31 March 2021

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 2020. 

Operational Highlights

·         Revenue for the six months increased to £475,407 (H1 2019: £427,057) and gross profit improved by 44% to £465,030 (H1 2019: £323,994).

·         Portfolio level occupancy remains high (>95%), rental values have further improved and capital  values remain firm.

·         Ongoing internalisation of property management activity has reduced third party management costs resulting in improved gross margins.

·         Secured bank borrowings at period end of £11.1 million (31 December 2019: £9.5 million), although average debt cost fell following property refinancing in February 2020.

·      Net total assets were marginally higher £24.2m (31 December 2019: £23.6m) and net asset value per share was lower at 40.86p (31 December 2019: 47.84p).

·      Working to achieve positive monthly cashflow in the next 12 months.

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 2020

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.

It is a pleasure to become Chairman during this period in succession to Michael Davies and we would all like to thank him for his contributions to the Group.

Since we reported last September for the year to 30 June 2020, the UK entered into a second COVID-19 driven lock-down of increasing severity, and, in December 2020 a Brexit transaction was agreed such that on 31 December 2020 the UK left the single market and customs union.

The impact of COVID-19 on economic demand and supply, consumer and business confidence continued to be negative in the second half of 2020. However, since the roll-out of international vaccine programmes which have been particularly successful in the UK, there is increasing optimism.  The UK Government has now targeted June 2021 for the full opening of the economy. 

The macro-economic backdrop to the Group's performance in this period has therefore not been particularly easy and it is possible that, in the short term, further friction in the economy following the Brexit agreement and the ongoing travel restrictions will have a negative impact on the economy and the demand for short-let accommodation.  Additional residential stock has come to the market for longer term lease that was previously being used for short-let occupancy.  This additional supply has so far had a minimal impact on KCR's occupancy profile and rentals.  Rents have overall remained stable and occupancy high.

The Group's operating performance continued to improve with considerable progress towards achieving breakeven from the existing portfolio. The strategies adopted and continuously executed by the smaller executive team since the Torchlight transaction of August 2019 are bearing fruit.  They can be summarised as:

·    improving rental revenue from the existing portfolio;

·    upgrading the overall portfolio quality, and expanding ownership and development opportunity within the retirement portfolio;

·    internalising management fees to reduce the cost of sales; and,

·    a strong focus on reducing administrative costs.

Each of these activities has delivered pleasing results which are detailed in the Chief Executive's report below.

The UK residential rented property market remains fundamentally under-supplied and KCR continues to target a specific segment of rented residential that is in high demand, underpinning our confidence in the long-term future of the Group.

CHIEF EXECUTIVE'S REPORT

FOR THE SIX MONTHS ENDED 31 DECEMBER 2020

We are pleased to report on the progress of the Group in the six-month period to 31 December 2020.

Property portfolio

KCR has continued to progress the implementation of its two operating strategies.

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

·    The property at Coleherne Road, Earls Court, London, which comprises ten studio and one-bedroom flats, is undergoing a refurbishment to significantly improve the interior and exterior quality of the property.  The majority of site works are expected to be completed during April 2021.  Following full completion of all works, a substantial increase in rental income from the property is expected to be generated.  This, combined with a reduction in direct operating costs (particularly maintenance) due to the improved quality and efficiency of the building, will greatly increase the contribution that the property makes to net income.  The property is expected to be fully rental income producing by the end of September 2021.

·    The Southampton block of 27 residential units at Deanery Court, Chapel Riverside is 96% occupied with viewings underway to let the single vacant unit.  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 explore renting them on a WIWO basis which is expected to result in an increased revenue from the property.

·    The Ladbroke Grove portfolio of 16 units is 81% occupied.  The three vacant units have viewings underway.  In line with many of central London's landlords, the Company is experiencing longer vacancies between lettings at its London properties.

·    The flat in Harrow that was acquired with the Ladbroke Grove portfolio has been sold subject to contract.  The current expectation is that the sale will be completed within the next two months.

2. 4* retirement living property and other properties let on long leases.  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 68% of the Osprey portfolio value is the freehold block at Heathside, Golders Green, where 29 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. 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.

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 rental revenue by 11% for the six months to £475,407 (2019: £427,057) and gross profit improved 44% to £465,030 (2019: £323,994).  This was a particularly good result given that the property in Coleherne Road is being refurbished.  

Portfolio level occupancy is high (>95%), rental values achieved have marginally increased and capital values hold firm.  There is an ongoing internalisation of property management activity which has reduced third party management costs resulting in improved gross margins.

Financial

Revenue and gross margins improved in the six months to 31 December 2020.  Administration costs were significantly lower.

·    Revenue increased to £475,407 (2019: £427,057) an increase of 11%

·    Gross profit improved by 44% to £465,030 (2019: £323,994)

·    Operating loss before separately disclosed items improved to £121,780 (2019: £382,180)

·    Operating loss reduced to £620,745 (2019: £2,282,696) which included £498,965 of property refurbishment costs

·    Loss for the period was £859,476 (2019: £2,510,682) and loss per share reduced to 3.12p (2019: 9.94p)

KCR's property portfolio value was marginally higher than the comparative half year at £23.7 million (2019: £23.4 million).  The Group's current assets increased to £464,836 (2019: £152,073).  Trade and other payables are by contrast much reduced at £257,495 (2019: £754,944).  Current liabilities are higher at £1,843,683 (2019: £930,062) due to one of KCR's debt facilities moving from non-current to a current liability.  The Company is actively pursuing the refinancing of this facility and expects to achieve this prior to the end of the current financial year.  Following a refinancing of part of the portfolio in January 2020 by Hodge Bank, secured bank borrowings were higher £11.1 million (2019: £9.5 million) although average debt cost fell.

Total assets were marginally higher £24.2m (2019: £23.6m) and net asset value per share was lower at 40.86p (2019: 47.84p).

Corporate activity

In July 2020 the Company announced that together with its advisors, it had determined that it was no longer necessary for it to maintain its Alternative Investment Fund Manager (AIFM) status.  Accordingly, KCR deregistered as an AIFM. This has had no impact on either the Company's REIT status or its operations.

KCR's near term focus remains on achieving a profitable 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.  The strategy to reduce corporate overheads has almost completed.  Further discussions to reduce the cost of debt finance and refinance short term borrowings are underway.  The gap between costs and revenue has been greatly reduced and we are working to achieve positive monthly cashflow in the next 12 months.

The Board looks forward to updating shareholders on these activities in due course.

Covid-19

The Directors have also considered the impact of Covid-19 on the financial statements. To date this has not resulted in a material disruption to Group operations. The scale and duration of these developments remains uncertain at the date of this report and the Directors continue to monitor the situation.

For and on behalf of the board

Dominic White

                                             CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                                          FOR THE SIX MONTHS ENDED 31 DECEMBER 2020 (unaudited)