Mill Residential REIT PLC Half-yearly Report

 
TIDMMRR 
 
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 GBP3.5m 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 GBP2,515,000 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 GBP2,515,000 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 GBP841,000 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 GBP51,000 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 GBP254,000, included GBP78,000 
for advice concerning the Company's admission to trading on AIM, GBP29,000 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 GBP29,000 for directors' remuneration. The balance of GBP118,000 
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 GBP 
211,000, before allowing for a revaluation gain of GBP12,000. 
 
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 GBP17,000 per month at the current level of operation. This 
reflects a 27% reduction in administrative expenses. 
 
Costs of GBP510,000 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 GBP78,000 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 GBP518,000 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 GBP1.10 per share and the exercise period will begin on the 
earlier of the date on which the Company achieves GBP50 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 GBP2,515,000.  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 
GBP1. The fair value of net assets acquired totalled GBP19,000, after allowing for 
the write down of GBP100,000 of the loan balance due to Mill Group. 
 
As reported to the market on 7 April 2015, loans to the Group of GBP840,000 and GBP 
663,000 were repaid to Mill Group and Mill Group agreed to reduce its 
contractual entitlement to interest by 50% (GBP19,000). Both amounts, totalling GBP 
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 GBP4,000 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                           020 7930 8600 
Ian Ellis (Chairman) 
 
Sanlam Securities UK (Nomad and Joint broker)       020 7628 2200 
Virginia Bull 
 
finnCap Limited (Joint broker)                      020 7220 0500 
Tom Jenkins 
 
ALL MEDIA ENQUIRIES TO: 
 
Positive Profile (Financial PR)                     07774 228845 
Henry Gewanter 
 
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) 
 
                                                        GBP'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                       (232) 
the Company 
 
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) 
 
                                                         GBP'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) 
 
                                                            GBP'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                      4 
in Housing (GP) Ltd 
 
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                              841 
of period 
 
Condensed Consolidated Statement of changes in equity 
 
Period from 20 October 2014 to 30 April 2015 
 
                                  Share      Share   Retained      Total 
                                capital    premium   earnings 
 
                                  GBP'000      GBP'000      GBP'000      GBP'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 GBP232,000 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 
 
                                                    GBP'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. 
 
 
 
END