Kcr Residential Regulatory News (KCR)

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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

For immediate release

12 July 2019

KCR Residential REIT plc

Proposed approval of waivers of the obligations under Rule 9 of the Takeover Code

Proposed subscription for 9,000,000 new Ordinary Shares each at 45 pence per share

Proposed approval of Strategic Agreement and Option Agreement

Proposed approval of the Redesignation and Gift Agreement and adoption of new articles of association

and

Notice of General Meeting

Summary

KCR Residential REIT plc, the residential REIT group, announces a number of important developments to raise working capital, to provide a pipeline of potential new acquisitions for the Company and to extend the Company's reach into new international markets. In summary:

· Torchlight has conditionally agreed in the Torchlight Subscription Agreement to subscribe for 9,000,000 Ordinary Shares at 45 pence per share;

· the Company has agreed in the Option Agreement to grant Torchlight an option to subscribe for a further 50,000,000 new Ordinary Shares during the Option Period;

· the Company has entered into the Strategic Agreement with Torchlight's investee, RCL, a residential land developer in Australia and New Zealand;

· in order to simplify the Company's share structure, the Company has entered into the Redesignation and Gift Agreement with the Restricted Preference Shareholders whereby it has been conditionally agreed that out of every 13 Restricted Preference Shares held by each Restricted Preference Shareholder, five will be redesignated as Ordinary Shares and the remaining eight and any fractional entitlements (which shall be consolidated) will be acquired by the Company for no consideration - this would result in the issue of, in aggregate, 1,730,765 Redesignation Shares representing approximately 6.3 per cent. of the Enlarged Share Capital;

· it is proposed that certain Convertible Loan Notes held by White Amba, Katie James and Kimono Investment Holdings Ltd, and £110,000 of the Vaughan Loan, will be converted to Ordinary Shares at the Issue Price - this would result in the issue of, in aggregate, 466,667 Conversion Shares;

· it is proposed that the Workers (being the Directors other than Michael Davies and James Cane, together with Christopher James, Benjamin James and Timothy Oakley) convert certain of the amounts due to them in respect of accrued but unpaid salary and agreed but unpaid bonuses to Ordinary Shares at the Issue Price - this would result in the issue of, in aggregate, 270,842 Conversion Shares;

· it is proposed that a total of 287,358 Ordinary Shares be issued at the Issue Price to the Ladbroke Grove Lenders (of which 111,111 Ordinary Shares will be issued to Timothy Oakley in respect of the capitalisation of £50,000 of his share of the Ladbroke Grove Loan and 176,247 Ordinary Shares will be issued to the other Ladbroke Grove Lenders in respect of accrued but unpaid interest and a fee for extending the deadline for repayment of the Ladbroke Grove Loan to 22 August 2019) and to pay Timothy Oakley £13,962 in respect of accrued but unpaid interest due to him.

· it is proposed that James Thornton, who will become a non-executive director on Admission, will subscribe for 22,222 Ordinary Shares at the Issue Price; and

· it is proposed that the New Articles be adopted so as to remove any references to the rights and restrictions attaching to the Restricted Preference Shares and to make certain other amendments as required as part of, and to implement, the Proposals.

The Proposals are expected to provide the Company with access to capital, international property development expertise and refinancing options which will accelerate the Company's objective of providing capital growth and dividend streams to investors. It will also enable the Company to extend its reach beyond the United Kingdom into new residential markets, including Australia, New Zealand and Germany.

The Company would ultimately like to achieve a diversified portfolio in the United Kingdom, Australia and New Zealand and Germany with the aim of an approximate apportionment of one third of such portfolio in each jurisdiction (with Australia and New Zealand treated as one jurisdiction). During the period that the portfolio is being established there may be significant temporary variances between such jurisdictions depending on where the investment opportunities arise.

Background to the Proposals

Property values are generally perceived across developed markets to be at record highs, with yields at record lows and rents at or close to record highs. The London office, retail and owner-occupied markets, which peaked in 2016, are good examples of this, with prime central London residential yields of 3.35 per cent. as at December 2018. Conversely, the outlook for the PRS market, which at 4,700,000 homes (worth £1.5Tn) and representing 20 per cent. of UK households with a track record of capital appreciation, is significantly more attractive for a number of reasons.

The UK PRS market is fragmented, growing and undersupplied. Private buy-to-let landlords are exiting the market due to stamp duty and other tax reforms. However, RBC Capital Markets project that the UK PRS sector will grow to 7,200,000 homes by 2025 (8.5 per cent. per annum) which implies that 400,000 new PRS homes need to be built every year. In contrast to that, in terms of development pipeline for 2019, there are only 132,000 PRS homes in construction. Furthermore UK Government policy, as set out in the February 2017 Housing White Paper, is committed to encourage new institutional investment into the PRS sector.

The Company therefore intends to consolidate its presence in the UK through expanding its existing partnership arrangement with Inland Homes, one of its current investors. This partnership will involve not only the selective acquisition of existing PRS stock held by Inland Homes but also the acquisition of land and entering into development contracts to build BTR homes for the rental market in London, the South East and the Midlands.

The Company also intends to expand internationally in the PRS and BTR sectors and into markets where land supply and planning policy are less of a significant constraint than they are in the UK. As noted above, alongside Torchlight's investment in the Company, the Company has entered into a strategic partnership agreement with RCL, Torchlight's Australian real estate developer investee company. RCL is a successful Australasian residential land developer and home builder with proven expertise in efficient re-zoning, construction and development of residential real estate. By entering into this strategic partnership, the Company will have access to a pipeline of new properties in Australia and New Zealand either through the acquisition of completed residential units or the acquisition of medium-density land with a stapled building contract for development of predominantly residential real estate at a discount to market value on completion.

The Company will also look for opportunities to acquire existing residential stock at a discount to replacement value in Germany. German residential real estate is a heavily undersupplied market, and in the second tier cities which the Company intends to target, average residential rental yields are entirely self-funding and typically at least 300 basis points higher than prevailing mortgage rates.

In order to provide the expertise required for the Company's next stage of international development, the Company has agreed to appoint Richard Boon, Russell Naylor and James Thornton to the Board, all of whom have strong commercial and financial backgrounds and have public company executive and non-executive experience. Further details of the experience of each of these proposed new directors are included below.

In the near term the Company will review the existing portfolio against the strategy described above and from a value perspective and this review may result in divestments of a number of the properties in such portfolio. In addition, a number of existing employees may leave the Group as the Company conducts its review of the existing portfolio and its required skill base for implementing its stated strategy.

Investment Highlights

The Directors believe this strategy represents an exciting opportunity for real estate investors in the continuing low growth, lower inflation and low rates for longer developed market environment. The Directors believe that PRS and BTR via a geographically diversified portfolio is a compelling long-term investment.

Benefits of the proposals

The Directors believe the Proposals will offer the following key benefits to Shareholders:

· further the Company's growth strategy and enable the Company to generate long term profits and pay dividends to Shareholders;

· create operational efficiencies, with fixed operating expenses spread over a larger capital base, so reducing ongoing expenses per Ordinary Share;

· expand and diversify the Company's exposures, taking advantage of different stages of the real estate cycle in different geographic markets;

· improve the market profile of the Company and access to international real estate opportunities;

· increase the size of the Company, improving share liquidity and accessing cheaper pools of refinancing; and

· enhance the marketability of the Ordinary Shares, resulting in a broader investor base over the longer term.

Details of the Torchlight Subscription Agreement

The Company and the Torchlight Investors entered into the Torchlight Subscription Agreement on 11 July 2019.

The Torchlight Subscription Agreement provides that the Torchlight Investors will subscribe for, in aggregate, 9,000,000 Ordinary Shares at 45 pence per share.

Conditions to the Subscription Agreement

The Torchlight Subscription is conditional upon:

· the passing of the Resolutions at the General Meeting;

· the Torchlight Subscription Shares and the Conversion Shares having been allotted, conditional only on Admission; and

· Admission taking place not later than 8.00 am on 6 August 2019 or such later date as is agreed between the Company and Torchlight, but in any event no later than 8.00 a.m. on 22 August 2019.

If such conditions are not satisfied within the timeframe set out in the relevant condition, or are not otherwise waived, the Torchlight Subscription will not proceed.

Termination of the Subscription Agreement

Torchlight Fund has the right to terminate at its sole discretion the Torchlight Subscription Agreement by notice in writing to the Company if any of the following occurs at any time prior to Admission:

· a warranty given by the Company in the Torchlight Subscription Agreement has been materially breached or would be untrue, inaccurate or misleading if such warranty were repeated at such time by reference to the facts or circumstances then existing and to the extent of having a "Material Adverse Effect" (as such term is defined in the Torchlight Subscription Agreement);

· the Company has materially breached any other term of the Torchlight Subscription Agreement;

· an event occurs which is reasonably likely to have a Material Adverse Effect; or

· subject to the terms of the Torchlight Subscription Agreement, if the Company does not comply with its completion obligations set out in the Torchlight Subscription Agreement.

In the Torchlight Subscription Agreement, the Company has:

· undertaken not to take certain actions (other than with the prior written consent of Torchlight acting in good faith) between the date of the Torchlight Subscription Agreement and Admission; and

· given certain customary warranties to the Torchlight Investors as to certain matters relating to the Group and its business.

Details about the Option Agreement

The Company and Torchlight (acting by its general partner, Torchlight GP) entered into the Option Agreement on 12 July 2019.

The Option Agreement provides that, conditional on Admission, the Company grants to Torchlight the right to subscribe for and be allotted the Option Shares at a price per Option Share of:

· for any notice of exercise served on the Company on any date up to and including 31 December 2019, the Issue Price; and

· for any notice of exercise served on the Company from 1 January 2020 until the end of the Option Period, the higher of (i) the price per Option Share which is equivalent to 95 per cent. of the 30-Day VWAP for the Ordinary Shares and (ii) the par value of each Ordinary Share.

The Option is only exercisable by Torchlight during the Option Period and if the Option is not exercised prior to the expiry of the Option Period, it will lapse. Any exercise of the Option by Torchlight shall be for not less than 2,000,000 Option Shares.

The Option Agreement contains anti-dilution provisions in favour of Torchlight.

The Company has certain obligations under the Option Agreement, including to:

· not modify the rights attached to any of the shares in the capital of the Company prior to the end of

· the Option Period if such modification of rights would have an adverse effect on the rights of Torchlight;

· notify Torchlight of any proposed takeover offer during the Option Period; and

· notify Torchlight in writing of any order which is made, or resolution passed, during the Option Period for the winding up or dissolution of the Company.

Details about the Strategic Agreement

The Company and RCL entered into the Strategic Agreement on 12 July 2019.

Overview

The purpose of the Strategic Agreement is to provide for the Company to be in a position to own a portfolio of residential properties in Australia and New Zealand. RCL will liaise regularly with the Company in relation to its progress with the matters referred to in the Strategic Agreement and will provide a report to the Company on progress on a quarterly basis. The intention of the Company and RCL is that RCL will diligently progress the preparatory design and planning work necessary for the development of relevant properties so as to be available for purchase by the Company for rental stock and so as to enable RCL to provide a comprehensive information pack as soon as practicable to the Company in respect of each relevant property. RCL will seek to identify and offer for acquisition medium-density properties, being intended for residential use as low rise residential properties and/or townhouses, semi-detached and detached housing, and RCL will identify offer such properties to the Company as soon as reasonably practicable.

Under the Relationship Agreement the Independent Directors will have to confirm that any property offered to the Company by RCL or RCL's associates pursuant to the Strategic Agreement has been independently valued and that the price at which the property is offered to the Company is at the agreed discount. However, once the Independent Directors have provided such confirmation, the Torchlight Directors will be free to vote on resolutions relating to the Strategic Agreement, including but not limited to the exercise by the Company of an option thereunder, as described below. Any such exercise will be subject to the updated related party transaction provisions of the AIM Rules for Companies.

Option and determination of market value

All relevant properties which are intended for residential use as low-rise residential apartments and/or town houses, semi detached and detached housing produced (or to be produced) by RCL in the Australian states of New South Wales or Victoria or in New Zealand will be offered on a first right of refusal basis to the Company in the form intended to be marketed by RCL, as either developed or undeveloped property.

RCL has granted the Company the option during the Agreement Period to require RCL to sell (or instruct one of RCL's associates to sell) each or any of the properties which are offered to the Company. In the case of developed property the purchase price of a property will be equal to 92.5 per cent of the anticipated market value (as determined by an independent valuer) of that property as at the date of Practical Completion. In the case of undeveloped property the purchase price of a property will be not more than 92.5 per cent of the anticipated market value (as determined by an independent valuer) of that property as at the date of Practical Completion.

Subject to the provision of adequate information by RCL to the Company about any property, the Company shall have up to 30 days to decide whether or not to acquire that property at the purchase price which has been established as set out above. If the option to acquire any such property is not exercised RCL will be free to market and sell that property to third parties.

Maximum Aggregate Option Price

The Company shall not be entitled to exercise its right to acquire properties once the aggregate value of all the properties acquired, or to be acquired, pursuant to the Strategic Agreement has exceeded £150 million.

Termination of the Strategic Agreement

Both the Company and RCL may terminate the Strategic Agreement if the other party becomes insolvent or if the other party commits a material breach of the Strategic Agreement (and if the breach is capable of being remedied but is not remedied within the time specified in the Strategic Agreement).

Warranties and undertakings

The Strategic Agreement contains certain warranties from RCL in relation to properties to be purchased after or in the course of development and contains certain undertakings from RCL to the Company in respect of the right to inspect such developed property and the enforcement of rights against building contractors and other suppliers of goods or services in relation to a developed property.

The Strategic Agreement contains certain warranties from RCL in relation to properties to be purchased prior to development. It also contains certain undertakings from RCL to the Company in respect of the development agreement for such undeveloped property and the enforcement of rights against building contractors and other suppliers of goods or services in relation to an undeveloped property.

Relationship Agreement

The Company, Arden and Torchlight entered into the Relationship Agreement on 12 July 2019, which is conditional upon completion of the Proposals, pursuant to which Torchlight, in its capacity as a substantial Shareholder, has given various undertakings to the Company and Arden regarding the relationship between Torchlight, its associates and the Company. The benefit of the Relationship Agreement may be assigned to the nominated adviser for the time being of the Company.

In particular, Torchlight has agreed to exercise its voting rights so as to procure that, insofar as it is able to do so by the exercise of its voting rights, the Company is capable of carrying on its business independently of the Torchlight Investors and their associates. The agreement will terminate if Torchlight and its associates cease to be interested collectively in more than 15 per cent. of the Company's voting share capital from time to time.

Torchlight shall have the right at any time before the agreement terminates to appoint and remove up to three Directors and the third such appointee has to be an Independent Director. The first Torchlight Directors will, conditional on Admission, be Russell Naylor, Richard Boon and James Thornton (who is an Independent Director).

The agreement provides, amongst other things, that:

· Torchlight and its associates have the ability to exercise the voting rights attached to their Ordinary Shares at their discretion in relation to the appointment, replacement or removal of any directors of the Board pursuant to CA 2006 or any other applicable law or the New Articles and that the Torchlight Directors shall not be restricted in any way from taking any action or exercising any of their respective powers in the New Articles or under applicable law to appoint, replace or remove any other director of the Board.

· A Board meeting will not be quorate unless: where two or more Torchlight Directors have been appointed, at least two Torchlight Directors are present at the meeting and at least one of the Independent Directors (who may be the Nominated Independent Director); or where one Torchlight Director has been appointed, that Torchlight Director is present at the meeting.

· The Torchlight Directors are entitled to vote on an acquisition of a property to be made pursuant to the Strategic Agreement provided that the Independent Directors have confirmed to the nominated adviser for the time being of the Company that: (1) an independent valuer appointed in accordance with the terms of the Strategic Agreement has valued that property; and (2) the purchase price for such property is at the discount to the independent valuation required by the Strategic Agreement.

· The Company will within five Business Days of receipt of a written request from Torchlight deliver to Torchlight quarterly financial and operating performance indicators. Torchlight has acknowledged to the Company that if any such documents are provided to it by the Company information in those documents may constitute inside information for the purposes of MAR, and has undertaken to the Company that it will keep confidential such information provided to it and comply with the provisions of MAR in respect of such information.

· Torchlight is entitled to appoint a person to act as an observer to the Board (and any committee of the Board). Any such observer shall enter into a confidentiality agreement with the Company in a form reasonably satisfactory to the Company.

If the New Articles are adopted a copy of the Relationship Agreement will be filed at Companies House together with a copy of the New Articles.

Details of the redesignation and Gift Agreement

The Board has agreed with Torchlight that steps should be taken to ensure that the Restricted Preference Shares will no longer exist following the completion of the Proposals.

The Company and Restricted Preference Shareholders therefore entered into the Redesignation and Gift Agreement on 12 July 2019. The Redesignation and Gift Agreement conditionally provides that out of every 13 Restricted Preference Shares held by each Restricted Preference Shareholder, five will be redesignated as Ordinary Shares and the remaining eight will be acquired by the Company for nil consideration. Where the Restricted Preference Shares to Ordinary Shares calculation results in any holder of Restricted Preference

Where the Restricted Preference Shares to Ordinary Shares calculation results in any holder of Restricted

Preference Shares being entitled to a fraction of an Ordinary Share, such fractional entitlement shall be disregarded. There are currently 4,500,000 Restricted Preference Shares in issue, so this would result in the issue of, in aggregate, 1,730,765 Redesignation Shares and the gift of 2,769,235 Restricted Preference Shares to the Company. It is the intention of the Company that following the acquisition of the Gifted Shares by the Company, the Gifted Shares will be cancelled by the Company.

The Redesignation and Gift Agreement is conditional, amongst other things, upon the Torchlight Subscription Agreement becoming unconditional, other than Admission, and not having been terminated in accordance with its terms by no later than 6 August 2019 (or such time and date as the Company and the Restricted Preference Shareholders may agree, being not later than 22 August 2019). Accordingly, if such conditions are not satisfied, or, as applicable, waived, the Restricted Preference Shares will remain in issue.

Christopher James (the Group's director of operations) wishes to dispose of some of the Redesignation Shares that will be registered in his name on completion of the Redesignation and Gift Agreement. Oliver Vaughan has agreed with Christopher James that, conditional on the Proposals being implemented, Oliver Vaughan will acquire from Christopher James 111,111 of the Redesignation Shares to be registered in the name of Christopher James in consideration of the payment of £50,000 (being a price per share equivalent to the Issue Price).

Approvals for the Redesignation and Gift Agreement

Dominic White, James Cane, Timothy James and Oliver Vaughan are all Directors and Restricted Preference Shareholders and so, conditional upon completion of the Torchlight Subscription pursuant to the Torchlight Subscription Agreement, will each be issued Redesignation Shares pursuant to the Redesignation and Gift Agreement. The number of Restricted Preference Shares held by each of Dominic White, James Cane, Timothy James and Oliver Vaughan and the number of Redesignation Shares to be issued to each of them is as shown in the table below:

Christopher James, Benjamin James and Timothy Oakley will also enter into the Redesignation and Gift Agreement as Restricted Preference Shareholders. The number of Restricted Preference Shares held by each of Christopher James, Benjamin James and Timothy Oakley and the number of Redesignation Shares to be issued to each of them is as shown in the table below:

The redesignation of certain of the Restricted Preference Shares pursuant to the Redesignation and Gift Agreement constitutes a variation of the rights attaching to the Restricted Preference Shares and so the Redesignation and Gift Agreement contains a provision in which each of the Restricted Preference Shareholders consents to such variation of the rights attaching to the Restricted Preference Shares.

Issue of Ordinary Shares in respect of Salaries and Bonuses

In order to assist with the Company's cash flow, all of the current employees of the Company (including the Directors other than Michael Davies and James Cane) have agreed with the Company that for the period commencing on1 January 2019 and ending on 30 June 2019 the Company will not pay them the full amount due to them but will, instead, accrue the payments due to each of them. The Company has agreed with certain of the employees of the Company (including the executive directors) and Oliver Vaughan that, conditional upon completion of the Torchlight Subscription pursuant to the Torchlight Subscription Agreement, they will each accept that all or some of the amounts due to them will be settled by the issue to them of Ordinary Shares at the Issue Price.

The details of the proposed issue of Remuneration Conversion Shares is as follows:

(i) The Company has agreed to pay Benjamin James a bonus of £80,000 for introducing Torchlight to the Company.

Proposed changes to the Board

Pursuant to the provisions of the Relationship Agreement, on completion of the Proposals, Russell Naylor will join the Board at the request of Torchlight as an executive director and Richard Boon and James Thornton will both join as non-executive directors. Further details of each proposed director's experience are as follows:

Russell Naylor - Proposed director with responsibility for finance

Russell Naylor has an extensive background in banking and finance and is the principal of Naylor Partners, a boutique Sydney-based Corporate Advisory business. Russell is an executive director and Investment Committee Member of Torchlight, RCL and TISE-listed Pyne Gould Corporation Limited which owns the majority of Torchlight. Russell has had previous executive roles at ASX-listed Lantern Hotel Group and National Australia Bank.

Richard Boon - Proposed non-executive director

Richard Boon is a non-executive director of AIM-quoted Dods Group plc, the founder of FCA-authorised investment manager Artefact Partners LLP and a CFA with over 30 years of research, portfolio management and private equity experience. Richard led the purchase by Torchlight of a stake in regional newspaper group Local World in 2012 and, as a non-executive director helped orchestrate the very successful sale to Trinity Mirror in 2015. Prior to founding Artefact in 2015, Richard's other roles included: Head of U.S. equities at Merrill Lynch Investment Management (2001 to 2004); and global equity portfolio manager at Morgan Stanley Asset Management (1995 to 2001). From 1992-1994 he was Head of Regulatory Policy at The Post Office when its privatisation was first considered. Richard began his career in New Zealand working in corporate finance on a range of privatisations after qualifying in both law and accountancy.

James Thornton - Proposed non-executive director

Pursuant to the provisions of the Relationship Agreement, on completion of the Proposals, James Thornton will be appointed jointly by the Company and Torchlight as a new independent non-executive director. James is a chartered accountant (FCA ICAEW) and has an extensive background in financial services with executive roles in transaction advice, finance director, governance and strategy roles. After completing his MBA at Harvard in 1990, James has held roles including: vice president of the European insurance group at Morgan Stanley from 1990 to 1995; head of finance at BAT Industries Plc from 1995 to 1999; global finance director and UK finance director and head of corporate governance at Old Mutual Plc from 1999 to 2003; head of foreign exchange division of IFX Plc from 2004 to 2006; finance and independent director at Global Health Partner Plc from 2006 to 2009; and director at corporate finance advisor Hannam & Partners (previously Strand Partners) from 2009 to 2015.

James has served since 2012 as an independent director of AIM-quoted H&T Group Plc, which is a secured lender and retailer regulated by the FCA. He is presently senior independent director and chairs the audit committee.

James has agreed that, conditional on Admission occurring on or before 16 August 2019, he will subscribe for 22,222 Ordinary Shares at the Issue Price.

Resignations

On completion of the Proposals, James Cane, Oliver Vaughan and Timothy James will resign as directors of the Company and its subsidiaries, and I would like to take this opportunity to thank them for their service to the Group over many years. Timothy James will remain an employee of the Company.

Current trading

The Company's most recent financial results are the unaudited interim results for the six months ended 31 December 2018. These were announced on 29 March 2019 and were posted to shareholders in April 2019.

Since the interim financial results of the Company were issued, KCR has been focused on its ongoing operating activities and the transaction with Torchlight.

Operations across the Group's portfolio remain strong. The properties at Ladbroke Grove, Harrow and Chelsea continue to be close to 100 per cent. occupancy and KCR has achieved rental increases that have at least tracked inflation or higher. As the Company announced on 8 April 2019, Deanery Court (Southampton) the new-build apartment block consisting of 27 two-bedroom apartments located on the waterfront of the River Itchen, is now fully let.

Finance

The final instalment of approximately £1,600,000 plus interest and costs owed to Inland Homes in relation to the premium paid for the lease of Block B, Phase 1, Chapel Riverside, Elm Terrace, Southampton will be paid following completion of the Proposals out of the proceeds of the Torchlight Subscription.

KCR announced the Vaughan Loan on 1 April 2019, which was specifically related to the proposed transaction with Torchlight. £110,000 of the Vaughan Loan will be converted into equity at the Issue Price on completion of the Proposals.

The Ladbroke Grove Loan will also be partially converted to equity at the Issue Price on completion of the proposals. The balance of the Ladbroke Grove Loan will be repaid out of the proceeds of the Torchlight Subscription,

Prospects

The proposed partnership with Torchlight is a significant step for KCR and its ability to create shareholder value in the future. It would deliver both immediate access to equity capital, and new relationships with significant global investors. The proposed transaction with Torchlight will assist with a refinancing of the portfolio debt on more favourable terms. The investor and transaction-level relationships and the global team that Torchlight brings to the partnership will, the Directors believe, enable the Company to grow in the longer term.

As KCR grows its residential assets in the UK, Germany and Australasia and over time in other markets, one of its key costs is the price at which it acquires units.

KCR historically employed a "Buy to Rent" model of acquiring existing units at prevailing market prices. Looking forward, in order to reduce acquisition cost, and control quality, KCR intends to, in the UK and Australasia, move to a "Build to Rent" approach where it directly and indirectly develops residential units to rent out.

In Germany KCR intends to "Buy to Rent" because, in the view of management, residential units may be acquired in target German markets at prices well below the cost of development. For the same amount of capital KCR can buy more units, and collect more rent, than if it built comparable residential units. Over time this situation will be resolved by the gap between prices on existing units and development units converging to a level that makes it rational once again to develop.

Direct development is where KCR directly acquires and develops raw land into completed residential units. This lowers the cost of acquisition per unit and therefore allows KCR to achieve a higher yield on assets it develops. KCR intends to build its investment in build to rent assets through strategic partnerships with substantial homebuilders initially in the UK and Australasia and over the long term in Germany. The initial strategic partners in each of the UK (Inland Homes) and Australasia (RCL) are both established homebuilders with ownership of large land banks with a substantial portion suitable for development into residential rental assets.

KCR may also increase and strengthen its role in development by taking direct equity positions in residential home builders. This could be in existing strategic partners or via establishing new relationships.

This is expected to provide value, by access to the development margin, and security, by part ownership of key producers of product.

Related Party Transactions and Section 190 CA 2006

Redesignation and Gift Agreement

The entry by the Company into the Redesignation and Gift Agreement with: Dominic White, James Cane, Timothy James and Oliver Vaughan (because they are directors of the Company); Timothy Oakley and Christopher James (because they are directors of certain of the subsidiaries of the Company); and White Amba (because it is a pension scheme for the benefit of Dominic White); and the issue of Redesignation Shares as shown in the table above is a related party transaction for the purposes of Rule 13 of the AIM Rules. Michael Davies, as the only Director not holding Restricted Preference Shares, having consulted with Arden, considers that the entry by the Company into the Redesignation and Gift Agreement and the issue to each of the above Directors, to Timothy Oakley and Christopher James, and to White Amba of the number of Redesignation Shares written against his or its respective name above is fair and reasonable insofar as the Shareholders are concerned.

Remuneration Conversion Shares

The issue of Remuneration Conversion Shares to Dominic White, Timothy James, Oliver Vaughan, Timothy Oakley and Christopher James, as set out above is a related party transaction for the purposes of Rule 13 of the AIM Rules. Michael Davies and James Cane, as the only Directors not to be issued Remuneration Conversion Shares, having consulted with Arden, consider that the issue to Dominic White, Timothy James, Oliver Vaughan, Timothy Oakley and Christopher James of the number Remuneration Conversion Shares written against his respective name above is fair and reasonable insofar as the Shareholders are concerned.

Loan Note Conversion by White Amba

The entry by the Company into the agreement with White Amba and the issue of 55,556 Conversion Shares to White Amba pursuant to that agreement is a related party transaction for the purposes of Rule 13 of the AIM Rules. The Directors (other than Dominic White) consider, having consulted with Arden, that the entry by the Company into such agreement and the issue of 55,556 Conversion Shares to White Amba is fair and reasonable insofar as the Shareholders are concerned.

Vaughan Loan Extension and Conversion

Oliver Vaughan has entered into an agreement with the Company dated 12 July 2019 in which he agreed to extend the repayment date for the Vaughan Loan to 22 August 2019.

The entry by the Company into the agreement with Oliver Vaughan and the issue of 244,444 Ordinary Shares to Oliver Vaughan pursuant to that agreement is a related party transaction for the purposes of Rule 13 of the AIM Rules. The Directors (other than Oliver Vaughan) consider, having consulted with Arden, that the entry by the Company into such agreements and the issue of 244,444 Ordinary Shares to Oliver Vaughan is fair and reasonable insofar as the Shareholders are concerned.

Ladbroke Grove Extension Deeds

The entry by the Company into the Ladbroke Grove Extension Deeds with, amongst others, Timothy Oakley and DGS, and the proposed payment of £13,962 to Timothy Oakley in respect of accrued but unpaid interest due to him pursuant to the Ladbroke Grove Extension Deeds (in his capacity as one of the Ladbroke Grove Lenders) and the issue to him of 111,111 Ordinary Shares at the Issue Price in respect of the capitalisation of £50,000 of his share of the Ladbroke Grove Loan is a related party transaction for the purposes of Rule 13 of the AIM Rules. The Directors (other than Michael Davies), having consulted with Arden, consider that such arrangements with Timothy Oakley and Michael Davies are fair and reasonable insofar as the Shareholders are concerned.

Section 190 of CA 2006

Section 190 of CA 2006 requires that arrangements between a company and its directors or persons connected with such directors, which involve the acquisition by the company of substantial non-cash assets from such persons (or the disposal of substantial non-cash assets to such persons), must be approved by a resolution of the members of the company or be conditional on such approval being obtained. A "non-cash asset" means any property or interest in property, other than cash. Under section 191(2) CA 2006, a "non-cash asset" is a substantial asset in relation to a company if its value: (a) exceeds 10 per cent. of the company's asset value and is more than £5,000; or (b) exceeds £100,000.

As a result of the value of the Redesignation Shares to be issued to Dominic White, Timothy James and Oliver Vaughan, the entry by the Company into the Redesignation and Gift Agreement constitutes a "substantial property transaction" involving a director of the Company under section 190 of CA 2006 and therefore requires approval by a resolution of members of the Company. Completion of the Redesignation and Gift Agreement is therefore conditional on obtaining this approval by the passing of the Redesignation Resolution. The Redesignation Resolution, which seeks this approval, is set out in the Notice of General Meeting as Resolution 8.

The Takeover Code

Upon completion of the Torchlight Subscription and the issue of the Torchlight Subscription Shares, the Redesignation Shares, the Conversion Shares, the Ladbroke Grove Shares and the Thornton Shares, Torchlight will hold, in aggregate, 9,000,000 new Ordinary Shares representing approximately 32.6 per cent. of the Enlarged Share Capital, being an amount that, in the absence of a waiver of the obligations under Rule 9 of the Takeover Code, would require Torchlight to make a Rule 9 Offer. In addition, the exercise by Torchlight of any of its rights under the Option Agreement, or the market purchase of Ordinary Shares by the Company pursuant to the authority granted by the Buyback Resolution may further increase the percentage holding attaching to the Company's share capital to a maximum of 80.3 per cent. after the maximum issue under the Option Agreement and maximum use of the Buyback authority, and such an increase would, in the absence of a waiver of the obligations under Rule 9 of the Takeover Code, require Torchlight to make a Rule 9 Offer.

The Torchlight Subscription, the Option and the Buyback Resolution therefore give rise to certain considerations under the Takeover Code. Brief details of the Panel, the Takeover Code and the protections they afford are set out below.

The Takeover Code is issued and administered by the Panel. The Takeover Code applies to all takeover and merger transactions, however effected, where the offeree company is, among other things, a listed or unlisted public company resident in the United Kingdom, the Channel Islands or the Isle of Man (and to certain categories of private limited companies). The Company is a public company with its registered office in the United Kingdom whose Ordinary Shares are admitted to trading on AIM, and its Shareholders are therefore entitled to the protections afforded by the Takeover Code.

Under Rule 9 of the Takeover Code, where any person acquires, whether by a series of transactions over a period of time or not, an interest in shares which (taken together with shares already held by that person and any interest in shares held or acquired by persons acting in concert with him) carry 30 per cent. or more of the voting rights of a company which is subject to the Takeover Code, that person is normally required by the Panel to make a general offer to all the holders of any class of equity share capital or other class of transferable securities carrying voting rights in that company to acquire the balance of their interests in the company.

Similarly, Rule 9 of the Takeover Code also provides, among other things, that where any person who, together with persons acting in concert with him, is interested in shares which in aggregate carry not less than 30 per cent. but holds shares which in aggregate carry not more than 50 per cent. of the voting rights of a company which is subject to the Takeover Code, and such person, or any person acting in concert with him, acquires an additional interest in shares which increases the percentage of shares carrying voting rights in which he is interested, then such person is normally required by the Panel to make a general offer to all the holders of any class of equity share capital or other class of transferable securities carrying voting rights of that company to acquire the balance of their interests in the company.

An offer under Rule 9 of the Takeover Code must be in cash (or with a cash alternative) and at the highest price paid for any interest in shares in the company by the person required to make the offer or any person acting in concert with him during the 12 month period prior to the announcement of the offer.

Shareholders should be aware that Rule 9 of the Takeover Code further provides, inter alia, that where any person who, together with persons acting in concert with him, holds interests in shares carrying more than 50 per cent. of the voting rights of a company, acquires an additional interest in shares which carry voting rights, then they will not normally be required to make a general offer to the other shareholders to acquire their shares.

Under the Takeover Code, a concert party arises where persons acting together pursuant to an agreement or understanding (whether formal or informal) co-operate to obtain or consolidate control of, or frustrate the successful outcome of an offer for, a company subject to the Takeover Code. Control means an interest or interests in shares carrying, in aggregate, 30 per cent. or more of the voting rights of the company, irrespective of whether the holding or holdings give de facto control. Torchlight and the Torchlight Nominees will be considered to be acting in concert for the purposes of the Takeover Code by virtue of Torchlight Nominees being wholly owned subsidiaries of Torchlight (as such term is defined in the Takeover Code).

Dispensation from the requirement to make a general offer under the Takeover Code

Immediately following completion of the Proposals and the issue of the Torchlight Subscription Shares, the Conversion Shares and the Redesignation Shares, the Torchlight Investors will have acquired interests in 9,000,000 Ordinary Shares carrying 32.6 per cent. of the then enlarged voting rights of the Company which, without a waiver of the obligations under Rule 9 of the Takeover Code, would oblige the Torchlight Investors (and any other party deemed to be acting in concert with the Torchlight Investors) to make a Rule 9 Offer.

If Torchlight exercises the Option in full (and no other Ordinary Shares are issued prior to such exercise) the Torchlight Investors will have increased their aggregate interests to 59,000,000 Ordinary Shares carrying 76.1 per cent. of the further enlarged voting rights of the Company which, without a waiver of the obligations under Rule 9 of the Takeover Code, would oblige the Torchlight Investors (and any party deemed to be acting in concert with the Torchlight Investors) to make a Rule 9 Offer.

Maximum percentage holdings assuming full buy back:

The Company has applied to the Panel for a waiver of the obligations under Rule 9 of the Takeover Code in order to permit:

· the Torchlight Subscription to proceed without triggering an obligation on the part of the Torchlight Investors to make a Rule 9 Offer;

· the full exercise of the Option without triggering an obligation on the part of the Torchlight Investors to make a Rule 9 Offer; and

· the market purchases of Ordinary Shares by the Company pursuant to the terms of the Buyback Resolution without triggering an obligation on the part of the Torchlight Investors to make a Rule 9 Offer.

Under Note 1 of the Notes on the Dispensations from Rule 9 of the Takeover Code, the Panel will normally waive the requirement for a Rule 9 Offer if, among other things, the shareholders of the company who are independent of the person who would otherwise be required to make an offer, and any person acting in concert with him, pass an ordinary resolution approving such a waiver on a poll at a general meeting.

Accordingly, the Panel has agreed:

· subject to Shareholders approving the Subscription Whitewash Resolution (Resolution 1) on a poll at the General Meeting, to grant a waiver of the obligation of the Torchlight Investors to make a general offer under Rule 9 of the Takeover Code that would arise as a result of the issue of the Torchlight Subscription Shares to the Torchlight Investors pursuant to the Proposals;

· subject to the Shareholders approving the Option Whitewash Resolution (Resolution 2) on a poll at the General Meeting, and conditional upon the passing of the Subscription Whitewash Resolution on a poll at the General Meeting, to grant a waiver of the obligation of the Torchlight Investors to make a general offer under Rule 9 of the Takeover Code that would arise as a result of the exercise of the Option either partially or in full by Torchlight in accordance with the terms of the Option Agreement; and

· subject to the Shareholders approving the Buyback Whitewash Resolution (Resolution 3) on a poll at the General Meeting, and conditional upon the passing of each of the Subscription Whitewash Resolution and the Option Whitewash Resolution on a poll at the General Meeting, to grant a waiver of the obligation of the Torchlight Investors to make a general offer under Rule 9 of the Takeover Code that would arise as a result of market purchases of Ordinary Shares by the Company pursuant to the authority granted by the Buyback Resolution.

To be passed, each of the Whitewash Resolutions will require a simple majority of the votes cast on a poll by the Shareholders entitled to vote. Shareholders should note that if the Whitewash Resolutions are passed by Shareholders at the General Meeting and the Proposals completed, the Torchlight Investors will not be restricted from making an offer for the Company.

Shareholders should further note that, following completion of the Proposals and issue of the Torchlight Subscription Shares, if Torchlight exercises the Option in full in accordance with the terms of the Option Agreement and is therefore issued the Option Shares, the Torchlight Investors will between them be interested in approximately 76.1 per cent. of the then enlarged voting rights of the Company and that:

· by virtue of holding more than 50 per cent. of the Company's voting rights, the Torchlight Investors will be entitled to increase their holding or aggregate interest in the voting rights of the Company without incurring any obligation under Rule 9 of the Takeover Code to make a general offer to all Shareholders to acquire their Ordinary Shares; and

· this exercise will increase the percentage of the Ordinary Shares that are not in public hands. This may in turn have the effect of reducing the liquidity of trading in the Ordinary Shares on AIM. The Torchlight Investors' stake in the voting rights of the Company will also mean that the Torchlight Investors will be able, if they so wish, to exert significant influence over resolutions proposed at future general meetings of the Company.

Under Rule 37 of the Takeover Code any increase in the percentage of shares carrying voting rights held by a shareholder or persons acting in concert with the shareholder resulting from the purchase by the company of its own shares will be treated as an acquisition for the purpose of Rule 9. For the purposes of the Takeover Code, the Torchlight Investors are presumed to be acting in concert. As the Torchlight Investors will, following the completion of the Torchlight Subscription, be interested in an aggregate of 9,000,000 Ordinary Shares, representing approximately 32.6 per cent. of the Enlarged Share Capital, any exercise by the Company of the authority in the Buyback Resolution to make market purchases for Ordinary Shares could result in the Torchlight Investors being obliged under Rule 9 of the Takeover Code to make an offer for the remaining Ordinary Shares then in issue and not already owned by them. If 4,126,000 of the issued Ordinary Shares (being the maximum number of Ordinary Shares which could be purchased on any exercise by the Company of the authority granted by the Buyback Resolution) were to be purchased by the Company, the Torchlight Investors' aggregate holding, and maximum interest, would (assuming that no Option Shares had been issued) comprise approximately 38.4 per cent. of the remaining issued Ordinary Shares. If 4,126,000 of the issued Ordinary Shares were to be purchased by the Company, the Torchlight Investors aggregate holding and maximum interest would (assuming that all the Option Shares had been issued) comprise approximately 80.3 per cent. of the remaining issued Ordinary Shares.

The Panel has agreed, subject to the approval by Shareholders voting on a poll on Resolution 3 to be proposed at the General Meeting, to waive this obligation in the event that the Torchlight Investors' aggregate holding of 9,000,000 Ordinary Shares increases (if no Option Shares have been issued) to a maximum of approximately 38.4 per cent. and increases (if all the Option Shares have been issued) to a maximum of approximately 80.3 per cent., provided that any increase in such holding arises only as a result of the Company making market purchases for up to 4,126,000 of the issued Ordinary Shares pursuant to any exercise of the authority granted by the Buyback Resolution and assuming that the Torchlight Investors do not participate in the buyback.

New Articles

The New Articles include certain amendments to the Existing Articles, including the deletion of all references to the Restricted Preference Shares and the rights attaching to the Restricted Preference Shares along with a number of required changes to conform the New Articles with the requirements of the wider Proposals. Details of these changes are as follows:

· to align the New Articles with the provisions of the Relationship Agreement, including to provide that while the Relationship Agreement is in force no more than five Directors will be appointed unless the prior written consent of Torchlight to the appointment of the additional Director(s) has been obtained; and that the Board shall not be quorate where two or more Torchlight Directors have been appointed unless at least two of those Torchlight Directors are present (including at least one Independent Director who may also be a Torchlight Director) and, where one Torchlight Director is appointed, unless that Torchlight Director is present;

· in relation to acquisitions of properties from RCL that fit within the Strategic Agreement, to authorise and approve any conflict of interest of a Torchlight Director in respect of any contract, arrangement, transaction or other proposal in connection with or pursuant to the Strategic Agreement (including but not limited to the exercise by the Company of an option thereunder); and

· to provide for the Board to appoint additional Directors of the Company.

Irrevocable undertakings

The Company and Torchlight have received irrevocable undertakings to vote in favour of all the Resolutions, including the Whitewash Resolutions, from all of the Directors who hold Existing Ordinary Shares, in respect of, in aggregate, 1,375,188 Existing Ordinary Shares representing approximately 8.7 per cent. of the Existing Ordinary Shares, and from the Relevant Family Members and the Irrevocable Shareholders who hold in aggregate, 8,749,726 Existing Ordinary Shares representing approximately 55.4 per cent. of the Existing Ordinary Shares. The Company has therefore received irrevocable undertakings to vote in favour of all the Resolutions, including the Whitewash Resolutions, from Shareholders (including Directors) who hold in aggregate,10,124,914 Existing Ordinary Shares representing approximately 64.1 per cent. of the Existing Ordinary Shares.

Notice of General Meeting

The Company's General Meeting will be held at the offices of Fladgate LLP at 16 Great Queen Street, London WC2B 5DG at 10.00 a.m. on 29 July 2019. A Notice of General Meeting will be sent out with the Circular sent to shareholders today.

For further information please contact:

The following definitions are used throughout this announcement, unless the context provides otherwise:

Important notices

This announcement is not for release, publication or distribution outside the United Kingdom except to the extent that it would be lawful to do so. The release, publication or distribution of this announcement (in whole or in part) in or into or from jurisdictions other than the United Kingdom may be restricted by the laws of those jurisdictions and therefore persons into whose possession this announcement comes should inform themselves about, and observe, any such restrictions. Failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction.

This announcement does not constitute an offer to sell or an invitation to subscribe for, or solicitation of an offer to subscribe for or buy new Ordinary Shares to any person in any jurisdiction to whom it is unlawful to make such offer or solicitation. In particular, this announcement must not be taken, transmitted, distributed or sent, directly or indirectly, in, or into, the United States of America, Canada, Australia, Japan or the Republic of South Africa or transmitted, distributed or sent to, or by, any national, resident or citizen of such countries. Accordingly, the new Ordinary Shares may not, subject to certain exceptions, be offered or sold, directly or indirectly, in, or into, or from the United States of America, Canada, Australia, Japan or the Republic of South Africa or in any other country, territory or possession where to do so may contravene local securities laws or regulations. The new Ordinary Shares have not been, and will not be, registered under the United States Securities Act of 1933 (as amended) or under the securities legislation of any state of the United States of America, any province or territory of Canada, Australia, Japan or the Republic of South Africa and they may not be offered or sold, directly or indirectly, within the United States of America or Canada, Australia, Japan or the Republic of South Africa or to or for the account or benefit of any national, citizen or resident of the United States of America, Canada, Japan or the Republic of South Africa or to any US person (within the definition of Regulation S made under the US Securities Act 1933 (as amended)).

Arden Partners plc ("Arden"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as nominated adviser and broker to the Company in connection with the Torchlight Subscription and the proposed admission of the new Ordinary Shares to trading on AIM and the other Proposals described in this announcement. It will not regard any other person as its client and will not be responsible to anyone else for providing the protections afforded to its clients or for providing advice in relation to such Proposals, the contents of this announcement or any other matter referred to herein. Arden has not authorised the contents of, or any part of, this announcement and no liability whatsoever is accepted by Arden for the accuracy of any information or opinions contained in this announcement or for the omission of any information. Arden as nominated adviser to the Company owes certain responsibilities to the London Stock Exchange which are not owed to the Company, the Directors, Shareholders or any other person in respect of his decision to acquire Ordinary Shares in reliance on any part of this announcement.

Neither the contents of the Company's website, nor any website directly or indirectly linked to the Company's website, are incorporated in, or form part of, this announcement.

This announcement contains (or may contain) certain forward-looking statements with respect to the Company and certain of its goals and expectations relating to its future financial condition and performance which involve a number of risks and uncertainties. No forward-looking statement is a guarantee of future performance and actual results could differ materially from those contained in any forward-looking statements. Such forward-looking statements may use words such as "aim", "anticipate", "target", "expect", "estimate", "plan", "goal", "believe", "will", "may", "should" and other words having a similar meaning. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, economic and business conditions, the effects of changes in interest rates and foreign exchange rates, changes in legislation, changes in consumer habits and other factors outside the control of the Company, that may cause actual results, performance or achievements to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. All forward-looking statements contained in this announcement are based upon information available to the Directors at the date of this announcement and the publication of this announcement does not give rise to any implication that there has been no change in the facts set out herein since that date.

All references are to London time unless otherwise stated.