REGISTERED NUMBER: 09080097 (England and Wales)
KCR RESIDENTIAL REIT plc
ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021
KCR RESIDENTIAL REIT plc
CONTENTS OF THE ANNUAL REPORT
FOR THE YEAR ENDED 30 JUNE 2021
Company Information
Chairman's Letter
Chief Executive’s Letter
Group Strategic Report
Corporate Governance Statement
Report of the Directors
Independent Auditor’s Report
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Notes to the Statements of Cash Flows
Notes to the Financial Statements
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38 - 64
KCR RESIDENTIAL REIT plc
COMPANY INFORMATION
FOR THE YEAR ENDED 30 JUNE 2021
DIRECTORS
James F Thornton
Dominic A White
Russell J Naylor
Richard J Boon
Non-executive chairman
Chief executive
Executive director
(responsible for finance)
Non-executive director
SECRETARY
Azets (CHBS) Limited (appointed 1 December 2020)
REGISTERED OFFICE
BUSINESS ADDRESS
Gladstone House, 77-79 High Street
Egham
Surrey TW20 9HY
c/o Gladstone House, 77-79 High Street
Egham
Surrey TW20 9HY
REGISTERED NUMBER
09080097 (England and Wales)
INDEPENDENT AUDITOR
BDO LLP
55 Baker Street
London W1U 7EU
SOLICITORS
Bryan Cave Leighton Paisner LLP
Governor’s House
5 Laurence Pountney Hill
London EC4R 0BR
NOMINATED ADVISER
AND BROKER
REGISTRARS
Blake Morgan LLP
6 New Street Square
London EC4A 3DJ
Arden Partners Plc
125 Old Broad Street
London EC2N 1AR
Share Registrars Limited
The Courtyard
17 West Street, Farnham
Surrey GU9 7DR
WEBSITE
www.kcrreit.com
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KCR RESIDENTIAL REIT plc
CHAIRMAN’S LETTER
FOR THE YEAR ENDED 30 JUNE 2021
Dear Shareholder
This last year has been difficult for very many as a result of Covid-19, and I should like to start by paying tribute to all
our colleagues at KCR and their considerable efforts to operate flexibly and to maintain services to our residents and
tenants in trying conditions. Our colleagues’ safety and wellbeing and that of all our stakeholders remain a priority for
us.
Strategy and Operations
During the financial year, and as reported at the interim stage, we have been continuing with the transition of the
business. This has been led by a smaller executive team since the Torchlight transaction of August 2019 with a consistent
strategy to:
•
•
•
•
improve the rental revenue from the existing properties;
upgrade the overall portfolio quality;
explore the development opportunity within the retirement portfolio; and
focus strongly on reducing costs.
Modernising and improving the standard of the property portfolio has been the key focus this year to increase current
and future returns from the existing assets.
The primary and most substantive refurbishment works during the financial year have been in respect of the Coleherne
Road property. The works here are almost fully complete and the letting up of this property currently under way will
deliver rental growth for the portfolio going forward. This well-located asset has been repositioned from a poorly
presented, bottom end rental product into modern, spacious studio apartments. Works to 8 of the 10 apartments are
now completed and finished to a high standard. It has been necessary to enter ongoing legal processes to obtain vacant
possession of one flat to complete the balance of the works.
Within our portfolio of retirement living accommodation, substantive works were completed on three of the Heathside
flats during the year. This materially improved the standard and presentation of the properties. Eight 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 this property.
This rental growth has offset the loss of income from Coleherne Road which has been vacant (aside from the flat subject
to legal process to obtain possession) for most of the 2021 financial year whilst works were completed. As shown by
our materially reduced administrative expenses and reduced losses, considerable progress has also been achieved
towards bringing the group’s cost base into line with the size of its existing portfolio.
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KCR RESIDENTIAL REIT plc
CHAIRMAN’S LETTER
FOR THE YEAR ENDED 30 JUNE 2021
Capital and Personnel
Post balance sheet date, new lower cost facilities have been entered into to refinance existing facilities and deliver
additional capital to support the Group’s ongoing activities.
During the period since August 2019, there have been a number of changes to the leadership team as part of the focus
on repositioning the business and reducing the cost base to more appropriately align with the size of the business. As
noted at the interim stage Michael Davies retired as Chairman in October 2020 and the board reduced from 5 to 4. The
cost savings from this and other personnel changes will be further reflected in the current financial year results.
Market Conditions and Outlook for the Group
From a macro-economic perspective, Covid-19 has resulted in ongoing global disruption which has impacted markets
and consumer and business confidence. The economic impact to date has been much softened by HM Government
support which is now ending. During the period, the main impact for KCR has been the increased supply of rental product
as properties previously used predominantly in the short-let market were repositioned into longer term letting. This has
had an impact on time required to fill vacancies and achievable rental levels in some parts of the Group’s portfolio.
However, notwithstanding these challenges, at the accounts issue date, KCR has maintained almost full occupancy with
nominal rental arrears.
In London and the South-East, there continues to be a greater supply of studio, one- and two- bed flats in the letting
market which is continuing to impact timeframes for re-letting and achievable rental levels. As Covid related travel
restrictions ease up we expect to see this position improve over the course of the current financial year. Fundamentals
for UK residential property are positive, and it appears that people and activity are returning to London and other major
international capitals. KCR is well placed to benefit as short-let supply is repositioned back into the short-let market.
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. Acquisition opportunities continue to be explored and will be completed if
they make sense for KCR.
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
29 September 2021
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KCR RESIDENTIAL REIT plc
CHIEF EXECUTIVE’S LETTER
FOR THE YEAR ENDED 30 JUNE 2021
Dear Shareholder
I have pleasure in reporting to you on the progress of the Group for the year to 30 June 2021.
This has continued to be a difficult period in the UK with COVID-19 creating challenges for the whole of the year. Our
efforts restructuring the balance sheet last year prepared us well for the ongoing economic difficulties in 2021. The
significant efforts to reduce operating costs has continued with further reductions this year. There has been a slight
revenue increase in 2021, and the imminent boost to revenue from the re-letting of the refurbishment project at
Coleherne Road will take the Company closer than ever to cashflow break-even. The combination of ongoing cost
management and enhanced operating performance is expected to deliver positive cashflow by the end of the current
financial year.
The focus of this year has been on the completion of the Coleherne Road, London refurbishment, maintaining high
occupancy across the portfolio, and keeping corporate and operating costs to a minimum. KCR is in the process of
improving the quality of its existing portfolio to increase rental and capital values and reducing running costs. We are
progressing well through the transition process started last year, to create a stable platform that can be successfully
scaled-up.
Property portfolio
Property transactions during the year
KCR made no property acquisitions during the year.
Existing portfolio
KCR continues with its performance enhancement focus on its existing portfolio. The refurbishment of apartments at
Coleherne Road is substantially complete. We intend to commit to more capital expenditure (capex) to positively
reposition the Ladbroke Grove portfolio, starting this year. The objective is to lift rental and capital values and upgrade
the portfolio standard so that minimal maintenance spend is required over the next five years.
We have already experienced an uplift in rental and capital values at our repositioned asset in Coleherne Road. The
apartments have moved into a far higher rental bracket. The aim is for this to be repeated at Ladbroke Grove.
KCR is in the process of creating two operating lines, clearly identifiable by brand, property quality and letting strategy.
1. Cristal Apartments. Residential apartments, developed to a high modern specification, furnished and let on
a Walk-In-Walk-Out (WIWO) basis (the intention is for utilities, internet, furniture, council tax 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).
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KCR RESIDENTIAL REIT plc
CHIEF EXECUTIVE’S LETTER
FOR THE YEAR ENDED 30 JUNE 2021
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. The Ladbroke Grove portfolio will be repositioned into Cristal branded properties following
completion of planning work to explore avenues for optimization of the existing footprint. Southampton is already at
the higher standard appropriate for a Cristal asset and will be bought under this brand as the apartments are
progressively furnished as existing tenancies expire.
• The property at Coleherne Road, held within K&C (Coleherne) Limited, comprises ten studio and one-bedroom
flats. KCR has almost completed a whole-building refurbishment of the property (eight of ten apartments are
complete) to a significantly higher standard. The new apartments are available for rent. We are achieving a
significant increase in gross rental income on the first lettings with reduced operating and maintenance costs
expected.
• The Ladbroke Grove portfolio (owned by KCR (Kite) Limited) consists of 16 one- and two-bedroom flats in three
buildings which remain more than 98% occupied. The stand-alone flat in Harrow Road has been sold. Units have
been lightly refurbished as tenants leave, and are then relet in the private market. The Company’s intention is
to undertake a whole building refurbishment of the Ladbroke Grove assets following completion of the planning
work.
• The Southampton block of 27 residential units at Deanery Court, Chapel Riverside (owned by KCR (Southampton)
Limited) continues to be fully occupied. Rental demand has remained strong, particularly from short-let operator
tenants. These tenants’ customers are potential future occupiers at the building for Cristal Apartments as they
occupy under a WIWO strategy. Since the property was constructed in 2018 there is no capital investment
required at the property to bring it up to the Cristal brand standard. The letting strategy will be adjusted to
implement the WIWO strategy as units are progressively furnished.
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.
The portfolio has held its value and is expected to provide a medium-term value boost opportunity as the terms of the
long-leasehold flats shorten and positive asset management initiatives continue.
The key asset in the portfolio representing 68% of the Osprey portfolio value is the freehold block at Heathside, Golders
Green, where 29 of the 37 residential units are held long leasehold. The strategy continues to be selectively acquire
long-leasehold units in the block, subject to pricing, refurbish the units to a high level and let them in the open market
subject to assured shorthold tenancies. This strategy is having good success; and post the balance sheet reporting date,
Osprey has successfully also become the manager of the Heathside property, which we expect will enable Osprey to
improve the quality of the overall building.
Although KCR has been focusing on refurbishment activity at Coleherne Road, we continue to have an interest in the
potential to enhance value through redevelopment and roof extensions at four of the seven Osprey portfolio sites. We
believe there is a significant opportunity at some of these properties. Until a planning approval has been received, any
increase in value from these planning gains will not be included in the Company’s accounts.
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KCR RESIDENTIAL REIT plc
CHIEF EXECUTIVE’S LETTER
FOR THE YEAR ENDED 30 JUNE 2021
Financial
The current financial year reflects the outcome of some of the cost savings made to date with further improvement
targeted during the course of the current financial year. 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 on the following pages.
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 by the end of the current financial period.
KCR is excited about the potential for the Company to grow from a far more stable operating base, and in particular are
pleased by the significant progress made this year towards Group profitability.
Dominic White
Chief executive
29 September 2021
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KCR RESIDENTIAL REIT plc
CHIEF EXECUTIVE’S LETTER
FOR THE YEAR ENDED 30 JUNE 2021
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 2021.
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.
2.
3.
4.
5.
K&C (Coleherne) Limited owns a freehold residential property in Chelsea, London containing ten studio flats
K&C (Osprey) Limited owns eight 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
KCR (Kite) Limited owns three freehold residential properties in Ladbroke Grove, London (16 flats) and at 30
June 2021 a flat on Harrow Road, London
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
K&C (Newbury) Limited owns no property and is now effectively dormant.
Throughout the year the company remained a REIT and has endeavoured to comply 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 operating loss of £924,234 for the year to 30 June 2021 (2020 – £3,079,531).
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.
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KCR RESIDENTIAL REIT plc
CHIEF EXECUTIVE’S LETTER
FOR THE YEAR ENDED 30 JUNE 2021
Revenue in this financial year marginally increased to £1,036,011 (2020 – £1,035,816). Core portfolio revenue
(relating to Rentals, Management fees and Ground Rent) was largely flat due to Coleherne Road being vacant (aside
from 1 tenancy) for the financial year. Loss of this rental income was offset by growth flowing from the letting up of
Heathside and other incremental core revenue gains. Portfolio occupancy (excluding the planned vacancy at
Coleherne Road) and rent collection remained above 95% for the whole period.
A large part of the year’s loss (£844,200) is attributable to costs associated with refurbishing and modernizing the
KCR portfolio. The prior year result also includes a number of expense items that were not related to core operating
activities, including costs associated with refinancing and third-party fundraising. The Group therefore reports the
operating result both before and after separately disclosed items. The Group recorded an operating profit before
separately disclosed items of £416,669 (2020 – £1,024,648 loss). After separately disclosing the expensed
redevelopment works at Coleherne Road and Heathside, the operating loss was £427,531, a significant improvement
on the prior year (2020 – £3,079,531 loss). The loss before taxation was £924,234 (2020 – £3,560,818 loss).
Total assets at 30 June 2021 decreased to £24.4 million (2020 – £25.2 million). However, investment property
increased overall (£670,000) primarily due to completion of refurbishment works to enhance asset positioning.
Improved rental levels following works is reflected in valuation outcomes. The decrease in total assets reflects the
reduction in cash balances as funds were used to fund operating losses and investment activities.
Net assets decreased to £11.32 million (2020 – £12.14 million) and net asset value per share decreased to 40.18p
(2020 – 44.03p), predominantly due to the impact of the loss and ensuing reduction in cash balance.
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 has 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 is only exercisable by Torchlight during the Option Period and if the Option is not exercised prior to the
expiry of the Option Period, it will lapse. Unless otherwise agreed, any exercise of the Option by Torchlight shall be
for not less than 2,000,000 Option Shares.
In May 2021 600,000 options were exercised and converted into 10p shares at a price of 19.8079p per share,
increasing Torchlight’s interest in the Company to 9,600,000 shares, representing 34.08% of the Company’s enlarged
issued share capital.
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
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KCR RESIDENTIAL REIT plc
CHIEF EXECUTIVE’S LETTER
FOR THE YEAR ENDED 30 JUNE 2021
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 is on reducing costs, enhancing revenue and growing the business to achieve a cash break
even position to provide a stable base to grow from. Solid progress in this respect is being made. The Group
KPI is achieving a cash break even position by 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 has plans in place with KCR’s Capital Partner regarding ongoing
funding, and, the directors continue to focus on developing the Group’s capital structure.
Financial instruments
Details of risks associated with the Group's financial instruments are given in note 21 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 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, seek to mitigate this risk by employing independent valuation experts to complete
periodic valuations of the assets in the portfolio.
•
COVID-19
The impact of COVID-19 is widespread and continues to cause economic disruption. Governments in the UK
and elsewhere around the world have taken drastic and unprecedented measures which include compulsory
business closures and tight restrictions on movement of people and on their activities.
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 the 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:
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KCR RESIDENTIAL REIT plc
CHIEF EXECUTIVE’S LETTER
FOR THE YEAR ENDED 30 JUNE 2021
•
•
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.
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.
• Recent re-lettings and inquiries at Southampton suggests there is also solid underlying demand in
this catchment for rental properties so we would reasonably expect to be able to re-let in the event
that a short let operator failed and defaulted on their rental obligations.
Due to the uncertainty and unprecedented nature of the challenges posed by COVID-19 the Directors
continue to monitor this situation closely.
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 2021
financial year:
Key Decision
Coleherne Road works
year
the
Stakeholders
Tenants /
Shareholders
Action and Impact
During
Company
commenced a major refurbishment
program to reposition this asset.
the
This resulted in a loss of rental income
during the year whilst works were
action being
legal
ongoing
commenced to secure vacant possession
for one of the flats.
and
Whilst Section 21 notices were served on
tenants to achieve vacant possession
there
is an abundance of readily
available rental accommodation in the
same geographic location. The Company
is not aware of any tenants having
issues
accommodation.
replacement
securing
in
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KCR RESIDENTIAL REIT plc
CHIEF EXECUTIVE’S LETTER
FOR THE YEAR ENDED 30 JUNE 2021
the
impacted
Loss of rental income and the costs
associated with completion of works
have
financial
performance of the Company, however
this asset had performed very poorly for
the duration of
the Company’s
ownership. Below average standard of
finish resulted in poor rental returns and
high ongoing recurring maintenance
expenditure.
that
The Company considered
the
interests of all stakeholders were best
served by completing a substantive
upgrade to the property.
On completion, the property will be
finished to a very high standard and
should
ongoing
require minimal
investment for the next few years.
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 operations performance of the existing
assets, the Group is continuing to investigate the purchase of residential property assets that will be able to support
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:
Dominic White
Director
29 September 2021
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KCR RESIDENTIAL REIT plc
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2021
Introduction
During the year to 30 June 2021 KCR Residential REIT plc, while an AIM Listed 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 update 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-and two-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 where it operates.
Further detail on the key challenges that the Board addresses are set out under Risks and Uncertainties in the
Strategic Report.
Principle 2: Seek to understand and meet shareholder needs and expectations
In August 2019, a major equity re-capitalisation brought in £4.05m of capital and a substantial new shareholder,
Torchlight Fund LP. This transaction was designed to stabilise and re-position the Company so that it could 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 CEO and 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.
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KCR RESIDENTIAL REIT plc
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2021
The executive directors hold discussions with analysts, shareholders and investment managers from time to time.
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 will
be 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 £30m 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. Executive management are also focussed on continuing to reduce costs and optimise
the performance from the existing assets such that a profitable position can be achieved from a lower level
of investment.
Shareholder liaison is managed by Dominic White and Russell Naylor (info@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, nomad, 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.
13 | P a g e
KCR RESIDENTIAL REIT plc
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2021
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 currently chaired by the Independent Non-Executive
Chairman.
All of the directors devote such time to the Company's affairs as the board considers appropriate. The involvement
of non-executive directors varies month by month but is estimated at 3-5 days a month.
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.
During 2021, 4 Board meetings were held, attended by all current directors.
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.
14 | P a g e
KCR RESIDENTIAL REIT plc
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2021
Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continual improvement
Following the transaction approved by the directors of KCR as at 31 July 2019, the Board of KCR now comprises:
Name
Role
Appointed
Status
James Thornton
Non-Executive chairman
06 August 2019*
Independent
Dominic White
Russell Naylor
CEO
Executive director
Richard Boon
*appointed Chairman on 3 November 2020
Non-Executive director
01 January 2017
Non-independent
06 August 2019
06 August 2019
Non-independent
Non-independent
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 chief executive 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 Russell Naylor, Executive Director, who is additionally responsible for 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 for the Company's shareholders and with its 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.
15 | P a g e
KCR RESIDENTIAL REIT plc
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2021
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 its major shareholders.
The chief executive, Dominic White:
•
is primarily responsible for developing the Company's strategy in consultation with the Executive Director
and 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.
The executive director, Russell Naylor:
•
•
works closely with the CEO to develop and execute the Company's strategy;
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;
implements the financial and internal control decisions of the Board.
•
•
•
•
•
•
•
•
•
•
The Remuneration Committee, since November 2020, is now chaired by James Thornton, Chairman and Independent
Non-Executive Director, and comprises James Thornton and Richard Boon, Non-Independent Non-Executive Director.
The Remuneration Committee 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, since April 2021, Richard Boon. 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
16 | P a g e
KCR RESIDENTIAL REIT plc
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2021
Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-
making by the Board
•
•
•
•
•
•
•
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
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 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 Committee Report
BDO rotated audit partners during the year, following good governance in respect of the length of time of involvement
of the previous audit partner. The Executive Director and the Chair of the Audit Committee met in advance of the
2021 year end to plan the audit with the new external statutory auditor and to discuss the materiality to be used in
the audit and the expected key issues to be covered. Progress of the 2021 audit was discussed with the external
auditor before the year-end Audit Committee meeting.
At the completion of the audit, the auditor presented its Planning document and the Audit Completion Report to the
Audit Committee before the Financial Statements were presented for Board approval.
The discussions enabled the auditor to explain the proposed work and its outcome and the Non-Executive Directors
to raise any issues. It is considered that the process worked well and the audit did not raise any material issues
therefore the auditors were able to issue their audit report in the usual form.
Remuneration Committee Report
During 2021, the Remuneration Committee met to review and approve salaries.
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. During the financial year, the Directors accepted reduced remuneration in line with the Company’s strategy
to control costs. Details of the Directors’ remuneration are set out in the Directors’ Report on page 18.
17 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 30 JUNE 2021
The directors present their report with the financial statements of the Company and the Group for the year ended 30
June 2021.
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 21 to the financial statements.
DIVIDENDS
The directors do not recommend payment of a dividend for the year (2020 - £nil).
Political donations
The Group made no political donations during the year (2020 - £nil).
DIRECTORS
The following directors served during the year to 30 June 2021 and up to the date of approval of this Annual Report:
resigned 3 November 2020
Name
Michael Davies
James Thornton
Dominic White
Russell Naylor
Richard Boon
The beneficial interests of the directors holding office at 30 June 2021 in the issued share capital of the Company were
as follows:
Name
James Thornton
Dominic White
Russell Naylor
Richard Boon
Ordinary
Shares
Issued in the
year
At 30 June 2020
At 30 June 2021
No.
22,222
No.
--
No.
22,222
1,195,932
91,666
1,287,598
--
--
--
--
--
--
The beneficial interests of the directors holding office at 29 September 2021 in the issued share capital of the
Company were as follows:
Name
Dominic White
James Thornton
At 30 June 2021
Issued in the period
At 29 September 2021
No.
1,287,598
22,222
No.
-
-
No.
1,287,598
22,222
18 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 30 JUNE 2021
SUBSTANTIAL SHAREHOLDINGS
As at 29 September 2021, 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
Lynchwood Nominees Ltd
Drumz plc
Moore House Holding Ltd
Poole Investments Ltd
Venaglass Ltd
Dominic White & White Amba Pension Scheme
Oliver Vaughn
Annabel Marie-Louse James
Interest
%
34.08%
8.65%
8.38%
6.39%
5.62%
4.72%
3.76%
3.50%
DIRECTORS’ REMUNERATION
The directors have received the following remuneration for their services during the year:
Name
Michael Davies
Dominic White
Russell Naylor*
James Thornton
Richard Boon*
James Cane
Timothy James
Oliver Vaughan
2021
2020
Remuneration
£
Benefits-in-kind
£
Remuneration
£
Benefits-in-kind
£
--
94,500
77,691
30,000
20,000
-
-
-
222,191
--
--
--
--
--
--
--
--
--
-
145,853
44,000
27,192
18,130
7,603
5,068
10,541
258,387
-
-
-
-
-
-
-
-
-
In addition, during the year, the Group were charged fees of £10,800 by DGS Capital Partners LLP, a limited liability
partnership of which Michael Davies is a member (2020 - £43,200) (including irrecoverable VAT) for making available
the services of Michael Davies to the Group.
* The remuneration paid to Russell Naylor included fees of £48,000 charged by Naylor Partners, a business in which
Russell Naylor is a Director (2020 - £44,000) and the remuneration paid to Richard Boon included fees of £18,900
(2020 - £18,130) charged by Artefact Partners, a business in which Richard Boon is a Director. The remuneration of
Russell Naylor also includes a provision of £22,816 for a catch up payment incentive which will be due when the
business achieves cash-flow breakeven.
During the previous year, the capital structure of the Company was reviewed and the decision was taken to terminate
the Restricted Preference shares. As a result, a number of Restricted Preference shares were converted to Ordinary
shares and the remaining Restricted Preference shares were gifted to the Company and subsequently cancelled. A
number of directors held Restricted Preference shares. The total gain made by the directors in the 2020 financial
19 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 30 JUNE 2021
year, upon the conversion of Restricted Preference shares to Ordinary shares was £450,910. The gain was calculated
as the market value of the Ordinary shares at the date of conversion, less the nominal value of the Restricted
Preference shares. However, the loss made by the directors in the 2020 financial year, as a result of gifting a number
of Restricted Preference shares to the Company was £721,493. No gains or losses were made in the 2021 financial
year.
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.
iii.
iv.
v.
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.
Social matters
The Group is aware that it has a responsibility to the communities where it operates and seeks to respect
them at all times.
Respect for human rights
The Group always respects the human rights of its stakeholders.
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.
20 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 30 JUNE 2021
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.
Following the declaration by the World Health Organisation of Covid-19 as a global pandemic, governments in the
UK and elsewhere have taken drastic and unprecedented lockdown and other measures which include compulsory
business closures and tight restrictions on movement of people and on their activities. This event has the potential
to impact the Group and its business and is considered further in the Strategic Report on pages 7 to 11.
The Company has undertaken procedures to ensure that the Company has sufficient cash resources and bank
facilities and sufficient covenant margin to manage the potential financial impact of the Covid-19 pandemic on its
business under going concern principles.
See note 2 to the financial statements for further details of the procedures undertaken.
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 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 that the financial statements comply with IFRS;
prepare the financial statements on the going-concern basis unless it is inappropriate to
presume that the Group will continue in business.
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
21 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 30 JUNE 2021
auditor is aware of that information.
AUDITOR
In accordance with section 489 of the Companies Act 2006, a resolution to reappoint BDO LLP as auditor will be proposed
at the forthcoming annual general meeting.
ON BEHALF OF THE BOARD
Dominic White
Director
29 September 2021
22 | P a g e
KCR RESIDENTIAL REIT plc
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
Opinion on the financial statements
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs
as at 30 June 2021 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006;
the Parent Company financial statements have been properly prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act 2006 and as applied in
accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
•
•
•
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 2021 which comprise the Consolidated Statement of Comprehensive
Income, the Consolidated and Company Statements of Financial Position, the Consolidated and Company
Statements of Changes in Equity, the Consolidated and Company Statements of Cash Flows, and notes to the
financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the Group financial statements is
applicable law and international accounting standards in conformity with the requirements of the Companies Act
2006 and, as regards the Parent Company financial statements, as applied in accordance with the provisions 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 believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We remain 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.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment
of the Group and the Parent Company’s ability to continue to adopt the going concern basis of accounting included:
• Corroborated key assumptions (eg reviewed forecasted occupancy rates to those historically achieved and loan
expiries to market norms for refinancing similar properties) to underlying documentation and ensured these
were consistent with our audit work in these areas;
• Considered the evidence provided to us to ensure that it was not contradictory;
• Understood and assessed the appropriateness of the key assumptions used both in the base case and in the
plausible downside scenario, including assessing whether we considered the downside sensitivities to be
appropriately severe;
• Tested the integrity of the underlying formulas and calculations within the cash flow models; and
• Reviewed the disclosures provided relating to the going concern basis of preparation and found that these
provided an explanation of the directors’ assessment that was consistent with the evidence we obtained.
23 | P a g e
KCR RESIDENTIAL REIT plc
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
Based on the work we have performed, we have not identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast significant doubt on the Group and the Parent Company’s ability
to continue as a going concern for a period of at least twelve months from when the financial statements are
authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the
relevant sections of this report.
Overview
Key audit matters
Valuation of investment properties was the sole key audit matter in
both the audits for the year ended 30 June 2021 and 30 June 2020.
Materiality
Group financial statements as a whole
£293,000 (2020:£306,000) based on 1.2% (2020:1.2%) of total assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s
system of internal control, and assessing the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including assessing whether there was evidence of
bias by the Directors that may have represented a risk of material misstatement.
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements.
In particular, we looked at where the Directors made significant judgements, estimates and assumptions. The key
judgement noted is that of determining fair value of investment properties - see key audit matters below.
We considered the risk of the financial statements being misstated or not prepared in accordance with the
underlying legislation or standards. We then directed our work toward areas of the financial statements which we
assessed as having the highest risk of containing material misstatements, including those set out above.
There are four significant components in the Group, which are all registered and operate in the UK. All components
of the group, and the consolidation were subject to full scope audits by BDO LLP. There were no significant changes
to this approach during the year compared to the previous year’s audit.
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, including those which 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.
24 | P a g e
KCR RESIDENTIAL REIT plc
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
Key audit matter
Valuation
of
investment
properties
(see Notes
2 and 12)
The Group holds investment properties
which comprise properties owned by
Group held for rental income and capital
appreciation. Investment properties are
valued by the directors and the valuation
approach is disclosed in Note 12. The
valuation investment properties requires
significant judgement in determining the
appropriate inputs to be used in the model
and there is therefore a risk that the
properties are incorrectly valued. We have
therefore determined the valuation of
investment properties to be a key audit
matter.
How the scope of our audit addressed the key
audit matter
In this area our audit procedures included:
• We compared the key valuation assumptions,
which we consider relate to the market yields
appropriate to the sector and location of the
properties, against our independently formed
market expectations. Variances were evaluated
the directors and
through
accumulated
they
supported the overall valuation.
to determine whether
challenge of
• We tested the accuracy of key observable
valuation inputs, primarily passing rental income
and lease terms, to the information provided to
the external valuers for use in their valuation for
a sample of properties.
• We met with the directors to discuss and
challenge the valuation methodology and key
assumptions, and to determine whether there
were any indicators of bias on the valuations.
• We assessed the competency, qualifications,
independence and objectivity of the external
valuers who undertook valuations of the Group’s
properties around the year end and reviewed the
instructions provided
for
completeness, unusual arrangements and to
check that there was no evidence of management
bias.
valuer
the
to
Key observations:
We did not identify any indicators to suggest that the
valuation of the Group’s investment properties is
inappropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could
influence the economic decisions of reasonable users that are taken on the basis of the financial statements.
25 | P a g e
KCR RESIDENTIAL REIT plc
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use
a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly,
misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and
performance materiality as follows:
for determining
Materiality
Basis
materiality
Rationale
benchmark applied
for
Group financial statements
2020
2021
£
£
306,000
293,000
of
1.2% of total assets
1.2%
assets
total
the
A key determinant of the Group’s value is
property investments. Due to this, the
key area of focus in the audit is the
valuation of investment properties. On
this basis, and to be consistent year-on-
year, we set an overall Group materiality
level based on gross asset value.
Parent company financial statements
2021
£
174,000
1.2% of total assets
2020
£
192,000
1.2% of total assets
The Company’s main activity
is the
investments in subsidiaries. Given this, and
to be consistent year-on-year, we set an
overall Company materiality level based on
total assets.
Performance materiality 205,000
Basis
for determining
performance materiality
214,000
We consider a number of
factors
including history of misstatements, risk
assessment and aggregation risk and
determined that 70% was appropriate in
the circumstances.
134,000
121,000
We consider a number of factors including
history of misstatements, risk assessment
and aggregation risk and determined that
70% was appropriate in the circumstances.
Specific materiality
We also determined that for items within pre-tax profit, a misstatement of less than materiality for the financial
statements as a whole, specific materiality, could influence the economic decisions of users. As a result, we
determined materiality for these items at £43,000 (2020 – £161,000) which represents 5% of loss before tax adjusted
for fair value movements on capital items.
Component materiality
We set materiality for each component of the Group dependent on the size and our assessment of the risk of
material misstatement of that component. Component materiality ranged from £79,000 to £178,000. In the audit
of each component, we further applied performance materiality levels of 70% of the component materiality to our
testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.
26 | P a g e
KCR RESIDENTIAL REIT plc
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of
£15,000 (2020:£15,000). We also agreed to report differences below this threshold that, in our view, warranted
reporting on qualitative grounds.
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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are
required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic report
and Directors’
report
Matters
on
which we are
to
required
by
report
exception
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
applicable legal requirements.
•
In the light of the knowledge and understanding of the Group and Parent Company and its
environment obtained in the course of the audit, we have not identified material misstatements
in the strategic report or the Directors’ report.
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 by the Parent Company, or returns
adequate for our audit have not been received from branches not visited by us; or
the Parent Company 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 received all the information and explanations we require for our audit.
27 | P a g e
KCR RESIDENTIAL REIT plc
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
Responsibilities of Directors
As explained more fully in the statement of directors’ responsibilities, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such
internal control as the Directors determine is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent
Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
Extent to which the audit was 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. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with
laws and regulations related to compliance with the Real Estate Investment Trust (REIT) status section 1158 of the
Corporation Tax Act 2010 and the UK regulatory principles, such as the Companies Act 2006, to which non-
compliance might have a material effect on the financial statements. We evaluated management’s incentives and
opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and
determined that the principal risks were related to posting inappropriate journal entries to increase revenue,
management bias in accounting estimates and judgemental areas of the financial statements such as the valuation
of investment properties (see key audit matter above). Audit procedures performed by the engagement team
included:
•
Discussions with management, including consideration of known or suspected instances of non-compliance
with laws and regulations and fraud;
Reviewing relevant meeting minutes, including those of the Risk Committee and the Audit Committee;
Challenging assumptions and judgements made by management in their significant areas of estimation; and
Identifying and testing journal entries, in particular any journal entries posted with unusual account
combinations, posted by unexpected users and posted on unexpected days.
•
•
•
Our audit procedures were designed to respond to risks of material misstatement in the financial statements,
recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations
or through collusion. There are inherent limitations in the audit procedures performed and the further removed
non-compliance with laws and regulations is from the events and transactions reflected in the financial statements,
the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
28 | P a g e
KCR RESIDENTIAL REIT plc
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
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.
Alexander Tapp (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
29 | P a g e
29 September 2021
KCR RESIDENTIAL REIT plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2021
CONTINUING OPERATIONS
Revenue
Cost of sales
GROSS PROFIT
Administrative expenses
Other operating income
Notes
3
30 June
2021
£
30 June
2020
£
1,036,011
(20,606)
1,015,405
1,035,816
(152,605)
883,211
(1,102,869)
(1,610,547)
2,803
14,576
Fair value through profit and loss - Revaluation of
investment properties
OPERATING PROFIT/(LOSS) BEFORE SEPARATELY DISCLOSED
ITEMS
12
501,330
(311,888)
416,669
(1,024,648)
Separately disclosed items
Share-based payment charge
Costs associated with third-party fundraising and issue of
shares
Costs associated with refinancing
Costs associated with refurbishment of investment properties
OPERATING LOSS
Finance costs
Finance income
LOSS BEFORE TAXATION
Taxation
LOSS FOR THE YEAR
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR
Loss attributable to owners of the parent
Loss per share expressed in pence per share
Basic
Diluted
19
6
6
6
5
5
6
7
8
-
-
-
(844,200)
(1,599,681)
(317,875)
(137,327)
-
(427,531)
(3,079,531)
(497,432)
(483,932)
729
2,645
(924,234)
(3,560,818)
-
-
(924,234)
(3,560,818)
(924,234)
(3,560,818)
(924,234)
(3,560,818)
(3.34)
(1.19)
(13.48)
(4.98)
The notes on pages 38 to 64 form part of the financial statements 30 | P a g e
KCR RESIDENTIAL REIT plc (REGISTERED NUMBER: 09080097)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 JUNE 2021
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Investment properties
CURRENT ASSETS
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
EQUITY
SHAREHOLDERS' EQUITY
Share capital
Share premium
Capital redemption reserve
Other reserves
Retained earnings
TOTAL EQUITY
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing loans and borrowings
CURRENT LIABILITIES
Trade and other payables
Interest-bearing loans and borrowings
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Net asset value per share (pence)
Notes
11
12
14
15
30 June
2021
£
30 June
2020
£
23,378
46,410
24,262,000
23,592,000
24,285,378
23,638,410
53,375
66,915
120,290
63,889
1,535,946
1,599,835
24,405,668
25,238,245
16
2,816,963
2,756,963
13,594,317
13,535,468
344,424
-
344,424
14,930
(5,435,867)
(4,511,633)
11,319,837
12,140,152
18
17
18
11,052,419
11,052,419
447,224
1,586,188
2,033,412
374,416
1,671,258
2,045,674
13,085,831
13,098,093
24,405,668
25,238,245
8
40.18
44.03
The financial statements were approved and authorised for issue by the Board of Directors on 29 September 2021 and
were signed on its behalf by:
Dominic White
Director
The notes on pages 38 to 64 form part of the financial statements 31 | P a g e
KCR RESIDENTIAL REIT plc (REGISTERED NUMBER: 09080097)
COMPANY STATEMENT OF FINANCIAL POSITION
30 JUNE 2021
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Investments
CURRENT ASSETS
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
EQUITY
SHAREHOLDERS' EQUITY
Share capital
Share premium
Capital redemption reserve
Other reserves
Retained earnings
TOTAL EQUITY
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Interest-bearing loans and borrowings
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Notes
11
13
14
15
30 June
2021
£
30 June
2020
£
974
2,099
10,706,081
10,706,081
10,707,055
10,708,180
3,758,378
19,252
3,777,630
3,828,071
1,476,379
5,304,450
14,484,685
16,012,630
16
2,816,963
2,756,963
13,594,317
13,535,468
344,424
-
344,424
14,930
(9,930,751)
(9,147,860)
6,824,953
7,503,925
17
18
7,659,732
8,423,635
-
7,659,732
7,659,732
85,070
8,508,705
8,508,705
14,484,685
16,012,630
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 £(782,891) (2020 - £(3,154,620)).
The financial statements were approved and authorised for issue by the Board of Directors on 29 September 2021 and were
signed on its behalf by:
Dominic White
Director
The notes on pages 38 to 64 form part of the financial statements 32 | P a g e
KCR RESIDENTIAL REIT plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2021
Share
capital
£
Share
premium
Capital
redemption
reserve
Other
reserve
Retained
earnings
Total equity
£
£
£
£
£
Balance at 1 July 2019
2,029,178
10,018,986
67,500
14,930
(2,550,496)
9,580,098
Changes in equity
Transactions with owners:
Issue of share capital
727,785
3,516,482
276,924
Share-based payments
-
-
-
Total transactions with owners
727,785
3,516,482
276,924
Total comprehensive expense
-
-
-
-
-
-
-
-
4,521,191
1,599,681
1,599,681
1,599,681
6,120,872
(3,560,818)
(3,560,818)
Balance at 30 June 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
Equity element of loan finance
-
-
Total transactions with owners
60,000
58,849
Total comprehensive expense
-
-
-
-
-
-
Balance at 30 June 2021
2,816,963 13,594,317
344,424
-
(14,930)
(14,930)
-
-
-
118,849
(14,930)
103,919
-
-
(924,234)
(924,234)
(5,435,867)
11,319,837
The notes on pages 38 to 64 form part of the financial statements 33 | P a g e
KCR RESIDENTIAL REIT plc
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2021
Share
capital
Share
premium
Capital
redemption
reserve
Other
reserve
Retained
earnings
Total equity
£
£
£
£
£
£
Balance at 1 July 2019
2,029,178 10,018,986
67,500
14,930
(7,592,921)
4,537,673
Changes in equity
Transactions with owners:
Issue of share capital
727,785
3,516,482
276,924
Share-based payments
-
-
-
Total transactions with
owners
Equity element of loan
finance
Total comprehensive
expense
727,785
3,516,482
276,924
-
-
-
-
-
-
-
-
-
-
-
-
4,521,191
1,599,681
1,599,681
1,599,681
6,120,872
-
-
(3,154,620)
(3,154,620)
Balance at 30 June 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
Equity element of loan
finance
Total transactions with
owners
Total comprehensive
expense
-
-
60,000
58,849
-
-
-
-
-
-
Balance at 30 June 2021
2,816,963 13,594,317
344,424
-
(14,930)
(14,930)
-
-
-
-
-
118,849
(14,930)
103,919
(782,891)
(782,891)
(9,930,751)
6,824,953
The notes on pages 38 to 64 form part of these financial statements
34 | P a g e
KCR RESIDENTIAL REIT plc
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2021
Cash flows from operating activities
Cash used in operations
Interest paid
Net cash used in operating activities
Cash flows from investing activities
Purchase of property, plant & equipment
Repayment of other borrowings
Purchase of investment properties (including capital
expenditure on current properties)
Disposal of investment properties
Interest received
Net cash used in investing activities
Cash flows from financing activities
Loan repayments in year
New loans in year
Proceeds from share issue
Net cash generated from financing activities
Note
1
2021
£
2020
£
(822,507)
(497,432)
(1,554,962)
(483,932)
(1,319,939)
(2,038,894)
-
-
(168,670)
-
729
(8,178)
(1,738,076)
(518,888)
538,000
2,645
(167,941)
(1,724,497)
18
(100,000)
(6,658,130)
-
118,849
18,849
7,868,169
4,060,000
5,270,039
Decrease in cash and cash equivalents
(1,469,031)
1,506,648
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
1,535,946
29,298
66,915
1,535,946
The notes on pages 38 to 64 form part of these financial statements
35 | P a g e
KCR RESIDENTIAL REIT plc
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2021
Cash flows from operating activities
Cash used in operations
Interest paid
Note
1
2021
£
2020
£
(725,591)
(1,327)
(1,868,397)
(178,040)
Net cash generated from/(used in) operating activities
(726,918)
(2,046,437)
Cash flows from investing activities
Purchase of property, plant & equipment
Interest received
Net cash generated from investing activities
Cash flows from financing activities
(Decrease)/Increase in loans from group companies
Increase/(Decrease) in loans to group companies
Loan repayments in year
Proceeds from share issued
Net cash (used in)/generated from financing activities
18
-
727
727
(820,388)
70,603
(100,000)
118,849
(730,936)
(980)
2,569
1,589
7,787,070
(2,024,997)
(6,304,180)
4,060,000
3,517,893
Decrease in cash and cash equivalents
(1,457,127)
1,473,045
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
1,476,379
3,334
19,252
1,476,379
The notes on pages 38 to 64 form part of these financial statements
36 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2021
1)
RECONCILIATION OF LOSS BEFORE TAXATION TO CASH USED IN OPERATIONS
Group
Loss before taxation
Depreciation charges
Revaluation of investment properties
Share-based payment charge
Finance costs
Finance income
Decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash used in operations
Company
Loss before taxation
Depreciation charges
Share-based payment charge
Finance costs
Finance income
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
Cash used in operations
2021
£
2020
£
(924,234)
(3,560,818)
23,032
(501,330)
23,138
311,888
-
1,599,681
497,432
(729)
483,932
(2,645)
(905,829)
(1,144,824)
10,514
72,808
13,189
(423,327)
(822,507)
(1,554,962)
2021
£
2020
£
(782,891)
(3,154,620)
1,125
1,229
-
1,599,681
1,327
(727)
178,040
(2,569)
(781,166)
(1,378,239)
(910)
56,485
1 0,330
(500,488)
(725,591)
(1,868,397)
The notes form part of these financial statements
37 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
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
The Group has applied the following accounting standards that are mandatorily effective for accounting
periods commencing on or after 1 January 2020:
-
-
-
-
-
Amendments to IAS 1 and IAS8: Definition of Material
Amendments to IFRS 3: Definition of a Business
Amendments to IFRS 7, IFRS 9 and IAS 39 : Interest Rate Benchmark reform
Amendments to References to the Conceptual Framework in IFRS Standards
Covid-19 Related rent concessions (Amendment to IFRS 16)
The application of these amendments have not had a material impact on the amounts reported in these
financial statements.
New standards in issue but not yet effective
As at 30 June 2021, the Group has not applied the following new and revised standards that have been issued
but are not effective until 1 January 2022:
-
-
-
-
-
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
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,
The notes form part of these financial statements
38 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
2)
ACCOUNTING POLICIES (continued)
Going concern (continued)
for at least twelve months following the approval of the financial statements. This includes considering the
borrowings of £1,586,188 which fall due for repayment during that period. The Company secured a loan of
£2,375,000 post year end (note 23) that has enabled refinancing and additional capital to support Group
activities.
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 potential financial impact of the Covid-19
pandemic on its 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, KCR (Cygnet)
Limited and KCR (Southampton) Limited.
The notes form part of these financial statements
39 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
2)
ACCOUNTING POLICIES (continued)
Basis of consolidation (continued)
The consolidated financial statements present the results of the Company and its subsidiaries ("the Group")
as if they formed a single entity. Intercompany transactions and balances between group companies are
therefore eliminated in full.
Transaction costs, other than those of a capital nature and those associated with the issue of debt or equity
securities that the Group incurs in connection with a business combination are expensed as incurred.
Investments
Investments in subsidiaries are held at cost less provision for impairment.
Revenue recognition
Revenue of the Group for the year was derived mainly from its principal activity, being the letting to third
parties of, and management of, property assets owned by the Group. This income includes rental income,
management fees and sales commissions.
Revenue from contracts with customers is recognised when control of the services are transferred to the
customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange
for those services net of discounts, VAT and other sales-related taxes. The Group concludes that it is the
principal in its revenue arrangements, because it typically controls the 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. In the case of share-based payment charges, these are included as a separately
disclosed item as a significant non-cash item.
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
Computer equipment
- 5% and 25% on cost
- 25% on cost
The notes form part of these financial statements
40 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
2)
ACCOUNTING POLICIES (continued)
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 fair value plus
adjusted for any directly attributable transaction costs.
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.
The notes form part of these financial statements
41 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
2)
ACCOUNTING POLICIES (continued)
Financial assets (continued)
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. The Group’s investment
properties are designated as FVTPL assets.
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.
The notes form part of these financial statements
42 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
2) ACCOUNTING POLICIES (continued)
Financial liabilities (continued)
Bank and other borrowings are initially recognised at the fair value of the amount advanced net of any
transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are
subsequently measured at amortised cost using the effective interest method. Interest expense in this
context includes initial transaction costs and premium payable on redemption, as well as any interest or
coupon payable while the liability is outstanding.
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities.
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.
The notes form part of these financial statements
43 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
2)
ACCOUNTING POLICIES (continued)
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.
Share-based payments
The Group allowed certain directors and other individuals to acquire shares in the parent company until the
scheme was disbanded on 6 August 2019. The grant date fair value of share-based payment awards granted
was recognised as an employee expense with a corresponding increase in equity, over the period that the
employees become unconditionally entitled to the awards. The fair value of the options granted was
measured using an option pricing model, taking into account the terms and conditions upon which the
options were granted. The fair value was charged as an expense in the income statement over the vesting
period and the charge adjusted each year to reflect the expected and actual level of vesting. No adjustment
is made to the charge after the vesting date.
Further details regarding the conversion and cancellation of the share-based payment awards are included
in Note 19.
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
A number of the Group's accounting policies and disclosures require the determination of fair value, for
both financial and non-financial assets and liabilities. Fair values have been determined for
measurement and/or disclosure purposes based on the following methods.
When applicable, further information about the assumptions made in determining fair values is
disclosed in the notes specific to that asset or liability.
Investment properties
The Group's investment properties are valued, on the basis of market value. The fair value of investment
properties is based either on independent professional valuations in accordance with the Royal
Institution of Chartered Surveyors’ Appraisal and Valuation Standards 2014 as amended or by the
directors, based on market prices for similar items. The Group's investment properties were valued at
30 June 2021 at £24,262,000. See note 12 for further details.
The notes form part of these financial statements
44 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
2)
ACCOUNTING POLICIES (continued)
Critical accounting estimates and judgments (continued)
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.
Revenue analysed by class of business
Rental income
Management fees
Resale commission
Ground rents
Leasehold extension income
Other income
4)
EMPLOYEES AND DIRECTORS
Group
Wages and salaries
Social security costs
Pension costs
The average monthly number of employees during the year was as follows:
Directors and management
Administration
2021
£
2020
£
724,680
81,768
114,913
13,535
96,275
4,840
727,859
74,218
39,043
13,655
168,916
12,125
1,036,011
1,035,816
2021
£
2020
£
325,525
635,023
35,448
1,275
69,628
12,732
362,248
717,383
2021
2020
4
3
7
7
3
10
The notes form part of these financial statements
45 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
4)
EMPLOYEES AND DIRECTORS (continued)
2021
£
2020
£
Directors' remuneration (as per Report of the Directors)
222,191
258,387
Share-based payment charge relating to directors (see Note 19)
-
1,055,755
Remuneration of the highest-paid director
89,375
145,853
Amounts paid into a pension scheme of the highest-paid director
-
-
The Group directors are considered to be key management personnel. Certain directors and others held
Restricted Preference shares in the Company until 6 August 2019, further details of which are contained in
note 19 of the financial statements.
Company
Wages and salaries
Social security costs
Pension costs
The average monthly number of employees during the year was as follows
Directors and management
Administration
5)
FINANCE COSTS AND INCOME
Finance costs
Loan interest
Finance income
Bank interest
6)
LOSS BEFORE TAXATION
2021
£
2020
£
264,402
573,637
30,118
(2,175)
60,631
10,110
292,345
644,378
4
-
4
7
1
8
2021
£
2020
£
497,432
483,932
729
2,645
The notes form part of these financial statements
46 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
The loss before taxation is stated after charging:
Hire of plant and machinery
Other operating leases
Depreciation - owned assets
Auditors' remuneration for the Group - audit services for parent company
- audit services for subsidiaries
2021
£
10,002
13,140
23,032
40,000
15,000
2020
£
10,437
20,639
23,138
40,000
20,000
Separately disclosed items
In the previous year the Group incurred significant costs relating to third-party fundraising and issue of shares.
The costs to the Group totalled £317,875. The Group also incurred significant costs relating to refinancing
during the second half of the previous year, these totalled £137,327.
Further information on the share-based payments, which are shown on the face of the Consolidated
Statement of Comprehensive Income, can be found in note 19.
During the 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 2021 financial year amounted
to £703,946 and £140,254 (2020 - £Nil).
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
Current tax
UK corporation tax
Deferred tax
Total tax
2021
£
-
-
-
2020
£
-
-
-
7)
TAXATION (continued)
Factors affecting the tax expense
The notes form part of these financial statements
47 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
The tax assessed for the year is higher than the standard rate of corporation tax in the UK. The difference is
explained below:
Loss on ordinary activities before taxation
2021
£
2020
£
(924,234)
(3,560,818)
Loss on ordinary activities multiplied by the standard rate of corporation tax
in the UK of 19% (2020 – 19%)
(175,604)
(676,555)
Effects of
Expenses not deductible
Income not taxable
Losses not recognised in deferred tax
Tax credit
-
175,604
-
-
481,229
(66,141)
261,467
-
The Group re-entered the REIT regime on 6 August 2019 and has remained under the REIT regime since that
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
Loss attributable to ordinary shareholders
(924,234)
27,651,823
Effect of dilutive securities
-
-
2021
Weighted average
number of shares
Per share
amount
Pence
(3.34)
-
2020
Weighted average
number of shares
Per share
amount
No
No
Loss
£
Loss
£
Loss attributable to ordinary shareholders
(3,560,818)
26,411,154
Effect of dilutive securities
-
-
8)
LOSS PER SHARE AND NET ASSET VALUE (continued)
Diluted loss per share
The notes form part of these financial statements
Pence
(13.48)
-
48 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
Loss attributable to ordinary shareholders
(924,234)
77,569,631
Effect of dilutive securities
-
-
Loss
£
Loss
£
2021
Weighted average
number of shares
Per share
amount
2020
Weighted average
number of shares
Per share
amount
No
No
Pence
(1.19)
-
Pence
(4.98)
-
Loss attributable to ordinary shareholders
(3,560,818)
71,493,121
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.
2021
Equity
Number of shares
£
No
Net asset value
11,319,837
28,169,631
2020
Equity
Number of shares
£
No
Net asset value
12,140,152
27,569,631
Per share
amount
Pence
40.18
Per share
amount
Pence
44.03
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:
The notes form part of these financial statements
49 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
Within one year
Between one and five years
More than 5 years
Total
30 June
2021
£
414,594
84,533
37,263
536,390
30 June
2020
£
507,513
239,355
45,531
792,399
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:
Within one year
Between one and five years
Total
30 June
2021
£
24,784
10,449
35,233
30 June
2020
£
24,784
18,809
43,593
11)
PROPERTY, PLANT AND EQUIPMENT
GROUP
The notes form part of these financial statements
Fixtures, fittings &
computer equipment
50 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
COST
At 1 July 2019
Additions
At 30 June 2020
Additions
At 30 June 2021
DEPRECIATION
At 1 July 2019
Charge for year
At 30 June 2020
Charge for year
At 30 June 2021
NET BOOK VALUE
At 30 June 2021
At 30 June 2020
£
89,562
8,178
97,740
-
97,740
28,192
23,138
51,330
23,032
74,362
23,378
46,410
The notes form part of these financial statements
51 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
11)
PROPERTY, PLANT AND EQUIPMENT (continued)
COMPANY
COST
At 1 July 2019
Additions
At 30 June 2020
Additions
At 30 June 2021
DEPRECIATION
At 1 July 2019
Charge for year
At 30 June 2020
Charge for year
At 30 June 2021
NET BOOK VALUE
At 30 June 2021
At 30 June 2020
12)
INVESTMENT PROPERTIES
Group
COST OR VALUATION
At 1 July 2019
Additions
Disposals
Revaluations
At 30 June 2020
Additions
Disposals
Revaluations
At 30 June 2021
At 30 June 2021
At 30 June 2020
Fixtures, fittings &
computer equipment
£
6,536
980
7,516
-
7,516
4,188
1,229
5,417
1,125
6,542
974
2,099
Total
£
23,923,000
518,888
(538,000)
(311,888)
23,592,000
168,670
-
501,330
24,262,000
24,262,000
23,592,000
The notes form part of these financial statements
52 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
12)
INVESTMENT PROPERTIES (continued)
The investment properties were valued by the Directors at 30 June 2021 with reference to independent
external valuations performed in June and July 2021. 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 2021.The valuation of the
investment properties was £24,262,000, which was included in the financial statements.
During the year to 30 June 2021 there have been additions of £168,670 due to the capitalisation of certain
costs relating to the enhancement of properties at Coleherne Road and Heathside.
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 and his valuations were based on both internal and external site visits.
The valuation technique used in measuring the fair value, as well as the significant inputs and significant
unobservable inputs are summarised in the table below:
Fair Value
Hierarchy
Level 3
Valuation Technique
Significant Inputs Used
Significant
Unobservable Inputs
Income capitalisation and or capital
value on a per square foot basis
Adopted gross yield
3.00% - 5.76%
Adopted rate per
square foot
£303 - £982
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 2021 would
have been £22,467,913 (2020 - £22,299,243).
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 £724,680 (2020 -
£727,859). The total rental expenses in relation to investment properties for the Group equated to £20,606
(2020 - £152,605).
Included within Investment Properties are leasehold properties valued at £5,830,000 and freehold properties
valued at £18,432,000 (2020: £5,830,000 and £17,762,000 respectively).
The notes form part of these financial statements
53 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
13) INVESTMENTS
Company
COST
At 1 July 2019
Disposals
At 30 June 2020
Disposals
At 30 June 2021
NET BOOK VALUE
At 30 June 2021
At 30 June 2020
As at 30 June 2021, the Company's investments comprise the following:
Subsidiaries
K&C (Coleherne) Limited
Nature of business
Property letting
K&C (Osprey) Limited
Nature of business
Property letting
KCR (Kite) Limited
Nature of business
Dormant
Shares in group
undertakings
£
10,706,081
-
10,706,081
-
10,706,081
10,706,081
10,706,081
Holding
%
100.00
Registered office: UK
Class of shares
Ordinary
Registered office: UK
100.00
Class of shares
Ordinary
Registered office: UK
100.00
Class of shares
Ordinary
KCR (Southampton) Limited
Registered office: UK
100.00
Nature of business
Property letting
K&C (Newbury) Limited
Nature of business
Dormant
Class of shares
Ordinary
Registered office: UK
100.00
Class of shares
Ordinary
All of the above companies are registered at Gladstone House, 77-79 High Street, Egham, Surrey, TW20
9HY.
The notes form part of these financial statements
54 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
14)
TRADE AND OTHER RECEIVABLES
Trade debtors
Amounts owed by group undertakings
Other debtors
VAT
Prepayments
Group
Company
2021
£
246
-
11,530
-
41,599
53,375
2020
£
23,460
2021
2020
£
-
£
-
-
3,741,633
3,812,236
19,403
604
20,422
63,889
-
-
748
-
16,745
15,087
3,758,378
3,828,071
The Group and Company's exposure to credit risk is disclosed in note 21.
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 2021. 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
Cash in hand
Bank accounts
16)
SHARE CAPITAL
Allotted, issued and fully paid
Group
Company
2021
£
40
66,875
66,915
2020
£
40
2021
2020
£
-
£
-
1,535,906
1,535,946
19,252
19,252
1,476,379
1,476,379
Number
Class
Nominal value
28,169,631
Ordinary
£0.10
(2020: 27,569,631)
30 June
2021
£
30 June
2020
£
2,816,963
2,756,963
2,816,963
2,756,963
The notes form part of these financial statements
55 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
16)
SHARE CAPITAL (continued)
2021
Number
2021
£
2020
Number
2020
£
Ordinary shares of £0.10 each
At 1 July
27,569,631
2,756,963
15,791,777
1,579,178
Conversion of Restricted Preference Shares
Shares issued as loan repayments
Shares issued as creditor payments
-
-
-
-
-
-
1,730,765
173,077
577,778
447,089
57,778
44,708
Shares issued for cash
At 30 June
600,000
60,000
9,022,222
902,222
28,169,631
2,816,963
27,569,631
2,756,963
The Ordinary shares issued during the year were issued at £0.19808 per share.
Restricted Preference shares of £0.10 each
At 1 July
Conversion to Ordinary shares
Gifted back to Company (and
subsequently cancelled)
At 30 June
2021
Number
2021
£
2020
Number
2020
£
-
-
-
-
-
-
-
-
4,500,000
450,000
(1,730,765)
(173,077)
(2,769,235)
(276,923)
-
-
17)
TRADE AND OTHER PAYABLES
Current
Trade creditors
Amounts owed to group undertakings
Other taxes and social security
Other creditors
Accruals and deferred income
Group
Company
2021
£
2020
£
151,100
112,690
2021
£
64,795
2020
£
80,870
-
22,748
19,180
254,196
447,224
-
7,390,522
8,210,910
36,043
28,436
197,247
374,416
7,032
15,468
181,915
24,819
6,131
100,905
7,659,732
8,423,635
The Group and Company exposure to liquidity risk related to trade and other payables is disclosed in note 21.
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.
The notes form part of these financial statements
56 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
18)
FINANCIAL LIABILITIES - BORROWINGS
Current
Other loans
Non-current
Bank loans
Other loans
Group
2021
£
2020
£
1,586,188
1,586,188
1,671,258
1,671,258
7,868,169
3,184,250
7,868,169
3,184,250
11,052,419
11,052,419
Company
2021
£
-
-
-
-
-
2020
£
85,070
85,070
-
-
-
Terms and debt repayment schedule (including interest)
2021
Group
1 year or less
£
1-2 years
£
2-5 years
£
More than 5 years
£
Totals
£
Bank loans
275,386
Other loans
1,761,322
2,036,708
275,386
175,134
450,520
943,218
525,401
1,468,619
14,982,305
16,476,295
3,607,490
6,069,347
18,589,795
22,545,642
Group
1 year or less
£
Bank loans
275,386
Other loans
1,891,423
Company
Other loans
2,166,809
85,070
85,070
2020
1-2 years
£
275,386
175,134
450,520
2-5 years
£
825,195
525,401
1,350,596
More than 5
years
£
Totals
£
15,375,714
16,751,681
3,782,624
6,374,582
19,158,338
23,126,263
-
-
-
-
-
-
85,070
85,070
Details of the principal loans are as follows:
The notes form part of these financial statements
57 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
18)
FINANCIAL LIABILITIES – BORROWINGS (continued)
a)
b)
c)
d)
e)
A three-year loan of £1,995,000 was entered into during the 2018 financial year. The loan was repayable
by 36 monthly instalments of £9,144 and a final instalment of £1,940,138. On 5 September 2019, the
Company repaid £353,950. The balance outstanding at 30 June 2021 was £1,586,188. The monthly
repayments from that date reduced to £7,568. The monthly instalments are interest payments and do not
include any capital repayments. Interest is charged at 5.50 per cent per annum. 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. Post balance date a new 5 year loan of £2.375 million was
entered into to refinance this facility and provide additional capital to support Group activities.
During 2019, the Company issued several convertible loan notes, totalling £200,000, the debt
element of which totalled £185,070. The convertible loan notes had a redemption date of 30 June
2020. £100,000 of the convertible loan notes was converted to Ordinary shares on 6 August 2019.
At 30 June 2020 the debt element outstanding was £85,070. The convertible loan notes were repaid
in full in July 2020.
On 4 December 2018, KCR (Southampton) Limited took out a new loan of £3,184,250, with Lendco
Limited. The term of the loan was 10 years. The monthly instalments are interest payments and do
not include any capital repayments. Interest is charged at 3.19 per cent for the first 24 months.
Interest for the remainder of the term will be charged at 4.79 per cent above LIBOR. The loan was
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 as at 30 June 2021 was £3,184,250.
On 10 February 2020, K&C (Coleherne) Limited took out a new loan of £2,743,359 with Hodge Bank.
The term of the loan is 25 years. The monthly instalments are interest payments and do not include
any capital repayments. Interest is charged at 3.5 per cent for the first 60 months. After this period
the interest rate charged will be a standard variable rate. The loan is secured by a freehold charge
over 25 Coleherne Road. The balance outstanding at 30 June 2021 was £2,743,359.
On 10 February 2020, KCR (Kite) Limited took out a new loan of £5,124,810 with Hodge Bank. The
term of the loan is 25 years. The monthly instalments are interest payments and do not include any
capital repayments. Interest is charged at 3.5 per cent for the first 60 months. After this period the
interest rate charged will be a standard variable rate. The loan is secured by a freehold charge over
25 Coleherne Road. The balance outstanding at 30 June 2021 was £5,124,810.
Reconciliation of net movement in cash
Group
Net cash at 1
July 2020
£
Cash flow
Loans
received in
year
£
£
Repayments
in year
£
Other non-
cash
movements
Cash at bank and
in hand
1,535,946
(1,469,031)
-
-
Borrowings
(12,723,677)
-
Total financial
liabilities
(11,187,731)
(1,469,031)
-
-
85,070
85,070
-
-
-
Net cash
at 30 June
2021
£
66,915
(12,638,607)
(12,571,692)
The notes form part of these financial statements
58 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
18)
FINANCIAL LIABILITIES – BORROWINGS (continued)
Net cash at 1
July 2019
£
Cash flow
£
Cash at bank and
in hand
29,298
1,506,648
Loans
received in
year
£
-
Repayments
in year
£
Other
non-cash
movements
Net cash
at 30 June
2020
£
-
-
1,535,946
Borrowings
(11,773,638)
-
(7,868,169)
6,658,130
260,000
(12,723,677)
(11,744,340)
1,506,648
(7,868,169)
6,658,130
260,000
(11,187,731)
Total financial
liabilities
Company
Net cash at
1 July 2020
Cash flow
Repayments
in year
£
£
£
Other
non-cash
movement
s
£
Cash at bank and in hand
1,476,379
(1,457,127)
Borrowings
(85,070)
-
Total financial liabilities
1,391,309
(1,457,127)
-
85,070
85,070
-
-
-
Net cash at
1 July 2019
£
Cash flow
£
Cash at bank and in hand
3,334
1,473,045
Borrowings
(6,649,250)
-
6,304,180
Total financial liabilities
(6,645,916)
1,473,045
6,304,180
Other
Repayments
in year
non-cash
movements
£
-
£
-
260,000
260,000
Net cash
at 30 June 2021
£
19,252
-
19,252
Net cash
at 30 June 2020
£
1,476,379
(85,070)
1,391,309
The notes form part of these financial statements
59 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
19)
SHARE-BASED PAYMENT TRANSACTIONS
Restricted Preference shares:
Restricted Preference shares had been acquired by certain directors and other senior managers. The
Restricted Preference shares were purchased at nominal value. Upon the achievement by the Group of
certain defined milestones, related to the NAV of the Group, the Restricted Preference shares of £0.10 were
able to be converted into Ordinary shares of £0.10, for no further consideration.
The estimated fair value of each Restricted Preference share was as folllows:
Fair value of share
option/warrant (£)
Restricted Preference
shares
0.688-0.787
The fair values were estimated using the Black-Scholes valuation model. The following table lists the inputs
to the model used:
Share price at grant date (£)
Exercise price (£)
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of share
options/warrants (years)
Restricted Preference
shares
0.8-0.9
0.1
0.00
51.86-63.79
0.88-1.57
1.3-8.8
The expected lives of the Restricted Preference shares were based on historical data and then-current
expectations and were not indicative of exercise patterns that may occur. The expected volatility reflected
the assumption that the historical volatility of comparator companies over the period similar to the life of the
Restricted Preference shares is indicative of future trends, which may not necessarily be the actual outcome.
On 6 August 2019, 1,730,765 of the Restricted Preference shares were converted into Ordinary shares. The
remaining 2,769,235 Restricted Preference shares were gifted back to the Company for no consideration as
part of the Torchlight transaction. The restricted preference shares gifted back to the Company were
subsequently cancelled.
The conversion and cancellation of the restricted preference shares was treated as an acceleration of vesting
and therefore the amount that would have been recognised for services received over the remainder of the
vesting period was recognised immediately, in the 2020 financial year. The expense is shown in the following
table:
Expenses arising from Restricted Preference shares
Total expense from share-based payments
30 June 2021
£
30 June 2020
£
-
-
1,599,681
1,599,681
The notes form part of these financial statements
60 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
20)
FINANCIAL INSTRUMENTS
The Group’s financial assets, as defined under IFRS 9, and their estimated carrying amount are as follows:
Group
Company
2021
£
2020
£
2021
£
2020
£
Carrying amount of financial assets at
amortised cost
Trade and other receivables
Cash at bank and in hand
53,375
66,915
63,889
3,758,378
1,535,946
19,252
3,828,071
1,476,379
21)
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
o
o
credit risk
liquidity risk
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 notes form part of these financial statements
61 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
21) FINANCIAL RISK MANAGEMENT (continued)
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 2021 totalled £7,868,169.
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.
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.
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.
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.
Sensitivity
Interest rate sensitivity:
At 30 June 2021, 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 £992,377 (2020 - £3,604,930).
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.
The notes form part of these financial statements
62 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
22)
RELATED PARTIES
Year Ended 30 June 2021
During the year, remuneration paid to Russell Naylor consisted of fees of £48,000 charged by Naylor
Partners, a business in which Russell Naylor is a Director (2020 - £44,000).
The remuneration paid to Richard Boon in 2021 consisted of fees of £18,900 (2020 - £18,130) 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 £9,000 plus VAT of £1,800 (2020 - £36,000 plus VAT of £7,200).
Further details of total director remuneration is contained with the Report of the Directors on page 19.
Christopher James is also considered as key management personnel. His remuneration in the period totalled
£113,027 (2020 - £70,881), which includes a provision of £38,027 for a catch up payment incentive which
will be due when the business achieves cash-flow breakeven
Year Ended 30 June 2020
On 24 June 2018, the Company entered into a loan agreement arranged by DGS Capital Partners LLP, a
limited liability partnership in which Michael Davies is a member, with certain investors. The loan was for
£1,475,000 and was subject to an interest rate of 12 per cent per annum. The loan was to be repaid within
300 days of the initial drawdown date of 29 June 2018. The loan was extended during the 2019 financial year
and from 10 April 2019, the interest rate was increased to 14 per cent per annum. In the 2020 financial year,
the Company incurred interest of £30,196 on the loan. On 6 August 2019 the loan and all outstanding interest
and fees were repaid. The repayment consisted of £1,425,000 cash and £129,311 of Ordinary shares.
During the year ended 30 June 2019, Oliver Vaughan, an ex director of the Company, loaned the Company
£150,000. The loan was unsecured and was due for repayment on 15 May 2019. The loan was extended in
June 2019. Upon extension of the loan, the lender charged the Company a fee of £10,000. The loan was
interest free. £110,000 of the loan was repaid via the issue of Ordinary shares in the Company on 6 August
2019. The remaining £50,000 was repaid on 8 August 2019.
During the year ended 30 June 2019, the Company issued £50,000 of convertible loan notes to Kimono
Investments Limited, an entity in which Oliver Vaughan’s children have a financial interest. The Company was
charged £340 interest in the 2020 financial year. The principal loan was repaid on 22 August 2019. The
repayment consisted of £50,000 of Ordinary shares.
During the year to 30 June 2019, the Company issued convertible loan notes to the White Amba Pension
Scheme of £25,000. The Company was charged £170 interest in the 2020 financial year. The principal loan
was repaid on 22 August 2019. The repayment consisted of £25,000 of Ordinary shares.
During the year to 30 June 2019, the Company issued convertible loan notes to Katie James, relative of ex
director Timothy James of £25,000. The Company was charged £170 interest in the 2020 financial year. The
principal loan was repaid on 22 August 2019. The repayment consisted of £25,000 of Ordinary shares.
During the previous year, Timothy Oakley, ex director of a number of subsidiary companies, received
remuneration of £nil (2020 - £10,541). During the year ended 30 June 2019 Timothy Oakley also loaned the
Company £50,000 as part of the loan arranged by DGS Capital Partners LLP, as detailed above. Interest of
£595 was charged to the Company in the 2020 financial year. The loan was repaid on 22 August 2019. The
repayment consisted of £50,000 of Ordinary shares.
The notes form part of these financial statements
63 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
23)
POST-BALANCE SHEET EVENTS
After the year end a new 5 year variable rate facility of £2,375,000 was entered into with Secure Trust Bank Plc.
Funds were used to refinance the existing Proplend facility and provide additional capital to support Group
activities, including the acquisition of another flat within the Heathside freehold which completed on 11th
September 2021.
A flat at Lomond Court which was a non-core asset with no strategic value was sold and settled post balance date
for £280,000. The majority of net sale proceeds were utilized to reduce the Hodge Bank facility.
The notes form part of these financial statements
64 | P a g e