30 March 2022

KCR Residential REIT plc

("KCR" or the "Company")

Interim Results

KCR Residential REIT plc, the residential REIT group, is pleased to announce its unaudited consolidated interim results for the six months to 31 December 2021.

Operational highlights

·    Revenue for the six months to 31 December 2022 increased by 27% to £604,583 (2020: £475,407) and gross profit improved by 26% to £585,702 (2020: £465,030)

·    Portfolio level occupancy - 100% of all available flats let, and rental values achieved have marginally increased with capital values holding firm. 

·    Net total assets increased to £27.3m (2020: £24.2m) following the partial exercise of the Torchlight option which resulted in net asset value per share reducing to 33.03p (2020: 40.86p). The cash position as at 31 December 2021 was £2.8m (2020: 0.4m)

·    Secured bank borrowings increased to £13.2 million (2020: £12.6 million) following the completion of refinancing transactions across the portfolio.

Contacts:

Notes to Editors:

KCR's objective is to build a substantial residential property portfolio that generates secure income flow for shareholders. The Directors intend that the group will acquire, develop and manage residential property assets in a number of jurisdictions including the UK.

A copy of the Interim Results will be available at www.kcrreit.com.

CHAIRMAN'S STATEMENT

FOR THE SIX MONTHS ENDED 31 DECEMBER 2021

KCR Residential REIT plc ("KCR" or the "Company") and its subsidiaries (together the "Group") currently operate in the private rented residential investment market in London and the South East. The Company acquires whole blocks of studio, one- and two-bed apartments that are rented to private tenants and also operates and owns freeholds of a portfolio of retirement living accommodation, and other properties sold on long leases.

During the period, as activity levels rose in London and the South East and Covid risk within a vaccinated UK population reduced, a general influx to the city and a return to the office fuelled higher prices in general for property sales and increased rental demand. Positively for KCR, rents improved as our refurbished apartments let into this environment and occupancy on properties available across the portfolio is currently 100% with nominal rental arrears. However, the operating environment continued to be challenging with further friction in the economy following from supply chain disruption, and with cost pressures rising for the Company and consumer alike.

KCR has taken a significant number of positive steps forward in its operations during the period with further considerable progress made towards achieving breakeven from the existing portfolio. Each of the detailed operating activities is set out in the Director's report below, but I should highlight here the letting up of the eight available apartments of the ten at the refurbished Coleherne Road property.

A capital position has been put in place to move forward with the next stages of upgrading the existing portfolio, with some potential support for future development. Equity capital of £2.7m was received in November 2021 as a result of the partial exercise of the Torchlight option approved by shareholders in 2019, while refinancing of the final two existing properties on a fixed rate basis, with extended terms at reduced rates, improved the debt funding position.

Sadly, it is impossible not to mention war in Ukraine. Supply shortfalls of oil and gas, and consumer dietary staples, have delivered a sudden major shock to European and the UK economies. This situation looks set to continue for a sustained period with significant increases in the prices of these and other commodities. As we come to terms with this change the full impact on the UK economy is unclear. However, the risk of potential future stagflation clearly rises as consumers battle with these added costs and planned tax increases on top of already significantly heightened inflation levels.

KCR will therefore likely be operating within a much more volatile and potentially restrained economic environment going forward, and while portfolio opportunities may arise for the Company from this market dislocation, from an operating perspective presently the environment is unlikely to be improved. KCR continues to work within a specific segment of rented residential that is in high demand, is confident that the UK residential rented property market is fundamentally under-supplied, and therefore that it is building a sustainable long term future for the Company.

DIRECTOR'S REPORT

FOR THE SIX MONTHS ENDED 31 DECEMBER 2021

We are pleased to report on the progress of the Group in the six-month period to 31 December 2021.

Property portfolio

KCR has continued to progress the implementation of its two operating strategies. As outlined in the 2021 Annual Report, KCR is in the process of creating two operating lines, clearly identifiable by brand, property quality and letting strategy.

1.   Cristal Apartments.  Residential apartments, developed to a high modern specification, furnished and let on a Walk-In-Walk-Out (WIWO) basis (the intention is for utilities, internet, furniture, council tax to be included in the rental payment) for a frictionless and flexible letting experience.  Rental contracts may be from a week to multi-year.

2.   Osprey Retirement Living.  4* retirement living property rented on the same basis as above, with optionality on furniture.  Rental contracts to be assured shorthold tenancies (six months plus).

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. Planning works are underway to explore options (including extensions) for the Ladbroke Grove properties to reposition these properties and optimise the existing footprint.

·    The property at Coleherne Road, Earls Court, London, which comprises ten studio and one-bedroom flats, has undergone a refurbishment to significantly improve the interior and exterior quality of the property.  Works to eight of the ten flats have been completed in full with letting up commencing during the half year and full occupancy (of the eight completed flats) being achieved during the December quarter. Revenue from this property will continue to drive enhanced gross revenue for the Group. Reduced direct operating costs (particularly maintenance) will substantially increase the contribution that the property makes to net income. Legal action is continuing to obtain vacant possession to enable completion of works to the last two flats. 

·    The Southampton block of 27 residential units at Deanery Court, Chapel Riverside is 100% occupied.  A number of units are rented to short-let operators.  As KCR receives these units back from the tenants, mostly within the next 12 months, it intends to move to renting them on a WIWO basis which is expected to result in an increased revenue from the property. Implementation of this strategy is expected to commence during the June 2022 quarter.

·    The Ladbroke Grove portfolio of 16 units is 100% occupied.  Increased supply from short let flats in this catchment area had an impact on void periods for this property. Some refurbishment works have been completed to upgrade the standard of previously vacant flats in order to secure tenants. As outlined above, planning work is underway to explore options for more substantive upgrades / extensions to this portfolio.

2.    Osprey retirement living (4* retirement apartments)

·    The Osprey retirement living portfolio and other properties consists of 159 flats and 13 houses let on long leases in six locations, together with an estate consisting of 30 freehold cottages in Marlborough where Osprey delivers estate management and sales services.

·    The key asset in the portfolio representing 70% of the Osprey portfolio value is the freehold block at Heathside, Golders Green, where 28 of the 37 residential units are held on long leases. The strategy continues to be to selectively acquire long-leasehold units in the block, subject to pricing, refurbish the units to a high level and let them in the open market subject to assured shorthold tenancies. An additional lease surrender was completed during the half year and this apartment is currently subject to refurbishment works to lift the standard of the apartment. Works are expected to be complete in the next few weeks with rental income contribution commencing during the June 2022 quarter. This strategy has been successful; 100% of the eight acquired units are let, with those that have had refurbishment works completed achieving materially higher rental levels than the un-refurbished apartments. As outlined in the 2021 Annual Report, Osprey has also successfully taken back management of the Heathside property with handover from the existing manager due to occur early April 2022. This will enable Osprey to have greater control over the positioning of the building as a whole and also deliver increased incremental management revenue to the Group. In advance of hand over planning is well advanced for a works programme to upgrade / enhance the common parts and exterior of the property.

The Company continues to investigate the potential to enhance value through redevelopment and roof extensions at four of the seven sites.  Outline proposals and discussions with planning authorities have been positively received.  Legal, structural and economic viability work continues at each project.

Rental and occupancy performance

KCR increased gross revenue by 27% for the six months to £604,583 (2020: £475,407) and gross profit improved 26% to £585,702 (2020: £465,030). Improvement in gross revenue was predominantly driven by the letting up of Coleherne Road during the half year and leasehold extension income.

Portfolio level occupancy is high (currently 100% of all available flats are let), rental values achieved have marginally increased and capital values hold firm. 

Financial

Revenue and gross margins improved in the six months to 31 December 2021.  Administration costs continued to be controlled with the marginal increase compared to prior period a result of legal costs associated with taking back management of the Heathside property and planning costs as work progresses across the portfolio.

·    Revenue increased to £604,583 (2020: £475,407) an increase of 27%

·    Gross profit improved by 26% to £585,702 (2020: £465,030)

·    Operating profit before separately disclosed items improved to £136,280 (2020: £121,780 loss) primarily due to the revaluation uplift following the acquisition of an additional apartment at Heathside

·    Operating profit increased to £101,598 (2020: £620,745 loss) which included £34,682 (2020: £498,965) of property refurbishment costs

·    Loss for the period was £254,265 (2020: £859,476) and loss per share reduced to 0.77p (2020: 3.12p)

KCR's property portfolio value was slightly higher than the comparative half year at £24.4 million (2020: £23.7 million) reflecting the acquisition of an additional apartment at Heathside and capitalised works relating to the refurbishment program (partially offset by the completion of the sale of the Lomond Court property).  The Group's current assets increased to £2,875,087 (2020: £464,836) with improvement in current assets driven predominantly by the proceeds received from partial exercise of the Torchlight option.  Trade and other payables increased to £368,629 (2020: £257,495).  Current liabilities reduced significantly to £368,629 (2020: £1,843,683) following the successful refinance of one of KCR's debt facilities which was reflected as a current liability in the prior period. Following the completion of refinancing transactions across the portfolio, secured bank borrowings increased to £13.2 million (2020: £12.6 million). Refinancing activity reduced overall debt costs and provided a small level of additional funding which is being used to support Group activities.

Total assets increased to £27.3m (2020: £24.2m) following the partial exercise of the Torchlight option which resulted in net asset value per share reducing to 33.03p (2020: 40.86p).

KCR's near term focus remains on achieving a break-even overall position by improving rental income from existing assets through a) the WIWO letting strategy, and b) refurbishment to improve building quality, and enhancing gross rental returns while optimising property management to reduce costs.  Active focus on managing corporate overheads is ongoing. 

Throughout the year, the company remained a REIT and has endeavoured to comply with REIT rules throughout the period and since the balance sheet date.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31 DECEMBER 2021 (unaudited)