Annual Results for year ended 30 June 2016

RNS Number : 6306S

K&C REIT PLC

22 December 2016

 

22 December 2016

K&C REIT plc

("K&C" or the "Company")

Annual Results for year ended 30 June 2016

Annual results show an NAV per share of 9.4p at 30 June 2016.  Also announced today are a share subscription for £500,000 by Gravity Investment Group at 10p per share and the appointment of a chief executive

This announcement contains inside information

K&C REIT plc (AIM: KCR), the residential real estate investment trust group, announces that the Board: will be appointing a new director, has accepted a share subscription, has published its annual results and has made other related changes.

Highlights:

·        NAV per share of 9.4p at 30 June 2016.

·        Both corporate entities acquired in the year have integrated well and are trading satisfactorily.

·        The appointment on 1 January 2017 of Mr Dominic White as a director, and to the role of chief executive of the Group, conditional on the admission to trading on AIM of the 2,500,000 new ordinary shares of £0.01 issued at 10p per share ("Admission"), as referred to below.

·        Share subscription for £500,000 for a holding of approximately 9.66 per cent:

o   Gravity Investment Group Limited ("Gravity") has agreed to subscribe for a total of 5,000,000 ordinary shares in the Company (the "Subscription") at 10p per share, which will be issued in two separate tranches of 2,500,000 shares each. 

o   Upon Admission (which is expected to take place on 23 December 2016), the Company will receive a total of £250,000, which is currently held in escrow. 

o   Gravity will acquire the second tranche of 2,500,000 ordinary shares in the Company, also at 10p per share, on or before 6 January 2017.

o   After the Subscription, Gravity will hold approximately 9.66 per cent. of the enlarged share capital. 

1.         Appointment of chief executive

The Board has agreed that Mr Dominic White will be appointed chief executive of the Group, effective from 1 January 2017, conditional upon Admission.  He will receive a salary of £75,000 per annum with effect from 1 January 2017. 

In addition, on 21 December 2016, the Company has entered into an agreement (the "WAL Agreement") with White Amba Limited ("WAL"). Mr White is an appointed representative of Vicarage Capital Limited (which is authorised and regulated in the United Kingdom by the Financial Conduct Authority) and he operates through WAL, which is a company that he owns and controls.  The WAL Agreement provides that the Company will pay WAL a fee of £25,000 (representing five per cent of the amount to be subscribed by Gravity pursuant to the Subscription). In addition, the Company will pay WAL a further fee of five per cent (up to a maximum of a further £50,000) in respect of further subscriptions for shares in the Company, in exchange for cash, properties or other assets, where the subscribers for such shares have been introduced by WAL provided that (i) the shares are issued at the higher of (a) 10p per share and (b) the average middle-market closing price in the 15 dealing days prior to the date of issue of such shares; and (ii) such shares are issued prior to the first anniversary of the date of the WAL Agreement. The WAL Agreement also provides that the Company shall pay a fee of £25,000 (plus VAT if applicable) for advice given relating to the negotiating and structuring of the Subscription. It is expressly agreed that if it is proposed that WAL provides services/advice to the Company pursuant to the WAL Agreement, Mr White should (i) declare his interest; and (ii) not take part in any consideration or decision of the board of directors of the Company in relation to the provision of such services.

2.         Details about Dominic White

Dominic Andrew White (age 44) is a member of the Institute of Chartered Financial Analysts and is a Chartered Surveyor who has more than 24 years' experience in the investment sector, working in private equity, real estate investment fund management and real estate advisory businesses in both the private and listed markets.  During his career, he has held senior investment positions at international institutions such as Security Capital European Realty, Henderson Global Investors and Cordea Savills Investment Management.  In addition, he has held chief executive and non-executive roles at public companies, including Limitless Earth plc and, currently, as chief executive of Energiser Investments plc (AIM:ENGI) ("Energiser").

Present directorships / partnerships	Former directorships / partnerships held over past five years
Energiser Investments plc	Limitless Earth plc
eMed Pharma Group Limited	Silverhawk Investments Limited
Beet Plus Limited	White Panther Capital Limited
Ovio Wellness Limited	Clear Leisure plc
White Amba Investments LLP	Lakestar Capital LLP
White Amba Limited

The directors of K&C have considered Dominic White's role as chief executive of Energiser.  The directors do not consider that his involvement with Energiser will significantly affect Mr White's ability fully to perform his duties as chief executive of K&C, nor does the board consider the operations of Energiser and K&C to be in conflict.

No further information relating to Mr White is required to be disclosed pursuant to Schedule 2 paragraph (g) of the AIM Rules.

3.     General meeting to receive the accounts to 30 June 2016, adopt new Articles of Association and to approve the issue of Restricted Preference Shares to certain persons

It is proposed to create a new long-term executive share incentive scheme based upon restrictive preference shares ("Restricted Preference Shares").  Implementing this new share incentive scheme will require the Company to convene a general meeting, which will be held prior to 31 January 2017.  The meeting will receive the audited accounts of the Company to 30 June 2016 and to adopt new Articles of Association to create and set out the rights of the Restricted Preference Shares, which are intended to be fully paid up at their par value of £0.01.  It will be proposed that an aggregate of sixty million Restricted Preference Shares at a subscription price of £0.01 per share will be created, generating proceeds for the Company (if all issued) of £600,000, although the current holders of executive share options in K&C will not be offered the opportunity to subscribe for these shares while their options remain outstanding. 

The Restricted Preference Shares would vest as (i) the gross assets under management (AUM) of the Group (i.e. the gross value of the investment properties of the Group) exceed certain values and (ii) the Net Asset Value (NAV) per share of the Group exceeds certain values.  These vested Restricted Preference Shares will be convertible into ordinary shares of the Company on a one-for-one basis.  Further details of this proposal, which will require the approval of a special resolution of the Company's shareholders, will be announced in due course.

4.        Payments made to executive directors and others

Except for James Cane and Christopher James, the executive directors have not received any salary or fees since the Company was admitted to trading on AIM. 

Following Admission, certain executive directors and an employee of the Company will each become entitled to £25,000 (of which £15,000 will be dependent on the Company receiving further equity funding of at least £500,000) in satisfaction of all funds due to them from the Company and all remuneration up to 31 December 2016, including, in some cases, the reimbursement of various out-of-pocket expenses incurred by those individuals since 2014 that have not been reimbursed to date.  The total of these payments (including the contingent element) will be £150,000, excluding any employer's national insurance contributions and/or value added tax that are payable.

The Board announces its intention to make salary payments, at rates equal to or less than the amounts stated in their service contracts, to all existing executive directors and an employee of the Company with effect from 1 January 2017. 

Commenting on the results, Michael Davies, Chairman of K&C REIT, commented:

"In a year that has so far been dominated by political and economic uncertainty, K&C REIT has delivered good performance via its acquisitions of two special purpose vehicles, which integrated well and traded satisfactorily in the year under review, with NAV per share at year-end of 9.4p.  K&C's progress has been further supported by today's announcement of a share subscription of £500,000 at 10p per share and the appointment of Dominic White as our new chief executive, which we believe will lead to a strong and exciting pipeline of opportunities.  We are looking forward to 2017 with confidence."

Contacts:

K&C REIT Tim James, Managing director	[e-mail] [phone] www.kandc-reit.co.uk
Stockdale Securities Robert Finlay	[phone]
Yellow Jersey PR Charles Goodwin/Clare Glynn	[phone]

Notes to Editors:

K&C's objective is to build a substantial residential property portfolio that generates secure income flow for shareholders through the acquisition of SPVs (Special Purpose Vehicles) with inherent historical capital gains. The Directors intend that the group will acquire, develop and manage residential property assets in Central London and other key residential areas in the UK.

 

K&C REIT PLC

CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 30 JUNE 2016

This is K&C REIT plc's second Annual Report since its admission to AIM.

Market and strategy

The Group operates in the residential letting market, with an emphasis on Central London.  The Group seeks to acquire property assets held within UK-incorporated companies, where there is an opportunity to capitalise on the advantages afforded to REITs to provide an efficient exit route for vendors.

AIM admission

The Company's shares were admitted to trading on AIM on 3 July 2015. Shortly following admission, at which the Company issued 43,035,622 ordinary shares at 10 pence per share, including 35,663,400 shares issued pursuant to a fundraising that generated gross cash proceeds of £3,566,340, the Group acquired the entire share capital of Silcott Properties Limited ("Silcott") for a consideration of £3,630,000, of which £300,000 was satisfied by the issuance of 3,000,000 ordinary shares in K&C REIT plc, and 4,372,222 ordinary shares in K&C were issued to satisfy liabilities of the Company.  Silcott, which has since been renamed K&C (Coleherne) Limited ("Coleherne"), is a special purpose vehicle that owns a freehold property in Central London with ten apartments for rent.

Board changes

Nigel Payne and George Rolls both left the board, and I was appointed chairman at the Annual General Meeting on 30 December 2015.

Operations

The Group has made two significant acquisitions during the year: Coleherne, as mentioned above, and, on 27 May 2016, The Osprey Management Company Limited, which was subsequently renamed K&C (Osprey) Limited ("Osprey").  Both companies have traded well since acquisition, and Osprey has exceeded our expectations in the five weeks to the year-end and the subsequent five months.  The transition to our ownership was, in each case, very smooth, and I would like to thank all those involved in the management and operations of both companies.

Financial

The Group reports a consolidated loss from operating activities for the year of £99,442.  The total comprehensive expense for the year was £64,371.  The financial results in the Annual Report cover the twelve months since the Group's admission to AIM, including the results of Coleherne and Osprey from the date of acquisition, which is referred to in more detail in note 5.  The investment properties were revalued on acquisition in line with current market conditions. The costs attributable to the acquisitions of both Coleherne and Osprey were significant, and have been identified separately, because both transactions were complex. However, we believe that the long-term prospects for growth in each company make these valuable investments.

Future prospects

As my predecessor said last year, the Group needs to build a strong business with high quality assets that will be able to support an increasing income yield.  We have taken the first steps towards achieving this through our acquisition strategy.

We have also sought to raise equity and loan capital to enable this strategy.  On the debt side, we raised £1.1 million in May to complete the acquisition of Osprey, and believe that our debt is at a manageable level, given our asset base and the opportunities that the Group has for income generation.

The Board continues to find and be shown interesting acquisition opportunities and I hope that I will be able to report new developments to you before too long.

M D M Davies
Chairman

21 December 2016

GROUP STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2016

The directors present the strategic report of K&C REIT plc ('K&C' or the 'Company') and its subsidiaries (together, the 'Group') for the year ended 30 June 2016.  The Company was incorporated in England and Wales on 10 June 2014.

Principal activity

The Group carries on the business of acquiring and managing residential property in the UK for letting to third parties on long and short leases.  At the year-end, the Group consisted of the Company and three operating subsidiaries.

1.         K&C (Newbury) Limited (formerly Kensington & Chelsea REIT Limited), a company registered in England & Wales with company number 08654998. This company owns no property and is now effectively dormant.

2.         K&C (Coleherne) Limited (formerly Silcott Properties Limited), owns a freehold residential property in Chelsea, London. The company changed its name on 26 June 2016.

3.         K&C (Osprey) Limited (formerly The Osprey Management Company), owns the freehold of several retirement properties let on long leases to residents. The company also provides management services in respect of these properties and to third party landlords. The company changed its name on 8 June 2016.

GROUP STRATEGY

The directors intend to build a significant presence in the residential letting market, primarily through the acquisition of UK-registered special purpose vehicles that own residential property for letting to third parties.

RESULTS

The Group reports a loss from operating activities of £99,442 for the year to 30 June 2016.  This is after charging the acquisition costs of Osprey and Coleherne, as set out in the notes to these financial statements.

FUTURE DEVELOPMENT OF THE GROUP

The acquisitions of Coleherne and Osprey, referred to above, are examples of the type of transaction envisaged for the future development of the group.  It is anticipated that future acquisitions will be financed by a combination of debt, equity and the Group's own resources, and the Group expects to return to the capital markets again in the near future.

SIGNIFICANT EVENTS

On 3 July 2015, the Company's shares were admitted to trading on AIM when the Group became a REIT.  On admission, the Group issued 43,035,622 ordinary shares at 10p, including 35,663,400 shares issued pursuant to a fundraising, generating gross cash proceeds of £3,566,340.

Shortly after admission, the Company acquired the entire share capital of Silcott for a consideration of £3,630,000, of which £300,000 was satisfied by the issuance of 3,000,000 ordinary shares in K&C to the vendor.

On 27 May 2016, K&C acquired The Osprey Management Company Limited for £1.6 million, of which £300,000 was satisfied by the issuance of 3,000,000 ordinary shares in K&C to the vendor.

REVIEW OF BUSINESS AND FINANCIAL PERFORMANCE

The Board has reviewed whether the Annual Report, taken as a whole, presents a fair, balanced and comprehensive 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.

Information on the financial position and development of the Group is set out in the Chairman's Statement, the Directors' Report and the annexed financial statements.

FINANCIAL KEY PERFORMANCE INDICATORS

The directors use a variety of key performance indicators to monitor and improve Group performance, including:

A.    At property level

i.      Rent per ft² compared with market comparables and with other units in the asset

ii.     Vacancy rate in terms of number of units available and potential rental income

iii.    Management costs as a percentage of rental income (including repairs and maintenance, insurance, cleaning, agents' fees, legal fees, utilities and council tax)

iv.     Gross and net yield compared with target levels

v.      Marginal increase in income as a percentage of capital expenditure

vi.     Outstanding rents as a percentage of rental income

vii.    Implementation of property plans compared with target.

B.     At Group level

i.       Assets under management compared with target

ii.      Overheads as a percentage of gross/net rental income compared with target.

No analysis of performance compared to these KPIs has been provided due to the infancy of the Group and the diverse nature of the assets owned by the companies that it has acquired.

RISKS AND UNCERTAINTIES

The Board regularly reviews the risks to which the Group is exposed and ensures through its meetings and 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 management. There is no certainty that such funds will be available when needed.

·           Financial instruments

Details of risks associated with the Group's financial instruments are given in the notes to the financial statements.

·           Valuations

The valuation of the investment property portfolio is inherently subjective as it is made on the basis of assumptions made by the valuer that may not prove to be accurate. The outcome of this judgment is significant to the Group in terms of its investment decisions and results.

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 ongoing financial performance is monitored in a timely manner, that, where required, corrective action is taken and that risk is identified as early as practically possible. The directors have reviewed the effectiveness of internal control.

The Board, subject to delegated authority, reviews, among other things, capital investment, property sales and purchases, additional borrowing facilities, guarantees and insurance arrangements.

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 have knowledge of the commission of such offences.

FORWARD-LOOKING STATEMENTS

This Annual Report contains certain forward-looking statements that have been made by the directors in good faith based on the information available at the time of the approval of the annual report and financial statements.  By their nature, such forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future.  Actual results may differ from those expressed in such statements.

OUTLOOK

The Group has taken significant steps forward through its admission to AIM, achieving REIT status and making its first two acquisitions.  It now needs to build on these achievements through further purchases of high quality assets that will be able to support an increasing income yield.  The Group is currently investigating several potential acquisitions.  To make further acquisitions, the Group will 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:

James Cane
Director

22 December 2016

REPORT OF THE DIRECTORS FOR THE YEAR ENDED 30 JUNE 2016

The directors present their report with the financial statements of the Company and the Group for the year ended 30 June 2016.

A review of the business and risks and uncertainties is included in the Chairman's Statement, the Strategic Report and in the notes to the financial statements.

DIVIDENDS

The directors do not recommend payment of a dividend for the year (2015 - £nil).

Political donations

The Group made no political donations during the year (2015 - £nil).

Corporate governance statement

The Board is committed to maintaining high standards of corporate governance. The UK Corporate Governance Code, published by the Financial Reporting Council, sets out standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders, providing principles of good governance and a code of best practice for listed companies. The UK Corporate Governance Code does not apply to AIM companies. However, shareholders expect companies in which they invest to be properly governed.

The Company's corporate governance procedures take due regard of the principles of good governance set out in the UK Corporate Governance Code having regard to the size and the stage of development of the Company.  Nonetheless, the Company has not formally adopted any specific corporate governance code.

The Company has established audit, AIM compliance and remuneration committees, with formally delegated duties and responsibilities.

Audit committee

The audit committee comprises Patricia Farley and Michael Davies, who was appointed chairman.  The committee is responsible for ensuring the financial performance, position and prospects of the Group are properly monitored and reported on, and for meeting the auditor and reviewing their reports relating to accounts and internal controls.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016

		2016	2015
	Notes	£	£
CONTINUING OPERATIONS		151,417	34,380
Revenue		(60,240)	(4,839)
Cost of sales		91,177	29,541
GROSS PROFIT		(513,367)	(174,043)
Administrative expenses
Revaluation on investment properties	4	250,000	-
OPERATING LOSS BEFORE EXCEPTIONAL ITEMS		(172,190)	(144,502)
Exceptional items
Gain on bargain purchase	5	1,541,829	-
Share-based payments	9	(212,655)	-
AIM admission costs	2	(786,578)	-
Costs of acquisition of subsidiaries		(469,848)	-
OPERATING LOSS		(99,442)	(144,502)
Finance costs		(73,009)	(98,116)
Finance income		3,138	-
LOSS BEFORE TAXATION		(169,313)	(242,618)
Taxation		104,942	-
LOSS FOR THE YEAR		(64,371)	(242,618)
Loss attributable to owners of the parent		(64,371	(242,618)
Loss per share expressed in pence per share
Basic		(0.15)	(32.35)
Diluted		(0.15)	(32.35)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016

	2016	2015
	£	£
LOSS FOR THE YEAR	(64,371)	(242,618)
OTHER COMPREHENSIVE INCOME	-	-
OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF INCOME TAX	-	-
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR	(64,371)	(242,648)
Total comprehensive expense attributable to:
Owners of the parent	(64,371)	(242,648)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2016

		2016	2015
	Notes	£	£
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment		2,730	-
Investment properties	4	7,126,000	691,556
CURRENT ASSETS		7,128,730	691,556
Trade and other receivables		24,262	245,970
Cash and cash equivalents		250,650	1,732
		274,912	247,702
TOTAL ASSETS		7,403,642	939,258
EQUITY
SHAREHOLDERS' EQUITY
Share capital	6	467,856	7,500
Share premium		4,120,984	-
Capital redemption reserve		67,500	67,500
Retained earnings		(250,927)	(399,211)
TOTAL EQUITY		4,405,413	(324,211)
LIABILITIES
NON-CURRENT LIABILITIES
Financial liabilities - borrowings
Interest-bearing loans and borrowings	7	2,690,108	-
CURRENT LIABILITIES
Trade and other payables	7	277,960	389,469
Financial liabilities - borrowings
Interest-bearing loans and borrowings	7	30,161	874,000
		308,121	1,263,469
TOTAL LIABILITIES		2,998,229	1,263,469
TOTAL EQUITY AND LIABILITIES		7,403,642	939,258
Net asset value per share (pence)		9.42	(43.23)

The financial statements were approved and authorised for issue by the Board of Directors on 21 December 2016 and were signed on its behalf by:

James Cane
Director

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016

	Share capital	Share premium	Capital redemption reserve
	£	£	£
Balance at 1 July 2014	75,000	-	-
Changes in equity
Buyback of deferred shares	(67,500)	-	67,500
Total comprehensive expense	-	-	-
Balance at 30 June 2015	7,500	-	67,500
Changes in equity
Issue of share capital	460,356	4,120,984	-
Share-based payments	-	-	-
Total comprehensive expense	-	-	-
Balance at 30 June 2016	467,856	4,120,984	67,500
		Retained earnings	Total equity
		£	£
Balance at 1 July 2014		(156,593)	(81,593)
Changes in equity
Buyback of deferred shares		-	-
Total comprehensive expense		(242,618)	(242,618)
Balance at 30 June 2015		(399,211)	(324,211)
Changes in equity
Issue of share capital		-	4,581,340
Share-based payments		212,655	212,655
Total comprehensive expense		(64,371)	(64,371)
Balance at 30 June 2016		(250,927)	4,405,413

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016

		2016	2015
	Notes	£	£
Cash flows from operating activities
Cash generated from operations		(1,590,658)	(108,243)
Interest paid		(73,009)	(98,116)
Net cash used in operating activities		(1,663,667)	(206,359)
Cash flows from investing activities
Purchase of tangible fixed assets		(3,416)	-
Sale of investment properties		715,254	-
Acquisition of subsidiaries		(4,630,000)	-
Interest received		3,138	-
Net cash used in investing activities		(3,915,024)	--
Cash flows from financing activities
Loan notes issued		-	200,000
Loan repayments in year		(874,000)	-
New loans in year		2,720,269	-
Shares issued		3,981,340	-
Net cash generated from financing activities		5,827,609	200,000
Increase/(decrease) in cash and cash equivalents		248,918	(6,359
Cash and cash equivalents at beginning of year		1,732	8,091
Cash and cash equivalents at end of year		250,650	1,732

NOTES TO THE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016

1.         RECONCILIATION OF LOSS BEFORE TAXATION TO CASH GENERATED FROM OPERATIONS
		2016	2015
Group	Notes	£	£
Loss before taxation		(169,313)	(242,618)
Depreciation charges		686	-
Profit on disposal of investment properties		(23,698)	-
Gain on bargain purchase	5	(1,541,829)	-
Revaluation of investment properties	4	(250,000)	-
Share-based payment charge	9	212,655	-
Finance costs		73,009	98,116
Finance income		(3,138)	-
		(1,701,628)	(144,502)
Decrease/(increase) in trade and other receivables		221,708	(239,508)
(Decrease)/increase in trade and other payables		(110,738)	275,767
Cash generated from operations		(1,590,658)	(108,243)

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

The notes form part of these financial statements.

1.         EMPLOYEES AND DIRECTORS

	2016	2015
	£	£
Wages and salaries	264,971	-
Social security costs	2,332	-
	267,303	-

2.         EXCEPTIONAL ITEMS

On 3 July 2015, the Group was admitted to AIM. The costs involved totalled £786,578. 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.

On 3 July 2015, the Group acquired K&C (Coleherne) Limited and on 27 May 2016 the Group acquired K&C (Osprey) Limited. The costs to the Group of acquiring these entities totalled £469,848. 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.

Further information on the gain on bargain purchase and the share-based payments which are shown on the face of the Consolidated Statement of Comprehensive Income can be found in note 5 and note 9 respectively.

3.         LOSS BEFORE TAXATION

The loss before taxation is stated after charging/ (crediting):	2016	2015
	£	£
Hire of plant and machinery	1,487
Other operating leases	2,493
Depreciation - owned assets	686
Profit on disposal of investment properties	(23,698)
Auditors' remuneration for the Group - audit services	27,500	30,000
Auditors' remuneration for the Group - taxation advisory services	5,000	6,500
Auditors' remuneration for the Group - other non-audit services	80,000

4.         INVESTMENT PROPERTIES

Group	Total
COST OR VALUATION	£
At 1 July 2015	691,556
Additions	6,876,000
Disposals	(691,556)
Revaluations	250,000
At 30 June 2016	7,126,000
NET BOOK VALUE
At 30 June 2016	7,126,000
At 30 June 2015	691,556

The investment properties purchased in the year were procured upon acquisition of subsidiaries.

The properties were valued by professionally qualified independent external valuers at the date of acquisition and are recorded at the values that were attributed to the properties at acquisition date. The Group acquired properties valued at £4,000,000 on 3 July 2015 upon the acquisition of K&C (Coleherne) Limited and properties valued at £2,876,000 on 27 May 2016 upon the acquisition of K&C (Osprey) Limited.

The directors consider that the carrying value of the investment properties at 30 June 2016 is not materially different from their market value.

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 £133,114 (2015: £78,539). The total rental expenses in relation to investment properties for the Group equated to £52,673 (2015: £29,424).

5.         INVESTMENTS

Company	Shares in Group undertakings
COST	£
At 1 July 2015	75,000
Additions	5,230,000
At 30 June 2016	5,305,000
NET BOOK VALUE
At 30 June 2016	5,305,000
At 30 June 2015	75,000

Acquisition of K&C (Coleherne) Limited

On 3 July 2015, the Company acquired the entire issued share capital of K&C (Coleherne) Limited (formerly Silcott Properties Limited) for £3,630,000, satisfied by cash of £3,330,000 and the issuance of ordinary shares to the value of £300,000. In the director's opinion, the net assets of K&C (Coleherne) Limited, consisting solely of an investment property in London that was independently valued on 22 July 2015 at £4 million, are worth in excess of the amount paid and hence gave rise to negative goodwill.

Net assets acquired were as follows:

	£
Investment property	4,000,000
Trade and other receivables	366,118
Cash and cash equivalents	8,339
Trade and other payables	(10,767)
Financial liabilities - borrowings	(489,200)
Taxation payable	(9,944)
Net assets	3,864,546
Gain on bargain purchase - taken to Statement of Comprehensive Income	(364,784)
Total Consideration (includes deduction of £130,238 loan repayment)	3,499,762
Satisfied by cash	3,199,762
Net cash outflow arising on acquisition:
Cash consideration	(3,199,762)
Bank and cash balances acquired	8,339
	(3,191,423)

Acquisition of K&C (Osprey) Limited

On 27 May 2016, the Company acquired the entire issued share capital of K&C (Osprey) Limited (formerly The Osprey Management Company Limited) satisfied by cash of £1,300,000 and the issuance of ordinary shares to the value of £300,000. In the director's opinion, the net assets of K&C (Osprey) Limited, consisting of various developments in England that have been valued (independently or by the directors) at £2,876,000, are worth in excess of the amount paid and hence gave rise to negative goodwill.

Net assets acquired were as follows:

	£
Investment property	2,876,000
Non-current assets - Equipment	311
Investment in subsidiary	1
Trade and other receivables	25,615
Cash and cash equivalents	19,526
Trade and other payables	(36,678)
Provisions	(80)
Net assets	2,884,695
Fair value adjustment to deferred taxation	(107,650
Gain on bargain purchase - taken to Statement of Comprehensive Income	(1,177,045)
Total Consideration	1,600,000
Satisfied by cash	1,300,000
Net cash outflow arising on acquisition:
Cash consideration	(1,300,000)
Bank and cash balances acquired	19,526
	(1,280,474)

K&C (Osprey) Limited contributed £8,759 of revenue and a loss of £916 before taxation for the period between the date of acquisition and the balance sheet date.

Reasons for gains on bargain purchase

K&C is on occasions able to acquire assets at a favourable price because it can take advantage of the tax advantages available to a REIT and to the vendor of a special purpose vehicle that is sold to a REIT, especially when the transaction involves K&C equity being issued to the vendor.  This was the case with the acquisitions of both K&C (Coleherne) Limited and K&C (Osprey) Limited.  The vendor of K&C (Osprey) Limited not only retained an interest in K&C post-sale but also understood that the K&C team had the necessary skills and experience to create a stronger business in the future.

6.         SHARE CAPITAL

Allotted, issued and fully paid:
Number:	Class:	Nominal value:	2016 £	2015 £
46,785,623	Ordinary	£0.01	467,856	7,500

At 1 July 2015, the Company had 750,001 Ordinary shares of £0.01 in issue.

On 3 July 2015, the Company issued 43,035,622 Ordinary shares of £0.01 each.  40,813,400 of the shares were issued at a premium of £0.09 per share and 2,222,222 were issued at a premium of £0.08 per share.

On 27 May 2016, the Company issued 3,000,000 Ordinary shares of £0.01 each.  The shares were issued at a premium of £0.09 per share.

The Company has one class of ordinary share, which carry no rights to fixed income.

7.         FINANCIAL LIABILITIES - BORROWINGS

The Group has two principal loans:

1)         A 25-year bank loan of £1,625,000 (2015 - £nil) repayable by 300 monthly instalments of £7,527 and a final instalment of £418,811. All repayments include both capital repayments and interest at 3.25% above Base Rate. The loan is secured by a first debenture over all assets and undertakings of the Company, a cross guarantee from K&C (Coleherne) Limited over the freehold property known as 25 Coleherne Road and a debenture over the assets and undertakings of K&C (Coleherne) Limited. It is also secured by a pledge of shares of K&C (Coleherne) Limited.

2)         A loan of £1,100,000, commencing on 27 May 2016 which is repayable in full no later than 27 May 2018 and is secured on the assets of the Company and the assets of K&C (Osprey) Limited. Interest is charged at 12% per annum and is payable quarterly in arrears.

8.         EVENTS AFTER THE REPORTING PERIOD

On 11 July 2016, the company issued share options to George Rolls, a former director of the Company. The options issued were to purchase 460,000 ordinary shares in the company at an exercise price of 10p per share within the period ending five years from the date of grant.

On 21 December 2016, Gravity Investment Group Limited has subscribed for 5,000,000 ordinary shares in the company at 10p per share, to be allotted in two tranches:  2,500,000 ordinary shares on 23 December 2016 and 2,500,000 ordinary shares no later than 6 January 2017.  The company will receive total cash proceeds of £500,000.

9.         SHARE-BASED PAYMENT TRANSACTIONS

During the year ended 30 June 2016, the Company had five share-based payment arrangements in place, which are described below:

	Executive share options	Non-executive share options	Founder warrants	Allenby warrants	Warrants
Outstanding at 30 June 2015	-	-	750,000	-	-
Granted during the year	3,000,000	582,349	-	437,856	1,500,000
Forfeited during the year		(437,856)
Outstanding at 30 June 2016	3,000,000	144,493	750,000	437,856	1,500,000

Executive share options

Executive share options have been granted to directors and other staff members on admission to trading on AIM at £0.01 per share. The share options vest if and when the Group's gross assets under management reach £25million and the Group's net asset value per share reaches £0.105 and the participant remains employed on such date. The share options will not vest if the performance targets are not met and expire on the date immediately preceding the date of the fifth anniversary of the date of vesting. The contractual term of each share option is estimated to be five years. There are no cash settlement alternatives.

Non-executive share options

Non-executive share options have been granted to certain non-executive directors and others on admission to trading on AIM or subsequently at £0.10 per share. There are no vesting conditions. The non-executive share options do not have any performance criteria attached to them and may be exercised at any time during the period commencing one year from the date of admission to trading on AIM and ending on the date immediately preceding the date of the tenth anniversary of the date of admission to trading on AIM.

Founder warrants

On 8 September 2014, 750,000 warrants were issued to shareholders to subscribe for one ordinary share at £0.10 per share at any time before 31 December 2018.

Allenby warrants

On admission to trading on AIM, the Company granted to Allenby Capital Limited a warrant to acquire 437,856 ordinary shares at £0.10 per share, within five years of admission, namely by 3 July 2020.

Warrants

On 24 May 2016, 1,500,000 warrants were issued to a number of potential lenders to the Company to subscribe for one ordinary share at £0.10 per share at any time before 24 May 2021.

10.       RELATED PARTIES

During the year, the Group repaid a loan totalling £215,000 which was received from C D James, a director, in the previous period. The loan was subject to an interest charge for the period from receipt to redemption of 17.5% of the principal amount, payable in full at the earlier of admission to AIM or 31 July 2016. The loan was repaid by converting the loan into ordinary shares of the Company at par. Following admission to AIM on 3 July 2015, gross interest of £37,625 was paid to C D James.

During the year, the Group repaid a loan totalling £125,000 which was received from O J Vaughan, a director, in the previous period. The loan was subject to an interest charge for the period from receipt to redemption of 17.5% of the principal amount, payable in full at the earlier of admission to AIM or 31 July 2016. The loan was repaid in full during the year. Gross interest of £23,523 was paid to O J Vaughan.

11.       FINANCIAL INFORMATION

The financial information contained within this preliminary announcement for the year ended 30 June 2016 is derived from but does not comprise statutory financial statements within the meaning of section 434 of the Companies Act 2006.  Statutory accounts for the year ended 30 June 2015 have been filed with the Registrar of Companies and those for the year ended 30 June 2016 will be filed before the Company's annual general meeting.  The auditor's report on the statutory accounts for the years ended 30 June 2015 and 30 June 2016 are unqualified, do not draw attention to any matters by way of emphasis, and do not contain any statements under section 498 of the Companies Act 2006.

12.       ANNUAL REPORT AND ACCOUNTS

Copies of the annual report and accounts for the year ended 30 June 2016, together with the notice of the general meeting to be held in January 2017, will be posted to shareholders shortly and will be available to view and download from the Company's website at www.kandc-reit.co.uk.

 

END

 

 

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