TIDMPRSR
RNS Number : 7237O
PRS REIT PLC (The)
12 October 2021
12 October 2021
PRSR.L
The PRS REIT plc
("PRS REIT" or "the REIT" or "the Company" or "the Group")
Audited Full Year Results
for the year ended 30 June 2021 & First Quarter Update
Portfolio at 4,291 completed homes and demand remains strong
KEY POINTS
Financial
Year to 30 June Year to 30 June
2021 2020 Change
------------------------------ ----------------- ----------------- -------
Revenue GBP26.6m GBP12.9m +106%
Net rental income GBP21.5m GBP10.2m +111%
Operating profit GBP53.7m GBP19.9m +170%
Profit after tax GBP44.1m GBP16.4m +169%
Basic earnings per share 8.9p 3.3p +170%
Net assets at 30 June* GBP490m GBP471m +4%
99.0p at 30 June 95.1p at 30 June
IFRS and EPRA NTA* per share 2021 2020 +4%
96.2p at 31 Dec 95.0p at 31 Dec
2020 2019 +1%
------------------------------ ----------------- ----------------- -------
*after dividend payments
Operational
At
30 Sept At At
2021 30 June 30 June Year-on-year
FY Q1 2022 2021 2020 change
--------------------------------- ------------ --------- --------- -------------
Number of completed homes 4,291 3,984 2,082 +91%
GBP41.1m GBP37.5m GBP19.1m
Estimated rental value ("ERV") p.a. p.a. p.a. +96%
--------------------------------- ------------ --------- --------- -------------
Number of contracted homes 764 1,071 2,803 -62%
GBP7.0m GBP10.6m GBP27.4m
ERV p.a. p.a. p.a. -61%
Completed and contracted
sites 64 64 62 +3%
ERV of completed and contracted GBP48.1m GBP48.1m GBP46.6m
sites p.a p.a. p.a. +3%
--------------------------------- ------------ --------- --------- -------------
Rent collected (as a percentage
of total rent due) 99% 98% 98%
--------------------------------- ------------ --------- --------- -------------
-- Delivery progressed well, with 4,000th home milestone reached just after financial year-end
- 1,902 new homes added to the portfolio (2020: 909), taking
total at financial year-end to 3,984 homes with an ERV of GBP37.5m
p.a. (2020: GBP19.1m p.a.). A further 1,071 home were under way (30
June 2020: 2,803)
- coronavirus-related disruptions reduced activity levels by c.5-10% (2020: c.40%)
-- Total dividends per share declared, 4.0p (2020: 4.0p)
- post equity placing, current dividend expected to be almost
fully covered on a run-rate EPRA EPS basis by the financial
year-end
Outlook
-- In Q1 2022, a further 307 homes were added, taking the
portfolio to 4,291 completed homes, with an ERV of GBP41.0m p.a. A
further 764 homes were under way at 30 September 2021
-- Rental demand remains strong; at 30 September 2021, 98% of
4,291 completed homes were occupied, and a further 52 homes
reserved for qualified applicants with rental deposits paid
-- Gross proceeds of GBP55.6m were raised on 29 September 2021
through an equity raise. The net funds will support the acquisition
of five sites, expected to deliver c. 500 new homes with an ERV of
GBP4.8m p.a. Two of the five sites have now been acquired
-- The Company remains on track to reach its 5,000th home in the
middle of calendar 2022 and, following the recent equity placing, a
higher target of 5,700 homes, with an ERV approaching GBP55m
p.a.
-- Long-term growth opportunity is strong underpinned by
structural undersupply of high-quality, family rental homes
Steve Smith, Chairman of the PRS REIT, commented:
"We are pleased with the continued progress of The PRS REIT plc
in its fourth year of activity. We have effectively navigated the
ongoing challenges posed by the coronavirus pandemic, delivering
almost 2,000 new homes in the year. By the end of the first quarter
of the new financial year, the portfolio comprised 5,055 completed
and contracted homes, and following the recent equity placing we
are firmly on track to deliver a higher target of 5,700 homes.
"Demand for our homes remains strong, and in a recent survey of
customers 10 months into their tenancies, 96% of respondents
reported that they were happy in their homes.
"The continued undersupply of high-quality, well-managed family
rental homes means that we remain highly confident of long-term
prospects for the Company. We are very pleased to be playing a role
in helping to solve the UK's housing shortage, providing desirable
homes across the country for hard-working families"
For further information, please contact:
The PRS REIT plc Tel: 020 3178 6378
Steve Smith, Non-executive Chairman (c/o KTZ Communications)
Sigma PRS Management Limited Tel: 0333 999 9926
Graham Barnet, Mike McGill
Singer Capital Markets Securities Limited Tel: 020 7496 3000
James Maxwell, Asha Chotai (Investment Banking)
Alan Geeves, James Waterlow, Sam Greatrex
(Sales)
Panmure Gordon (UK) Limited Tel: 020 7886 2500
Chloe Ponsonby (Corporate Broking), Alex Collins
(Corporate Finance)
David Hawkins, Tom Scrivens (Sales)
G10 Capital Limited (part of the IQEQ Group Tel: 020 3745 2826
as AIFM)
Paul Turner
KTZ Communications Tel: 020 3178 6378
Katie Tzouliadis, Dan Mahoney
NOTES TO EDITORS
About The PRS REIT plc
www.theprsreit.com
The PRS REIT plc is a closed-ended real estate investment trust
established to invest in the Private Rented Sector ("PRS") and to
provide shareholders with an attractive level of income together
with the potential for capital and income growth. The Company is
investing over GBP1bn in a portfolio of high quality homes for
private rental across the regions, having raised a total of
GBP0.56bn (gross) through its Initial Public Offering, on 31 May
2017 and subsequent fundraisings in February 2018 and September
2021. The UK Government's Homes England has supported the Company
with direct investments. On 2 March 2021, the Company transferred
its entire issued share capital to the premium listing segment of
the Official List of the FCA and to the London Stock Exchange's
premium segment of the Main Market. On 16 July 2021, the Company
announced the completion of the 4,000(th) new rental home for its
portfolio, which the Company believes is the largest build-to-rent
single family rental portfolio in the UK.
LEI: 21380037Q91HU97WZX58
About Sigma Capital Group Limited (formerly Sigma Capital Group
plc)
www.sigmacapital.co.uk
Sigma Capital Group Limited ("Sigma") is a PRS, residential
development, and urban regeneration specialist, with offices in
Edinburgh, Manchester and London. Sigma's principal focus is on the
delivery of large scale housing schemes for the private rented
sector. The Company has a well-established track record in
assisting with property related regeneration projects in the public
sector, acting as a bridge between the public and private
sectors.
Sigma has created an unrivalled property platform, which sources
sites and brings together construction resource to develop them,
enabling Sigma to deliver an integrated solution to partners. As
well as sourcing sites and managing all stages of the planning and
development process, Sigma also manages the rental of completed
homes through its award winning rental brand 'Simple Life'. The
Company's subsidiary, Sigma PRS Management Limited, is Investment
Adviser to The PRS REIT plc.
About Sigma PRS Management Limited
Sigma PRS Management Limited is a wholly-owned subsidiary of
Sigma Capital Group Limited and is Investment Adviser to The PRS
REIT plc. It sources investments and operationally manages the
assets of The PRS REIT plc and advises the Alternative Investment
Fund Manager ("AIFM") and The PRS REIT plc on a day-to-day basis in
accordance with The PRS REIT plc's Investment Policy. The AIFM is
G10 Capital Limited. Sigma PRS Management Ltd is an appointed
representative of G10 Capital Limited, which is authorised and
regulated by the Financial Conduct Authority (FRN:648953).
Chairman's Statement
Introduction
I am pleased to present The PRS REIT plc's ("the PRS REIT", "the
Company" or "the Group") audited financial results for the year
ended 30 June 2021. The Company has continued to make good progress
in the delivery of the largest portfolio of single family homes for
rent in the UK, despite the continuing challenges presented by the
coronavirus pandemic. While we estimate that activity levels
decreased by about 5-10% as a result of coronavirus-related
disruptions, this was significantly less than in the previous
financial year, when the construction industry was shut down
completely for some six to eight weeks, which contributed to an
estimated decrease in activity levels in that year of about
40%.
Instead, construction continued throughout the year, and by the
financial year-end we were very close to reaching 4,000 new rental
homes in our portfolio, having achieved the milestone of 3,000 new
homes in December 2020. In total, 1,902 new homes were added to the
portfolio over the financial year (2020: 909). This took the size
of the portfolio at 30 June 2021 to 3,984 completed homes, with an
estimated rental value ("ERV") of GBP37.5 million per annum (30
June 2020: 2,082 homes with an ERV of GBP19.1 million per annum). A
further 1,071 homes, with an ERV of GBP10.6 million per annum, were
at various stages of the delivery process at 30 June 2021. The
total gross development cost ("GDC") of the 44 completed sites and
the 20 additional sites under way at 30 June 2021 amounted to
GBP789 million (2020: GBP757 million).
The Company's portfolio of assets across its now 66 sites, as of
11 October 2021, is geographically widely spread, with sites
located throughout the major regions of England, including the
North West, North East, Yorkshire, the Midlands, the South East
(excluding London) and the East of England, and now Scotland.
During the first quarter of the new financial year, we added a
further 307 new homes to the portfolio, taking it to 4,291 new
homes at 30 September 2021, with an ERV of GBP41.0 million per
annum. The number of homes contracted at this point was 5,055. This
includes development sites that are under forward-purchase
agreements. Following the equity placing at the end of September
2021, the Company's initial target of 5,200 homes with an ERV of
approximately GBP50.0 million has been revised upwards to 5,700
homes with an ERV of approximately GBP55.0 million.
Demand for the PRS REIT's properties remained strong, and rental
income has more than doubled year-on-year, reflecting the volume of
new homes added to the portfolio and let. Rent collected (relative
to rent invoiced) over the year stood at 98% (2020: 98%). While we
froze rental rates for tenant renewals at pre-pandemic levels from
March to December, rental rates from new tenancies show annual
growth of approximately 6.2% for re-let properties and 4% for those
properties whose occupiers renewed their tenancy, since the
re-opening of the market in May 2020. Of the 3,984 completed homes
at 30 June 2021, 3,888 (98%) were occupied with a further 80 homes
reserved to qualified applicants, and data for the end of September
shows a similar occupancy rate of 98% on completed homes.
We completed some important steps in the second half of the
financial year. In January 2021, we extended our Investment
Advisory Services contract with Sigma PRS Management Ltd, agreeing
a reduced fee structure as the net asset value increases. This
extension has enabled us to plan for the next stage of the
Company's development with greater clarity. In March 2021, we
completed the transfer of the Company from the Specialist Fund
Segment to the Premium Segment of the Main Market of the London
Stock Exchange. The migration facilitates our eligibility for
inclusion in FTSE's EPRA and UK Index Series and should help to
broaden the share register.
As the Company's activities grow our social impact increases
commensurately. Aside from the contribution the Company is making
to creating high-quality new homes for families across the country,
we continue to strive to foster a sense of community within our
developments. Through our Investment Adviser we are also focusing
on making a wider societal and environmental contribution.
In March 2021, we were pleased to welcome Geeta Nanda to the
Board as a Non-executive Director. She is Chief Executive Officer
of Metropolitan Thames Valley Housing Association and brings
significant relevant experience.
The Investment Adviser's report provides further commentary on
housing delivery, asset performance and our ESG activity over the
year.
Financial Results
Revenue, which is generated wholly from rental income, more than
doubled year-on-year to GBP26.6 million (2020: GBP12.9 million).
This reflected the substantial increase in the number of rental
homes making up the portfolio. After the deduction of
non-recoverable property costs, net rental income for the financial
year was GBP21.5 million (2020: GBP10.2 million).
Expenses in the year increased to GBP7.1 million (2020: GBP6.2
million), however this included GBP0.5 million of one-off expenses
relating to the Company's migration to the Main Market. The gain
from the fair value adjustment on investment property increased
significantly from the prior year to GBP39.0 million (2020: GBP15.8
million). This was due to a combination of higher rents and yield
compression. Operating profit increased by 170% to GBP53.7 million
(2020: GBP19.9 million) as a result of the increase in completed
and let units together with the rise in the portfolio
valuation.
Finance costs amounted to GBP9.6 million (2020: GBP3.7 million).
These reflect the drawdown and utilisation of debt funding during
the year. There was no finance income from short-term deposits in
the year (2020: GBP0.2 million) reflecting the very low interest
rate environment.
Profit after taxation increased by 169% to GBP44.1 million
(2020: GBP16.4 million) and basic and diluted earnings per share
rose by 170% to 8.9p (2020: 3.3p) on an IFRS basis.
The Group's net asset value ("NAV") per share at 30 June 2021,
on an IFRS basis, increased to 99.0p (31 December 2020: 96.2p and
30 June 2020: 95.1p) as did the EPRA NTA per share (previously EPRA
NAV per share) (31 December 2020: 96.2p and 30 June 2020:
95.1p).
Net assets of the Group at 30 June 2021 were 4.0% higher
year-on-year at GBP490.3 million (30 June 2020: GBP471 million)
after paying dividends of GBP24.8 million in the year.
Dividends
For the year to 30 June 2021, aggregate dividends of 4.0p per
share were declared to shareholders (2020: 4.0p per share). Due to
the timing of dividend payments, the Company paid a total of 5.0p
per ordinary share during the year under review (2020: 4.0p per
share). Taking into account the dividend paid on 3 September 2021,
total dividends paid since the Company's inception in May 2017 are
18.0p per share.
Prior to the equity placing, the Company's current dividend was
fully covered on a run rate cash basis and was expected to be fully
covered on an annualised EPRA EPS basis by 31 December 2021.
Following the equity placing, the current dividend is expected to
be almost fully covered on a run-rate EPRA EPS basis by the end of
the financial year. Dividend cover will continue to grow as
construction, completions and lettings advance.
Environmental, Social and Governance ("ESG") Practices
The PRS REIT is a member of the UK Association of Investment
Companies and applies its Code of Corporate Governance to ensure
best practice in governance.
The Board of Directors is responsible for determining the
Company's investment objectives and policy, and has overall
responsibility for the Company's activities, including the review
of investment activity and performance. The Board consists of five
independent Non-executive Directors, all of whom bring significant
and complementary experience in the management of listed funds,
equity capital markets, public policy, operations and finance in
the property and investment funds sectors.
We believe that the Company's activities have significant
positive social impact, and we take our responsibilities to our
tenants and the communities in which our sites are located very
seriously. We wish to create new homes and developments that
tenants enjoy living in and to provide excellent customer service.
The 'Simple Life' brand, through which our properties are marketed
and managed, has received a number of awards for its service
levels, and we are delighted that recent customer satisfaction
survey results indicate a very high level of satisfaction amongst
tenants across all key performance indicators.
The Investment Adviser manages the delivery of our ESG strategy
and details of our policies and activities are contained separately
in the Investment Adviser's Report. However, I am pleased to
highlight the Investment Adviser's continued support for a broad
range of charities, schools and institutions close to the Company's
developments over the financial year. Engagement with residents to
help direct specific support is ongoing, and there has been an
increased focus on developing strong and growing relationships with
local charities, alongside continued support for larger national
charities such as the Women's Aid, the NSPCC and the British Heart
Foundation. Support and engagement continue to grow with Salford
Loaves and Fishes, Centrepoint, Park Palace Ponies, and several
local foodbanks, while new links and connections are being made
with charities such as Sheffield Flourish, a community mental
health charity, and Zoe's Place in Middlesbrough, a baby and
children's hospice providing much needed support to families.
Our Investment Adviser will continue with these and other
valuable initiatives, which foster a greater sense of community
between residents and within the wider neighbourhoods in which our
developments are located
Post Period - Equity Raise
In the first quarter of the new financial year, we undertook an
equity raise in order to acquire assets identified by the
Investment Adviser, and on 27 September 2021 announced that a total
of c.GBP55.6 million (gross) had been raised at an issue price of
103p per share.
The fundraising was made available to both institutional and
retail investors. A total of 53,232,575 shares (c.GBP54.8 million)
were placed with new and existing institutional investors, with
741,589 shares (c.GBP0.8 million) placed with retail investors. The
net funds will be used to acquire five sites, with the potential
for c.500 new homes at a GDC of GBP76.6 million, providing a total
ERV of GBP4.8m per annum. Two of the five sites have since been
acquired. Located in Bertha Park in Perthshire, Scotland and
Drakelow in Burton upon Trent, South Derbyshire, their total
development cost is GBP37.3 million. Together they are expected to
add a further 229 homes with an ERV of GBP2.3 million per
annum.
Outlook
We are pleased with the PRS REIT's progress, now in its fifth
year, and with 4,291 homes in the portfolio and 764 under way at
the end of September, the Company looks well placed to reach 5,000
rental homes by the middle of calendar 2022. Given the pandemic
situation and other challenges, this is no mean achievement.
Following the equity raise in September, our target for the
portfolio has been revised from 5,200 to approximately 5,700 new
homes. Once completed, these homes are expected to have a combined
estimated rental value of around GBP55.0 million per annum, and the
Company's gross assets will approach GBP1 billion.
Demand for the homes in our portfolio remains high, and we
believe that the structural undersupply of high-quality family
rental homes will continue to drive demand. We believe there is
considerable anecdotal evidence, as well as a growing number of
data points, to support the view that renting is increasingly seen
as a flexible and long-term alternative to home ownership, not a
short term reaction to economic, market or other circumstances.
Both new enquiries and renewals over the first quarter of the
new financial year were strong and at 30 September 2021, the rent
roll stood at GBP40.1 million per annum and rent collected in the
first quarter (against rent invoiced) was at 99%.
Against this backdrop, we view prospects for the future
extremely positively and we also consider that the Government's
recent proposals, set out in its Planning White Paper published in
August, are generally favourable for the PRS REIT.
We continue to target a minimum dividend of 4.0p per share* in
the new financial year, and will declare the interim dividend for
the first quarter in October 2021.
I would like to take this opportunity to thank all of our staff
and stakeholders and our supporters in government and the
construction industry, for their hard work and support over the
year. Their continuing efforts enable us to make a positive
contribution towards the UK's housing shortage and deliver much
needed new housing stock to hardworking families, local communities
and more generally to society as a whole.
We look forward with confidence to the year ahead, and will
continue to consult with the PRS REIT's advisers and others as we
assess the Company's next stage of development.
Steve Smith
Chairman
11 October 2021
* This is a target only and there can be no assurance that the
target can or will be met and should not be taken as an indication
of the Company's expected or actual future results. Accordingly,
potential investors should not place any reliance on this target in
deciding whether or not to invest in the Company or assume that the
company will make any distributions at all and should decide for
themselves whether or not the target dividend yield is reasonable
or achievable.
IFRS AND EPRA PERFORMANCE MEASURES
In October 2019, the European Real Estate Association ("EPRA")
published new best practice recommendations ("BPR") for financial
disclosures by public real estate companies. The BPR introduced
three new measures for reporting net asset value: EPRA Net Tangible
assets ("NTA"), EPRA Net Reinstatement Value ("NRV"), and EPRA Net
Disposal Value ("NDV"). These new measures are effective for
accounting periods starting 1 January 2020 and the Group has
reported EPRA NTA in reporting the financial position as at 30 June
2021. The Group considers EPRA NTA to be the most relevant measure
for its operating activities, therefore it will be adopted as the
Groups' primary measure of net asset value, replacing previously
reported EPRA Net Asset Value ("NAV").
EPRA NRV is not considered an appropriate disclosure measure for
the PRS REIT as the Group has acquired, constructed and developed
the vast majority of assets and therefore it equates to adjusted
historic construction cost.
The valuation of the Group's assets is undertaken in accordance
with RICS guidance. However, this does not include any adjustment
to reflect the size and scale of Group's overall assets. The
Board's view is that collective marketing of the portfolio would
attract a higher valuation reflecting yield compression
attributable to the size and scale of the overall portfolio. In the
absence of comparable market evidence for such a portfolio, EPRA
NDV is not considered an appropriate measure.
As in prior years, due to the stage of completion of the PRS
REIT's development assets within the Group's portfolio, it is not
considered appropriate to disclose the EPRA metrics of Net Initial
Yield and Cost Ratio at this reporting date.
KPI Explanation Performance
Year to Year to
30 June 2021 30 June 2020
---------------- ----------------
IFRS NAV Unadjusted net asset value 99.0p per share 95.1p per share
(see note
7)
----------------------------------- ---------------- ----------------
EPRA NTA EPRA Net Tangible Asset 99.0p per share 95.1p per share
(see note is net asset value adjusted
7) to include properties
and other investment interests
at fair value and to exclude
certain items not expected
to crystallise in a long
term property business
model
----------------------------------- ---------------- ----------------
IFRS EPS Unadjusted earnings per 8.9p per share 3.3p per share
(see note share
4)
----------------------------------- ---------------- ----------------
EPRA EPS Earnings per share excluding 1.0p per share 0.1p per share
(see note investment property revaluations,
4) gains and losses on disposals,
changes in the fair value
of financial instruments
and associated close out
costs and their related
taxation
----------------------------------- ---------------- ----------------
Company specific EPRA EPS (as above) adjusted 1.2p per share 0.1p per share
adjusted EPS to exclude the non-recurring
(see note 4) costs incurred by the
Company as part of the
Migration to the Premium
Segment of the Main Market
----------------------------------- ---------------- ----------------
EPRA Earnings EPRA Earnings is a measure GBP'000 GBP'000
(see note 4) of operational performance
and represents the net
income generated from
the operational activities
5,130 601
----------------------------------- ---------------- ----------------
Going Concern Review and Stress Test
Going Concern and Stress Test
This going concern review summarises the risks that the COVID-19
pandemic and other current economic issues affecting the UK, such
as workforce shortages and potential inflation, pose to the Group
and the parent Company of the PRS REIT, together with actions taken
to ensure that the business is well-placed to continue in a
position of financial strength.
During the second lockdown in November 2020 and the third
lockdown in January 2021 until March 2021, imposed by the
Government, house building and letting activity continued at a
slightly slower pace than pre-pandemic levels. This was due to
ongoing workplace restrictions around social distancing and,
reduced workforce numbers, despite the vaccination programme,
reflected in absence through either illness or self-isolating
protocols. Both resulted in some delays to homes being completed,
let and occupied. The Group's contractual obligations provide for
payment to house builders in respect of work undertaken, and
independently certified. Accordingly, development expenditure and
associated cash outflows during lockdown periods reduced
proportionately. However, the knock-on impact of the disruption is
that practical completion dates for construction and subsequent
letting activity have been delayed in comparison to original
schedules.
The nature and spread of COVID-19 mean that not all sites and
areas have been impacted consistently. A small number of sites have
therefore been delayed disproportionately in comparison to the
portfolio as a whole.
COVID-19 therefore continues to have the potential to impact the
Group and Company as a result of the workplace and workforce issues
outlined above, together with the risk that the Government may in
future periods, introduce, or re-introduce, restrictions limiting,
either wholly or partly, construction and letting activity on a
regional or national basis.
Workforce shortages and potential inflation provide additional
risks through disruption to the supply chain and pressure on
pricing on the acquisition of sites.
These have the potential to impact the Company and Group in the
following areas:
Risk factor Mitigating actions
House builders unable to continue The PRS REIT has spent time with
with construction work on sites its construction partners ensuring
or forced to limit construction that their health and safety assessments
work on sites due to adherence are correctly applying and complying
to social distancing or other with the Government's social distancing
requirements and staff unable rules. These new measures mean
to work or are absent from work. that work on development sites
can continue although at a slower
rate than before the crisis. This
has reduced the Group and Company's
cash outflows during these periods
but has also delayed practical
completion and subsequent letting
of units. Continual review of the
situation in conjunction with house
building partners is in place to
monitor the situation on a site-by-site
basis.
------------------------------------------
Letting agents unable to progress The Group has worked with its lettings
activities in respect of lettings, agents to ensure that the Government's
repairs and maintenance. This social distancing rules are adhered
could arise as a result of tenant to. As lockdown restrictions have
and/or, maintenance company issues eased, lettings activity has resumed
or because lettings staff are as have all repair and maintenance
unable to work or are absent from services. Weekly reviews of lettings
work. activities are in place.
------------------------------------------
Income reduction and potential The Group carefully vets prospective
bad debt resulting from tenants' tenants and often obtains insurance
financial difficulties because for the first year of new lettings.
of a loss of income due to individuals To date, COVID-19 related arrears
being without work, unable to are being managed by agreeing payment
work or being absent from work. plans with tenants encountering
difficulties. Insurers are notified
of these plans in order to preserve
rights of claim, and policies ultimately
pay out in the event that arrears
are not recovered by these payment
plans. This, together with the
geographic spread of multiple sites
helps to mitigate against bad debts.
We work with letting agents to
assist and support those tenants
encountering difficulty in a responsible
and reasonable manner. The adaptation
of our technology has meant that
tenant interaction and engagement
can continue through a variety
of channels, including telephone,
e-mail and social media.
------------------------------------------
Disruption to the supply chain Significant efforts and contingencies
in the event of raw materials had been put in place by house
and construction products not builders in respect of Brexit,
being produced or imported. and additional inventory, including
timber had been secured for the
PRS REIT sites. To date, production
and shipment difficulties have
not been encountered by house builders,
partly reflecting the reduction
in construction activity during
the lockdown periods, albeit this
situation continues to be monitored,
particularly in relation to shortages
in HGV drivers across the UK.
------------------------------------------
General disruption to employees, All of the Group's suppliers have
house builders, letting agents worked quickly to adapt to new
and the supply chain due to restrictions ways of working, in accordance
on the movement of goods and people. with Government guidelines, to
enable all areas of the business
to continue, although at a slower
rate than before.
Workforce shortages from resource
constraints would be similar to
those already experienced through
COVID-19 resulting in workers being
unable to work or absent from work.
The Group has worked with construction
partners during the pandemic and
would expect to continue to work
with them should there workforce
availability continue to be an
issue.
------------------------------------------
Price inflation. All of the Group's design and build
contracts are fixed price contracts
such that constructions costs paid
for can only change if there are
variations to the contractual items
requested. The Group has historically
made very few changes to contractual
requirements and construction contracts
do not include indexation to reflect
potential inflationary pressures
on the house builders.
------------------------------------------
Impact of COVID-19 on the economy During calendar 2020, the UK technically
and market sentiment. entered a severe recession as a
result of two successive quarters
of negative GDP growth. The outlook
for the economy has improved and
there remains a structural under
supply of new family homes in the
UK. Indicators suggest that the
pandemic and recession may have
increased demand for the Group's
high quality but affordable product
across multiple regions.
------------------------------------------
Valuations reduce due to changes Independent valuers are advising
in rental levels, bad and doubtful that the sector is viewed as stable
debt risk, and sector attractiveness and attractive, tenant demand remains
impacting yields. strong and may even be increasing
due to changes in consumer requirements
for housing during the pandemic,
low levels of bad and doubtful
debts reflect the procedures surrounding
tenant vetting, deposits and insurance.
------------------------------------------
Further waves of COVID-19 and Having experienced the previous
potential for regional or national lockdown, the Group and Company
lockdowns, or restrictions, in have a good understanding of how
the foreseeable future. to react quickly to adapt to further
lockdowns or restrictions. New
systems are in place, which enable
the Company to better support tenants
e.g. with online repairs and maintenance
assistance. Following the vaccination
programme, it appears that lockdown
measures are more likely to be
imposed on a localised basis in
response to regional outbreaks
of the virus rather than on a national
level. Given the geographic spread
of sites, the Group is likely to
be able to continue construction
and lettings activity in those
regions and on those sites unaffected
by restrictions. As mentioned above,
cessation of construction work
on development sites would reduce
short-term cash outflows although
practical completion and lettings
schedules would be similarly delayed.
Stress Test
In light of the above, the parent Company of the PRS REIT and
the Group, have performed a prudent financial stress test geared
towards ensuring that the Company and Group have sufficient cash
resources to weather the pandemic and current economic difficulties
in the UK and emerge in a robust condition to continue to implement
the Group's build-to-rent strategy.
In the unlikely event that the pandemic has truly passed, then
the events of the last 18 months at the very least provide a
reasonable basis on which to assess any similar future threat.
These events also provide a reasonable template on which to perform
a financial "stress test" for the purpose of assessing the Group as
a going concern and reviewing the adequacy of the Group's working
capital on a forward-looking basis. The stress test therefore
incorporated the following sensitivities:
- availability of funds pursuant to the terms and conditions of
the Group's existing borrowing facilities with Scottish Widows,
Lloyds Banking Group / RBS and Barclays Bank PLC;
- cessation of onsite activity for a period of four months from October 2021 to January 2022;
- absence of development management fees payable to Sigma
Capital Group Limited ("Sigma") during the period of four months
from October 2021 to January 2022 reflecting the cessation of
onsite activity;
- extension to the Group's development debt borrowing facilities
that matches the four month period of cessation of onsite
development activity;
- absence of further asset purchases and aborting the purchase
of completed asset sites from both Sigma and third parties;
- loss of 15% of rental income in relation to increased hardship
and redundancy levels affecting tenant occupancy rates and arrears
levels for a period of six months from October 2021 to the end of
March 2022;
- inclusion of contracted revenue from existing tenancies with
new tenancies reflecting the cessation of onsite activity for a
period of four months from October 2021 to January 2022;
- maintenance of the Group and Company's existing administrative
overhead base of approximately GBP6 million per annum, comprising
c.GBP4 million of investment advisory fees and c.GBP2 million of
other overheads, without reduction from cost saving initiatives or
mitigating action; and
- continuation of the Company's stated dividend policy of a
minimum of 1.0p per quarter and 4.0p per annum.
Conclusion of Stress Test
The conclusion of the stress test performed is that the parent
Company of the PRS REIT and the Group have adequate cash resources
to sustain an extended cessation of construction and letting
activity lasting at least four months, together with a significant
reduction in rental income. This reflects the flexibility offered
pursuant to the terms of the Forward Purchase Agreement between the
Group and Sigma on the basis that the PRS REIT could reduce future
asset purchases from Sigma if it considers that it does not have
sufficient funds to complete.
The Directors therefore believe the parent Company of the PRS
REIT and the Group are well placed to manage the business risks
successfully and have a reasonable expectation that both will have
adequate resources to continue in operational existence for the
foreseeable future and for a period of at least 12 months from the
date of the approval of the parent Company of the PRS REIT and the
Group's financial statements for the year ended 30 June 2021. The
Board is therefore of the opinion that the going concern basis
adopted in the preparation of the consolidated and parent Company
financial statements for the year ended 30 June 2021 is
appropriate.
Conclusion
Together with evolving market conditions, including workforce
shortages and potential inflation, COVID-19 remains a risk that
requires careful monitoring and management in conjunction with the
Group's house building partners and letting agents, in order to
mitigate the potential issues pending the restoration of a more
normal working and living environment. The parent Company of the
PRS REIT and the Group will continue to review and assess
objectively the impact of all of these factors together with the
Government and regulatory response on both its strategy and focus
of activities.
Market Dynamics
The PRS REIT's Investment Adviser, Sigma PRS Management Ltd
("Sigma PRS") is a subsidiary of Sigma Capital Group Limited
("Sigma"), and the PRS REIT's rental homes are marketed under
Sigma's 'Simple Life' brand.
-- Sigma is a member of The UK Apartment Association ("UKAA")
and the UKAA BTR steering group, which seeks to promote a wider
understanding of BTR and engages with, Government, local
authorities and renters.
-- Sigma is also a member of The British Property Federation
("BPF"), and the 'Simple Life' portfolio will form part of the 'Who
Lives in BTR' research report this year.
-- In 2021, 'Simple Life' took part in a UK-wide campaign,
organised by Love to Rent, a platform that provides advice and
support to renters. Called, 'Renting but not as you know it', the
campaign highlighted the variety of properties available from Build
to Rent ("BTR") providers, as well as the benefits of renting from
a professional landlord.
Over the course of the last 18 months, the coronavirus pandemic
has made the issue of the availability of suburban family rental
housing more topical. During the crisis, the movement of people out
of city centres into the suburbs and the countryside as they sought
more space, including gardens, has highlighted the lack of
supply.
Build-to-rent as an asset class in the UK remains very small,
but it is continuing to mature, and there is a rising level of
investment in BTR and an increasing number of new entrants. The
challenging state of the 'for sale' market is also influencing its
growth. Average house prices to income continues to increase.
According to the Office for National Statistics, the ratio of
average house price to income at the end of 2020 was almost 8
times. The Government's stimulus measure of waiving Stamp Duty
below GBP500,000, which came to a close in June 2021, also resulted
in an inflationary effect on some house prices.
Whilst barriers to entry into the home ownership sector have
become higher, supply side constraints in the rental sector are
also evident. Since 2017, approximately 180,000 buy-to-let
mortgages have been redeemed, mainly reflecting the ending of some
taxation benefits. Potential new small-scale entrants have also
been deterred by high entry costs. The increasing level of
institutional investment in the build-to-rent sector creates some
relief, although current levels of supply are still very small.
According to the BPF, the total number of properties completed
in the UK build-to-rent sector is only approximately 62,000 homes.
Set against the loss of 180,000 buy-to-let homes in a similar
period of time, this means that the supply/demand ratio remains
heavily in deficit. The pipeline of new properties under way in the
sector is circa 40,000 and, in total, including homes already build
and on site, a little under 200,000 homes are currently due to be
delivered. With the private rented sector as a whole comprising
circa 4 million homes, or approximately 20% of the overall UK
housing stock, this shows the significant potential that exists for
build-to-rent properties.
Across UK housing stock, approximately 80% of homes are houses.
This proportion reduces slightly in the private rented sector where
the ratio of houses to apartments is 63:37. This contrasts with the
BTR sector where providers have concentrated on the delivery of
flatted schemes, resulting in a ratio of houses to apartments of
12:88. According to Savills' research paper on the UK Private
Rented Sector, 63% of the rental stock in the UK is houses. While
this reflects the stock available, it may also indicate a
preference on the part of renters for homes with outdoor space or a
little more flexibility. Approximately 40% of the PRS REIT's
portfolio is occupied by families with children, attracted by the
benefits of living in houses with gardens, as opposed to
apartments.
In summary, the BTR sector in the UK remains extremely small and
the continuing focus on apartments rather than single family houses
means that families with children remain an underserved segment in
the private rented sector.
Extract from Portfolio Analysis
As at 30 June 2021, the valuation of the Group's property
portfolio was GBP780 million (2020: GBP577 million) and the
investment value of all sites under way at that date was GBP829
million on completion (2020: GBP722 million) with their ERV on
completion at GBP47 million (2020: GBP42 million).
Property Portfolio by Regional Split - at 30 June 2021
-- The regional split by investment value was - North West (NW)
56% (2020: 56%), West Midlands (WM) 18% (2020: 20%), South East
(SE) 13% (2020: 13%), Yorkshire (Y) 9% (2020: 7%), North East (NE)
3% (2020: 3%) and East Midlands (EM) 1% (2020: 1%).
Other Metrics - at 30 June 2021
-- The rent roll at 30 June 2021 was GBP37.5 million (2020:
GBP19.1 million) and the average rent was GBP9,420 per annum or
GBP785 per month (2020: GBP9,175 per annum or GBP765 per
month).
-- Forecast average rent across the current portfolio when
complete is GBP10,188 per annum or GBP849 per month (2020: GBP9,154
per annum or GBP792 per month).
-- The average size of site was 79 (2020: 83) housing units.
-- The split between 1, 2, 3 and 4 bed properties was
approximately 4%, 26%, 61% and 9% respectively (2020: 4%, 26%, 61%
and 9% respectively).
-- Contractor split was - Countryside 78%; Vistry 15%; Engie 4%;
and Seddon 3% (2020: Countryside 86%; Engie 10%; Vistry 3%; and
Seddon 1%).
-- The deduction from gross to net rent across the portfolio for
the year ended 30 June 2021 was 19.5% (2020: 21.1%).
-- Bad debts for the year was a net recovery of GBP4,000 (2020:
GBP24,000 expense) and the bad debt provision at the year-end was
GBP31,000 (2020: GBP35,000).
Age Groupings
The largest age grouping across our customer base at the time of
sampling was 26-35 years or 41% of the total. The increase in the
under-25 age group correlates with the launch of our apartment
scheme, Empyrean, in Manchester, which is suited to this younger
occupier group.
Age 2021 2020
Under 25 27.6% 24.2%
------ ------
26-35 40.5% 41.9%
------ ------
36-45 16.3% 17.0%
------ ------
46-55 9.3% 9.2%
------ ------
56-65 4.7% 5.9%
------ ------
65+ 1.5% 1.9%
------ ------
Household Income Bracket
There was very little change in the proportion of our customers
across the main income brackets when compared with the preceding
year. However, there were two key differences; a c.2% increase in
the lowest salary brackets, which is most likely a natural
fluctuation, and a 5% rise to 15% in the representation of
residents in the higher household income bracket of GBP65,000 or
more.
Annual Household 2021 2020
Income
Under GBP25k 25.6% 23.0%
------ ------
GBP25k-GBP35k 19.6% 23.1%
------ ------
GBP35k-GBP45k 18.5% 21.5%
------ ------
GBP45k-GBP55k 13.6% 14.1%
------ ------
GBP55k-GBP65k 6.9% 7.5%
------ ------
GBP65k+ 15.5% 10.9%
------ ------
Tenancies with Children
Whilst the portfolio comprises mainly family homes, only
approximately 40% of tenancies include children in the household.
Looking back to the age groupings, it is reasonable to assume that
our major cohort of 26-35 year olds may be moving into our homes
with the intention of starting a family. Of those residents with
children, the two largest groupings are those with two or four
children.
Children 2021 2020
None 58.9% 58.0%
------ ------
One child 8.3% 7.8%
------ ------
Two children 16.9% 17.9%
------ ------
Three children 3.0% 2.7%
------ ------
4+ children 13.0% 13.7%
------ ------
Distance Travelled
We measure the distance travelled by our residents from their
previous addresses to their new 'Simple Life' home. The two largest
categories are those travelling up to 10 miles to move to one of
our homes. However c. 40% of our residents have travelled between
10 and over 50 miles from their previous home, which we believe
reflects the increasing reach and awareness of the 'Simple Life'
brand and its online presence.
Distance Travelled 2021 2020
<3 miles 30.4% 29.6%
------ ------
3-10 miles 29.0% 30.2%
------ ------
10-50 miles 23.8% 23.3%
------ ------
>50 miles 16.8% 17.0%
------ ------
All 2021 statistics are based on new applicant data between July
2020 and June 2021 and include sites acquired from Sigma. The prior
year's statistics are based on all successful 'Simple Life'
applications referenced between June 2019 and June 2020.
AWARDS
Insider NW Residential Property Yorkshire Insider Property Awards
Awards Public Private Partnership 2020
Residential Operator of the Year (Winner)
2021
(Winner) Insider Midlands Property Awards
Large Development of the Year 2021
Property Week RESI Awards (Lea Hall Gardens) (Shortlisted)
Landlord of the Year 2020
(Shortlisted) Property Week RESI Awards 2021
Best Covid Response
Yorkshire Insider Property Awards (Shortlisted, winner to be announced)
Large Development of the Year 2020
(Shortlisted) Property Week RESI Awards 2021
Residential Company of the Decade
Property Week RESI Awards 2021 (Sigma Capital)
Health and Wellbeing Award (Shortlisted, winner to be announced)
(Shortlisted, winner to be announced)
UK Housing Awards
The Neighbourhood Transformation Award (Equans, Sigma Capital and
Sheffield Housing Company)
(Shortlisted, winner to be announced)
Investment Adviser's Report
Sigma PRS Management Ltd ("Sigma PRS"), a wholly-owned
subsidiary of Sigma Capital Group Limited, is the Company's
Investment Adviser, and is pleased to provide a report on the PRS
REIT's activities and progress for the year ended 30 June 2021.
Business Activities
The PRS REIT plc is a public limited company incorporated in
England on 24 February 2017. Together with its subsidiaries, it is
the first quoted Real Estate Investment Trust ("REIT") to focus on
the Private Rented Sector ("PRS").
The Company completed its IPO on 31 May 2017, raising initial
gross proceeds of GBP250 million through the issue of 250 million
ordinary shares of one pence each at an issue price of GBP1 each,
and the shares were admitted to trading on the Specialist Fund
Segment of the Main Market of the London Stock Exchange. The
Company has since raised additional funds, through two further
placings and through gearing, taking its total available resources
to GBP956 million (gross). On 2 March 2021, the Company transferred
its entire issued share capital to the premium listing segment of
the Official List of the FCA and to the London Stock Exchange's
premium segment of the Main Market.
Investment Objective and Business Model
The PRS REIT is seeking to provide investors with an attractive
level of income, together with the prospect of income and capital
growth, through investment in newly-constructed residential private
rented sector sites of multiple units, comprising mainly family
homes. The homes are let on Assured Shorthold Tenancies (as defined
in the Housing Act 1988) to qualifying tenants.
The Company is investing in multiple sites in cities and towns
across the UK, targeting the largest employment centres in England,
predominantly in the Midlands and North, but outside London. The
locations closely follow the main rail and road infrastructure, and
rental homes, being newly-built, come with the benefit of 10 year
National House Building Council or equivalent warranties.
The Company is concentrating on traditional housing, which has a
broad spectrum of demand, and differing house types for different
life stages, including smaller houses for young couples and
retirees, and larger houses for growing families. It also invests
in some low-rise flats in appropriate locations to broaden the
rental offering.
The PRS REIT is building its portfolio of PRS assets in two
ways:
-- by acquiring residential development opportunities, with
these development sites sourced and managed by Sigma PRS (or
another member of Sigma acting as development manager). When
completed, homes on these sites are subsequently let to individual
qualifying tenants; and
-- by acquiring already completed and let PRS sites that fulfil
the Company's investment objectives, including appropriate return
and occupancy hurdles. Completed sites are acquired from Sigma,
pursuant to a forward purchase agreement between the PRS REIT and
Sigma, and subject to an independent valuation appraisal. Should
the opportunity arise, the PRS REIT may acquire newly-built PRS
assets from third party vendors. The Company has the ability to
fund up to a maximum of one third of new properties in this
manner.
The PRS REIT retains the right of first refusal to acquire and
develop any sites sourced by Sigma PRS that meets its investment
objective and policy.
There are certain restrictions in the PRS REIT's investment
policy, for instance the PRS REIT will not invest in other
alternative investment funds or closed-end investment
companies.
Achieving Scale and Reducing Risk
The Sigma PRS Platform
The Investment Adviser is utilising Sigma's well-established PRS
property delivery and management platform (the "Sigma PRS
Platform") to help the PRS REIT achieve scale and to minimise
development and operational risks. Specifically, the Sigma PRS
Platform facilitates the efficient sourcing and development of
investment opportunities.
The Sigma PRS Platform comprises relationships with construction
partners, central government, and local authorities. Key
construction partners include Countryside Properties, which is the
primary house building partner, Vistry, Engie and Seddon. Homes
England, an executive non-departmental public body sponsored by the
Ministry of Housing, Communities & Local Government, works
closely with Sigma in the common goal of accelerating new housing
delivery in England.
All pre-development risks are identified and underwritten by
Sigma and its partners, and development sites will have an
appropriate certificate of title, detailed planning consent and a
fixed price design and build contract with one of Sigma's
housebuilding partners. During the construction phase, many of the
properties are pre-let and subsequently occupied as they
complete.
Through its wide network of relationships, the Sigma PRS
Platform represents a very good source of land for development
sites, and is able to deliver a variety of high-quality house types
efficiently and in volume. This underpins the PRS REIT's objective
to build at scale and across multiple geographies.
Multiple Geographies
By creating assets across multiple locations and regions, we aim
to minimise the PRS REIT's concentration risk.
We are targeting a mix of locations that demonstrate both higher
yielding profiles (predominantly those in the North of England) and
developments where there is greater potential for capital
appreciation (often in our Southern opportunities). Proximity to
good primary schools is also a key requirement as the Company is
focused on the family rental market.
In addition, no investment will be made in any single completed
PRS site or PRS development site that exceeds 20 per cent of the
aggregate value of the total assets of the Company at the time of
commitment.
'Simple Life' Brand
The PRS REIT's rental homes are marketed under the 'Simple Life'
brand. The brand has created an identity for the PRS REIT's product
and, over time, we would like it to be recognised as representing a
'gold standard' in the private rented sector, providing a
combination of a high-quality, sensibly-priced homes and high
customer service levels.
The PRS REIT's long-term approach to the ownership of its assets
provides further reassurance to tenants, and the neighbourhood
initiatives that we sponsor also help to create a sense of
community within our developments.
Financing Resource
Equity Placing Programme
Three tranches of equity have been raised to date, GBP250
million (gross) at the Company's IPO on 31 May 2017, and a further
GBP250 million (gross) in February 2018. Homes England participated
in both fundraisings, taking its direct investment in the Company
to a total of approximately GBP30 million. In September 2021, an
additional GBP55.6 million (gross) was raised.
Debt Facilities
The Company is using gearing to enhance equity returns, and in
June 2019, agreed terms with Scottish Widows and Lloyds Banking
Group to increase its total longer-term debt facilities to GBP400
million. Further details can be found in the 'Financial Results'
segment of this report on page 35. During the financial year, the
Company arranged a further GBP50 million development debt facility
with Barclays Bank PLC. The PRS REIT's aggregate borrowings will
always be subject to an absolute maximum, calculated at the time of
drawdown of the relevant borrowings, of not more than 45 per cent
of the value of the assets.
Operational Review
Development Activity and Acquisitions
Delivery of new homes from the development pipeline remains the
key focus. The coronavirus pandemic has continued to cause some
disruption to delivery but not on the same scale as in the prior
financial year with the first national lockdown.
During the period of the second lockdown imposed by the
Government from the end of December 2020, house building and
letting activity continued at a slower than pre-pandemic levels due
to ongoing workplace restrictions around social distancing and,
despite the vaccination programme, reduced workforce numbers
reflecting absence through either illness of self-isolating
protocols. Both resulted in some delays to homes being completed,
let and occupied.
Notwithstanding COVID-19, a total of 1,902 homes were completed
in the year to 30 June 2021, compared with 909 in the prior year.
This reflected the significant increase in the number of sites in
the delivery programme and the estimated impact of the pandemic on
unit delivery in the prior. The total number of completed homes at
the end of June 2021 was 3,984 (2020: 2,082) across six of the
eight major regions of England.
This included four fully-developed and let sites acquired during
the year, comprising in total 203 homes. Three of these sites were
acquired from Sigma Capital Group Limited. All sites were
independently assessed and valued by Savills before
acquisition.
The estimated rental value of the portfolio at 30 June 2021
amounted to GBP37.5 million per annum, almost double the level at
30 June 2020 (GBP19.1 million per annum).
The table below provides further detail in summarised form of
our development activity in 2021 and 2020, including activity in
the first quarter of the new financial year.
At At At
30 September 30 June 30 June
2021 2021 2020
Number of completed homes 4,291 3,984 2,082
-------------- --------- ---------
ERV of completed homes GBP41.1m GBP37.5m GBP19.1m
p.a. p.a. p.a.
-------------- --------- ---------
Completed sites 48 44 21
-------------- --------- ---------
Contracted sites 16 20 41
-------------- --------- ---------
Number of contracted homes 764 1,071 2,803
-------------- --------- ---------
ERV of contracted homes GBP7.0m p.a. GBP10.6m GBP27.4m
p.a. p.a.
-------------- --------- ---------
Construction Resource
The construction resource provided by the Sigma PRS Platform has
national reach. It underpins the continued expansion of the Company
to key population centres in England, supporting the creation of a
geographically diverse portfolio.
There are many clear benefits for our construction partners in
partnering with us. These include strengthening their ability to
bid for land with local councils and improving operational
efficiencies with their own housing delivery. This partnership
approach is working well and the model we operate of using standard
family house types, fixed price design & build contracts, and
standardised specification, helps to ensure that developments are
built to budget and that our PRS assets can be maintained and
managed efficiently.
In our annual report last year we highlighted that we had
started to take delivery of homes produced by Countryside
Properties new sectional-building technology. We are delighted to
announce that over 926 of our new homes have now been constructed
using this system.
Financial Results
Income statement
The Group's revenue (which is wholly derived from rental income)
more than doubled over the year to GBP26.6 million (2020: GBP12.9
million). After the deduction of non-recoverable property costs,
the net rental income was GBP21.5 million (2020: GBP10.2 million).
Administration expenses were higher at GBP7.1 million (2020: GBP6.2
million) but included non-recurring accounting and legal expenses
of GBP0.5 million in relation to the Company's migration to the
Main Market.
The gain from the fair value adjustment on investment property
was GBP39.0 million (2020: GBP15.8 million), with a portion of the
increase attributable to a combination of higher rents and yield
compression in the current financial year. Operating profit was
GBP53.7 million (2020: GBP19.9 million). Finance costs for the year
were GBP9.6 million (2020: GBP3.7 million) reflecting the debt
utilisation and associated costs during the year. With interest
rates at historic lows, there was no finance income for the period
from short-term deposits (2020: GBP0.2 million). The profit after
finance income and taxation was GBP44.1 million (2020: GBP16.4
million).
The basic and fully diluted earnings per share on an IFRS basis
for the year was 8.9p (2020: 3.3p).
Dividends
The Company has declared a total of 4.0p per ordinary share for
the year under review, which comprised the following:
-- On 9 November 2020, the Company announced the declaration of
a dividend of 1.0 pence per Ordinary Share in respect of the period
from 1 July 2020 to 30 September 2020, which was paid on 11
December 2020 to shareholders on the register as at 20 November
2020.
-- On 10 February 2021, the Company announced the declaration of
a dividend of 1.0 pence per Ordinary Share in respect of the period
from 1 October 2020 to 31 December 2020, which was paid on 8 March
2021 to shareholders on the register as at 19 February 2021.
-- On 13 May 2021, the Company announced the declaration of a
dividend of 1.0 pence per Ordinary Share in respect of the period
from 1 January 2021 to 31 March 2021, which was paid on 18 June
2021 to shareholders on the register as at 21 May 2021.
-- On 2 August 2021, the Company announced the declaration of a
dividend of 1.0 pence per Ordinary Share in respect of the period
from 1 April 2021 to 30 June 2021, which was paid on 3 September
2021 to shareholders on the register as at 13 August 2021.
Reflecting the timing of dividend payments, the Company paid a
total of 5.0p per ordinary share during the year under review due
to the delayed payment of the final FY2020 dividend.
Balance Sheet
The principal items on the balance sheet are, investment
property of GBP780.4 million (2020: GBP577.1 million), cash and
cash equivalents of GBP86.4million (2020: GBP59.3 million),
long-term loans of GBP244.9 million (2020: GBP144.2 million), short
term loans of GBP110 million (2020: GBPnil) and trade and other
payables of GBP27.2 million (2020: GBP23.9 million).
The investment property includes completed assets and assets
under construction at fair value. Trade and other payables includes
GBP10.5 million of development expenditure that was paid in July
2021.
Debt Financing
The PRS REIT has the following debt facilities:
-- GBP150 million revolving credit facility with Lloyds Banking
Group / RBS for an initial term of two years, which can be extended
further for up to two years. Interest is based on three month SONIA
plus applicable margin and the loan is secured over assets
allocated to Lloyds Banking Group. As at 30 June 2021, GBP68.6
million had been drawn;
-- GBP100 million term loan of 15 years with Scottish Widows,
fully drawn as at 30 June 2021. Interest is fixed at the 15 year
swap rate of 1.59% plus applicable margin, and the loan is secured
over assets allocated to Scottish Widows;
-- GBP150 million term loan of 25 years with Scottish Widows,
fully drawn as at 30 June 2021. Interest is fixed at the 25 year
swap rate of 1.16% plus applicable margin, and the loan is secured
over assets allocated to Scottish Widows; and
-- GBP50 million development debt facility with Barclays Bank
PLC. Interest is based on three month LIBOR plus applicable margin
and the loan is secured over assets allocated to Barclays Bank PLC.
As at 30 June 2021, GBP42.4 million had been drawn.
Key performance indicators
The Group's key performance indicators ("KPI") include:
KPI June 2021 June 2020
Rental income (gross) GBP26.6m GBP12.9m
---------- ----------
Average rent per month per tenant GBP785 GBP766
---------- ----------
Non-recoverable property costs as a percentage
of gross rent (gross to net) 19.5% 21.1%
---------- ----------
Fair value uplift on investment property GBP39.0m GBP15.8m
---------- ----------
Operating profit GBP 53.7m GBP 19.9m
---------- ----------
Dividends declared per share in relation to
the period 4.0p 4.0p
---------- ----------
Dividends paid during the period 5.0p 4.0p
---------- ----------
Number of properties available to rent 3,984 2,082
---------- ----------
All the KPIs are in line with management expectations. Increases
in rental income, non-recoverable property costs, operating profit,
and the number of properties available to rent reflect the
increased size of the portfolio and the progression of development
sites.
Market Overview
The delivery of new homes in the last reported period of 2019/20
fell short of the annual government target of 300,000 homes by
80,000, with 220,000 new build completions in the year. Due to the
coronavirus pandemic it is not anticipated that this shortfall will
have been rectified during 2020/21.
The supply of rented properties has also reduced following
tighter regulation and increased tax burdens, which caused large
outflows from the 'Buy-to-let' sector. According to Savills, in
2010, 78% of landlords in the private rented sector owned more than
one property, but by 2018, this had reduced to 45%. Latest research
by Savills reveals that the number of buy to let mortgage
redemptions has reached 180,000 since 2017, suggesting further
supply side pressure in the sector.
With the average home in the UK now a multiple of 7.7 times
gross average salary (2020), the choices available to those who are
too economically active to qualify for affordable housing, but
without sufficient savings to pay for a minimum deposit (including
to qualify for "Help to Buy"), are increasingly limited. The
Build-to-Rent ("BTR") sector can absorb some of this demand,
although currently there are only 62,000 operational homes and just
39,500 under construction.
BTR currently accounts for just 2% of all private rented homes
in the UK, which when compared to 45% in the US and 55% in Germany,
indicates the potential growth in the market. Savills estimates
that the sector, which experienced investment volumes of GBP550
million in Q2 2021 alone, could expand to nearer GBP550 billion at
full maturity.
The UK market continues to focus on high-density flatted
developments in city centre locations whilst the PRS REIT has
maintained its focus on regional family homes. The relevance of the
PRS REIT's housing model has been brought into sharp relief this
year with COVID-19 and home-working causing tenants to rethink
their space requirements and the need for private outdoor
space.
Post Period Review
Progress since the start of the new financial year has continued
positively, in line with management expectations.
Over the first quarter of the new financial year, 307 new homes
were added to the portfolio, taking the number of completed homes
at 30 September 2021 to 4,291, providing an ERV of GBP41.1 million
per annum. At the end of September 2021, contracted homes amounted
to 764, with an ERV of GBP7.1 million per annum. The total ERV of
contracted and completed homes at 30 September 2021 amounted to
GBP48.1 million per annum.
Following the equity placing, the Company is targeting a
portfolio of 5,700 homes with an ERV of c.GBP55.0 million per
annum. A total of cGBP54.8m (gross) was raised in the equity
placing, from both new and existing investors, including retail
investors. The net funds will finance the acquisition of five
sites, two of which have now been acquired. The five sites are
expected to add a combined c.500 new homes, at a GDC of GBP76.6
million, and provide a total ERV of GBP4.8m per annum. The two
newly-acquired sites are in Bertha Park in Perthshire, Scotland and
Drakelow in Burton upon Trent, South Derbyshire. Their total
development cost is GBP40.1 million and, once completed, the sites
should contribute a further 229 homes with an ERV of GBP2.3 million
per annum.
The table below provides further information of delivery
activity over the first quarter of the new financial year.
At At
30 September 30 June
2021 2021
Number of completed PRS homes 4,291 3,984
-------------- ---------
ERV of completed homes GBP41.1m GBP37.5m
p.a p.a
-------------- ---------
Number of contracted homes 764 1,071
-------------- ---------
ERV of contracted homes GBP7.0 p.a. GBP10.6m
p.a.
-------------- ---------
Summary and Outlook
The growth opportunity available to the PRS REIT remains
substantial, driven by the strong underlying supply and demand
fundamentals in the housing market. We also believe that PRS
housing (at scale) can play a part in accelerating the overall
delivery of new homes, a key agenda with local authorities and
Central Government.
In addition, the track record that we have established in
delivering high quality new homes across multiple sites through our
efficient supply chain platform places the Company in a strong
position in the PRS market.
Notwithstanding current challenges and uncertainties, we believe
that the Company remains firmly on track to invest its full
available capital and associated gearing to time and budget.
Environmental, Social and Governance
ESG statement
Sigma PRS undertakes the day-to-day management of the Company's
ESG strategy and takes responsibility for how the Company's ESG
priorities are managed at both Company and asset level. Sigma PRS
reports to the PRS REIT's Board on ESG on a quarterly basis.
Approach
The Company recognises that it is a long-term stakeholder in the
communities and neighbourhoods it creates, and takes this
responsibility very seriously. The Investment Adviser has joined
the United Nations Global Compact ("UN Global Compact"), which is a
voluntary initiative designed to encourage business leaders to
implement universal sustainability principles and in particular the
UN Global Compact's Ten Principles. These are derived from the
Universal Declaration of Human Rights, the International Labour
Organisation's Declaration on Fundamental Principles and Rights at
Work, the Rio Declaration on Environment and Development, and the
United Nationals Convention Against Corruption.
In November 2020, the Investment Adviser appointed an ESG
Director to take oversight of ESG initiatives, and in December
2020, the Company appointed EVORA, a leading sustainability
consultant specialising in real estate solutions, to analyse the
Group's current ESG performance and help direct strategies, plans
and decisions going forward.
Reflecting the growing importance of ESG globally, Sigma PRS is
currently working towards a Global Real Estate Sustainability
Benchmark ("GRESB") rating, a globally recognised benchmark for
reporting real estate ESG performance. The PRS REIT is a member of
European Public Real Estate Association ("EPRA"), a non-profit
association representing Europe's publicly listed property
companies. EPRA's mission is to promote, develop and represent the
European public real estate sector. This is achieved through the
provision of better information to investors and stakeholders,
active involvement in the public and political debate, improvement
of the general operating environment, promotion of best practices,
and the cohesion and strengthening of the industry.
Although voluntary at present, many of these frameworks are
important investor tools, and increasingly reflect a 'license to
operate' within the market. The Company is also mindful of the
changing legislative landscape, including the EU Sustainable
Finance Disclosure Regulation ("SFDR"), EU Taxonomy, as well as
growing UK national and city-level regulations.
Defining value is a challenge and the Group recognises the
growing significance of Social Value in real estate, with
frameworks such as the Social Value Portal ("SVP") and the Housing
Associations' Charitable Trust (the "HACT"), providing matrices and
dashboards, reflecting performance and progress in these areas. The
PRS REIT has already engaged with the SVP and is seeking alignment
where possible to the UNs 17 Sustainable Development Goals
("SDGs"). Identifying material issues and the key SDGs that the
Group supports will be an important part of this process.
The PRS REIT is also reviewing other reporting frameworks, such
as the UN Principles of Responsible Investment ("PRI"), and the
Task Force on Climate-Related Financial Disclosures ("TCFD").
In order to incorporate ESG factors into decision-making
processes and operations, the Group's practices are based on the
following policy approaches:
Opportunity review
-- ESG risks are assessed, reviewed and monitored, and
strategies for enhancement and mitigation are set, based on the
understanding and recognition of the value assigned in the emerging
frameworks such as climate change and associated social need;
and
-- mitigation plans are identified.
Investment decision
-- ESG issues are listed and addressed in a summary investment
paper that informs decision-making at the Investment Committee
stage; and
-- ESG costs, particularly ongoing community and charitable
involvement, are determined and factored into the investment
decision process.
Asset management
-- Appropriate governance structures are established.
-- Relevant laws and regulations are adhered to.
-- COVID-19 Guidelines issued - structures, reviews and support in place.
-- Ongoing monitoring and management of ESG issues is established.
-- Impacts on the natural habitat surrounding PRS assets are managed.
-- Local community engagement and support plans are established, reviewed and developed.
-- Due diligence is performed on third parties.
-- Policy reviews and updates are ongoing.
-- Good practice is established.
-- Continued research and review of carbon reduction opportunities are ongoing.
-- Investment restrictions are screened.
-- Ability of investments to comply with ESG standards is assessed.
Processes and strategies
As an industry leader in the provision of private rental homes,
the PRS REIT recognises its responsibilities and the changing
priorities towards the environment in this sector. The Government
recently set out its 10 Point Plan for a 'Green Industrial
Revolution'. The Plan aims to accelerate the UK's attainment of net
zero carbon emissions and encompasses energy, transport, innovation
and the natural environment, with 2050 set as the endpoint of its
net zero goal. In the real estate sector, there is a need for
action in areas such as, energy and water consumption, non-fossil
fuel heating provision, biodiversity. In working towards further
developing the Group's ESG agenda, we are embedding best practices,
auditing and tracking the supply chain, and ensuring that policies
and activities comply with the PRS REIT's commitment to the UN
Global Compact.
The activities of the Company in all aspects of Environment,
Social and Governance are set out in the ESG Report 2021, which can
be obtained from the Company's website at, www.prsreit.com.
COVID-19 Response
It was important to increase communications with residents with
the onset of the national lockdown in March 2020, and to engage
supportively with those customers concerned about their financial
situation. Approximately 80 residents were financially affected by
the Government's emergency measures, and a range of solutions were
offered. Rental holidays of between 20% and 50% of rent due were
provided for up to four months, with payment plans agreed for the
repayment of the deferral amounts. This has worked well for
residents and the majority of deferred rent has been subsequently
repaid.
The Company was also pleased to join its customer base in
thanking the NHS staff for their work, and nearly 150 residents who
were NHS workers benefitted from the initiative to provide a 20%
rental discount for three months.
Customer Reviews and Satisfaction
As 'Simple Life' gets larger and awareness of the brand
increases around the country, more people wish to understand the
service offering. Sigma PRS has registered with Trust Pilot and
routinely invites residents to leave reviews. This helps to
identify any areas that need improvement. Of the reviews to date,
over 80% of people have given 'Simple Life' a 3-5 star review, and
its total score is 4.2 stars out of 5.
Here are a sample of comments from the Company's residents:
"We LOVE our new home and couldn't be more thankful to have been
able to move in during this difficult time. Lovely walking into our
new home also and finding a care package from yourselves - very
nice touch. Plenty of informational emails and brochures
provided."
Abigail Hyslop, customer satisfaction survey
"A stressful time made easy."
Stephen Kerry, Highfield Place, customer satisfaction survey
"The team were extremely helpful moving into our new home - made
a stressful situation seem easier and made the experience more
enjoyable"
Kirstin De Figueriedo, customer satisfaction survey
"As a 'Simple Life' tenant for the last (almost) 2 years I can
honestly say they really do treat their tenants as they say. We
moved into our brand new house and felt at home straight away. Yes
there were teething issues, but when aren't there? If only more
landlords were like 'Simple Life', there would be less of a stigma
around renting"
Wiggleman12345 5 star review left on Apple podcasts (The 'Simple
Life' Chat)
"Such a perfect first home for me and my partner, we couldn't
ask for more! It's clean, well laid out and every little detail has
been thought out carefully. The support on house DIY is great for
people moving into their first home with plenty of simplelifehome
youtube videos! Windows are cleaned!! Communication between the
staff at 'Simple Life' homes is fast. If you ever have an issue
with something they are quick to respond and deal with it for you.
They have lovely event days for residents and great online
competitions and promote 'Simple Life' homes residents if you have
a business. Honestly the best!'
Sasha Moore 5 star review on Trust Pilot
"Very good experiences as a tenant: from a very beginning during
the application process to living in one of their houses. Good
cooperation: phone calls are answered and you are being listened. A
good quality house which makes living in it as a very pleasant
experience which is very important for a foreigner who needed to
have found a new house in a new country. The company philosophy,
ethos seem to represent very personal approach. I recommend that
company as a trustful one."
Aleksandra Marta 5 star review on Trust Pilot
"Won't be moving! Been a simple life tenant for 9 months now....
best landlord by far couldn't ask for more."
Jennifer Williams 5 star review on Trust Pilot
"Out with the old and in with the new. Not just words 'Simple
Life' team listen and do....can I say in a short time since the
changeover of new management, you are all making a difference, you
get things done and keep to your word, not fobbed off. The
neighbours, we call ourselves 'Simple Life' families, have all said
what a difference. I am very proud of my beautiful 'Simple Life'
forever home. Just wanted to thank you personally Kate for the
support and reassurance you gave me. We're not tenants we're a
'Simple Life' family because 'Simple Life' really do care"
Fidelma, 5 star review on Trust Pilot
What our residents have to say...
All tenants automatically receive a tenant satisfaction survey
email one week into their tenancy and then between 6 and 10 months
later. This helps the Investment Adviser to monitor tenants'
experience with the lettings and moving-in team and their later
experience as settled residents.
The following information is based on tenant satisfaction
results for the 12 month period from July 2020 to the end of June
2021.
Move in survey 10 month survey
* 96% said the team made it easy to apply * 96% said they are still happy with their home
* 87% said they were kept well-informed during the * 89% said they are happy with the service provided
application process
* 79% said they felt they have been kept well-informed
* 91% said they received all the information they
required
* 88% said the communal areas are well maintained
* 89% said they found the process of moving in to their
home straightforward * 86% said they feel part of a community
* 89% said the quality of the home met with their * 93% said they would recommend 'Simple Life'
expectations
* 96% said they would recommend 'Simple Life'
===========================================================
All results are based on responses from neutral - strongly
agree
Results are in line with those of last year, with some
improving. This is very encouraging, especially in the context of
the pandemic and related delays in construction.
The increase in reviews reflects the growth of 'Simple Life' and
increased brand awareness. The rise in the number of tenant leads
originating through the 'Simple Life' website or the 'Simple Life'
phone number has increased to 47%, compared with leads arising from
Rightmove (23%), Zoopla (14%) and OntheMarket (15%), which reflects
the increase in brand awareness.
In addition, 15% of all leads arising from the 'Simple Life'
website/phone line were as a result of a recommendation.
The variety of house types in the 'Simple Life' portfolio (from
1 bedroom apartments to 4 bedroom houses) and the geographic spread
of locations is creating an increasingly compelling brand
proposition within the rental marketplace. 'Simple Life' is able to
offer a rental solution for almost every life stage, and it is
encouraging that between 10-14% of people who are recorded as
'leaving', choose to move to an alternate 'Simple Life' property in
a different location or to a larger or smaller home.
Resident Focused Initiatives and Tech
Pets
In last year's report we highlighted our move to abolish pet
rent after conducting research into the issue. In the year under
review, we changed our restrictions on the total number of pets
permitted in a development so that it aligns better with the number
of households with pets across the country.
Home Businesses
The pandemic has driven an increase in the number of people
setting up businesses from home. Responding to this trend, we have
implemented a process to ensure that tenants notify us of business
operations from home. This enables Sigma PRS to ensure compliance
with insurance requirements while supporting residents. We have
also enabled residents to use our platforms to promote their
businesses, and now have a Residents Business Directory, which
often offers exclusive discounts to other residents in the
area.
Property Alterations
In order to help to make residents feel more at home, and in
acknowledgement of our findings that one of the key barriers to
renting is the limitations placed on making a property feel more
personal, we have introduced a property alterations request
process.
Many of the most common requests have now been collated and
there is a standardised approach to what is permitted. The aim is
to provide residents and our agents with a streamlined approach and
to give residents greater clarity over the changes that they can
make, together with our expectations at the end of their
tenancy.
Virtual Inspections
One of the common complaints of renting is the inspection
process. Many tenants consider that this can sometimes feel
intrusive. During the financial year, Sigma PRS reviewed the way
these checks have been communicated, and amended the process to a
'Property Health-check'. The aim is to make residents aware that
part of the process is to ensure that the property is fit for
purpose as well as confirming that they are taking good care of the
property. In addition, a system of virtual property health checks
has been introduced. This provides residents with the option of
carrying out property checks themselves at certain stages of their
tenancy. Meanwhile, in-person health checks will continue to be
conducted on key dates, such as end of tenancies and anniversaries
of tenancies.
'My Simple Life' Mobile App
Sigma launched a bespoke resident mobile app in August 2021.
Available on Google and Apple, it has been designed to provide a
convenient and efficient 'one-stop shop' for residents' needs. It
has been very well-received by residents to date, and provides:
-- easy access to all important documents, including tenancy
agreements, inventories, EPC, gas and EICR certificates;
-- information on homes, including floorplans and measurements
-- information on home appliances, including manuals;
-- access to statements of account, with certain payments enabled via the app;
-- access to an open forum, enabling residents on the same
development to engage with each other;
-- the ability to report maintenance problems;
-- exclusive affiliate offers and discounts;
-- latest news;
-- information on the local area; and
-- the ability to leave feedback.
The 'Simple Life' Chat
In June 2021, we launched the 'Simple Life' Chat podcast, hosted
by radio presenter and journalist, Jen Thomas. It aims to highlight
the positive experiences of renting and address topics of interest.
The podcast hosts discussions between experts and residents, and
episodes so far have included: interviews with residents examining
their reasons for renting and their rental experiences; interviews
with 'Simple Life' employees, discussing their roles; and
interviews with mental health advisers, who provided tips on how to
cope with the stresses of moving home as well as general life
stresses.
Sigma plans to produce at least four episodes of the podcast per
year and aims to involve a variety of guests, including partners,
suppliers and tenants. Future episodes will include discussions on
the benefits of build-to-rent, sustainable lifestyles, including a
focus on green initiatives by 'Simple Life', the importance of
pets, building businesses from home, and the influence of reviews
and ratings.
Human Rights
The obligations under the Modern Slavery Act 2015 (the 'Act')
are not applicable to the Company given its size. However, to the
best of its knowledge, the Group is satisfied that its principal
suppliers and advisors comply with the provisions of the Act.
The Company operates a zero-tolerance approach to bribery,
corruption and fraud.
Health and Safety
In order to maintain high standards of health and safety for
those working on sites, monthly checks by independent project
monitoring surveyors are commissioned to ensure that all potential
risks have been identified and mitigated. These checks supplement
those undertaken by development partners. The data is reported to
the Board on a quarterly basis in the event of a nil return, and
immediately in the event of an incident. There were no reportable
incidents over the year.
Governance
Strong governance is essential to ensuring that risks are
identified and managed, and that accountability, responsibility,
fairness and transparency are maintained at all time.
The Group is subject to statutory reporting requirements and to
rules and responsibilities prescribed by the London Stock Exchange
and the Financial Conduct Authority. The Board has a balanced range
of complementary skills and experience, with independent
Non-executive Directors who provide oversight, and challenge
decisions and policies as they see fit. The Board believe in robust
and effective corporate governance structures and are committed to
maintaining high standards and applying the principles of best
practice.
Employee Diversity - Gender
Directors of The PRS 2021 2020
REIT Plc
Male 80% 100%
----- -----
Female 20% 0%
----- -----
FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2021
30 June 30 June
2021 2020
Notes GBP'000 GBP'000
Rental Income 26,636 12,945
Non-recoverable property costs (5,186) (2,728)
--------- ---------
Net rental income 21,450 10,217
Other income 353 -
Administrative Expenses
Directors' remuneration (148) (140)
Investment advisory fee (4,362) (4,339)
Other administrative expenses (2,028) (1,681)
Migration to Main Market expenses (543) -
--------- ---------
Total administrative expenses (7,081) (6,160)
Gain from fair value adjustment on investment
property 6 38,983 15,806
--------- ---------
Operating profit 53,705 19,863
Finance income - 220
Finance cost (9,592) (3,676)
--------- ---------
Profit before taxation 44,113 16,407
Taxation 3 - -
--------- ---------
Profit after tax and Total comprehensive
income for the year attributable to
the equity holders of the Company 44,113 16,407
========= =========
Earnings per share attributable to the
equity holders of the Company:
IFRS earnings per share (basic and diluted) 4 8.9p 3.3p
All of the Group activities are classed as continuing and there
were no comprehensive gains or losses in the period other than
those included in the statement of comprehensive income.
Consolidated Statement of Financial Position
Company No. 10638461
As at 30 June 2021
2021 2020
Notes GBP'000 GBP'000
ASSETS
Non-current assets
Investment property 6 780,366 577,119
--------- ---------
780,366 577,119
--------- ---------
Current assets
Trade receivables 457 191
Other receivables 6,132 3,463
Cash and cash equivalents 86,414 59,304
--------- ---------
93,003 62,958
--------- ---------
Total assets 873,369 640,077
--------- ---------
LIABILITIES
Non-current liabilities
Accruals and deferred income 4,732 4,598
Interest bearing loans and borrowings 245,860 145,244
250,592 149,842
Current liabilities
Trade and other payables 22,477 19,314
Interest bearing loans and borrowings 110,030 -
132,507 19,314
--------- ---------
Total liabilities 383,099 169,156
--------- ---------
Net assets 490,270 470,921
========= =========
EQUITY
Called up share capital 4,953 4,953
Share premium account 245,005 245,005
Capital reduction reserve 161,984 186,748
Retained earnings 78,328 34,215
--------- ---------
Total equity attributable to the equity
holders of the Company 490,270 470,921
========= =========
IFRS net asset value per share (basic
and diluted) 7 99.0p 95.1p
As at 30 June 2021, there is no difference between IFRS NAV per
share and the EPRA NTA per share.
These consolidated group financial statements were approved by
the Board of Directors and authorised for issue on 11 October 2021
and signed on its behalf by:
Steve Smith
Chairman
Consolidated Statement of Changes in Equity
For the year ended 30 June 2021
Attributable to equity holders of the Company
Share Capital
Share premium reduction Retained Total
capital account reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June 2019 4,953 245,005 206,559 17,808 474,325
Profit for the
year - - - 16,407 16,407
Dividend paid - - (19,811) - (19,811)
At 30 June 2020 4,953 245,005 186,748 34,215 470,921
========= ========= =========== ========== =========
Profit for the
year - - - 44,113 44,113
Dividend paid - - (24,764) - (24,764)
At 30 June 2021 4,953 245,005 161,984 78,328 490,270
========= ========= =========== ========== =========
Consolidated Statement of Cash Flows
For the year ended 30 June 2021
30 June 30 June
2021 2020
Notes GBP'000 GBP'000
Cash flows from operating activities
Profit before tax 44,113 16,407
Finance income - (220)
Finance costs 9,592 3,676
Fair value adjustment on investment
property (38,983) (15,806)
---------- ----------
Cash generated by operations 14,722 4,057
Increase in trade and other receivables (1,805) (1,680)
Increase / (decrease) in trade and other
payables 3,295 (3,677)
Net cash generated from / (used in)
operating activities 16,212 (1,300)
---------- ----------
Cash flows from investing activities
Purchase of investment properties (164,264) (193,772)
Finance income - 236
Net cash used in investing activities (164,264) (193,536)
---------- ----------
Cash flows from financing activities
Bank and other loans advanced 233,119 50,000
Bank and other loans repaid (22,134) -
Finance costs (11,059) (5,995)
Dividends paid (24,764) (19,811)
---------- ----------
Net cash generated from financing activities 175,162 24,194
---------- ----------
Net increase / (decrease) in cash and
cash equivalents 27,110 (170,642)
Cash and cash equivalents at beginning
of year 59,304 229,946
Cash and cash equivalents at end of
year 86,414 59,304
========== ==========
The accompanying notes are an integral part of this cash flow
statement.
Notes to the Financial Statements
1. General information
This final results announcement was approved for issue by a duly
appointed and authorised committee of the Board of Directors on 11
October 2021.
2. Basis of preparation
The financial information set out in this announcement does not
constitute statutory financial statements for the year ended 30
June 2021 and year ended 30 June 2020. The financial information in
this announcement has been derived from the statutory accounts for
the year ending 30 June 2021 and year ending 30 June 2020. The
report of the auditor on the statutory financial statements for the
year ended 30 June 2021 and year ended 30 June 2020 was (i)
unqualified; (ii) did not include references to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report; and (iii) did not contain statements under
section 498(2) or (3) of the Companies Act 2006. The statutory
financial statements for the year ended 30 June 2021 will be
delivered to the Registrar of Companies following the Company's
Annual General Meeting. The statutory accounts for the year ending
30 June 2020 have been delivered to the Registrar of Companies.
3. Taxation
As a UK REIT, the Group is exempt from corporation tax on the
profits and gains from its property investment business, provided
it meets certain conditions as set out in the UK REIT regulations.
For the current year and prior year, the Group did not have any
non-qualifying profits and accordingly there is no tax charge in
the period. If there were any non-qualifying profits and gains,
these would be subject to corporation tax.
It is assumed that the Group will continue to be a UK REIT for
the foreseeable future, such that deferred tax has not been
recognised on temporary differences relating to the property rental
business. No deferred tax asset has been recognised in respect of
the unutilised residual current period losses from non-qualifying
activities as it is not anticipated that sufficient residual
profits will be generated from these in the future.
4. Earnings per share
Earnings per share ("EPS") amounts are calculated by dividing
profit for the period attributable to ordinary equity holders of
the Company by the weighted average number of Ordinary Shares in
issue during the period. As there are no dilutive instruments, only
basic earnings per share is quoted below.
The calculation of basic and diluted earnings per share is based
on the following:
2021 2020
GBP'000 GBP'000
Earnings per IFRS income statement 44,113 16,407
Adjustments to calculate EPRA Earnings:
Changes in value of investment properties (38,983) (15,806)
------------ ------------
EPRA Earnings: 5,130 601
============ ============
Company specific adjustments: 543 -
Non-recurring costs incurred by the
Company as part of the Migration to
the Premium Segment of the Main Market
------------ ------------
Company Adjusted Earnings 5,673 601
============ ============
Weighted average number of ordinary
shares 495,277,294 495,277,294
IFRS EPS (pence) 8.9 3.3
EPRA EPS (pence) 1.0 0.1
Company specific Adjusted EPS (pence) 1.2 0.1
5. Dividends
The following dividends were paid during the current year and
prior year:
2021 2020
GBP'000 GBP'000
Dividends on ordinary shares declared
and paid:
Dividend of 2.0p for the 3 months to
30 June 2019 - 9,905
Dividend of 1.0p for the 3 months to
30 September 2019 - 4,953
Dividend of 1.0p for the 3 months to
31 December 2019 - 4,953
Dividend of 1.0p for the 3 months to 4,952 -
31 March 2020
Dividend of 1.0p for the 3 months to 4,953 -
30 June 2020
Dividend of 1.0p for the 3 months to 4,953 -
30 September 2020
Dividend of 1.0p for the 3 months to 4,953 -
31 December 2020
Dividend of 1.0p for the 3 months to 4,953 -
31 March 2021
24,764 19,811
======== ========
Proposed dividends on ordinary shares:
3 months to 31 March 2020: 1.0p per
share - 4,953
3 months to 30 June 2020: 1.0p per
share - 4,953
3 months to 30 June 2021: 1.0p per 4,953 -
share
----------- -----------
4,953 9,906
=========== ===========
6. Investment property
The freehold/heritable, leasehold and part freehold part
leasehold interests in the properties held within the PRS REIT were
independently valued as at 30 June 2021 by Savills (UK) Limited,
acting in the capacity of External Valuers as defined in the RICS
Red Book (but not for the avoidance of doubt as an External Valuer
of the PRS REIT as defined by the Alternative Investment Fund
Managers Regulations 2013). The valuations accord with the
requirements of IFRS 13 and the Royal Institution of Chartered
Surveyors' ("RICS") Valuation - Global Standards, effective from 31
January 2020, incorporating the IVSC International Valuation
Standards (the "RICS Red Book"). The valuations were arrived at
predominantly by reference to market evidence for comparable
property.
Savills (UK) Limited are an accredited External Valuer with
recognised and relevant professional qualifications and recent
experience of the location and category of the investment property
being valued.
The valuations are the ultimate responsibility of the Directors.
Accordingly, the critical assumptions used in establishing the
independent valuation are reviewed by the Board.
Completed Assets under
Assets Construction Total
GBP'000 GBP'000 GBP'000
At 30 June 2019 152,925 209,350 362,275
Right of use assets 1,019 - 1,019
Properties acquired on acquisition
of subsidiaries 8,170 14,864 23,034
Property additions - subsequent
expenditure - 174,985 174,985
Change in fair value 2,290 13,516 15,806
Transfers to completed assets 66,898 (66,898) -
------------- --------------- ------------
At 30 June 2020 231,302 345,817 577,119
------------- --------------- ------------
Properties acquired on acquisition
of subsidiaries 42,275 - 42,275
Property additions - subsequent
expenditure - 121,989 121,989
Change in fair value 13,408 25,575 39,983
Transfers to completed assets 246,789 (246,789) -
------------- --------------- ------------
At 30 June 2021 533,774 246,592 780,366
============= =============== ============
The historic cost of completed assets and assets under
construction as at 30 June 2021 was GBP704.2 million (2020:
GBP540.2 million).
The carrying amount of investment property pledged as security
as at 30 June 2021 was GBP719.0 million (2020: GBP212.1
million).
During the prior financial year, the Group adopted the new
accounting standard IFRS 16, Leases, and has recognised a
right-of-use ("ROU") asset within investment property in relation
to ground rents payable on certain investment property sites. The
net book value of the ROU asset was GBP1 million as at 30 June 2021
(2020: GBP1 million).
Fair Values
IFRS 13 sets out a three-tier hierarchy for financial assets and
liabilities valued at fair value. These are as follows:
Level 1 quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2 inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly or
indirectly; and
Level 3 unobservable inputs for the asset or liability.
Investment property falls within Level 3.
The investment valuations provided by the external valuation
expert are based on RICS Professional Valuation Standards, but
include a number of unobservable inputs and other valuation
assumptions. The significant unobservable inputs and the range of
values used are:
Type Range
Investment yield 4.00% to 4.75%
Gross to net assumption 22.5% to 25.0%
Development assets are valued based on total development cost
plus expected final uplift in valuation multiplied by % of site
development completed. The range of % completions was from 36% to
99%. The final investment value uses the assumptions stated
above.
The impact of changes to the significant unobservable inputs for
completed and development assets are:
2021 2021 2020 2020
Impact on Impact on Impact on Impact on
statement statement statement statement
of comprehensive of financial of comprehensive of financial
income position income position
GBP'000 GBP'000 GBP'000 GBP'000
Improvement in yield
by 0.125% 23,619 23,619 16,780 16,780
Worsening in yield by
0.125% (22,264) (22,264) (15,856) (15,856)
Improvement in gross
to net by 1% 10,850 10,850 7,973 7,973
Worsening in gross to
net by 1% (9,369) (9,369) (6,938) (6,938)
7. Net Asset Value
The Group adopted the EPRA issued new best practice guidelines
in the year ending 30 June 2021. EPRA Net Tangible Assets ("NTA"),
is considered to be the most relevant measure for the Group and
replaces the previously reported EPRA NAV. The underlying
assumption behind the EPRA NTA calculation assumes entities buy and
sell assets, thereby crystallising certain levels of deferred tax
liability. Due to the PRS REIT's tax status, deferred tax is not
applicable and therefore there is no difference between IFRS NAV
and EPRA NTA.
Basic IFRS NAV per share is calculated by dividing net assets in
the Statement of Financial Position attributable to ordinary equity
holders of the parent by the number of Ordinary Shares outstanding
at the end of the year. As there are no dilutive instruments, only
basic NAV per share is quoted below.
Net asset values have been calculated as follows:
2021 2020
IFRS Net assets at 30 June (GBP'000) 490,270 470,921
EPRA adjustments to NTA - -
------------ ------------
EPRA NTA at 30 June 490,270 470,921
------------ ------------
Shares in issue at end of year 495,277,294 495,277,294
Basic IFRS NAV per share (pence) 99.0 95.1
============ ============
EPRA NTA per share (pence) 99.0 95.1
============ ============
The NTA per share calculated on an EPRA basis is the same as the
IFRS NAV per share for the year ended 30 June 2021 and the year
ended 30 June 2020.
8. Transactions with Investment Adviser
On 31 March 2017, Sigma PRS was appointed as the Investment
Adviser of the Company. A new Investment Adviser Agreement with
Sigma PRS was signed in January 2021.
For the year ended 30 June 2021, fees of GBP4.4 million (2020:
GBP4.3 million) were incurred and payable to Sigma PRS in respect
of investment advisory services. At 30 June 2021, GBP1.5 million
(2020: GBP1.1 million) remained unpaid.
For the year ended 30 June 2021, development fees of GBP4.6
million (2020: GBP7.3 million) were incurred and payable to Sigma
PRS. At 30 June 2021, GBP0.3 million (2020: GBP0.7 million)
remained unpaid.
For the year ended 30 June 2021, administration and secretarial
services of GBP90,000 (2020: GBP90,000) were incurred and payable
to Sigma Capital Property Ltd, a fellow subsidiary of the ultimate
holding company of the Investment Adviser. At 30 June 2021,
GBP40,500 (2020: GBP23,000) remained unpaid.
For the year ended 30 June 2021, Sigma PRS acquired 1,500,000
(2020: 750,000) shares in the Company. The shares purchased during
the year were acquired in the market at an average price of 76.4
pence per share. Sigma PRS's shareholding as at 30 June 2021 was
5,889,852 (2020: 4,389,852), which represents 1.19% (2020: 0.73%)
of the issued share capital in the Company. All the shares acquired
in the year and prior year were in accordance with the Development
Management Agreement between the Company and Sigma PRS.
For the year ended 30 June 2021, Sigma PRS received dividends
from the Company of GBP249,000 (2020: GBP179,000).
During the year, the Company acquired the following subsidiaries
from Sigma Capital Group Limited, the ultimate holding company of
the Investment Adviser:
Name of entity Consideration
Sigma PRS Investments (Bury St Edmunds) GBP5.9 million
Limited
Sigma PRS Investments (Bury St Edmunds
II) Limited
----------------
Sigma PRS Investments (Lea Hall) Limited GBP5.9 million
Sigma PRS Investments (Lea Hall II) Limited
----------------
Sigma PRS Investments (Newhall) Limited GBP10.5 million
Sigma PRS Investments (Newhall II) Limited
----------------
Total GBP22.3 million
----------------
9. Post balance sheet events
The Directors continue to carefully monitor the COVID-19
pandemic and other current economic situations and are responding
appropriately.
On 11 October, the PRS REIT acquired from Sigma two development
sites at a total cost of GBP12.8 million.
Equity raise
In the first quarter of the new financial year, the Company
undertook an equity raise in order to acquire assets identified by
the Investment Adviser, and on 27 September 2021 announced that a
total of GBP55.6 million (gross) had been raised at an issue price
of 103p per share. A total of 53,232,575 shares were placed with
new and existing institutional investors, with 741,589 shares
placed with retail investors.
Dividends
On 2 August 2021, the Company declared a dividend of 1.0p per
ordinary share in respect of the fourth quarter of the current
financial year. The dividend was paid on 3 September 2021 to
shareholders on the register as at 13 August 2021.
10. Availability of statutory financial statements
Copies of the full statutory financial statements will be
available no later than 12 November 2021 and will be available on
the Company's website at www.theprsreit.com .
11. Annual General Meeting
The Annual General Meeting of the Company will be held on
Wednesday 15 December 2021 commencing at 2.00 pm.
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END
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