TIDMKCR
RNS Number : 9828M
KCR Residential REIT PLC
20 September 2023
20 September 2023
KCR Residential REIT Plc
("KCR" or the "Company")
Final Results
KCR Residential REIT Plc is pleased to announce its final
results for the year ended 30 June 2023.
The Annual Report will shortly be available on the Company's
website, www.kcrreit.com and will be distributed to shareholders in
the coming days.
The 2023 financial year has seen continued growth in the
business in an environment that has remained uncertain.
Operational highlights -
-- Revenue for the financial year increased by 23.01% (to
GBP1.58 million up from GBP1.28 million in 2022) - largely
underpinned by the ongoing performance of Coleherne Road and the
conversion of Deanery Court to a walk in walk out "WIWO" operating
model.
-- Portfolio level occupancy has remained close to 100% of all
available flats let on a traditional assured shorthold tenancy
("AST") basis. Rental increases continue to be achieved at renewals
/ re-lettings. The Cristal Apartments WIWO operating model
inherently comes with lower occupancy levels, however it generates
substantially more revenue, which compensates for the increase in
volatility around occupancy.
The ongoing focus on improving operation performance and control
of costs continues to minimise cash burn from operating
activities.
The focus for the 2023 financial year has been on -
-- the conversion of Deanery Court to the Cristal Apartments
WIWO operating model,
-- completion of refurbishment works at the Coleherne Road
property;
-- refurbishing the additional flat acquired at Heathside;
-- maintaining high occupancy across the portfolio and
-- keeping operating costs to a minimum.
Deanery Court is expected to be a primary contributor of revenue
growth over the course of the 2024 financial year, with costs
reducing now that the transition has been completed.
Our focus to drive value over the 2024 financial year is -
-- optimising performance of Deanery Court under the Cristal
Apartments WIWO model;
-- letting up Coleherne Road following completion of
refurbishment works and ongoing focus on rental levels as tenancies
expire;
-- continuing to progress planning works at Ladbroke Grove;
-- completion of works to the interior and exterior across a
number of the retirement portfolio properties to modernise and
reposition how these properties are viewed;
-- control of core running costs with incremental reductions
where possible; and
-- acquisitions to increase scale (subject to pricing / value
drivers).
KCR continues to make progress towards becoming cashflow
positive and creating a stable platform that can be successfully
scaled up. We look forward to delivering further improved
performance from the existing portfolio over the course of the 2024
financial year.
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.
Caution regarding forward looking statements
Certain statements in this announcement, are, or may be deemed
to be, forward looking statements. Forward looking statements are
identi ed by their use of terms and phrases such as "believe",
"could", "should" "envisage", "estimate", "intend", "may", "plan",
"potentially", "expect", "will" or the negative of those,
variations or comparable expressions, including references to
assumptions. These forward-looking statements are not based on
historical facts but rather on the Directors' current expectations
and assumptions regarding the Company's future growth, results of
operations, performance, future capital and other expenditures
(including the amount, nature and sources of funding thereof),
competitive advantages, business prospects and opportunities. Such
forward looking statements re ect the Directors' current beliefs
and assumptions and are based on information currently available to
the Directors.
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 .
For further information please contact:
KCR Residential REIT plc 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 / Emily Staples / Louise
O'Driscoll
Zeus Capital Limited (Broker) Tel: +44 (0)20 7614 5000
Louisa Waddell
CHAIRMAN'S LETTER
Dear Shareholder
This year has seen continued growth of the business in an
environment that has remained uncertain. Increasing interest rates,
cost of living pressure and supply chain disruption have presented
ongoing challenges for the business. Inflationary pressures across
most aspects of the economy have resulted in ongoing cost increases
which has made the focus on reducing costs difficult.
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 2023 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.
Conversion of the Deanery Court property to the Cristal
Apartments walk in walk out (WIWO) operating model was successfully
completed in June 2023 and is expected to be a key driver of
improving Group operating performance over the 2024 financial
year.
The Coleherne Road property refurbishment works were also
completed in June and the let up of the balance of this property
will also assist with improving operating performance. 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 supported ongoing
revenue growth during the financial year.
An additional flat was acquired within Heathside, fully
refurbished during the financial year and was let in July 2023. The
strategy of acquiring, refurbishing and re-letting flats here has
proven astute. Ten 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.
Development opportunities within the existing portfolio continue
to be explored. Obtaining a viable planning approval in respect of
the Chymedden property within the retirement portfolio appears
unlikely and we will not be investing further resources in pursuing
this at this stage. Primary planning focus is currently on
continuing to evaluate options for the Ladbroke Grove
properties.
Planning costs incurred in 2023, along with legal expenses
relating to obtaining vacant possession at Coleherne Road and a
legacy liability associated with the acquisition of the Ladbroke
Grove portfolio, have all negatively impacted administrative
expenses, resulting in a year-on-year increase. The operation of
the Deanery Court property on a WIWO basis also resulted in
additional administrative expenses (including increased
depreciation charges relating to the furniture, fixtures and
fittings). These are, however, reasonably expected to be more than
offset by revenue growth.
Core costs continue to be tightly controlled albeit inflationary
pressures are resulting in an inability to
avoid some cost increases being incurred. The active focus on minimising costs is ongoing.
Capital
No new funding arrangements were entered into during the
financial year. Increases in interest rates and a general
tightening of liquidity in debt markets has made it unattractive to
explore refinancing of existing Group banking arrangements.
We continue to monitor debt markets and will explore options for
funding if it is opportune to do so.
Market Conditions and Outlook for the Group
From a macro-economic perspective, higher interest rates and
cost of living pressures are expected to present ongoing challenges
for the Group. Strong growth in Group rental levels has been
achieved over the last 2 financial years and is expected to
continue over the 2024 financial year.
Following completion of the conversion of Deanery Court to the
Cristal Apartments WIWO operating model, refurbishment works at
Coleherne Road and the recently acquired Heathside apartment, no
major works are planned for the current financial year outside of
the retirement portfolio.
For a number of the freehold properties within the retirement
portfolio, works to substantially upgrade the internal and external
common parts are underway (or are planned to commence). This
expenditure will be met from sinking funds and / or special levies
(which we will contribute to for the ten owned apartments within
Heathside). Modernising and refreshing these properties is expected
to drive value for the long leaseholders, which flows through to
the Group via the generation of higher sales commissions if, as
expected, capital values are improved.
Existing portfolio performance remains strong, with high levels
of occupancy being maintained and nominal rental arrears. Rental
levels for the most part continue to be increased on re-letting
albeit with a marginal increase in void periods. With Deanery Court
now operated on a WIWO basis it is expected that overall occupancy
levels will be lower, however revenue is expected to be well above
the historic assured shorthold tenancy (AST) rental levels.
Fundamentals for UK residential property remain positive
notwithstanding the interest rate increases over the last financial
year. Increases in capitalisation rates / yields have partially
offset the positive impact of rental growth, resulting in modest
overall valuation outcomes for the Group.
KCR continues to actively look for acquisition opportunities and
any market volatility flowing from interest rate increases and cost
of living pressures which 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
19 September 2023
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 2023.
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 23.01% (to GBP
1.58 million up from GBP 1.28 million in 2022) - largely
underpinned by the ongoing performance of Coleherne Road and the
conversion of Deanery Court to a WIWO operating model.
-- Portfolio level occupancy has remained close to 100% of all
available flats let on a traditional AST basis. Rental increases
continue to be achieved at renewals / re-lettings. The Cristal
Apartments WIWO operating model inherently comes with lower
occupancy levels; however it generates substantially more revenue,
which compensates for the increase in volatility around
occupancy.
-- Total assets reduced slightly to GBP 27.24 million (down from
GBP27.37 million in 2022) reflecting the reduction in cash which
has been used to support Group operations. Net asset value per
share reduced to 32.42 pence (2022: 32.82 pence) reflecting the
impact of the loss for the year.
The ongoing focus on improving operational performance and
control of costs continues to minimise cash burn from operating
activities. The conversion of Deanery Court to the Cristal
Apartments WIWO operating model over the course of the financial
year resulted in considerable disruption and additional costs being
incurred during the transition.
Deanery Court is expected to be a primary contributor to revenue
growth over the course of the 2024 financial year with costs
reducing now that the transition has been completed.
The focus of this year has been on the conversion of Deanery
Court and completion of refurbishment works at the Coleherne Road
property, 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:
-- optimising performance of Deanery Court under the Cristal
Apartments WIWO model;
-- letting up Coleherne Road following completion of
refurbishment works and ongoing focus on rental levels as tenancies
expire;
-- continuing to progress planning works at Ladbroke Grove;
-- completion of works to the interior and exterior across a
number of the retirement portfolio properties to modernise and
reposition how these properties are viewed;
-- control of core running costs with incremental reductions
where possible; and
-- 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
March 2023. The flat was very tired and poorly presented at the
time of acquisition. Full refurbishment was completed during June
with the flat being let in July.
Several acquisitions were considered during the year, however,
none were progressed. We continue to maintain a disciplined
approach to acquisitions and will only pursue those that we believe
will offer compelling value to shareholders.
Existing portfolio
KCR continues with its performance enhancement focus on its
existing portfolio. We are pleased that the refurbishment and
repositioning of the Coleherne Road is now complete and focus over
the coming year is to optimise the financial performance of this
asset.
Completion of the conversion of Deanery Court to the Cristal
Apartments operating model sees this property well-placed to
deliver substantive upside from its historical levels.
We intend to commit more capital expenditure to positively
reposition the Ladbroke Grove portfolio over time. Planning
continues to be progressed and options explored to determine an
optimal strategy for this property. 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.
Whilst we are working through the planning process, we are
lightly refurbishing the existing apartments as tenants vacate to
deliver incremental rental increases. Ultimately, the aim is to
holistically refurbish this property and reposition it in the same
way as Coleherne Road.
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 (utilities subject to fair usage caps, 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 AST (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 WIWO model has now
also been completed and is expected to be a key driver of revenue
growth over the coming financial year.
Once the outcome of planning has been resolved, it is also
intended to reposition the Ladbroke Grove portfolio as Cristal
branded apartments, which is expected to result in both enhanced
rentals and a substantial 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 to
a significantly higher standard. The new apartments have produced
strong rental uplifts and occupancy levels since letting commenced
during the December 2021 quarter.
-- The Ladbroke Grove portfolio (owned by KCR (Kite) Limited)
consists of 16 studio, one and two-bedroom flats in three buildings
which remain 100% occupied. Units are being lightly refurbished as
tenants leave and are then re-let in the private market. Planning
works continue to be progressed and options for this property
evaluated. The Company's intention is to undertake a whole building
refurbishment of the Ladbroke Grove assets once planning outcomes
have been finalised.
-- The Southampton block of 27 residential units at Deanery
Court, Chapel Riverside (owned by KCR (Southampton) Limited) has
been converted to the WIWO operating model. We believe substantive
upside in gross and net rental performance can be delivered from
the more active direct management style that has been implemented
for this asset.
2. Osprey Retirement Living (4* retirement apartments)
The Osprey portfolio (K&C (Osprey) Limited) consists of 153
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 changes in respect of ground rents have had a small
negative impact, this makes up a minor part of the overall
portfolio valuation. Overall, the portfolio has increased its value
mainly as a result of the Company's strategy to acquire flats
within Heathside. The ten owned flats within Heathside are
delivering strong rental returns on cost and have assisted in
supporting Group revenue growth. We continue to focus on unlocking
value via completion of lease extensions on the shorter dated long
leasehold flats.
The Group's key asset, representing 75% of the Osprey portfolio
value, is the freehold block at Heathside, Golders Green, where 27
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 them 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 has delivered incremental management fee income and, more
importantly, enables us to control the future direction for
positioning of this property. Building works to enhance the
internal common parts (including reconfiguration of the ground
floor) and external areas have now commenced and are planned 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 enhanced gross revenue
following the refurbishment works and asset repositioning programme
that has been implemented and ongoing cost control of core
operating overheads. KCR has recorded an operating profit before
separately disclosed items, and a significantly lower operating
loss for the year. As at the year end the Group had approximately
GBP981,000 in cash and cash equivalents (2022: GBP2.52 million).
Further details regarding the financial performance of the Group
can be found in the Strategic Report on the following pages.
Prospects
The business continues to be cashflow negative. However, KCR
continues to make progress towards 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.
The expansion in capitalisation rates / yields reflecting
increases in interest rates and the impact this has had on property
values largely offset the rental growth across the portfolio.
Whilst some incremental value uplift was delivered, there is
potential for further upside if interest rates ease as expected
over the next year.
Russell Naylor
Executive Director
19 September 2023
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 2023.
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 ten 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 GBP166,136 for the year
to 30 June 2023 (2022 - consolidated loss of GBP342,081).
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 23% to GBP1,575,482
(2022 - GBP1,280,770). Core portfolio revenue (relating to Rentals,
Management fees and Ground Rent) was the primary contributor to
revenue growth with continued strong performance from Coleherne
Road and the Deanery Court property was transitioned to the Cristal
Apartments WIWO operating model. Portfolio occupancy (excluding the
planned vacancy at Coleherne Road and Deanery Court during the
transition phase) and rent collection remained above 95% for the
whole year.
The Cristal Apartments WIWO strategy is expected to result in
lower levels of occupancy but enhanced revenue. We will be
revisiting the APM in respect of occupancy given this.
The Group recorded an operating profit before separately
disclosed items of GBP718,546 (2022 - GBP340,613). Increase against
the prior year was due to an increased contribution from positive
revaluation movements. After allowing for separately disclosed
items and finance costs, the loss before taxation was GBP166,136
(2022 - GBP342,081). Separately disclosed items relating to
refinancing and refurbishment works accounted for a majority of the
loss before taxation in the 2023 financial year. 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 2023 decreased to GBP27.2 million (2022
- GBP27.4 million). Investment property increased overall
(GBP1,230,000) partially due to the acquisition of an additional
apartment and capitalisation of a component of the Coleherne Road
refurbishment works.
Net assets decreased to GBP13.51 million (2022 - GBP13.68
million) and net asset value per share decreased to 32.42p (2022 -
32.82p).
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).
Details of the option agreement were disclosed in the Strategic
Report in the 2022 financial statements.
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.
On 6 August 2022 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 shows
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.
Now that Deanery Court is being operated under the Cristal
Apartments WIWO operating model, target vacancy rate will be
reviewed in line with an expected increases in occupancy
volatility.
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 from which to grow. Solid progress in this
respect is being made. In order to achieve this, the Group is
focusing 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 the 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.
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 2023 financial
year:
Key Decision Stakeholders Action and Impact
Governance Policies Regulators / The Board periodically reviews
Shareholders governance policies for the
Company and terms of reference
for established committees
to ensure they remain appropriate
for the Group.
A robust governance framework
is an integral part of how
the Company operates and
ensures compliance with its
AIM quotation and regulatory
requirements, including compliance
with REIT regulations.
The Company considers that
the confidence provided to
all stakeholders from a robust
Strategy Tenants / governance framework is an
Implementation Shareholders important component for ongoing
stakeholder support of the
Company.
The Company continued to
take actions to implement
the strategy outlined in
last year's Annual Report.
Primary focus was -
* Optimising revenue from 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.
* 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.
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FORWARD-LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements
which 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 improving the operational
performance of the existing assets and containing or reducing
costs, the Group is continuing to investigate the purchase of
residential property assets that are capable of supporting an
increasing income yield. It may be necessary for the Group to raise
more capital in order to achieve this objective.
ON BEHALF OF THE BOARD:
Russell Naylor
Executive Director
19 September 2023
CORPORATE GOVERNANCE STATEMENT
Compliance with the QCA code
During the year to 30 June 2023 KCR Residential REIT plc, while
an AIM quoted Company, was operating 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
promotes 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, predominantly 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 sufficient scale, to pay dividends
from cash flow generated by rents and to 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
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 speed of reporting of the interim and full year
results to shareholders has substantially improved.
The Chief Executive attends and presents at investor forums from
time to time, as well as holding discussions with analysts,
shareholders and investment managers on an ad hoc basis.
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 accepted and
approved by shareholders was dilutive to existing shareholders.
Going forward, 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, they will aim to offer all
shareholders the opportunity to participate in the offering on a
pre-emptive basis.
-- When will the Company become profitable?
Historically the Company has advised the Company may become
profitable and cash flow positive once it has approximately GBP50m
of investments generating satisfactory rental income. In view of
the improved operational performance and cost reductions, it is now
considered likely that the Company may become profitable with
substantially less than GBP50m of income generating investments.
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 additional equity capital or debt.
Shareholder liaison is managed though Russell Naylor
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 advisers 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
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 are
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, Russell Naylor 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-Independent Non-Executive Director, and comprises Richard Boon
and James Thornton, 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-Executive
Directors. There are two Non-Executive Director members; James
Thornton and Richard Boon.
During the 2023 financial year the Audit & Risk Committee
met to review and recommend the interim and year-end financial
statements.
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 2023, 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 2023.
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.
DIVIDS
The Directors do not recommend payment of a dividend for the
year (2022 - GBPnil).
Political donations
The Group made no political donations during the year (2022 -
GBPnil).
DIRECTORS
The following Directors served during the year to 30 June 2023
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 2023 in the issued share capital of the Company were as
follows:
Ordinary
Shares
----------------
Issued in
At 30 June 2022 the At 30 June
year 2023
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 19
September 2023 in the issued share capital of the Company were as
follows:
At 30 June 2023 Issued in the At 19 September
period 2023
Name No. No. No.
Dominic White 1,287,598 - 1,287,598
James Thornton 22,222 - 22,222
--------------- ------------- ---------------
SUBSTANTIAL SHAREHOLDINGS
As at 19 September 2023, 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 received the following remuneration for their
services during the year:
2023 2022
------------------------------ ------------------------------
Name Remuneration Benefits-in-kind Remuneration Benefits-in-kind
GBP GBP GBP GBP
------------ ---------------- ------------ ----------------
Dominic White 18,000 -- 28,292 -
Russell Naylor* 115,000 -- 93,833 -
James Thornton 30,000 -- 30,000 -
Richard Boon 30,000 -- 30,000 -
193,000 -- 182,125 -
============ ================ ============ ================
* The remuneration paid to Russell Naylor included fees of
GBP48,000 charged by Naylor Partners, a business in which Russell
Naylor is a Director (2022 - GBP48,000).
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
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
19 September 2023
REPORT OF THE INDEPENT 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 (together, the
'Group') for the year ended 30 June 2023 which comprise the
Consolidated Statement of Comprehensive Income, the Consolidated
and Company Statements of Financial Position, the Consolidated and
Company Statements of Changes in Equity, the Consolidated and
Company Statements 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 the Parent Company financial
statements:
-- give a true and fair view of the state of the Group and the
Parent Company's affairs as at 30 June 2023 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 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 the 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 the
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 the
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 the 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
the 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 the Parent Company's ability to continue as a going
concern for a period of at least twelve months from when the
financial statements are authorised for issue.
In auditing the 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 'Responsibilities of Directors'
section of this report.
Our approach to the audit
Overview of our audit approach
Overall materiality:
Group: GBP250,000, which represents 2% of the Group's
net assets.
Parent Company: GBP164,000, which represents 2%
of the Parent Company's net assets.
-------------------------------------------------------
Key audit matters were identified as:
Valuation of Investment Property (same as previous
year)
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.
In the graph below, we have presented the key audit matters,
significant risks and other risks relevant to the audit.
Key audit Significant Other risk
matter risk
Key Audit Matter How our scope addressed the matter
============================================== ===============================================
Valuation of Investment Property In responding to the key audit
(2023: GBP25.8m and 2022: GBP24.6) matter, we performed the following
The Group holds investment properties audit procedures:
which comprise properties owned o Obtained understanding of the
by the Group held for rental income processes, policies and methodologies,
and capital appreciation. including the use of industry
Investment properties are valued specific measures, and policies
by the Directors with reference for valuing investment properties
to independent external desktop held and confirmed our understanding
or full valuations performed. Valuations by performing test of design and
are based on a market approach which implementation of relevant controls.
provides an indicative value by o Assessed the independence, competence
comparing the property with other and objectivity of the Group's
similar properties for which price external valuation expert.
information is available and the o Obtained and inspected the independent
valuation technique is Income capitalisation appraisals regarding the investment
and/or capital value on a per square properties and supporting data
foot basis. to assess whether the data used
The valuation of investment properties is appropriate and relevant and
requires significant judgement in discussed these with management
determining the appropriate inputs to evaluate whether the fair value
to be used in the model and there of the investment properties is
is a risk that the properties are reasonably stated, challenging
incorrectly valued. the assumptions made by management.
o Verified valuation inputs made
by the management and the Group's
external valuation expert to independent
sources and tested the arithmetical
accuracy of the calculations.
o Performed the following procedures:
a) assessed and corroborated management's
market related judgements and
valuation inputs (i.e., gross
yield, rate per square foot) by
reference to comparable transactions,
and independently compiled databases/indices.
b) determined whether the methodologies
used to value investment properties
were consistent with methods usually
used by market participants for
similar types of properties; and
c) assessed 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 We define materiality as the magnitude
statements as a whole 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 GBP250,000 which GBP164,000 which
is 2% of -net assets. is 2% of net assets.
Significant judgements made In determining materiality, we made
by auditor in determining the following significant judgements:
the materiality o Net assets, as a benchmark, is considered
the most appropriate because the investors
would usually assess the performance
of the Company by looking at the net
asset value.
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 There was no significant revision
materiality threshold of our materiality threshold as the
audit progressed.
=================================== ===================================================================
Performance materiality used We set performance materiality at
to drive the extent of our an amount less than materiality for
testing 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 GBP175,000 which GBP114,800 which
is 70% of financial is 70% of financial
statement materiality. statement materiality.
Significant judgements made In determining materiality, we made
by auditor in determining the following significant judgements:
the performance materiality * Our risk assessment, including our assessment of the
Group and Parent Company's overall control
environment.
Significant revision(s) of There was no significant revision
performance materiality threshold of our performance materiality threshold
as the audit progressed.
=================================== ===================================================================
Communication of misstatements We determine a threshold for reporting
to the audit committee unadjusted differences to the audit
committee.
=================================== ===================================================================
Threshold for communication GBP12,500 which GBP8,200 which is
is 5% of financial 5% of financial
statement materiality statement materiality
and misstatements and misstatements
below that threshold below that threshold
that, in our view, that, in our view,
warrant reporting warrant reporting
on qualitative grounds. on qualitative grounds.
=================================== ================================= ================================
The graph below illustrates how performance materiality
interacts with our overall materiality and the tolerance for
potential uncorrected misstatements.
Overall materiality - Group Overall materiality - Parent
Company
=========================== ============================
FSM: Financial statements materiality, PM: Performance
materiality, TFPUM: Tolerance for potential uncorrected
misstatements
An overview of the scope of our audit
We performed a risk-based audit that requires an understanding
of the Group and Parent Company's business and in particular
matters related to:
Understanding the Group, its components, and their environments,
including Group-wide controls
- We obtained an understanding of the Group and its environment,
including Group-wide controls, and assessed the risks of material
misstatement at the Group level;
Identifying significant components
- We evaluated the components to assess their significance and
determined the planned audit response based on a measure of
materiality. The measure of materiality used was based upon net
assets or total assets appropriate
Type of work to be performed on financial information of parent
and other components (including how it addressed the key audit
matters)
- 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 performed independent searches 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 of 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 Directors' responsibilities
statement set out above, the Directors are 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 the directors determine
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, the Directors are
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 the directors either intend to liquidate the
Group and Parent Company or to cease operations, or have no
realistic alternative but to do so.
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 .
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 Group and the Parent 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 Group and the Parent Company are
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 Group and the Parent
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 valuation of investment properties 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; and
- 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;
-- The Engagement Leader 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 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
19 September 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE 30 June 30 June
INCOME 2023 2022
FOR THE YEARED 30 JUNE 2023
Notes GBP GBP
CONTINUING OPERATIONS
Revenue 3 1,575,482 1,280,770
Cost of sales (255,980) (50,525)
----------- -----------
GROSS PROFIT 1,319,502 1,230,245
Administrative expenses (1,432,756) (1,232,932)
Fair value through profit and loss
- revaluation of investment properties 12 831,800 343,300
----------- -----------
OPERATING PROFIT BEFORE SEPARATELY
DISCLOSED ITEMS 718,546 340,613
Separately disclosed items
Costs associated with refinancing 6 (23,068) (68,234)
Costs associated with refurbishment
of investment properties 6 (319,506) (101,670)
----------- -----------
OPERATING PROFIT 375,972 170,709
Finance costs 5 (547,851) (512,811)
Finance income 5 5,743 21
----------- -----------
LOSS BEFORE TAXATION 6 (166,136) (342,081)
Taxation 7 - -
----------- -----------
(3 42,081
LOSS FOR THE YEAR (166,136) )
=========== ===========
TOTAL COMPREHENSIVE EXPENSE FOR THE (34 2,081
YEAR (166,136) )
=========== ===========
Loss attributable to owners of the (34 2,081
parent (166,136) )
=========== ===========
Loss per share expressed in pence
per share 8
Basic (0.40) (0.85)
Diluted (0.37) (0.41)
The notes below form part of the financial
statements
=========== ===========
30 June 30 June
2023 2022
Notes GBP GBP
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION 30 JUNE 2023
----------- -----------
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 203,219 54,954
Investment properties 12 25,835,300 24,605,300
----------- -----------
26,038,519 24,660,254
----------- -----------
CURRENT ASSETS
Trade and other receivables 14 220,570 185,532
Cash and cash equivalents 15 980,848 2,519,346
----------- -----------
1,201,418 2,704,878
----------- -----------
TOTAL ASSETS 27,239,937 27,365,132
=========== ===========
EQUITY
SHAREHOLDERS' EQUITY
Share capital 16 4,166,963 4,166,963
Share premium 14,941,898 14,941,898
Capital redemption reserve 344,424 344,424
Retained earnings (5,944,084) (5,777,948)
----------- -----------
TOTAL EQUITY 13,509,201 13,675,337
----------- -----------
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing loans and borrowings 18 13,274,574 13,274,574
----------- -----------
CURRENT LIABILITIES
Trade and other payables 17 456,162 415,221
456,162 415,221
----------- -----------
TOTAL LIABILITIES 13,730,736 13,689,795
----------- -----------
TOTAL EQUITY AND LIABILITIES 27,239,937 27,365,132
=========== ===========
Net asset value per share (pence) 8 32.42 32.82
=========== ===========
The financial statements were approved and authorised for issue
by the Board of Directors on 19 September 2023 and were signed on
its behalf by:
Russell Naylor
Director
COMPANY STATEMENT OF FINANCIAL POSITION 30 June 30 June
30 JUNE 2023 2023 2022
Notes GBP GBP
------------ ------------
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 61 307
Investments 13 10,706,081 10,706,081
------------ ------------
10,706,142 10,706,388
------------ ------------
CURRENT ASSETS
Trade and other receivables 14 3,804,198 3,352,889
Cash and cash equivalents 15 771,871 2,337,349
------------ ------------
4,576,069 5,690,238
------------ ------------
TOTAL ASSETS 15,282,211 16,396,626
============ ============
EQUITY
SHAREHOLDERS' EQUITY
Share capital 16 4,166,963 4,166,963
Share premium 14,941,898 14,941,898
Capital redemption reserve 344,424 344,424
Retained earnings (11,172,717) (10,545,878)
------------ ------------
TOTAL EQUITY 8,280,568 8,907,407
------------ ------------
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 17 7,001,643 7,489,219
7,001,643 7,489,219
------------ ------------
TOTAL LIABILITIES 7,001,643 7,489,219
------------ ------------
TOTAL EQUITY AND LIABILITIES 15,282,211 16,396,626
============ ============
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
GBP626,839 (2022 - GBP615,127).
The financial statements were approved and authorised for issue
by the Board of Directors on 19 September 2023 and were signed on
its behalf by:
Russell Naylor
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 JUNE 2023
Capital
Share redemption Retained
Share capital premium reserve earnings Total equity
-------------- ------------ ------------ ------------ --------------
GBP GBP GBP GBP GBP
Balance at 1 July 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
-------------- ------------ ------------ ------------ --------------
Changes in equity
Total comprehensive loss - - - (166,136) (166,136)
-------------- ------------ ------------ ------------ --------------
Balance at 30 June 2023 4,166,963 14,941,898 344,424 (5,944,084) 13,509,201
============== ============ ============ ============ ==============
COMPANY STATEMENT OF
CHANGES IN EQUITY Capital
FOR THE YEARED 30 Share redemption Retained Total
JUNE 2023 Share capital premium reserve earnings equity
-------------- ------------ ------------ ----------------------- ------------
GBP GBP GBP GBP GBP
Balance at 1 July 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
-------------- ------------ ------------ ----------------------- ------------
Changes in equity
Total comprehensive loss - - - (626,839) (626,839)
-------------- ------------ ------------ ----------------------- ------------
Balance at 30 June 2023 4,166,963 14,941,898 344,424 (11,172,717) 8,280,568
============== ============ ============ ======================= ============
The notes below form part of the financial statements
CONSOLIDATED STATEMENT OF CASH 2023 2022
FLOWS FOR THE YEARED 30 JUNE
2023
Note GBP GBP
------------ ------------
Cash flows from operating activities
Cash used in operations 1 (386,599) (310,314)
Interest paid (547,851) (512,811)
Net cash used in operating activities (934,450) (823,125)
------------ ------------
Cash flows from investing activities
Purchase of property, plant & equipment (211,591) (53,013)
Purchase of investment properties
(including capital expenditure
on current properties) (398,200) (285,000)
Proceeds from sale of investment
property - 280,000
Interest received 5,743 21
------------ ------------
Net cash used in investing activities (604,048) (57,992)
------------ ------------
Cash flows from financing activities
Loan repayments in year - (5,020,248)
Proceeds from new loans in year - 5,656,215
Proceeds from share issue - 2,697,581
------------ ------------
Net cash generated from financing
activities - 3,333,548
------------ ------------
(Decrease)/Increase in cash and
cash equivalents (1,538,498) 2,452,431
Cash and cash equivalents at beginning
of year 2,519,346 66,915
------------ ------------
Cash and cash equivalents at end
of year 980,848 2,519,346
------------ ------------
The notes below form part of the
financial statements
============ ============
COMPANY STATEMENT OF CASH FLOWS 2023 2022
FOR THE YEARED 30 JUNE 2023
Note GBP GBP
------------ ----------
Cash flows from operating activities
Cash used in operations 1 (641,827) (648,209)
Interest paid (1,953) (39)
------------ ----------
Net cash used in operating activities (643,780) (648,248)
------------ ----------
Cash flows from investing activities
Interest received 4,821 -
(Decrease)/Increase in loans to group
companies (451,519) 402,673
Repayments in loans from group companies (475,000) (133,909)
------------ ----------
Net cash (used in)/generated from
investing activities (921,698) 268,764
------------ ----------
Cash flows from financing activities
Proceeds from share issue - 2,697,581
------------ ----------
Net cash (used in)/generated from
financing activities - 2,697,581
------------ ----------
(Decrease)/Increase in cash and
cash equivalents (1,565,478) 2,318,097
Cash and cash equivalents at beginning
of year 2,337,349 19,252
------------ ----------
Cash and cash equivalents at end
of year 771,871 2,337,349
============ ==========
The notes below form part of the financial statements
NOTES TO THE STATEMENTS OF CASH FLOWS
FOR THE YEARED 30 JUNE 2023
1) RECONCILIATION OF LOSS BEFORE TAXATION TO CASH USED IN OPERATIONS
Group 2023 2022
GBP GBP
--------- ---------
Loss before taxation (166,136) (342,081)
Depreciation charges 63,326 21,437
Revaluation of investment properties (831,800) (343,300)
Loss on disposal of investment property - 5,000
Finance costs 547,851 512,811
Finance income (5,743) (21)
--------- ---------
(392,502) (146,154)
Increase in trade and other receivables (35,038) (132,157)
Increase/(Decrease) in trade and other payables 40,941 (32,003)
--------- ---------
Cash used in operations (386,599) (310,314)
========= =========
Company 2023 2022
GBP GBP
--------- ---------
Loss before taxation (626,839) (615,127)
Depreciation charges 246 667
Finance costs 1,953 39
Finance income (4,821) -
--------- ---------
(629,461) (614,421)
Decrease in trade and other receivables 210 2,816
Decrease in trade and other payables (12,576) (36,604)
--------- ---------
Cash used in operations (641,827) (648,209)
--------- ---------
The notes below form part of the financial statements
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARED 30 JUNE
2023
1) PRESENTATION OF FINANCIAL STATEMENTS
General information
KCR Residential REIT plc is a public company limited by shares
incorporated in the United Kingdom and registered in England and
Wales. The address of the registered office and company
registration number is Gladstone House, 77-79 High Street, Egham,
Surrey TW20 9HY. The nature of the Group's principal activities are
given in the Group Strategic Report included in these financial
statements.
Statement of compliance
The consolidated financial statements have been prepared in
accordance with UK-adopted international accounting standards.
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 and rounded to the nearest
GBP.
Changes in accounting policies
Adoption of new and revised standards
The following accounting pronouncements and standards became
effective from 1 January 2022 and have been adopted but did not
have a significant impact on the Group's financial results or
position:
- 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 2018-20
- Amendments to IAS 37: Onerous Contracts - cost of fulfilling a contract
New standards in issue but not yet effective
As at 30 June 2023, 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 2023 or 1
January 2024:
- Amendments to IAS 8 - Definition of Accounting Estimates
- Narrow scope amendments to IAS 1, Practice statement 2 and IAS 8
- Amendments to IAS 12: Deferred Tax Related to Asset and
Liabilities arising from a Single Transaction
- Amendments to IFRS 16 - Leases on sale and leaseback
- Amendments to IAS 1 - Non-current liabilities with covenants
- Amendments to IAS 1 - Classification of liabilities as current or non-current
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.
2) ACCOUNTING POLICIES (continued)
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.
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.
2) ACCOUNTING POLICIES (continued)
Basis of consolidation (continued)
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 services before transferring them to the customer.
Contracts with customers do not contain a financing component or
any element of variable consideration.
In accordance with IFRS 16, 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.
Revenue derived from management fees and sales commissions are
recognised in accordance with the 5 step approach in IFRS 15.
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. Further information can be found in note 6 of the financial
statements.
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 as incurred.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation.
2) ACCOUNTING POLICIES (continued)
Property, plant and equipment (continued)
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 transaction price,
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
2) ACCOUNTING POLICIES (continued)
Financial assets (continued)
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;
and
- 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.
The Group do not have any financial assets which are designated
as FVTPL or FVOCI.
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.
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.
2) ACCOUNTING POLICIES (continued)
Financial liabilities (continued)
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.
Discounting is not applied if the impact is not material.
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 Group applies IFRS 16 Leases.
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.
The Group has no finance leases.
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.
2) ACCOUNTING POLICIES (continued)
Taxation (continued)
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 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 2023 at GBP25,835,300. 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.
2023 2022
GBP GBP
Revenue analysed by class of business
Rental income 1,248,190 933,475
Management fees 109,105 89,801
Resale commission 93,253 102,055
Ground rents 12,974 13,314
Leasehold extension income 102,710 133,500
Other income 9,250 8,625
--------- ---------
1,575,482 1,280,770
========= =========
4) EMPLOYEES AND DIRECTORS
Group
2023 2022
GBP GBP
Wages and salaries 340,218 305,858
Social security costs 35,811 26,179
Pension costs 3,583 5,420
-------- --------
379,612 337,457
======== ========
The average monthly number of employees during
the year was as follows: 2023 2022
Directors and management 4 4
Administration 3 3
-------- ----------
7 7
======== ==========
2023 2022
GBP GBP
Directors' remuneration (as per Report
of the Directors) 193,000 182,125
Remuneration of the highest-paid director 115,000 93,833
======== ==========
The Group Directors are considered to be key management
personnel.
4) EMPLOYEES AND DIRECTORS (continued)
Company
2023 2022
GBP GBP
------- -------
Wages and salaries 251,206 231,124
Social security costs 26,034 17,156
277,240 248,280
======= =======
The average monthly number of employees during
the year was as follows
Directors and management 4 4
4 4
==== ======
5) FINANCE COSTS AND INCOME
2023 2022
GBP GBP
--------- ---------
Finance costs
Loan interest 547,851 512,811
========= =========
Finance income
Bank interest 5,743 21
========= =========
6) LOSS BEFORE TAXATION
The loss before taxation is stated after charging:
2023 2022
GBP GBP
====== ======
Hire of plant and machinery - low value leases 8,359 8,359
Other short term operating leases 15,217 13,365
Depreciation - owned assets 63,326 21,437
Auditors' remuneration for the Group 66,000 59,500
Auditors' remuneration for the Group underprovided
in prior year - 5,000
Separately disclosed items
In 2021, 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 2023 financial
year amounted to GBP273,877 and GBP32,813 (2022 - GBP35,021 and
GBP66,649). The Company also incurred costs in relation to the
refurbishment of properties owned by K&C (Kite) Limited
amounting to GBP12,816 (2022 - GBPNil).
6) LOSS BEFORE TAXATION (continued)
Also during the year, the Company incurred costs totalling
GBP23,068 (2022 - GBP68,234) 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
2023 2022
Current tax GBP GBP
---- ----
UK corporation tax - -
Deferred tax - -
Total tax - -
==== ====
Factors affecting the tax expense
The tax assessed for the year is different to the standard rate
of corporation tax in the UK. The difference is explained
below:
2023 2022
GBP GBP
---------- ----------
(166,136
Loss on ordinary activities before taxation ) (342,081)
========== ==========
Loss on ordinary activities multiplied by
the standard rate of corporation tax in the
UK of 20.5% (2022 - 19%) (34,058) (64,995)
Effects of
Income and expenses not taxable 34,058 64,995
Tax credit - -
========== ==========
In April 2023, the UK government increased the standard
corporate tax rate from 19% to 25%. The above applied the tax rate
is the average tax rate over the year.
The Group has remained under the REIT regime throughout the year
and since the statement of financial position 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.
8) LOSS PER SHARE AND NET ASSET VALUE (continued)
Basic loss per share
2023
Weighted
average number Per share
Loss of shares amount
---------- ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (166,136) 41,669,631 (0.40)
2022
Weighted average
number of Per share
Loss shares amount
---------- ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (342,081) 40,196,318 (0.85)
========== ================= ==========
Diluted loss per share
2023
Weighted
average number Per share
Loss of shares amount
---------- ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (166,136) 45,308,809 (0.37)
Effect of dilutive securities - - -
========== ================= ==========
2022
Weighted average
number of Per share
Loss shares amount
---------- ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (342,081) 82,882,619 (0.41)
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 statement of financial position date.
8) LOSS PER SHARE AND NET ASSET VALUE (continued)
2023
Number of Per share
Equity shares amount
----------- ----------- ----------
GBP No Pence
Net asset value 13,509,201 41,669,631 32.42
2022
Number of Per share
Equity shares amount
----------- ----------- ----------
GBP No Pence
Net asset value 13,675,337 41,669,631 32.82
=========== =========== ==========
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
2023 2022
GBP GBP
------- -------
Within one year 439,607 358,724
Between one and five years 19,433 58,756
More than 5 years 20,749 29,017
------- -------
Total 479,789 446,497
======= =======
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
2023 2022
GBP GBP
Within one year 15,230 21,499
Between one and five years 3,285 5,375
------- -------
Total 18,515 26,874
======= =======
11) PROPERTY, PLANT AND EQUIPMENT
GROUP Fixtures,
fittings &
computer equipment
GBP
--------------------
COST
At 1 July 2021 97,740
Additions 53,013
--------------------
At 30 June 2022 150,753
Additions 211,591
--------------------
At 30 June 2023 362,344
--------------------
DEPRECIATION
At 1 July 2021 74,362
Charge for year 21,437
--------------------
At 30 June 2022 95,799
Charge for year 63,326
--------------------
At 30 June 2023 159,125
--------------------
NET BOOK VALUE
At 30 June 2023 203,219
====================
At 30 June 2022 54,954
====================
11) PROPERTY, PLANT AND EQUIPMENT (continued)
COMPANY Fixtures,
fittings &
computer equipment
GBP
--------------------
COST
At 1 July 2021 7,516
Additions -
--------------------
At 30 June 2022 7,516
Additions -
--------------------
At 30 June 2023 7,516
--------------------
DEPRECIATION
At 1 July 2021 6,542
Charge for year 667
--------------------
At 30 June 2022 7,209
Charge for year 246
--------------------
At 30 June 2023 7,455
--------------------
NET BOOK VALUE
At 30 June 2023 61
====================
At 30 June 2022 307
====================
12) INVESTMENT PROPERTIES
GROUP Total
GBP
-----------
COST OR VALUATION
At 1 July 2021 24,262,000
Additions 285,000
Disposals (285,000)
Revaluations 343,300
-----------
At 30 June 2022 24,605,300
Additions 398,200
Disposals -
Revaluations 831,800
-----------
At 30 June 2023 25,835,300
At 30 June 2022 24,605,300
===========
12) INVESTMENT PROPERTIES (continued)
The investment properties were valued by the Directors at 30
June 2023 with reference to independent external valuations
performed in August 2023, with a valuation date as at 30 June 2023.
All of the substantive properties were subject to desktop
valuations with the exception of the properties at Coleherne Road
and Heathside 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).
A number of low value properties (less than 3% of the total
investment property value) within the Osprey portfolio were valued
by the Directors with reference to independent valuations completed
in prior financial periods and the market commentary contained
within the independent external valuations performed in August
2023.
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 2023.The
valuation of the investment properties was GBP25,835,300, 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 Valuation Technique Significant Inputs Significant
Value Used Unobservable
Hierarchy Inputs
Level Income capitalisation Adopted gross yield 4.40% - 7.37%
3 and or capital value
on a per square foot
basis
Adopted rate per
square foot GBP319 - GBP1,313
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 2023 would have been
GBP22,851,113 (2022 - GBP22,452,913).
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.
12) INVESTMENT PROPERTIES (continued)
The total rental income in relation to investment properties for
the Group equated to GBP1,248,190 (2022 - GBP933,475). The total
rental expenses in relation to investment properties for the Group
equated to GBP255,980 (2022 - GBP50,525).
Included within Investment Properties are leasehold properties
valued at GBP6,150,000 and freehold properties valued at
GBP19,685,300 (2022: GBP6,150,000 and GBP18,455,300
respectively).
13) INVESTMENTS
Shares in
group undertakings
Company GBP
--------------------
COST
At 1 July 2021 10,706,081
Disposals -
Impairment -
At 30 June 2022 10,706,081
Disposals -
Impairment -
--------------------
At 30 June 2023 10,706,081
====================
NET BOOK VALUE
At 30 June 2023 10,706,081
====================
At 30 June 2022 10,706,081
====================
As at 30 June 2023, the Company's investments comprise the
following:
Holding
Subsidiaries (%)
========================================================== ========
Registered office:
K&C (Coleherne) Limited UK
Nature of business: Property Class of shares:
letting Ordinary 100.00
K&C (Osprey) Limited Registered office:
UK
Nature of business: Property Class of shares:
letting Ordinary 100.00
KCR (Kite) Limited Registered office:
UK
Nature of business: Property Class of shares:
letting Ordinary 100.00
KCR (Southampton) Limited Registered office:
UK
Nature of business: Property Class of shares:
letting Ordinary 100.00
K&C (Newbury) Limited Registered office:
UK
Class of shares:
Nature of business: Dormant Ordinary 100.00
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
2023 2022 2023 2022
GBP GBP GBP GBP
Trade debtors 12,781 665 - -
Amounts owed by group
undertakings - - 3,790,479 3,338,960
Other debtors 13,521 29,434 - -
Accrued income 68,782 18,514 - -
Prepayments 125,486 136,919 13,719 13,929
220,570 185,532 3,804,198 3,352,889
======== ======== ========== ==========
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 2023. 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
2023 2022 2023 2022
GBP GBP GBP GBP
Cash in hand 44 40 - -
Bank accounts 980,804 2,519,306 771,871 2,337,349
980,848 2,519,346 771,871 2,337,349
======== ========== ======== ==========
16) SHARE CAPITAL
Allotted, issued and fully paid
30 June 30 June
Number Class Nominal value 2023 2022
------------------ --------- ---------
GBP GBP
--------- ---------
41,669,631 Ordinary GBP0.10 4,166,963 4,166,963
(2022: 41,669,631) 4,166,963 4,166,963
========= =========
16) SHARE CAPITAL (continued)
2023 2023 2022 Number 2022
Number GBP GBP
Ordinary shares of GBP0.10
each
At 1 July 41,669,631 4,166,963 28,169,631 2,816,963
Shares issued for cash - - 13,500,000 1,350,000
----------- ---------- ------------ ----------
At 30 June 41,669,631 4,166,963 41,669,631 4,166,963
=========== ========== ============ ==========
17) TRADE AND OTHER PAYABLES
Group Company
2023 2022 2023 2022
Current GBP GBP GBP GBP
Trade creditors 49,751 49,852 3,404 37,607
Amounts owed to group
undertakings - - 6,781,613 7,256,613
Other taxes and social
security 63,302 63,050 29,815 36,281
Other creditors 2,026 8,789 - -
Accruals and deferred
income 341,083 293,530 186,811 158,718
---------- -------- ---------- ----------
456,162 415,221 7,001,643 7,489,219
========== ======== ========== ==========
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
2023 2022 2023 2022
GBP GBP GBP GBP
Non-current
Bank loans 9,993,359 9,993,359 - -
Other loans 3,281,215 3,281,215 - -
13,274,574 13,274,574 - -
=========== =========== ===== =====
Terms and debt repayment schedule (including interest)
2023
1 year 1-2 More than
or less years 2-5 years 5 years Totals
--------- -------- ---------- ----------- -----------
Group GBP GBP GBP GBP GBP
Bank loans 449,518 554,270 3,731,108 13,744,789 18,479,685
Other loans 116,483 116,483 349,449 3,320,043 3,902,458
--------- -------- ---------- ----------- -----------
566,001 670,753 4,080,557 17,064,832 22,382,143
========= ======== ========== =========== ===========
2022
1 year More than
or less 1-2 years 2-5 years 5 years Totals
--------- ---------- ---------- ----------- -----------
Group GBP GBP GBP GBP GBP
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
========= ========== ========== =========== ===========
Details of the principal loans are as follows:
a) In August 2021, K&C (Osprey) Limited entered into a 5
year loan of GBP2,375,000 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 2023 was GBP2,375,000.
b) O n 4 December 2018, KCR (Southampton) Limited took out a
loan of GBP3,184,250, 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 GBP3,281,215. 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 2023 was GBP3,281,215.
18) FINANCIAL LIABILITIES - BORROWINGS (continued)
c) On 10 February 2020, K&C (Coleherne) Limited took out a
loan of GBP2,743,359 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 2023 was GBP2,743,359.
d) On 10 February 2020, KCR (Kite) Limited took out a loan of
GBP5,124,810 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 GBP249,810, following the sale of 9 Lomond Court. The
balance outstanding at 30 June 2023 was GBP4,875,000.
Reconciliation of net movement in financial instruments
Group
Loans Other Net cash
Net cash Cash received Repayments non-cash at 30
at 1 July flow in year in year movement June 2023
2022
GBP GBP GBP GBP GBP
Cash at bank
and in hand 2,519,346 (1,538,498) - - - 980,948
Borrowings (13,274,574) - - - - (13,274,574)
------------- ------------ ---------- ------------- ---------- -------------
Total financial
liabilities (10,755,226) (1,538,498) - - - (12,293,726)
============= ============ ========== ============= ========== =============
Loans Other Net cash
Net cash Cash received Repayments non-cash at 30
at 1 July flow in year in year movement June 2022
2021
GBP GBP GBP GBP GBP
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)
============= ========== ============ ============= ========== =============
18) FINANCIAL LIABILITIES - BORROWINGS (continued)
Company
Other
Net cash Repayments non-cash Net cash
at 1 July Cash flow in year movement at 30 June
2022 2023
GBP GBP GBP GBP GBP
Cash at bank
and in hand 2,337,349 (1,565,478) - - 771,871
Borrowings - - - - -
------------ ------------ ------------- ---------- -------------
Total financial
liabilities 2,337,349 (1,565,478) - - 771,871
============ ============ ============= ========== =============
Other
Net cash Repayments non-cash Net cash
at 1 July Cash flow in year movement at 30 June
2021 2022
GBP GBP GBP GBP GBP
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
============ ============ ============= ========== =============
19) FINANCIAL INSTRUMENTS
The Group's financial assets, as defined under IFRS 9, and their
estimated carrying amount are as follows:
Group Company
2023 2022 2023 2022
GBP GBP GBP GBP
Carrying amount of financial
assets at amortised cost
Trade and other receivables 95,084 48,613 3,790,479 3,338,960
Cash at bank and in hand 980,848 2,519,346 771,871 2,337,349
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 2023
totalled GBP7,618,359. 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 2023 totalled GBP2,375,000. The loan agreement contains the
following covenants:
o interest cover in respect of any interest period shall not be
less than 1.25:1; 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.
20) FINANCIAL RISK MANAGEMENT (continued)
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 2023, if interest rates had been 0.5 of a percentage
point higher and all other variables were held constant, it is
estimated that the Group's loss before tax would increase to
GBP234,541 (2022 - GBP410,263). 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 GBP48,000 charged by Naylor Partners, a business in
which Russell Naylor is a director (2022 - GBP48,000). A provision
of GBP12,000 (2022 - GBP12,000) for a catch-up payment incentive
which will be due when the business achieves cash-flow breakeven is
also included in the financial statements.
21) RELATED PARTY TRANSACTIONS (continued)
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 GBP114,506 (2022 - GBP95,000), which includes a provision
of GBP39,506 (2022 - GBP20,000) for a catch-up payment incentive
which will be due when the business achieves cash-flow
breakeven.
22) ULTIMATE CONTROLLING PARTY
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/
The ultimate controlling party of Pyne Gould Corporation Limited
is George Kerr.
23) POST-BALANCE SHEET EVENTS
No post balance date events.
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END
FR SFIFAUEDSEFU
(END) Dow Jones Newswires
September 20, 2023 02:00 ET (06:00 GMT)
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