REGISTERED NUMBER: 09080097 (England and Wales)
KCR RESIDENTIAL REIT plc
ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2022
KCR RESIDENTIAL REIT plc
CONTENTS OF THE ANNUAL REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Company Information
Chairman's Letter
Chief Executive’s Letter
Group Strategic Report
Corporate Governance Statement
Report of the Directors
Report of the Independent Auditor
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
Page
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40 -63
KCR RESIDENTIAL REIT plc
COMPANY INFORMATION
FOR THE YEAR ENDED 30 JUNE 2022
DIRECTORS
James F Thornton
Russell J Naylor
Richard J Boon
Dominic A White
Non-Executive Chairman
Executive Director
Non-Executive Director
Non-Executive Director
SECRETARY
Azets (CHBS) Limited
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
SOLICITORS
NOMINATED ADVISER
BROKER
REGISTRARS
Grant Thornton Limited
Lefebvre House
Lefebvre Street
St Peter Port
Guernsey C.I. GY1 3TF
Bryan Cave Leighton Paisner LLP
Governor’s House
5 Laurence Pountney Hill
London EC4R 0BR
Blake Morgan LLP
6 New Street Square
London EC4A 3DJ
Cairn Financial Advisers LLP
Ninth Floor
107 Cheapside
London EC2V 6DN
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 2022
Dear Shareholder
This last year has seen continued growth of the business in an environment that has remained uncertain. Whilst the
impact of Covid-19 appears to now be behind us, increasing interest rates, cost of living pressure and supply chain
disruption bring ongoing challenges for the business.
Strategy and Operations
During the financial year, and as reported at the half year, we have been continuing with the transition of the business.
As outlined in both last year’s Annual Report and the Interim Report for this financial year, the strategy remains to:
•
•
•
•
improve the rental revenue from the existing properties;
upgrade the overall portfolio quality;
explore the development opportunity within the portfolio; and
focus on reducing costs.
Revenue growth for the 2022 financial year has been driven by the work completed to date on modernising and
improving the standard of the property portfolio. As works have been completed and the apartments let up, enhanced
rental levels have been achieved.
The Coleherne Road property was a key driver with this being let up during the December 2021 quarter. We have now
obtained vacant possession in respect of the basement flat which has delayed completion of this project. We look
forward to fully completing this project this financial year.
Refurbishment works in respect of the two basement flats at Coleherne Road and all external areas have now
commenced. This well-located asset has been transformed from a poorly presented, bottom end rental product into
modern, spacious studio apartments that have been well received by the market. The financial impact on rentals
achievable has been significant and the eight fully refurbished apartments have performed well and underpinned
revenue growth during the financial year.
An additional flat was acquired within Heathside, fully refurbished during the financial year and was let in July 2022. The
strategy of acquiring, refurbishing and re-letting flats here has proven astute. Nine flats are now owned within this
property and their letting up has assisted in delivering rental growth for the portfolio. We continue to look for additional
opportunities to make follow-on acquisitions of flats within Heathside.
We continue to explore development opportunities within the existing portfolio and planning works are being
progressed in respect of the Chymedden property within the retirement portfolio and the Ladbroke Grove properties,
however, planning costs incurred in 2022, along with legal expenses relating to refinancing, obtaining vacant possession
at Coleherne Road and taking back management of Heathside have all negatively impacted administration expenses
resulting in a year-on-year increase.
Core costs continue to be tightly controlled and the additional expenditure incurred is necessary as we move to continue
to drive value from the existing portfolio.
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KCR RESIDENTIAL REIT plc
CHAIRMAN’S LETTER
FOR THE YEAR ENDED 30 JUNE 2022
Capital and Personnel
New funding arrangements entered into during the financial year have supported group activities together with the
proceeds received from the partial exercise of the Torchlight option. This has resulted in the Group being well placed to
continue implementation of the current strategy around driving value from the existing portfolio.
On August 6, 2022 the Torchlight option to acquire further shares in the Company lapsed.
In October last year Dominic White moved from being an Executive to a Non-Executive Director, with day-to-day
management of the business overseen by Russell Naylor.
Market Conditions and Outlook for the Group
From a macro-economic perspective, cost of living pressures and supply chain disruption are likely to present ongoing
challenges for the group. Solid increases in rental levels have been achieved in the post Covid-19 environment, whether
they can be sustained remains to be seen as inflationary pressures impact tenants. Supply chain disruption is expected
to continue to impact and extend timeframes required to complete refurbishment works. Price increases across the
board for both fixtures and fittings and from contractors continue to flow through, nevertheless, existing portfolio
performance remains strong with high levels of occupancy being maintained with nominal rental arrears. Rental levels
for the most part continue to be increased on re-letting albeit with a marginal increase in void periods.
Fundamentals for UK residential property appear positive, and it appears that the return to London and other major
international capitals trend in a post Covid-19 environment has continued.
KCR continues to actively look for acquisition opportunities and any market volatility flowing from interest rate increases
and cost of living pressures has the potential to create a more attractive entry point for deploying additional capital.
The Group’s overall long-standing objective remains to grow the size of its residential portfolio to deliver an increase in
revenue and profitability against its central overhead base and achieve an ability to pay dividends. At the same time, we
focus on growing net asset value per share.
On behalf of the Board and our shareholders, I would like to thank everyone at KCR for their hard work and dedication
over the past year.
James Thornton
Chairman
21 September 2022
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KCR RESIDENTIAL REIT plc
CHIEF EXECUTIVE’S LETTER
FOR THE YEAR ENDED 30 JUNE 2022
Dear Shareholder
I have pleasure in reporting to you on the progress of the Group for the year to 30 June 2022.
Our efforts in restructuring the balance sheet over the last couple of years and the implementation of an active
refurbishment works programme has resulted in the Group being well positioned to continue to drive growth from
the existing assets.
Operational highlights –
Revenue for the financial year increased by 23.6% (to £1.28 million up from £1.04 million in 2021) - largely
underpinned by the letting up of Coleherne Road during the December quarter following completion of
refurbishment works to eight of the ten flats.
Portfolio level occupancy has remained close to 100% of all available flats (currently one flat across the portfolio
is vacant and in the process of being re-let). Rental increases continue to be achieved at renewals / re-lettings.
Total assets increased to £27.37 million (up from £24.41 million in 2021) following the partial exercise of the
Torchlight option. Net asset value per share reduced to 32.82 pence (2021: 40.18 pence) primarily driven by the
impact of partial option exercise.
Focus on cost management and improving operational performance continues to minimise cash burn from operating
activities.
The focus of this year has been on the letting up of the Coleherne Road property following refurbishment, refurbishing
the additional flat acquired at Heathside, maintaining high occupancy across the portfolio, and keeping corporate and
operating costs to a minimum.
Current focus to drive value over the next financial year is:
conversion of Deanery Court to self-managed under the Cristal Apartments “walk in walk out” model;
complete Coleherne Road and let up the last two flats;
continuing to progress planning works at Chymedden and Ladbroke Grove;
roll out of property management software across the Group to provide a centralised platform to support growth
and enhanced management capability;
control of core running costs within incremental reductions where possible; and
make acquisitions to increase scale (subject to pricing / value drivers).
Progress continues to be made to create a stable platform that can be successfully scaled-up.
Property portfolio
Property transactions during the year
KCR acquired an additional one-bedroom flat within Heathside in October 2021. The flat was very tired and poorly
presented at the time of acquisition. Full refurbishment has been completed including creation of an outdoor living
area. Contractor availability and supply chain issues impacted the timing of refurbishment with works being fully
completed during June 2022 and the flat being let in July.
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KCR RESIDENTIAL REIT plc
CHIEF EXECUTIVE’S LETTER
FOR THE YEAR ENDED 30 JUNE 2022
A number of acquisitions were considered during the year, however we were unable to reach price agreement with
vendors. We continue to maintain a disciplined approach to acquisitions and will only make acquisitions that offer
compelling value to shareholders.
Existing portfolio
KCR continues with its performance enhancement focus on its existing portfolio. The refurbishment of apartments at
Coleherne Road is substantially complete. We have now obtained vacant possession to enable works to be completed
on the last two unrefurbished flats and the exterior areas. We look forward to fully completing this project during the
2023 financial year.
We intend to commit more capital expenditure to positively reposition the Ladbroke Grove portfolio. Planning
submission has been progressed which, if successful, will result in both an increase in the number of apartments and
uplift in net lettable area. Repositioning of the rental product and materially enhancing the quality of the product on
offer as part of the refurbishment works is expected to drive a material uplift in achievable rentals and capital values.
The tired condition of the current presentation is also increasingly capital intensive from a repairs and maintenance
perspective, but this is also expected to substantially reduce following completion of more holistic upgrade
refurbishment works.
We have already experienced a significant uplift in rental and capital values at our repositioned asset in Coleherne
Road. The apartments have moved into a far higher rental bracket with strong market demand for the repositioned
product. The aim is for this to be repeated at Ladbroke Grove.
KCR is continuing the process of creating two operating lines, clearly identifiable by brand, property quality and letting
strategy.
1. Cristal Apartments. Residential apartments, finished to a high modern specification, furnished and let on a
Walk-In-Walk-Out (WIWO) basis (the intention is for utilities, internet, furniture, and TV licence to be included
in the rental payment) for a frictionless and flexible letting experience. Rental contracts may be from a week
to multi-year.
2. Osprey Retirement Living. 4* retirement living property rented on the same basis as above, with optionality
on furniture. Rental contracts to be assured shorthold tenancies (six months plus).
1. Cristal Apartments (WIWO letting strategy)
The Coleherne Road property has been repositioned and now delivers the higher quality style of apartments that the
Cristal brand represents.
Conversion of the Southampton property to the Cristal Apartments model has commenced and is planned to be
completed over the course of the 2023 financial year. This is expected to be one of the key drivers of revenue growth
over the coming financial year.
If the outcome from the planning application mentioned above is positive, it is also intended to reposition the Ladbroke
Grove portfolio into Cristal branded apartments which is expected to result in both enhanced rentals and a substantive
reduction in ongoing repairs and maintenance.
The property at Coleherne Road, held within K&C (Coleherne) Limited, comprises ten studio and one-bedroom
flats. KCR has completed a whole-building refurbishment of the property in respect of eight of the ten apartments
to a significantly higher standard. The new apartments have produced strong rental uplifts and occupancy levels
since letting up during the December 2021 quarter. Works to complete the balance of this project have now
commenced.
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KCR RESIDENTIAL REIT plc
CHIEF EXECUTIVE’S LETTER
FOR THE YEAR ENDED 30 JUNE 2022
The Ladbroke Grove portfolio (owned by KCR (Kite) Limited) consists of 16 one- and two-bedroom flats in three
buildings which remain 100% occupied. The stand-alone flat in Harrow Road has been sold and settled during the
financial year. Proceeds from the sale of the Harrow Road property were applied primarily to reduction of the
Hodge Bank facility. Units have been lightly refurbished as tenants leave and are then re-let in the private market.
Planning works have been progressed during the financial year and a planning application submitted. The
Company’s intention is to undertake a whole building refurbishment of the Ladbroke Grove assets subject to
planning permission.
The Southampton block of 27 residential units at Deanery Court, Chapel Riverside (owned by KCR (Southampton)
Limited) is in the process of being converted to the Cristal Apartments operating model. As leases have expired
the apartments have been taken back, lightly refurbished, fully furnished and are now being let under the Cristal
Apartments walk in walk out operating model. As of today, around half of the apartments have been taken back
with 11 apartments converted and now being managed under the Cristal Apartments model. Another 11
apartments are in the process of being converted with full conversion of this property to the Cristal Apartments
model expected to be completed during the 2023 financial year. Historically the property is considered to have
been under rented and we believe substantive upside in gross and net rental performance exists from the more
active direct management style proposed for this asset.
2. Osprey Retirement Living (4* retirement apartments)
The Osprey portfolio (K&C (Osprey) Limited) consists of 159 flats and 13 houses let on long leases in six locations,
together with an estate consisting of 30 freehold cottages in Marlborough where Osprey delivers estate management
and sales services.
Whilst the proposed legislative changes in respect of ground rents have had a negative impact on portfolio valuation,
overall, the portfolio has held its value mainly as a result of the acquisition strategy to acquire flats within Heathside.
The nine owned flats within Heathside are delivering strong rental returns on cost and have assisted in offsetting the
value decline associated with the ground rent component of the portfolio. We continue to focus on unlocking value via
completion of lease extensions on the shorter dated long leasehold flats.
The key asset in the portfolio representing 71% of the Osprey portfolio value is the freehold block at Heathside, Golders
Green, where 28 of the 37 residential units are held on a long leasehold basis. The strategy continues to be to selectively
acquire (subject to pricing) long-leasehold units in the block, refurbish the units to a high standard and let them in the
open market under assured shorthold tenancies. This strategy continues to provide strong rental returns for the Group.
During the June 2022 quarter we successfully took back management of this property from the RTM Co. This will provide
incremental management fee income and, more importantly, will enable us to control the future direction for
positioning of this property. In this respect, design work and a tender programme have been completed for building
works to enhance the internal common parts (including reconfiguration of the ground floor) and external areas. Works
are planned to commence during the current financial year and are expected to extend over the next two financial years
(works will be funded via sinking fund and special levies). This is expected to enhance both the market demand for our
rental product and capital values within the building as a whole.
Financial
The current financial year reflects the outcome of enhanced gross revenue following letting up of Coleherne Road and
ongoing cost control of core operating overhead. KCR has recorded an operating profit before separately disclosed items,
and a significantly lower operating loss for the year. Further details regarding the financial performance of the Group can
be found in the Strategic Report on the following pages.
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KCR RESIDENTIAL REIT plc
CHIEF EXECUTIVE’S LETTER
FOR THE YEAR ENDED 30 JUNE 2022
Prospects
The business continues to be cashflow negative, however, KCR has made major steps to becoming cashflow positive. We
continue to work on achieving this and look forward to delivering further improved performance from the existing
portfolio.
I am excited about the potential for the Company to grow from a far more stable operating base, and in particular I am
pleased by the ongoing progress made this year towards Group profitability.
Russell Naylor
Executive Director
21 September 2022
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KCR RESIDENTIAL REIT plc
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
The directors present the strategic report of KCR Residential REIT plc ('KCR' or the 'Company') and its subsidiaries
(together, the 'Group') for the year ended 30 June 2022.
PRINCIPAL ACTIVITY
The Group carries on the business of acquiring, developing and managing residential property predominantly for
letting to third parties on long and short leases. At the year-end, the Group consisted of the Company, which is a
public Company limited by shares, and its wholly owned subsidiaries:
1.
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 nine freehold apartments and the freehold of several retirement properties let
on long leases to residents and provides management services in respect of these properties and to third-
party landlords;
KCR (Kite) Limited owns three freehold residential properties in Ladbroke Grove, London (16 flats);
KCR (Southampton) Limited owns a long leasehold block of 27 two-bedroom apartments at Chapel Riverside,
Southampton. The lease is a 999 lease for which the Company pays a peppercorn rent; and
K&C (Newbury) Limited owns no property and is now effectively dormant.
Throughout the year the Company remained a REIT and has complied with REIT rules throughout the period and since
the balance sheet date.
GROUP STRATEGY
The directors intend to build a significant presence in the residential letting market, primarily through the acquisition
of land with planning permission that will be developed into residential property and the acquisition of existing
residential property. Assets are predominantly acquired with the purpose of letting to third parties.
RESULTS
The Group reports a consolidated loss of £342,081 for the year to 30 June 2022 (2021 – £924,234).
REVIEW OF BUSINESS AND FINANCIAL PERFORMANCE
The Board has reviewed whether the Annual Report, taken as a whole, presents a fair, balanced and understandable
summary of the Group's position and prospects, and believes that it provides the information necessary for
shareholders to assess the Group's position, performance, and strategy.
In reporting financial information, KCR presents alternative performance measures, “APMs”, which are not defined
or specified under the requirements of IFRS. For example, portfolio occupancy and percentage of rent arrears. The
Company believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures,
provide stakeholders with additional helpful information on the performance of the business. The Board reminds
readers that these APMs are not GAAP measures, are not intended as a substitute for those measures, and that other
companies may use different measures.
Revenue in this financial year increased by 24% to £1,280,770 (2021 – £1,036,011). Core portfolio revenue (relating
to Rentals, Management fees and Ground Rent) was the primary contributor to revenue growth as Coleherne Road
was let up during the year. Portfolio occupancy (excluding the planned vacancy at Coleherne Road) and rent collection
remained above 95% for the whole period.
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KCR RESIDENTIAL REIT plc
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
The Group recorded an Operating Profit before separately disclosed items of £340,613 (2021 £416,669). Reduction
against the prior year was due to a reduced contribution from positive revaluation movements. After allowing for
separately disclosed items and finance costs, the loss before taxation was £342,081 (2021 - £924,234). Separately
disclosed items relating to refinancing and refurbishment works accounted for about half of the loss before taxation
in the 2022 financial year. Reduction in costs associated with refurbishment accounted for the majority of the year-
on-year reduction in separately disclosed items. The Group reports the operating result both before and after
separately disclosed items as the costs associated with refurbishment works is expected to vary significantly year-on-
year.
Total assets at 30 June 2022 increased to £27.4 million (2021 – £24.4 million). Investment property increased overall
(£343,300) primarily due to the acquisition of an additional apartment at Heathside. The increase in total assets
reflects the increase in cash balances as a result of the partial option exercise by Torchlight during the year.
Net assets increased to £13.68 million (2021 – £11.32 million) but net asset value per share decreased to 32.82p
(2021 – 40.18p), predominantly due to the impact of a share option exercise by Torchlight.
Upon completion of the Torchlight transaction in the 2020 financial year, the Group entered into an option
agreement to grant Torchlight an option to subscribe for a further 50,000,000 new Ordinary Shares during the Option
Period (up to 6 August 2022). Torchlight had the right to subscribe for the shares at a price per share of:
•
•
for any notice of exercise served on the Company on any date up to and including 31 December 2019, the
Issue Price; and
for any notice of exercise served on the Company from 1 January 2020 until the end of the Option Period,
the higher of (i) the price per Option Share which is equivalent to 95 per cent. of the 30-Day VWAP for the
Ordinary Shares and (ii) the par value of each Ordinary Share.
The Option was only exercisable by Torchlight during the Option Period and if the Option was not exercised prior to
the expiry of the Option Period, it would lapse. Unless otherwise agreed, any exercise of the Option by Torchlight
would be for not less than 2,000,000 Option Shares.
In October 2021, Torchlight exercised 13,500,000 options (2021: 600,000) and converted into 10p shares at a price
of 19.9821p per share (2021: 19.8079p per share), increasing Torchlight’s interest in the Company to 23,100,000
shares, representing 55.4% of the Company’s enlarged issued share capital.
Post balance date the option expired with no further exercises being made by Torchlight.
KEY PERFORMANCE INDICATORS
The directors and management team monitor key performance indicators relevant to each of the subsidiaries to
improve Group performance. Management reports to the board if data show significant variances against expected
outcomes and proposes mitigation action as necessary.
Examples of the KPIs used to monitor aspects of performance include:
1. At property level:
1.1. Vacancy rate in terms of number of units available and potential rental income
Target occupancy of at least 90 per cent achieved; and
1.2. Outstanding rents as a percentage of rental income
Target debtor balance of less than 10 per cent of rental revenue achieved.
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KCR RESIDENTIAL REIT plc
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
2. At Group Level
Near term focus continues to be on reducing costs, enhancing revenue and growing the business to achieve
a cash break even position (before separately disclosed capital expenditure) to provide a stable base to
grow from. Solid progress in this respect is being made. In order to achieve this the Group is focussing on
optimising performance from the existing assets and incremental acquisitions where they make sense.
RISKS AND UNCERTAINTIES
The Board regularly reviews the risks to which the Group is exposed and ensures through its meetings and its regular
reporting that these risks are minimised as far as possible.
The principal risks and uncertainties facing the Group at this stage in its development are:
Financing and liquidity risk
The Company has an ongoing requirement to fund its activities through the equity markets and in future to
obtain finance for property acquisition and development. Although there is no certainty that such funds will
be available when needed, the Company believes it would be able to access further funding for the directors
to continue to focus on selectively growing the Group’s asset base
Financial instruments
Details of risks associated with the Group's financial instruments are given in note 20 to the financial
statements. The directors seek to mitigate these risks in manners appropriate to the risk;
Valuations
The valuation of the investment property portfolio is inherently subjective as it is made on the basis of
assumptions made by the valuer, or the Directors that may not prove to be accurate. The outcome of this
judgment is significant to the Group in terms of its investment decisions and results. The directors, who have
long experience of property and valuation principles, seek to mitigate this risk by employing independent
valuation experts to complete periodic valuations of the assets in the portfolio. Valuation assumptions are
reviewed and considered by the Directors for reasonableness; and
COVID-19
The Group seeks to preserve a safe environment within its properties for its colleagues, residents, tenants
and suppliers and reviews this risk regularly, updating its procedures as required. To date, COVID-19 has not
materially impacted Group operations, with minimal impact on rent collections during the lockdown period.
Only a minimal number of tenants were in rent arrears at the balance sheet date and up to the date of this
report.
The main financial risks that the Board has identified in relation to the pandemic are potential income
reduction and bad debts as tenants have difficulty in maintaining rent payments and potential voids within
the portfolio arising from tenant failures.
The actions taken to mitigate the risks are summarised below:
the Group undertakes credit checks on prospective new tenants to assess credit risk. The checks
include verification of income levels and capacity to pay, as well as checks of rental references. Any
arrears are actively managed; and
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KCR RESIDENTIAL REIT plc
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
the Group has continued with periodic monitoring of apartment usage for short let operators.
Monitoring included car park usage (Southampton), power, water and gas readings as a proxy for
occupancy. The purpose of this was to enable the directors to form a view as to the underlying
occupancy profile of the short let operators as a proxy for their ability to continue to meet rent. Our
sampling / testing has suggested an implied underlying occupancy rate of 80% or better which
suggests adequate capacity for the short let operators to meet rent.
DIRECTORS’ DUTY TO PROMOTE THE SUCCESS OF THE COMPANY UNDER SECTION 172 COMPANIES ACT 2006
Section 172 (1) of the Companies Act 2006 requires Directors to act in the way they consider, in good faith, would
be most likely to promote the success of the Company for the benefit of shareholders as a whole, and in doing so
having regard to a diverse group of stakeholders.
The Directors continue to have regard to the impact of decisions made on all stakeholders and are aware of their
responsibilities to promote the success of the Company, in accordance with section 172 of the Companies Act 2006.
We aim to work responsibly with our stakeholders and outline below the key Board decisions made during the 2022
financial year:
Key Decision
Governance Policies
Stakeholders
Regulators /
Shareholders
periodically
Action and Impact
The
reviews
Board
governance policies for the Company
and Terms of Reference for established
committees to ensure they remain
appropriate for the Group.
A robust governance framework is an
integral part of how the Company
operates and ensures compliance with
its listing and regulatory requirements.
that
The Company considers
the
confidence provided to all stakeholders
from a robust governance framework is
an important component for ongoing
stakeholder support of the Company.
During the course of the year the Board
updated its governance, updating its
AIM Listing Rules Compliance Board
Memorandum to reflect developments
in the AIM rules and reviewing
its
internal control systems for compliance
with AIM Rule 31. Board Committee
terms of reference were reviewed and
updated and new policies in respect of
social media
and
risk
bribery
communications adopted.
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KCR RESIDENTIAL REIT plc
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Strategy Implementation
Tenants /
Shareholders
The Company continued to take actions
to implement the strategy outlined in
last year’s Annual Report.
Primary focus was –
of
upgrade
substantially
Letting up Coleherne Road following
completion of refurbishment works
the
to
standard
accommodation
provided to tenants.
Progressing incremental
refurbishment works to enhance
the quality of the rental product
provided.
Progressing planning works to
enhance value within the existing
portfolio.
Commencement of conversion of
the Deanery Court property to the
Cristal Apartments brand and
operating model.
Successful implementation of
strategy is expected to result in
continued financial performance of
the Company.
Improving the quality of the standard of
rental accommodation provides tenants
with an enhanced and hassle-free rental
experience.
the
investment in improving the quality and
standard of the rental product is a
primary driver of
improved financial
performance for the Company.
shareholders
For
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.
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KCR RESIDENTIAL REIT plc
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
OUTLOOK
Whilst the near-term focus remains on reducing costs and improving the operational performance of the existing
assets, the Group is continuing to investigate the purchase of residential property assets that are capable of
supporting an increasing income yield. To achieve these, the Group may be required to raise more capital and it is
working closely with funding sources, both equity and debt providers, to achieve this objective.
ON BEHALF OF THE BOARD:
Russell Naylor
Executive Director
21 September 2022
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KCR RESIDENTIAL REIT plc
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Introduction
During the year to 30 June 2022 KCR Residential REIT plc, while an AIM quoted Company, was operating initially with
four directors and three employees. In September 2018, it adopted the QCA code but with such a tightly controlled
operational and risk environment was not able to, in all areas, fully comply with the principles. During the current
year, the directors have continued to work towards compliance and updating the website to comply as far as possible
with the following QCA code principles, noting areas where the small scope of operations limits their ability to fully
comply:
Principle 1: Establish a strategy and business model which promote long-term value for shareholders
The Company's objective is to build a substantial property portfolio predominantly in the residential sector that
generates both secure income flow from rents and increasing net asset value for shareholders. The Company
acquires or develops blocks of studio, one, two and three-bed apartments that are close to transport links, shopping
and leisure, mostly in London, its surrounds and the South East. These blocks are focused on attracting tenants
seeking affordable rental accommodation.
The Company brings its property corporate finance expertise to the identification and execution of these
acquisitions.
The Company looks to acquire properties at below market value to improve yield on cost and enhance net asset
value. It aims to achieve this through acquisition strategies including:
using the REIT's inherent tax advantages; acquiring properties in corporate structures with embedded
capital appreciation and deferred tax liabilities which are reduced to zero as the corporate becomes part of
the REIT group; and
acquiring permitted land, funding the development process and retaining the developer's profit.
Over the medium to long term, the Company expects rental and property values to increase in line with inflation.
These increases, coupled with new acquisitions are designed to enable the Company, once it has reached scale, to
pay dividends from cash flow generated by rents and deliver net asset value increases through positive property
revaluations. Active asset management of the properties may also deliver value increases. The Company as a REIT is
required to distribute 90 per cent of its rental profits.
It is the Company’s paramount intention to conduct its activities in a professional and responsible manner for the
benefit of its shareholders, its employees, and the communities in which it operates.
Further detail on the key challenges that the Board addresses are set out under Risks and Uncertainties in the
Strategic Report.
Principle 2: Seek to understand and meet shareholder needs and expectations
In August 2019, a major equity re-capitalisation brought in £4.05m of capital and a substantial new shareholder,
Torchlight Fund LP. This transaction was designed to stabilise and re-position the Company so that it can move
forward in a way that all existing and new shareholders may benefit from future uplifts to profitability and increases
in net asset value.
The Company remains committed to engaging with its shareholders to ensure its strategy and performance are
clearly understood. Feedback from investors is obtained through direct interaction between the Executive Director
and shareholders following the Company's full and half year results and certain other ad hoc meetings between
executive management and shareholders that take place during the year.
14 | P a g e
KCR RESIDENTIAL REIT plc
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2022
The Company seeks to communicate with its shareholders on a timely and transparent basis at all times.
Announcements through RNS are as comprehensive as possible. As part of the Company's repositioning, the
intention is to improve the speed of reporting of the interim and full year results to shareholders.
The Chief Executive attends and presents at investor forums from time to time, as well as holding discussions with
analysts, shareholders and investment managers.
It is apparent from such interaction that shareholders have several concerns, including:
How do the directors propose to expand operations without dilution to existing shareholdings?
Since property companies are capital-intensive, the Company will raise equity over time to fund the acquisition
of new properties. Torchlight Fund LP exercising its option rights as approved by shareholders was dilutive to
existing shareholders with this dilution having already being accepted and approved by shareholders. The
Board will aim to maximise the issuance price of any additional equity offerings such that issuances are
accretive or, if that is not possible, offer all shareholders the opportunity to participate in the offering on an
equal access.
When will the Company become profitable?
Based on current overheads and interest forecasts, the Company may become profitable and cash flow positive
once it has approximately £50m of investments generating satisfactory rental income. Executive management
is focused on achieving this objective as soon as possible. This is naturally dependent on the availability of
suitable transactions and the ability to complete the acquisitions either via raising additional equity capital or
debt.
Shareholder liaison is managed though Russell Naylor Russell.Naylor@kcrreit.com.
Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-term
success
The Company currently operates in the UK. It identifies the main stakeholders in the UK as being investors, tenants,
and suppliers of services (accountant, nominated adviser, broker, lawyers), employees, directors, third-party
property managers, banks and other debt providers and property agents introducing investment opportunities.
The Company has an important social responsibility in its role as a landlord of residential housing. We commit to
delivering great service to our tenants, which includes providing safe and high-quality residential units, at market
prices, managed in a professional way.
Treating all our stakeholders well, and in particular our key customers - our tenants, is key to growing a sustainable
business that will have long-term success.
Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the
organisation
The Board is responsible for setting the risk framework within which the Company operates and ensuring that
suitable risk-management controls and reporting structures are in place throughout the Group.
The Board seeks to minimise risk in the management of its operations. The Company uses third- party advisors to
address specific issues that arise during operations where they bring complementary expertise and experience.
15 | P a g e
KCR RESIDENTIAL REIT plc
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2022
Principle 5: Maintain the board as a well-functioning, balanced team led by the chair
The Board comprises a balance of independent and non-independent directors with collective, specific and
complementary skills that enable the Company to manage and direct its affairs in a professional manner, with
embedded corporate governance procedures that are fit for purpose.
Full Board meetings are generally held on a quarterly basis and all necessary documentation is provided to the Board
in advance, so that they can understand the issues under review and make well-considered decisions. During the
year, between full Board meetings, the Board convenes whenever necessary to consider and, if appropriate, approve
the execution and completion by executive management of key matters that fall within the Board's defined remit as
set out below.
The Board has audit and remuneration sub-committees that are chaired by non-executive directors.
All of the directors devote such time to the Company's affairs as the board considers appropriate.
On 3 November 2020 Michael Davies stepped down as Chairman and James Thornton, an independent non-
executive director of KCR, became the Non-Executive Chairman of the board. KCR believes that a reduced board of
four members is appropriate for a business of its size and is in line with its efforts to reduce operating costs, assisting
with its drive to profitability. As a result of these changes, the Company has only one Independent Non-Executive
Director. The Company acknowledges the recommendations of the QCA Corporate Governance Code, which it has
adopted, and it is intended at the appropriate time to seek appointment of a further Independent Non-Executive
Director.
Principle 6: Ensure that between them the directors have the necessary up-to-date experience, skills and
capabilities
The Board maintains up-to-date skills, knowledge and experience to enable it to direct and manage the Company's
operations, finances and its interface with investors, the public markets and its other stakeholders.
The Board takes great care to appoint managers and staff with the appropriate skills and experience, and is aware
of the importance of encouraging diversity among its workforce.
The Board works as a team and regularly reviews its procedures and composition.
The relevant experience and skills of the current directors is set out under About Us / The Board on the Company’s
website. Each director is involved in other organisations which keep their professional skills sharpened and up to
date.
Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continual improvement
The Board of KCR comprises:
Name
Role
Appointed
Status
Russell Naylor
Executive Director
06 August 2019
Non-independent
James Thornton
Non-Executive chairman
06 August 2019*
Independent
Richard Boon
Dominic White
Non-Executive director
06 August 2019
Non-independent
Non-Executive director
01 January 2017
Non-independent
*appointed Chairman on 3 November 2020
16 | P a g e
KCR RESIDENTIAL REIT plc
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2022
In accordance with its obligations under the QCA code, the Board will review internally its collective performance,
and the performance of its committees and Board members. At this stage of its evolution and in view of the size of
the Board, the Directors do not believe that it is practical to undertake an external or a wide-ranging evaluation of
the performance of Board members. The primary tasks of the Executive Director, Russell Naylor, have been and will
continue to be to grow the Company's asset base and revenue through the delivery of additional assets to the
portfolio. This has included developing capital and asset partnerships and finding ways to raise appropriately priced
and structured debt finance to support transactions and equity capital in an uncertain equity market. He is a key
point of contact for the capital markets.
In these tasks, he will be supported by the Non-Executive Directors advising on matters such as internal financial
controls, financial management, capital planning and overseeing the preparation of financial reports to
shareholders.
The primary task of the Chairman, James Thornton, is to ensure that the Board has performed its role correctly, that
governance is adhered to, and that the Company works towards delivering value to shareholders in accordance with
the Company's strategy. He is also a point of contact with many of the Company's shareholders and professional
advisers.
Succession planning remains an important issue for the Board, and in particular the Chairman.
Principle 8: Promote a corporate culture that is based on ethical values and behaviours
The Board strives to promote a corporate culture based on sound ethical values and behaviours.
The Company has adopted a code for directors' and employees' dealings in securities, which is appropriate for a
company whose securities are traded on AIM. The code is in accordance with the requirements of the Market Abuse
Regulation that came into effect in 2016.
The Board is also aware that the tone and culture it sets will greatly impact all aspects of the Company and the way
that employees behave, as well as the achievement of corporate objectives. A significant part of the Company's
activities is centered upon an open dialogue with shareholders, employees and other stakeholders. Therefore, the
importance of sound ethical values and behaviours is crucial to the ability of the Company to successfully achieve its
corporate objectives.
Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-
making by the Board
The Board is committed to high standards of corporate governance. No system of internal control can completely
eliminate the risk of process or individual failures. To an extent, the corporate governance structures which the
Company is able to operate are limited by the size of the executive management team and the small number of
executive directors, which is itself dictated by the current size of the Company's operations. Within this limitation
necessitated by the current small size of the business, the Board is dedicated to having strong internal control
systems in place to enable it to maintain the highest possible standards of governance and probity.
The Chairman, James Thornton:
leads the Board and is primarily responsible for the effective working of the Board;
in consultation with the Board, ensures good corporate governance and sets clear expectations with regards to
Company culture, values and behaviour;
sets the Board's agenda and ensures that all Directors are encouraged to participate fully in the activities and
decision-making process of the Board;
takes responsibility for relationships with the Company's professional advisers and major shareholders.
17 | P a g e
KCR RESIDENTIAL REIT plc
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2022
The Executive Director, Russell Naylor:
is primarily responsible for developing the Company's strategy in consultation with the Board, for its
implementation and for the operational management of the business;
is primarily responsible for new projects and expansion;
runs the Company on a day-to-day basis;
implements the decisions of the Board;
monitors, reviews and manages key risks;
is the Company's primary spokesperson, communicating with external audiences, such as investors, analysts and
the media;
is primarily responsible for the systems of financial controls in operation for the Company and each of its
subsidiaries;
is primarily responsible for all financial management and financial planning matters;
monitors, reviews and manages key risks as they relate to financial impact; and
implements the financial and internal control decisions of the Board.
The Remuneration Committee is chaired by Richard Boon, Non-Executive Director, and comprises James Thornton
and Richard Boon, and meets on an ad hoc basis when required.
The Audit and Risk Committee is chaired by James Thornton, Chairman and Independent Non-Executive Director,
and comprises James Thornton and Richard Boon, Non-Independent Non-Executive Director. Russell Naylor is invited
to attend as appropriate. It meets at least twice each financial year to consider the interim and final results. In the
latter case, the auditors are present and the meeting considers and takes action on any matters raised by the
auditors arising from their audit.
The chair of each of the Committees may invite executive management and Board members to attend any meeting.
Matters reserved for the Board include:
vision and strategy;
review of budgets, asset plans and trading results;
approving financial statements;
financing strategy, including debt strategy;
business planning relating to acquisitions, divestments and major refurbishments not already agreed in the
strategy and asset plans;
capital expenditure in excess of agreed budgets;
corporate governance and compliance;
risk management and internal controls;
appointments and succession plans at senior management level; and
Directors' remuneration.
Principle 10: Communicate how the Company is governed and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
The Company’s website sets out the principal approach of the Company to governance. It contains all relevant
documents and information for shareholders, including all RNS announcements, financial reports, shareholder
circulars, and the Company's articles.
Shareholders are additionally encouraged to participate at the AGM, to ensure that there is a high level of
accountability and identification with the Group's strategy and goals.
18 | P a g e
KCR RESIDENTIAL REIT plc
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2022
Audit & Risk Committee Report
The Audit & Risk committee is a Board committee delegated with responsibility to oversee and review financial and internal
controls in accordance with its Terms of Reference. The Committee also makes recommendations to the Board on payment
of dividends or otherwise. The Committee is also responsible for setting and agreeing Audit fees and overseeing the process
for Auditor appointment.
The committee is chaired by Independent Non-Executive Chairman, James Thornton, with a quorum of a minimum of two
Non-Executives. There are two Non-Executive members; James Thornton and Richard Boon.
During the 2022 financial year the Audit & Risk committee has met three times, to review and recommend the interim and
year-end financial statements, and to consider the need for and to oversee the change of auditors. The chairman of the
committee also attended the 2022 year end planning meeting with the new auditors and reviewed the audit plan.
In 2022, the Company conducted a tender process for the Group and subsidiary audits. This process resulted in the
appointment of Grant Thornton Limited on 1 July 2022.
At the completion of the audit, the Auditor presented the Audit Completion Report to the Audit Committee, these were
discussed before the financial statements were presented for Board approval.
Remuneration Committee Report
The Remuneration Committee is a Board committee of Non-Executive Directors acting within its terms of reference to
execute its responsibility for the review and approval of salary and bonuses of Board Members and Senior Management
personnel and related employment matters.
During 2022, the Remuneration Committee met to review and approve senior management salaries and bonus structure for
staff.
It is the Company’s policy that the remuneration of Directors should be commensurate with the services provided by them
to the Company and should take account of published data on reasonable market comparable Groups, where available.
Details of the Directors’ remuneration are set out in the Report of the Directors on page 19.
19 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 30 JUNE 2022
The directors present their report with the financial statements of the Company and the Group for the year ended 30
June 2022.
A review of the business, risks and uncertainties and future developments is included in the Chairman's Letter, the
Chief Executive’s Letter, the Group Strategic Report, and in note 20 to the financial statements.
DIVIDENDS
The directors do not recommend payment of a dividend for the year (2021 - £nil).
Political donations
The Group made no political donations during the year (2021 - £nil).
DIRECTORS
The following directors served during the year to 30 June 2022 and up to the date of approval of this Annual Report:
Name
James Thornton
Russell Naylor
Richard Boon
Dominic White
The beneficial interests of the directors holding office at 30 June 2022 in the issued share capital of the Company were
as follows:
Name
James Thornton
Dominic White
Russell Naylor
Richard Boon
Ordinary
Shares
Issued in the
year
No.
--
--
--
--
At 30 June 2021
No.
22,222
1,287,598
--
--
At 30 June 2022
No.
22,222
1,287,598
--
--
The beneficial interests of the directors holding office at 21 September 2022 in the issued share capital of the
Company were as follows:
Name
Dominic White
James Thornton
At 30 June 2022
Issued in the period
At 21 September 2022
No.
1,287,598
22,222
No.
-
-
No.
1,287,598
22,222
20 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 30 JUNE 2022
SUBSTANTIAL SHAREHOLDINGS
As at 21 September 2022, the directors had been notified that the following shareholders owned a disclosable
interest of three per cent or more in the Ordinary Shares of the Company:
Name
Torchlight Fund LP
Drumz plc
Moore House Holding Ltd
Poole Investments Ltd
Venaglass Ltd
Dominic White & White Amba Pension Scheme
Interest
%
55.44%
5.85%
5.66%
4.32%
3.80%
3.09%
DIRECTORS’ REMUNERATION
The directors have received the following remuneration for their services during the year:
2022
2021
Name
Dominic White
Russell Naylor*
James Thornton
Richard Boon*
Remuneration
£
Benefits-in-kind
£
Remuneration
£
Benefits-in-kind
£
28,292
93,833
30,000
30,000
182,125
--
--
--
--
--
94,500
77,691
30,000
20,000
222,191
-
-
-
-
-
* The remuneration paid to Russell Naylor included fees of £48,000 charged by Naylor Partners, a business in which
Russell Naylor is a Director (2021 - £48,000) and the remuneration paid to Richard Boon included fees of £Nil (2021
- £18,900) charged by Artefact Partners, a business in which Richard Boon is a Director.
During the previous year, the Group was charged fees of £10,800 by DGS Capital Partners LLP, a limited liability
partnership of which Michael Davies is a member. Michael Davies was a director of the Group until resigning on 3
November 2020. The fees were for making available the services of Michael Davies to the Group.
INTERNAL CONTROLS AND RISK MANAGEMENT
The directors are responsible for the Group's system of internal control. Although no system of internal control can
provide absolute assurance against material misstatement or loss, the Group's system is designed to provide
reasonable assurance that problems are identified on a timely basis and dealt with appropriately.
In carrying out their responsibilities, the directors have put in place a framework of controls to ensure as far as
possible that (i) ongoing financial performance is monitored in a timely manner, (ii) where required, corrective action
is taken and (iii) risk is identified as early as practically possible. The directors have reviewed the effectiveness of
internal controls.
21 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 30 JUNE 2022
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 in which 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.
The directors consider, as at the date of approving the financial statements, that there is reasonable expectation that
the Group has adequate financial resources to continue to operate, and to meet its liabilities as they fall due for
payment, for at least twelve months following the approval of the financial statements.
The Company has undertaken procedures to ensure that the Company has sufficient cash resources and bank
facilities and sufficient covenant margin to manage its business under going concern principles.
See note 2 to the financial statements for further details.
POST BALANCE SHEET EVENTS
Post balance sheet events are detailed further in the Chief Executive’s letter and note 23 of the financial statements.
22 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 30 JUNE 2022
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law, the
directors have elected to prepare the financial statements in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006. Under company law, the directors must not approve
the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the
Company and the Group and of the profit or loss of the Company and the Group for that period. In preparing these
financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgments and accounting estimates that are reasonable and prudent;
state whether applicable accounting standards have been followed subject to any material
departures disclosed and explained in the financial statements; and
assess the Group’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern and use the going concern basis of accounting unless they either
intend to liquidate the Group, cease operations or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company's and the Group's transactions and disclose with reasonable accuracy at any time the financial position of
the Company and the Group and enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included
on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO THE AUDITOR
So far as the directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies
Act 2006) of which the Group's auditor is unaware, and each director has taken all the steps that he ought to have
taken as a director in order to make himself aware of any relevant audit information and to establish that the Group's
auditor is aware of that information.
AUDITOR
Following a tender process, Grant Thornton Limited were appointed as auditor to the Group. In accordance with section
489 of the Companies Act 2006, a resolution to reappoint Grant Thornton Limited as auditor will be proposed at the
forthcoming annual general meeting.
ON BEHALF OF THE BOARD
Russell Naylor
Executive Director
21 September 2022
23 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
Opinion
We have audited the financial statements of KCR Residential REIT plc (the ‘Parent Company’) and its subsidiaries (the
‘Group’) for the year ended 30 June 2022, which comprise the Consolidated Statement of Comprehensive Income, the
Consolidated and Company Statement of Financial Position, the Consolidated and Company Statement of Changes in
Equity, the Consolidated and Company Statement of Cash Flows and notes to the financial statements, including a
summary of significant accounting policies. The financial reporting framework that has been applied in their
preparation is applicable law and UK adopted International Accounting Standards.
In our opinion, the Group and Parent Company financial statements:
give a true and fair view of the state of the Group and Parent Company’s affairs as at 30 June 2022 and of the
Group’s loss for the year then ended;
are in accordance with UK adopted International Accounting Standards; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the
financial statements’ section of our report. We are independent of the Group and the Parent Company in accordance
with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s
Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Conclusions relating to going concern
We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group and Parent Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related
disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify the auditor’s
opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However, future
events or conditions may cause the Group and the Parent Company to cease to continue as a going concern.
Our evaluation of the directors’ assessment of the Group and Parent Company’s ability to continue to adopt the going
concern basis of accounting included:
Obtaining the 12-month going concern assessment performed by management, including the assumptions and
sensitivities prepared by management;
Challenging the appropriateness of management's forecasts by:
o checking the mathematical accuracy of the cash flow forecast;
o assessing the key assumptions used in the going concern assessment based on our knowledge of the Group
and the current economic climate; and
o assessing whether management has taken into account the principal and emerging risks noted in the annual
report.
We determined whether there is a material uncertainty which casts significant doubt over the ability of the Group
and Parent Company to continue as a going concern; and
24 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
We assessed the disclosures in the financial statements relating to going concern, to ensure they were in
compliance with IAS 1.
In our evaluation of the directors’ conclusions, we considered the inherent risks associated with the Group and Parent
Company’s business model, we assessed and challenged the reasonableness of estimates made by the directors and
the related disclosures and analysed how those risks might affect the Group and Parent Company’s financial resources
or ability to continue operations over the going concern period.
Based on the work we have performed, we have not identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast significant doubt on the Group and Parent Company’s ability to
continue as a going concern for a period of at least twelve months from when the consolidated financial statements
are authorised for issue.
In auditing the consolidated financial statements, we have concluded that the directors’ use of the going concern basis
of accounting in the preparation of the consolidated financial statements is appropriate.
The responsibilities of the directors with respect to going concern are described in the ‘Statement of directors’
responsibilities’ section of this report.
Our approach to the audit
Overview of our audit approach
Overall materiality:
Group: £268,000, which represents 2% of the Group’s net assets.
Materiality
Key audit
matters
Parent Company: £178,000, which represents 2% of the Parent Company’s net
assets.
Key audit matters were identified as:
Valuation of investment property
Scoping
Our audit approach was a risk-based substantive audit focused on the
investment activities of the Group.
Key audit matters
Key audit matters are those matters that, in our
professional judgement, were of most significance in our
audit of the financial statements of the current period
and include the most significant assessed risks of
material misstatement (whether or not due to fraud)
that we identified. These matters included those that
had the greatest effect on the overall audit strategy; the
allocation of resources in the audit; and directing the
efforts of the engagement team. These matters were
addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on
these matters.
Description
Audit
reponse
KAM
Disclosures Our results
25 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
Key Audit Matter
How our scope addressed the matter
Valuation of investment property (2022: £24.6m and
2021: £24.3m)
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 with
reference to independent external desktop or full
valuations performed. 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 and the valuation
technique is Income capitalisation and/or capital
value on a per square foot basis.
The valuation of 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.
Refer to the Chief Executive’s Letter (pages 4-7);
Accounting policies in pages 39-45, and Note 12,
Investment properties, to the Financial Statements.
We performed the following audit procedures:
Obtained understanding of the processes, policies
and methodologies, including the use of industry
specific measures, and policies
for valuing
investment properties held and confirming our
understanding by performing test of design and
implementation of relevant controls.
Obtaining and
the
inspecting
independent
appraisals regarding the investment properties and
supporting data to assess whether the data used is
appropriate and relevant and discussing these with
management to evaluate whether the fair value of
the investment properties is reasonably stated,
challenging
by
management.
assumptions made
the
Verifying valuation inputs to independent sources
and testing the arithmetical accuracy of the
calculations.
• Performing the following procedures and at certain
extent, engaging our own internal real estate
valuation specialists to:
a) assess and corroborate management’s market
related judgements and valuation inputs (i.e.,
gross yield, rate per square foot) by reference to
comparable transactions, and independently
compiled databases/indices.
b) determine whether the methodologies used to
value investment properties were consistent with
methods usually used by market participants for
similar types of properties; and
c) Assessing the adequacy of the financial statement
disclosures in relation to the use of estimates and
judgements regarding the fair value of the
investment properties.
Our results
Based on the procedures performed we have not
identified any material issues that would suggest the
valuation of investment properties is inappropriate.
26 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
Our application of materiality
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of
identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in
forming the opinion in the auditor’s report.
Materiality was determined as follows:
Materiality measure
Group
Parent Company
Materiality for financial statements as a
whole
We define materiality as the magnitude of misstatement in
the financial statements that, individually or in the aggregate,
could reasonably be expected to influence the economic
decisions of the users of these financial statements. We use
materiality in determining the nature, timing and extent of
our audit work.
Materiality threshold
£268,000 which is 2% of net
assets.
£178,000 which is 2% of net
assets.
Significant judgements made by auditor in
determining the materiality
In determining materiality, we made the following significant
judgements:
o Net assets is considered the most appropriate
because the investors would usually track the
performance of the Company by looking at the
net asset value.
o Due to the Company being
listed and
considering that the investors or potential
investors would be sensitive to changes in the
net asset value, it was deemed that 2% would
be the most appropriate percentage.
Significant revision(s) of materiality threshold
There was no significant revision of our materiality threshold
as the audit progressed.
Performance materiality used to drive the
extent of our testing
Performance materiality threshold
We set performance materiality at an amount less than
materiality for the financial statements as a whole to reduce
to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements
exceeds materiality for the financial statements as a whole.
£174,200 which is 65% of
financial
statement
materiality.
£115,700 which
financial
materiality.
is 65% of
statement
27 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
Materiality measure
Group
Parent Company
Significant judgements made by auditor in
determining the performance materiality
In determining materiality, we made the following significant
judgements:
o Our risk assessment, including our assessment of
the Group and Parent Company’s overall control
environment.
Significant revision(s) of performance
materiality threshold
There was no significant revision of our performance
materiality threshold as the audit progressed.
Communication of misstatements to the
audit committee
We determine a threshold
differences to the audit committee.
for reporting unadjusted
Threshold for communication
£93,800 and misstatements
below that threshold that,
view, warrant
in our
reporting on qualitative
grounds.
£62,300 and misstatements
below that threshold that,
view, warrant
in our
reporting on qualitative
grounds.
An overview of the scope of our audit
We performed a risk-based audit that requires an understanding of the Group’s business and in particular matters
related to:
We undertook substantive testing on significant transactions, balances and disclosures, the extent of which was
based on various factors such as our overall assessment of the control environment, the effectiveness of controls
over individual systems and the management of specific risks; and
For subjective estimates made by management on the valuation of the investment properties, we either
performed independent searches or engaged our own internal real estate valuation specialists when necessary to
confirm the appropriateness of the valuation methodology used in consideration of the comparable properties,
market assumptions and other inputs used.
Other information
The directors are responsible for the other information. The other information comprises the information included in
the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except to the extent otherwise explicitly stated in our report,
we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work
we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
28 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with the applicable legal
requirements.
Matters on which we are required to report by under the Companies Act 2006
In light of the knowledge and understanding of the Parent Company and the Group and its environment obtained in
the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires
us to report to you if, in our opinion:
adequate accounting records have not been kept; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not obtained all the information and explanations, which to the best of our knowledge and belief, are
necessary for the purposes of our audit.
Responsibilities of Directors
As explained more fully in the statement of directors’ responsibilities set out on page 22, management is responsible
for the preparation of the financial statements which give a true and fair view in accordance with UK adopted
International Accounting Standards, and for such internal control as management determines is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Group and Parent Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Group and Parent Company or to cease
operations, or has no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
29 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s
report.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in
line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including
fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements in the
financial statements may not be detected, even though the audit is properly planned and performed in accordance
with the ISAs (UK).
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
We obtained an understanding of the legal and regulatory frameworks applicable to the company in which it
operates. We determined that the following laws and regulations were most significant, the Companies Act 2006,
and the Real Estate Investment Trust (REIT) status section 1158 of the Corporation Tax Act 2010.
We understood how the company is complying with those legal and regulatory frameworks by making inquiries to
management including those responsible for compliance procedures. We corroborated our inquiries through our
review of board meetings, review of compliance reports, review of correspondence with the regulator and review
of key regulatory requirements. We identified areas of the above laws and regulations that could reasonably be
expected to have a material effect on the financial statements from our sector experience and through discussion
with management.
We assessed the susceptibility of the company’s financial statements to material misstatement, including how
fraud might occur, by evaluating management's incentives and opportunities for manipulation of the financial
statements. This included the evaluation of the risk of management override of controls. We determined that the
principal risks were in relation to transactions with related parties and revenue transactions.
In assessing the potential risks of material misstatement, we obtained an understanding of:
- the entity’s operation, including the nature of its revenue sources and services and of its objectives and
strategies to understand the classes of transactions, account balances, expected financial statement
disclosures and business risks that may result in risks of material misstatement.
- the applicable statutory provisions
- the entity's control environment.
Our audit procedures involved:
- identifying and assessing the design and implementation of controls management has in place to prevent and
detect fraud.
- understanding how those charged with governance considered and addressed the potential for override of
controls or other inappropriate influence over the financial reporting process; and
- identifying and testing journal entries, in particular any journal entries posted with unusual account
combinations
30 | P a g e
KCR RESIDENTIAL REIT plc
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF
KCR RESIDENTIAL REIT PLC
These audit procedures were designed to provide reasonable assurance that the consolidated financial statements
were free from fraud or error. The risk of not detecting a material misstatement due to fraud is higher than the
risk of not detecting one resulting from error and detecting irregularities that result from fraud is inherently more
difficult than detecting those that result from error, as fraud may involve collusion, deliberate concealment,
forgery or intentional misrepresentations. Also, the further removed non-compliance with laws and regulations
from events and transactions reflected in the consolidated financial statements, the less likely we would become
aware of it.
• We communicated relevant laws and regulations and potential fraud risks to all engagement team members, and
remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit;
We assessed the appropriateness of the collective competence and capabilities of the engagement team including
consideration of the engagement teams:
- Understanding of, and practical experience with audit engagements of a similar nature and complexity through
appropriate training and participation.
- Knowledge of industry in which the client operates; and
- Understanding of the legal and regulatory requirements specific to the regulated entity including the provisions
of the Companies Act 2006 and the Real Estate Investment Trust (REIT) status section 1158 of the Corporation
Tax Act 2010.
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company
and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Jeremy Ellis
Senior Statutory Auditor
for and on behalf of Grant Thornton Limited
Statutory Auditor, Chartered Accountants
St Peter Port, Guernsey
21 September 2022
31 | P a g e
KCR RESIDENTIAL REIT plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2022
CONTINUING OPERATIONS
Revenue
Cost of sales
GROSS PROFIT
Administrative expenses
Other operating income
Fair value through profit and loss - Revaluation of
investment properties
30 June
2022
£
30 June
2021
£
Notes
3
1,280,770
1,036,011
(50,525)
(20,606)
1,230,245
1,015,405
(1,232,932)
(1,102,869)
-
2,803
12
343,300
501,330
OPERATING PROFIT BEFORE SEPARATELY DISCLOSED ITEMS
340,613
416,669
Separately disclosed items
Costs associated with refinancing
Costs associated with refurbishment of investment properties
OPERATING PROFIT / (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
6
6
5
5
6
7
8
(68,234)
(101,670)
170,709
-
(844,200)
(427,531)
(512,811)
(497,432)
21
729
(342,081)
(924,234)
-
-
(342,081)
(924,234)
(342,081)
(924,234)
(342,081)
(924,234)
(0.85)
(0.41)
(3.34)
(1.19)
The notes on pages 39 to 63 form part of the financial statements 32 | P a g e
KCR RESIDENTIAL REIT plc (REGISTERED NUMBER: 09080097)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 JUNE 2022
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
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
2022
£
30 June
2021
£
54,954
23,378
24,605,300
24,262,000
24,660,254
24,285,378
185,532
2,519,346
2,704,878
53,375
66,915
120,290
27,365,132
24,405,668
16
4,166,963
2,816,963
14,941,898
13,594,317
344,424
344,424
(5,777,948)
(5,435,867)
13,675,337
11,319,837
18
17
18
13,274,574
11,052,419
415,221
-
415,221
447,224
1,586,188
2,033,412
13,689,795
13,085,831
27,365,132
24,405,668
8
32.82
40.18
The financial statements were approved and authorised for issue by the Board of Directors on 21 September 2022 and
were signed on its behalf by:
Russell Naylor
Director
The notes on pages 39 to 63 form part of the financial statements 33 | P a g e
KCR RESIDENTIAL REIT plc (REGISTERED NUMBER: 09080097)
COMPANY STATEMENT OF FINANCIAL POSITION
30 JUNE 2022
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
Retained earnings
TOTAL EQUITY
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Notes
11
13
14
15
30 June
2022
£
30 June
2021
£
307
974
10,706,081
10,706,081
10,706,388
10,707,055
3,352,889
2,337,349
5,690,238
3,758,378
19,252
3,777,630
16,396,626
14,484,685
16
4,166,963
2,816,963
14,941,898
13,594,317
344,424
344,424
(10,545,878)
(9,930,751)
8,907,407
6,824,953
17
7,489,219
7,489,219
7,489,219
7,659,732
7,659,732
7,659,732
16,396,626
14,484,685
As permitted by Section 408 of the Companies Act 2006, the income statement of the Company is not presented as part of
these financial statements. The Company’s loss for the financial year was £(615,127) (2021 - £(782,891)).
The financial statements were approved and authorised for issue by the Board of Directors on 21 September 2022 and were
signed on its behalf by:
Russell Naylor
Director
The notes on pages 39 to 63 form part of the financial statements 34 | P a g e
KCR RESIDENTIAL REIT plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2022
Share
capital
£
Share
premium
Capital
redemption
reserve
Other
reserve
Retained
earnings
Total equity
£
£
£
£
£
Balance at 1 July 2020
2,756,963
13,535,468
344,424
14,930
(4,511,633)
12,140,152
Changes in equity
Transactions with owners:
Issue of share capital
60,000
58,849
Equity element of loan finance
-
-
Total transactions with owners
60,000
58,849
Total comprehensive loss
-
-
-
-
-
-
Balance at 30 June 2021
2,816,963
13,594,317
344,424
Changes in equity
Transactions with owners:
Issue of share capital
1,350,000
1,347,581
Total transactions with owners
1,350,000
1,347,581
Total comprehensive loss
-
-
-
-
-
Balance at 30 June 2022
4,166,963
14,941,898
344,424
-
(14,930)
(14,930)
-
-
-
118,849
(14,930)
103,919
-
-
-
-
-
-
(924,234)
(924,234)
(5,435,867)
11,319,837
-
-
2,697,581
2,697,581
(342,081)
(342,081)
(5,777,948)
13,675,337
The notes on pages 39 to 63 form part of the financial statements 35 | P a g e
KCR RESIDENTIAL REIT plc
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2022
Share
capital
Share
premium
Capital
redemption
reserve
Other
reserve
Retained
earnings Total equity
£
£
£
£
£
£
Balance at 1 July 2020
2,756,963 13,535,468
344,424
14,930
(9,147,860)
7,503,925
Changes in equity
Transactions with owners:
Issue of share capital
60,000
58,849
Equity element of loan finance
-
-
Total transactions with owners
60,000
58,849
Total comprehensive loss
-
-
-
-
-
-
Balance at 30 June 2021
2,816,963 13,594,317
344,424
Changes in equity
Transactions with owners:
Issue of share capital
1,350,000
1,347,581
Total transactions with owners
1,350,000
1,347,581
Total comprehensive loss
-
-
-
-
-
Balance at 30 June 2022
4,166,963 14,941,898
344,424
-
(14,930)
(14,930)
-
-
-
-
-
-
-
-
-
118,849
(14,930)
103,919
(782,891)
(782,891)
(9,930,751)
6,824,953
-
-
2,697,581
2,697,581
(615,127)
(615,127)
(10,545,878)
8,907,407
The notes on pages 39 to 63 form part of these financial statements
36 | P a g e
KCR RESIDENTIAL REIT plc
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2022
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
Purchase of investment properties (including capital
expenditure on current properties)
Proceeds from sale of investment property
Interest received
Note
1
2022
£
(310,314)
(512,811)
(823,125)
(53,013)
(285,000)
280,000
21
2021
£
(822,507)
(497,432)
(1,319,939)
-
(168,670)
-
729
Net cash used in investing activities
(57,992)
(167,941)
Cash flows from financing activities
Loan repayments in year
Proceeds from new loans in year
Proceeds from share issue
Net cash generated from financing activities
(5,020,248)
(100,000)
5,656,215
2,697,581
3,333,548
-
118,849
18,849
Increase/(decrease) in cash and cash equivalents
2,452,431
(1,469,031)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
66,915
1,535,946
2,519,346
66,915
The notes on pages 39 to 63 form part of these financial statements
37 | P a g e
KCR RESIDENTIAL REIT plc
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2022
Cash flows from operating activities
Cash used in operations
Interest paid
Net cash used in operating activities
Cash flows from investing activities
Interest received
Net cash generated from investing activities
Cash flows from financing activities
Decrease in loans from group companies
Decrease in loans to group companies
Loan repayments in year
Proceeds from share issue
Net cash generated from/(used in) financing activities
Note
1
2022
£
(648,209)
(39)
(648,248)
2021
£
(725,591)
(1,327)
(726,918)
-
-
727
727
(133,909)
402,673
-
2,697,581
2,966,345
(820,388)
70,603
(100,000)
118,849
(730,936)
Increase/(decrease) in cash and cash equivalents
2,318,097
(1,457,127)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
19,252
1,476,379
2,337,349
19,252
The notes on pages 39 to 63 form part of these financial statements
38 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2022
1)
RECONCILIATION OF LOSS BEFORE TAXATION TO CASH USED IN OPERATIONS
Group
Loss before taxation
Depreciation charges
Revaluation of investment properties
Loss on disposal of investment property
Finance costs
Finance income
(Increase)/Decrease in trade and other receivables
(Decrease)/Increase in trade and other payables
2022
£
2021
£
(342,081)
(924,234)
21,437
23,032
(343,300)
(501,330)
5,000
512,811
(21)
(146,154)
(132,157)
(32,003)
-
497,432
(729)
(905,829)
10,514
72,808
Cash used in operations
(310,314)
(822,507)
Company
Loss before taxation
Depreciation charges
Finance costs
Finance income
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Cash used in operations
2022
£
2021
£
(615,127)
(782,891)
667
39
-
1,125
1,327
(727)
(614,421)
(781,166)
2,816
(36,604)
(910)
56,485
(648,209)
(725,591)
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 2022
1)
PRESENTATION OF FINANCIAL STATEMENTS
Statement of compliance
The consolidated financial statements have been prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006.
Functional and presentation currency
These consolidated financial statements are presented in Pounds Sterling ('GBP'), which is considered by the
directors to be the functional currency of the Group.
Changes in accounting policies
Adoption of new and revised standards
From 1 January 2021 the Company has applied UK-adopted IAS. At the date of application, the UK-adopted
IAS and EU-adopted IFRS were the same.
The following accounting pronouncements and standards became effective from 1 January 2021 and have
been adopted but did not have a significant impact on the Group’s financial results or position:
- Covid-19 related rent concessions beyond 30 June 2021 (amendments to IFRS 16)
-
Interest Rate Benchmark Reform Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
New standards in issue but not yet effective
As at 30 June 2022, the Group has not applied the following new and revised standards that have been issued
but are not effective until accounting periods beginning on or after 1 January 2022 or 1 January 2023:
-
-
-
-
-
-
-
Amendments to IAS 1: Classification of liabilities as current or non-current
Amendments to IAS 16: Property, plant and equipment: Proceeds before intended use
Amendments to IFRS 3: Reference to the conceptual framework
Annual improvements to IFRS Standards 2018-2020
Amendments to IAS 37: Onerous Contracts – cost of fulfilling a contract
Amendments to IAS 8: Definition of Accounting Estimates
Amendments to IAS 12: Deferred Tax Related to Asset and Liabilities arising from a Single
Transaction
The directors do not anticipate that the adoption of the above amendments will have a significant impact on
the financial statements of the Group in future periods.
2)
ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements have been prepared on the historical cost basis other than as set out
in the following policies.
Going concern
The financial statements have been prepared on a going concern basis. This requires the directors to consider,
as at the date of approving the financial statements, that there is reasonable expectation that the Group has
adequate financial resources to continue to operate, and to meet its liabilities as they fall due for payment,
for at least twelve months following the approval of the financial statements.
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 2022
2)
ACCOUNTING POLICIES (continued)
Going concern (continued)
The Group has undertaken procedures to ensure that the Group has sufficient cash resources and bank
facilities and with sufficient covenant margin to manage the business under going concern principles. These
procedures included the following:
Reviewing and establishing that cash balances and bank facilities are sufficient to cover at least twelve
months of operations;
Review of financial covenant ratios and the Group’s ability to meet the covenants for a period of at least
twelve months of operation; and
Reviewing cash flow forecast scenarios. Any decision on property acquisitions and developments in the
next twelve months will be taken following review of revised cash flow forecasts.
Having reviewed the Company’s current position and cash flow projections, including the confirmation that
the Company’s subsidiaries, which are also creditors as at the year-end will provide such financial support as
is required for a period of at least 12 months from the date of signing of these financial statements, the
Directors have a reasonable expectation that the Company has adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing
these financial statements.
The Company has also provided an undertaking to its subsidiaries that no intra-group amounts owed to the
Company will be called for repayment for a period of at least 12 months from the date of approval of these
financial statements unless the Subsidiary is in a position to make payments without adversely affecting their
ability to continue to trade and settle any future obligations.
Basis of consolidation
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an
investee if all three of the following elements are present: power over the investee, exposure to variable
returns from the investee, and the ability of the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these
elements of control.
The consolidated financial statements incorporate the results of business combinations using the acquisition
method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent
liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations
are included in the consolidated statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control ceases.
The subsidiaries included in the consolidated financial statements, from the effective date of acquisition, are
K&C (Newbury) Limited, K&C (Coleherne) Limited, K&C (Osprey) Limited, KCR (Kite) Limited and KCR
(Southampton) Limited.
The consolidated financial statements present the results of the Company and its subsidiaries ("the Group")
as if they formed a single entity. Intercompany transactions and balances between group companies are
therefore eliminated in full.
Transaction costs, other than those of a capital nature and those associated with the issue of debt or equity
securities that the Group incurs in connection with a business combination are expensed as incurred.
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 2022
2)
ACCOUNTING POLICIES (continued)
Investments
Investments in subsidiaries are held at cost less provision for impairment.
Revenue recognition
Revenue of the Group for the year was derived mainly from its principal activity, being the letting to third
parties of, and management of, property assets owned by the Group. This income includes rental income,
management fees and sales commissions.
Revenue from contracts with customers is recognised when control of the services are transferred to the
customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange
for those services net of discounts, VAT and other sales-related taxes. The Group concludes that it is the
principal in its revenue arrangements, because it typically controls the goods or services before transferring
them to the customer. Contracts with customers do not contain a financing component or any element of
variable consideration.
Rental income from operating leases is recognised periodically in line with the time for which the property is
rented. Rental income received in advance is recognised in deferred income.
Management fees derived from the management of property assets owned by third parties are recognised as
the services are provided.
Revenue from sales commissions is recognised at the point in time when control of the asset is transferred
from the vendor to the buyer.
Separately disclosed items
Separately disclosed items are those that are deemed to be exceptional by size or nature in relation to the
activities of the Group.
Finance costs
Finance costs comprise interest expense on borrowings.
Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying
asset are recognised in profit or loss using the effective interest method.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful
life.
Fixtures and fittings
Computer equipment
- 5% and 25% on cost
- 25% on cost
Investment properties
Investment properties comprise properties owned by the Group which are held for capital appreciation, rental
income or both. Investment properties are initially measured at cost, including expenditure that is directly
attributable to the acquisition of the asset. Investment properties are revalued on acquisition by independent
external valuers and then by the directors or independent valuers annually thereafter. Acquisitions and
disposals are recognised on completion. Any gain or loss arising from a change in fair value is recognised in
profit or loss.
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 2022
2)
ACCOUNTING POLICIES (continued)
Further details of the investment property valuation methodology are contained in note 12 of the financial
statements.
Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated
with the expenditure will flow to the Group. Ongoing repairs and maintenance are expensed as incurred.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and balances held with banking institutions.
Financial assets
Recognition and derecognition
Financial assets are recognised initially on the date that the Group becomes a party to the contractual
provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire,
or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the
risks and rewards of ownership of the financial assets are transferred.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position
only when the Group has a legal right to offset the amounts and intends either to settle on a net basis or to
realise the asset and settle the liability simultaneously.
Classification and initial recognition of financial assets
Except for trade receivables that do not contain a significant financing component and are measured at the
transaction price in accordance with IFRS 15, all financial assets are initially measured at amortised cost.
Financial assets are classified into the following categories:
-
-
-
Amortised cost
Fair value through profit or loss (FVTPL)
Fair value through other comprehensive income (FVOCI)
The classification is determined by both:
-
-
The entity’s business model for managing the asset
The contractual cash flow characteristics of the financial asset
All income and expenses relating to financial assets that are recognised in profit or loss are presented within
finance costs, finance income or other financial items, except for impairment of trade receivables which is
presented within administrative expenses.
Subsequent measurement of financial assets
Financial assets are measured at amortised cost if the assets meet the following conditions (and are not
designated as FVTPL):
-
-
They are held within a business model whose objective is to hold the financial assets and collect its
contractual cash flows;
The contractual terms of the financial assets give rise to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
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 2022
2)
ACCOUNTING POLICIES (continued)
After initial recognition, these are measured at amortised cost using the effective interest method.
Discounting is omitted where its effect is immaterial. The Group’s cash and cash equivalents, trade and most
other receivables fall into this category.
Financial assets which are designated as FVTPL are measured at fair value with gains or losses recognised in
profit or loss. The fair values of financial assets in this category are determined with reference to active
market transactions or using a valuation technique where no active market exists.
Impairment of financial assets
IFRS 9’s impairment requirements use forward looking information to recognise expected credit losses – the
‘expected credit loss (ECL) method’. Recognition of credit losses is no longer dependent on first identifying a
credit loss event, but considers a broader range of information in assessing credit risk and credit losses
including past events, current conditions, reasonable and supportable forecasts that affect the expected
collectability of the future cash flows of the instrument.
The Group makes use of a simplified approach in accounting for trade and other receivables and records the
loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows,
considering the potential for default at any point during the life of the financial instrument. In calculating, the
Group uses its historical experience, external indicators and forward-looking information to calculate the
expected credit losses.
Financial liabilities
Financial liabilities are recognised initially on the date that the Group becomes a party to the contractual
provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or
expire.
The Group classifies non-derivative financial liabilities into the ‘other financial liabilities’ category. Such
financial liabilities are recognised initially at fair value adjusted for directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective
interest method.
‘Other financial liabilities’ comprise trade and other payables and other short-term monetary liabilities.
Bank and other borrowings are initially recognised at the fair value of the amount advanced net of any
transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are
subsequently measured at amortised cost using the effective interest method. Interest expense in this
context includes initial transaction costs and premium payable on redemption, as well as any interest or
coupon payable while the liability is outstanding.
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities.
Share capital
Ordinary shares are classified as equity. Costs directly attributable to the issue of Ordinary shares are
recognised as a deduction from equity.
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 2022
2)
ACCOUNTING POLICIES (continued)
Leasing
The Company applies IFRS 16 Leases. Lessees, with certain exceptions for short term or low value leases, are
required to recognise all leased assets on their Statement of Financial Position as ‘right-of-use assets’ with a
corresponding lease liability.
The Group has a small number of operating leases concerning office premises and plant and equipment. IFRS
16 provides an exemption for short term operating leases and leases of low value. The Company has taken
advantage of the exemptions rather than establishing a right to use asset.
The costs of leases of low value items and those with a short term at inception are recognised as incurred.
Taxation
Tax expense comprises current and deferred tax. Current and deferred tax is recognised in profit or loss
except to the extent that it relates to a business combination, or items recognised directly in equity or in
other comprehensive income. As a REIT, the Group is generally not liable to corporation tax.
Deferred tax would be recognised in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred
tax is recognised for:
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a
business combination and that affects neither the accounting nor taxable profit or loss;
temporary differences related to investments in subsidiaries and jointly controlled entities to the
extent that it is probable that they will not reverse in the foreseeable future; and
taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they
reverse, using tax rates enacted or substantively enacted at the reporting date.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to
the extent that it is probable that future taxable profits will be available against which they can be utilised.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to
settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the liability.
The unwinding of the discount is recognised as finance cost.
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 2022
2)
ACCOUNTING POLICIES (continued)
Critical accounting estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to
make judgments, estimates and assumptions that affect the application of accounting policies and the
reported amount of assets, liabilities, income, and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimates are revised and in any future years affected.
Information about critical estimates and assumptions that have the most significant effect on the amounts
recognised in the consolidated financial statements and/or have a significant risk of resulting in a material
adjustment within the next financial year is as follows:
Determination of fair values
The Group's investment property accounting policies and disclosures require the determination of fair
value for both financial and non-financial assets and liabilities. Fair values have been determined for
measurement and/or disclosure purposes based on the following methods.
When applicable, further information about the assumptions made in determining fair values is
disclosed in the notes specific to that asset or liability.
Investment properties
The Group's investment properties are valued, on the basis of market value. The fair value of investment
properties is based either on independent professional valuations in accordance with the Royal
Institution of Chartered Surveyors’ Appraisal and Valuation Standards 2014 as amended or by the
directors, based on market prices for similar items. The Group's investment properties were valued at
30 June 2022 at £24,605,300. See note 12 for further details.
The directors are of the opinion that the estimates and assumptions that they have used in the valuation
of investment properties are appropriate. Further details of the valuation methodology are contained
in note 12 of the financial statements.
3)
REVENUE
The Group is involved in UK property ownership, management and letting and is considered to operate in a
single geographical and business segment.
The total revenue of the Group for the year was derived from its principal activities, being the letting to third
parties of, and management of, property assets owned by the Group, and, in certain cases, the management
of property assets owned by third parties.
The Group’s investment property consists of residential housing for the private rented sector and therefore
has multiple tenants and as a result does not have any significant customers.
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 2022
3)
REVENUE (continued)
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
Directors' remuneration (as per Report of the Directors)
Remuneration of the highest-paid director
Amounts paid into a pension scheme of the highest-paid director
The Group directors are considered to be key management personnel.
2022
£
2021
£
933,475
89,801
102,055
13,314
133,500
8,625
724,680
81,768
114,913
13,535
96,275
4,840
1,280,770
1,036,011
2022
£
2021
£
305,858
325,525
26,179
5,420
35,448
1,275
337,457
362,248
2022
2021
4
3
7
2022
£
182,125
93,833
-
4
3
7
2021
£
222,191
89,375
-
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 2022
4)
EMPLOYEES AND DIRECTORS (continued)
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
The loss before taxation is stated after charging:
Hire of plant and machinery
Other operating leases
Depreciation - owned assets
Auditors' remuneration for the Group
Auditors’ remuneration for the Group underprovided in prior year
2022
£
231,124
17,156
-
2021
£
264,402
30,118
(2,175)
248,280
292,345
4
-
4
4
-
4
2022
£
2021
£
512,811
497,432
21
729
2022
£
8,359
13,365
21,437
59,500
5,000
2021
£
10,002
13,140
23,032
55,000
-
Separately disclosed items
In the previous year, the Group commenced substantial refurbishment work to investment properties owned
by K&C (Coleherne) Limited and K&C (Osprey) Limited. The costs incurred in the 2022 financial year amounted
to £35,021 and £66,649 (2021 - £703,946 and £140,254).
Also during the year, the company incurred costs totalling £68,234 in relation to refinancing loan facilities.
Further details can be found in Note 18.
The notes form part of these financial statements
48 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
6)
LOSS BEFORE TAXATION (continued)
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
2022
£
-
-
-
2021
£
-
-
-
Factors affecting the tax expense
The tax assessed for the year is higher than the standard rate of corporation tax in the UK. The difference is
explained below:
Loss on ordinary activities before taxation
2022
£
2021
£
(342,081)
(924,234)
Loss on ordinary activities multiplied by the standard rate of corporation tax
in the UK of 19% (2021 – 19%)
(64,995)
(175,604)
Effects of
Income and expenses not taxable
Tax credit
64,995
175,604
-
-
The Group has remained under the REIT regime throughout the year and since the balance sheet date.
8)
LOSS PER SHARE AND NET ASSET VALUE
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted
average number of Ordinary shares outstanding during the year.
Fully diluted earnings per share is calculated using the weighted average number of shares adjusted to assume
the conversion of all dilutive potential Ordinary shares.
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 2022
8)
LOSS PER SHARE AND NET ASSET VALUE (continued)
Basic loss per share
Loss attributable to ordinary shareholders
(342,081)
40,196,318
2021
Weighted average
number of shares
No
Loss
£
Loss attributable to ordinary shareholders
(924,234)
27,651,823
Diluted loss per share
Loss attributable to ordinary shareholders
(342,081)
82,882,619
Effect of dilutive securities
-
-
2022
Weighted average
number of shares
Per share
amount
No
Loss
£
Pence
(0.85)
Per share
amount
Pence
(3.34)
Pence
(0.41)
-
Pence
(1.19)
-
2022
Weighted average
number of shares
Per share
amount
No
No
2021
Weighted average
number of shares
Per share
amount
Loss
£
Loss
£
Loss attributable to ordinary shareholders
(924,234)
77,569,631
Effect of dilutive securities
-
-
The net asset value is calculated by dividing the equity attributable to ordinary shareholders by the number
of Ordinary shares in issue at the balance sheet date.
2022
Equity
Number of shares
£
No
Net asset value
13,675,337
41,669,631
The notes form part of these financial statements
Per share
amount
Pence
32.82
50 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
8)
LOSS PER SHARE AND NET ASSET VALUE (continued)
2021
Equity
Number of shares
£
No
Net asset value
11,319,837
28,169,631
Per share
amount
Pence
40.18
9)
OPERATING LEASES RECEIVABLE
The Group leases residential units within certain of its investment properties under operating leases. The
future minimum lease payments receivable under non-cancellable leases are as follows:
Within one year
Between one and five years
More than 5 years
Total
30 June
2022
£
358,724
58,756
29,017
446,497
30 June
2021
£
414,594
84,533
37,263
536,390
Lease revenue is generated from properties owned by K&C (Coleherne) Limited, KCR (Southampton) Limited and
KCR (Kite) Limited that are let on short-term tenancy agreements.
10)
LEASING AGREEMENTS
Minimum lease payments, under non-cancellable operating leases, fall due as follows:
Within one year
Between one and five years
Total
30 June
2022
£
21,499
5,375
26,874
30 June
2021
£
24,784
10,449
35,233
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 2022
11)
PROPERTY, PLANT AND EQUIPMENT
GROUP
COST
At 1 July 2020
Additions
At 30 June 2021
Additions
At 30 June 2022
DEPRECIATION
At 1 July 2020
Charge for year
At 30 June 2021
Charge for year
At 30 June 2022
NET BOOK VALUE
At 30 June 2022
At 30 June 2021
Fixtures, fittings &
computer equipment
£
97,740
-
97,740
53,013
150,753
51,330
23,032
74,362
21,437
95,799
54,954
23,378
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 2022
11)
PROPERTY, PLANT AND EQUIPMENT (continued)
COMPANY
COST
At 1 July 2020
Additions
At 30 June 2021
Additions
At 30 June 2022
DEPRECIATION
At 1 July 2020
Charge for year
At 30 June 2021
Charge for year
At 30 June 2022
NET BOOK VALUE
At 30 June 2022
At 30 June 2021
12)
INVESTMENT PROPERTIES
GROUP
COST OR VALUATION
At 1 July 2020
Additions
Disposals
Revaluations
At 30 June 2021
Additions
Disposals
Revaluations
At 30 June 2022
At 30 June 2021
Fixtures, fittings &
computer equipment
£
7,516
-
7,516
-
7,516
5,417
1,125
6,542
667
7,209
307
974
Total
£
23,592,000
168,670
-
501,330
24,262,000
285,000
(285,000)
343,300
24,605,300
24,262,000
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 2022
12)
INVESTMENT PROPERTIES (continued)
The investment properties were valued by the Directors at 30 June 2022 with reference to independent
external valuations performed in August 2022, with a valuation date as at 30 June 2022. All of the properties
were subject to desktop valuations with the exception of the property at Ladbroke Grove which was subject
to a full valuation. The external valuations were carried out in accordance with the Royal Institution of
Chartered Surveyors’ Valuation – Global Standards, 2020 (Red Book).
The Directors determined that there were no material factors that would give rise to there being a material
variance between the latest external valuation and the fair value as at 30 June 2022.The valuation of the
investment properties was £24,605,300, which was included in the financial statements.
Fair value is based on current prices in an active market for similar properties in the same location and
condition. The current price is the estimated amount for which a property could be exchanged between a
willing buyer and willing seller in an arm’s length transaction after proper marketing wherein the parties had
each acted knowledgeably, prudently and without compulsion.
Valuations are based on a market approach which provides an indicative value by comparing the property
with other similar properties for which price information is available. Comparisons have been adjusted to
reflect differences in age, size, condition, location and any other relevant factors.
The fair value for investment properties has been categorised as Level 3 inputs under IFRS 13. The valuer
visited all material properties where full valuations were carried out in the current and previous year and these
valuations were based on both internal and external site visits.
The valuation technique used in measuring the fair value, as well as the significant inputs and significant
unobservable inputs are summarised in the table below:
Fair Value
Hierarchy
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
3.50% - 6.50%
Adopted rate per
square foot
£336 - £1,355
The fair value would increase if market rents were higher and/or the rates per square foot were higher and/or
capitalisation rates were lower.
The fair values would decrease if market rents were lower and/or the rates per square foot were lower and/or
capitalisation rates were higher.
If properties had been included on a historical cost basis, the cost of the properties at 30 June 2022 would
have been £22,452,913 (2021 - £22,467,913).
The revenue earned by the Group from its investment properties and all direct operating expenses incurred
on its investment properties are recorded in the Consolidated Statement of Comprehensive Income.
The total rental income in relation to investment properties for the Group equated to £933,475 (2021 -
£724,680). The total rental expenses in relation to investment properties for the Group equated to £50,525
(2021 - £20,606).
Included within Investment Properties are leasehold properties valued at £6,150,000 and freehold properties
valued at £18,455,300 (2021: £5,830,000 and £18,432,000 respectively).
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 2022
13) INVESTMENTS
Company
COST
At 1 July 2021
Disposals
At 30 June 2021
Disposals
At 30 June 2022
NET BOOK VALUE
At 30 June 2022
At 30 June 2021
As at 30 June 2022, 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
Property letting
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
55 | P a g e
KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
14)
TRADE AND OTHER RECEIVABLES
Trade debtors
Amounts owed by group undertakings
Other debtors
VAT
Prepayments
Group
Company
2022
£
665
-
2021
£
246
-
2022
2021
£
-
£
-
3,338,960
3,741,633
29,434
11,530
-
155,433
185,532
-
41,599
53,375
-
-
-
-
13,929
16,745
3,352,889
3,758,378
The Group and Company's exposure to credit risk is disclosed in note 20.
There is no material difference between the fair value of trade and other receivables and their book value.
All receivables are due within 12 months of 30 June 2022. None of those receivables has been subject to a
significant increase in credit risk since initial recognition and, consequently, no expected credit losses have
been recognised.
15)
CASH AND CASH EQUIVALENTS
Cash in hand
Bank accounts
16)
SHARE CAPITAL
Allotted, issued and fully paid
Group
Company
2022
£
40
2,519,306
2,519,346
2021
£
40
66,875
66,915
2022
2021
£
-
2,337,349
2,337,349
£
-
19,252
19,252
Number
Class
Nominal value
41,669,631
Ordinary
£0.10
(2021: 28,169,631)
30 June
2022
£
30 June
2021
£
4,166,963
2,816,963
4,166,963
2,816,963
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 2022
16)
SHARE CAPITAL (continued)
2022
Number
2022
£
2021
Number
2021
£
Ordinary shares of £0.10 each
At 1 July
28,169,631
2,816,963
27,569,631
2,756,963
Conversion of Restricted Preference Shares
Shares issued as loan repayments
Shares issued as creditor payments
-
-
-
-
-
-
-
-
-
-
-
-
Shares issued for cash
13,500,000
1,350,000
600,000
60,000
At 30 June
41,669,631
4,166,963
28,169,631
2,816,963
The Ordinary shares issued during the year were issued at £0.199821 per share (2021 - £0.19808).
17)
TRADE AND OTHER PAYABLES
Current
Trade creditors
Amounts owed to group undertakings
Other taxes and social security
Other creditors
Accruals and deferred income
Group
Company
2022
£
2021
£
49,852
151,100
2022
£
37,607
2021
£
64,795
-
63,050
8,789
293,530
415,221
-
7,256,613
7,390,522
22,748
19,180
254,196
447,224
36,281
-
158,718
7,032
15,468
181,915
7,489,219
7,659,732
The Group and Company exposure to liquidity risk related to trade and other payables is disclosed in note 20.
There is no material difference between the fair value of trade and other payables and their book value.
Amounts owed to group undertakings are repayable on demand.
The notes form part of these financial statements
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KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
18)
FINANCIAL LIABILITIES - BORROWINGS
Current
Other loans
Non-current
Bank loans
Other loans
Group
2022
£
-
-
2021
£
1,586,188
1,586,188
9,993,359
3,281,215
7,868,169
3,184,250
13,274,574
11,052,419
Company
2022
2021
£
-
-
-
-
-
£
-
-
-
-
-
Terms and debt repayment schedule (including interest)
2022
Group
Bank loans
Other loans
1 year or less
£
1-2 years
£
2-5 years
£
More than 5 years
£
Totals
£
374,705
116,483
491,188
374,705
116,483
491,188
3,742,366
349,449
4,091,815
14,125,707
18,617,483
3,436,526
4,018,941
17,562,233
22,636,424
2021
Group
1 year or less
£
Bank loans
275,386
Other loans
1,761,322
2,036,708
1-2 years
£
275,386
175,134
450,520
2-5 years
£
943,218
525,401
1,468,619
More than 5
years
£
Totals
£
14,982,305
16,476,295
3,607,490
6,069,347
18,589,795
22,545,642
Details of the principal loans are as follows:
a)
A three-year loan of £1,995,000 was entered into during the 2018 financial year. The loan was
repayable by 36 monthly instalments of £9,144 and a final instalment of £1,940,138. On 5
September 2019, the Company repaid £353,950. The monthly repayments from that date reduced
to £7,568. The monthly instalments were interest payments and did not include any capital
repayments. Interest was charged at 5.50 per cent per annum. The loan was secured by a fixed and
floating charge over all the property and assets of K&C (Osprey) Limited, including the property
known as Heathside, 562 Finchley Road. The loan was repaid in August 2021 when the Company
refinanced with Secure Trust Bank.
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 2022
18)
FINANCIAL LIABILITIES – BORROWINGS (continued)
b)
c)
d)
e)
In August 2021, K&C (Osprey) Limited entered into a new 5 year loan of £2,375,000 with Secure
Trust Bank. The monthly instalments are interest payments and do not include any capital
repayments. Interest is charged at 1.7 per cent above the base rate of Secure Trust Bank which is
subject to variable increases. The loan is secured by a fixed and floating charge over all the property
and assets of K&C (Osprey) Limited, including the property known as Heathside, 562 Finchley Road.
The balance outstanding at 30 June 2022 was £2,375,000.
On 4 December 2018, KCR (Southampton) Limited took out a new loan of £3,184,250, with Lendco
Limited. The term of the loan was 10 years. The monthly instalments were interest payments and
did not include any capital repayments. Interest was charged at 3.19 per cent for the first 24 months.
Interest for the remainder of the term was charged at 4.79 per cent above LIBOR. The loan was
refinanced in October 2021 at an amount of £3,281,215. Following the refinancing, the term of the
loan was 7 years. The monthly instalments remain interest payments and do not include any capital
repayments. Interest is charged at 3.55 per cent. The loan is secured by a first legal mortgage and a
first fixed charge over the land at Block B, Chapel Riverside, Endle Street, Southampton. The balance
outstanding at 30 June 2022 was £3,281,215.
On 10 February 2020, K&C (Coleherne) Limited took out a new loan of £2,743,359 with Hodge Bank.
The term of the loan is 25 years. The monthly instalments are interest payments and do not include
any capital repayments. Interest is charged at 3.5 per cent for the first 60 months. After this period
the interest rate charged will be a standard variable rate. The loan is secured by a freehold charge
over 25 Coleherne Road. The balance outstanding at 30 June 2022 was £2,743,359.
On 10 February 2020, KCR (Kite) Limited took out a new loan of £5,124,810 with Hodge Bank. The
term of the loan is 25 years. The monthly instalments are interest payments and do not include any
capital repayments. Interest is charged at 3.5 per cent for the first 60 months. After this period the
interest rate charged will be a standard variable rate. In August 2021, the Company made a
repayment of £249,810, following the sale of 9 Lomond Court. The balance outstanding at 30 June
2022 was £4,875,000.
Reconciliation of net movement in cash
Group
Net cash at 1
July 2021
£
Cash flow
£
Cash at bank and
in hand
66,915
2,452,433
Loans
received in
year
£
-
Repayments
in year
£
-
Borrowings
(12,638,607)
-
(5,656,215)
5,020,248
Total financial
liabilities
(12,571,692)
2,452,433
(5,656,215)
5,020,248
Other non-
cash
movement
-
-
-
Net cash
at 30 June
2022
£
2,519,348
(13,274,574)
(10,755,226)
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 2022
18) FINANCIAL LIABILITIES – BORROWINGS (continued)
Net cash at 1
July 2020
£
Cash flow
£
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)
Loans
received in
year
£
-
-
-
Other
non-cash
movement
Repayments
in year
£
-
85,070
85,070
-
-
-
Net cash
at 30 June
2021
£
66,915
(12,638,607)
(12,571,692)
Company
Net cash at
1 July 2021
£
Cash flow
£
Cash at bank and in hand
19,252
2,318,097
Borrowings
-
-
Total financial liabilities
19,252
2,318,097
Net cash at
1 July 2020
£
Cash flow
£
Cash at bank and in hand
1,476,379
(1,457,127)
Borrowings
(85,070)
-
Total financial liabilities
1,391,309
(1,457,127)
19)
FINANCIAL INSTRUMENTS
Repayments
in year
Other
non-cash
movement
£
-
-
-
£
-
-
-
Net cash
at 30 June 2022
£
2,337,349
-
2,337,349
Repayments
in year
Other
non-cash
movement
£
-
85,070
85,070
£
-
-
-
Net cash
at 30 June 2021
£
19,252
-
19,252
The Group’s financial assets, as defined under IFRS 9, and their estimated carrying amount are as follows:
Group
Company
2022
£
2021
£
2022
£
2021
£
Carrying amount of financial assets at
amortised cost
Trade and other receivables
Cash at bank and in hand
185,532
2,519,346
53,375
66,915
3,352,889
3,758,378
2,337,349
19,252
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 2022
20)
FINANCIAL RISK MANAGEMENT
The Company's directors have overall responsibility for the establishment and oversight of the Group's risk
management framework.
The Company’s and Group's risk management policies are established to identify and analyse the risks faced
by the Company and Group, to set appropriate risk limits and controls, and to monitor risks and adherence to
limits. Risk management policies and systems are reviewed regularly to reflect the changes in market
conditions and the Group's activities. The Company and Group, through its training and management
standards and procedures, aims to develop a disciplined and constructive control environment in which all
employees understand their roles and obligations.
The Company and Group has exposure to the following risks arising from financial instruments:
o
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 Group refinanced their loan portfolio in the 2020 financial year. As a result, the Group entered into new
loan agreements with Hodge Bank. The total loans with Hodge Bank at 30 June 2022 totalled £7,618,359.
The loan agreements contain the following covenants:
o
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
the aggregate of all rental income from the properties shall not, in any twelve month period, be
less than 125% of the aggregate of all scheduled interest instalments or other payments due under
the loan in that period.
K&C (Osprey) Limited refinanced their loan portfolio in the 2022 financial year. As a result, the Group
entered into a new loan agreement with Secure Trust. The total loans with Secure Trust at 30 June 2022
totalled £2,375,000. The loan agreement contains the following covenants:
o
o
interest cover in respect of any interest period shall not be less than 1.75:1; and
the loan to value will not at any time exceed 56%.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument
fails to meet its contractual obligations.
The 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 2022
20)
FINANCIAL RISK MANAGEMENT (continued)
The Group has no significant concentration of credit risk, with exposure spread over a large number of
counterparties and customers.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure
to credit risk is as reported in the statement of financial position.
The Group undertakes credit checks on prospective new tenants to assess and mitigate credit risk. The
checks include verification of income levels and capacity to pay, as well as checks of rental references. Any
arrears are actively managed. The Group mitigates credit risk with regard to cash and cash equivalents by
using banks with a credit rating of B or above.
Liquidity risk
Liquidity risk is the risk that the Company and Group will encounter difficulty in meeting the obligations
associated with its financial liabilities that are settled by delivering cash or another financial asset. The
Company’s and Group's approach to managing liquidity is to ensure, as far as possible, that it will always
have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without
incurring unacceptable losses or risking damage to the Company’s and Group's reputation.
The contractual maturities of financial liabilities are disclosed in note 18.
Liquidity risk is not deemed to be significant as the company has a significant amount of current assets,
including a balance owed by the parent company, which they can draw against as and when funds are
required.
Market risk
Market risk is the risk that changes in market prices, such as interest rate and equity prices will affect the
Group and the Company's income or the value of its holdings of financial instruments. The objective of
market risk management is to manage and control market risk exposure within acceptable parameters,
while optimising the return.
The Group is exposed to interest rate risk in respect of its borrowings. The Group mitigates this risk by,
where possible, securing facilities at a fixed interest rate.
Sensitivity
Interest rate sensitivity:
At 30 June 2022, if interest rates had been 0.5 percentage point higher and all other variables were held
constant, it is estimated that the Group's loss before tax would increase to £410,263 (2021 - £992,377). This
is attributable to the Group’s exposure on its borrowings and is based on the change taking place at the
beginning of the financial year and held constant throughout the reporting period.
21)
RELATED PARTY TRANSACTIONS
During the year, remuneration paid to Russell Naylor consisted of fees of £48,000 charged by Naylor
Partners, a business in which Russell Naylor is a Director (2021 - £48,000).
The remuneration paid to Richard Boon in 2022 consisted of fees of £Nil (2021 - £18,900) charged by Artefact
Partners, a business in which Richard Boon is a Director.
During the year, the Group paid DGS Capital Partners LLP, a limited liability partnership in which Michael
Davies is a member, fees of £Nil (2021 - £9,000 plus VAT of £1,800).
The notes form part of these financial statements
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KCR RESIDENTIAL REIT plc
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
21)
RELATED PARTY TRANSACTIONS (continued)
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
£95,000 (2021 - £113,027), which includes a provision of £20,000 (2021 - £38,027) for a catch-up payment
incentive which will be due when the business achieves cash-flow breakeven
22)
ULTIMATE CONTROLLING PARTY
Following the exercise, of 13,500,000 options by Torchlight Fund LP in October 2021, Torchlight’s interest in
the Company increased to 23,100,000 shares, representing 55.4% of the Company’s enlarged issued share
capital.
The parent company of Torchlight Fund LP, and the ultimate parent company of KCR Residential REIT plc, is
Pyne Gould Corporation Limited. The results of the Group are consolidated in the financial statements of Pyne
Gould Corporation Limited. The financial statements are available at http://www.pgc.co.nz/
The ultimate controlling party of Pyne Gould Corporation Limited is George Kerr.
23)
POST-BALANCE SHEET EVENTS
On 6 August 2022, the option agreement that the Group entered into with Torchlight in the 2020 financial
year, to grant Torchlight an option to subscribe for a further 50,000,000 new Ordinary Shares, lapsed. No
further options were exercised after the balance sheet date.
The notes form part of these financial statements
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