25 June 2015
Mill Residential
REIT plc
("MRR", the
"Company" or the "Group")
Interim results
for the period from 20 October 2014
to 30 April 2015
Highlights
-
Completed £3.5m IPO on AIM in December
2014 to form the first UK REIT with the principal activity
of investment in mainstream residential property
-
Initial portfolio has risen in value by 1.8% to £2,515,000 in
the six months since purchase, before allowing for certain purchase
costs
-
NAV of 94.7p per share as at 30 April
2015
-
No interim dividend declared
Chairman’s statement
Business and financial review
The Board hereby presents MRR’s inaugural set of interim
financial results as a public company. The Company became the
first REIT to invest in UK residential property as its principal
focus after completing an Initial Public Offering on AIM in
December 2014.
At IPO, the intention of the Company was to grow rapidly from
its small size, grasping the market opportunity of being the first
mainstream UK residential REIT and seeking out further equity
funding to deploy in opportunistic investments. The Group’s stated
strategy of investing in “buy-to-let” properties aimed to provide
the Group with reliable and increasing rental income over time,
together with steady sustained growth in asset value.
The initial portfolio was acquired in November 2014 and comprises seven properties:
four in Surrey, two in
South East London and one in
Bristol. These have been independently valued at £2,515,000
as at 30 April 2015, a gross increase
of 1.8% over their valuation six months since purchase, before
allowing for certain purchase costs.
Since the Company’s admission to trading on AIM, the asset
management team has identified, evaluated and recommended a number
of acquisition targets which meet the Company’s investment
criteria. However, obtaining equity funding for these has so far,
not been achieved and so none have yet been pursued to a successful
conclusion. Whilst the residential investment sector is attracting
investor interest from major institutions, some of whom are
initiating their own larger competing offers via unquoted funds or
direct investment, the current scale of the Company is seen as a
hurdle we have yet to overcome.
The net asset value of the Company has declined as the effect of
set up costs and administrative fees have exceeded the net rental
income and the positive but modest contribution in this period from
value increases in the portfolio.
Recognising that the current costs of operations as a listed
vehicle exceed income, the Board has implemented an administrative
cost cutting programme which is being retrospectively applied such
that it has effect from 1st May, with the support of its key
advisers and managers. Further details are provided
below.
Having to accept that the speed of growth of the Company may not
be rapid as initially hoped and that at the current scale costs are
likely to exceed income, the Board is therefore considering all
options to mitigate losses and maintain shareholder value.
No interim dividend is declared in view of the continuing
losses. As at 30 April 2015,
the Company had cash at bank of £841,000 and no debt.
UK housing market
The UK housing market continues to perform well and the lack of
supply of good private sector rented properties is well
evidenced. With the prospect of a mansion tax and rent
control removed, further growth in capital values and some increase
in rental levels are expected. HM Treasury Forecasts for the UK
economy (April 2015) estimates House
Price Inflation for 2015 and 2016 at 4.6% based on an average of
forecasts from independent and city sources.
Financial performance
MRR commenced trading on 1 November
2014, when it purchased Investors in Homes (GP) Ltd (the
“Subsidiary”) (MRR and the Subsidiary, referred to as the
“Group”). As MRR was incorporated on 20 October 2014, this is the first set of
financial statements published by the Company, there are no
comparative figures to be provided in these results. The financial
performance of the Group is commented upon below.
Rental income
All seven properties in the portfolio were occupied during the
period generating a gross income of £51,000 in the period from
20 October 2014 to 30 April
2015. There was a nil vacancy rate as at 30 April 2015.
During the period one tenancy ended and was re-let immediately
with an increase in rental income of 3.3% and one tenant extended
their tenancy with an uplift of 3.4% rental income.
Administrative expenses
Administrative expenses incurred in the period of £254,000,
included £78,000 for advice concerning the Company’s admission to
trading on AIM, £29,000 of investment management and asset
management fees payable to Mill Finance Ltd and Mill Residential
REIT Management Ltd under the terms of the asset management and
investment management agreements (out of which they pay property
managers) and a further £29,000 for directors’ remuneration. The
balance of £118,000 related to other expenses connected with
operating as a public company quoted on AIM.
After taking account of administrative expenses, the Group
declared an operating loss for the period from 20 October 2014 to 30
April 2015 of £211,000, before allowing for a revaluation
gain of £12,000.
As growing the business will take longer than initially
anticipated, the Board has considered it prudent to review all
costs within MRR to minimise the impact of costs exceeding the net
revenue generated.
I am pleased to be able to report that the Company has been able
to negotiate a reduction in administrative expenses such that the
resultant expenses will be approximately £17,000 per month at the
current level of operation. This reflects a 27% reduction in
administrative expenses.
Costs of £510,000 relating to the issue of shares at the time of
the IPO have been recognised as a reduction to the share premium
account and so will not impact the income statement or
distributable reserves. In addition, as noted above, costs of
£78,000 were incurred in connection with admission of the Company’s
shares on AIM. Under agreements entered into by the Company, Mill
Group Limited and others connected to the manager /executive
directors contributed £518,000 in cash to offset the major part of
these costs and in return were issued warrants over 1,500,000
shares. The exercise price for these warrants will be £1.10 per
share and the exercise period will begin on the earlier of the date
on which the Company achieves £50 million gross assets or
23 December 2017 (the third
anniversary of the Company’s Admission to AIM) and will terminate
on 23 December 2020.
Revaluation movement
As noted above, the value of MRR’s portfolio was determined by
Gerald Eve at a total of £2,515,000.
Under IFRS, this revaluation movement is reflected in the
consolidated income statement.
Related party transactions
David Toplas and Simon Phillips
are both directors of Mill Group Limited (“Mill Group”) and
shareholders of the Company. On 1 November
2014, the Company acquired Investors in Housing (GP) Limited
from Mill Group for consideration of £1. The fair value of net
assets acquired totalled £19,000, after allowing for the write down
of £100,000 of the loan balance due to Mill Group.
As reported to the market on 7 April
2015, loans to the Group of £840,000 and £663,000 were
repaid to Mill Group and Mill Group agreed to reduce its
contractual entitlement to interest by 50% (£19,000). Both amounts,
totalling £38,000, have been recognised as a capital contribution
shown in the statement of changes in equity below.
The Company negotiated 50% fee reductions (the “Fee
Reductions”), effective from 1 May
2015, leading to total savings of £4,000 per month for the
following:
-
asset management fees - including both asset acquisition and
disposal services and asset management and monitoring services -
charged to the Company by Mill Residential REIT Management Limited
(a subsidiary of Mill Group), ;
-
investment services fees charged to the Company by Mill Finance
Limited (a subsidiary of Mill Group), ; and
-
directors’ remuneration.
Due to the fact that Mill Residential REIT Management Limited
and Mill Finance Limited are both subsidiaries of Mill Group
Limited which is itself a subsidiary of Mill Group Holdings
Limited, an entity ultimately controlled by David Toplas' family
trusts, and Simon Phillips and
Andrew Smith, and each are a
substantial shareholder under the AIM Rules, the Fee Reductions
constitute related party transactions as defined by the AIM Rules.
The Independent Directors, being Ian
Ellis and Brian Norton,
having consulted with Sanlam Securities UK Limited, the Company's
nominated adviser, consider that the terms of the Fee Reductions
are fair and reasonable insofar as Shareholders are concerned.
Ian Ellis
Chairman
25 June 2015
For further information please
contact:
Mill
Residential REIT Plc
Ian Ellis (Chairman) |
020 7930
8600 |
|
|
Sanlam
Securities UK (Nomad and Joint broker)
Virginia Bull |
020 7628
2200 |
|
|
finnCap Limited (Joint broker)
Tom Jenkins |
020 7220
0500 |
|
|
ALL MEDIA ENQUIRIES
TO: |
|
Positive Profile (Financial PR)
Henry Gewanter |
07774
228845 |
Condensed consolidated statement of
comprehensive income
for the period from 20 October 2014 to 30
April 2015
|
Note |
Period
from |
|
|
20 October
2014 |
|
|
to 30 April
2015 |
|
|
(unaudited) |
|
|
£'000 |
|
|
|
Gross rental income |
|
51 |
Property expenses |
|
(8) |
Net rental income |
|
43 |
Administrative expenses |
|
(254) |
Operating loss before
net valuation
gains on investment property |
|
(211) |
Net valuation gains
on
investment property |
|
12 |
Interest receivable |
|
4 |
Interest payable |
|
(37) |
Loss before taxation |
|
(232) |
Taxation |
|
- |
Loss for the period
attributable to equity holders of the Company |
|
(232) |
Other comprehensive income |
|
- |
Total comprehensive
loss
for the period net of tax |
|
(232) |
Loss per share (pence) |
3 |
(8.0) |
Condensed consolidated statement of
financial position
at 30 April
2015
|
Note |
30 April
2015 |
|
|
(unaudited) |
|
|
£'000 |
|
|
|
Assets |
|
|
Non-current assets |
|
|
Investment property |
4 |
2,515 |
|
|
2,515 |
Current assets |
|
|
Trade and other receivables |
|
78 |
Cash |
|
841 |
|
|
919 |
Total assets |
|
3,434 |
Current liabilities |
|
|
Trade and other payable |
|
118 |
Total liabilities |
|
118 |
Net assets |
|
3,316 |
Equity |
|
|
Share capital |
|
350 |
Share premium |
|
1,742 |
Retained earnings |
|
1,224 |
Total equity |
|
3,316 |
Condensed Consolidated Statement of
Cash Flow
Period from 20
October 2014 to 30 April
2015
|
Period
from |
|
20 October
2014 |
|
to 30 April
2015 |
|
(unaudited) |
|
£'000 |
|
|
Cash inflow from
operating activities |
|
Loss from
operations |
(199) |
Adjustments for: |
|
Increase in
receivables |
(28) |
Increase in
liabilities |
118 |
Revaluation of
investment properties |
(12) |
Cash used in
operations |
(121) |
Cash flows from
investing activities |
|
Interest paid |
(19) |
Interest received |
4 |
Purchase of investment
property |
(1,003) |
Net cash used in
investing activities |
(1,018) |
Cash flows from
financing activities |
|
Proceeds from issue of
new shares |
3,452 |
Costs of issue of new
shares |
(510) |
Proceeds from issue of
warrants |
518 |
Other capital
contributions |
19 |
Net cash inflow from
purchase of Investors in Housing (GP) Ltd |
4 |
Repayment of other
loans |
(1,503) |
Net cash generated
from financing activities |
1,980 |
Increase in cash
and cash equivalents |
841 |
Cash and
cash equivalents at
beginning of period |
- |
Cash
and cash equivalents at end
of period |
841 |
Condensed Consolidated Statement of
changes in equity
Period from 20
October 2014 to 30 April
2015
|
Share
capital |
Share
premium |
Retained
earnings |
Total |
|
|
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
As at 20 October 2014 |
- |
- |
- |
- |
Shares issued |
350 |
3,152 |
- |
3,502 |
Share issue costs |
- |
(510) |
- |
(510) |
Warrants issued |
- |
- |
518 |
518 |
Reduction in share premium |
- |
(900) |
900 |
- |
Capital contribution |
- |
- |
38 |
38 |
Loss for the period |
- |
- |
(232) |
(232) |
As at 30 April 2015 |
350 |
1,742 |
1,224 |
3,316 |
Notes to the Interim Results
1. Accounting policies
a) Basis of preparation
These condensed Interim Results for the period from 20 October 2014 to 30
April 2015 are unaudited and do not constitute statutory
accounts within the meaning of section 434 of the Companies Act
2006.
Mill Residential REIT plc is a company incorporated and
domiciled in the UK. It is a public limited liability company
listed on the Alternative Investment Market and the address of the
registered office is given in note 5, below. The Group financial
statements consolidate those of the Company and its subsidiary,
Investors in Housing (GP) Limited, together referred to as the
“Group”.
The interim financial information has been prepared on a
historical cost basis except for investment property which has been
measured at fair value, which is consistent with the accounting
policies detailed below and in compliance with basic principles of
IFRS.
b) Rental income
Rental income is recognised on a straight-line basis over the
lease term on an accruals basis.
c) Investment property
Property that is held for both long-term rental yield and for
capital appreciation is classified as investment property.
Investment property is measured initially at cost, including
related transaction costs. After initial recognition, investment
property is carried at fair value. Fair value is based on active
market prices of similar properties. The majority of investment
property falls within Level 3 of the fair value hierarchy as
defined by IFRS 13. Subsequent expenditure is included in the
carrying amount of the property when it is probable that the future
economic benefits associated with the item will flow to the Group
and the cost of the item can be measured reliably. All other
repairs and maintenance costs are charged to the income statement
during the financial period in which they are incurred. Gains or
losses arising from changes in the fair value of the Group’s
investment properties are included in the income statement of the
period in which they arise.
d) Dividends
Dividend distributions to the Company’s shareholders are
recognised as a liability in the Group financial statements in the
period in which the dividends are either approved by the Company’s
shareholders or are appropriately authorised and no longer at the
discretion of the Group. Interim dividends are recognised on
payment.
2. Segmental information
The Group operates in a single activity in one geographical
location, being the investment in residential property for the UK
private rented sector.
3. Loss per share
This has been calculated on the loss for the period of £232,000
and the number of shares used was 2,890,166, being the weighted
average number of share in issue during the period.
4. Investment property
|
£’000 |
|
|
Opening balance |
- |
Additions |
2,470 |
Acquisition costs |
33 |
Net valuation gain |
12 |
Closing balance |
2,515 |
5. Copies of Interim Results
The Interim Results will be posted on the Company's web site
www.millresidentialreit.co.uk and copies are available from the
Company's registered office at 8th Floor, Alhambra
House, 27-31 Charing Cross Road, London WC2H 0AU.