Kcr Residential Regulatory News (KCR)

For immediate release

13 July 2018

KCR Residential REIT plc("KCR" or the "Company")

Proposal to issue £3,100,000 worth of Ordinary SharesandNotice of General Meeting

KCR today announces that it intends to issue approximately £3.1 million worth of shares by way of an issue of Ordinary Shares at (or credited as fully paid at) 70 pence per Ordinary Share ("Issue Price").

Summary of the Proposals

· KCR proposes to issue 4,434,570 Ordinary Shares comprising the following:

- a Fundraising (to raise £901,500, before expenses) being:

o 330,714 Ordinary Shares (being the Placing Shares) to be issued by way of a placing of Ordinary Shares at the Issue Price; and

o 957,143 Ordinary Shares (being the Subscription Shares) to be issued pursuant to subscriptions for Ordinary Shares at the Issue Price by certain of the existing Shareholders;

- issue of 1,800,427 Ordinary Shares to satisfy consideration payable on the acquisition of Inland Commercial from Inland;

- the conversion of £650,000 of CLNs into 946,286 Ordinary Shares at the Issue Price; and

- the allotment to Arden of 400,000 Ordinary Shares.

· In addition to the issue of Ordinary Shares, KCR proposes to adopt New Articles to vary the terms of existing Restricted Preference Shares.

· The Issue Price represents a discount of approximately 20.5 per cent. to the closing middle market price of 88 pence per Existing Ordinary Share on 12 July 2018, the last business day before the announcement of the Placing.

· The net proceeds from the Fundraising will be used to finance the acquisition of property assets from Inland and other third parties, and for working capital purposes.

· Completion of the Proposals are conditional upon, inter alia, Shareholder approval of the Resolutions to enable the issue of the New Ordinary Shares, which will be sought at a General Meeting of the Company expected to be held at 10.00 a.m. on 30 July 2018.

· A copy of a circular, which includes notice of the General Meeting, will be posted to Shareholders on 13 July 2018 and will be available from the Company's website: www.kcrreit.com.

Background to and reasons for the Proposals

The market opportunity

KCR's objective is to build a substantial residential property portfolio that generates capital growth and secure income flow for shareholders through the acquisition of residential property assets, in particular property SPVs with inherent historical capital gains.

The Company's management team has a track record of successfully sourcing, financing, improving, letting and managing properties to create sizeable rented property portfolios with attractive, sustainable and growing cash-flows. KCR aims to take advantage of the growing opportunity for REITs in the residential property market to build its portfolio, enhancing yield and increasing Net Asset Value through active asset, property and development management and thereby creating an increasing yield for Shareholders. The Directors believe that this strategy will allow the Company to provide Shareholders with an attractive level of dividend income in the medium term.

The Inland Homes relationship

On 31 May 2018, the Company announced that it had entered into a strategic relationship with Inland Homes. Inland is a leading housebuilder and 'brownfield' regeneration specialist with a focus on the south and south-east of England which is admitted to trading on AIM (TIDM: INL) with a market capitalisation of approximately £133 million (as at 12 July 2018, the last practicable date prior to the publication of this announcement).

KCR and Inland have identified an initial pipeline portfolio, on which KCR has right of first refusal, of up to £100 million comprising 422 units, for the Group to acquire from Inland in the short and medium term spread across the Midlands, South and South East of the UK.  Inland has agreed that it will not dispose of assets within this portfolio without first affording KCR a three-month period to evaluate the investment opportunity and to seek to agree heads of terms with regard to that property or portfolio.

The strategic relationship is mutually advantageous for both parties as KCR is given a right of first refusal over certain of Inland's assets, which enables KCR to take full advantage of Inland's large pipeline, thereby giving KCR increased visibility over, and an acceleration of the development of, its residential property portfolio.

Inland's interests will be aligned with the Company's because it is taking a strategic shareholding in KCR. The Directors hope to be able to acquire further Inland assets in the future using a combination of cash and equity.

Acquisitions from Inland

On 2 July 2018, KCR announced that it had completed two acquisitions with Inland. These comprised an agreement to lease Block B, Chapel Riverside, Ocean Village in Southampton ("Chapel Riverside B"), and the acquisition of the entire share capital of Inland Commercial, an SPV, from Inland.

Chapel Riverside B

Chapel Riverside B is a new-build apartment block consisting of 27 two-bedroom apartments and 28 dedicated car parking spaces. It forms part of Inland's major Chapel Riverside redevelopment project in Southampton, Hampshire, being undertaken in partnership with Southampton City Council. It is located on the waterfront in a prominent location on the west bank of the River Itchen, within walking distance of Ocean Village and the city centre. Chapel Riverside B is being developed by Inland's construction arm, Inland Partnerships, and is scheduled for practical completion and hand over to KCR in August 2018.

At practical completion, KCR will be granted a 999-year long-leasehold interest at a peppercorn rent for a total consideration of £5.82 million. KCR estimates the rental value of Chapel Riverside B at £276,000 per annum, generating a projected gross annual yield on consideration of 4.74 per cent.. The consideration is payable in tranches with the final payment due in October 2018.

Inland Commercial

Inland Commercial owns two recently built supermarket properties, one freehold and one long leasehold, that support major residential developments in the South East. The supermarkets are let on 15-year leases to Co-op (from August 2016) and Sainsburys (from April 2017) and are located in Leighton Buzzard and West Drayton respectively. The rents are index-linked to the RPI and the leases are on effective full repairing and insuring terms.

The total consideration of £2.56 million includes £1.32 million of debt to Metro Bank plc already within Inland Commercial. The portfolio generates an annual income of £133,750 and delivers an annual yield on consideration of 5.2%.

The Inland Commercial Share Purchase Agreement provides that consideration for the shares in Inland Commercial will be settled in Ordinary Shares and/or cash in such combination to be determined by 31 July 2018. The Inland Allotment of 1,800,427 Ordinary Shares will satisfy all of the consideration to be paid under the Inland Commercial Share Purchase Agreement.

The Inland Allotment will occur upon Admission.

Details of the Fundraising and use of proceeds

The Company is proposing a fundraising of £901,500 by way of an issue of 1,287,857 Ordinary Shares at the Issue Price of 70 pence per Ordinary Share. The Fundraising comprises:

· 330,714 Ordinary Shares (being the Placing Shares) to be issued by way of a placing of Ordinary Shares at the Issue Price; and

· 957,143 Ordinary Shares (being the Subscription Shares) to be issued pursuant to subscriptions for Ordinary Shares at the Issue Price by certain of the existing Shareholders

Dominic White and Timothy James intend to participate in the Fundraising by way of Subscription.

The Placing has not been underwritten.

The net proceeds of the Fundraising, estimated to be £739,225 will be used to finance the acquisition of property assets from Inland and other third-party vendors.

The Fundraising Shares, the Conversion Shares, the Arden Shares and the Inland Allotment Shares, will rank pari passu in all respects with the Ordinary Shares and each other.

The Fundraising is conditional, inter alia, upon

· the passing of the Resolutions at the General Meeting; and

· Admission.

If these conditions are not met, the Fundraising will not proceed and an announcement to that effect will be made via a Regulatory Information Service. If the Fundraising does not proceed, the Conversion and the Arden Allotment will also both not be completed

Conversion

Four holders of Convertible Loan Notes have conditionally agreed to convert £650,000 of Convertible Loan Notes and accrued but unpaid interest thereon into 946,286 new Ordinary Shares credited as fully paid at the Issue Price.

The Conversion will reduce the Group's indebtedness by £650,000 (plus the accrued but unpaid interest thereon).

Arden Allotment

Arden and the Company have agreed that amounts owed by KCR to Arden in respect of transaction fees and outstanding and should be satisfied in part by the allotment and issue to Arden of 400,000 Ordinary Shares credited as fully paid at the Issue Price.

Related Party Transactions

Venaglass Limited, which at the date of this Announcement holds 1,000,000 Existing Ordinary Shares (representing approximately 10.4 per cent. of the Existing Issued Share Capital of the Company), has conditionally agreed to convert £400,000 of Convertible Loan Notes into 582,857 Ordinary Shares.

This conversion is deemed to be a related party transaction for the purposes of Rule 13 of the AIM Rules (the "Venaglass Related Party Transaction").

In addition, Consumer Refund Service Limited, which at the date of this Announcement holds 1,857,142 Existing Ordinary Shares (representing approximately 18.8 per cent. of the Existing Issued Share Capital of the Company), has conditionally agreed to convert £100,000 of Convertible Loan Notes into 145,714 Ordinary Shares. Consumer Refund Service Limited has also conditionally agreed to subscribe for 357,143 Ordinary Shares as part of the Subscription

This conversion and subscription are deemed to be related party transactions for the purposes of Rule 13 of the AIM Rules (the "Consumer Refund Service Related Party Transactions").

The Directors consider, having consulted with the Company's Nominated Adviser, Arden Partners, that the terms of the Venaglass Related Party Transaction and the Consumer Refund Service Related Party Transactions are fair and reasonable in so far as the Company's shareholders are concerned

Restricted Preference Shares

The Company has, to date, issued 4.5 million Restricted Preference Shares at nominal value of £0.10 each, and retains the ability to issue a further 1.5 million such shares. The Restricted Preference Shares were created to raise risk capital for the Company and as part of its overall incentive plan. The current holders of the Restricted Preference Shares are Directors or senior management of the Company (or companies controlled by them).

The Restricted Preference Shares have the rights and are subject to such conditions as set out in the Company's circular dated 27 January 2017.

These shares have now been in issue for a period, and therefore, following an internal review, the Directors propose five amendments to the terms of the Restricted Preference Shares:

1. the expiry date be extended from 30 June 2022 to 30 June 2027;

2. any unvested, fully paid Restricted Preference Shares in issue at 30 June 2027 will automatically vest and convert on 1 July 2027 into Ordinary Shares, with the conversion price being set at the average middle-market closing price of the Ordinary Shares over the five dealing days ending on 30 June 2027 ("Market Value"). A shareholder of Restricted Preference Shares would therefore be issued and allotted on 1 July 2027 with Ordinary Shares credited as fully paid at Market Value;

3. the "NAV per Share" performance milestone will become a "NAV per Share plus distributions paid" performance milestone, because REITs are required to pay out 90 per cent of their rental profits, thus reducing NAV per share at every dividend payment;

4. in order to simplify the structure of the Restricted Preference Shares, following the achievement of any of the six milestones, the number of Restricted Preference Shares that will vest will be one-sixth of the total number of Restricted Preference Shares held (and not the current uneven vesting); and

5. the NAV per share element of each of the six milestones will be rebased to £0.77, £0.85, £0.93, £1.01, £1.09 and £1.17 respectively.

The General Meeting

In order to effect the changes noted above, and to issue the Fundraising Shares, the Company requires Shareholder consent in general meeting. Shareholders should note that if the Resolutions are not passed, the Fundraising cannot complete.

The holders of Restricted Preference Shares have, in accordance with article 5.1.2 of the Articles, unanimously consented in writing to the variation of the rights attaching to the Restricted Preference Shares, as set out in the New Articles. Such variation of rights is subject to the adoption of the New Articles.

In addition, the adoption of the New Articles is subject to the approval of Shareholders. Accordingly, the Board will be seeking the approval of Shareholders at the General Meeting to:

· to authorise the directors to allot the New Ordinary Shares pursuant to section 551 of CA 2006;

· pursuant to section 560 of CA 2006, to dis-apply pre-emption rights in respect of the issue of new Ordinary Shares in respect of the Fundraising and the Arden Allotment; and

· to adopt the New Articles.

Set out in the circular to be despatched to Shareholders on 13 July 2018 is a notice convening the General Meeting to be held on 30 July 2018 at the offices of Fladgate LLP, 16 Great Queen Street, London WC2B 5DG at 10.00 a.m., at which the Resolutions will be proposed for the purposes of implementing the Proposals.

Admission to Trading on AIM

Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to AIM. Subject to the satisfaction of the Conditions, it is expected that Admission will take place and dealings in the New Ordinary Shares will commence on AIM at 8.00 a.m. on 31 July 2018.

Expected Timetable of Principal Events

This announcement contains information which, prior to its disclosure, was inside information for the purpose of the Market Abuse Regulation.

Enquiries

DEFINITIONS

The following definitions apply throughout this Announcement unless the context otherwise requires: