TIDMKCR
RNS Number : 4689A
KCR Residential REIT PLC
23 September 2022
23 September 2022
KCR Residential REIT plc
("KCR" or the "Company")
Final Results
KCR Residential REIT Plc is pleased to announce its annual
results for the year ended 30 June 2022.
The Annual Report will shortly be available from the Company's
website, www.kcrreit.com and will be distributed to shareholders in
the coming days.
Operational highlights
-- Revenue for the financial year increased by 23.6% (to GBP1.28
million up from GBP1.04 million in 2021) - largely underpinned by
the letting up of Coleherne Road during the December quarter
following completion of refurbishment works to eight of the ten
flats. Loss before tax was GBP342,081 (2021: GBP924,234).
-- Portfolio level occupancy has remained close to 100% of all
available flats (currently one flat across the portfolio is vacant
and in the process of being re-let). Rental increases continue to
be achieved at renewals / re-lettings.
-- Total assets increased to GBP27.37 million (up from GBP24.41
million in 2021) following the partial exercise of the Torchlight
option. Net asset value per share reduced to 32.82 pence (2021:
40.18 pence) primarily driven by the impact of partial option
exercise.
Focus on cost management and improving operational performance
continues to minimise cash burn from operating activities.
The focus of this year has been on the letting up of the
Coleherne Road property following refurbishment, refurbishing the
additional flat acquired at Heathside, maintaining high occupancy
across the portfolio, and keeping corporate and operating costs to
a minimum.
Current focus to drive value over the next financial year
is:
-- Conversion of Deanery Court to self-managed under the Cristal
Apartments "walk in walk" out model;
-- Complete Coleherne Road and let up the last two flats;
-- Continuing to progress planning works at Chymedden and Ladbroke Grove;
-- Roll out of property management software across the Group to
provide a centralised platform to support growth and enhanced
management capability;
-- Control of core running costs within incremental reductions where possible; and
-- Make acquisitions to increase scale (subject to pricing / value drivers).
Progress continues to be made to create a stable platform that
can be successfully scaled-up.
Schedule 2(g) Update
In the announcement of 25 July 2022 "Historic Disclosures and
Related Party Transactions". Richard Boon's past directorship
disclosure should have stated that he was previously a director of
Artefact Partners (Cayman) Limited, not Artefact Partners (Cayman)
LLP.
This announcement contains inside information for the purposes
of the UK Market Abuse Regulation and the Directors of the Company
are responsible for the release of this announcement.
For further information please contact:
KCR Residential REIT plc info@kcrreit.com
Russell Naylor, Executive Director Tel: +44 (0)20 7628 5582
Cairn Financial Advisers LLP (Nomad) Tel: +44 (0)20 7213 0880
James Caithie / James Lewis / Louise
O'Driscoll
Arden Partners Plc (Broker) Tel: +44 (0)20 7614 5900
John Llewellyn-Lloyd
Notes to Editors:
KCR's objective is to build a substantial residential property
portfolio that generates secure income flow for shareholders. The
Directors intend that the group will acquire, develop and manage
residential property assets in a number of jurisdictions including
the UK.
CHAIRMAN'S LETTER
Dear Shareholder
This last year has seen continued growth of the business in an
environment that has remained uncertain. Whilst the impact of
Covid-19 appears to now be behind us, increasing interest rates,
cost of living pressure and supply chain disruption bring ongoing
challenges for the business.
Strategy and Operations
During the financial year, and as reported at the half year, we
have been continuing with the transition of the business. As
outlined in both last year's Annual Report and the Interim Report
for this financial year, the strategy remains to:
-- improve the rental revenue from the existing properties;
-- upgrade the overall portfolio quality;
-- explore the development opportunity within the portfolio; and
-- focus on reducing costs.
Revenue growth for the 2022 financial year has been driven by
the work completed to date on modernising and improving the
standard of the property portfolio. As works have been completed
and the apartments let up, enhanced rental levels have been
achieved.
The Coleherne Road property was a key driver with this being let
up during the December 2021 quarter. We have now obtained vacant
possession in respect of the basement flat which has delayed
completion of this project. We look forward to fully completing
this project this financial year.
Refurbishment works in respect of the two basement flats at
Coleherne Road and all external areas have now commenced. This
well-located asset has been transformed from a poorly presented,
bottom end rental product into modern, spacious studio apartments
that have been well received by the market. The financial impact on
rentals achievable has been significant and the eight fully
refurbished apartments have performed well and underpinned revenue
growth during the financial year.
An additional flat was acquired within Heathside, fully
refurbished during the financial year and was let in July 2022. The
strategy of acquiring, refurbishing and re-letting flats here has
proven astute. Nine flats are now owned within this property and
their letting up has assisted in delivering rental growth for the
portfolio. We continue to look for additional opportunities to make
follow-on acquisitions of flats within Heathside.
We continue to explore development opportunities within the
existing portfolio and planning works are being progressed in
respect of the Chymedden property within the retirement portfolio
and the Ladbroke Grove properties, however, planning costs incurred
in 2022, along with legal expenses relating to refinancing,
obtaining vacant possession at Coleherne Road and taking back
management of Heathside have all negatively impacted administration
expenses resulting in a year-on-year increase.
Core costs continue to be tightly controlled and the additional
expenditure incurred is necessary as we move to continue to drive
value from the existing portfolio.
Capital and Personnel
New funding arrangements entered into during the financial year
have supported group activities together with the proceeds received
from the partial exercise of the Torchlight option. This has
resulted in the Group being well placed to continue implementation
of the current strategy around driving value from the existing
portfolio.
On August 6, 2022 the Torchlight option to acquire further
shares in the Company lapsed.
In October last year Dominic White moved from being an Executive
to a Non-Executive Director, with day-to-day management of the
business overseen by Russell Naylor.
Market Conditions and Outlook for the Group
From a macro-economic perspective, cost of living pressures and
supply chain disruption are likely to present ongoing challenges
for the group. Solid increases in rental levels have been achieved
in the post Covid-19 environment, whether they can be sustained
remains to be seen as inflationary pressures impact tenants. Supply
chain disruption is expected to continue to impact and extend
timeframes required to complete refurbishment works. Price
increases across the board for both fixtures and fittings and from
contractors continue to flow through, nevertheless, existing
portfolio performance remains strong with high levels of occupancy
being maintained with nominal rental arrears. Rental levels for the
most part continue to be increased on re-letting albeit with a
marginal increase in void periods.
Fundamentals for UK residential property appear positive, and it
appears that the return to London and other major international
capitals trend in a post Covid-19 environment has continued.
KCR continues to actively look for acquisition opportunities and
any market volatility flowing from interest rate increases and cost
of living pressures has the potential to create a more attractive
entry point for deploying additional capital.
The Group's overall long-standing objective remains to grow the
size of its residential portfolio to deliver an increase in revenue
and profitability against its central overhead base and achieve an
ability to pay dividends. At the same time, we focus on growing net
asset value per share.
On behalf of the Board and our shareholders, I would like to
thank everyone at KCR for their hard work and dedication over the
past year.
James Thornton
Chairman
CHIEF EXECUTIVE'S LETTER
Dear Shareholder
I have pleasure in reporting to you on the progress of the Group
for the year to 30 June 2022.
Our efforts in restructuring the balance sheet over the last
couple of years and the implementation of an active refurbishment
works programme has resulted in the Group being well positioned to
continue to drive growth from the existing assets.
Operational highlights -
-- Revenue for the financial year increased by 23.6% (to GBP
1.28 million up from GBP 1.04 million in 2021) - largely
underpinned by the letting up of Coleherne Road during the December
quarter following completion of refurbishment works to eight of the
ten flats.
-- Portfolio level occupancy has remained close to 100% of all
available flats (currently one flat across the portfolio is vacant
and in the process of being re-let). Rental increases continue to
be achieved at renewals / re-lettings.
-- Total assets increased to GBP 27.37 million (up from GBP
24.41 million in 2021) following the partial exercise of the
Torchlight option. Net asset value per share reduced to 32.82 pence
(2021: 40.18 pence) primarily driven by the impact of partial
option exercise.
Focus on cost management and improving operational performance
continues to minimise cash burn from operating activities.
The focus of this year has been on the letting up of the
Coleherne Road property following refurbishment, refurbishing the
additional flat acquired at Heathside, maintaining high occupancy
across the portfolio, and keeping corporate and operating costs to
a minimum.
Current focus to drive value over the next financial year
is:
-- conversion of Deanery Court to self-managed under the Cristal
Apartments "walk in walk out" model;
-- complete Coleherne Road and let up the last two flats;
-- continuing to progress planning works at Chymedden and
Ladbroke Grove;
-- roll out of property management software across the Group to
provide a centralised platform to support growth and enhanced
management capability;
-- control of core running costs within incremental reductions
where possible; and
-- make acquisitions to increase scale (subject to pricing /
value drivers).
Progress continues to be made to create a stable platform that
can be successfully scaled-up.
Property portfolio
Property transactions during the year
KCR acquired an additional one-bedroom flat within Heathside in
October 2021. The flat was very tired and poorly presented at the
time of acquisition. Full refurbishment has been completed
including creation of an outdoor living area. Contractor
availability and supply chain issues impacted the timing of
refurbishment with works being fully completed during June 2022 and
the flat being let in July.
A number of acquisitions were considered during the year,
however we were unable to reach price agreement with vendors. We
continue to maintain a disciplined approach to acquisitions and
will only make acquisitions that offer compelling value to
shareholders
Existing portfolio
KCR continues with its performance enhancement focus on its
existing portfolio. The refurbishment of apartments at Coleherne
Road is substantially complete. We have now obtained vacant
possession to enable works to be completed on the last two
unrefurbished flats and the exterior areas. We look forward to
fully completing this project during the 2023 financial year.
We intend to commit more capital expenditure to positively
reposition the Ladbroke Grove portfolio. Planning submission has
been progressed which, if successful, will result in both an
increase in the number of apartments and uplift in net lettable
area. Repositioning of the rental product and materially enhancing
the quality of the product on offer as part of the refurbishment
works is expected to drive a material uplift in achievable rentals
and capital values. The tired condition of the current presentation
is also increasingly capital intensive from a repairs and
maintenance perspective, but this is also expected to substantially
reduce following completion of more holistic upgrade refurbishment
works.
We have already experienced a significant uplift in rental and
capital values at our repositioned asset in Coleherne Road. The
apartments have moved into a far higher rental bracket with strong
market demand for the repositioned product. The aim is for this to
be repeated at Ladbroke Grove.
KCR is continuing the process of creating two operating lines,
clearly identifiable by brand, property quality and letting
strategy.
1. Cristal Apartments. Residential apartments, finished to a
high modern specification, furnished and let on a Walk-In-Walk-Out
(WIWO) basis (the intention is for utilities, internet, furniture,
and TV licence to be included in the rental payment) for a
frictionless and flexible letting experience. Rental contracts may
be from a week to multi-year.
2. Osprey Retirement Living. 4* retirement living property
rented on the same basis as above, with optionality on furniture.
Rental contracts to be assured shorthold tenancies (six months
plus).
1. Cristal Apartments (WIWO letting strategy)
The Coleherne Road property has been repositioned and now
delivers the higher quality style of apartments that the Cristal
brand represents.
Conversion of the Southampton property to the Cristal Apartments
model has commenced and is planned to be completed over the course
of the 2023 financial year. This is expected to be one of the key
drivers of revenue growth over the coming financial year.
If the outcome from the planning application mentioned above is
positive, it is also intended to reposition the Ladbroke Grove
portfolio into Cristal branded apartments which is expected to
result in both enhanced rentals and a substantive reduction in
ongoing repairs and maintenance.
-- The property at Coleherne Road, held within K&C
(Coleherne) Limited, comprises ten studio and one-bedroom flats.
KCR has completed a whole-building refurbishment of the property in
respect of eight of the ten apartments to a significantly higher
standard. The new apartments have produced strong rental uplifts
and occupancy levels since letting up during the December 2021
quarter. Works to complete the balance of this project have now
commenced.
-- The Ladbroke Grove portfolio (owned by KCR (Kite) Limited)
consists of 16 one- and two-bedroom flats in three buildings which
remain 100% occupied. The stand-alone flat in Harrow Road has been
sold and settled during the financial year. Proceeds from the sale
of the Harrow Road property were applied primarily to reduction of
the Hodge Bank facility. Units have been lightly refurbished as
tenants leave and are then re-let in the private market. Planning
works have been progressed during the financial year and a planning
application submitted. The Company's intention is to undertake a
whole building refurbishment of the Ladbroke Grove assets subject
to planning permission.
-- The Southampton block of 27 residential units at Deanery
Court, Chapel Riverside (owned by KCR (Southampton) Limited) is in
the process of being converted to the Cristal Apartments operating
model. As leases have expired the apartments have been taken back,
lightly refurbished, fully furnished and are now being let under
the Cristal Apartments walk in walk out operating model. As of
today, around half of the apartments have been taken back with 11
apartments converted and now being managed under the Cristal
Apartments model. Another 11 apartments are in the process of being
converted with full conversion of this property to the Cristal
Apartments model expected to be completed during the 2023 financial
year. Historically the property is considered to have been under
rented and we believe substantive upside in gross and net rental
performance exists from the more active direct management style
proposed for this asset.
2. Osprey Retirement Living (4* retirement apartments)
The Osprey portfolio (K&C (Osprey) Limited) consists of 159
flats and 13 houses let on long leases in six locations, together
with an estate consisting of 30 freehold cottages in Marlborough
where Osprey delivers estate management and sales services.
Whilst the proposed legislative changes in respect of ground
rents have had a negative impact on portfolio valuation, overall,
the portfolio has held its value mainly as a result of the
acquisition strategy to acquire flats within Heathside. The nine
owned flats within Heathside are delivering strong rental returns
on cost and have assisted in offsetting the value decline
associated with the ground rent component of the portfolio. We
continue to focus on unlocking value via completion of lease
extensions on the shorter dated long leasehold flats.
The key asset in the portfolio representing 71% of the Osprey
portfolio value is the freehold block at Heathside, Golders Green,
where 28 of the 37 residential units are held on a long leasehold
basis. The strategy continues to be to selectively acquire (subject
to pricing) long-leasehold units in the block, refurbish the units
to a high standard and let them in the open market under assured
shorthold tenancies. This strategy continues to provide strong
rental returns for the Group. During the June 2022 quarter we
successfully took back management of this property from the RTM Co.
This will provide incremental management fee income and, more
importantly, will enable us to control the future direction for
positioning of this property. In this respect, design work and a
tender programme have been completed for building works to enhance
the internal common parts (including reconfiguration of the ground
floor) and external areas. Works are planned to commence during the
current financial year and are expected to extend over the next two
financial years (works will be funded via sinking fund and special
levies). This is expected to enhance both the market demand for our
rental product and capital values within the building as a
whole.
Financial
The current financial year reflects the outcome of enhanced
gross revenue following letting up of Coleherne Road and ongoing
cost control of core operating overhead. KCR has recorded an
operating profit before separately disclosed items, and a
significantly lower operating loss for the year. Further details
regarding the financial performance of the Group can be found in
the Strategic Report below.
Prospects
The business continues to be cashflow negative, however, KCR has
made major steps to becoming cashflow positive. We continue to work
on achieving this and look forward to delivering further improved
performance from the existing portfolio.
I am excited about the potential for the Company to grow from a
far more stable operating base, and in particular I am pleased by
the ongoing progress made this year towards Group
profitability.
Russell Naylor
Executive Director
GROUP STRATEGIC REPORT
The directors present the strategic report of KCR Residential
REIT plc ('KCR' or the 'Company') and its subsidiaries (together,
the 'Group') for the year ended 30 June 2022.
PRINCIPAL ACTIVITY
The Group carries on the business of acquiring, developing and
managing residential property predominantly for letting to third
parties on long and short leases. At the year-end, the Group
consisted of the Company, which is a public Company limited by
shares, and its wholly owned subsidiaries:
1. K&C (Coleherne) Limited owns a freehold residential
property in Chelsea, London containing ten studio flats;
2. K&C (Osprey) Limited owns nine freehold apartments and
the freehold of several retirement properties let on long leases to
residents and provides management services in respect of these
properties and to third-party landlords;
3. KCR (Kite) Limited owns three freehold residential properties
in Ladbroke Grove, London (16 flats);
4. KCR (Southampton) Limited owns a long leasehold block of 27
two-bedroom apartments at Chapel Riverside, Southampton. The lease
is a 999 lease for which the Company pays a peppercorn rent;
and
5. K&C (Newbury) Limited owns no property and is now effectively dormant.
Throughout the year the Company remained a REIT and has complied
with REIT rules throughout the period and since the balance sheet
date.
GROUP STRATEGY
The directors intend to build a significant presence in the
residential letting market, primarily through the acquisition of
land with planning permission that will be developed into
residential property and the acquisition of existing residential
property. Assets are predominantly acquired with the purpose of
letting to third parties.
RESULTS
The Group reports a consolidated loss of GBP342,081 for the year
to 30 June 2022 (2021 - GBP 924,234 ).
REVIEW OF BUSINESS AND FINANCIAL PERFORMANCE
The Board has reviewed whether the Annual Report, taken as a
whole, presents a fair, balanced and understandable summary of the
Group's position and prospects, and believes that it provides the
information necessary for shareholders to assess the Group's
position, performance, and strategy.
In reporting financial information, KCR presents alternative
performance measures, "APMs", which are not defined or specified
under the requirements of IFRS. For example, portfolio occupancy
and percentage of rent arrears. The Company believes that these
APMs, which are not considered to be a substitute for or superior
to IFRS measures, provide stakeholders with additional helpful
information on the performance of the business. The Board reminds
readers that these APMs are not GAAP measures, are not intended as
a substitute for those measures, and that other companies may use
different measures.
Revenue in this financial year increased by 24% to GBP1,280,770
(2021 - GBP 1,036,011 ). Core portfolio revenue (relating to
Rentals, Management fees and Ground Rent) was the primary
contributor to revenue growth as Coleherne Road was let up during
the year. Portfolio occupancy (excluding the planned vacancy at
Coleherne Road) and rent collection remained above 95% for the
whole period.
The Group recorded an Operating Profit before separately
disclosed items of GBP340,613 (2021 GBP416,669). Reduction against
the prior year was due to a reduced contribution from positive
revaluation movements. After allowing for separately disclosed
items and finance costs, the loss before taxation was GBP342,081
(2021 - GBP924,234). Separately disclosed items relating to
refinancing and refurbishment works accounted for about half of the
loss before taxation in the 2022 financial year. Reduction in costs
associated with refurbishment accounted for the majority of the
year- on-year reduction in separately disclosed items. The Group
reports the operating result both before and after separately
disclosed items as the costs associated with refurbishment works is
expected to vary significantly year-on-year.
Total assets at 30 June 2022 increased to GBP27.4 million (2021
- GBP24.4 million). Investment property increased overall
(GBP343,300) primarily due to the acquisition of an additional
apartment at Heathside. The increase in total assets reflects the
increase in cash balances as a result of the partial option
exercise by Torchlight during the year.
Net assets increased to GBP13.68 million (2021 - GBP11.32
million) but net asset value per share decreased to 32.82p (2021 -
40.18p), predominantly due to the impact of a share option exercise
by Torchlight.
Upon completion of the Torchlight transaction in the 2020
financial year, the Group entered into an option agreement to grant
Torchlight an option to subscribe for a further 50,000,000 new
Ordinary Shares during the Option Period (up to 6 August 2022).
Torchlight had the right to subscribe for the shares at a price per
share of:
-- for any notice of exercise served on the Company on any date
up to and including 31 December 2019, the Issue Price; and
-- for any notice of exercise served on the Company from 1
January 2020 until the end of the Option Period, the higher of (i)
the price per Option Share which is equivalent to 95 per cent. of
the 30-Day VWAP for the Ordinary Shares and (ii) the par value of
each Ordinary Share.
The Option was only exercisable by Torchlight during the Option
Period and if the Option was not exercised prior to the expiry of
the Option Period, it would lapse. Unless otherwise agreed, any
exercise of the Option by Torchlight would be for not less than
2,000,000 Option Shares.
In October 2021, Torchlight exercised 13,500,000 options (2021:
600,000) and converted into 10p shares at a price of 19.9821p per
share (2021: 19.8079p per share), increasing Torchlight's interest
in the Company to 23,100,000 shares, representing 55.4% of the
Company's enlarged issued share capital.
Post balance date the option expired with no further exercises
being made by Torchlight.
KEY PERFORMANCE INDICATORS
The directors and management team monitor key performance
indicators relevant to each of the subsidiaries to improve Group
performance. Management reports to the board if data show
significant variances against expected outcomes and proposes
mitigation action as necessary.
Examples of the KPIs used to monitor aspects of performance
include:
1. At property level:
1.1. Vacancy rate in terms of number of units available and potential rental income
Target occupancy of at least 90 per cent achieved; and
1.2. Outstanding rents as a percentage of rental income
Target debtor balance of less than 10 per cent of rental revenue
achieved.
2. At Group Level
Near term focus continues to be on reducing costs, enhancing
revenue and growing the business to achieve a cash break even
position (before separately disclosed capital expenditure) to
provide a stable base to grow from. Solid progress in this respect
is being made. In order to achieve this the Group is focussing on
optimising performance from the existing assets and incremental
acquisitions where they make sense.
RISKS AND UNCERTAINTIES
The Board regularly reviews the risks to which the Group is
exposed and ensures through its meetings and its regular reporting
that these risks are minimised as far as possible.
The principal risks and uncertainties facing the Group at this
stage in its development are:
-- Financing and liquidity risk
The Company has an ongoing requirement to fund its activities
through the equity markets and in future to obtain finance for
property acquisition and development. Although there is no
certainty that such funds will be available when needed, the
Company believes it would be able to access further funding for the
directors to continue to focus on selectively growing the Group's
asset base
-- Financial instruments
Details of risks associated with the Group's financial
instruments are given in note 20 to the financial statements. The
directors seek to mitigate these risks in manners appropriate to
the risk;
-- Valuations
The valuation of the investment property portfolio is inherently
subjective as it is made on the basis of assumptions made by the
valuer, or the Directors that may not prove to be accurate. The
outcome of this judgment is significant to the Group in terms of
its investment decisions and results. The directors, who have long
experience of property and valuation principles, seek to mitigate
this risk by employing independent valuation experts to complete
periodic valuations of the assets in the portfolio. Valuation
assumptions are reviewed and considered by the Directors for
reasonableness; and
-- COVID-19
The Group seeks to preserve a safe environment within its
properties for its colleagues, residents, tenants and suppliers and
reviews this risk regularly, updating its procedures as required.
To date, COVID-19 has not materially impacted Group operations,
with minimal impact on rent collections during the lockdown period.
Only a minimal number of tenants were in rent arrears at the
balance sheet date and up to the date of this report.
The main financial risks that the Board has identified in
relation to the pandemic are potential income reduction and bad
debts as tenants have difficulty in maintaining rent payments and
potential voids within the portfolio arising from tenant
failures.
The actions taken to mitigate the risks are summarised
below:
-- the Group undertakes credit checks on prospective new tenants
to assess credit risk. The checks include verification of income
levels and capacity to pay, as well as checks of rental references.
Any arrears are actively managed; and
-- the Group has continued with periodic monitoring of apartment
usage for short let operators. Monitoring included car park usage
(Southampton), power, water and gas readings as a proxy for
occupancy. The purpose of this was to enable the directors to form
a view as to the underlying occupancy profile of the short let
operators as a proxy for their ability to continue to meet rent.
Our sampling / testing has suggested an implied underlying
occupancy rate of 80% or better which suggests adequate capacity
for the short let operators to meet rent.
Directors' duty to promote the success of the Company under
Section 172 Companies Act 2006
Section 172 (1) of the Companies Act 2006 requires Directors to
act in the way they consider, in good faith, would be most likely
to promote the success of the Company for the benefit of
shareholders as a whole, and in doing so having regard to a diverse
group of stakeholders.
The Directors continue to have regard to the impact of decisions
made on all stakeholders and are aware of their responsibilities to
promote the success of the Company, in accordance with section 172
of the Companies Act 2006.
We aim to work responsibly with our stakeholders and outline
below the key Board decisions made during the 2022 financial
year:
Key Decision Stakeholders Action and Impact
Governance Policies Regulators / The Board periodically
Shareholders reviews 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 listing and regulatory
requirements.
The Company considers
that the confidence provided
to all stakeholders from
a robust governance framework
is an important component
for ongoing stakeholder
support of the Company.
During the course of the
year the Board updated
its governance, updating
its AIM Listing Rules
Compliance Board Memorandum
to reflect developments
Strategy Tenants / in the AIM rules and reviewing
Implementation Shareholders its internal control systems
for compliance with AIM
Rule 31. Board Committee
terms of reference were
reviewed and updated and
new policies in respect
of bribery risk and social
media communications adopted.
The Company continued
to take actions to implement
the strategy outlined
in last year's Annual
Report.
Primary focus was -
* Letting up Coleherne Road following completion of
refurbishment works to substantially upgrade the
standard of accommodation provided to tenants.
* Progressing incremental refurbishment works to
enhance the quality of the rental product provided.
* Progressing planning works to enhance value within
the existing portfolio.
* Commencement of conversion of the Deanery Court
property to the Cristal Apartments brand and
operating model.
* Successful implementation of strategy is expected to
result in continued financial performance of the
Company.
Improving the quality
of the standard of rental
accommodation provides
tenants with an enhanced
and hassle-free rental
experience. For shareholders
the investment in improving
the quality and standard
of the rental product
is a primary driver of
improved financial performance
for the Company.
---------------------- ----------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements
that have been made by the directors in good faith based on the
information available at the time of the approval of the Annual
Report and financial statements. By their nature, such
forward-looking statements involve risks and uncertainties because
they relate to events and depend on circumstances that will or may
occur in the future. Actual results may differ from those expressed
in such statements.
OUTLOOK
Whilst the near-term focus remains on reducing costs and
improving the operational performance of the existing assets, the
Group is continuing to investigate the purchase of residential
property assets that are capable of supporting an increasing income
yield. To achieve these, the Group may be required to raise more
capital and it is working closely with funding sources, both equity
and debt providers, to achieve this objective.
ON BEHALF OF THE BOARD:
Russell Naylor
Executive Director
CORPORATE GOVERNANCE STATEMENT
Introduction
During the year to 30 June 2022 KCR Residential REIT plc, while
an AIM quoted Company, was operating initially with four directors
and three employees. In September 2018, it adopted the QCA code but
with such a tightly controlled operational and risk environment was
not able to, in all areas, fully comply with the principles. During
the current year, the directors have continued to work towards
compliance and updating the website to comply as far as possible
with the following QCA code principles, noting areas where the
small scope of operations limits their ability to fully comply:
Principle 1: Establish a strategy and business model which
promote long-term value for shareholders
The Company's objective is to build a substantial property
portfolio predominantly in the residential sector that generates
both secure income flow from rents and increasing net asset value
for shareholders. The Company acquires or develops blocks of
studio, one, two and three-bed apartments that are close to
transport links, shopping and leisure, mostly in London, its
surrounds and the South East. These blocks are focused on
attracting tenants seeking affordable rental accommodation.
The Company brings its property corporate finance expertise to
the identification and execution of these acquisitions.
The Company looks to acquire properties at below market value to
improve yield on cost and enhance net asset value. It aims to
achieve this through acquisition strategies including:
-- using the REIT's inherent tax advantages; acquiring
properties in corporate structures with embedded capital
appreciation and deferred tax liabilities which are reduced to zero
as the corporate becomes part of the REIT group; and
-- acquiring permitted land, funding the development process and
retaining the developer's profit.
Over the medium to long term, the Company expects rental and
property values to increase in line with inflation. These
increases, coupled with new acquisitions are designed to enable the
Company, once it has reached scale, to pay dividends from cash flow
generated by rents and deliver net asset value increases through
positive property revaluations. Active asset management of the
properties may also deliver value increases. The Company as a REIT
is required to distribute 90 per cent of its rental profits.
It is the Company's paramount intention to conduct its
activities in a professional and responsible manner for the benefit
of its shareholders, its employees, and the communities in which it
operates.
Further detail on the key challenges that the Board addresses
are set out under Risks and Uncertainties in the Strategic
Report.
Principle 2: Seek to understand and meet shareholder needs and
expectations
In August 2019, a major equity re-capitalisation brought in
GBP4.05m of capital and a substantial new shareholder, Torchlight
Fund LP. This transaction was designed to stabilise and re-position
the Company so that it can move forward in a way that all existing
and new shareholders may benefit from future uplifts to
profitability and increases in net asset value.
The Company remains committed to engaging with its shareholders
to ensure its strategy and performance are clearly understood.
Feedback from investors is obtained through direct interaction
between the Executive Director and shareholders following the
Company's full and half year results and certain other ad hoc
meetings between executive management and shareholders that take
place during the year.
The Company seeks to communicate with its shareholders on a
timely and transparent basis at all times. Announcements through
RNS are as comprehensive as possible. As part of the Company's
repositioning, the intention is to improve the speed of reporting
of the interim and full year results to shareholders.
The Chief Executive attends and presents at investor forums from
time to time, as well as holding discussions with analysts,
shareholders and investment managers.
It is apparent from such interaction that shareholders have
several concerns, including:
-- How do the directors propose to expand operations without
dilution to existing shareholdings?
Since property companies are capital-intensive, the Company will
raise equity over time to fund the acquisition of new properties.
Torchlight Fund LP exercising its option rights as approved by
shareholders was dilutive to existing shareholders with this
dilution having already being accepted and approved by
shareholders. The Board will aim to maximise the issuance price of
any additional equity offerings such that issuances are accretive
or, if that is not possible, offer all shareholders the opportunity
to participate in the offering on an equal access.
-- When will the Company become profitable?
Based on current overheads and interest forecasts, the Company
may become profitable and cash flow positive once it has
approximately GBP50m of investments generating satisfactory rental
income. Executive management is focused on achieving this objective
as soon as possible. This is naturally dependent on the
availability of suitable transactions and the ability to complete
the acquisitions either via raising additional equity capital or
debt.
Shareholder liaison is managed though Russell Naylor
Russell.Naylor@kcrreit.com .
Principle 3: Take into account wider stakeholder and social
responsibilities and their implications for long-term success
The Company currently operates in the UK. It identifies the main
stakeholders in the UK as being investors, tenants, and suppliers
of services (accountant, nominated adviser, broker, lawyers),
employees, directors, third-party property managers, banks and
other debt providers and property agents introducing investment
opportunities.
The Company has an important social responsibility in its role
as a landlord of residential housing. We commit to delivering great
service to our tenants, which includes providing safe and
high-quality residential units, at market prices, managed in a
professional way.
Treating all our stakeholders well, and in particular our key
customers - our tenants, is key to growing a sustainable business
that will have long-term success.
Principle 4: Embed effective risk management, considering both
opportunities and threats, throughout the organisation
The Board is responsible for setting the risk framework within
which the Company operates and ensuring that suitable
risk-management controls and reporting structures are in place
throughout the Group.
The Board seeks to minimise risk in the management of its
operations. The Company uses third- party advisors to address
specific issues that arise during operations where they bring
complementary expertise and experience.
Principle 5: Maintain the board as a well-functioning, balanced
team led by the chair
The Board comprises a balance of independent and non-independent
directors with collective, specific and complementary skills that
enable the Company to manage and direct its affairs in a
professional manner, with embedded corporate governance procedures
that are fit for purpose.
Full Board meetings are generally held on a quarterly basis and
all necessary documentation is provided to the Board in advance, so
that they can understand the issues under review and make
well-considered decisions. During the year, between full Board
meetings, the Board convenes whenever necessary to consider and, if
appropriate, approve the execution and completion by executive
management of key matters that fall within the Board's defined
remit as set out below.
The Board has audit and remuneration sub-committees that are
chaired by non-executive directors.
All of the directors devote such time to the Company's affairs
as the board considers appropriate.
On 3 November 2020 Michael Davies stepped down as Chairman and
James Thornton, an independent non-executive director of KCR,
became the Non-Executive Chairman of the board. KCR believes that a
reduced board of four members is appropriate for a business of its
size and is in line with its efforts to reduce operating costs,
assisting with its drive to profitability. As a result of these
changes, the Company has only one Independent Non-Executive
Director. The Company acknowledges the recommendations of the QCA
Corporate Governance Code, which it has adopted, and it is intended
at the appropriate time to seek appointment of a further
Independent Non-Executive Director.
Principle 6: Ensure that between them the directors have the
necessary up-to-date experience, skills and capabilities
The Board maintains up-to-date skills, knowledge and experience
to enable it to direct and manage the Company's operations,
finances and its interface with investors, the public markets and
its other stakeholders.
The Board takes great care to appoint managers and staff with
the appropriate skills and experience, and is aware of the
importance of encouraging diversity among its workforce.
The Board works as a team and regularly reviews its procedures
and composition.
The relevant experience and skills of the current directors is
set out under About Us / The Board on the Company's website. Each
director is involved in other organisations which keep their
professional skills sharpened and up to date.
Principle 7: Evaluate Board performance based on clear and
relevant objectives, seeking continual improvement
The Board of KCR comprises:
Name Role Appointed Status
Russell Naylor Executive Director 06 August 2019 Non-independent
James Thornton Non-Executive chairman 06 August 2019* Independent
Richard Boon Non-Executive director 06 August 2019 Non-independent
Dominic White Non-Executive director 01 January 2017 Non-independent
*appointed Chairman on 3 November 2020
In accordance with its obligations under the QCA code, the Board
will review internally its collective performance, and the
performance of its committees and Board members. At this stage of
its evolution and in view of the size of the Board, the Directors
do not believe that it is practical to undertake an external or a
wide-ranging evaluation of the performance of Board members. The
primary tasks of the Executive Director, Russell Naylor, have been
and will continue to be to grow the Company's asset base and
revenue through the delivery of additional assets to the portfolio.
This has included developing capital and asset partnerships and
finding ways to raise appropriately priced and structured debt
finance to support transactions and equity capital in an uncertain
equity market. He is a key point of contact for the capital
markets.
In these tasks, he will be supported by the Non-Executive
Directors advising on matters such as internal financial controls,
financial management, capital planning and overseeing the
preparation of financial reports to shareholders.
The primary task of the Chairman, James Thornton, is to ensure
that the Board has performed its role correctly, that governance is
adhered to, and that the Company works towards delivering value to
shareholders in accordance with the Company's strategy. He is also
a point of contact with many of the Company's shareholders and
professional advisers.
Succession planning remains an important issue for the Board,
and in particular the Chairman.
Principle 8: Promote a corporate culture that is based on
ethical values and behaviours
The Board strives to promote a corporate culture based on sound
ethical values and behaviours.
The Company has adopted a code for directors' and employees'
dealings in securities, which is appropriate for a company whose
securities are traded on AIM. The code is in accordance with the
requirements of the Market Abuse Regulation that came into effect
in 2016.
The Board is also aware that the tone and culture it sets will
greatly impact all aspects of the Company and the way that
employees behave, as well as the achievement of corporate
objectives. A significant part of the Company's activities is
centered upon an open dialogue with shareholders, employees and
other stakeholders. Therefore, the importance of sound ethical
values and behaviours is crucial to the ability of the Company to
successfully achieve its corporate objectives.
Principle 9: Maintain governance structures and processes that
are fit for purpose and support good decision-making by the
Board
The Board is committed to high standards of corporate
governance. No system of internal control can completely eliminate
the risk of process or individual failures. To an extent, the
corporate governance structures which the Company is able to
operate are limited by the size of the executive management team
and the small number of executive directors, which is itself
dictated by the current size of the Company's operations. Within
this limitation necessitated by the current small size of the
business, the Board is dedicated to having strong internal control
systems in place to enable it to maintain the highest possible
standards of governance and probity.
The Chairman, James Thornton:
-- leads the Board and is primarily responsible for the
effective working of the Board;
-- in consultation with the Board, ensures good corporate
governance and sets clear expectations with regards to Company
culture, values and behaviour;
-- sets the Board's agenda and ensures that all Directors are
encouraged to participate fully in the activities and
decision-making process of the Board;
-- takes responsibility for relationships with the Company's
professional advisers and major shareholders.
The Executive Director, Russell Naylor:
-- is primarily responsible for developing the Company's
strategy in consultation with the Board, for its implementation and
for the operational management of the business;
-- is primarily responsible for new projects and expansion;
-- runs the Company on a day-to-day basis;
-- implements the decisions of the Board;
-- monitors, reviews and manages key risks;
-- is the Company's primary spokesperson, communicating with
external audiences, such as investors, analysts and the media;
-- is primarily responsible for the systems of financial
controls in operation for the Company and each of its
subsidiaries;
-- is primarily responsible for all financial management and
financial planning matters;
-- monitors, reviews and manages key risks as they relate to
financial impact; and
-- implements the financial and internal control decisions of
the Board.
The Remuneration Committee is chaired by Richard Boon,
Non-Executive Director, and comprises James Thornton and Richard
Boon, and meets on an ad hoc basis when required.
The Audit and Risk Committee is chaired by James Thornton,
Chairman and Independent Non-Executive Director, and comprises
James Thornton and Richard Boon, Non-Independent Non-Executive
Director. Russell Naylor is invited to attend as appropriate. It
meets at least twice each financial year to consider the interim
and final results. In the latter case, the auditors are present and
the meeting considers and takes action on any matters raised by the
auditors arising from their audit.
The chair of each of the Committees may invite executive
management and Board members to attend any meeting.
Matters reserved for the Board include:
-- vision and strategy;
-- review of budgets, asset plans and trading results;
-- approving financial statements;
-- financing strategy, including debt strategy;
-- business planning relating to acquisitions, divestments and
major refurbishments not already agreed in the strategy and asset
plans;
-- capital expenditure in excess of agreed budgets;
-- corporate governance and compliance;
-- risk management and internal controls;
-- appointments and succession plans at senior management level;
and
-- Directors' remuneration.
Principle 10: Communicate how the Company is governed and is
performing by maintaining a dialogue with shareholders and other
relevant stakeholders
The Company's website sets out the principal approach of the
Company to governance. It contains all relevant documents and
information for shareholders, including all RNS announcements,
financial reports, shareholder circulars, and the Company's
articles.
Shareholders are additionally encouraged to participate at the
AGM, to ensure that there is a high level of accountability and
identification with the Group's strategy and goals.
Audit & Risk Committee Report
The Audit & Risk committee is a Board committee delegated
with responsibility to oversee and review financial and internal
controls in accordance with its Terms of Reference. The Committee
also makes recommendations to the Board on payment of dividends or
otherwise. The Committee is also responsible for setting and
agreeing Audit fees and overseeing the process for Auditor
appointment.
The committee is chaired by Independent Non-Executive Chairman,
James Thornton, with a quorum of a minimum of two Non-Executives.
There are two Non-Executive members; James Thornton and Richard
Boon.
During the 2022 financial year the Audit & Risk committee
has met three times, to review and recommend the interim and
year-end financial statements, and to consider the need for and to
oversee the change of auditors. The chairman of the committee also
attended the 2022 year end planning meeting with the new auditors
and reviewed the audit plan.
In 2022, the Company conducted a tender process for the Group
and subsidiary audits. This process resulted in the appointment of
Grant Thornton Limited on 1 July 2022.
At the completion of the audit, the Auditor presented the Audit
Completion Report to the Audit Committee, these were discussed
before the financial statements were presented for Board
approval.
Remuneration Committee Report
The Remuneration Committee is a Board committee of Non-Executive
Directors acting within its terms of reference to execute its
responsibility for the review and approval of salary and bonuses of
Board Members and Senior Management personnel and related
employment matters.
During 2022, the Remuneration Committee met to review and
approve senior management salaries and bonus structure for
staff.
It is the Company's policy that the remuneration of Directors
should be commensurate with the services provided by them to the
Company and should take account of published data on reasonable
market comparable Groups, where available. Details of the
Directors' remuneration are set out in the Report of the
Directors.
REPORT OF THE DIRECTORS
The directors present their report with the financial statements
of the Company and the Group for the year ended 30 June 2022.
A review of the business, risks and uncertainties and future
developments is included in the Chairman's Letter, the Chief
Executive's Letter, the Group Strategic Report, and in note 20 to
the financial statements.
DIVIDS
The directors do not recommend payment of a dividend for the
year (2021 - GBPnil).
Political donations
The Group made no political donations during the year (2021 -
GBPnil).
DIRECTORS
The following directors served during the year to 30 June 2022
and up to the date of approval of this Annual Report:
Name
===============
James Thornton
Russell Naylor
Richard Boon
Dominic White
The beneficial interests of the directors holding office at 30
June 2022 in the issued share capital of the Company were as
follows:
Ordinary
Shares
----------------
Issued in
At 30 June 2021 the At 30 June
year 2022
Name No. No. No.
James Thornton 22,222 -- 22,222
Dominic White 1,287,598 -- 1,287,598
Russell Naylor -- -- --
Richard Boon -- -- --
---------------- ----------------- --------- ------------
The beneficial interests of the directors holding office at 21
September 2022 in the issued share capital of the Company were as
follows:
At 30 June 2022 Issued in the At 21 September
period 2022
Name No. No. No.
Dominic White 1,287,598 - 1,287,598
James Thornton 22,222 - 22,222
--------------- ------------- ---------------
SUBSTANTIAL SHAREHOLDINGS
As at 21 September 2022, the directors had been notified that
the following shareholders owned a disclosable interest of three
per cent or more in the Ordinary Shares of the Company:
Name Interest
%
--------------------------- --------
Torchlight Fund LP 55.44%
Drumz plc 5.85%
Moore House Holding Ltd 5.66%
Poole Investments Ltd 4.32%
Venaglass Ltd 3.80%
Dominic White & White Amba
Pension Scheme 3.09%
DIRECTORS' REMUNERATION
The directors have received the following remuneration for their
services during the year:
2022 2021
------------------------------ ------------------------------
Name Remuneration Benefits-in-kind Remuneration Benefits-in-kind
GBP GBP GBP GBP
------------ ---------------- ------------ ----------------
Dominic White 28,292 -- 94,500 -
Russell Naylor* 93,833 -- 77,691 -
James Thornton 30,000 -- 30,000 -
Richard Boon* 30,000 -- 20,000 -
182,125 -- 222,191 -
============ ================ ============ ================
* The remuneration paid to Russell Naylor included fees of
GBP48,000 charged by Naylor Partners, a business in which Russell
Naylor is a Director (2021 - GBP48,000) and the remuneration paid
to Richard Boon included fees of GBPNil (2021 - GBP18,900) charged
by Artefact Partners, a business in which Richard Boon is a
Director.
During the previous year, the Group was charged fees of
GBP10,800 by DGS Capital Partners LLP, a limited liability
partnership of which Michael Davies is a member. Michael Davies was
a director of the Group until resigning on 3 November 2020. The
fees were for making available the services of Michael Davies to
the Group.
INTERNAL CONTROLS AND RISK MANAGEMENT
The directors are responsible for the Group's system of internal
control. Although no system of internal control can provide
absolute assurance against material misstatement or loss, the
Group's system is designed to provide reasonable assurance that
problems are identified on a timely basis and dealt with
appropriately. In carrying out their responsibilities, the
directors have put in place a framework of controls to ensure as
far as possible that (i) ongoing financial performance is monitored
in a timely manner, (ii) where required, corrective action is taken
and (iii) risk is identified as early as practically possible. The
directors have reviewed the effectiveness of internal controls.
The Board, subject to delegated authority, reviews, among other
things, capital investment, property sales and purchases,
additional borrowing facilities, guarantees and insurance
arrangements.
Details of financial risk management are included within the
Risks and Uncertainties section of the Group Strategic Report.
BRIBERY RISK
The Group has adopted an anti-corruption policy and
whistle-blowing policy under the Bribery Act 2010. Notwithstanding
this, the Group may be held liable for offences under that Act
committed by its employees or subcontractors, whether or not the
Group or the directors had knowledge of the commission of such
offences.
OTHER MATTERS
i. Environmental
The Group understands the importance of operating its business
in a manner that minimises any risks to the environment. Its
policies seek to ensure that it achieves this goal.
ii. Group employees
The Group considers its employees to be its most valuable assets
and ensures that it deals with them fairly and constructively at
all times.
iii. Social matters
The Group is aware that it has a responsibility to the
communities in which it operates and seeks to respect them at all
times.
iv. Respect for human rights
The Group always respects the human rights of its
stakeholders.
v. Contributions to pension schemes
No pension scheme benefits are being accrued by the
directors.
DIRECTORS' INDEMNITIES AND INSURANCE
The Company has made qualifying third-party indemnity provisions
for the benefit of its directors during the year and they remain in
force at the date of approval of this Annual Report.
GOING CONCERN
The directors have adopted the going concern basis in preparing
the financial statements.
The directors consider, as at the date of approving the
financial statements, that there is reasonable expectation that the
Group has adequate financial resources to continue to operate, and
to meet its liabilities as they fall due for payment, for at least
twelve months following the approval of the financial
statements.
The Company has undertaken procedures to ensure that the Company
has sufficient cash resources and bank facilities and sufficient
covenant margin to manage its business under going concern
principles.
See note 2 to the financial statements for further details.
POST BALANCE SHEET EVENTS
Post balance sheet events are detailed further in the Chief
Executive's letter and note 23 of the financial statements
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law, the directors
have elected to prepare the financial statements in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006. Under company law, the
directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Company and the Group and of the profit or loss of
the Company and the Group for that period. In preparing these
financial statements, the directors are required to:
* select suitable accounting policies and then apply
them consistently;
* make judgments and accounting estimates that are
reasonable and prudent;
* state whether applicable accounting standards have
been followed subject to any material departures
disclosed and explained in the financial statements;
and
* assess the Group's ability to continue as a going
concern, disclosing, as applicable, matters related
to going concern and use the going concern basis of
accounting unless they either intend to liquidate the
Group, cease operations or have no realistic
alternative but to do so.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's and
the Group's transactions and disclose with reasonable accuracy at
any time the financial position of the Company and the Group and
enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO THE AUDITOR
So far as the directors are aware, there is no relevant audit
information (as defined by Section 418 of the Companies Act 2006)
of which the Group's auditor is unaware, and each director has
taken all the steps that he ought to have taken as a director in
order to make himself aware of any relevant audit information and
to establish that the Group's auditor is aware of that
information.
AUDITOR
Following a tender process, Grant Thornton Limited were
appointed as auditor to the Group. In accordance with section 489
of the Companies Act 2006, a resolution to reappoint Grant Thornton
Limited as auditor will be proposed at the forthcoming annual
general meeting.
ON BEHALF OF THE BOARD
Russell Naylor
Executive Director
REPORT OF THE 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 (the 'Group') for
the year ended 30 June 2022, which comprise the Consolidated
Statement of Comprehensive Income, the Consolidated and Company
Statement of Financial Position, the Consolidated and Company
Statement of Changes in Equity, the Consolidated and Company
Statement of Cash Flows and notes to the financial statements,
including a summary of significant accounting policies. The
financial reporting framework that has been applied in their
preparation is applicable law and UK adopted International
Accounting Standards.
In our opinion, the Group and Parent Company financial
statements:
-- give a true and fair view of the state of the Group and
Parent Company's affairs as at 30 June 2022 and of the Group's loss
for the year then ended;
-- are in accordance with UK adopted International Accounting Standards; and
-- have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
'Auditor's responsibilities for the audit of the financial
statements' section of our report. We are independent of the Group
and the Parent Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Conclusions relating to going concern
We are responsible for concluding on the appropriateness of the
directors' use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant
doubt on the Group and Parent Company's ability to continue as a
going concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our report to the related
disclosures in the consolidated financial statements or, if such
disclosures are inadequate, to modify the auditor's opinion. Our
conclusions are based on the audit evidence obtained up to the date
of our report. However, future events or conditions may cause the
Group and the Parent Company to cease to continue as a going
concern.
Our evaluation of the directors' assessment of the Group and
Parent Company's ability to continue to adopt the going concern
basis of accounting included:
-- Obtaining the 12-month going concern assessment performed by
management, including the assumptions and sensitivities prepared by
management;
-- Challenging the appropriateness of management's forecasts by:
o checking the mathematical accuracy of the cash flow
forecast;
o assessing the key assumptions used in the going concern
assessment based on our knowledge of the Group and the current
economic climate; and
o assessing whether management has taken into account the
principal and emerging risks noted in the annual report.
-- We determined whether there is a material uncertainty which
casts significant doubt over the ability of the Group and Parent
Company to continue as a going concern; and
-- We assessed the disclosures in the financial statements
relating to going concern, to ensure they were in compliance with
IAS 1.
In our evaluation of the directors' conclusions, we considered
the inherent risks associated with the Group and Parent Company's
business model, we assessed and challenged the reasonableness of
estimates made by the directors and the related disclosures and
analysed how those risks might affect the Group and Parent
Company's financial resources or ability to continue operations
over the going concern period.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group and Parent Company's ability to continue as a going concern
for a period of at least twelve months from when the consolidated
financial statements are authorised for issue.
In auditing the consolidated financial statements, we have
concluded that the directors' use of the going concern basis of
accounting in the preparation of the consolidated financial
statements is appropriate.
The responsibilities of the directors with respect to going
concern are described in the 'Statement of directors'
responsibilities' section of this report.
Our approach to the audit
Overview of our audit approach
Overall materiality:
Group: GBP268,000, which represents 2% of
the Group's net assets.
Parent Company: GBP178,000, which represents
2% of the Parent Company's net assets.
----------------------------------------------------
Key audit matters were identified as:
* Valuation of investment property
Our audit approach was a risk-based substantive
audit focused on the investment activities
of the Group.
----------------------------------------------------
Key audit matters
Key audit matters are those matters
that, in our professional judgement,
were of most significance in our
audit of the financial statements
of the current period and include
the most significant assessed
risks of material misstatement
(whether or not due to fraud)
that we identified. These matters
included those that had the greatest
effect on the overall audit strategy;
the allocation of resources in
the audit; and directing the efforts
of the engagement team. These
matters were addressed in the
context of our audit of the financial
statements as a whole, and in
forming our opinion thereon, and
we do not provide a separate opinion
on these matters.
=============================================================
Key Audit Matter How our scope addressed the matter
========================================== ================================================================
Valuation of investment property We performed the following audit
(2022: GBP24.6m and 2021: GBP24.3m) procedures:
The Group holds investment properties * Obtained understanding of the processes, policies and
which comprise properties owned methodologies, including the use of industry specific
by Group held for rental income measures, and policies for valuing investment
and capital appreciation. properties held and confirming our understanding by
Investment properties are valued performing test of design and implementation of
by the directors with reference relevant controls.
to independent external desktop
or full valuations performed.
Valuations are based on a market * Obtaining and inspecting the independent appraisals
approach which provides an indicative regarding the investment properties and supporting
value by comparing the property data to assess whether the data used is appropriate
with other similar properties and relevant and discussing these with management to
for which price information is evaluate whether the fair value of the investment
available and the valuation technique properties is reasonably stated, challenging the
is Income capitalisation and/or assumptions made by management.
capital
value on a per square foot basis.
The valuation of investment properties * Verifying valuation inputs to independent sources and
requires significant judgement testing the arithmetical accuracy of the
in determining the appropriate calculations.
inputs to be used in the model
and there is therefore a risk
that the properties are incorrectly * Performing the following procedures and at certain
valued. extent, engaging our own internal real estate
valuation specialists to:
Refer to the Chief Executive's
Letter; Accounting policies, and
Note 12, Investment properties, a) assess and corroborate management's
to the Financial Statements . 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) determine whether the methodologies
used to value investment properties
were consistent with methods usually
used by market participants for
similar types of properties; and
c) Assessing the adequacy of the
financial statement disclosures
in relation to the use of estimates
and judgements regarding the fair
value of the investment properties.
Our results
Based on the procedures performed
we have not identified any material
issues that would suggest the
valuation of investment properties
is inappropriate.
========================================== ================================================================
Our application of materiality
We apply the concept of materiality both in planning and
performing the audit, and in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if
any, on the financial statements and in forming the opinion in the
auditor's report.
Materiality was determined as follows:
Materiality measure Group Parent Company
=================================== ============================== ==============================
Materiality for financial 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 GBP268,000 which GBP178,000 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 is considered the most
appropriate because the investors
would usually track the performance
of the Company by looking at the net
asset value.
o Due to the Company being listed
and considering that the investors
or potential investors would be sensitive
to changes in the net asset value,
it was deemed that 2% would be the
most appropriate percentage.
Significant revision(s) of 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 GBP174,200 which GBP115,700 which
is 65% of financial is 65% 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 o 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 GBP93,800 and misstatements GBP62,300 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.
=================================== ============================== ==============================
An overview of the scope of our audit
We performed a risk-based audit that requires an understanding
of the Group's business and in particular matters related to:
-- We undertook substantive testing on significant transactions,
balances and disclosures, the extent of which was based on various
factors such as our overall assessment of the control environment,
the effectiveness of controls over individual systems and the
management of specific risks; and
-- For subjective estimates made by management on the valuation
of the investment properties, we either performed independent
searches or engaged our own internal real estate valuation
specialists when necessary to confirm the appropriateness of the
valuation methodology used in consideration of the comparable
properties, market assumptions and other inputs used.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with the applicable legal requirements.
Matters on which we are required to report by under the
Companies Act 2006
In light of the knowledge and understanding of the Parent
Company and the Group and its environment obtained in the course of
the audit, we have not identified material misstatements in the
strategic report or the directors' report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept; or
-- the financial statements are not in agreement with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not obtained all the information and explanations,
which to the best of our knowledge and belief, are necessary for
the purposes of our audit.
Responsibilities of Directors
As explained more fully in the statement of directors'
responsibilities, management is responsible for the preparation of
the financial statements which give a true and fair view in
accordance with UK adopted International Accounting Standards, and
for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible
for assessing the Group and Parent Company's ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting
unless management either intends to liquidate the Group and Parent
Company or to cease operations, or has no realistic alternative but
to do so.
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of
these financial statements.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities .
This description forms part of our auditor's report.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. Owing to the
inherent limitations of an audit, there is an unavoidable risk that
material misstatements in the financial statements may not be
detected, even though the audit is properly planned and performed
in accordance with the ISAs (UK).
The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
-- We obtained an understanding of the legal and regulatory
frameworks applicable to the company in which it operates. We
determined that the following laws and regulations were most
significant, the Companies Act 2006, and the Real Estate Investment
Trust (REIT) status section 1158 of the Corporation Tax Act
2010.
-- We understood how the company is complying with those legal
and regulatory frameworks by making inquiries to management
including those responsible for compliance procedures. We
corroborated our inquiries through our review of board meetings,
review of compliance reports, review of correspondence with the
regulator and review of key regulatory requirements. We identified
areas of the above laws and regulations that could reasonably be
expected to have a material effect on the financial statements from
our sector experience and through discussion with management.
-- We assessed the susceptibility of the company's financial
statements to material misstatement, including how fraud might
occur, by evaluating management's incentives and opportunities for
manipulation of the financial statements. This included the
evaluation of the risk of management override of controls. We
determined that the principal risks were in relation to
transactions with related parties and revenue transactions.
-- In assessing the potential risks of material misstatement, we obtained an understanding of:
- the entity's operation, including the nature of its revenue
sources and services and of its objectives and strategies to
understand the classes of transactions, account balances, expected
financial statement disclosures and business risks that may result
in risks of material misstatement.
- the applicable statutory provisions
- the entity's control environment.
Our audit procedures involved:
- identifying and assessing the design and implementation of
controls management has in place to prevent and detect fraud.
- understanding how those charged with governance considered and
addressed the potential for override of controls or other
inappropriate influence over the financial reporting process;
and
- identifying and testing journal entries, in particular any
journal entries posted with unusual account combinations
-- These audit procedures were designed to provide reasonable
assurance that the consolidated financial statements were free from
fraud or error. The risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error and detecting irregularities that result from fraud is
inherently more difficult than detecting those that result from
error, as fraud may involve collusion, deliberate concealment,
forgery or intentional misrepresentations. Also, the further
removed non-compliance with laws and regulations from events and
transactions reflected in the consolidated financial statements,
the less likely we would become aware of it.
-- We communicated relevant laws and regulations and potential
fraud risks to all engagement team members, and remained alert to
any indications of fraud or non-compliance with laws and
regulations throughout the audit;
-- We assessed the appropriateness of the collective competence
and capabilities of the engagement team including consideration of
the engagement teams:
- Understanding of, and practical experience with audit
engagements of a similar nature and complexity through appropriate
training and participation.
- Knowledge of industry in which the client operates; and
- Understanding of the legal and regulatory requirements
specific to the regulated entity including the provisions of the
Companies Act 2006 and the Real Estate Investment Trust (REIT)
status section 1158 of the Corporation Tax Act 2010.
Use of our report
This report is made solely to the Parent Company's members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to
the Parent Company's members those matters we are required to state
to them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company and the
Parent Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Jeremy Ellis
Senior Statutory Auditor
for and on behalf of Grant Thornton Limited
Statutory Auditor, Chartered Accountants
St Peter Port, Guernsey
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 30 JUNE 2022
30 June 30 June
2022 2021
Notes GBP GBP
CONTINUING OPERATIONS
Revenue 3 1,280,770 1,036,011
Cost of sales (50,525) (20,606)
----------- -----------
GROSS PROFIT 1,230,245 1,015,405
Administrative expenses (1,232,932) (1,102,869)
Other operating income - 2,803
Fair value through profit and loss
- Revaluation of investment properties 12 343,300 501,330
----------- -----------
OPERATING PROFIT BEFORE SEPARATELY
DISCLOSED ITEMS 340,613 416,669
Separately disclosed items
Costs associated with refinancing 6 (68,234) -
Costs associated with refurbishment
of investment properties 6 (101,670) (844,200)
----------- -----------
OPERATING PROFIT / (LOSS) 170,709 (427,531)
Finance costs 5 (512,811) (497,432)
Finance income 5 21 729
----------- -----------
LOSS BEFORE TAXATION 6 (342,081) (924,234)
Taxation 7 - -
----------- -----------
( 924,234
LOSS FOR THE YEAR (342,081) )
=========== ===========
TOTAL COMPREHENSIVE EXPENSE FOR THE ( 924,234
YEAR (342,081) )
=========== ===========
Loss attributable to owners of the ( 924,234
parent (342,081) )
=========== ===========
Loss per share expressed in pence
per share 8
Basic (0.85) (3.34)
Diluted (0.41) (1.19)
=========== ===========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 JUNE 2022
30 June 30 June
2022 2021
Notes GBP GBP
----------- -----------
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 54,954 23,378
Investment properties 12 24,605,300 24,262,000
----------- -----------
24,660,254 24,285,378
----------- -----------
CURRENT ASSETS
Trade and other receivables 14 185,532 53,375
Cash and cash equivalents 15 2,519,346 66,915
----------- -----------
2,704,878 120,290
----------- -----------
TOTAL ASSETS 27,365,132 24,405,668
=========== ===========
EQUITY
SHAREHOLDERS' EQUITY
Share capital 16 4,166,963 2,816,963
Share premium 14,941,898 13,594,317
Capital redemption reserve 344,424 344,424
Retained earnings (5,777,948) (5,435,867)
----------- -----------
TOTAL EQUITY 13,675,337 11,319,837
----------- -----------
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing loans and borrowings 18 13,274,574 11,052,419
----------- -----------
CURRENT LIABILITIES
Trade and other payables 17 415,221 447,224
Interest-bearing loans and borrowings 18 - 1,586,188
415,221 2,033,412
----------- -----------
TOTAL LIABILITIES 13,689,795 13,085,831
----------- -----------
TOTAL EQUITY AND LIABILITIES 27,365,132 24,405,668
=========== ===========
Net asset value per share (pence) 8 32.82 40.18
=========== ===========
The financial statements were approved and authorised for issue
by the Board of Directors on 21 September 2022 and were signed on
its behalf by:
Russell Naylor
Director
COMPANY STATEMENT OF FINANCIAL POSITION
30 JUNE 2022
30 June 30 June
2022 2021
Notes GBP GBP
------------ -----------
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 307 974
Investments 13 10,706,081 10,706,081
------------ -----------
10,706,388 10,707,055
------------ -----------
CURRENT ASSETS
Trade and other receivables 14 3,352,889 3,758,378
Cash and cash equivalents 15 2,337,349 19,252
------------ -----------
5,690,238 3,777,630
------------ -----------
TOTAL ASSETS 16,396,626 14,484,685
============ ===========
EQUITY
SHAREHOLDERS' EQUITY
Share capital 16 4,166,963 2,816,963
Share premium 14,941,898 13,594,317
Capital redemption reserve 344,424 344,424
Retained earnings (10,545,878) (9,930,751)
------------ -----------
TOTAL EQUITY 8,907,407 6,824,953
------------ -----------
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 17 7,489,219 7,659,732
7,489,219 7,659,732
------------ -----------
TOTAL LIABILITIES 7,489,219 7,659,732
------------ -----------
TOTAL EQUITY AND LIABILITIES 16,396,626 14,484,685
============ ===========
As permitted by Section 408 of the Companies Act 2006, the
income statement of the Company is not presented as part of these
financial statements. The Company's loss for the financial year was
GBP(615,127) (2021 - GBP(782,891)).
The financial statements were approved and authorised for issue
by the Board of Directors on 21 September 2022 and were signed on
its behalf by:
Russell Naylor
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 JUNE 2022
Capital
Share Share redemption Other Retained Total
capital premium reserve reserve earnings equity
------------ ------------ ------------ ---------- ------------ ------------
GBP GBP GBP GBP GBP GBP
Balance at 1 July
2020 2,756,963 13,535,468 344,424 14,930 (4,511,633) 12,140,152
Changes in equity
Transactions with
owners:
Issue of share capital 60,000 58,849 - - - 118,849
Equity element of
loan finance - - - (14,930) - (14,930)
------------ ------------ ------------ ---------- ------------ ------------
Total transactions
with owners 60,000 58,849 - (14,930) - 103,919
------------ ------------ ------------ ---------- ------------ ------------
Total comprehensive
loss - - - - (924,234) (924,234)
------------ ------------ ------------ ---------- ------------ ------------
Balance at 30 June
2021 2,816,963 13,594,317 344,424 - (5,435,867) 11,319,837
------------ ------------ ------------ ---------- ------------ ------------
Changes in equity
Transactions with
owners:
Issue of share capital 1,350,000 1,347,581 - - - 2,697,581
Total transactions
with owners 1,350,000 1,347,581 - - - 2,697,581
------------ ------------ ------------ ---------- ------------ ------------
Total comprehensive
loss - - - - (342,081) (342,081)
------------ ------------ ------------ ---------- ------------ ------------
Balance at 30 June
2022 4,166,963 14,941,898 344,424 - (5,777,948) 13,675,337
============ ============ ============ ========== ============ ============
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 JUNE 2022
Capital
Share Share redemption Other Retained Total
capital premium reserve reserve earnings equity
------------ ------------ ------------ --------- ----------------------- ------------
GBP GBP GBP GBP GBP GBP
Balance at 1 July
2020 2,756,963 13,535,468 344,424 14,930 (9,147,860) 7,503,925
Changes in equity
Transactions with
owners:
Issue of share capital 60,000 58,849 - - - 118,849
Equity element of
loan finance - - - (14,930) - (14,930)
------------ ------------ ------------ --------- ----------------------- ------------
Total transactions
with owners 60,000 58,849 - (14,930) - 103,919
------------ ------------ ------------ --------- ----------------------- ------------
Total comprehensive
loss - - - - (782,891) (782,891)
------------ ------------ ------------ --------- ----------------------- ------------
Balance at 30 June
2021 2,816,963 13,594,317 344,424 - (9,930,751) 6,824,953
------------ ------------ ------------ --------- ----------------------- ------------
Changes in equity
Transactions with
owners:
Issue of share capital 1,350,000 1,347,581 - - - 2,697,581
Total transactions
with owners 1,350,000 1,347,581 - - - 2,697,581
------------ ------------ ------------ --------- ----------------------- ------------
Total comprehensive
loss - - - - (615,127) (615,127)
------------ ------------ ------------ --------- ----------------------- ------------
Balance at 30 June
2022 4,166,963 14,941,898 344,424 - (10,545,878) 8,907,407
============ ============ ============ ========= ======================= ============
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 30 JUNE 2022
2022 2021
Note GBP GBP
------------ ------------
Cash flows from operating activities
Cash used in operations 1 (310,314) (822,507)
Interest paid (512,811) (497,432)
Net cash used in operating activities (823,125) (1,319,939)
------------ ------------
Cash flows from investing activities
Purchase of property, plant & equipment (53,013) -
Purchase of investment properties
(including capital expenditure
on current properties) (285,000) (168,670)
Proceeds from sale of investment 280,000 -
property
Interest received 21 729
------------ ------------
Net cash used in investing activities (57,992) (167,941)
------------ ------------
Cash flows from financing activities
Loan repayments in year (5,020,248) (100,000)
Proceeds from new loans in year 5,656,215 -
Proceeds from share issue 2,697,581 118,849
------------ ------------
Net cash generated from financing
activities 3,333,548 18,849
------------ ------------
Increase/(decrease) in cash and
cash equivalents 2,452,431 (1,469,031)
Cash and cash equivalents at beginning
of year 66,915 1,535,946
------------ ------------
Cash and cash equivalents at end
of year 2,519,346 66,915
============ ============
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEARED 30 JUNE 2022
2022 2021
Note GBP GBP
---------- ------------
Cash flows from operating activities
Cash used in operations 1 (648,209) (725,591)
Interest paid (39) (1,327)
---------- ------------
Net cash used in operating activities (648,248) (726,918)
---------- ------------
Cash flows from investing activities
Interest received - 727
---------- ------------
Net cash generated from investing
activities - 727
---------- ------------
Cash flows from financing activities
Decrease in loans from group companies (133,909) (820,388)
Decrease in loans to group companies 402,673 70,603
Loan repayments in year - (100,000)
Proceeds from share issue 2,697,581 118,849
---------- ------------
Net cash generated from/(used in)
financing activities 2,966,345 (730,936)
---------- ------------
Increase/(decrease) in cash and
cash equivalents 2,318,097 (1,457,127)
Cash and cash equivalents at beginning
of year 19,252 1,476,379
---------- ------------
Cash and cash equivalents at end
of year 2,337,349 19,252
========== ============
NOTES TO THE STATEMENTS OF CASH FLOWS
FOR THE YEARED 30 JUNE 2022
1) RECONCILIATION OF LOSS BEFORE TAXATION TO CASH USED IN OPERATIONS
Group 2022 2021
GBP GBP
--------- ---------
Loss before taxation (342,081) (924,234)
Depreciation charges 21,437 23,032
Revaluation of investment properties (343,300) (501,330)
Loss on disposal of investment property 5,000 -
Finance costs 512,811 497,432
Finance income (21) (729)
--------- ---------
(146,154) (905,829)
(Increase)/Decrease in trade and other receivables (132,157) 10,514
(Decrease)/Increase in trade and other payables (32,003) 72,808
--------- ---------
Cash used in operations (310,314) (822,507)
========= =========
Company 2022 2021
GBP GBP
--------- ---------
Loss before taxation (615,127) (782,891)
Depreciation charges 667 1,125
Finance costs 39 1,327
Finance income - (727)
--------- ---------
(614,421) (781,166)
Decrease/(increase) in trade and other receivables 2,816 (910)
(Decrease)/increase in trade and other payables (36,604) 56,485
--------- ---------
Cash used in operations (648,209) (725,591)
--------- ---------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 30 JUNE 2022
1) PRESENTATION OF FINANCIAL STATEMENTS
Statement of compliance
The consolidated financial statements have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006.
Functional and presentation currency
These consolidated financial statements are presented in Pounds
Sterling ('GBP'), which is considered by the directors to be the
functional currency of the Group.
Changes in accounting policies
Adoption of new and revised standards
From 1 January 2021 the Company has applied UK-adopted IAS. At
the date of application, the UK-adopted IAS and EU-adopted IFRS
were the same.
The following accounting pronouncements and standards became
effective from 1 January 2021 and have been adopted but did not
have a significant impact on the Group's financial results or
position:
- Covid-19 related rent concessions beyond 30 June 2021 (amendments to IFRS 16)
- Interest Rate Benchmark Reform Phase 2 (Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16)
New standards in issue but not yet effective
As at 30 June 2022, the Group has not applied the following new
and revised standards that have been issued but are not effective
until accounting periods beginning on or after 1 January 2022 or 1
January 2023:
- Amendments to IAS 1: Classification of liabilities as current or non-current
- Amendments to IAS 16: Property, plant and equipment: Proceeds before intended use
- Amendments to IFRS 3: Reference to the conceptual framework
- Annual improvements to IFRS Standards 2018-2020
- Amendments to IAS 37: Onerous Contracts - cost of fulfilling a contract
- Amendments to IAS 8: Definition of Accounting Estimates
- Amendments to IAS 12: Deferred Tax Related to Asset and
Liabilities arising from a Single Transaction
The directors do not anticipate that the adoption of the above
amendments will have a significant impact on the financial
statements of the Group in future periods.
2) ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements have been prepared on the
historical cost basis other than as set out in the following
policies.
Going concern
The financial statements have been prepared on a going concern
basis. This requires the directors to consider, as at the date of
approving the financial statements, that there is reasonable
expectation that the Group has adequate financial resources to
continue to operate, and to meet its liabilities as they fall due
for payment, for at least twelve months following the approval of
the financial statements.
Going concern (continued)
The Group has undertaken procedures to ensure that the Group has
sufficient cash resources and bank facilities and with sufficient
covenant margin to manage the business under going concern
principles. These procedures included the following:
-- Reviewing and establishing that cash balances and bank
facilities are sufficient to cover at least twelve months of
operations;
-- Review of financial covenant ratios and the Group's ability
to meet the covenants for a period of at least twelve months of
operation; and
-- Reviewing cash flow forecast scenarios. Any decision on
property acquisitions and developments in the next twelve months
will be taken following review of revised cash flow forecasts.
Having reviewed the Company's current position and cash flow
projections, including the confirmation that the Company's
subsidiaries, which are also creditors as at the year-end will
provide such financial support as is required for a period of at
least 12 months from the date of signing of these financial
statements, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence
for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing these financial statements.
The Company has also provided an undertaking to its subsidiaries
that no intra-group amounts owed to the Company will be called for
repayment for a period of at least 12 months from the date of
approval of these financial statements unless the Subsidiary is in
a position to make payments without adversely affecting their
ability to continue to trade and settle any future obligations.
Basis of consolidation
Where the Company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial statements incorporate the results of
business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases.
The subsidiaries included in the consolidated financial
statements, from the effective date of acquisition, are K&C
(Newbury) Limited, K&C (Coleherne) Limited, K&C (Osprey)
Limited, KCR (Kite) Limited and KCR (Southampton) Limited.
The consolidated financial statements present the results of the
Company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between group
companies are therefore eliminated in full.
Transaction costs, other than those of a capital nature and
those associated with the issue of debt or equity securities that
the Group incurs in connection with a business combination are
expensed as incurred.
Investments
Investments in subsidiaries are held at cost less provision for
impairment.
Revenue recognition
Revenue of the Group for the year was derived mainly from its
principal activity, being the letting to third parties of, and
management of, property assets owned by the Group. This income
includes rental income, management fees and sales commissions.
Revenue from contracts with customers is recognised when control
of the services are transferred to the customer at an amount that
reflects the consideration to which the Group expects to be
entitled in exchange for those services net of discounts, VAT and
other sales-related taxes. The Group concludes that it is the
principal in its revenue arrangements, because it typically
controls the goods or services before transferring them to the
customer. Contracts with customers do not contain a financing
component or any element of variable consideration.
Rental income from operating leases is recognised periodically
in line with the time for which the property is rented. Rental
income received in advance is recognised in deferred income.
Management fees derived from the management of property assets
owned by third parties are recognised as the services are
provided.
Revenue from sales commissions is recognised at the point in
time when control of the asset is transferred from the vendor to
the buyer.
Separately disclosed items
Separately disclosed items are those that are deemed to be
exceptional by size or nature in relation to the activities of the
Group.
Finance costs
Finance costs comprise interest expense on borrowings.
Borrowing costs that are not directly attributable to the
acquisition, construction or production of a qualifying asset are
recognised in profit or loss using the effective interest
method.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation.
Depreciation is provided at the following annual rates in order
to write off each asset over its estimated useful life.
Fixtures and fittings - 5% and 25% on cost
Computer equipment - 25% on cost
Investment properties
Investment properties comprise properties owned by the Group
which are held for capital appreciation, rental income or both.
Investment properties are initially measured at cost, including
expenditure that is directly attributable to the acquisition of the
asset. Investment properties are revalued on acquisition by
independent external valuers and then by the directors or
independent valuers annually thereafter. Acquisitions and disposals
are recognised on completion. Any gain or loss arising from a
change in fair value is recognised in profit or loss.
Further details of the investment property valuation methodology
are contained in note 12 of the financial statements.
Subsequent expenditure is capitalised only when it is probable
that the future economic benefits associated with the expenditure
will flow to the Group. Ongoing repairs and maintenance are
expensed as incurred.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and balances
held with banking institutions.
Financial assets
Recognition and derecognition
Financial assets are recognised initially on the date that the
Group becomes a party to the contractual provisions of the
instrument.
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows in a transaction in
which substantially all the risks and rewards of ownership of the
financial assets are transferred.
Financial assets and liabilities are offset and the net amount
presented in the statement of financial position only when the
Group has a legal right to offset the amounts and intends either to
settle on a net basis or to realise the asset and settle the
liability simultaneously.
Classification and initial recognition of financial assets
Except for trade receivables that do not contain a significant
financing component and are measured at the transaction price in
accordance with IFRS 15, all financial assets are initially
measured at amortised cost.
Financial assets are classified into the following
categories:
- Amortised cost
- Fair value through profit or loss (FVTPL)
- Fair value through other comprehensive income (FVOCI)
The classification is determined by both:
- The entity's business model for managing the asset
- The contractual cash flow characteristics of the financial asset
All income and expenses relating to financial assets that are
recognised in profit or loss are presented within finance costs,
finance income or other financial items, except for impairment of
trade receivables which is presented within administrative
expenses.
Subsequent measurement of financial assets
Financial assets are measured at amortised cost if the assets
meet the following conditions (and are not designated as
FVTPL):
- They are held within a business model whose objective is to
hold the financial assets and collect its contractual cash
flows;
- The contractual terms of the financial assets give rise to
cash flows that are solely payments of principal and interest on
the principal amount outstanding.
After initial recognition, these are measured at amortised cost
using the effective interest method. Discounting is omitted where
its effect is immaterial. The Group's cash and cash equivalents,
trade and most other receivables fall into this category.
Financial assets which are designated as FVTPL are measured at
fair value with gains or losses recognised in profit or loss. The
fair values of financial assets in this category are determined
with reference to active market transactions or using a valuation
technique where no active market exists.
Impairment of financial assets
IFRS 9's impairment requirements use forward looking information
to recognise expected credit losses - the 'expected credit loss
(ECL) method'. Recognition of credit losses is no longer dependent
on first identifying a credit loss event, but considers a broader
range of information in assessing credit risk and credit losses
including past events, current conditions, reasonable and
supportable forecasts that affect the expected collectability of
the future cash flows of the instrument.
The Group makes use of a simplified approach in accounting for
trade and other receivables and records the loss allowance as
lifetime expected credit losses. These are the expected shortfalls
in contractual cash flows, considering the potential for default at
any point during the life of the financial instrument. In
calculating, the Group uses its historical experience, external
indicators and forward-looking information to calculate the
expected credit losses.
Financial liabilities
Financial liabilities are recognised initially on the date that
the Group becomes a party to the contractual provisions of the
instrument.
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
The Group classifies non-derivative financial liabilities into
the 'other financial liabilities' category. Such financial
liabilities are recognised initially at fair value adjusted for
directly attributable transaction costs. Subsequent to initial
recognition, these financial liabilities are measured at amortised
cost using the effective interest method.
'Other financial liabilities' comprise trade and other payables
and other short-term monetary liabilities.
Bank and other borrowings are initially recognised at the fair
value of the amount advanced net of any transaction costs directly
attributable to the issue of the instrument. Such interest-bearing
liabilities are subsequently measured at amortised cost using the
effective interest method. Interest expense in this context
includes initial transaction costs and premium payable on
redemption, as well as any interest or coupon payable while the
liability is outstanding.
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities.
Share capital
Ordinary shares are classified as equity. Costs directly
attributable to the issue of Ordinary shares are recognised as a
deduction from equity.
Leasing
The Company applies IFRS 16 Leases. Lessees, with certain
exceptions for short term or low value leases, are required to
recognise all leased assets on their Statement of Financial
Position as 'right-of-use assets' with a corresponding lease
liability.
The Group has a small number of operating leases concerning
office premises and plant and equipment. IFRS 16 provides an
exemption for short term operating leases and leases of low value.
The Company has taken advantage of the exemptions rather than
establishing a right to use asset.
The costs of leases of low value items and those with a short
term at inception are recognised as incurred.
Taxation
Tax expense comprises current and deferred tax. Current and
deferred tax is recognised in profit or loss except to the extent
that it relates to a business combination, or items recognised
directly in equity or in other comprehensive income. As a REIT, the
Group is generally not liable to corporation tax.
Deferred tax would be recognised in respect of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is recognised for:
-- temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination and
that affects neither the accounting nor taxable profit or loss;
-- temporary differences related to investments in subsidiaries
and jointly controlled entities to the extent that it is probable
that they will not reverse in the foreseeable future; and
-- taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, using tax
rates enacted or substantively enacted at the reporting date.
A deferred tax asset is recognised for unused tax losses, tax
credits and deductible temporary differences to the extent that it
is probable that future taxable profits will be available against
which they can be utilised. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
Provisions
A provision is recognised if, as a result of a past event, the
Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. The
unwinding of the discount is recognised as finance cost.
Critical accounting estimates and judgments
The preparation of the consolidated financial statements in
conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting
policies and the reported amount of assets, liabilities, income,
and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future years
affected.
Information about critical estimates and assumptions that have
the most significant effect on the amounts recognised in the
consolidated financial statements and/or have a significant risk of
resulting in a material adjustment within the next financial year
is as follows:
-- Determination of fair values
The Group's investment property accounting policies and
disclosures require the determination of fair value for both
financial and non-financial assets and liabilities. Fair values
have been determined for measurement and/or disclosure purposes
based on the following methods.
When applicable, further information about the assumptions made
in determining fair values is disclosed in the notes specific to
that asset or liability.
Investment properties
The Group's investment properties are valued, on the basis of
market value. The fair value of investment properties is based
either on independent professional valuations in accordance with
the Royal Institution of Chartered Surveyors' Appraisal and
Valuation Standards 2014 as amended or by the directors, based on
market prices for similar items. The Group's investment properties
were valued at 30 June 2022 at GBP24,605,300. See note 12 for
further details.
The directors are of the opinion that the estimates and
assumptions that they have used in the valuation of investment
properties are appropriate. Further details of the valuation
methodology are contained in note 12 of the financial
statements.
3) REVENUE
The Group is involved in UK property ownership, management and
letting and is considered to operate in a single geographical and
business segment.
The total revenue of the Group for the year was derived from its
principal activities, being the letting to third parties of, and
management of, property assets owned by the Group, and, in certain
cases, the management of property assets owned by third
parties.
The Group's investment property consists of residential housing
for the private rented sector and therefore has multiple tenants
and as a result does not have any significant customers.
2022 2021
GBP GBP
Revenue analysed by class of business
Rental income 933,475 724,680
Management fees 89,801 81,768
Resale commission 102,055 114,913
Ground rents 13,314 13,535
Leasehold extension income 133,500 96,275
Other income 8,625 4,840
--------- ---------
1,280,770 1,036,011
========= =========
4) EMPLOYEES AND DIRECTORS
Group
2022 2021
GBP GBP
Wages and salaries 305,858 325,525
Social security costs 26,179 35,448
Pension costs 5,420 1,275
-------- --------
337,457 362,248
======== ========
The average monthly number of employees during
the year was as follows: 2022 2021
Directors and management 4 4
Administration 3 3
-------- ----------
7 7
======== ==========
2022 2021
GBP GBP
Directors' remuneration (as per Report
of the Directors) 182,125 222,191
Remuneration of the highest-paid director 93,833 89,375
Amounts paid into a pension scheme of the - -
highest-paid director
======== ==========
The Group directors are considered to be key management
personnel.
Company
2022 2021
GBP GBP
------- -------
Wages and salaries 231,124 264,402
Social security costs 17,156 30,118
Pension costs - (2,175)
------- -------
248,280 292,345
======= =======
The average monthly number of employees during
the year was as follows
Directors and management 4 4
Administration - -
4 4
5) FINANCE COSTS AND INCOME
2022 2021
GBP GBP
--------- ---------
Finance costs
Loan interest 512,811 497,432
========= =========
Finance income
Bank interest 21 729
========= =========
6) LOSS BEFORE TAXATION
The loss before taxation is stated after charging:
2022 2021
GBP GBP
====== ======
Hire of plant and machinery 8,359 10,002
Other operating leases 13,365 13,140
Depreciation - owned assets 21,437 23,032
Auditors' remuneration for the Group 59,500 55,000
Auditors' remuneration for the Group underprovided
in prior year 5,000 -
Separately disclosed items
In the previous year, the Group commenced substantial
refurbishment work to investment properties owned by K&C
(Coleherne) Limited and K&C (Osprey) Limited. The costs
incurred in the 2022 financial year amounted to GBP35,021 and
GBP66,649 (2021 - GBP703,946 and GBP140,254).
Also during the year, the company incurred costs totalling
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
2022 2021
Current tax GBP GBP
---- ----
UK corporation tax - -
Deferred tax - -
Total tax - -
==== ====
Factors affecting the tax expense
The tax assessed for the year is higher than the standard rate
of corporation tax in the UK. The difference is explained
below:
2022 2021
GBP GBP
---------- -----------
(342,081
Loss on ordinary activities before taxation ) (924,234)
========== ===========
Loss on ordinary activities multiplied by
the standard rate of corporation tax in the
UK of 19% (2021 - 19%) (64,995) (175,604)
Effects of
Income and expenses not taxable 64,995 175,604
Tax credit - -
========== ===========
The Group has remained under the REIT regime throughout the year
and since the balance sheet date.
8) LOSS PER SHARE AND NET ASSET VALUE
Basic loss per share is calculated by dividing the loss
attributable to ordinary shareholders by the weighted average
number of Ordinary shares outstanding during the year.
Fully diluted earnings per share is calculated using the
weighted average number of shares adjusted to assume the conversion
of all dilutive potential Ordinary shares.
Basic loss per share
2022
Weighted
average number Per share
Loss of shares amount
---------- ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (342,081) 40,196,318 (0.85)
2021
Weighted average
number of Per share
Loss shares amount
---------- ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (924,234) 27,651,823 (3.34)
========== ================= ==========
Diluted loss per share
2022
Weighted
average number Per share
Loss of shares amount
---------- ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (342,081) 82,882,619 (0.41)
Effect of dilutive securities - - -
========== ================= ==========
2021
Weighted average
number of Per share
Loss shares amount
---------- ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (924,234) 77,569,631 (1.19)
Effect of dilutive securities - - -
========== ================= ==========
The net asset value is calculated by dividing the equity
attributable to ordinary shareholders by the number of Ordinary
shares in issue at the balance sheet date.
2022
Number of Per share
Equity shares amount
----------- ----------- ----------
GBP No Pence
Net asset value 13,675,337 41,669,631 32.82
2021
Number of Per share
Equity shares amount
----------- ----------- ----------
GBP No Pence
Net asset value 11,319,837 28,169,631 40.18
=========== =========== ==========
9) OPERATING LEASES RECEIVABLE
The Group leases residential units within certain of its
investment properties under operating leases. The future minimum
lease payments receivable under non-cancellable leases are as
follows:
30 June 30 June
2022 2021
GBP GBP
------- -------
Within one year 358,724 414,594
Between one and five years 58,756 84,533
More than 5 years 29,017 37,263
------- -------
Total 446,497 536,390
======= =======
Lease revenue is generated from properties owned by K&C
(Coleherne) Limited, KCR (Southampton) Limited and KCR (Kite)
Limited that are let on short-term tenancy agreements.
10) LEASING AGREEMENTS
Minimum lease payments, under non-cancellable operating leases,
fall due as follows:
30 June 30 June
2022 2021
GBP GBP
Within one year 21,499 24,784
Between one and five years 5,375 10,449
------- -------
Total 26,874 35,233
======= =======
11) PROPERTY, PLANT AND EQUIPMENT
GROUP Fixtures,
fittings &
computer equipment
GBP
--------------------
COST
At 1 July 2020 97,740
Additions -
--------------------
At 30 June 2021 97,740
Additions 53,013
--------------------
At 30 June 2022 150,753
--------------------
DEPRECIATION
At 1 July 2020 51,330
Charge for year 23,032
--------------------
At 30 June 2021 74,362
Charge for year 21,437
--------------------
At 30 June 2022 95,799
--------------------
NET BOOK VALUE
At 30 June 2022 54,954
====================
At 30 June 2021 23,378
====================
COMPANY Fixtures,
fittings &
computer equipment
GBP
--------------------
COST
At 1 July 2020 7,516
Additions -
--------------------
At 30 June 2021 7,516
Additions -
--------------------
At 30 June 2022 7,516
--------------------
DEPRECIATION
At 1 July 2020 5,417
Charge for year 1,125
--------------------
At 30 June 2021 6,542
Charge for year 667
--------------------
At 30 June 2022 7,209
--------------------
NET BOOK VALUE
At 30 June 2022 307
====================
At 30 June 2021 974
====================
12) INVESTMENT PROPERTIES
GROUP Total
GBP
-----------
COST OR VALUATION
At 1 July 2020 23,592,000
Additions 168,670
Disposals -
Revaluations 501,330
-----------
At 30 June 2021 24,262,000
Additions 285,000
Disposals (285,000)
Revaluations 343,300
-----------
At 30 June 2022 24,605,300
At 30 June 2021 24,262,000
===========
The investment properties were valued by the Directors at 30
June 2022 with reference to independent external valuations
performed in August 2022, with a valuation date as at 30 June 2022.
All of the properties were subject to desktop valuations with the
exception of the property at Ladbroke Grove which was subject to a
full valuation. The external valuations were carried out in
accordance with the Royal Institution of Chartered Surveyors'
Valuation - Global Standards, 2020 (Red Book).
The Directors determined that there were no material factors
that would give rise to there being a material variance between the
latest external valuation and the fair value as at 30 June 2022.The
valuation of the investment properties was GBP24,605,300, which was
included in the financial statements.
Fair value is based on current prices in an active market for
similar properties in the same location and condition. The current
price is the estimated amount for which a property could be
exchanged between a willing buyer and willing seller in an arm's
length transaction after proper marketing wherein the parties had
each acted knowledgeably, prudently and without compulsion.
Valuations are based on a market approach which provides an
indicative value by comparing the property with other similar
properties for which price information is available. Comparisons
have been adjusted to reflect differences in age, size, condition,
location and any other relevant factors.
The fair value for investment properties has been categorised as
Level 3 inputs under IFRS 13. The valuer visited all material
properties where full valuations were carried out in the current
and previous year and these valuations were based on both internal
and external site visits.
The valuation technique used in measuring the fair value, as
well as the significant inputs and significant unobservable inputs
are summarised in the table below:
Fair Valuation Technique Significant Significant Unobservable
Value Inputs Used Inputs
Hierarchy
Level Income capitalisation Adopted gross 3.50% - 6.50%
3 and or capital value yield
on a per square foot
basis
Adopted rate
per square foot GBP336 - GBP1,355
The fair value would increase if market rents were higher and/or
the rates per square foot were higher and/or capitalisation rates
were lower.
The fair values would decrease if market rents were lower and/or
the rates per square foot were lower and/or capitalisation rates
were higher.
If properties had been included on a historical cost basis, the
cost of the properties at 30 June 2022 would have been
GBP22,452,913 (2021 - GBP22,467,913).
The revenue earned by the Group from its investment properties
and all direct operating expenses incurred on its investment
properties are recorded in the Consolidated Statement of
Comprehensive Income.
The total rental income in relation to investment properties for
the Group equated to GBP933,475 (2021 - GBP724,680). The total
rental expenses in relation to investment properties for the Group
equated to GBP50,525 (2021 - GBP20,606).
Included within Investment Properties are leasehold properties
valued at GBP6,150,000 and freehold properties valued at
GBP18,455,300 (2021: GBP5,830,000 and GBP18,432,000
respectively).
13) INVESTMENTS
Shares in
group undertakings
Company GBP
--------------------
COST
At 1 July 2021 10,706,081
Disposals -
--------------------
At 30 June 2021 10,706,081
Disposals -
At 30 June 2022 10,706,081
====================
NET BOOK VALUE
At 30 June 2022 10,706,081
====================
At 30 June 2021 10,706,081
====================
As at 30 June 2022, the Company's investments comprise the
following:
Holding
Subsidiaries %
============================================ ========
Registered
K&C (Coleherne) Limited office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
Registered
K&C (Osprey) Limited office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
Registered
KCR (Kite) Limited office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
Registered
KCR (Southampton) Limited office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
Registered
K&C (Newbury) Limited office: UK 100.00
Nature of business Class of shares
Dormant Ordinary
All of the above companies are registered at Gladstone House,
77-79 High Street, Egham, Surrey, TW20 9HY.
14) TRADE AND OTHER RECEIVABLES
Group Company
2022 2021 2022 2021
GBP GBP GBP GBP
Trade debtors 665 246 - -
Amounts owed by group
undertakings - - 3,338,960 3,741,633
Other debtors 29,434 11,530 - -
VAT - - - -
Prepayments 155,433 41,599 13,929 16,745
185,532 53,375 3,352,889 3,758,378
======== ======= ========== ==========
The Group and Company's exposure to credit risk is disclosed in
note 20.
There is no material difference between the fair value of trade
and other receivables and their book value.
All receivables are due within 12 months of 30 June 2022. None
of those receivables has been subject to a significant increase in
credit risk since initial recognition and, consequently, no
expected credit losses have been recognised.
15) CASH AND CASH EQUIVALENTS
Group Company
2022 2021 2022 2021
GBP GBP GBP GBP
Cash in hand 40 40 - -
Bank accounts 2,519,306 66,875 2,337,349 19,252
2,519,346 66,915 2,337,349 19,252
========== ======= ========== =======
16) SHARE CAPITAL
Allotted, issued and fully paid
30 June 30 June
Number Class Nominal value 2022 2021
------------------ --------- ---------
GBP GBP
--------- ---------
41,669,631 Ordinary GBP0.10 4,166,963 2,816,963
(2021: 28,169,631) 4,166,963 2,816,963
========= =========
2022 2022 2021 Number 2021
Number GBP GBP
Ordinary shares of GBP0.10
each
At 1 July 28,169,631 2,816,963 27,569,631 2,756,963
Conversion of Restricted - - - -
Preference Shares
Shares issued as loan repayments - - - -
Shares issued as creditor - - - -
payments
Shares issued for cash 13,500,000 1,350,000 600,000 60,000
----------- ---------- ------------ ----------
At 30 June 41,669,631 4,166,963 28,169,631 2,816,963
=========== ========== ============ ==========
The Ordinary shares issued during the year were issued at
GBP0.199821 per share (2021 - GBP0.19808).
17) TRADE AND OTHER PAYABLES
Group Company
2022 2021 2022 2021
Current GBP GBP GBP GBP
Trade creditors 49,852 151,100 37,607 64,795
Amounts owed to group
undertakings - - 7,256,613 7,390,522
Other taxes and social
security 63,050 22,748 36,281 7,032
Other creditors 8,789 19,180 - 15,468
Accruals and deferred
income 293,530 254,196 158,718 181,915
-------- -------- ---------- ----------
415,221 447,224 7,489,219 7,659,732
======== ======== ========== ==========
The Group and Company exposure to liquidity risk related to
trade and other payables is disclosed in note 20.
There is no material difference between the fair value of trade
and other payables and their book value.
Amounts owed to group undertakings are repayable on demand.
18) FINANCIAL LIABILITIES - BORROWINGS
Group Company
2022 2021 2022 2021
GBP GBP GBP GBP
Current
Other loans - 1,586,188 - -
----------- ----------- ----- -----
- 1,586,188 - -
=========== =========== ===== =====
Non-current
Bank loans 9,993,359 7,868,169 - -
Other loans 3,281,215 3,184,250 - -
13,274,574 11,052,419 - -
=========== =========== ===== =====
Terms and debt repayment schedule (including interest)
2022
1 year 1-2 More than
or less 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
========= ======== ========== =========== ===========
2021
1 year More than
or less 1-2 years 2-5 years 5 years Totals
---------- ---------- ---------- ----------- -----------
Group GBP GBP GBP GBP GBP
Bank loans 275,386 275,386 943,218 14,982,305 16,476,295
Other loans 1,761,322 175,134 525,401 3,607,490 6,069,347
---------- ---------- ---------- ----------- -----------
2,036,708 450,520 1,468,619 18,589,795 22,545,642
========== ========== ========== =========== ===========
Details of the principal loans are as follows:
a) A three-year loan of GBP1,995,000 was entered into during the
2018 financial year. The loan was repayable by 36 monthly
instalments of GBP9,144 and a final instalment of GBP1,940,138. On
5 September 2019, the Company repaid GBP353,950. The monthly
repayments from that date reduced to GBP7,568. The monthly
instalments were interest payments and did not include any capital
repayments. Interest was charged at 5.50 per cent per annum. The
loan was secured by a fixed and floating charge over all the
property and assets of K&C (Osprey) Limited, including the
property known as Heathside, 562 Finchley Road. The loan was repaid
in August 2021 when the Company refinanced with Secure Trust
Bank.
b) In August 2021, K&C (Osprey) Limited entered into a new 5
year loan of 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 2022 was GBP2,375,000.
c) O n 4 December 2018, KCR (Southampton) Limited took out a new
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 2022 was GBP3,281,215.
d) On 10 February 2020, K&C (Coleherne) Limited took out a
new 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 2022 was GBP2,743,359.
e) On 10 February 2020, KCR (Kite) Limited took out a new 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 2022 was GBP4,875,000.
Reconciliation of net movement in cash
Group
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)
============= ========== ============ ============= ========== =============
Loans Other Net cash
Net cash Cash received Repayments non-cash at 30
at 1 July flow in year in year movement June 2021
2020
GBP GBP GBP GBP GBP
Cash at bank
and in hand 1,535,946 (1,469,031) - - - 66,915
Borrowings (12,723,677) - - 85,070 - (12,638,607)
------------- ------------ ---------- ------------- ---------- -------------
Total financial
liabilities (11,187,731) (1,469,031) - 85,070 - (12,571,692)
============= ============ ========== ============= ========== =============
Company
Other
Net cash 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
============ ============ ============= ========== =============
Other
Net cash Repayments non-cash Net cash
at 1 July Cash flow in year movement at 30 June
2020 2021
GBP GBP GBP GBP GBP
Cash at bank
and in hand 1,476,379 (1,457,127) - - 19,252
Borrowings (85,070) - 85,070 - -
------------ ------------ ------------- ---------- -------------
Total financial
liabilities 1,391,309 (1,457,127) 85,070 - 19,252
============ ============ ============= ========== =============
19) FINANCIAL INSTRUMENTS
The Group's financial assets, as defined under IFRS 9, and their
estimated carrying amount are as follows:
Group Company
2022 2021 2022 2021
GBP GBP GBP GBP
Carrying amount of financial
assets at amortised cost
Trade and other receivables 185,532 53,375 3,352,889 3,758,378
Cash at bank and in hand 2,519,346 66,915 2,337,349 19,252
20) FINANCIAL RISK MANAGEMENT
The Company's directors have overall responsibility for the
establishment and oversight of the Group's risk management
framework.
The Company's and Group's risk management policies are
established to identify and analyse the risks faced by the Company
and Group, to set appropriate risk limits and controls, and to
monitor risks and adherence to limits. Risk management policies and
systems are reviewed regularly to reflect the changes in market
conditions and the Group's activities. The Company and Group,
through its training and management standards and procedures, aims
to develop a disciplined and constructive control environment in
which all employees understand their roles and obligations.
The Company and Group has exposure to the following risks
arising from financial instruments:
o credit risk
o liquidity risk
o market risk
Capital risk management
The Company and Group's objective when managing capital is to
safeguard its accumulated capital in order to provide an adequate
return to shareholders by maintaining a sufficient level of funds,
in order to support continued operations.
The Company and Group considers its capital to comprise equity
capital less accumulated losses.
The share premium reserve includes premiums received on the
issue of share capital during the year.
The Group refinanced their loan portfolio in the 2020 financial
year. As a result, the Group entered into new loan agreements with
Hodge Bank. The total loans with Hodge Bank at 30 June 2022
totalled 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 2022 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 1.75:1; and
o the loan to value will not at any time exceed 56%.
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations.
The Group has no significant concentration of credit risk, with
exposure spread over a large number of counterparties and
customers.
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk is as reported
in the statement of financial position.
The Group undertakes credit checks on prospective new tenants to
assess and mitigate credit risk. The checks include verification of
income levels and capacity to pay, as well as checks of rental
references. Any arrears are actively managed. The Group mitigates
credit risk with regard to cash and cash equivalents by using banks
with a credit rating of B or above.
Liquidity risk
Liquidity risk is the risk that the Company and Group will
encounter difficulty in meeting the obligations associated with its
financial liabilities that are settled by delivering cash or
another financial asset. The Company's and Group's approach to
managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due,
under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Company's and Group's
reputation.
The contractual maturities of financial liabilities are
disclosed in note 18.
Liquidity risk is not deemed to be significant as the company
has a significant amount of current assets, including a balance
owed by the parent company, which they can draw against as and when
funds are required.
Market risk
Market risk is the risk that changes in market prices, such as
interest rate and equity prices will affect the Group and the
Company's income or the value of its holdings of financial
instruments. The objective of market risk management is to manage
and control market risk exposure within acceptable parameters,
while optimising the return.
The Group is exposed to interest rate risk in respect of its
borrowings. The Group mitigates this risk by, where possible,
securing facilities at a fixed interest rate.
Sensitivity
Interest rate sensitivity:
At 30 June 2022, if interest rates had been 0.5 percentage point
higher and all other variables were held constant, it is estimated
that the Group's loss before tax would increase to GBP410,263 (2021
- GBP992,377). This is attributable to the Group's exposure on its
borrowings and is based on the change taking place at the beginning
of the financial year and held constant throughout the reporting
period.
21) RELATED PARTY TRANSACTIONS
During the year, remuneration paid to Russell Naylor consisted
of fees of GBP48,000 charged by Naylor Partners, a business in
which Russell Naylor is a Director (2021 - GBP48,000).
The remuneration paid to Richard Boon in 2022 consisted of fees
of GBPNil (2021 - GBP18,900) charged by Artefact Partners, a
business in which Richard Boon is a Director.
During the year, the Group paid DGS Capital Partners LLP, a
limited liability partnership in which Michael Davies is a member,
fees of GBPNil (2021 - GBP9,000 plus VAT of GBP1,800).
Further details of total director remuneration is contained with
the Report of the Directors. Christopher James is also considered
as key management personnel. His remuneration in the period
totalled GBP95,000 (2021 - GBP113,027), which includes a provision
of GBP20,000 (2021 - GBP38,027) for a catch-up payment incentive
which will be due when the business achieves cash-flow
breakeven
22) ULTIMATE CONTROLLING PARTY
Following the exercise, of 13,500,000 options by Torchlight Fund
LP i n October 2021, Torchlight's interest in the Company increased
to 23,100,000 shares, representing 55.4% of the Company's enlarged
issued share capital.
The parent company of Torchlight Fund LP, and the ultimate
parent company of KCR Residential REIT plc, is Pyne Gould
Corporation Limited. The results of the Group are consolidated in
the financial statements of Pyne Gould Corporation Limited. The
financial statements are available at http://www.pgc.co.nz/
The ultimate controlling party of Pyne Gould Corporation Limited
is George Kerr.
23) POST-BALANCE SHEET EVENTS
On 6 August 2022, the option agreement that the Group entered
into with Torchlight in the 2020 financial year, to grant
Torchlight an option to subscribe for a further 50,000,000 new
Ordinary Shares, lapsed. No further options were exercised after
the balance sheet date.
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END
FR SEISUDEESEEU
(END) Dow Jones Newswires
September 23, 2022 05:32 ET (09:32 GMT)
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