon
Dominic White
The beneficial interests of the directors holding office at 30 June 2022 in
the issued share capital of the Company were as follows:
Ordinary
Shares
Issued in the
At 30 June 2021 year At 30 June 2022
Name No. No. No.
James Thornton 22,222 -- 22,222
Dominic White 1,287,598 -- 1,287,598
Russell Naylor -- -- --
Richard Boon -- -- --
The beneficial interests of the directors holding office at 21 September 2022
in the issued share capital of the Company were as follows:
At 30 June 2022 Issued in the period At 21 September 2022
Name No. No. No.
Dominic White 1,287,598 - 1,287,598
James Thornton 22,222 - 22,222
SUBSTANTIAL SHAREHOLDINGS
As at 21 September 2022, the directors had been notified that the following
shareholders owned a disclosable interest of three per cent or more in the
Ordinary Shares of the Company:
Name Interest
%
Torchlight Fund LP 55.44%
Drumz plc 5.85%
Moore House Holding Ltd 5.66%
Poole Investments Ltd 4.32%
Venaglass Ltd 3.80%
Dominic White & White Amba Pension Scheme 3.09%
DIRECTORS' REMUNERATION
The directors have received the following remuneration for their services
during the year:
2022 2021
Name Remuneration Benefits-in-kind Remuneration Benefits-in-kind
£
£
£
£
Dominic White 28,292 -- 94,500 -
Russell Naylor* 93,833 -- 77,691 -
James Thornton 30,000 -- 30,000 -
Richard Boon* 30,000 -- 20,000 -
182,125 -- 222,191 -
* The remuneration paid to Russell Naylor included fees of £48,000 charged by
Naylor Partners, a business in which Russell Naylor is a Director (2021 -
£48,000) and the remuneration paid to Richard Boon included fees of £Nil
(2021 - £18,900) charged by Artefact Partners, a business in which Richard
Boon is a Director.
During the previous year, the Group was charged fees of £10,800 by DGS
Capital Partners LLP, a limited liability partnership of which Michael Davies
is a member. Michael Davies was a director of the Group until resigning on 3
November 2020. The fees were for making available the services of Michael
Davies to the Group.
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 (i)
ongoing financial performance is monitored in a timely manner, (ii) where
required, corrective action is taken and (iii) risk is identified as early as
practically possible. The directors have reviewed the effectiveness of
internal controls.
The Board, subject to delegated authority, reviews, among other things,
capital investment, property sales and purchases, additional borrowing
facilities, guarantees and insurance arrangements.
Details of financial risk management are included within the Risks and
Uncertainties section of the Group Strategic Report.
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 had knowledge of the commission of
such offences.
OTHER MATTERS
i. Environmental
The Group understands the importance of operating its business in a manner
that minimises any risks to the environment. Its policies seek to ensure that
it achieves this goal.
ii. Group employees
The Group considers its employees to be its most valuable assets and ensures
that it deals with them fairly and constructively at all times.
iii. Social matters
The Group is aware that it has a responsibility to the communities in which it
operates and seeks to respect them at all times.
iv. Respect for human rights
The Group always respects the human rights of its stakeholders.
v. Contributions to pension schemes
No pension scheme benefits are being accrued by the directors.
DIRECTORS' INDEMNITIES AND INSURANCE
The Company has made qualifying third-party indemnity provisions for the
benefit of its directors during the year and they remain in force at the date
of approval of this Annual Report.
GOING CONCERN
The directors have adopted the going concern basis in preparing the financial
statements.
The directors consider, as at the date of approving the financial statements,
that there is reasonable expectation that the Group has adequate financial
resources to continue to operate, and to meet its liabilities as they fall due
for payment, for at least twelve months following the approval of the
financial statements.
The Company has undertaken procedures to ensure that the Company has
sufficient cash resources and bank facilities and sufficient covenant margin
to manage its business under going concern principles.
See note 2 to the financial statements for further details.
POST BALANCE SHEET EVENTS
Post balance sheet events are detailed further in the Chief Executive's letter
and note 23 of the financial statements
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law, the directors have elected to prepare the
financial statements in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006. Under company law,
the directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the
Company and the Group and of the profit or loss of the Company and the Group
for that period. In preparing these financial statements, the directors are
required to:
· select suitable accounting policies and then apply
them consistently;
· make judgments and accounting estimates that are
reasonable and prudent;
· state whether applicable accounting standards have
been followed subject to any material departures disclosed and explained in
the financial statements; and
· assess the Group's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and use
the going concern basis of accounting unless they either intend to liquidate
the Group, cease operations or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's and the Group's transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for safeguarding
the assets of the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO THE AUDITOR
So far as the directors are aware, there is no relevant audit information (as
defined by Section 418 of the Companies Act 2006) of which the Group's auditor
is unaware, and each director has taken all the steps that he ought to have
taken as a director in order to make himself aware of any relevant audit
information and to establish that the Group's auditor is aware of that
information.
AUDITOR
Following a tender process, Grant Thornton Limited were appointed as auditor
to the Group. In accordance with section 489 of the Companies Act 2006, a
resolution to reappoint Grant Thornton Limited as auditor will be proposed at
the forthcoming annual general meeting.
ON BEHALF OF THE BOARD
Russell Naylor
Executive Director
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
Opinion
We have audited the financial statements of KCR Residential REIT plc (the
'Parent Company') and its subsidiaries (the 'Group') for the year ended 30
June 2022, which comprise the Consolidated Statement of Comprehensive Income,
the Consolidated and Company Statement of Financial Position, the Consolidated
and Company Statement of Changes in Equity, the Consolidated and Company
Statement of Cash Flows and notes to the financial statements, including a
summary of significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and UK adopted
International Accounting Standards.
In our opinion, the Group and Parent Company financial statements:
· give a true and fair view of the state of the Group and Parent
Company's affairs as at 30 June 2022 and of the Group's loss for the year then
ended;
· are in accordance with UK adopted International Accounting
Standards; and
· have been prepared in accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the 'Auditor's responsibilities for the
audit of the financial statements' section of our report. We are independent
of the Group and the Parent Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We are responsible for concluding on the appropriateness of the directors' use
of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group and Parent Company's
ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our report to the
related disclosures in the consolidated financial statements or, if such
disclosures are inadequate, to modify the auditor's opinion. Our conclusions
are based on the audit evidence obtained up to the date of our report.
However, future events or conditions may cause the Group and the Parent
Company to cease to continue as a going concern.
Our evaluation of the directors' assessment of the Group and Parent Company's
ability to continue to adopt the going concern basis of accounting included:
· Obtaining the 12-month going concern assessment performed by
management, including the assumptions and sensitivities prepared by
management;
· Challenging the appropriateness of management's forecasts by:
o checking the mathematical accuracy of the cash flow forecast;
o assessing the key assumptions used in the going concern assessment based on
our knowledge of the Group and the current economic climate; and
o assessing whether management has taken into account the principal and
emerging risks noted in the annual report.
§ We determined whether there is a material uncertainty which casts
significant doubt over the ability of the Group and Parent Company to continue
as a going concern; and
· We assessed the disclosures in the financial statements relating to
going concern, to ensure they were in compliance with IAS 1.
In our evaluation of the directors' conclusions, we considered the inherent
risks associated with the Group and Parent Company's business model, we
assessed and challenged the reasonableness of estimates made by the directors
and the related disclosures and analysed how those risks might affect the
Group and Parent Company's financial resources or ability to continue
operations over the going concern period.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group and Parent Company's
ability to continue as a going concern for a period of at least twelve months
from when the consolidated financial statements are authorised for issue.
In auditing the consolidated financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the preparation of
the consolidated financial statements is appropriate.
The responsibilities of the directors with respect to going concern are
described in the 'Statement of directors' responsibilities' section of this
report.
Our approach to the audit
Overview of our audit approach
Overall materiality:
Group: £268,000, which represents 2% of the Group's net assets.
Parent Company: £178,000, which represents 2% of the Parent Company's net
assets.
Key audit matters were identified as:
· Valuation of investment property
Our audit approach was a risk-based substantive audit focused on the
investment activities of the Group.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters
included those that had the greatest effect on the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
Key Audit Matter How our scope addressed the matter
Valuation of investment property (2022: £24.6m and 2021: £24.3m) We performed the following audit procedures:
The Group holds investment properties which comprise properties owned by Group · Obtained understanding of the processes, policies and methodologies,
held for rental income and capital appreciation. including the use of industry specific measures, and policies for valuing
investment properties held and confirming our understanding by performing test
Investment properties are valued by the directors with reference to of design and implementation of relevant controls.
independent external desktop or full valuations performed. Valuations are
based on a market approach which provides an indicative value by comparing the · Obtaining and inspecting the independent appraisals regarding the
property with other similar properties for which price information is investment properties and supporting data to assess whether the data used is
available and the valuation technique is Income capitalisation and/or capital appropriate and relevant and discussing these with management to evaluate
whether the fair value of the investment properties is reasonably stated,
value on a per square foot basis. challenging the assumptions made by management.
The valuation of investment properties requires significant judgement in · Verifying valuation inputs to independent sources and testing the
determining the appropriate inputs to be used in the model and there is arithmetical accuracy of the calculations.
therefore a risk that the properties are incorrectly valued.
• Performing the following procedures and at certain extent, engaging
our own internal real estate valuation specialists to:
Refer to the Chief Executive's Letter; Accounting policies, and Note 12, a) assess and corroborate management's market related judgements and
Investment properties, to the Financial Statements. valuation inputs (i.e., gross yield, rate per square foot) by reference to
comparable transactions, and independently compiled databases/indices.
b) determine whether the methodologies used to value investment properties
were consistent with methods usually used by market participants for similar
types of properties; and
c) Assessing the adequacy of the financial statement disclosures in
relation to the use of estimates and judgements regarding the fair value of
the investment properties.
Our results
Based on the procedures performed we have not identified any material issues
that would suggest the valuation of investment properties is inappropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing the audit,
and in evaluating the effect of identified misstatements on the audit and of
uncorrected misstatements, if any, on the financial statements and in forming
the opinion in the auditor's report.
Materiality was determined as follows:
Materiality measure Group Parent Company
Materiality for financial statements as a whole We define materiality as the magnitude of misstatement in the financial
statements that, individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users of these financial
statements. We use materiality in determining the nature, timing and extent of
our audit work.
Materiality threshold £268,000 which is 2% of net assets. £178,000 which is 2% of net assets.
Significant judgements made by auditor in determining the materiality In determining materiality, we made the following significant judgements:
o Net assets is considered the most appropriate because the investors would
usually track the performance of the Company by looking at the net asset
value.
o Due to the Company being listed and considering that the investors or
potential investors would be sensitive to changes in the net asset value, it
was deemed that 2% would be the most appropriate percentage.
Significant revision(s) of materiality threshold There was no significant revision of our materiality threshold as the audit
progressed.
Performance materiality used to drive the extent of our testing We set performance materiality at an amount less than materiality for the
financial statements as a whole to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality for the financial statements as a whole.
Performance materiality threshold £174,200 which is 65% of financial statement materiality. £115,700 which is 65% of financial statement materiality.
Significant judgements made by auditor in determining the performance In determining materiality, we made the following significant judgements:
materiality
o Our risk assessment, including our assessment of the Group and Parent
Company's overall control environment.
Significant revision(s) of performance materiality threshold There was no significant revision of our performance materiality threshold as
the audit progressed.
Communication of misstatements to the audit committee We determine a threshold for reporting unadjusted differences to the audit
committee.
Threshold for communication £93,800 and misstatements below that threshold that, in our view, warrant £62,300 and misstatements below that threshold that, in our view, warrant
reporting on qualitative grounds. reporting on qualitative grounds.
An overview of the scope of our audit
We performed a risk-based audit that requires an understanding of the Group's
business and in particular matters related to:
· We undertook substantive testing on significant transactions,
balances and disclosures, the extent of which was based on various factors
such as our overall assessment of the control environment, the effectiveness
of controls over individual systems and the management of specific risks; and
· For subjective estimates made by management on the valuation of the
investment properties, we either performed independent searches or engaged our
own internal real estate valuation specialists when necessary to confirm the
appropriateness of the valuation methodology used in consideration of the
comparable properties, market assumptions and other inputs used.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the annual report, other than the
financial statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the strategic report and the directors'
report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the strategic report and the directors' report have been prepared in
accordance with the applicable legal requirements.
Matters on which we are required to report by under the Companies Act 2006
In light of the knowledge and understanding of the Parent Company and the
Group and its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors'
report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept; or
· the financial statements are not in agreement with the accounting
records and returns; or
· certain disclosures of directors' remuneration specified by law are
not made; or
· we have not obtained all the information and explanations, which to
the best of our knowledge and belief, are necessary for the purposes of our
audit.
Responsibilities of Directors
As explained more fully in the statement of directors' responsibilities,
management is responsible for the preparation of the financial statements
which give a true and fair view in accordance with UK adopted International
Accounting Standards, and for such internal control as management determines
is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing
the Group and Parent Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to
liquidate the Group and Parent Company or to cease operations, or has no
realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) . This description forms part
of our auditor's report.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. Owing to the inherent limitations of an audit, there is an
unavoidable risk that material misstatements in the financial statements may
not be detected, even though the audit is properly planned and performed in
accordance with the ISAs (UK).
The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below:
· We obtained an understanding of the legal and regulatory frameworks
applicable to the company in which it operates. We determined that the
following laws and regulations were most significant, the Companies Act 2006,
and the Real Estate Investment Trust (REIT) status section 1158 of the
Corporation Tax Act 2010.
· We understood how the company is complying with those legal and
regulatory frameworks by making inquiries to management including those
responsible for compliance procedures. We corroborated our inquiries through
our review of board meetings, review of compliance reports, review of
correspondence with the regulator and review of key regulatory requirements.
We identified areas of the above laws and regulations that could reasonably be
expected to have a material effect on the financial statements from our sector
experience and through discussion with management.
· We assessed the susceptibility of the company's financial statements
to material misstatement, including how fraud might occur, by evaluating
management's incentives and opportunities for manipulation of the financial
statements. This included the evaluation of the risk of management override of
controls. We determined that the principal risks were in relation to
transactions with related parties and revenue transactions.
· In assessing the potential risks of material misstatement, we
obtained an understanding of:
- the entity's operation, including the nature of its revenue sources and
services and of its objectives and strategies to understand the classes of
transactions, account balances, expected financial statement disclosures and
business risks that may result in risks of material misstatement.
- the applicable statutory provisions
- the entity's control environment.
Our audit procedures involved:
- identifying and assessing the design and implementation of controls
management has in place to prevent and detect fraud.
- understanding how those charged with governance considered and addressed
the potential for override of controls or other inappropriate influence over
the financial reporting process; and
- identifying and testing journal entries, in particular any journal entries
posted with unusual account combinations
· These audit procedures were designed to provide reasonable assurance
that the consolidated financial statements were free from fraud or error. The
risk of not detecting a material misstatement due to fraud is higher than the
risk of not detecting one resulting from error and detecting irregularities
that result from fraud is inherently more difficult than detecting those that
result from error, as fraud may involve collusion, deliberate concealment,
forgery or intentional misrepresentations. Also, the further removed
non-compliance with laws and regulations from events and transactions
reflected in the consolidated financial statements, the less likely we would
become aware of it.
• We communicated relevant laws and regulations and potential fraud
risks to all engagement team members, and remained alert to any indications of
fraud or non-compliance with laws and regulations throughout the audit;
· We assessed the appropriateness of the collective competence and
capabilities of the engagement team including consideration of the engagement
teams:
- Understanding of, and practical experience with audit engagements of a
similar nature and complexity through appropriate training and participation.
- Knowledge of industry in which the client operates; and
- Understanding of the legal and regulatory requirements specific to the
regulated entity including the provisions of the Companies Act 2006 and the
Real Estate Investment Trust (REIT) status section 1158 of the Corporation Tax
Act 2010.
Use of our report
This report is made solely to the Parent Company's members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the Parent Company's members
those matters we are required to state to them in an auditor's report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Parent Company and the Parent
Company's members as a body, for our audit work, for this report, or for the
opinions we have formed.
Jeremy Ellis
Senior Statutory Auditor
for and on behalf of Grant Thornton Limited
Statutory Auditor, Chartered Accountants
St Peter Port, Guernsey
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2022
30 June 30 June
2022
2021
Notes £ £
CONTINUING OPERATIONS
Revenue 3 1,280,770 1,036,011
Cost of sales (50,525) (20,606)
GROSS PROFIT 1,230,245 1,015,405
Administrative expenses (1,232,932) (1,102,869)
Other operating income - 2,803
Fair value through profit and loss - Revaluation of investment properties 12 343,300 501,330
OPERATING PROFIT BEFORE SEPARATELY DISCLOSED ITEMS 340,613 416,669
Separately disclosed items
Costs associated with refinancing 6 (68,234) -
Costs associated with refurbishment of investment properties 6 (101,670) (844,200)
OPERATING PROFIT / (LOSS) 170,709 (427,531)
Finance costs 5 (512,811) (497,432)
Finance income 5 21 729
LOSS BEFORE TAXATION 6 (342,081) (924,234)
Taxation 7 - -
LOSS FOR THE YEAR (342,081) (924,234)
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR (342,081) (924,234)
Loss attributable to owners of the parent (342,081) (924,234)
Loss per share expressed in pence per share 8
Basic (0.85) (3.34)
Diluted (0.41) (1.19)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 JUNE 2022
30 June 30 June
2022
2021
Notes £ £
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 54,954 23,378
Investment properties 12 24,605,300 24,262,000
24,660,254 24,285,378
CURRENT ASSETS
Trade and other receivables 14 185,532 53,375
Cash and cash equivalents 15 2,519,346 66,915
2,704,878 120,290
TOTAL ASSETS 27,365,132 24,405,668
EQUITY
SHAREHOLDERS' EQUITY
Share capital 16 4,166,963 2,816,963
Share premium 14,941,898 13,594,317
Capital redemption reserve 344,424 344,424
Retained earnings (5,777,948) (5,435,867)
TOTAL EQUITY 13,675,337 11,319,837
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing loans and borrowings 18 13,274,574 11,052,419
CURRENT LIABILITIES
Trade and other payables 17 415,221 447,224
Interest-bearing loans and borrowings 18 - 1,586,188
415,221 2,033,412
TOTAL LIABILITIES 13,689,795 13,085,831
TOTAL EQUITY AND LIABILITIES 27,365,132 24,405,668
Net asset value per share (pence) 8 32.82 40.18
The financial statements were approved and authorised for issue by the Board
of Directors on 21 September 2022 and were signed on its behalf by:
Russell Naylor
Director
COMPANY STATEMENT OF FINANCIAL POSITION
30 JUNE 2022
30 June 30 June
2022
2021
Notes £ £
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 307 974
Investments 13 10,706,081 10,706,081
10,706,388 10,707,055
CURRENT ASSETS
Trade and other receivables 14 3,352,889 3,758,378
Cash and cash equivalents 15 2,337,349 19,252
5,690,238 3,777,630
TOTAL ASSETS 16,396,626 14,484,685
EQUITY
SHAREHOLDERS' EQUITY
Share capital 16 4,166,963 2,816,963
Share premium 14,941,898 13,594,317
Capital redemption reserve 344,424 344,424
Retained earnings (10,545,878) (9,930,751)
TOTAL EQUITY 8,907,407 6,824,953
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 17 7,489,219 7,659,732
7,489,219 7,659,732
TOTAL LIABILITIES 7,489,219 7,659,732
TOTAL EQUITY AND LIABILITIES 16,396,626 14,484,685
As permitted by Section 408 of the Companies Act 2006, the income statement of
the Company is not presented as part of these financial statements. The
Company's loss for the financial year was £(615,127) (2021 - £(782,891)).
The financial statements were approved and authorised for issue by the Board
of Directors on 21 September 2022 and were signed on its behalf by:
Russell Naylor
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2022
Share capital Share Capital redemption reserve Other Retained earnings Total equity
reserve
premium
£ £ £ £ £ £
Balance at 1 July 2020 2,756,963 13,535,468 344,424 14,930 (4,511,633) 12,140,152
Changes in equity
Transactions with owners:
Issue of share capital 60,000 58,849 - - - 118,849
Equity element of loan finance - - - (14,930) - (14,930)
Total transactions with owners 60,000 58,849 - (14,930) - 103,919
Total comprehensive loss - - - - (924,234) (924,234)
Balance at 30 June 2021 2,816,963 13,594,317 344,424 - (5,435,867) 11,319,837
Changes in equity
Transactions with owners:
Issue of share capital 1,350,000 1,347,581 - - - 2,697,581
Total transactions with owners 1,350,000 1,347,581 - - - 2,697,581
Total comprehensive loss - - - - (342,081) (342,081)
Balance at 30 June 2022 4,166,963 14,941,898 344,424 - (5,777,948) 13,675,337
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2022
Share capital Share Capital redemption reserve Other reserve Retained earnings Total equity
premium
£ £ £ £ £ £
Balance at 1 July 2020 2,756,963 13,535,468 344,424 14,930 (9,147,860) 7,503,925
Changes in equity
Transactions with owners:
Issue of share capital 60,000 58,849 - - - 118,849
Equity element of loan finance - - - (14,930) - (14,930)
Total transactions with owners 60,000 58,849 - (14,930) - 103,919
Total comprehensive loss - - - - (782,891) (782,891)
Balance at 30 June 2021 2,816,963 13,594,317 344,424 - (9,930,751) 6,824,953
Changes in equity
Transactions with owners:
Issue of share capital 1,350,000 1,347,581 - - - 2,697,581
Total transactions with owners 1,350,000 1,347,581 - - - 2,697,581
Total comprehensive loss - - - - (615,127) (615,127)
Balance at 30 June 2022 4,166,963 14,941,898 344,424 - (10,545,878) 8,907,407
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2022
2022 2021
Note £ £
Cash flows from operating activities
Cash used in operations 1 (310,314) (822,507)
Interest paid (512,811) (497,432)
Net cash used in operating activities (823,125) (1,319,939)
Cash flows from investing activities
Purchase of property, plant & equipment (53,013) -
Purchase of investment properties (including capital expenditure on current (285,000) (168,670)
properties)
Proceeds from sale of investment property 280,000 -
Interest received 21 729
Net cash used in investing activities (57,992) (167,941)
Cash flows from financing activities
Loan repayments in year (5,020,248) (100,000)
Proceeds from new loans in year 5,656,215 -
Proceeds from share issue 2,697,581 118,849
Net cash generated from financing activities 3,333,548 18,849
Increase/(decrease) in cash and cash equivalents 2,452,431 (1,469,031)
Cash and cash equivalents at beginning of year 66,915 1,535,946
Cash and cash equivalents at end of year 2,519,346 66,915
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2022
2022 2021
Note £ £
Cash flows from operating activities
Cash used in operations 1 (648,209) (725,591)
Interest paid (39) (1,327)
Net cash used in operating activities (648,248) (726,918)
Cash flows from investing activities
Interest received - 727
Net cash generated from investing activities - 727
Cash flows from financing activities
Decrease in loans from group companies (133,909) (820,388)
Decrease in loans to group companies 402,673 70,603
Loan repayments in year - (100,000)
Proceeds from share issue 2,697,581 118,849
Net cash generated from/(used in) financing activities 2,966,345 (730,936)
Increase/(decrease) in cash and cash equivalents 2,318,097 (1,457,127)
Cash and cash equivalents at beginning of year 19,252 1,476,379
Cash and cash equivalents at end of year 2,337,349 19,252
NOTES TO THE STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2022
1) RECONCILIATION OF LOSS BEFORE TAXATION TO CASH USED
IN OPERATIONS
Group 2022 2021
£ £
Loss before taxation (342,081) (924,234)
Depreciation charges 21,437 23,032
Revaluation of investment properties (343,300) (501,330)
Loss on disposal of investment property 5,000 -
Finance costs 512,811 497,432
Finance income (21) (729)
(146,154) (905,829)
(Increase)/Decrease in trade and other receivables (132,157) 10,514
(Decrease)/Increase in trade and other payables (32,003) 72,808
Cash used in operations (310,314) (822,507)
Company 2022 2021
£ £
Loss before taxation (615,127) (782,891)
Depreciation charges 667 1,125
Finance costs 39 1,327
Finance income - (727)
(614,421) (781,166)
Decrease/(increase) in trade and other receivables 2,816 (910)
(Decrease)/increase in trade and other payables (36,604) 56,485
Cash used in operations (648,209) (725,591)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
1) PRESENTATION OF FINANCIAL STATEMENTS
Statement of compliance
The consolidated financial statements have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006.
Functional and presentation currency
These consolidated financial statements are presented in Pounds Sterling
('GBP'), which is considered by the directors to be the functional currency of
the Group.
Changes in accounting policies
Adoption of new and revised standards
From 1 January 2021 the Company has applied UK-adopted IAS. At the date of
application, the UK-adopted IAS and EU-adopted IFRS were the same.
The following accounting pronouncements and standards became effective from 1
January 2021 and have been adopted but did not have a significant impact on
the Group's financial results or position:
- Covid-19 related rent concessions beyond 30 June 2021 (amendments to
IFRS 16)
- Interest Rate Benchmark Reform Phase 2 (Amendments to IFRS 9, IAS 39,
IFRS 7, IFRS 4 and IFRS 16)
New standards in issue but not yet effective
As at 30 June 2022, the Group has not applied the following new and revised
standards that have been issued but are not effective until accounting periods
beginning on or after 1 January 2022 or 1 January 2023:
- Amendments to IAS 1: Classification of liabilities as current or
non-current
- Amendments to IAS 16: Property, plant and equipment: Proceeds
before intended use
- Amendments to IFRS 3: Reference to the conceptual framework
- Annual improvements to IFRS Standards 2018-2020
- Amendments to IAS 37: Onerous Contracts - cost of fulfilling a
contract
- Amendments to IAS 8: Definition of Accounting Estimates
- Amendments to IAS 12: Deferred Tax Related to Asset and
Liabilities arising from a Single Transaction
The directors do not anticipate that the adoption of the above amendments will
have a significant impact on the financial statements of the Group in future
periods.
2) ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements have been prepared on the historical
cost basis other than as set out in the following policies.
Going concern
The financial statements have been prepared on a going concern basis. This
requires the directors to consider, as at the date of approving the financial
statements, that there is reasonable expectation that the Group has adequate
financial resources to continue to operate, and to meet its liabilities as
they fall due for payment, for at least twelve months following the approval
of the financial statements.
Going concern (continued)
The Group has undertaken procedures to ensure that the Group has sufficient
cash resources and bank facilities and with sufficient covenant margin to
manage the business under going concern principles. These procedures included
the following:
· Reviewing and establishing that cash balances and bank facilities are
sufficient to cover at least twelve months of operations;
· Review of financial covenant ratios and the Group's ability to meet
the covenants for a period of at least twelve months of operation; and
· Reviewing cash flow forecast scenarios. Any decision on property
acquisitions and developments in the next twelve months will be taken
following review of revised cash flow forecasts.
Having reviewed the Company's current position and cash flow projections,
including the confirmation that the Company's subsidiaries, which are also
creditors as at the year-end will provide such financial support as is
required for a period of at least 12 months from the date of signing of these
financial statements, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going concern
basis in preparing these financial statements.
The Company has also provided an undertaking to its subsidiaries that no
intra-group amounts owed to the Company will be called for repayment for a
period of at least 12 months from the date of approval of these financial
statements unless the Subsidiary is in a position to make payments without
adversely affecting their ability to continue to trade and settle any future
obligations.
Basis of consolidation
Where the Company has control over an investee, it is classified as a
subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect
those variable returns. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
The consolidated financial statements incorporate the results of business
combinations using the acquisition method. In the statement of financial
position, the acquiree's identifiable assets, liabilities and contingent
liabilities are initially recognised at their fair values at the acquisition
date. The results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is obtained.
They are deconsolidated from the date on which control ceases.
The subsidiaries included in the consolidated financial statements, from the
effective date of acquisition, are K&C (Newbury) Limited, K&C
(Coleherne) Limited, K&C (Osprey) Limited, KCR (Kite) Limited and KCR
(Southampton) Limited.
The consolidated financial statements present the results of the Company and
its subsidiaries ("the Group") as if they formed a single entity. Intercompany
transactions and balances between group companies are therefore eliminated in
full.
Transaction costs, other than those of a capital nature and those associated
with the issue of debt or equity securities that the Group incurs in
connection with a business combination are expensed as incurred.
Investments
Investments in subsidiaries are held at cost less provision for impairment.
Revenue recognition
Revenue of the Group for the year was derived mainly from its principal
activity, being the letting to third parties of, and management of, property
assets owned by the Group. This income includes rental income, management fees
and sales commissions.
Revenue from contracts with customers is recognised when control of the
services are transferred to the customer at an amount that reflects the
consideration to which the Group expects to be entitled in exchange for those
services net of discounts, VAT and other sales-related taxes. The Group
concludes that it is the principal in its revenue arrangements, because it
typically controls the goods or services before transferring them to the
customer. Contracts with customers do not contain a financing component or any
element of variable consideration.
Rental income from operating leases is recognised periodically in line with
the time for which the property is rented. Rental income received in advance
is recognised in deferred income.
Management fees derived from the management of property assets owned by third
parties are recognised as the services are provided.
Revenue from sales commissions is recognised at the point in time when control
of the asset is transferred from the vendor to the buyer.
Separately disclosed items
Separately disclosed items are those that are deemed to be exceptional by size
or nature in relation to the activities of the Group.
Finance costs
Finance costs comprise interest expense on borrowings.
Borrowing costs that are not directly attributable to the acquisition,
construction or production of a qualifying asset are recognised in profit or
loss using the effective interest method.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation.
Depreciation is provided at the following annual rates in order to write off
each asset over its estimated useful life.
Fixtures and fittings - 5% and 25% on cost
Computer equipment - 25% on cost
Investment properties
Investment properties comprise properties owned by the Group which are held
for capital appreciation, rental income or both. Investment properties are
initially measured at cost, including expenditure that is directly
attributable to the acquisition of the asset. Investment properties are
revalued on acquisition by independent external valuers and then by the
directors or independent valuers annually thereafter. Acquisitions and
disposals are recognised on completion. Any gain or loss arising from a change
in fair value is recognised in profit or loss.
Further details of the investment property valuation methodology are contained
in note 12 of the financial statements.
Subsequent expenditure is capitalised only when it is probable that the future
economic benefits associated with the expenditure will flow to the Group.
Ongoing repairs and maintenance are expensed as incurred.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and balances held with
banking institutions.
Financial assets
Recognition and derecognition
Financial assets are recognised initially on the date that the Group becomes a
party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the
cash flows from the asset expire, or it transfers the rights to receive the
contractual cash flows in a transaction in which substantially all the risks
and rewards of ownership of the financial assets are transferred.
Financial assets and liabilities are offset and the net amount presented in
the statement of financial position only when the Group has a legal right to
offset the amounts and intends either to settle on a net basis or to realise
the asset and settle the liability simultaneously.
Classification and initial recognition of financial assets
Except for trade receivables that do not contain a significant financing
component and are measured at the transaction price in accordance with IFRS
15, all financial assets are initially measured at amortised cost.
Financial assets are classified into the following categories:
- Amortised cost
- Fair value through profit or loss (FVTPL)
- Fair value through other comprehensive income (FVOCI)
The classification is determined by both:
- The entity's business model for managing the asset
- The contractual cash flow characteristics of the financial asset
All income and expenses relating to financial assets that are recognised in
profit or loss are presented within finance costs, finance income or other
financial items, except for impairment of trade receivables which is presented
within administrative expenses.
Subsequent measurement of financial assets
Financial assets are measured at amortised cost if the assets meet the
following conditions (and are not designated as FVTPL):
- They are held within a business model whose objective is to hold
the financial assets and collect its contractual cash flows;
- The contractual terms of the financial assets give rise to cash
flows that are solely payments of principal and interest on the principal
amount outstanding.
After initial recognition, these are measured at amortised cost using the
effective interest method. Discounting is omitted where its effect is
immaterial. The Group's cash and cash equivalents, trade and most other
receivables fall into this category.
Financial assets which are designated as FVTPL are measured at fair value with
gains or losses recognised in profit or loss. The fair values of financial
assets in this category are determined with reference to active market
transactions or using a valuation technique where no active market exists.
Impairment of financial assets
IFRS 9's impairment requirements use forward looking information to recognise
expected credit losses - the 'expected credit loss (ECL) method'. Recognition
of credit losses is no longer dependent on first identifying a credit loss
event, but considers a broader range of information in assessing credit risk
and credit losses including past events, current conditions, reasonable and
supportable forecasts that affect the expected collectability of the future
cash flows of the instrument.
The Group makes use of a simplified approach in accounting for trade and other
receivables and records the loss allowance as lifetime expected credit losses.
These are the expected shortfalls in contractual cash flows, considering the
potential for default at any point during the life of the financial
instrument. In calculating, the Group uses its historical experience, external
indicators and forward-looking information to calculate the expected credit
losses.
Financial liabilities
Financial liabilities are recognised initially on the date that the Group
becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations
are discharged, cancelled or expire.
The Group classifies non-derivative financial liabilities into the 'other
financial liabilities' category. Such financial liabilities are recognised
initially at fair value adjusted for directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are measured at
amortised cost using the effective interest method.
'Other financial liabilities' comprise trade and other payables and other
short-term monetary liabilities.
Bank and other borrowings are initially recognised at the fair value of the
amount advanced net of any transaction costs directly attributable to the
issue of the instrument. Such interest-bearing liabilities are subsequently
measured at amortised cost using the effective interest method. Interest
expense in this context includes initial transaction costs and premium payable
on redemption, as well as any interest or coupon payable while the liability
is outstanding.
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities.
Share capital
Ordinary shares are classified as equity. Costs directly attributable to the
issue of Ordinary shares are recognised as a deduction from equity.
Leasing
The Company applies IFRS 16 Leases. Lessees, with certain exceptions for short
term or low value leases, are required to recognise all leased assets on their
Statement of Financial Position as 'right-of-use assets' with a corresponding
lease liability.
The Group has a small number of operating leases concerning office premises
and plant and equipment. IFRS 16 provides an exemption for short term
operating leases and leases of low value. The Company has taken advantage of
the exemptions rather than establishing a right to use asset.
The costs of leases of low value items and those with a short term at
inception are recognised as incurred.
Taxation
Tax expense comprises current and deferred tax. Current and deferred tax is
recognised in profit or loss except to the extent that it relates to a
business combination, or items recognised directly in equity or in other
comprehensive income. As a REIT, the Group is generally not liable to
corporation tax.
Deferred tax would be recognised in respect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax is
recognised for:
· temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination and that
affects neither the accounting nor taxable profit or loss;
· temporary differences related to investments in subsidiaries and
jointly controlled entities to the extent that it is probable that they will
not reverse in the foreseeable future; and
· taxable temporary differences arising on the initial recognition
of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, using tax rates enacted or
substantively enacted at the reporting date.
A deferred tax asset is recognised for unused tax losses, tax credits and
deductible temporary differences to the extent that it is probable that future
taxable profits will be available against which they can be utilised.
Deferred tax assets are reviewed at each reporting date and are reduced to
the extent that it is no longer probable that the related tax benefit will be
realised.
Provisions
A provision is recognised if, as a result of a past event, the Group has a
present legal or constructive obligation that can be estimated reliably, and
it is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the liability. The unwinding of
the discount is recognised as finance cost.
Critical accounting estimates and judgments
The preparation of the consolidated financial statements in conformity with
IFRS requires management to make judgments, estimates and assumptions that
affect the application of accounting policies and the reported amount of
assets, liabilities, income, and expenses. Actual results may differ from
these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future years affected.
Information about critical estimates and assumptions that have the most
significant effect on the amounts recognised in the consolidated financial
statements and/or have a significant risk of resulting in a material
adjustment within the next financial year is as follows:
§ Determination of fair values
The Group's investment property accounting policies and disclosures require
the determination of fair value for both financial and non-financial assets
and liabilities. Fair values have been determined for measurement and/or
disclosure purposes based on the following methods.
When applicable, further information about the assumptions made in determining
fair values is disclosed in the notes specific to that asset or liability.
Investment properties
The Group's investment properties are valued, on the basis of market value.
The fair value of investment properties is based either on independent
professional valuations in accordance with the Royal Institution of Chartered
Surveyors' Appraisal and Valuation Standards 2014 as amended or by the
directors, based on market prices for similar items. The Group's investment
properties were valued at 30 June 2022 at £24,605,300. See note 12 for
further details.
The directors are of the opinion that the estimates and assumptions that they
have used in the valuation of investment properties are appropriate. Further
details of the valuation methodology are contained in note 12 of the financial
statements.
3) REVENUE
The Group is involved in UK property ownership, management and letting and is
considered to operate in a single geographical and business segment.
The total revenue of the Group for the year was derived from its principal
activities, being the letting to third parties of, and management of, property
assets owned by the Group, and, in certain cases, the management of property
assets owned by third parties.
The Group's investment property consists of residential housing for the
private rented sector and therefore has multiple tenants and as a result does
not have any significant customers.
2022 2021
£ £
Revenue analysed by class of business
Rental income 933,475 724,680
Management fees 89,801 81,768
Resale commission 102,055 114,913
Ground rents 13,314 13,535
Leasehold extension income 133,500 96,275
Other income 8,625 4,840
1,280,770 1,036,011
4) EMPLOYEES AND DIRECTORS
Group
2022 2021
£ £
Wages and salaries 305,858 325,525
Social security costs 26,179 35,448
Pension costs 5,420 1,275
337,457 362,248
The average monthly number of employees during the year was as follows:
2022 2021
Directors and management 4 4
Administration 3 3
7 7
2022 2021
£ £
Directors' remuneration (as per Report of the Directors) 182,125 222,191
Remuneration of the highest-paid director 93,833 89,375
Amounts paid into a pension scheme of the highest-paid director - -
The Group directors are considered to be key management personnel.
Company
2022 2021
£ £
Wages and salaries 231,124 264,402
Social security costs 17,156 30,118
Pension costs - (2,175)
248,280 292,345
The average monthly number of employees during the year was as follows
Directors and management 4 4
Administration - -
4 4
5) FINANCE COSTS AND INCOME
2022 2021
£ £
Finance costs
Loan interest 512,811 497,432
Finance income
Bank interest 21 729
6) LOSS BEFORE TAXATION
The loss before taxation is stated after charging:
2022 2021
£ £
Hire of plant and machinery 8,359 10,002
Other operating leases 13,365 13,140
Depreciation - owned assets 21,437 23,032
Auditors' remuneration for the Group 59,500 55,000
Auditors' remuneration for the Group underprovided in prior year 5,000 -
Separately disclosed items
In the previous year, the Group commenced substantial refurbishment work to
investment properties owned by K&C (Coleherne) Limited and K&C
(Osprey) Limited. The costs incurred in the 2022 financial year amounted to
£35,021 and £66,649 (2021 - £703,946 and £140,254).
Also during the year, the company incurred costs totalling £68,234 in
relation to refinancing loan facilities. Further details can be found in Note
18.
It is considered that the size and nature of these costs are such that they
should be disclosed on the face of the Consolidated Statement of Comprehensive
Income.
7) TAXATION
Analysis of tax
2022 2021
Current tax £ £
UK corporation tax - -
Deferred tax - -
Total tax - -
Factors affecting the tax expense
The tax assessed for the year is higher than the standard rate of corporation
tax in the UK. The difference is explained below:
2022 2021
£ £
Loss on ordinary activities before taxation (342,081) (924,234)
Loss on ordinary activities multiplied by the standard rate of corporation tax
in the UK of 19% (2021 - 19%)
(64,995) (175,604)
Effects of
Income and expenses not taxable 64,995 175,604
Tax credit - -
The Group has remained under the REIT regime throughout the year and since the
balance sheet date.
8) LOSS PER SHARE AND NET ASSET VALUE
Basic loss per share is calculated by dividing the loss attributable to
ordinary shareholders by the weighted average number of Ordinary shares
outstanding during the year.
Fully diluted earnings per share is calculated using the weighted average
number of shares adjusted to assume the conversion of all dilutive potential
Ordinary shares.
Basic loss per share
2022
Loss Weighted average number of shares Per share amount
£ No Pence
Loss attributable to ordinary shareholders (342,081) 40,196,318 (0.85)
2021
Loss Weighted average number of shares Per share amount
£ No Pence
Loss attributable to ordinary shareholders (924,234) 27,651,823 (3.34)
Diluted loss per share
2022
Loss Weighted average number of shares Per share amount
£ No Pence
Loss attributable to ordinary shareholders (342,081) 82,882,619 (0.41)
Effect of dilutive securities - - -
2021
Loss Weighted average number of shares Per share amount
£ No Pence
Loss attributable to ordinary shareholders (924,234) 77,569,631 (1.19)
Effect of dilutive securities - - -
The net asset value is calculated by dividing the equity attributable to
ordinary shareholders by the number of Ordinary shares in issue at the balance
sheet date.
2022
Equity Number of shares Per share amount
£ No Pence
Net asset value 13,675,337 41,669,631 32.82
2021
Equity Number of shares Per share amount
£ No Pence
Net asset value 11,319,837 28,169,631 40.18
9) OPERATING LEASES RECEIVABLE
The Group leases residential units within certain of its investment properties
under operating leases. The future minimum lease payments receivable under
non-cancellable leases are as follows:
30 June 30 June
2022
2021
£ £
Within one year 358,724 414,594
Between one and five years 58,756 84,533
More than 5 years 29,017 37,263
Total 446,497 536,390
Lease revenue is generated from properties owned by K&C (Coleherne)
Limited, KCR (Southampton) Limited and KCR (Kite) Limited that are let on
short-term tenancy agreements.
10) LEASING AGREEMENTS
Minimum lease payments, under non-cancellable operating leases, fall due as
follows:
30 June 30 June
2022
2021
£ £
Within one year 21,499 24,784
Between one and five years 5,375 10,449
Total 26,874 35,233
11) PROPERTY, PLANT AND EQUIPMENT
GROUP Fixtures, fittings & computer equipment
£
COST
At 1 July 2020 97,740
Additions -
At 30 June 2021 97,740
Additions 53,013
At 30 June 2022 150,753
DEPRECIATION
At 1 July 2020 51,330
Charge for year 23,032
At 30 June 2021 74,362
Charge for year 21,437
At 30 June 2022 95,799
NET BOOK VALUE
At 30 June 2022 54,954
At 30 June 2021 23,378
COMPANY Fixtures, fittings & computer equipment
£
COST
At 1 July 2020 7,516
Additions -
At 30 June 2021 7,516
Additions -
At 30 June 2022 7,516
DEPRECIATION
At 1 July 2020 5,417
Charge for year 1,125
At 30 June 2021 6,542
Charge for year 667
At 30 June 2022 7,209
NET BOOK VALUE
At 30 June 2022 307
At 30 June 2021 974
12) INVESTMENT PROPERTIES
GROUP Total
£
COST OR VALUATION
At 1 July 2020 23,592,000
Additions 168,670
Disposals -
Revaluations 501,330
At 30 June 2021 24,262,000
Additions 285,000
Disposals (285,000)
Revaluations 343,300
At 30 June 2022 24,605,300
At 30 June 2021 24,262,000
The investment properties were valued by the Directors at 30 June 2022 with
reference to independent external valuations performed in August 2022, with a
valuation date as at 30 June 2022. All of the properties were subject to
desktop valuations with the exception of the property at Ladbroke Grove which
was subject to a full valuation. The external valuations were carried out in
accordance with the Royal Institution of Chartered Surveyors' Valuation -
Global Standards, 2020 (Red Book).
The Directors determined that there were no material factors that would give
rise to there being a material variance between the latest external valuation
and the fair value as at 30 June 2022.The valuation of the investment
properties was £24,605,300, which was included in the financial statements.
Fair value is based on current prices in an active market for similar
properties in the same location and condition. The current price is the
estimated amount for which a property could be exchanged between a willing
buyer and willing seller in an arm's length transaction after proper marketing
wherein the parties had each acted knowledgeably, prudently and without
compulsion.
Valuations are based on a market approach which provides an indicative value
by comparing the property with other similar properties for which price
information is available. Comparisons have been adjusted to reflect
differences in age, size, condition, location and any other relevant factors.
The fair value for investment properties has been categorised as Level 3
inputs under IFRS 13. The valuer visited all material properties where full
valuations were carried out in the current and previous year and these
valuations were based on both internal and external site visits.
The valuation technique used in measuring the fair value, as well as the
significant inputs and significant unobservable inputs are summarised in the
table below:
Fair Value Hierarchy Valuation Technique Significant Inputs Used Significant Unobservable Inputs
Level 3 Income capitalisation and or capital value on a per square foot basis Adopted gross yield 3.50% - 6.50%
Adopted rate per square foot £336 - £1,355
The fair value would increase if market rents were higher and/or the rates per
square foot were higher and/or capitalisation rates were lower.
The fair values would decrease if market rents were lower and/or the rates per
square foot were lower and/or capitalisation rates were higher.
If properties had been included on a historical cost basis, the cost of the
properties at 30 June 2022 would have been £22,452,913 (2021 - £22,467,913).
The revenue earned by the Group from its investment properties and all direct
operating expenses incurred on its investment properties are recorded in the
Consolidated Statement of Comprehensive Income.
The total rental income in relation to investment properties for the Group
equated to £933,475 (2021 - £724,680). The total rental expenses in relation
to investment properties for the Group equated to £50,525 (2021 - £20,606).
Included within Investment Properties are leasehold properties valued at
£6,150,000 and freehold properties valued at £18,455,300 (2021: £5,830,000
and £18,432,000 respectively).
13) INVESTMENTS
Company Shares in group undertakings
£
COST
At 1 July 2021 10,706,081
Disposals -
At 30 June 2021 10,706,081
Disposals -
At 30 June 2022 10,706,081
NET BOOK VALUE
At 30 June 2022 10,706,081
At 30 June 2021 10,706,081
As at 30 June 2022, the Company's investments comprise the following:
Subsidiaries Holding
%
K&C (Coleherne) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
K&C (Osprey) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
KCR (Kite) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
KCR (Southampton) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
K&C (Newbury) Limited Registered office: UK 100.00
Nature of business Class of shares
Dormant Ordinary
All of the above companies are registered at Gladstone House, 77-79 High
Street, Egham, Surrey, TW20 9HY.
14) TRADE AND OTHER RECEIVABLES
Group Company
2022 2021 2022 2021
£ £ £ £
Trade debtors 665 246 - -
Amounts owed by group undertakings - - 3,338,960 3,741,633
Other debtors 29,434 11,530 - -
VAT - - - -
Prepayments 155,433 41,599 13,929 16,745
185,532 53,375 3,352,889 3,758,378
The Group and Company's exposure to credit risk is disclosed in note 20.
There is no material difference between the fair value of trade and other
receivables and their book value.
All receivables are due within 12 months of 30 June 2022. None of those
receivables has been subject to a significant increase in credit risk since
initial recognition and, consequently, no expected credit losses have been
recognised.
15) CASH AND CASH EQUIVALENTS
Group Company
2022 2021 2022 2021
£ £ £ £
Cash in hand 40 40 - -
Bank accounts 2,519,306 66,875 2,337,349 19,252
2,519,346 66,915 2,337,349 19,252
16) SHARE CAPITAL
Allotted, issued and fully paid
Number Class Nominal value 30 June 30 June
2022
2021
£ £
41,669,631 Ordinary £0.10 4,166,963 2,816,963
(2021: 28,169,631) 4,166,963 2,816,963
2022 2022 2021 Number 2021
Number £ £
Ordinary shares of £0.10 each
At 1 July 28,169,631 2,816,963 27,569,631 2,756,963
Conversion of Restricted Preference Shares - - - -
Shares issued as loan repayments - - - -
Shares issued as creditor payments - - - -
Shares issued for cash 13,500,000 1,350,000 600,000 60,000
At 30 June 41,669,631 4,166,963 28,169,631 2,816,963
The Ordinary shares issued during the year were issued at £0.199821 per share
(2021 - £0.19808).
17) TRADE AND OTHER PAYABLES
Group Company
2022 2021 2022 2021
Current £ £ £ £
Trade creditors 49,852 151,100 37,607 64,795
Amounts owed to group undertakings - - 7,256,613 7,390,522
Other taxes and social security 63,050 22,748 36,281 7,032
Other creditors 8,789 19,180 - 15,468
Accruals and deferred income 293,530 254,196 158,718 181,915
415,221 447,224 7,489,219 7,659,732
The Group and Company exposure to liquidity risk related to trade and other
payables is disclosed in note 20.
There is no material difference between the fair value of trade and other
payables and their book value.
Amounts owed to group undertakings are repayable on demand.
18) FINANCIAL LIABILITIES - BORROWINGS
Group Company
2022 2021 2022 2021
£ £ £ £
Current
Other loans - 1,586,188 - -
- 1,586,188 - -
Non-current
Bank loans 9,993,359 7,868,169 - -
Other loans 3,281,215 3,184,250 - -
13,274,574 11,052,419 - -
Terms and debt repayment schedule (including interest)
2022
1 year or less 1-2 years 2-5 years More than 5 years Totals
Group £ £ £ £ £
Bank loans 374,705 374,705 3,742,366 14,125,707 18,617,483
Other loans 116,483 116,483 349,449 3,436,526 4,018,941
491,188 491,188 4,091,815 17,562,233 22,636,424
2021
1 year or less 1-2 years 2-5 years More than 5 years Totals
Group £ £ £ £ £
Bank loans 275,386 275,386 943,218 14,982,305 16,476,295
Other loans 1,761,322 175,134 525,401 3,607,490 6,069,347
2,036,708 450,520 1,468,619 18,589,795 22,545,642
Details of the principal loans are as follows:
a) A three-year loan of £1,995,000 was entered into
during the 2018 financial year. The loan was repayable by 36 monthly
instalments of £9,144 and a final instalment of £1,940,138. On 5 September
2019, the Company repaid £353,950. The monthly repayments from that date
reduced to £7,568. The monthly instalments were interest payments and did not
include any capital repayments. Interest was charged at 5.50 per cent per
annum. The loan was secured by a fixed and floating charge over all the
property and assets of K&C (Osprey) Limited, including the property known
as Heathside, 562 Finchley Road. The loan was repaid in August 2021 when the
Company refinanced with Secure Trust Bank.
b) In August 2021, K&C (Osprey) Limited entered
into a new 5 year loan of £2,375,000 with Secure Trust Bank. The monthly
instalments are interest payments and do not include any capital repayments.
Interest is charged at 1.7 per cent above the base rate of Secure Trust Bank
which is subject to variable increases. The loan is secured by a fixed and
floating charge over all the property and assets of K&C (Osprey) Limited,
including the property known as Heathside, 562 Finchley Road. The balance
outstanding at 30 June 2022 was £2,375,000.
c) On 4 December 2018, KCR (Southampton) Limited
took out a new loan of £3,184,250, with Lendco Limited. The term of the loan
was 10 years. The monthly instalments were interest payments and did not
include any capital repayments. Interest was charged at 3.19 per cent for the
first 24 months. Interest for the remainder of the term was charged at 4.79
per cent above LIBOR. The loan was refinanced in October 2021 at an amount of
£3,281,215. Following the refinancing, the term of the loan was 7 years. The
monthly instalments remain interest payments and do not include any capital
repayments. Interest is charged at 3.55 per cent. The loan is secured by a
first legal mortgage and a first fixed charge over the land at Block B, Chapel
Riverside, Endle Street, Southampton. The balance outstanding at 30 June 2022
was £3,281,215.
d) On 10 February 2020, K&C (Coleherne) Limited
took out a new loan of £2,743,359 with Hodge Bank. The term of the loan is 25
years. The monthly instalments are interest payments and do not include any
capital repayments. Interest is charged at 3.5 per cent for the first 60
months. After this period the interest rate charged will be a standard
variable rate. The loan is secured by a freehold charge over 25 Coleherne
Road. The balance outstanding at 30 June 2022 was £2,743,359.
e) On 10 February 2020, KCR (Kite) Limited took out a
new loan of £5,124,810 with Hodge Bank. The term of the loan is 25 years. The
monthly instalments are interest payments and do not include any capital
repayments. Interest is charged at 3.5 per cent for the first 60 months. After
this period the interest rate charged will be a standard variable rate. In
August 2021, the Company made a repayment of £249,810, following the sale of
9 Lomond Court. The balance outstanding at 30 June 2022 was £4,875,000.
Reconciliation of net movement in cash
Group
Loans received in year Other non-cash movement Net cash
Net cash at 1 July 2021 Cash flow Repayments in year at 30 June 2022
£ £ £ £ £
Cash at bank and in hand 66,915 2,452,433 - - - 2,519,348
Borrowings (12,638,607) - (5,656,215) 5,020,248 - (13,274,574)
Total financial liabilities (12,571,692) 2,452,433 (5,656,215) 5,020,248 - (10,755,226)
Loans received in year Other Net cash
Net cash at 1 July 2020 Cash flow Repayments in year non-cash movement at 30 June 2021
£ £ £ £ £
Cash at bank and in hand 1,535,946 (1,469,031) - - - 66,915
Borrowings (12,723,677) - - 85,070 - (12,638,607)
Total financial liabilities (11,187,731) (1,469,031) - 85,070 - (12,571,692)
Company
Other
Net cash at 1 July 2021 Repayments in year non-cash movement Net cash
Cash flow at 30 June 2022
£ £ £ £ £
Cash at bank and in hand 19,252 2,318,097 - - 2,337,349
Borrowings - - - - -
Total financial liabilities 19,252 2,318,097 - - 2,337,349
Other
Net cash at 1 July 2020 Repayments in year non-cash movement Net cash
Cash flow at 30 June 2021
£ £ £ £ £
Cash at bank and in hand 1,476,379 (1,457,127) - - 19,252
Borrowings (85,070) - 85,070 - -
Total financial liabilities 1,391,309 (1,457,127) 85,070 - 19,252
19) FINANCIAL INSTRUMENTS
The Group's financial assets, as defined under IFRS 9, and their estimated
carrying amount are as follows:
Group Company
2022 2021 2022 2021
£ £ £ £
Carrying amount of financial assets at amortised cost
Trade and other receivables 185,532 53,375 3,352,889 3,758,378
Cash at bank and in hand 2,519,346 66,915 2,337,349 19,252
20) FINANCIAL RISK MANAGEMENT
The Company's directors have overall responsibility for the establishment and
oversight of the Group's risk management framework.
The Company's and Group's risk management policies are established to identify
and analyse the risks faced by the Company and Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect the changes
in market conditions and the Group's activities. The Company and Group,
through its training and management standards and procedures, aims to develop
a disciplined and constructive control environment in which all employees
understand their roles and obligations.
The Company and Group has exposure to the following risks arising from
financial instruments:
o credit risk
o liquidity risk
o market risk
Capital risk management
The Company and Group's objective when managing capital is to safeguard its
accumulated capital in order to provide an adequate return to shareholders by
maintaining a sufficient level of funds, in order to support continued
operations.
The Company and Group considers its capital to comprise equity capital less
accumulated losses.
The share premium reserve includes premiums received on the issue of share
capital during the year.
The Group refinanced their loan portfolio in the 2020 financial year. As a
result, the Group entered into new loan agreements with Hodge Bank. The total
loans with Hodge Bank at 30 June 2022 totalled £7,618,359. The loan
agreements contain the following covenants:
o the maximum available loan amount relative to the value of the properties
will not be, at any time, during the term of the loan, more than 75% of the
market value of the properties (as determined from time to time in accordance
with the lenders requirements by a valuer appointed by the lender) ; and
o the aggregate of all rental income from the properties shall not, in any
twelve month period, be less than 125% of the aggregate of all scheduled
interest instalments or other payments due under the loan in that period.
K&C (Osprey) Limited refinanced their loan portfolio in the 2022 financial
year. As a result, the Group entered into a new loan agreement with Secure
Trust. The total loans with Secure Trust at 30 June 2022 totalled £2,375,000.
The loan agreement contains the following covenants:
o interest cover in respect of any interest period shall not be less than
1.75:1; and
o the loan to value will not at any time exceed 56%.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations.
The Group has no significant concentration of credit risk, with exposure
spread over a large number of counterparties and customers.
The carrying amount of financial assets represents the maximum credit
exposure. The maximum exposure to credit risk is as reported in the statement
of financial position.
The Group undertakes credit checks on prospective new tenants to assess and
mitigate credit risk. The checks include verification of income levels and
capacity to pay, as well as checks of rental references. Any arrears are
actively managed. The Group mitigates credit risk with regard to cash and cash
equivalents by using banks with a credit rating of B or above.
Liquidity risk
Liquidity risk is the risk that the Company and Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another financial asset.
The Company's and Group's approach to managing liquidity is to ensure, as far
as possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without
incurring unacceptable losses or risking damage to the Company's and Group's
reputation.
The contractual maturities of financial liabilities are disclosed in note 18.
Liquidity risk is not deemed to be significant as the company has a
significant amount of current assets, including a balance owed by the parent
company, which they can draw against as and when funds are required.
Market risk
Market risk is the risk that changes in market prices, such as interest rate
and equity prices will affect the Group and the Company's income or the value
of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposure within acceptable
parameters, while optimising the return.
The Group is exposed to interest rate risk in respect of its borrowings. The
Group mitigates this risk by, where possible, securing facilities at a fixed
interest rate.
Sensitivity
Interest rate sensitivity:
At 30 June 2022, if interest rates had been 0.5 percentage point higher and
all other variables were held constant, it is estimated that the Group's loss
before tax would increase to £410,263 (2021 - £992,377). This is
attributable to the Group's exposure on its borrowings and is based on the
change taking place at the beginning of the financial year and held constant
throughout the reporting period.
21) RELATED PARTY TRANSACTIONS
During the year, remuneration paid to Russell Naylor consisted of fees of
£48,000 charged by Naylor Partners, a business in which Russell Naylor is a
Director (2021 - £48,000).
The remuneration paid to Richard Boon in 2022 consisted of fees of £Nil (2021
- £18,900) charged by Artefact Partners, a business in which Richard Boon is
a Director.
During the year, the Group paid DGS Capital Partners LLP, a limited liability
partnership in which Michael Davies is a member, fees of £Nil (2021 - £9,000
plus VAT of £1,800).
Further details of total director remuneration is contained with the Report of
the Directors. Christopher James is also considered as key management
personnel. His remuneration in the period totalled £95,000 (2021 -
£113,027), which includes a provision of £20,000 (2021 - £38,027) for a
catch-up payment incentive which will be due when the business achieves
cash-flow breakeven
22) ULTIMATE CONTROLLING PARTY
Following the exercise, of 13,500,000 options by Torchlight Fund LP in October
2021, Torchlight's interest in the Company increased to 23,100,000 shares,
representing 55.4% of the Company's enlarged issued share capital.
The parent company of Torchlight Fund LP, and the ultimate parent company of
KCR Residential REIT plc, is Pyne Gould Corporation Limited. The results of
the Group are consolidated in the financial statements of Pyne Gould
Corporation Limited. The financial statements are available at
http://www.pgc.co.nz/
(https://protect-eu.mimecast.com/s/q1eXCp88QU5RAkWiPOl3a?domain=pgc.co.nz/)
The ultimate controlling party of Pyne Gould Corporation Limited is George
Kerr.
23) POST-BALANCE SHEET EVENTS
On 6 August 2022, the option agreement that the Group entered into with
Torchlight in the 2020 financial year, to grant Torchlight an option to
subscribe for a further 50,000,000 new Ordinary Shares, lapsed. No further
options were exercised after the balance sheet date.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR SEISUDEESEEURecent news on KCR Residential Reit
See all newsREG - KCR Residential REIT - Interim Results and Board Changes
AnnouncementREG - KCR Residential REIT - Result of AGM
AnnouncementREG - KCR Residential REIT - Notice of AGM
AnnouncementREG - KCR Residential REIT - Final Results
AnnouncementREG - KCR Residential REIT - Half-year Report
Announcement